City of Revelstoke

Council Report
Date: To: From: Subject: August 21, 2013 Mayor and Council Graham Inglis, Director of Finance Reserves and Surpluses Policy

1. ISSUE The City does not have a formal Reserves Policy. 2. RECOMMENDATION THAT Policy F-14, Reserves and Surpluses, be adopted as presented. 3. CAO COMMENTS Agree with recommendation. This policy will provide guidance in achieving Councils 2013 Goals and Objectives to improve fiscal policies. TP 4. BACKGROUND 4.1. City Council has requested that a formal Reserves Policy be established. 4.2. A draft policy (F-14) is attached for Councils consideration. 5. FINANCIAL IMPLICATIONS 5.1. The policy will provide guidance and direction in establishing reserve funds and this will have an impact on the financial plan. 5.2. This impact is undetermined at this time. 6. DISCUSSION 6.1. Policies from several municipalities were reviewed before preparing the attached draft which is a simplified and synthesized version of those other polices. 6.2. Included within the draft policy is a schedule (Schedule A) of current reserves and reserve funds some of which are not supported by bylaws and are simply appropriations of general revenue. 6.3. Attached also is a current schedule of existing reserves and reserve fund balances. 7. RELEVANT LEGISLATION 7.1. Sections 188 and 189 of the Community Charter. 8. RECOMMENDATION AND OPTIONS

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8.1. Recommendation: THAT Policy F-14, Reserves and Surpluses, be adopted as presented. 8.2. Option 1: Council may choose to amend the draft policy before adoption.

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CITY OF REVELSTOKE
Prepared By:
Approval Date: Next Review Date: 1. Amendment Date: 2. Amendment Date:

POLICY MANUAL
F-14

Page 1 of 3 Policy Title:

Reserve Funds and Surpluses

Purpose:
1. To establish guidelines and targets for the maintenance of reserve funds and surpluses to ensure the citys ongoing financial resilience.

Policy:
2. Guiding principles The following principles form the basis for this policy:: Healthy reserve/surplus levels are important in achieving community goals including financial health and stability; Actual reserve/surplus balances need to be benchmarked with other jurisdictions and with pre-determined targets on an ongoing basis to gauge whether financial health is being achieved; Reserve/surplus goals need to be consistent with and supportive of realistic longer- term financial plans; Reserve/surplus appropriations need to conform to the statutory/legal requirements of the Local Government Act and the Community Charter, generally accepted accounting principles (GAAP) and public sector accounting board (PSAB) recommendations

3. Categories Reserves and surpluses may be categorized as follows: Operating surpluses Operating reserves (appropriations of surplus for specific items) Capital reserve funds Statutory reserve funds

CITY OF REVELSTOKE

POLICY MANUAL
F-14

Page 2 of 3

4. Legislation Reserve funds for a specified purpose must be established by bylaw in accordance with Section 188 of the Community Charter. 5. Current reserves and surpluses The citys current reserves and surplus fund accounts are shown in Schedule A. The schedule shows the purpose for which the fund has been established, its source(s) of funding, minimum and optimum balance targets and the rationale for establishing the fund. 6.

Reserve Contributions

Annual and/or periodic contributions to Reserve Funds shall be specific to each Reserve, as approved by council through the citys annual financial planning process. 7.

Minimum and Optimal Reserve Balances

Minimum and optimal fund balance guidelines have been set for some of the citys Operating and Capital Reserve Funds, Unappropriated Surpluses and Statutory Reserve Funds as shown in attached Schedule A. The minimum balances ensure that the respective balances are not depleted to the degree that those balances are no longer able to serve their intended purpose(s). The optimal balances ensure that the citys guiding principles are achieved and that the respective balances do not grow beyond their intended purpose(s) and thus create idle f u n d s that could o therwise be utilized for other corporate priorities. A formal comparative review of actual, minimum and optimal fund balances shall be undertaken annually. 8.

Internal Borrowing

Internal borrowing from specific Reserve Fund, Unappropriated Surplus and Statutory Reserve Fund balances shall be permissible as allowed for by legislation, if a clearly defined and attainable payback plan, including payment of foregone interest, is in place, as internal borrowing allows for more flexibility in terms of payback amounts and loan duration than that of external borrowing. Paybacks shall be executed according to plan. 9.

Responsibilities
Recommending the necessary contributions and transfers so that the c i t y s Operating/Capital Reserve Funds, Unappropriated Surpluses and Statutory Reserve Funds are maintained in accordance with this Policy; Conducting an annual review of all Operating/Capital Reserve Fund, Unappropriated Surplus and Statutory Reserve Fund balances including

The citys Director of Finance shall be responsible for:

CITY OF REVELSTOKE

POLICY MANUAL
F-14

Page 3 of 3

comparing actual levels with the established minimum and optimal levels within this Policy and with other jurisdiction benchmarks, and reporting the results of such a review to council; Recommending changes to the minimum and optimal balance guidelines shown in this Policy; and, Recommending any revisions or amendments to this Policy, as may be required from time to time, as a result of changes in applicable statutes, accounting standards, economic conditions, etc.

10.

Interest

Operating/Capital Reserves Funds and Statutory Reserve Funds shall be paid and allocated interest based on average annual balances and the city s average rate of return on investments.

11.

Guide and Transition

The minimum and optimal fund balance guidelines shown in this Policy serve as a guide in moving the c i t y towards the goals or targets it wishes to attain, in terms of individual fund balances. It is recognized that the c i t y s fund balances are not at the minimum or optimal levels at the time of enacting this Policy, however, the citys plan is to achieve its optimal targets over time.

Certified Correct:

________________________________ Tim Palmer Director of Corporate Administration

RESERVE FUNDS AND SURPLUSES

Policy F-14 Schedule A
A schedule outlining the types of reserves maintained by the city, their purposes, funding sources, minimum and optimal balances and rationale.

City of Revelstoke

Name

Purpose

Funding source(s)

Minimum $ level 1 X month's operating expenses 1 X month's operating expenses 1 X month's operating expenses N/A

Optimum $ level

Rational for $ levels established

Surpluses and appropriations of surplus General Any municipal purpose operating excluding water and sewer reserve Water operating reserve Sewer operating reserve Litigation Reserve Any purpose relating to water expenditures Any purpose relating to sewer expenditures An appropriation of general operating surplus to provide for outstanding claims.

General operating fund Water operating fund

2 X month's operating expenses 2 X month's operating expenses 2 X month's operating expenses Maximum amount of likely liabilities

To provide sufficient financial resilience to withstand unforeseen expenditures or reductions in revenue To provide sufficient financial resilience to withstand unforeseen expenditures or reductions in revenue To provide sufficient financial resilience to withstand unforeseen expenditures or reductions in revenue The city is sued on a regular basis for claims that may or may not have the possibility of success. A risk assessment should be made at the time of each claim and the likely financial impact should be calculated and reserved. The funds generated will depend on the amount of avoided carbon credit purchases budgeted This is used as an equalization fund to offset unexpected IT costs.

Sewer operating fund

Allocation from general operating.

Energy Efficiency Reserve Future Capital Data Processing Reserve Taxation Equalization

To provide for future energy efficiency initiatives in city owned facilities An appropriation of general operating surplus to provide for the acquisition of information technology (IT) equipment. To alleviate the effects of assessment appeals on property tax revenues

Avoided carbon credit purchases from general operating Allocation from general operating.

N/A

N/A

$0

$50,000

Allocation from general operating

$100,000

$200,000

This is used as an equalization fund to offset reductions in property tax revenues as a result of successful assessment appeals which are falling within this range.

Name

Purpose

Funding source(s)

Minimum $ level $1 million

Optimum $ level

Rational for $ levels established

Operating and Capital Reserves Electric Utility To provide funding for special Reserve Fund projects for general tax payers, e.g. investments in RCFC and RCEC Interest and dividends can be used as general revenue Fire Capital To provide funding for fire hall Replacement improvements, vehicles and Reserve Fund equipment replacement for the Fire Department

Recreation Capital Replacement Reserve Fund

To provide funding for facility improvement and equipment replacement for parks and recreation.

Cemetery Capital Replacement Reserve Fund

To provide funding for equipment and infrastructure replacement at the cemetery

Building Replacement Reserve Fund

To provide funding for major upgrades and renovations to city buildings

Snow Removal

To equalize the cost of snow removal over successive years.

Sale of Illecillewaet Dam to BC hydro in 1970s. Interest and dividends on investments Annual budgeted allocation from general operating fund. Sale of equipment. Interest. Annual budgeted allocation from General operating fund. Sale of equipment. Interest. Annual budgeted allocation from general operating fund. Sale of equipment. Interest. Annual budgeted allocation from general operating fund. Interest. Allocation from general operating

N/A

The balance remaining in the fund is fully invested in RCEC

Average expenditure from fund over previous 5 years Average expenditure from fund over previous 5 years Average expenditure from fund over previous 5 years Average expenditure from fund over previous 5 years $150,000

Adequate balance to fund capital acquisitions per long term capital plan Adequate balance to fund capital acquisitions per long term capital plan Adequate balance to fund capital acquisitions per long term capital plan Adequate balance to fund capital acquisitions per long term capital plan $300,000

To provide sufficient funding for capital replacement without long term borrowing for apparatus. It is not anticipated that this fund will be sufficient to replace the fire hall. To provide sufficient funding for capital replacement without long term borrowing for equipment. It is not anticipated that this fund will be sufficient to replace recreational buildings. To provide sufficient funding for capital replacement without long term borrowing for equipment and infrastructure.

To provide sufficient funding for planned upgrades and improvements without the need for long term borrowing. It is not intended that this fund be used to acquire or replace buildings. Minimum level was originally set by Council some years ago. The maximum level

Name Operating Reserve Fund Community Centre Operating Reserve Fund

Purpose

Funding source(s) equal to the budget for snow removal less actual expenditures. Interest.

Minimum $ level

Optimum $ level

Rational for $ levels established represents a significant portion of the pre financial year end part of the winter season.

To subsidize the cost of operating the Community Centre

$200,000

$200,000

Community Forest Special Reserve Fund Liability Self Insurance Reserve Fund Police Station Capital Reserve Fund

To incorporate and invest in RCFC To provide a buffer for excessive insurance claims and deductibles. To replace equipment and carry out major building upgrades or improvements.

Electric Utility Reserve Fund Interest

$0

$1,000,000

This fund was set up by the CSRD in the 1970s when the community centre was first built. Although the time limit for maintaining the fund has long past, the city has not taken the balance into revenue and has chosen instead to continue using the interest to help offset operating costs. The maximum investment permitted under Bylaw 1458 is $1 million. The citys MIA deductible is $10,000. The annual general operating budget provides for 2 claims at maximum deductible. To provide sufficient funding for planned upgrades and improvements without the need for long term borrowing. It is not intended that this fund be used to acquire buildings. The funds generated will depend on the level of development.

$40,000

N/A

Affordable Housing Reserve Water Replacement Reserve Fund

To provide for future affordable housing

To provide for water utility capital projects, water equipment, studies, and water debt retirement.

Annual budgeted allocation from General operating fund. Interest. Developer contributions in accordance with the bylaw Annual budgeted allocation from Water operating fund. Interest.

$50,000

N/A

Adequate balance to fund capital acquisitions per long term capital plan N/A

Fully funded water capital programme based on existing capital plan

Fully funded water capital replacement programme based on projected replacement costs for all assets

Borrowing should be avoided for replacement of existing infrastructure. Rates should be adjusted to provide sufficient revenue to fund the reserve at the appropriate level.

Name Sewer Replacement Reserve Fund

Purpose To provide for sewer utility capital projects, water equipment, studies, and water debt retirement.

Funding source(s) Annual budgeted allocation from sewer operating fund. Interest.

Minimum $ level Fully funded sewer capital programme based on existing capital plan

Optimum $ level Fully funded sewer capital replacement programme based on projected replacement costs for all assets Adequate balance to fund parkland acquisition per the long term capital and parks master plans Fully funded equipment replacement programme.

Rational for $ levels established Borrowing should be avoided for replacement of existing infrastructure. Rates should be adjusted to provide sufficient revenue to fund the reserve at the appropriate level.

Statutory Reserve Funds Parkland Cash-in-lieu Reserve Fund To purchase neighbourhood parkland as permitted under the Local Government Act Developer cash contributions as per the requirement under the Local Government Act cash-in-lieu option. Interest. Annual budgeted allocation from general, water and sewer operating funds. Sale of equipment. Interest. Interest N/A Acquisitions are dependent upon collections.

Equipment Replacement Reserve Fund

To replace vehicles and equipment included in the citys fleet.

$1 million

Future Services Upgrading Reserve Fund Parking Stalls Reserve Fund

To provide for infrastructure upgrades resulting from development To provide for additional parking areas in the city

N/A

N/A

The minimum level equals the annual level of expenditure. The city leases most of its vehicle and equipment replacements through MFA over 5 years. Additional funding will be required from the general fund to revert to cash purchases in the short term. This is an old reserve fund that pre-dates DCCs. There is little left in this fund.

Developer cash contributions in lieu of providing required parking per city bylaw

N/A

Adequate balance to provide for required parking as per the long term capital plan

Parking lot development is dependent upon collections.

Name Development Cost Charge (DCC) Reserve Funds

Purpose Holding accounts for levies from developers to be used for approved DCC projects/programmes.

Funding source(s) DCC collections and credits in accordance with the bylaw. Interest.

Minimum $ level N/A

Optimum $ level Sufficient funds to meet the need to build infrastructure when required to accommodate growth. Adequate balance to fund strategic land acquisition plan. N/A

Rational for $ levels established Spending is dependent upon the actual DCCs collected. DCCs are really restricted revenues more than reserves as the city has no discretion as to how they are spent. They must be spent on the projects outlined in the DCC bylaw. Acquisitions are dependent upon land/property sales.

Land Sale Reserve Fund

Community Works (Gas Tax) Fund Cemetery Perpetual Care Fund

To acquire land, improvements and other assets of a capital nature as per the Community Charter. To be used pursuant to the Community Works Agreement administered by UBCM. To provide for the perpetual care of the cemetery after closure.

Funds received from the sale of land and improvements. Federal Community Works (Gas Tax) funds distributed by UBCM. Care fund contributions as per bylaw.

N/A

N/A

The intent is to invest all funds received in appropriate projects that benefit the community. Required by legislation.

N/A

Adequate balance to provide for perpetual care of cemetery after closure.

CityofRevelstoke ReservesandSurplusesBalances 20032012 Estimated Minimum ReserveFund $ StatutoryReserves EquipmentReplacement ParkLandCashinLieu LandSale CemeteryTrust CapitalReserves Water Sewer Fire Recreation Cemetery Building PoliceStation DCCs Parking Water Sewer Roads FutureServicesUpgrading GeneralReserves Futuredataprocessing CommunityCentre Litigation Snowremoval Liabilityselfinsurance Energyefficiency Affordablehousing TaxationEqualization Generaloperatingsurplus Wateroperatingsurplus Seweroperatingsurplus Other CommunityWorks(GasTax) RCFC ElectricUtility

Estimated Optimum $

2012

2011

2010

2009

EndingBalance 2008 2007

2006

2005

2004

2003

1,000,000

? ? ? ?

625,784 251,308 1,469,678 123,756 2,470,525 1,114,662 576,911 128,963 573,749 32,282 66,244 1,317 2,494,128 115,494 344,280 2 970,441 1,877 1,432,093 39,367 200,000 145,184 23,928 46,367 33,610 96,000 82,522 44,594 186,481 250,523 1,148,577

472,639 233,712 1,446,325 120,904 2,273,579 903,243 679,134 87,450 249,962 16,370 79,017 54,887 2,070,063 117,160 178,223 84,202 867,460 1,824 1,248,869 40,374 200,000 145,184 23,262 45,077 96,000 54,499 182,371 131,705 918,472 284,150 1,000,000 1,000,000 2,000,000

279,592 228,469 1,738,867 117,934 2,364,863 653,812 617,368 58,185 153,872 7,351 114,304 75,562 1,680,454 114,532 0 139,562 785,820 1,824 1,041,738 52,500 200,000 145,184 22,740 44,066 96,000 449,100 352,089 107,280 1,468,959 30,969 1,000,000 1,050,984 2,050,984

185,822 222,529 1,664,700 114,039 2,187,090 522,605 143,658 90,131 6,475 151,230 80,451 994,550 65,602 0 14,173 312,713 1,777 394,265 15,000 200,000 145,184 42,920 42,040 472,965 16,169 934,278 281,208 1,000,000 1,000,000 2,000,000

134,477 210,010 1,644,723 108,734 2,097,943 966,003 4,215 42,988 19,816 3,993 58,404 96,535 1,191,954 56,950 98,400 258,416 1,677 415,443 15,000 200,000 145,184 50,745 40,505 389,356 386,593 55,290 1,282,673 119,573 500,000 1,500,000 2,000,000

181,663 200,350 1,344,449 105,256 1,831,718 667,541 174,816 69,265 37,586 3,683 72,202 48,129 1,073,222 43,211 163,568 157,225 0 1,600 365,605 23,000 200,000 145,184 172,034 38,642 464,117 379,859 148,590 1,571,426 117,181 500,000 1,639,045 2,139,045

198,919 193,055 1,331,634 100,626 1,824,234 342,703 384,138 90,512 459 19,705 100,838 7,105 945,460 23,495 41,718 40,335 1,541 107,089 23,000 200,000 145,184 165,770 37,235 483,384 375,002 203,324 1,632,899 201,623 500,000 1,500,000 2,000,000

161,121 68,935 1,433,933 96,401 1,760,390 150,717 814,811 26,253 448 23,637 120,706 5,263 1,141,835 12,737 71,621 84,358 17,000 200,000 305,833 35,698 466,161 435,384 228,313 1,688,389 115,901 500,000 1,500,000 2,000,000

162,335 41,138 509,781 93,071 806,325 494,280 762,309 34,527 23,655 23,847 155,989 162 1,494,769 65,429 65,429 12,000 200,000 144 34,395 477,013 628,686 161,729 1,513,967 500,000 1,657,536 2,157,536

168,234 39,458 47,269 86,768 341,729 530,919 819,690 66,130 29,183 14,559 132,311 155 1,592,947 62,757 62,757 6,000 200,000 138 32,990 434,899 557,844 118,091 1,349,962 500,000 1,582,987 2,082,987

492,800 701,000 167,942 321,004 35,205 101,286 50,000

? ? ? ? ? ? ?

? ? ? ?

200,000 150,000 40,000 100,000 1,300,936 80,197 65,914

50,000 200,000 300,000 200,000 2,601,871 160,395 131,829

432,794 1,000,000 1,000,000 1,000,000 1,044,260 2,044,260

9,589,583 8,510,983 8,606,998 6,510,183 6,988,013 6,981,016 6,509,682 6,674,972 6,038,026 5,430,382