reserve and surplus policy

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June 7, 2018

REPORT TO THE CHIEF ADMINISTRATIVE OFFICER FROM THE CORPORATE SERVICES DEPARTMENT

ON

RESERVE AND SURPLUS POLICY

PURPOSE To outline the findings from the investigation of reserve and surplus policies, and to seek Council’s direction on changes to the City’s policy and associated bylaws. COUNCIL STRATEGIC PLAN This report supports Council’s goals and objectives regarding: • Infrastructure - invest in the long-term financial stability of our assets and improve the

overall infrastructure standards of the City by creating a formalized plan to fund the replacement and purchase of assets

• Governance - be recognized for excellence in public service in local government by ensuring that Council has robust policies to support fiscal responsibility

SUMMARY As part of a review of the financial planning process and at Council’s request, Council Policy No. GGA-31, General Reserve Fund, was reviewed. The review included a survey of policies from other municipalities as well as a search for best practice from governing organizations such as the Government Finance Officers Association (GFOA). Part of the research involved determining the purpose of each reserve and ensuring that it is still relevant and appropriately classified, that there is a specific source and use of funds identified, and that there are minimum and target balances established for each reserve, where applicable. The City’s current General Reserve Fund policy was created in March 2013, and it provides a high-level target of establishing a General Fund (unrestricted balance) of $13 million. As of 2017, the City has a balance of $14 million in the General Fund. During the review of best practice and other municipalities’ policies, it became apparent that the City’s General Reserve Fund policy is not as comprehensive as it should be; therefore, Administration has drafted a new policy to clarify the objective and funding sources for the various reserves. Administration also recommends that Council consider combining many of the reserves to simplify the tracking, as the purpose for many is either outdated or very similar to other reserves. To ensure compliance with the Community Charter, the Corporate Services Department is researching archived information to ensure the purpose of these reserves is clearly understood and can be appropriately assessed moving forward. This process is more complex than anticipated and will be completed prior to the policy being finalized. Administration has included them as individual reserve funds, but may recommend a different approach in the future. One of the key areas is that the requirements for statutory reserves changed with the transition from the

RESERVE AND SURPLUS FUND POLICY June 7, 2018


Local Government Act to the Community Charter. This shift provides additional flexibility for some of the reserves that were previously prescribed by legislation. In addition to reserves which may no longer be required, there are also several uses of funds which are commonly referred to as Reserves, however there has been no formal establishment of a specific reserve. These activities have budgets set aside each year which are generally carried forward if unspent, but it is not a formal process. Administration has identified a few of these items and proposes reserves for some, and to simply fund from more general reserves for others. An example of this is snow clearing. There has been no formal snow clearing reserve set up in the past. By using the Financial Stability Reserve fund going forward, the City can buffer the unpredictability of this annual activity.

RECOMMENDATION: For Council discussion only.

COUNCIL POLICY • Council Policy No. GGA-31, General Reserve Fund DISCUSSION Before discussing what types of reserves are needed and how much should be set aside, it is important to understand some of the definitions used throughout the policy and the financial planning process. These terms are used in relation to each specific fund. For example, each of the water, sewer, solid waste, and general funds will have an annual surplus balance. “Annual Surplus” means the accumulated excess of revenues over expenses for the current year. This is often referred to in our budget discussions as “prior year’s surplus”. “Accumulated Surplus” means the accumulated excess of revenues over expenses from prior years that has not been set aside for specific purposes (accumulation of unallocated surplus). “Reserve Funds” means funds that are set aside for a specified purpose by Council pursuant to section 188(1) of the Community Charter. These reserves may be established via City bylaws and are discretionary on the part of Council.

“Mandatory (Statutory) Reserve Funds” means funds set aside for specified purposes as required by and pursuant to specific legislation. These reserves are established via City bylaws and are nondiscretionary on the part of Council.

“Reserves” refers to all of the City’s reserve funds and mandatory reserve funds. The existing policy identifies three purposes for the establishment of the General Reserve Fund. In updating this policy, Administration recommends enhancing these purposes to more accurately reflect good governance and planning principles. Each reserve or group of reserves should be established to:



• focus on long-term financial stability and predictable tax levies • provide for operating emergencies • safeguard and maintain existing assets • finance new capital assets In addition to having a specific purpose or goal, each reserve should have an annual and/or periodic funding source. These contributions should be approved by Council through the annual financial planning process. In the new reserve and surplus policy, each reserve will be categorized with one or more of the following attributes/categories. These descriptors are established to provide additional clarity and direction for the use of the specific reserve. • Working Capital - established for working capital purposes and are the accumulated

surplus of each City fund. These funds are to be maintained at the minimum level and replenished each year as they are used. These are truly the “rainy day” funds that we hope not to need most of the time.

• Risk Mitigation - these reserve funds are focused on maintaining adequate levels to cover

the risk of uninsured losses due to asset failure or significant unplanned events. These funds should be utilized as extra contingency funds for capital projects rather than budgeting for significant contingencies in each major capital project.

• Opportunity - opportunity reserve funds are available to be spent on opportunities that are

outside of regular activities. These funds offer flexibility in their use and are at the discretion of Council. In many cases, these funds should be set aside to address unplanned community requests.

• Dedicated Revenue Source/Statutory Requirements - the purpose of these reserve funds

are dictated by the funding source. The revenues and expenditures in these reserves are tracked primarily for external reporting and accountability purposes.

• Planned Capital Spending - These reserve funds are the key mechanism to fund the

capital plan for the City. Funds are allocated through the budget process from a variety of sources and set aside until needed. By accumulating funds for future capital projects, the requirement for significant tax fluctuations is decreased.

By identifying the general purpose as well as the type of reserve, Administration’s goal is to establish a clear understanding of why each reserve was established and how the funds should be spent. In researching and developing a framework for the City’s policy, Administration consulted with many other municipalities and found that most municipalities that had a policy followed a methodology similar to the one proposed. These municipalities established a working capital and/or financial stability reserve, set aside specific reserves for equipment and capital, established various opportunity funds, and had specific funds that were established due to unique issues or assets in their communities.



Our goal is to reduce the number and complexity of the reserves to ensure: • the appropriate funds are set aside to provide for opportunities and emergencies in our

community • the City’s assets are maintained and replaced • that there is some funding available to direct to Council’s strategic objectives Council’s request that the strategy reflect the unique qualities of our community has been addressed through the nature of the specific funds proposed as well as in the ranges of values proposed for the reserve minimums and targets. In some cases, Administration has not been able to fully recommend a specific balance as more detailed information is required. In these cases, it is proposed that this policy and the associated balances be reviewed as part of the financial planning and asset management processes. Attachment “B” is a summary with a brief description of the proposed reserve funds. Attachment “C” includes the reserve fund; the rationale for calculating the range of reserve balance; an estimate of the minimum and target balance range, where applicable; and the current balance. Please note that the balance in that document is as of December 31, 2017, from our audited financial statements and does not reflect the funding that has been committed to future projects, as noted in the 2018-2022 Five-year Financial Plan. FINANCIAL IMPLICATIONS The reserve and surplus policy will clarify the use and accumulation of surplus funds. It should allow Council to continue to find a balanced way to accumulate funds for future projects and minimize the swings in property tax rates. Following the policy will allow Administration to present funding options and plan for contingencies without a risk of insufficient funds to complete a specific project. In some instances, this will allow Council the flexibility to approve projects mid-budget cycle, as Council will know that some opportunity funds have been set aside in a reserve for this purpose. IMPLEMENTATION PLAN Administration will finalize the policy based on Council’s direction and will apply these principles as part of the financial planning cycle 2019-2023.

K. Humphrey, CPA, CA Corporate Services Director

Approved for Council KH/lm/kjm Attachment

City of Kamloops

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PURPOSE This policy has been developed to provide guidance and direction for the development, maintenance, and use of the City’s reserves and surplus funds. DEFINITIONS “Annual Surplus” means the accumulated excess of revenues over expenses for the current year. “Accumulated Surplus” means the accumulated excess of revenues over expenses from prior years that has not been set aside for specific purposes (accumulation of unallocated surplus). “Reserve Funds” means funds that are set aside for a specified purpose by Council pursuant to section 188(1) of the Community Charter. These reserves may be established via City bylaws and are discretionary on the part of Council. “Mandatory Reserve Funds” means funds set aside for specified purposes as required by and pursuant to specific legislation. These reserves are established via City bylaws and are nondiscretionary on the part of Council. “Reserves” means all of the City’s reserve funds and mandatory reserve funds. GUIDING PRINCIPLES and OBJECTIVES Guiding Principles All reserve and surplus funds will be established, maintained, and used for a specified purpose as mandated by this policy, provincial legislation, or City bylaw. The use of reserves and surpluses provides for the efficient management of civic operations, enables the maintenance of assets and enhancements that support the strategic direction provided by the Council and Administration, and allows for fiscally responsible decision making. The City’s management of reserve and surplus funds will conform to the statutory and legal requirements of the Local Government Act and the Community Charter.

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OBJECTIVES The primary objectives of the City’s reserve and surplus funds are listed below. Focus on Long-term Financial Stability and Predictable Tax Levies The City recognizes that adequate reserve and surplus levels are important in achieving community goals that include financial health and stability. The City will strive to be proactive in achieving long-term financial stability and balancing the costs of maintaining healthy reserves and surplus levels to current and future taxpayers. In addition, stable and predictable tax levies benefit all residents and businesses in Kamloops. The focus of this policy is to have sufficient reserves to buffer the impact of any unusual or unplanned cost increases and revenue volatility over multiple budget cycles. Provide for Operating Emergencies Periodically, the City is exposed to unusual operating emergencies resulting from inclement weather, catastrophic events, law enforcement issues, legal claims, insurance claims, tax assessment appeals, environmental hazards, and various other events. It may not be feasible or cost-effective to absorb the costs in one budget cycle. The City will maintain adequate reserves to minimize the financial impact of emergencies and extensive service interruptions while preventing risks to infrastructure and public safety. Safeguard and Maintain Existing Assets The City has an inventory of specialized machinery, equipment, technology, and infrastructure that are necessary for the efficient delivery of services to the public. These assets are maintained and ultimately replaced based on consideration of asset condition and a defined service lifecycle. The management of reserve balances should focus on maintaining sufficient funds to mitigate the risk of asset failure through purposeful asset management plans. Typically, the maintaining of existing civic assets support delivering services to the public in alignment with existing service levels. Finance New Capital Assets The use of reserve funds for financing new capital assets is an effective means of matching one-time funds to one-time capital projects. Additionally, as opportunities present, the City requires financial resources to leverage external funding to respond quickly to opportunities that could provide capital infrastructure through private sector partnerships and other alternative service delivery methods. Typically, the purpose of new capital assets is to increase service levels.

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Contributions Annual and/or periodic contributions to reserve funds shall be specific to each reserve as approved by Council through the City’s annual financial planning bylaw. RESERVE CATEGORIES Reserve funds are categorized by the purpose of the funds to provide additional clarity and direction for the use of the reserves. Some reserves include more than one category as applicable, mainly the capital reserves that cover both risk mitigation and planned capital spending. Working Capital Working capital reserve funds are for cash flow purposes, and they are the result of accumulated surplus of each City fund, including general, sewer, and water. These funds need to be maintained at a minimum level and replenished each year as they are used. Risk Mitigation Reserve fund balances in the capital reserves are focused on maintaining adequate levels in these reserves to cover risk of uninsured asset failure overall or significant unplanned capital overruns rather than maintaining significant balances in each of the reserve funds. Opportunity Opportunity reserve funds are available to spend on opportunities outside of regular City maintenance and Community Charter requirements. These reserve funds offer flexibility in the financial planning process. These funds are generally intended for new opportunities or initiatives that may materialize outside of the regular planning cycle. These could include new projects, a requirement to match grant funding, or other opportunities which may be presented to Council. Dedicated Revenue Source/ Statutory Requirements Dedicated revenue source reserve funds have a dedicated revenue source through the Community Charter, external grant funding, or as directed by Council; this includes the Development Cost Charges (DCC) reserve funds and gaming and community works fund reserve funds. Some of these funds are statutory requirements of the Community Charter or other legislation.

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Planned Capital Spending Reserve funds are the key mechanism to fund the capital project plan of the City; funds are allocated through the reserve funds from various funding sources. By flowing the funding through reserves, the tracking of spend for each asset category is more efficient. ACCUMULATED SURPLUSES (WORKING CAPITAL RESERVES) The City needs to maintain accumulated surplus balances in its four operating funds (general, solid waste, sewer, and water) for working capital or cash flow purposes. Maintaining minimum working capital funds reduces the need to borrow externally and/or internally to cover operating expenses before property taxes, user fees, and other revenues are collected and to offset any significant financial events during the year. Surplus funds in excess of adequate levels as established by this policy will be transferred to a specific reserve fund. • For the general fund, the excess will be transferred to the Financial Stabilization fund up

to the optimum balance then to the Capital Contingency fund and/or a fund specifically identified to support an ongoing asset management program.

• For the utility funds, the accumulated surpluses from the sewer, water, and solid waste funds, excess funds will be transferred to the respective capital reserves for these funds.

OPERATING AND OPPORTUNITY RESERVES Pursuant to subsection 188(1) of the Community Charter, Council may, by bylaw, establish a reserve fund for a specified purpose and direct that money be placed to the credit of the reserve fund. The following reserve funds have been established for the purpose(s) identified: Financial Stabilization Reserve The financial stabilization reserve has been established to ensure the ongoing financial stability and fiscal health of the City. This reserve is funded from the annual surplus after any working capital fund top up is required. It is established for the following purposes: • Significant operating events and environmental emergencies - these appropriations are

for major non-recurring costs related to significant operating events and various emergency events or situations, such as legal costs/claims, insurance claims/deductibles, significant RCMP or Kamloops Fire Rescue events, inclement weather events, environmental hazards, and the like.

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• Revenue stabilization and operating contingency - these appropriations are intended to stabilize the impacts of cyclical revenue downturns and operating cost increases that are largely temporary and not within the City’s ability to adjust to in the short term, such as unanticipated changes in the BC Assessment roll, snow clearing budgets, Canadian dollar fluctuations, and other cyclical events.

• One-time and intermittent projects - these appropriations are to allow the City the

flexibility to fund one-time and intermittent operation projects without resulting in a temporary spike or decline in general taxation rates or compromising already-approved projects or service levels.

• Innovation fund - as an incentive to encourage creativity and innovation, requests for

appropriations may be made for departments that would like to explore innovative and creative solutions towards making the corporation more efficient and effective. A business case is required when requesting the use of these funds, and a predefined replenishment plan must be included within the business case. Replenishment options may include future department cost or service level adjustments or additional revenue generation necessary to “top up” the accounts over a three-year period. Longer repayment may be considered.

Climate Action Reserve The Climate Action Reserve has been established to provide a source of funds for funding climate mitigation and adaption strategies that target energy and greenhouse gas reductions. This reserve is primarily funded by the Climate Action Revenue Incentive Program grants. Community Works Gas Tax Reserve This reserve is to be used pursuant to the Community Works Gas Tax Agreement. Accordingly, funds are to be used to build and revitalize the public infrastructure that supports national objectives of productivity and economic growth, a clean environment, and strong cities and communities. This reserve will be used for enhancements and betterments to the community and to fund Council’s strategic capital projects. Gaming Fund Reserve This reserve is to support Council strategic priorities and initiatives. This fund can be used for any municipal purpose; however, Council has a general policy to not use this fund for ongoing operations. This reserve is funded through revenue received from the Host Financial Assistance Agreement between the City (the Host Local Government) and the Province.

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Police Reserve This reserve has been established to smooth and offset short term fluctuations in RCMP contract and related costs. It is funded from the annual surplus for the police function. Employee Benefit Reserve This reserve has been established to offset swings in employee-related expenditures such as benefits costs, variances in the vacancy rate, additional costs for return to work or other accommodations, and settlements. This reserve is funded from the variances between budgeted and actual benefit costs as well as a portion of wage variances. Risk Reserve The Risk reserve has been established to offset the cost of insurance claims and deductibles, excess legal costs, and other unexpected payouts, the magnitude and timing of which is often indeterminable. The City’s insurance exposure is in part due to the fact that City maintains higher insurance deductibles and thus self-insures up to a pre-determined dollar amount, so as to reduce the annual insurance premiums. In addition, this fund is used for risk mitigation activities. This reserve is funded from the annual surplus and from risk management grants and budget allocations. Capital Financing Reserves (General, Water, and Sewer) These reserves are made up of the previously named Tax Sale reserves, which were initially established as statutory reserves as required under the Local Government Act. Since the introduction of the Community Charter, there is no requirement to maintain these as statutory reserve funds. These reserves are funded from the sinking funds required as part of the Municipal Finance Authority (MFA) borrowing process. These reserves should be maintained to accumulate funds to offset future borrowing costs or to serve as a source for internal borrowing. CAPITAL RESERVES Pursuant to subsection 188(1) of the Community Charter, Council may, by bylaw, establish a reserve fund for a specified purpose and direct that money be placed to the credit of the reserve fund. The capital reserves have been established for the purpose(s) of creating a funding source for building and infrastructure capital projects, equipment purchase and replacement programs, and other similar purposes, including asset-related operating expenses. Where possible, like types of equipment will be grouped into pools to simplify the prioritizing of capital purchases.

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Equipment Replacement Reserves Equipment Replacement reserves are established to create a funding source for the replacement of various equipment at the ends of their useful life. Currently, the City has established equipment replacement reserves for various pools of equipment. Cemetery Capital Improvement Reserve The Cemetery Capital Improvement reserve is set up to ensure the ongoing maintenance and replacement of assets for the cemetery and columbarium. These funds should be fully funded through Cemetery operations. Capital Reserve Funds - General Capital reserve funds have been established for the purpose of replacing and maintaining the City’s assets. Through the asset management process, the expected life of the assets is assessed and appropriate repair or replacement activities are determined. This balance is based on the estimated useful life and expected replacement of the assets. These reserves are funded from various funding sources including taxation, fees, grants, and others. The reserve can be broken out into various asset classes, but reserves may be used to fund capital projects as prioritized in the financial planning process. Capital Reserve Funds - Sewer Capital reserve funds have been established for the purpose of replacing and maintaining the City’s sewer assets, including the sewage treatment plant and equipment. This reserve is funded through sewer levies as part of the financial planning process. Capital Reserve Funds - Water Capital reserve funds have been established for the purpose of replacing and maintaining the City’s water assets, including the treatment plant and equipment. This reserve is funded through water levies as part of the financial planning process. Affordable Housing Reserve This reserve has been established to support the objectives of the City’s affordable housing strategy. This reserve is funded through sale of land, grants, and other government contributions as well as funding allocated as part of the financial planning process.

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Local Improvements Reserve This reserve has been established to provide a funding source for local area improvement projects. The funds are to be used to fund local improvement projects, a portion of which is repaid over time. STATUTORY RESERVE FUNDS AND SPECIFIC PURPOSE RESERVES If monies are received from specific sources, certain reserve funds must be established for administering these funds, as per specific legislation. These reserve funds are termed by the City to be statutory reserve funds and are as noted below. Development Cost Charge (DCC) Reserve Funds This reserve is required per subsection 188(2)(a) of the Community Charter to account for the proceeds from DCCs levied against new developments. A separate reserve needs to be established for each DCC collection and use, under Section 935 of the Local Government Act. The reserves are funded from the proceeds of DCCs levied. The following DCC reserves have been established for the purpose so identified in the associated DCC bylaws and are as follows: • Transportation DCC • Water DCC • Sewer DCC • Storm DCC • Parkland Acquisition DCC Land Sale Reserve (S 188[2][e]) The Land Sale reserve is required under subsection 188(2)(e) of the Community Charter for the purpose of transacting land purchases and sales. The requirements state that except for tax sale proceeds, money received from the sale of land and improvements must be placed to the credit of a reserve fund for the purposes of paying any debt remaining in relation to the property and of acquiring land, improvements, and other assets of a capital nature.

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Off Street Parking Reserve (S 188[2][d]) This reserve was established as required under section 188(2)(d) of the Community Charter. The requirements state that money received under section 906(2)[parking space requirements] of the Local Government Act must be placed to the credit of a reserve fund for the purpose of providing: “(i) off-street parking spaces, or (ii) transportation infrastructure that supports walking, bicycling, public transit or other

alternative forms of transportation” This reserve is funded by the proceeds from parking offset requirements as outlined by City bylaws. Legacy Funds in Trust to BC Interior Community Fund The reserve is to maintain funds identified from various events and activities to be invested with the BC Interior Community Fund. Interest earned from these funds will be reinvested in the fund and/or distributed to the City as per each agreement. The agreements and use of these revenues is to be reviewed on a periodic basis. POLICY ADMINISTRATION Administration will work to develop a framework that establishes a clear understanding of the City’s requirements related to the development, creation, reporting, and funding activities of reserve funds identified to address regulatory or operational needs identified by either the province (in the Community Charter) or the city. The Corporate Services Director is responsible for: • ensuring reserve/surplus funds are established and maintained in compliance with this

policy • conducting an annual review of the reserve/surplus funds and reporting the results to

Council • on an “as required basis”, recommending revisions or amendments to this policy due to

changes in applicable statutes, accounting standards, or the economy

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Reserves must have a unique and specific corporate purpose. Annually, the Corporate Services Department will review the reserves and focus on: • reducing complexity by combining funds with similar purposes • eliminating funds with redundant or outdated purposes • refocusing departmental reserves to align with corporate purposes and strategic plans Reserve Contributions Annual and/or periodic contributions to reserve funds shall be specific to each reserve, as approved by Council through the City’s annual Financial Planning Bylaw (budget process). Minimum and Optimal Reserve Balances A minimum balance and an optimal balance shall be established for each reserve/surplus fund. The minimum balance will ensure that each fund is not depleted to the degree that it is no longer able to serve its intended purpose. The optimal balance will ensure the City’s guiding principles are achieved and that excess funds are not remaining idle that could be otherwise utilized for other corporate or Council priorities. A review of actual, minimum, and optimal fund balances shall be undertaken annually. In some cases, Council may decide to maintain reserve balances at the minimum (opposed to the optimal balance) as sources of funds are prioritized through the financial planning process. Internal Borrowing Internal borrowing from reserve/surplus funds shall be permissible as allowed for by legislation if a clearly defined and attainable payback plan, including payment of foregone interest is in place. Internal borrowing allows for more flexibility in terms of payback amount and loan duration than external borrowing. Paybacks shall be executed according to established plan. Interest Interest earnings are intended to be applied to a reserve if there are external requirements based on legislation or agreements or if the reserve is intended to maintain future capital purchasing power. Interest will generally be calculated based on the fund balances at the end of the year using the City’s average rate of return on investments. Per section 189(1) of the Community Charter, any interest earned in a reserve fund must be used only for the purpose for which the fund was established.

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Guide and Transition The minimum and optimal fund balance guidelines shown in this policy serve as a guide in moving the City towards achieving the desired amount it wishes to attain in terms of individual fund balances. At the enactment of this policy, recognition must be given that not all of the City’s fund balances, as established, are currently at the minimum and optimal levels; however, as the City is transitions towards its optimal balances these values will be used as a guide through the financial planning process.

Summary of Reserve Funds

Fund Description Primary Purpose Description of Reserve fund

Accumulated Surplus - General Risk Mitigation

Maintain minimum working capital balances for cash flow and significant emergency events.

Generally, there is no planned spending from these accounts. Any spend would be topped up the

following year from the annual surplus.

Accumulated Surplus - Water Risk Mitigation




Accumulated Surplus - Sewer Risk Mitigation




Accumulated Surplus - Solid Waste and

Recycling Risk Mitigation




Financial Stability Reserve - General

Risk Mitigation and

Opportunity

To ensure the ongoing financial stability and fiscal health of the City. Specific purposes include

funding significant operating or emergency events; stabilizing spikes in revenue collection or

operating expenses; one time and intermittent projects; and innovation.

Climate Action Reserve

Dedicated Funding

Souce and Opportunity

To provide climate mitigation and adaption strategies that target energy and GHG reductions.

Primarily funded from CARIP funds.

Community Works Gas Tax Reserve

Dedicated Funding

Source

To be used to support the various projects provided for under the Community Works Gas Tax

agreement.

Gaming Fund Reserve

Dedicated Funding

Souce and Opportunity

To be used primarily for one time projects which encourage enhancements and betterments to the

community. This resereve is funded through the Host Local Government Gaming funds.

Police Reserve

Risk Mitigation and

Planned Capital

Spending

Estabilshed from the excess funds between the RCMP contract budget and actual expenditures.

Funds are to be used to smooth gradually bring the annual budgeted expenditures for RCMP to full

funding. Additional reserves should be set aside for future capital and equipment requirements for

the policing function.

Employee Benefit Reserve * Risk Mitigation

This reserve is established from the difference between budgeted benefit expenses and actual costs.

The purposes is to smooth the overall costs fluctations of benefits, cover unexpected employee wage

costs.

Risk Reserve * Risk Mitigation

To proved funds to offset the cost of insurance claims and deductibiles, unexpected legal costs and

payouts.

Equipment Replacement Reserves **

Planned Capital

Spending

This reserve consists of various pools of funds to replace and maintain various equipment pools

including Fleet, Fire, IT, Parking, RCMP, Parks. While individual plans exist for the various equipment

types, the targe balance is for City equipment as a whole so that funds can be prioritized and utilized

where needed.

Cemetery Capital Improvements

Reserve

Planned Capital

Spending

Established to ensure the ongoing maintenance and replacement of assets associated with the

Ctimetery and Columbarium

Capital Reserve Fund - General

Planned Capital

Spending

Established for the purpose of replacing and maintaining the City's assets. The are funded from

various sources and expected to accumulate based on the City's asset management strategy and

capital plan. While individual plans exist for the various capital asset types and activities (roads,

facilities,etc) the targe balance is for City capital as a whole so that funds can be prioritized and

utilized where needed.

Water Reserve Fund ***

Planned Capital

Spending and Risk

Mitigation

Established for the purpose of replacing and maintaining the City's water assets and equipment. This

reserve is funded from the water levies.

Sewer Reserve Fund ***

Planned Capital

Spending and Risk

Mitigation

Established for the purpose of replacing and maintaining the City's sewer assets and equipment. This

reserve is funded from the sewer levies.

Solid Waste and Recycling Reserve

Fund ***

Planned Capital

Spending and Risk

Mitigation

Established for the purpose of replacing and maintaining the City's solid waste and recycling assets

and equipment. This reserve is funded from the solid waste and recycling levies.

Capital Reserves

Operating and Opportunity Reserves

Working Capital Reserves

Attachment "B"

Fund Description Primary Purpose Description of Reserve fund

Capital Borrowing Reserve (renamed

from Tax Sale) ****

available for internal

borrowing

This reserve has been established from sinking fund investments associated with MFA borrowings.

The purpose is to have funds set aside to use for internal borrowing or to offset costs of debt

financing.

Capital Borrowing Reserve - Water

(renamed from Tax Sale) ****


borrowing



financing.

Capital Borrowing - Sewer (renamed

from Tax Sale) ****


borrowing



financing.

Affordable Housing Reserve

Planned Capital

Spending and

Opportunity

This reserve has been established to support the objectives of the City's affordable housing strategy.

Funding is primarily from allocations in the financial planning process.

Downtown Parking Reserve (on street

parking)

Planned Capital

Spending This reserve was established with funds from the onstreet parking revenues.

Land Sale

Planned Capital

Spending and

Opportunity

This reserve is established for transacting land purchases and sales. The proceeds from sale of City

land must be placed in the reserve for future purchases. The reserve may be funded from other

sources as determined in the financial planning process.

Parking

Planned Capital

Spending

This reserve is established by the Community Charter with the revenues from parking space

requirements. Funds are to be used to provide off street parking or transportation infrastructure that

supports walking, cycling, public transit or other alternative forms of transportation.

Local Improvements Reserve

Dedicated Revenue

Sources

These funds have been established to support additional local improvement projects. As funds are

used, they are collected over time from the local area residents.

Legacy Funds in Trust - Maintained

with BC Interior Community Fund

Revenue generation

and ivestment

These funds have been designated by past Council bylaws to be invested with the BC Interior

Community Funds. The interest earned is either reinvested or distributed to the City to fund specific

operations.

* Employee Benefit and Risk Reserves could be combined** This fund was previously categorized as statutory, but is no longer specifically required in legislation*** Previously there was an equipment replacement and a capital fund for the utilities but since the funding sources are the same, it is recommended that they are combined.

****

Existing Reserves to be combined:

Proposed new reserve

General Buildling Reserve Capital Reserve

Heritage Reserve Financial Stability

Oak Hills Dyke Capital Reserve

Youth Legacy Financial Stability

Community Arts Financial Stability

Environmental Grants Financial Stability

Deferred Operating Reserve - General Financial stability

Deferred Operating Reserve - Water Water Reserve Fund

Deferred Operating Reserve - Sewer Sewer Reserve Fund

This fund was previously categorized as statutory, but is no longer specifically required in legislation, as a result Council has flexibility in it's purpose. As the funding source ties to MFA

debt, it is recommended that these fund be made available for internal borrowing.

Statutory Reserves

Reserves with Recommendations for Target Balances

Fund Description Primary Purpose

Planned

Spending

Target

Balance

Options/Recommended basis for

Target balances

Estimate of

Target Values

2017 Balance per

Audited Financial

Statement (Note 1)

Accumulated Surplus - General Risk Mitigation No Yes

5%-8.3% (15-30 days) of general

operating expenditure $5-10 million $14.4 million

Accumulated Surplus - Water Risk Mitigation No Yes

2-4 months water operating

expenditures 1.7-3.4 million $6.35 million

Accumulated Surplus - Sewer Risk Mitigation No Yes

2-4 months sewer operating

expenditures 1.3-2.6 million $6.36 million

Accumulated Surplus - Solid Waste and

Recycling Risk Mitigation No Yes

2-4 months solid waste and recycling

operating expenditures $1.7- 3.4 million $6.6 million

Financial Stability Reserve - General

Risk Mitigation and

Opportunity No No 1-2.5% of operating Revenues $3-6 million $1.5 million

Climate Action Reserve

Dedicated Funding

Souce and

Opportunity Yes No

Reserve level and related spending is

dependent upon the funds received n/a $1.066 million

Community Works Gas Tax Reserve

Dedicated Funding

Source Yes No



Gaming Fund Reserve

Dedicated Funding

Souce and

Opportunity Yes No



Police Reserve

Risk Mitigation and

Planned Capital

Spending Yes Yes

Reserve level to follow plan to

gradually ensure that RCMP contract

if fully funded. To be reviewed upon

full staffing. TBD $3.7 million

Employee Benefit Reserve * Risk Mitigation No Yes 1.5-2% of wages

$750 thousand -

$1 million $754 thousand

Risk Reserve * Risk Mitigation Yes/No Yes

multiple of deductible limit plus

unspent grant funds received

$750 thousand -

$1 million $650 thousand

Equipment Replacement Reserves **

Planned Capital

Spending Yes Yes

1-2 year of annual depreciation plus

additional funds required as per

financial plan $5.5 - 11 million $11.5 million

Cemetery Capital Improvements Reserve

Planned Capital

Spending Yes Yes

Target based on capital plan for the

Cemetery operations. TBD TBD $35 thousand

Capital Reserve Fund - General

Planned Capital

Spending Yes Yes

Minimum should be 1 year annual

capital spend. Target balances will be

determined as the City develops its

asset management plan and based on

planned future capital spending. $10-15 million $4.2 million

Water Reserve Fund ***

Planned Capital

Spending and Risk

Mitigation Yes Yes

Fully funded capital program based

on current plan, to avoid borrowing

where possible TBD

$19.2 million: $11.1

million (equip) + $8.1

million capital

Sewer Reserve Fund ***

Planned Capital

Spending and Risk

Mitigation Yes Yes



where possible TBD $2.7 million capital

Solid Waste and Recycling Reserve Fund

***

Planned Capital

Spending and Risk

Mitigation Yes Yes



where possible TBD $283 thousand (equip)

Capital Borrowing Reserve (renamed

from Tax Sale) ****


borrowing or debt

repayment No No n/a n/a $2 million

Capital Borrowing Reserve - Water

(renamed from Tax Sale) ****


borrowing or debt

repayment No No n/a n/a $4.2 million

Capital Borrowing - Sewer (renamed from

Tax Sale) ****


borrowing or debt

repayment No No n/a n/a $2.7 million

Affordable Housing Reserve

Planned Capital

Spending and

Opportunity Yes No

Fully funded based on requirements

of financial plan $1.44 million

Downtown Parking Reserve (on street

parking)

Planned Capital

Spending Yes No n/a n/a $276 thousand

Capital Reserves

Operating and Opportunity Reserves

Working Capital Reserves

Attachment "C"

Fund Description Primary Purpose

Planned

Spending

Target

Balance

Options/Recommended basis for

Target balances

Estimate of

Target Values

2017 Balance per

Audited Financial

Statement (Note 1)

Land Sale

Planned Capital

Spending and

Opportunity Yes No Based on land acquisition priorities. n/a $6.5 million

Parking

Planned Capital

Spending Yes No

Based on parking offsets received as

per bylaw n/a $944 thousand

Local Improvements Reserve

Dedicated Revenue

Sources Yes No

Based on local improvement project

commitments and repayment

schedules n/a $1.436 million

Legacy Funds in Trust - Maintained with

BC Interior Community Fund No No

Need to review agreements and

purpose of invested funds. n/a $1.966 million

Note 1 The 2017 Balances do Not reflect funds which are already commited to future years spending projects.

* Employee Benefit and Risk Reserves could be combined

** This fund was previously categorized as statutory, but is No longer specifically required in legislation

***

****

Reserves to be combined into other funds

General Buildling Reserve Capital Reserve

Heritage Reserve Financial Stability

Oak Hills Dyke Capital Reserve

Youth Legacy Financial Stability

Community Arts Financial Stability

Environmental Grants Financial Stability

Deferred Operating Reserve - General Financial stability

Deferred Operating Reserve - Water

Accumulated Surplus

Water

Deferred Operating Reserve - Sewer

Accumulated Surplus

Sewer

Debt retirement fund

Capital Borrowing

Reserve

General Fund Capital Capital Reserve

This fund was previously categorized as statutory, but is No longer specifically

required in legislation, as a result Council has flexibility in it's purpose. As the

$129 thousand

$27 thousand

$166 thousand

Statutory Reserves

Previously there was an equipment replacement and a capital fund for the utilities but since the funding sources are the same, it is recommended that they are combined.

$56 thousand

$177 thousand

$243 thousand

2017 Balance

$13 thousand

$4 thousand

$8 thousand

$3 thousand

$1.745 million

reserve and surplus policy

Documents