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Home My WebLink AboutFSD-001-25 Staff Report If this information is required in an alternate accessible format, please contact the Accessibility Coordinator at 905-623-3379 ext. 2131. Report To: General Government Committee Date of Meeting: January 13, 2025 Report Number: FSD-001-25 Authored By: Paul Davidson Submitted By: Trevor Pinn, Deputy CAO/Treasurer, Finance and Technology Reviewed By: Mary-Anne Dempster, CAO By-law Number: Resolution Number: File Number: Report Subject: Reserve and Reserve Fund Reorganization Recommendations: 1. That Report FSD-001-25, and any related delegations or communication items, be received; 2. That staff be authorized to reallocate funds within the Municipality’s reserve funds, in accordance with the proposed consolidations provided within Report FSD -001-25; and 3. That all interested parties listed in Report FSD-001-25, and any delegations be advised of Council’s decision. Municipality of Clarington Page 2 Report FSD-001-25 Report Overview As the Municipality shifts its capital budgeting approach to emphasize asset management, it is recommended that the composition of the capital reserve funds be reorganized to reflect this transition. In addition to the capital reserve funds, it is proposed that all the Municipality’s reserve funds be categorized based on their intended use to provide greater clarity on purpose. This exercise also reduces the number of reserve funds through consolidation and by eliminating duplication. 1. Background 1.1 Reserve and reserve funds represent municipal funds that have been set aside for future expenditures. In Clarington, reserves and reserve funds are used to both offset the costs of unexpected events, and to provide financing for capital projects. In 2023, the Municipality began funding the entire capital program out of capital reserve funds, which are supported by annual operating budget contributi ons. 1.2 Clarington currently has 54 reserve funds and 17 reserves. Reserves are an allocation of accumulated net revenue that does not require a segregation of money (i.e.: money in reserve remains in the general fund). Reserve funds are established by Council or through legislation and are required to be physically segregated (i.e.: reserve fund money is held in a separate bank account). 1.3 Both reserves and reserve funds can be invested according to the Municipality’s investment policy. Interest earned on reserve investments flow back into the operating budget as investment income while interest earned on reserve fund investments goes back into the reserve fund and forms part of the balance. 1.4 Reserve funds can be categorized as either obligatory or discretionary. Obligatory reserve funds are established as either a requirement of legislation or a requirement of an agreement, such as development charge reserve funds. Discretionary reserve funds are established by Council at their own discretion, such as capital reserve funds. 2. Proposed Reserve Fund Reorganization Proposed Reserve Fund Composition 2.1 The purpose of the proposed reserve fund reorganization is to align the capital reserve funds with the Municipal Asset Management Plan and to reduce duplication by consolidating certain funds. As the Municipality’s capital budget transitions toward a greater focus on asset management, it is important that the transition is reflected in the reserve fund composition. Municipality of Clarington Page 3 Report FSD-001-25 2.2 The proposed reorganization includes establishing a separate capital reserve fund for each of the asset categories included in the asset management plan. This will be done largely through consolidation and renaming of existing reserve funds. As part of the process, a limited number of consolidations and renaming’s are proposed to occur outside the capital reserve funds. 2.3 The proposed reorganization also involves the categorization of reserve funds based on their intended use. The purpose of the categorization is to group reserve funds according to their intended use, which will provide Council with greater clarity on reserve fund balances for specific purposes. 2.4 The proposed new composition categorizes the Municipality’s reserve funds into the following four categories: Capital Asset Rehabilitation and Replacement – reserve funds used for the rehabilitation and replacement of capital infrastructure assets. Specific reserve funds have been established for each asset category to easily track investments in the different asset types. Reserve fund target balances have also been established in accordance with best practices from the Government Finance Officers Association (GFOA) of the United States and Canada. Capital Asset Growth and Expansion – reserve funds established for the purpose of financing growth-related capital infrastructure. This includes obligatory development charge (DC) reserve funds, as well as a discretionary reserve fund established to finance non-DC eligible growth-related projects. Special Projects and Initiatives –reserve funds established to finance projects with a specified purpose. This includes obligatory reserve funds with restricted uses, such as Parkland Cash-in-Lieu and Canada Community Building Fund Receipts, as well as discretionary reserve funds established for special purposes, such as Continuous Improvement and Climate Action. Stabilization and Contingency – reserve funds used to fund future obligations and to mitigate the financial impacts of both expected and unforeseen events. This includes the reserve funds established to hold certain types of revenues used to offset operating costs. 2.5 The proposed new reserve fund composition is provided in Attachment #1 and includes the estimated year-end balance for 2025, based on the 2025 draft budget update. Attachment #2 includes the list of proposed consolidations and Attachment #3 includes the list of proposed reserve funds to be renamed. 2.6 The proposed reorganization reduces the number of reserve funds from 54 to 41 . Municipality of Clarington Page 4 Report FSD-001-25 Reserve Fund Target Balances 2.7 As part of the reorganization exercise, target balances have been established for the majority of the Capital Asset Rehabilitation and Replacement reserve funds. There has not been a target balance established for the Library and Museum Capital reserve fund as the planned expenditures out of this fund have been approved through report FSD - 020-23. This report provides a plan to fully expend the reserve fund by the end of 2027. 2.8 Target balances for the capital reserve funds have been set according to GFOA best practice, which suggests that asset management reserve funds should have ending balances equal to a dollar amount or a percentage of the five -year average of the annual capital budget. The Municipality has set a preliminary ending balance target of 30 per cent of the five-year average capital budget for each reserve fund. This percentage will be evaluated annually to determine its effectiveness. 2.9 Target balances have also been established for the Miscellaneous Capital and Rate Stabilization reserve funds. The target balance for Miscellaneous Capital has been set at $1.5 million to ensure a reasonable balance for unexpected expenses throughout the year. The target for Rate Stabilization is to maintain a balance between 5 -10 per cent of the annual levy. This target is in line with industry best practice. 2.10 Attachment #4 provides the progress towards achieving these targets, based on the 2025 projected year end balances. Any funds that are significantly above target will be brought down over time through reduced annual contributions. 3. Financial Considerations 3.1 There are no financial implications associated with the proposed reserve fund reorganization. The reorganization includes only the reallocation of existing funds and does not include any request for additional funding. Any additional funding requirements will be requested through the annual budget process. 4. Strategic Plan This report supports the following expected result from the strategic plan:  L.2: Finances and operations are efficiently and responsibly mana ged. 5. Climate Change Not Applicable. Municipality of Clarington Page 5 Report FSD-001-25 6. Concurrence Not Applicable. 7. Conclusion It is respectfully recommended that the proposed reserve fund reorganization be approved to align the municipality’s capital reserve funds with the asset management plan and to reduce duplication. The proposed categorization will also provide Council with a clearer indication of each fund’s objective. The proposed reorganization does not require any additional funding as the exercise involves only the reallocation of existing funds. Staff Contact: Paul Davidson, Manager of Financial Planning /Deputy Treasurer, 905-623- 3379 x2607 or pdavidson@clarington.net. Attachments: Attachment 1 – Estimated Reserve Fund Balances Attachment 2 – Proposed Reserve Fund Consolidations Attachment 3 – Proposed Reserve Fund Name Changes Attachment 4 – Reserve Fund Target Balances Interested Parties: There are no interested parties to be notified of Council's decision. Attachment 1 to Report FSD-001-25– Estimated Reserve Fund Balances Capital Asset Rehabilitation and Replacement 2024 Projected Ending Balance 2025 Ending Balance (Estimated) Facilities Capital $941,700 $1,070,440 Corporate Fleet Capital $331,099 $1,992,062 Emergency Services Capital $625,911 $325,411 Information Technology Capital $376,056 $280,061 Parking Infrastructure Capital $837,774 $714,649 Parks and Cemeteries Capital $938,879 $1,082,888 Transportation Infrastructure Capital $552,490 $306,996 Library and Museum Capital 1,480,927 $528,927 Roads Capital $1,497,954 $2,274,954 Bridges and Culvert Capital $1,104,980 $633,980 Stormwater Capital $310,489 $251,489 Total $8,998,259 $9,461,857 Capital Asset Growth and Expansion 2024 Projected Ending Balance 2025 Ending Balance (Estimated) DC Growth Studies $69,999 $228,983 DC Library Services $1,806,899 $1,772,728 DC Fire Protection Services $4,927,434 $4,630,859 DC Park & Rec Services $2,032,641 $891,578 DC Services Related to Highways $34,756,977 $31,777,652 Miscellaneous Capital $3,591,184 $2,034,567 Total $47,185,134 $41,336,367 Attachment 1 to Report FSD-001-25– Estimated Reserve Fund Balances Special Projects and Initiatives 2024 Projected Ending Balance 2025 Ending Balance (Estimated) Climate Action $176,875 $351,875 Economic Development $325,226 $375,226 Strategic Capital $4,436,078 $4,561,078 Canada Community-Building Fund Receipts $1,244,524 $377,125 Provincial Infrastructure $5,566,862 $1,004,906 Port Granby LLRW Agreement $321,150 $321,150 Community Improvement Plans $194,269 $194,269 Continuous Improvement $312,066 $363,566 Beautification / Tree Planting $68,910 $68,910 Parkland Cash In Lieu $8,367,189 $8,367,189 General Municipal $2,757,485 $712,373 Newcastle BIA $85,276 $85,276 Bowmanville BIA $15,813 $15,813 Orono BIA $33,419 $33,419 Total $23,905,142 $16,832,175 Attachment 1 to Report FSD-001-25– Estimated Reserve Fund Balances Stabilization and Contingency 2024 Projected Ending Balance 2025 Ending Balance (Estimated) Rate Stabilization $13,224,939 $8,338,926 Debenture Retirement $497,395 $497,395 Municipal Government Enterprise $27,900,036 $27,900,036 Mun Gov't Ent. - Other $954,874 $984,874 Building Division ($521,230) $0 Parking Enforcement $817,160 $536,305 Community Emergency Management $851,194 $701,194 Future Staffing $1,023,889 $994,932 Benefits Stabilization $1,005,635 $504,079 Engineering Review and Inspection $2,585,332 $1,999,832 Total $48,339,224 $42,457,573 Attachment #2 to Report FSD-001-25 – Reserve Fund Consolidations New Reserve Fund 2024 Estimated Ending Balance Old Reserve Fund 2024 Estimated Ending Balance Facilities Capital $941,700 Communities Services Capital $901,976 Older Adults Programming $39,724 Animal Services Capital* $266,674 1 Parks and Cemeteries Capital $938,879 Facilities / Parks Maintenance $764,234 Cemeteries Capital $51,120 Newcastle Waterfront $5,759 Cemetery - Hampton Union, Orono $117,766 Library and Museum Capital $1,480,927 Library Capital $1,168,286 Library Computer Equipment $275,808 Museum Capital Bowmanville $18,416 Museum Capital Clarke $18,417 Roads Capital $1,497,954 Roads Capital $1,212,229 Roads Contribution $285,725 Stormwater Capital $310,489 Stormwater Management Pond Maintenance $34,244 New (5% Municipal Capital Works) $276,245 Transportation Infrastructure Capital $552,490 New (10% Municipal Capital Works) $552,490 Bridges and Culvert Capital $1,104,980 New (20% Municipal Capital Works) $1,104,980 Miscellaneous Capital $3,591,184 Municipal Capital Works $3,591,184 Engineering Review and Inspection $2,585,332 Engineering Review $1,298,604 Engineering Inspection $1,286,728 Total $13,003,935 $13,003,935 1 Animal Services capital is being earmarked for a new Animal Services facility and does not count toward the unallocated balance in the Facilities Capital reserve fund. Attachment 3 to Report FSD-001-25– Proposed Reserve Fund Name Changes New Reserve Fund Old Reserve Fund Corporate Fleet Capital Operations Equipment Information Technology Capital Computer Equipment Emergency Services Capital Fire Equipment Parking Infrastructure Capital Parking Lot Rehabilitation Miscellaneous Capital Municipal Capital Works Benefits Stabilization ASO Benefits Parking Enforcement Parking Lot Attachment 4 to Report FSD-001-25 – Reserve Fund Target balances Five-Year Average Capital Budget Target Balance (30% of 5-year average) 2025 Ending Balance (Estimated) Actual Percentage of Five- Year Average On Target Facilities Capital $2,732,289 $819,687 $1,070,440 39% Yes Corporate Fleet Capital $2,789,095 $836,729 $1,992,062 71% Yes Emergency Services Capital $237,385 $71,216 $325,411 137% Yes Information Technology Capital $603,096 $180,929 $280,061 46% Yes Parking Infrastructure Capital $425,820 $127,746 $714,649 168% Yes Parks and Cemeteries Capital $1,654,489 $496,347 $1,082,888 65% Yes Transportation Infrastructure Capital $946,946 $284,084 $306,996 32% Yes Roads Capital $7,551,508 $2,265,452 $2,274,954 30% Yes Bridges and Culvert Capital $1,893,520 $568,056 $633,980 33% Yes Stormwater Capital $478,679 $143,604 $251,489 53% Yes Total $19,312,827 $5,793,850 $8,932,930 46% 2025 Ending Balance (Estimated) Target Balance On Target Miscellaneous Capital $2,034,567 $1,500,000 Yes Rate Stabilization $8,338,926 $4,107,100 - $8,214,200 Yes