2026 Confirmed Budget: Long-term financing tools

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Reserves and reserve funds

The City uses reserves and reserve funds for planned capital expenses, strategic objectives, unexpected or extraordinary costs, and to minimize the impact of fluctuations in the operating and capital budgets on the tax levy. They also allow for informal inter-reserve borrowing, which helps the City manage debt levels.

The City’s reserves and reserve funds are classified as either obligatory or discretionary. Obligatory reserve funds are created when a provincial statute requires that revenue received for specific purposes is segregated from the general revenues of the municipality. Obligatory reserve funds are used solely for the purpose prescribed for them by statute. Discretionary reserve funds are created under the Municipal Act when Council wishes to earmark revenue to finance a future expenditure for which it has the authority to spend money, and to set aside a certain portion of any year’s revenues so that the funds are available as required.

The City currently has over 80 reserves and reserve funds. A long-term forecast for each of the reserves and reserve funds has been prepared as part of the 2026 confirmed budget. This long-term view provides insight into the flexibility and sustainability of the plan and affordability of the operating and capital budget and forecasts over the long term. The forecast incorporates planned transfers identified under the various funding strategies, any known external grants received, as well as the planned capital and operating expenditures.

Ideally, the reserve balances remain positive over the entire forecast and meet the target balances and annual transfer levels as outlined in the Reserve and Reserve Fund Policy. The 2026 confirmed budget shows a positive overall balance in the capital reserve funds, after commitments, in every year of the forecast. However, the current plan does not meet the minimum reserve balance targets set for each individual reserve in the existing policy. A review of the Reserve and Reserve Fund Policy has been initiated. As part of this review, recommendations related to target minimum balances may be proposed for Council approval. This work will lay the foundation for future capital funding discussions as part of the next multi-year budget (MYB) cycle.

The tax-supported corporate contingency reserve balances have a target of 8–10 per cent of annual combined own source revenues. These reserves help to mitigate unexpected impacts and phase-in unexpected or significant cost increases that cannot be avoided over multiple years. This group of reserves were drawn upon throughout the MYB to phase-in significant increases to social services and other operating budget expenditures. These phase-ins continue in the 2026 confirmed budget. The balance in this group of reserves is expected to range from 14 to 19 per cent of the target from 2026 through 2029. The most notable change to the contingency reserve forecast, compared to the 2025 Budget Confirmation, is the addition of a reserve allocation totaling $1.9 million for the projected 2025 tax-supported operating budget deficit as reported in the Second Quarter Budget Monitoring Report. The $1.9 million deficit includes the approved $819 thousand budget adjustment to compensation for Guelph-Wellington Paramedic Service that will be funded from the tax operating contingency reserve (180) in 2025.

The further decline of the tax-supported contingency reserves balance compared to target in the 2026 confirmed budget is largely driven by approved and projected uses of the tax operating contingency reserve (180). The balance of the tax operating contingency (180) reserve is projected to decrease from a 2025 opening balance of $8.7 million to a 2025 ending balance of $2.8 million, and with the planned use of this reserve in 2026, 2027, and 2028, is projected to have a balance of $100 thousand at the end of 2028. The policy minimum balance of the tax operating contingency reserve is $5.0 million. The most significant draws on the reserve are the projected 2025 tax supported deficit of $1.9 million noted above, and funding for phasing in the County Social Services 2024 budget increase, which is projected to be a $2.8 million draw in 2025 and a $1.4 million draw in 2026, with the full cost of the 2024 increase being funded through the tax levy by 2027. Over the past several years, including in 2025, contributions to the hospital have been funded from the tax operating contingency reserve (total of $3.75 million) instead of adding the hospital levy to the budget. The cumulative impact of the draws on this reserve described above has resulted in a low level of contingency that increases vulnerability and reduces flexibility, and staff strongly recommend against any additional use of contingency reserves. Staff have continued to recommend through the Budget Companion Report that future tax-supported operating surpluses be directed to restoring contingency reserve balances to reduce the City’s vulnerability to unexpected events. Given the fact that the City’s budget has become much tighter after several years of detailed analysis and baseline adjustments, the likelihood of future surpluses to replenish balances has diminished, and staff have added a recommendation in the 2026 Budget Companion Report that allocations to rebuild the contingency reserves be considered through the next MYB for 2028 to 2031.

Non-tax supported contingency reserve balances are expected to remain between 75 and 80 per cent of the target from 2026 through 2029. Given the self-funded nature of these services, maintaining balances close to target is essential. The Water Contingency reserve (181) is projected to end 2025 with a negative balance due to a projected deficit in the second quarter budget monitoring report and the phased implementation of the utility billings and collections team. Should the reserve remain negative as projected, staff will develop a plan to restore the Water contingency balance through the 2027 Budget Update. As noted in the Operating Budget section of this website, the OBC Stabilization reserve fund (188) is expected to be drawn upon in 2025 and 2026, which results in a projected reserve fund deficit of $963 thousand by the end of 2026.

The largest impact to the capital reserve fund forecast in the 2026 confirmed budget is the updated DC collections forecast. Noted in the Growth strategy, a total of $104 million of projected DC collections were removed from the DC reserve fund forecast from 2025 through 2029 to align with the trends in the construction industry that have been seen in 2024 and 2025. Staff leveraged the capital prioritization framework to defer projects out of the 2026 to 2028 period to offset the impact of this reduction in capital revenue assumptions.

The tax-supported corporate capital reserve funds, as a group, are projected to be in a deficit position from 2029 through 2033. While this is a significant concern, as this funding serves as the primary source to address unexpected capital costs, the capital plan remains flexible as future annual budget updates provide opportunities to realign priorities and adjust funding strategies as needed. Staff continue to monitor this closely and will engage with Council through each budget update to ensure financial sustainability and informed decision making.

Another area to monitor is the decrease in overall reserve and reserve fund balances by 2026. The total uncommitted balance of the reserves and reserve funds is forecasted to be $64.9 million in 2026. For comparison, the uncommitted 2025 balance is forecast to be $188.1 million. This reduction in reserve and reserve fund balances demonstrates the significant amount of work that is proposed through the capital budget in 2026, totaling over $360 million. It is important to note that, capital projects are fully budgeted in the year in which they are expected to be tendered. As a result, capital reserve funding is committed in that year, reflecting the full financial obligation of the project at the time of tender rather than the timing of actual cash outflows, which typically occur over multiple years. Staff forecast cashflows and are continuing to evolve the City’s long-term cash flow forecasting to further enhance decision making and financial sustainability.

The balances of the tax-supported capital, non-tax supported capital, and capital obligatory reserve funds (including DC reserve funds) are a combined $24.6 million positive balance in 2026. While the tax-supported capital balances have a cumulative positive balance from 2026 to 2028, there is a forecasted deficit of $16.8 million in 2029. With limited uncommitted funding available, any new projects added to the 2026–2029 capital plan must be offset by removing existing projects of equal or more value or by adding additional tax-supported capital funding.

Overall, the updated reserve forecast continues to meet the direction from Council for a balanced capital reserve fund forecast, and actual balances will be closely monitored through annual budget and reporting processes.

Table 59 Forecasted year-end uncommitted reserve and reserve fund balances ($ millions)

Reserve Fund Grouping	2025	2026	2027	2028	2029	2030	2031	2032	2033	2034	2035
Tax-supported corporate capital reserve funds	7.8	20.9	29.6	121	(16.8)	(19.6)	(19.7)	(15.7)	(5.0)	30.5	68.78
Non-tax supported capital reserve funds	90.1	54.6	47.4	50.7	33.0	22.1	61.4	76.6	59.1	142.7	244.7
Capital obligatory reserve funds	47.2	44.2	37.9	34.8	31.9	34.4	8.5	7.8	11.9	12.1	14.7
Development charge reserve funds (after debt)	(5.5)	(95.1)	(81.5)	(49.4)	(21.8)	(10.1)	(14.7)	(16.5)	(24.0)	0.6	(72.9)
Total capital reserve funds	139.6	24.6	33.7	48.2	26.2	26.8	35.5	52.2	42.0	185.9	255.2
Tax-supported corporate contingency reserves	16.4	12.1	11.8	11.4	10.9	10.9	10.9	10.9	10.9	10.9	10.9
Non-tax supported contingency reserves	3.7	4.0	4.3	4.5	4.7	4.7	4.8	4.8	4.9	4.9	5.0
Total contingency reserves	20.1	16.1	16.2	15.9	15.5	15.6	15.7	15.7	15.8	15.8	15.9
Tax-supported program-specific reserves	18.0	17.2	17.3	17.5	17.6	18.1	18.7	19.2	19.8	20.3	20.9
Tax-supported strategic reserves	(2.5)	(4.1)	(5.1)	(4.5)	(3.8)	(2.3)	(0.6)	1.6	3.8	4.9	6.0
Tax-supported program-specific reserve funds	9.4	9.1	7.2	6.5	7.6	7.4	8.9	10.1	8.7	14.2	20.7
Other obligatory corporate reserve funds	3.6	2.0	0.2	(1.5)	(3.4)	(3.5)	(3.6)	(3.8)	(3.9)	(4.1)	(4.2)
Total other reserve and reserve funds	28.4	24.1	19.6	18.0	18.0	19.7	23.4	27.2	28.4	35.3	43.3
Total reserve and reserve fund balances	188.1	64.9	69.5	82.2	59.8	62.2	74.6	95.2	86.3	237.1	314.4

Figure 7 shows the projected balances of the capital reserve funds over the 10-year forecast. The overall positive balance is supported by the non-tax capital reserve funds and other obligatory reserve funds, which are positive throughout the forecast. These two categories will become informal lenders to the tax-supported capital and DC reserve funds when they fall into a deficit position.

Figure 7 Projected capital reserve fund balances 2025-2035 ($ millions)

View Figure 7 data

Reserve Fund Grouping	2025	2026	2027	2028	2029	2030	2031	2032	2033	2034	2035
Tax-supported Capital	8	21	30	12	(17)	(20)	(20)	(16)	(5)	31	69
Non-tax supported Capital	90	55	47	51	33	22	61	77	59	143	245
Development charge reserve funds (after debt)	(5)	(95)	(81)	(49)	(22)	(10)	(15)	(16)	(24)	1	(73)
Capital obligatory reserve funds	47	44	38	35	32	34	9	8	12	12	15

Actual reserve and reserve fund activity and year-end balances for all reserves and reserve funds, along with detailed comparison of the balance relative to the target balance are provided to Council in the second quarter of each year.

Debt strategy

In June 2025, the City issued $58 million of serial debentures, marking the first debt issuance since 2021 in alignment with the debt strategy articulated through the 2024–2027 MYB and the 2025 Budget Confirmation. The 2026 debt strategy builds on this approach, using strategic annual debt issuances to help offset slower growth while maintaining critical infrastructure investments and preserving flexibility for future budgets. Consistent with previous expectations, staff estimate that the City will be able to issue serial debentures totaling approximately $50 million in any year, mostly for new debt, except for 2026 due to a planned refinancing of existing debt which will utilize part of this capacity. The debt forecast and analysis is developed based on this quantum and assumes a 20-year term at 4.5 per cent interest. In some years, it may be more advantageous to issue 10-year serial debentures with a balloon payment and refinance after 10-years. This approach balances the risk that interest rates may be higher after 10-years with the possibility that they could decrease. The actual quantum, term and interest rate is subject to the economic environment and market conditions at the time of borrowing.

Debt continues to be planned for a mix of the following categories: previously approved capital projects, debt refinancing, and proposed capital projects included in the current capital budget and forecast. There is also debt capacity reserved later in the forecast for DC funded infrastructure which is not assigned to specific capital projects at this time.

Debt issuances for capital projects in execution, as well as refinancing the balloon payment for By-law (2016) – 20084 in 2026, are a priority in the 10-year forecast. The timing of issuance may change depending on the market conditions and cash flow availability.

In April 2025, Council approved the Debenture Issuance Authority report, which gives the Treasurer authority to issue debentures for projects outlined in the report to a maximum amount not greater than $118.15 million through the end of 2026. In June 2025, the City issued the first debentures under this authority, as approved in By-law (2025) – 21093, with a total of $58 million issued. The remaining $60.15 million of issuance authority is currently planned for issuance in 2026, all of which may be issued at that time if market conditions are favourable.

Table 60 Distribution of new debt, 2026 to 2035 ($ millions)

Description	2026	2027	2028	2029	2030	2031	2032	2033	2034	2035
Refinance of existing debt	26.2	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0	0.0
Debt financing for projects approved through 2025 and previous budgets	34.0	0.0	15.0	0.3	0.0	0.0	0.0	0.0	0.0	0.0
Debt financing for projects included in 2026 and future budgets	0.0	50.0	35.0	12.3	0.0	23.5	0.0	11.5	0.0	0.0
Debt capacity reserved for growth projects	0.0	0.0	0.0	37.4	50.0	26.5	50.0	38.5	50.0	50.0
Total debt issued	60.2	50.0	50.0	50.0	50.0	50.0	50.0	50.0	50.0	50.0

The debt strategy for the 2026 confirmed budget has been updated to reflect the current pressures in the reserve fund forecast. While the overall debt level from 2025 to 2035 remains unchanged, the timing and project selection have been optimized to better align with the debenture issuance process.

Table 61 lists the previously approved projects that have debt financing assigned, which totals $135.6 million in debt to be issued from 2026 to 2029. This update includes the reallocation of debt from the FM Woods Station upgrade project (WT0064) to the DC portion of the Guelph Transit and Fleet Services Facility (TC0059).

Table 61 Planned borrowing from 2026 to 2035 by project: Debt financing for projects approved through 2025 and previous budgets ($ millions)

Description	Capital project number	Timing	Debt Allocated (2026 Confirmed Budget)
Baker District Redevelopment projects	LB0028 PG0079	2026	34.0
Guelph Transit and Fleet Services Facility	TC0059	2028	11.0
Wyndham Street North Reconstruction – Streetscaping	PN0060	2028 to 2029	4.3
Total	n/a	n/a	49.3

Table 62 lists the planned debt assigned to projects budgeted in the confirmed 2026 10-year capital budget and forecast. These projects meet the criteria in the Debt Management Policy and were strategically selected to reduce pressure on the tax supported capital reserve funds. The assets acquired through these projects have long useful lives and through debt financing, the City supports inter-generational equity by having costs distributed fairly across current and future generations.

Table 62 Planned borrowing from 2026 to 2035 by project: Debt financing for proposed projects in 2026 and future budgets per the 2026 confirmed budget ($ millions)

Description	Capital project number	Timing	Amount
Guelph Transit and Fleet Services Facility	TC0059	2027 to 2028	85.0
Wyndham Street North Reconstruction – Streetscaping	PN0060	2029	1.3
Riverside Park Facility Renovation and Expansion	PO0059	2029 to 2031	15.0
Operations Administration Renovation and Expansion	GG0267	2031 to 2033	31.0
Debt capacity reserved for growth projects	n/a	2029 to 2035	302.4
Total	n/a	n/a	434.7

The table includes $302.4 million of debt that is not assigned to specific projects at this time but an earmarked in the City’s overall debt capacity for growth projects. If development charge (DCs) collections remain below revised forecasts, pressure on the DC reserve funds will increase further. In this case, debt may be required to fund the shortfall between growth-enabling infrastructure and available collections, helping bridge the impact of slower growth and lower funding capacity while ensuring continued investment in the community.

A key risk being monitored is whether DC collections are expected to cover DC debt servicing costs, given the low level of DC collections and the increased reliance on debt to finance the DC supported capital program. If debt servicing costs exceed DC collections, all available DC collections would be allocated to previously executed projects, leaving no capacity to fund future projects and slowing the delivery of growth-enabling infrastructure. The backstop for DC supported debt servicing costs is property taxes and utility rates, and the risk of having to draw upon those sources to pay DC supported debt servicing costs must be closely monitored. In 2024, 64 per cent of DC collections were allocated to debt servicing costs, leaving only 36 per cent of 2024 DC collections available for future growth projects. With the slower growth experienced in 2024 and 2025, the collections-to-debt servicing costs ratio has become a significant concern. If low DC collections continue and additional debt is needed to fund growth infrastructure, the City may face constraints in delivering new growth projects.

Borrowing funds as outlined requires Council’s approval at three key steps: (i) adopting the debt strategy through the budget process, (ii) approving the debenture issuance authority report and (iii) the approval of the debenture by-law. The debenture issuance authority report outlines the City’s immediate borrowing plans and seeks authority for the Treasurer to market debentures through the City’s fiscal agent. This was approved in April 2025 for the City’s 2025 and 2026 borrowing plans and is aligned to the debt strategy. Further authority will need to be approved by Council for borrowing beyond 2026. The debenture by-law outlines a debenture issuance after the issuance is priced and sold, but before the deal is closed. This requires Council approval before the issuance can be closed, and the City receives the issuance proceeds.

Legislation mandates that municipalities must not borrow if the debt servicing costs exceed 25 per cent of own-source revenues, a threshold known as the Annual Repayment Limit (ARL). The City’s planned debt is projected to remain well within the ARL prescribed by the Province with debt servicing costs as a percentage of projected own-source revenues reaching a maximum of four per cent over the forecast period.

In the 10-year forecast projections, the City’s debt will also remain under self-imposed policy limits. Figure 1 Projected direct debt to presents the City’s projected debt as a percentage of net revenue compared to the self-imposed limits. S&P also scores debt burden in categories of 0 to 30 per cent, 30 to 60 per cent, and above 60 per cent. The City’s debt forecast is expected to breach and remain above the lowest S&P debt burden category from 2027 to 2029 but remains well under the City’s policy limit throughout the forecast. This figure does not include the debt reserved for growth that is not allocated to specific projects as there is uncertainty if that debt will be required. If this debt is drawn upon, the City would remain in the second S&P debt burden category for a longer duration and could approach the City debt policy limits as well. This will be closely monitored through annual budget updates and debt reporting.

Figure 8 Projected direct debt to operating revenue

View Figure 8 data

Year	City maximum %	S&P recommended %	Direct debt % of operating revenue
2025	55%	30%	26%
2026	55%	30%	28%
2027	55%	30%	32%
2028	55%	30%	36%
2029	55%	30%	34%
2030	55%	30%	30%
2031	55%	30%	29%
2032	55%	30%	26%
2033	55%	30%	25%
2034	55%	30%	22%
2035	55%	30%	20%

The City’s AAA financial credit rating was reaffirmed by S&P Global Ratings in 2025, with a stable outlook. This is the highest possible rating, reflecting the City’s strong financial management. While this is not the most significant factor in municipal borrowing costs, which are highly linked to federal and provincial borrowing rates, a higher credit rating generally provides access to lower borrowing costs.

There are many elements considered as part of a credit rating decision, but two key factors for Guelph’s AAA credit rating are a strong liquidity position due to high reserve balances, and the ability to prioritize the capital budget, which improved the budgetary performance score in 2025 enough to offset the impact of the forecast increase in the debt burden beyond S&Ps 30 per cent threshold. Upon reaffirming the credit rating, S&P cautioned that a lower rating is possible in the future if projections for debt outstanding continually surpasses 30 per cent of operating revenues. Based on the debt strategy outlined above, projections of debt as a percentage of operating revenue are expected to surpass 30 per cent from 2027 to 2029. Additionally, as outlined in the financial strategy documents, the capital budget and forecast will significantly draw down capital reserve fund balances over the next several years, which will impact the assessment of the liquidity position. These factors will likely lead to a lower future credit rating for the City in the short to medium term.