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Home My Public Portal About2014-05-29_Operating Reserve Fund and Operating Fund Accumulated Surplus Policy_P-81Municipality of the District of Chester Operating Reserve Fund s nd Operating 1 Accumulated Policy P-8 Effective Date: May 29, 2014 Operating Reserve Fund and Operating Fund Accumulated Surplus Policy P-81 (continued) MUNICIPALITY OF THE DISTRICT OF CHESTER (MODC) Operating Reserve Fund and Operating Fund Accumulated Surplus Purpose To define minimum balances to be maintained in the Operating Reserve Fund and Operating Accumulated Surplus; to define sources of funding, and uses of funding; to define permitted uses which lowers the fund below the minimum balances. Legislation Under the Municipal Government Act for the Province of Nova Scotia (1999), the only reserve fund required is a Special Capital Reserve Fund. Previous legislation included the provision for an operating reserve section of a special reserve fund. Council can maintain other reserve funds as it wishes (MGA Section 99(6)). Policy As a means of solid financial planning, Council has created a number of special reserve funds to address both future operational and especially, capital resource needs. These funds address new acquisition and replacement, but have general restrictions on use. The Operating Reserve Fund is more flexible as Council can use the fund for both operating and capital purposes. The Association of Municipal Administrators of Nova Scotia (AMANS) has developed a series of accounting best practices for use by municipal units. One of the practices is on the Operating Reserve Fund and Operating Accumulated Surplus. This practice is used to develop the policy for MODC. Minimum Balance Provision For the Operating Reserve Fund, the suggested minimum balance should reflect availability of other reserves, the predictability of revenues, volatility of expenditures, and liquidity of available financial resources. MODC has a number of reserves, mainly for capital items. Through the budgeting process, both revenue and expenditure estimates reflect a balanced budget approach. MODC maintains reasonable cash balances and access to short term borrowing needs to meet immediate operating and capital expenditure requirements. In development of MODC's five year capital investment plan, the minimum balance in the Operating Reserve Fund has consistently maintained a balance of over $2,000,000 however recently we have experienced a balance below that as we proceed with capital intensive projects. It is suggested that the minimum balance be set at $2,000,000 with an anticipated balance of $3,000,000 by fiscal year 2016-17 (municipal election year). It would be expected that each subsequent Council would review these parameters to ensure compliance to minimum and expected balances, and make adjustments as deemed necessary. For the Operating Fund Accumulated Surplus, AMANS guidelines recommend a minimum balance between 5 to 15% of operating fund revenues. The Operating Fund surplus has two parts. Unappropriated is for general fund operations. Appropriated (restricted) is for area rated services. First Notice -Council - May 15, 2014 (2014-207) Second Notice - Council - May 29, 2014 (2014-231) Effective Date - May 29, 2014 Page 2 Operating Reserve Fund and Operating Fund Accumulated Surplus Policy P-81 (continued) It is suggested that a conservative approach be taken with regard to the general operations (unappropriated) surplus. A suggested balance is $1,500,000. It is recommended that any excess amounts beginning with a balance reaching $2,000,000 (in $500,000 increments) be transferred to the Operating Reserve Fund. For the area rate restricted surplus, it is recommended that no minimum balance be set as Council may have a purpose to grow a balance fora specific area rate to meet an approved obligation. Council can also influence a reduction in a specific area rate balance by reducing the area rate revenue. It is intended that Council can revisit this policy in future to amend the minimum balances. Sources of Funding Council may allocate funds directly to the Operating Reserve Fund in the following ways: 1. Allocation in the Annual Draft Operating Budget 2. Allocation added during Operating Budget Deliberations 3. Allocation during the fiscal year from an expected operating surplus 4. Allocation from Operating Fund Accumulated Surplus Uses of Funding Council may apply funds from the Operating Reserve Fund in the normal course of operations, but maintain the minimum approved balance, as follows: 1. Applied in the Annual Draft Operating Budget 2. Applied during Operating Budget Deliberations 3. Applied to other funds as part of budget deliberations- Capital, Area Rated, etc. Council may apply funds from the Operating Reserve Fund which lowers the fund balance below the minimum approved balance, in an emergency situation, such as the following: 1. A protective services emergency, such as a flood condition, snow situation etc. 2. A required property purchase under an agreement. 3. A transfer of service/costs to the Municipality that could not be reasonably budgeted or foreseen. 4. A required payment under existing legislation that could not be foreseen. 5. An emergency requiring repairs to a municipal asset, such as a municipal building. 6. A major revenue shortfall that could not be predicted. (The assumption under these situations is that there is no other funding source available, or other sources are ruled out. This also assumes that a review of the existing budget to take cost cutting measures in other areas will not have sufficient impact to mitigate the costs of an emergency situation.) In order to bring the Operating Reserve Fund back to the minimum balance of $2,000,000, the amount of the shortfall is to be included in the draft budget for the following fiscal year. During First Notice -Council - May 15, 2014 (2014-207) Second Notice - Council - May 29, 2014 (2014-231) Effective Date - May 29, 2014 Page 3 Operating Reserve Fund and Operating Fund Accumulated Surplus Policy P-81 (continued) budget deliberations, Council can approve, amend or develop a phased in approach to balance the Reserve over a number of fiscal periods. Approval/Authorization Process Council can approve transactions affecting the Operating Reserve Fund, either as part of the budget process, or individually by resolution at a Council meeting. First Notice -Council - May 1S, 2014 (2014-207) Second Notice - Council - May 29, 2014 (2014-231) Effective Date - May 29, 2014 Page 4 Operating Reserve Fund and Operating Fund Accumulated Surplus Policy P-81 (continued) Annotation for Official Policy Book Notice of Intention to Adopt April 28, 2014 2014-196 Date of First Notice at Council May 15, 2014 2014-208 Date of Second Notice at Council May 29, 2014 2014-231 Effective Date May 29, 2014 1 certify that this Policy was adopted by Council as indicated above. ' June 3 2014 Pamela M. ra, unicipal Clerk Date First Notice -Council - May 15, 2014 (2014.207) Second Notice - Council - May 29, 2014 (2014-231) Effective Date- May 29, 2014 Page 5