2022 and 2023 budget: Reserves and reserve funds

Reserves and reserve funds are a critical financial tool for increasing the City’s sustainability and flexibility while reducing vulnerability and are a key component of the City’s long-term financial strategy. They provide options to respond to unexpected issues, phase-in funding impacts over-time as well as reduce reliance on debt.

The City’s General Reserve and Reserve Fund Policy guides the use of these funds, establishes sufficiency targets and dictates spending authority. The City has about 70 reserve and reserve funds; however, this can change with legislative requirements and special programs. For the most effective and efficient management of funds, the City tries to minimize the number of reserves where possible, taking a whole-city corporate approach rather than department-specific funds.

New this year are the following reserves:

  • Health Care Spending (Fire) (#103) was created to fund future expenses related to the healthcare spending account that was awarded through arbitration during the most recent Fire Collective Bargaining Agreement for retired firefighters between the ages of 65 and 70.
  • Evergreen Donations (#134) was created to carry funds received through a bequest until they can be used for future investment at the Evergreen Seniors Community Centre.
  • Community Paramedicine (#348) was created to hold the funds received from the province for this new program in advance of them being utilized.

Further, the Federal Gas Tax Reserve Fund (#343) has been renamed the Canada Community-Building Fund Reserve Fund because of the federal government rebranding decision.

The 2022/23 Budget leverages reserves and reserve funds to smooth the impact of one-time expenditures, provides for informal inter-reserve borrowing to mitigate debt requirements and continues to build funds towards policy targets.

2022/23 activity

Tax operating contingency

  • Increase in reserve up to $590,000 that is projected to result in net revenue from implementation of red-light cameras and automated speed enforcement; expected in future that these funds will be transferred to capital reserve funds to fund traffic safety enhancement projects.
  • Transfer of up to $843,000 to phase-in escalating costs of Information Technology licensing and corporate aging fleet maintenance requirements
  • Transfer of $283,000 to fund the Project Manager for the new Central Library; use of 2021 phase-in funding budgeted for this project that is available in this reserve
  • Transfer of $250,000 in combination of $185,000 from the Strategic Initiative Reserve to fund one-time costs associated with the updating of the Community and Strategic plans with a new Council in 2022.
  • Transfer of $233,000 to phase-in cost of Elliott compensation increase over two years
  • Transfer of up to $86,000 to fund the remaining two years of the Seasonal Patio program
  • Transfer of $51,000 to fund the remaining half-year contract for Transit Development Specialist
  • Also holds all unallocated Safe Restart grant funding that will be used to manage COVID risk through 2022/23

Compensation contingency

  • Up to $705,000 transferred to phase-in compensation market adjustment costs
  • Up to $300,000 transferred to phase-in cost of long-term disability insurance premiums escalation
  • $355,000 transferred for two two-year contract positions required for the implementation of Customer Service enhancements; planned permanent requests in 2024 and 2025
  • $139,000 transferred for extension of the Human Resources data and compensation analyst position
  • $288,000 transferred for a two-year contract recruitment specialist; planned permanent request in 2024

Environment and utility contingency

  • $225,000 to phase-in cost of residential yard waste disposal over two years
  • Mitigating up to $692,000 of risk for COVID-related haulage and pricing increases for recycling and organics; managing through variance and monitoring actual trends before making permanent budget change

Legal and Insurance

  • $450,000 to phase-in escalating insurance costs that are resulting from the COVID-impacted market

Community investment

  • $360,000 to be transferred out in 2022 and 2023 to fund program costs identified by the 2019 Community Investment Strategy. The balance in the reserve will be significantly depleted by 2023 as outlined in the September 23, 2019 Staff Report PS-2019-20 Revised Community Investment Strategy

Strategic initiatives

  • $100,000 base transfer into the reserve
  • Transfer of $185,000 in combination of $250,000 from the Operating Contingency Reserve to fund one-time costs associated with the updating of the Community and Strategic plans with a new Council in 2022

Election

  • $151,000 base transfer into this reserve annually to fund costs of municipal election
  • $72,000 transferred out for temporary election clerk in 2022
  • $180,000 transferred out to fund the known costs of the 2022 Municipal Election; however, staffing and other related costs will be funded as incurred

Affordable housing

  • $500,000 transferred in annually for Affordable Housing Financial Incentive Program

Redevelopment incentives

  • $1.2 million transferred in as base transfer to fund the Community Improvement Plan incentive program annually
  • $3.1 million transferred out to fund contractual tax-based increment grant incentive payments

Efficiency, innovation and opportunity

  • Transfer in of $990,000 of operating savings resulting from energy efficiency and fibre network capital investment
  • Transfer in of $1.5 million over three years as a result of the one-time phase-in funding for Baker District and South End Community Centre
  • Up to $500,000 transferred out annually for three years to assess and implement opportunities as identified in the Service Rationalization Review as well as other continuous improvement projects

Court Services operating contingency

  • Transfer in up to $847,000 that is projected to result in net revenue from implementation of red-light cameras and automated speed enforcement; expected in future that these funds will be transferred to capital reserve funds to fund traffic safety enhancement projects

Corporate Capital Reserve Funds

  • Maintaining infrastructure renewal funding transfers in accordance with asset management planning; slowing down of tax supported strategy for 2022/23 to allow for people resources to execute capital projects to rebalance and align to capital funding levels.
  • $997,000 transferred to Wastewater Capital Reserve Fund to repay internal borrow for the LED street lighting project
  • Maintaining growth and contaminated sites funding at $3.1 million and $2.6 million respectively
  • Incremental investment in 100RE financial strategy of $500,000 increase in each of 2022 and 2023
  • Maintaining City Building Strategy except for one-time transfer in of $7.5 million over three years because of the one-time phase-in funding for Baker District and South End Community Centre

Development Charge (DC) Reserve Funds

  • Projected DC collections are $28.5 million and $29 million in 2022 and 2023 respectively, which is about 80 per cent of the collections identified in the DC Background Study and reflective of pre-COVID-19 actual pace of growth
  • Use of DCs for growth-related capital infrastructure will total $63.5 million over 2022 and 2023 as described in the Growth Strategy.

City’s planned activity and forecasted balances of reserves and reserve funds by the end of 2025

Reserve and Reserve Fund Types 2021 Year-end Uncommitted Balance 2022 Transfers In 2022 Transfers Out 2022 Projected Year-end Uncommitted Balance 2023 Net Transfers 2024 Net Transfers 2025 Net Transfers 2025 Projected Year-end Uncommitted Balance
Tax Supported Corporate Contingency Reserves 21,502,005 2,956,200 (5,533,515) 18,924,690 (1,800,905) (1,077,500) (550,000) 15,496,285
Tax Supported Program Specific Reserves 14,604,906 201,000 (540,000) 14,265,906 (339,000) (339,000) (339,000) 13,248,906
Tax Supported Strategic Reserves (10,818,363) 1,519,091 (785,000) (10,084,272) 1,468,529 1,338,466 1,308,307 (5,968,970)
Tax Supported Program Specific Reserve Funds 4,472,614 5,168,497 (4,699,100) 4,942,012 (138,489) (37,141) (1,173,232) 3,593,150
Tax Supported Corporate Capital Reserve Funds 19,303,755 31,281,814 (30,068,315) 20,555,254 (1,355,370) (406,637) (6,796,683) 11,996,563
Non-Tax Supported Program Specific Reserves 4,852,844 375,200 (394,100) 4,833,944 667,400 953,100 953,100 7,407,544
 Non-Tax Supported Capital  Reserve Funds 60,461,780 41,944,231 (56,996,280) 45,409,730 5,092,358 (11,666,607) (28,222,237) 10,613,243
Obligatory Corporate Reserve Funds 30,111,217 11,891,431 (14,452,441) 27,512,207 (5,669,723) (3,120,343) (9,521,106) 9,201,035
Development Charge Reserve Funds 20,106,688 29,037,099 (28,087,351) 21,056,436 (10,896,862) (22,808,390) (9,990,730) (22,639,547)
Total 164,597,446 124,374,562 (141,556,102) 147,415,905 (12,972,063) (37,164,053) (54,331,581) 42,948,208

The City Building Reserve Fund (#159) and 100 Renewable Energy Reserve Fund (#355) have been removed from the table above and are shown below. This is due to the lack of an approved sustainable funding strategy for these two significant reserve funds. A recommendation to address these shortfalls is presented to Council through the Strategic Investment Priority Summary.

Reserve Fund 2021 Year-end Uncommitted Balance 2022 Transfers In 2022 Transfers Out 2022 Projected Year-end Uncommitted Balance 2023 Net Transfers 2024 Net Transfers 2025 Net Transfers 2025 Projected Year-end Uncommitted Balance
City Building Reserve Fund (#159) (5,580,345) 4,759,122 (7,930,965) (8,752,187) (5,267,256) (945,254) (3,730,332) (18,695,029)
100RE Reserve Fund (#355) 2,343,016 1,311,000 (3,346,300) 307,716 (2,480,578) (3,041,141) (2,201,073) (7,415,076)
  • Tax Supported Corporate Contingency Reserves—the City is forecasting using these contingency reserves over the next four years to help manage price increases that are occurring as a result of COVID, but also to fund one-time initiatives to move forward on strategic plan priorities. This group of reserves also holds the unspent balance of the $17.2 million in Safe Restart Emergency Grant funding received from the federal and provincial governments in 2020 and 2021 to offset the impacts of COVID-19 on City operations. Given the long-term financial effects of COVID-19 expected, any balances remaining at the end of 2021 will be used to offset continued revenue risk through 2022. While the overall balance of these reserves declines below target by 2025, these reserves are being used as intended to help the City move through a difficult economic environment, and any year-end surplus funds can be directed to rebuild these in the future.
  • Tax Supported Program Specific Reserve—remain relatively stable through the forecast period with no significant fluctuations.
  • Tax Supported Strategic Reserves—the projected deficit is due to the Industrial Land Reserve which was used to fund land development at the Hanlon Creek Business Park (HCBP). As per Council direction, the City is currently working to sell Phase 3 of the HCBP, as well as continue to sell land inventory in Phase 1. Current expectations are that these activities will result in sale proceeds sufficient to replenish the reserve deficit position and end with surplus funds available to fund the implementation of the Economic Development and Tourism Strategy and future Community Improvement Plan incentives. This revenue is not reflected in the schedule due to uncertainty of timing.
  • Tax Supported Corporate Capital Reserve Funds, excluding City Building and 100RE Reserve Funds are forecasted to have an uncommitted balance of $12 million by 2025, this is below target however, manageable with projected project delivery. These balances are significantly influenced by the pace of capital project delivery and may be adjusted in future budgets based on the current market conditions from the perspective of construction cost inflation and supply chain issues that could delay projects.
  • Non-Tax Supported Program Specific Reserves—two primary factors are increasing these balances over the four-year forecast being: operating contingency reserve contributions to bring these funds towards targets in stormwater and parking services, and projected surpluses from the red-light camera and automated speed enforcement related to the Court Services operations are being temporary held. It is expected in the future that these funds will be transferred to capital reserve funds to fund traffic safety enhancement projects once volumes and associated court service costs can be verified.
  • Non-Tax Supported Capital Reserve Funds—as Water, Wastewater and Stormwater services continue with implementing their asset renewal plans, the reserve fund balances are forecasted to reduce substantially by 2025 primarily as a result of Water Services capital renewal. Debt may be used as a financing tool and over time, the stable funding will replenish these reserve funds to sustainable balances. The City has also applied for $35.7 million from the newly announced Disaster Mitigation and Adaptation Fund to help tackle the infrastructure backlog without rate increases in all three service lines.
  • DC Reserve Funds—there is $195.3 million of growth-related capital budget approval planned between 2022 and 2025 as infrastructure work for Clair Maltby and other intensification related projects unfold. Debt will be issued as a financing tool in order to align the cost with DC revenue collection. The reserve table shows the reserve fund balances net of debt outstanding in each year. Further work will be done in 2022 as many of the servicing master plans are being updated and these will need to be incorporated into the capital model to make recommendations about the pace of new infrastructure development.