Policy statement

1   The City recognizes the need to

(a) use a variety of capital and operating reserves to provide a sound basis for financial planning, and

(b) ensure sufficient resources in case of emergency, recession, or other adverse events.

Purpose

2   The purpose of this policy is to establish guidelines related to the maintenance of reserves, including considerations for ongoing financial stabilization and appropriate reserve levels.

Interpretation

3   The Interpretation Bylaw applies to this policy.

Definitions

4   In this policy

"rate stabilization reserve" means a cash reserve that can mitigate the effects of occasional shortfalls in revenue;

"reserve report" means a summary of operating and capital reserves.

Guiding principles

5   (1) A reserve report will be created for all existing and new reserves that sets out

(a) the name of the reserve,

(b) the source of funds,

(c) authority for the expenditure of funds,

(d) reserve level minimum, maximum, and target level,

(e) the term of the fund, along with the ultimate disposition of the funds, and

(f) whether interest accrues to the reserve balance.

(2) A review of all reserve reports will be undertaken at least every 5 years.

Financial stabilization reserves

6   (1) The City will continue to use its rate stabilization reserve to mitigate operating surpluses or deficits.

(2) As capital expenditures can vary from year to year, and in some cases can be deferred, an additional financial stabilization reserve will be established to mitigate capital expense fluctuations.

Reserve levels

7   (1) To ensure sufficient resources in case of an emergency, recession, or any other adverse event, the City will set minimum, maximum, and target reserve levels for its operational reserve funds.

(2) Reserves intended for emergency or risk mitigation (e.g. flood mitigation, snow removal, insurance) will have target balances based on the anticipated need in an emergency event.

For example, the target flood mitigation reserve balance will be sufficient to cover the estimated cost of two flood events.

(3) Financial stabilization reserve levels will be established to align with best practices, including a

(a) minimum of 5% of annual City revenues,

(b) target balance equal to 10-15% of annual City revenues, and

(c) maximum of 20% of annual City revenues.

(4) Other reserve minimum, maximum, and target levels may be based on a defined percentage of the City's annual City revenues or tax-supported operating expenditures.

(5) Reserve levels will be monitored on an annual basis.

(6) When a reserve is over- or under-funded, a plan to return to the target reserve levels will be created.

(7) Capital reserve minimum, maximum, and target levels should be based on master servicing plans and the City's long term asset renewal and replacement schedule.

Operating surplus

8   (1) Any year-end operating budget surpluses will be allocated as follows:

(a) first to the maintenance of minimum operating and capital reserve levels;

(b) second to the maintenance of target reserve levels,

as established within the reserve reports, prior to consideration for a reduction in tax or user rate funding.

(2) The financial officer is authorized to allocate operating surpluses to the reserves, not to exceed the target levels as set out within the reserve reports.

(3) Year-end operating surpluses for the property tax, water rate, sewer rate and airport user fee supported budgets should will only be allocated within the operating reserves of each respective fund.