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Home My WebLink AboutFND-008-11 '~^n Reviewed by: Nancy T lor, B. .A. Director of Finance/ Treasurer FINANCE DEPARTMENT Meeting:. COUNCIL Date: MAY 2, 2011 Report: FND-008-11 REPORT BY-law#: Resolution#: C-~~( File#: Subject: RESERVE FUNDS STATUS DATIONS: It is respectfully recommended to Council the following: THAT Report FND-008-11 be received for information. Submitted by: NT/hjl v ~~: ~ Franklin Wu, Chief Administrative Officer CORPORATION OF THE MUNICIPALITY OF CLARINGTON 40 TEMPERANCE STREET, BOWMANVILLE, ONTARIO L1C 3A6 T (905)623-3379 REPORT NO.: FND-008-11 BACKGROUND AND INFORMATION: PAGE 2 1.0 The intent of this report is to update Council on the overall status of the Reserve Funds and historical usage patterns. The information included is based on annual approved budget data. Development charges are excluded from this analysis as they are restricted for specific purposes and are categorized separately for financial reporting purposes. 1.1 As Council is aware, through the budget process, funds are drawn from the Reserve Funds for capital purposes, funds are drawn from the Reserve Funds for current purposes, and funds are contributed annually into the Reserve Funds to support current and future requirements. 1.2 The table below reflects the budgeted transfers indentified above for the past five years. HISTORICAL SUMMARY OF RESERVE FUND BUDGET ACTIV ITY 2007 2008 2009 2010 2011 OPENING BALANCE 25,612,320 25,340,404 26,845,201 25,408,630 26,734,464 CAPITAL DRAW (3,176,389) (3,309,610) (4,996,676) (7,015,046) (5,057,373) CURRENT DRAW (1,491,144) (1,456,822) (1,787,109) (1,787,638) (4,269,982) CONTRIBUTIONS IN 1,667,000 1,767,000 1,715,000 1,704,200 1,613,700 FEDERAL GAS TAX 907,711 1,134,563 2,269,126 2,393,743 2,393,743 PROJECTED CLOSING BALANCE 23,519,498 23,475,535 24,045,541 20,703,890 21,414,552 Some commentary around the capital and current draws may help to understand the individual variations that have occurred over the years. REPORT NO.: FND-008-11 PAGE3 1.3 With respect to the capital draw from the reserve funds, please see the chart below: Capital draws tend to fluctuate because the municipality accumulates funds from a long term planning perspective, into the reserve funds for specific large projects and then when there are sufficient funds, the project proceeds. Those years with higher draws coincide with the budget approval of a significant project. 2010 includes $4.5 million for the Newcastle Fire Hall, as an example. This strategy assists in preventing significant tax rate fluctuations in years that significant capital projects are planned. 1.4 With respect to the current draw from reserve funds, this reflects the funds that are transferred to the operating budget. REPORT NO.: FND-008-11 PAGE 4 These draws tend to be quite stable. The balance for 2011 has increased because it was approved to transfer $2,378,000 to pay the balloon payment on the MAC/Main library building in order to save on interest costs that would have been incurred had we renewed it for the further 5 years. If this had not been done, the transfer would have been only $104,344 more than last year. CONCLUSIONS: 2.0 If you combine the capital and current draws, and remove the balloon payment, we would have been lower than last year and more in line with 2009. The chart below reflects the relative stability in the reserve funds over the past 10 years. While we will need to work on improvements from a long term asset replacement strategy perspective, we have kept things fairly stable over the last number of years. 2.1 From a comparison standpoint, Clarington ranks 6th highest out of the 83 participating municipalities in the BMA Study with respect to discretionary reserves as a % of taxation and 3`d highest out of 83 with respect to reserves as a % of own source revenue. While Clarington has the same concerns as all municipalities. in needing to develop future plans and funding strategies to address the infrastructure deficit, Clarington has a strong history in utilizing reserve funds in a very strategic fashion to fund capital projects and minimize tax rate fluctuations.