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HomeMy Public PortalAboutBy-law 2022-51 Adopt a Reserves and Reserve Funds PolicyCORPORATION OF THE MUNICIPALITY OF TWEED BY-LAW NO. 2022-51 Being a By-law to Adopt a Reserves and Reserve Funds Policy for the Municipality of Tweed. WHEREAS the Municipal Act, 2001. S.O. 2021, c. 25, as amended, provides the general authority for Councils to adopt policies; AND WHEREAS the Council of the Corporation of the Municipality of Tweed deems it expedient to adopt a Reserves and Reserve Funds Policy for the Municipality of Tweed; NOW THEREFORE the Council of the Corporation of the Municipality of Tweed enacts as follows: 1. THAT the Reserves and Reserve Funds Policy attached hereto as Schedule 'A' to this By-law, is hereby adopted as the Reserves and Reserve Funds Policy for the Municipality of Tweed. 2. THAT Schedule 'A' attached hereto forms part of this By-law. 3. THAT this By-law shall come into force and take effect immediately upon the passing thereof by the Council of the Corporation of the Municipality of Tweed. Read a first, second, and third and final time, passed, signed, and sealed in open Council this 23rd day of August, 2022. �_,e"LERK1\ SCHEDULE 'A' TO BY-LAW NO. 2022-51 Reserves and Reserve Funds Policy Purpose/Background Reserves and reserve funds shall be established for the following purposes: • To facilitate long-term financial planning • To plan for asset management and the impact and financing of major capital projects • To provide for the cost of equipment or facility replacements • To smooth tax rate impacts and revenue fluctuations • To smooth expenditures which would otherwise cause fluctuations in the operating budget • To absorb the cost of one-time expenses not included in the operating budget • To fund future obligations The Reserves and Reserve Funds Policy applies to all Reserves and Reserve Funds established by the Municipality of Tweed. Policy Statement This policy governs the management and administration of reserves and reserve funds for the Corporation of the Municipality of Tweed (the "Municipality"). The objective of the reserve policy is to ensure adequate working capital is available for cash flow and contingency purposes, and as a source of funding for the Municipality's Tong -term capital plan, while maintaining reasonable tax rates and user fees. This policy also establishes the principles regarding the creation, funding, use and closing of reserves and reserve funds. The Municipal Act, 2001, as amended, Section 289 provides a municipality's budget shall set out amounts to be paid into and out of reserves. "A municipality may establish reserve funds for any purposes for which it has authority spend money." Council approval is normally required for any transactions into or out of a Reserve or Reserve Fund that is outside the approved budget. Definitions "Reserves" — Monies set aside by approval of Council (either by Council resolution or budget adoption) and not restricted by legislation. Reserves can be related to projects that are of a nature prescribed and managed by approval of Council. Reserves do not receive an annual interest allocation. "Reserve Funds" — Monies set aside for a specific purpose as required by provincial legislation, a municipal by-law, or agreement. There are two types of reserve funds, discretionary reserve funds and obligatory reserve funds. Reserve funds receive an Page 1 of 10 annual interest allocation based on the interest earned in separate cash and/or investments. (a) "Obligatory Reserve Fund" — Monies set aside and legally restricted by provincial legislation, corporate agreement, or municipal b7 -law establishing a specific restricted fund. The funds are raised for a specific purpose and cannot be used for any other purpose. The main Obligatory Reserve Fund is the Canada Community -Building Fund (previously the Federal Gas Tax) Reserve Fund which is restricted by Agreement with the Federal and Provincial governments through AMO. (b) "Discretionary Reserve Fund" — Monies set aside for a specific purpose by Council and legislated by municipal by-law. If Council should decide to spend the money for purposes other than what it was originally intended for, then a new by-law must be passed under section 417(4) of the Municipal Act, 2001, as amended. Legislated Requirements All Reserve and Reserve Funds will be managed in accordance with the Municipal Act, 2001, as amended. • Section 290 (4)(g): In preparing the budget, a local municipality may provide for such reserve funds as the municipality considers necessary. • Section 293: Specifies that the Minister may make regulations requiring a municipality to establish a reserve fund designated for prescribed liabilities, defining "liabilities", requiring a municipality to make payments into the reserve fund, prohibiting the municipality from changing the purpose for which the reserve fund is designated; and prescribing the conditions under which the municipality may change the designation of all or any part of the reserve fund, and borrow form the reserve fund. • Section 417: Allows a municipality to provide in its budget for the establishment or maintenance of a reserve fund for any purpose for which it has authority to spend money and that a municipality may by by-law provide that the money raised for a reserve may be spent or applied to a purpose other than for which the fund was established. Establishment and Modification A Reserve or Reserve Fund can be established through the following processes, as appropriate to their type: a) Inclusion in the annual operating and capital budget, which is approved by Council, or b) Through resolution of Council, or c) Statutory legislation or by-law that established a funding requirement. A financial plan shall be prepared for reserves and reserve funds which identifies: Page 2 of 10 a) Purpose of the reserve b) Target funding levels c) Contribution sources d) Projected disbursements to meet planned future obligations The Treasurer shall review this financial plan annually to ensure the purpose and the need for the reserve is still unchanged form its original intent. If the financial plan review determines the purpose or need of the reserve has changed, reserve funds can be reallocated for another purpose in accordance with the Management — Contributions to/draws form Policy Section. Investment Reserves and reserve funds may be invested for a term that will not exceed the expected date of need. Investments shall be further governed by the Municipality's Investment Policy. a) Reserves funds shall be invested for a term that will not exceed their expected date of need b) Reserve funds shall be invested in accordance with the Council -approved Investment Policy. c) Interest earned on reserve funds shall be recognized as revenue in each specific reserve fund. Management — Contributions To/Draws From Contributions to/draws from reserves and reserve funds shall be made in accordance with applicable resolution, by-law, and this Policy. Contributions to/draws from reserves and reserve funds shall be approved by Council as part of the annual budget process, or specifically by resolution with the following exceptions: a) Direct contributions to reserves and reserve funds such as Canada Community - Building Fund (formerly the Federal Gas Tax) revenue and Parkland Levies. b) Transfers that are a direct result of Council approved by-laws or resolutions. c) Transfer of funds between reserves and reserve funds for reserve restructuring, which in the opinion of the Treasurer has not changed the purpose for which the funds were intended. d) Transfer of funds between asset replacement reserves based on upon reserve adequacy analysis or other related information, at the discretion of the Treasurer. e) Use of "revolving" reserves and reserve funds for the purpose approved by Council, such as an Insurance Reserve for deductibles and under -deductibles. Page 3 of 10 Management — Lending/Temporary Borrowing Temporary borrowing to cover a reserve short-term deficit, interim servicing requirements or internal financing is permitted, when justified, adequately supported, and authorized by Council. However, the following conditions must be met to allow borrowing from reserves: a) All lending/temporary borrowing shall be provided form discretionary reserve and reserve fund balances. The loaning of obligatory reserve funds is prohibited. b) Borrowing must not adversely affect the intended purpose of the reserve. c) A plan to repay the reserve within a reasonable timeframe is required and must be documented. d) Interest, equivalent to the Municipality's interest on fund bank accounts, shall be applied to outstanding amount borrowed. Where applicable, legislative requirements may apply. Management — Termination/Closure A reserve or reserve fund shall be terminated (wound down and closed) when the program or project if supports meets any one of the following criteria: a) Program commitments have been completed and no future commitments are expected. b) No longer in the scope of the Municipality's strategic plans. c) The Treasurer or his/her designate is confident that balances in other areas can mitigate the need to hold any remaining reserve of reserve fund balance. Reserves or reserve funds identified for termination shall be reported to Council for review and approval. Reports to Council shall include recommendations regarding the timing or winding down, closure and the allocation of any fund balances. Management — Responsibilities The Treasurer, or his/her designate, shall: a) Determine need for reserves and reserve funds for operating and capital budgets. b) Set targets for reserves and reserve funds in line with directives contained in this Policy and other pertinent policies. c) Prepare the Municipality's long-term strategic financial plan with consideration of appropriate reserves and reserve funds to effectively meet the Municipality's operating and capital budget financing needs. d) Ensure that the principles and requirements contained in this policy are applied consistently across all departments. e) Perform the transfer to and from reserves and reserve funds as authorized by Council. Page 4 of 10 f) Review and report on the adequacy and continued need for reserves and reserve funds in line with legislative requirements, the Municipality's Investment Policy, and other pertinent policies; and g) Develop and update this policy as necessary and present changes to Council. Departmental Managers, or their designates, shall: a) Provide the Treasurer, or his/her designate, with the most current capital asset and operating information to be used in the assessment of the adequacy of the capital and operating lifecycle reserves. b) Inform the Treasurer, or his/her designate, in ensuring the principles and mandatory requirements contained in the policy are applied consistently across all the Municipality's departments. Council shall: a) In accordance with the Municipal Act, 2001, as amended, Section 224, ensure that administrative policies, practices and procedures and controllership policies, practices and procedures, are in place and maintain the financial integrity of the municipality. Management — Reporting The Treasurer, or his/her designate, shall: a) Oversee the preparation of the annual financial statements (which are audited by an external audit firm). The annual audited financial statements shall include a statement of financial position, financial activities, and changes in fund balances for all reserves and reserve funds. b) Prepare, in conjunction with Departmental Managers, an annual operating and capital budget. Contributions to and draws from reserves and reserve funds are part of the annual budget. c) Prepare annually a Reserves and Reserve Fund Report that provides a review to determine whether modifications are appropriate for the policy. The report will include a current year reserve continuity schedule reflecting the reserve provisions contained in the approved budget, and projected contributions and planned draws for a ten-year period. This report may also include new, modification or existing, and termination of existing reserves and reserve funds. Management — External Loans No external loans shall be made from Reserve Funds, but external loans may be made from Reserves at the discretion of Council under Section 107 of the Municipal Act, 2001, as amended, to any person, group or body for any purpose considered to be in the best interests of the municipality, provided they are not made contrary to Section 106 of the Act. I'1 Page 5of10 Prior to recommending such a loan to Council, Municipal staff will consider the following: a) The nature of the persons, organizations, and/or groups deriving benefit from the loan; loans that benefit those acting in the public interest will be preferable to loans that do not. b) The intended term of a loan; the term of a loan should not normally exceed five (5) years. c) The rate of return on the loan; an interest rate of return equivalent with municipal rate offered by Infrastructure Ontario shall normally be preferred. d) The security to be provided to protect the interest of the Municipality; adequate security should be provided for each loan. e) That adequate reserves remain available over the term of the loan. Council shall retain discretion over whether a loan shall be granted and the terms of any such loan. Any loans made to a public agency or group will be provided from non -restricted reserves, such as working capital reserves, as a direct loan investment of reserve funds is prohibited under provincial legislation. Delegation of Authority Once Council approves reserves by resolution and reserve funds by-laws, the Treasurer shall have overall responsibility for this policy, and the authority to implement procedures consistent with the content of this policy. The Treasurer, or his/her designate, has the responsibility for setting reserve and reserve fund targets. Targets will be periodically reported to Council through Reserve and Reserve Fund Reports (as discussed in Reporting Section). Review of Policy This policy shall be presented to Council for review at least once in the term of each elected Council, or earlier as deemed necessary by Council, or the Treasurer, or his/her designate. Specific Reserves and Reserve Funds The following individual Reserves and Reserve Funds have been stablished with Council's approval: Corporate Stabilization Reserves Policy: Stabilization Reserves are used to offset extraordinary and unforeseen expense requirements, one-time expenses, revenue shortfalls, and to avoid significant fluctuations on the general tax levy and to manage cash flows. Included: Working Capital Page 6 of 10 Sources of Funding or Revenues: Annual operating budget transfers, any surplus funds realized from the annual budget. Other stabilization reserves will be based on historical costs. (4e. Expenditures or Uses: Used to mitigate one-time operating or capital costs for all Municipal departments, used to manage cash flows or mitigate significant increases in tax rates as determined by Council. Target Balance of Levels: Minimum balance for the Stabilization Reserves of 2% of net levy, with a maximum of 10%. Government Funded Reserves Policy: Government Funded Reserves are used to segregate, and track grant revenues received from Federal, Provincial and other municipal governments that are to be used for specific purposes as per the guidelines and requirements of each program. Included: Modernization Reserve Sources of Funding or Revenues: Allocations of grant funding from the Federal, Provincial or other municipal governments. Expenditures or Uses: used to provide services in accordance with the Ministry guidelines and requirements for each program. Target Balance of Levels: The balance or each reserve should not drop below $0 and should remain until the program requirements have been met. Departmental Specific Reserves Policy: Department General Reserves are established to fund department projects. Included: Fire Equipment Maintenance Firefighter Wage Overage Public Works — Winter Maintenance Public Works — Overtime Public Works — Contingency Soccer Hamlets (both halls and beautification for 4 hamlets) Heritage Community Improvement Teeny Tiny Summit Sources of Funding or Revenues: Transfer from budget, donations and fundraising. Expenditures or Uses: Reserves to fund departmental specific projects such as software replacements, studies, strategic plans, etc. Page 7 of 10 Target Balance of Levels: The balances of these reserves should be sufficient to fund the identified projects, upgrades or replacements, based on an annual funding requirement and costing information. Capital Reserves Policy: The capital reserves are established to fund specific replacement, renewal, or acquisition or capital assets. Included: Municipal Buildings Administration Capital Fire Equipment Public Works Public Works — Bridges Water and Sewer Parks and Recreation Playground — Kiwanis Arena Splashpad Pool Sources of Funding or Revenues: Many of these reserves receive annual allocations of operating and/or capital budget transfers based on annual lifecycle costing. Expenditures or Uses: Used to fund replacement, renewal or acquisitions of capital assets. Target Balance or Levels: The balance of each reserve should be sufficient to fund average annual replacement requirements for capital purchases relating to the respective department based on the ten year capital forecast, lifecycle replacement schedules, building condition assessments, and the asset management plan. Department Specific Reserve Funds Policy: The Department Specific Reserve Funds provide funding for specific departmental needs, as established by by-law. Includes: Waste Site Aggregate Sources of Funding or Revenues: Bag tags and tipping revenues collected during the year, less amounts determined by Council to be kept for current operating purposes, are allocated to the Waste Site Reserve Fund. Interest earned on cash and investment balances. Amounts received or set aside by Council resolution specifically for future aggregate needs. Page 8 of 10 Expenditures or Uses: Used to fund bulk item removal at the landfill, specific capital needs of the departments, and future costs associated with asset retirement obligations such as landfill closure and post -closure monitoring and aggregate site rehabilitation. Target Balance of Levels: A minimum of 85% of the next 5 years need expectations to a maximum of total asset retirement obligation needs. Canada Community -Building Fund (Formerly Federal Gas Tax) Reserve Fund Policy: The Canada Community -Building Fund reserve fund provides funding for investments in Environmentally Sustainable Municipal Infrastructure projects and Capacity Building projects as per the Agreement for the Transfer of Federal Gasoline Tax Revenues. Included: Canada Community -Building Fund Sources of Funding or Revenues: The Municipality of Tweed receives a semi-annual allocation of funds from the Association of Municipalities of Ontario (AMO) on behalf of the Federal Government per the Agreement for the Transfer of Federal Gasoline Tax Revenues as well as a semi-annual allocation of funds from the County of Hastings from their Federal Government Allocation received from AMO. Expenditures or Uses: Expenditures from the Canada Community -Building Fund Reserve Fund are to be used for the construction, renewal or enhancement of capital assets with 17 categories established by the Government of Canada. Eligible project categories include local roads, bridges, community energy systems, capacity building and disaster mitigation infrastructure. Unused Canada Community -Building Fund amounts from one year can be returned to the Canada Community -Building Fund Reserve Fund and redistributed to future projects as needed. Target Balance or Levels: The balance of the Canada Community -Building Fund Reserve Fund should be monitored regularly to ensure all planned construction projects can be sufficiently funded. Reserve Fund balance must be positive. , Parkland Reserve Fund Policy: The Parkland Reserve Fund provides funding for funds collected in accordance with Section 42(6) of the Planning Act, 1990, as amended which allows for a requirement of an amount to be paid in lieu of the conveyance of parkland. Included: Parkland Reserve Fund Sources of Funding or Revenues: The established fee in lieu of conveyance of parkland collected for all new lots created under the Planning Act, 1990, as amended, Section 42(6). Expenditures or Uses: Expenditures from the Parkland Reserve Fund are to be used for the purpose or expanding or renewing parklands within the Municipality of Tweed. Page 9 of 10 Target Balance of Levels: The balance of the Parkland Reserve Fund should be monitored regularly to ensure all planned construction projects can be sufficiently funded. Reserve Fund balance must be positive Page 10 of 10