STRATEGIC INITIATIVES STANDING COMMITTEE AGENDA

Transcription

1 TOWN OF COLLINGWOOD STRATEGIC INITIATIVES STANDING COMMITTEE AGENDA August 9, 2017 Collingwood is a responsible, sustainable, and accessible community that leverages its core strengths: a vibrant downtown, a setting within the natural environment, and an extensive waterfront. This offers a healthy, affordable, and four-season lifestyle to all residents, businesses, and visitors. A meeting of the Strategic Initiatives Standing Committee will be held Wednesday August 9, 2017 in the Council Chambers, Town Hall, Collingwood commencing at 1:00 p.m. ORDER OF BUSINESS 1. CALL OF STANDING COMMITTEE TO ORDER 2. ADOPTION OF AGENDA THAT the content of the Strategic Initiatives Standing Committee Agenda for August 9, 2017 be adopted as presented. 3. DECLARATIONS OF PECUNIARY INTEREST 4. IN-CAMERA (additional In-Camera items will occur later in the meeting please see item 6) THAT this Council proceeds in camera in order to address a matter pertaining to: personal matters about an identifiable individual, including municipal or local board employees; (a) Items for discussion: a) BMA Report 5. STAFF REPORTS First and Second Quarter Budget Variance Reporting, Treasurer Marjory Leonard Update on IT, IT Manager Mike Nancekivell T Statement of Development Charge and Cash-in-Lieu of Parkland Reserve Funds (p.3) RECOMMENDING THAT the Strategic Initiatives Standing Committee support and refer the following Staff Report to the next regular meeting of Council: Staff Recommendation: THAT Staff Report T be received for information. T Policy Updates (p.13) RECOMMENDING THAT the Strategic Initiatives Standing Committee support and refer the following Staff Report to the next regular meeting of Council: Staff Recommendation: THAT Council receive Staff Report T for information; AND THAT Council approve the recommended changes to the Surplus Management Policy and enact the respective By-Law. August 9, 2017 Strategic Initiatives Standing Committee Agenda - Page 1 of 2 1 of 120

2 AND THAT Council approve the recommended changes to the Debt Management Policy and enact the respective By-Law. AND THAT Council approve the Reserve and Reserve Fund Management Policy and enact the respective By-Law. AND FURTHER THAT Council approve the Use of Federal Gas Tax Funds Standard Operating Procedure as presented. T Reserve and Reserve Fund Policies (p.63) RECOMMENDING THAT the Strategic Initiatives Standing Committee support and refer the following Staff Report to the next regular meeting of Council: Staff Recommendation: THAT Council receive Staff Report T for information; AND THAT Council approve the recommendations contained in the report. T Statement of Reserves and Reserve Funds and Adequacy Review Report (p.107) RECOMMENDING THAT the Strategic Initiatives Standing Committee support and refer the following Staff Report to the next regular meeting of Council: Staff Recommendation: THAT Staff Report T is received for information and that the recommendations contained herein be approved. 6. IN-CAMERA THAT this Council proceeds in camera in order to address a matter pertaining to: advice that is subject to solicitor/client privilege, including communications necessary for that purpose; (b) security of the property of the municipality or local board; (c) (e) personal matters about an identifiable individual, including municipal or local board employees; (d) Items for discussion: b) Hydro Share Sale c) New Tecumseth Pipeline Update d) CAO Recruitment e) IT Update Rise and Report 7. PUBLIC DELEGATION(S) (maximum 5 minutes per delegation) 8. OTHER BUSINESS 9. ADJOURNMENT August 9, 2017 Strategic Initiatives Standing Committee Agenda - Page 2 of 2 2 of 120

3 Submitted to: Submitted by: Subject: Strategic Initiatives Standing Committee Council Marjory Leonard, Treasurer STAFF REPORT #T /9/2017 8/21/2017 Amendments: None 2016 Statement of Development Charge and Cash-in-Lieu of Parkland Reserve Funds PURPOSE This report provides a year end summary of development charge activity and reserve balances, as required under the Development Charges Act, 1997 and a summary of Cash-in-Lieu of Parkland activity and reserve balance as required under the Planning Act. RECOMMENDATION THAT Staff Report T be received for information. AMENDMENTS None 1. BACKGROUND This report is being submitted as a requirement of the Development Charges Act, 1997 (DCA) and the Planning Act (PA) as amended through Bill 73, The Smart Growth for Our Communities Act, Section 43 of the DCA requires the Treasurer of a municipality to provide a financial statement to Council relating to development charge by-laws and reserve funds established under section 33 of the DCA. Similarly, section 37 and section 42 of the PA requires the Treasurer to provide a financial statement relating to the special accounts for density bonus and cash-in-lieu of parkland monies. These statements must be made available to the public and on request, to the Minister of Municipal Affairs and Housing Statement of Development Charge and Cash-in-Lieu of Parkland Reserve Funds Page 1 of 6 3 of 120

4 Pursuant to the DCA, the Town has adopted the following development charge bylaws that govern the current development charge collections in the Town: By-law being a by-law to establish development charges for the Corporation of the Town of Collingwood effective September 1, 2014; and, By-law being a by-law to establish area-specific development charges for Black Ash Creek (BAC) Watershed Works in the Corporation of the Town of Collingwood effective November 5, The Town has adopted By-law in regard to cash-in-lieu of parkland and, as yet, has not established density bonus by-law. Development Charge by-laws have a 5 year life span and, if not updated prior to the fifth anniversary of enactment, will expire. The BAC by-law will be updated prior to expiration this year. 2. INPUT FROM OTHER SOURCES This report was reviewed by Department Heads on May 2 nd and recommended to proceed to committee. 3. APPLICABLE POLICY OR LEGISLATION Development Charges Act, 1997 Planning Act Smart Growth for Our Communities Act, 2015 O. Reg. 82/98 4. ANALYSIS The Province enacted Bill 73, the Smart Growth for Our Communities Act, 2015 on December 3, 2015 which, among other matters, made amendments to the reporting requirements outlined in the DCA and PA. The reporting changes for the DCA were effective January 1, 2016 and the PA requirements were effective July 1, Council received two staff reports in August 2016 that provided comment on the Bill 73 changes. The requirement for an Annual Treasurer s Statement is not new. Bill 73 requires the following additional information to be included in the Annual Treasurer s Statement provided to Council: Detailed reporting on bonus density contributions (PA Section 37) received from development and how the funds are spent by the municipality (effective July 1, 2016); Detailed reporting of cash-in-lieu of parkland funds (PA Section 42(6)) received from development and how the funds are spent (effective July 1, 2016); and 2016 Statement of Development Charge and Cash-in-Lieu of Parkland Reserve Funds Page 2 of 6 4 of 120

5 A Statement of Compliance signed by the Treasurer confirming that monies collected from development are only those allowed under the DCA or another Act that became effective on January 1, Development charge (DC) revenues collected in accordance with the Town s DC By-laws are deposited in the DC reserve funds and subsequently applied to eligible growth-related costs once those costs have been incurred. Cash-in-lieu of parkland revenues are collected in accordance with the PA and are deposited into a special Parkland Levy reserve fund until such time as they are used for the acquisition of land to be used for park or other public recreational purposes, including the erection, improvement or repair of buildings and the acquisition of machinery for park or other public recreational purposes. This report provides both summary level transaction information by reserve and detailed funding information by project as required under the DCA and PA. At December 31 st, 2016 the development charge reserve fund balance was $14,693,587. The following table summarizes current year activity and provides 2015 figures for comparison: Development Charge Reserve Funds Balance, beginning of year $11,930,129 $10,526,088 Add: Development charges collected 7,248,716 2,045,575 Interest income 158, ,586 $19,337,730 $12,714,249 Deduct: Net transfer to Operating Funds (261,818) (143,332) Net transfer to Capital Funds (4,382,325) (637,665) Credits Purchased or Used (3,123) Balance, end of year $14,693,587 $11,930,129 The 2017 budget committed $7.5 million of this balance Statement of Development Charge and Cash-in-Lieu of Parkland Reserve Funds Page 3 of 6 5 of 120

6 At December 31 st, 2016 the Cash-in-lieu of Parkland (Parkland Levy) reserve fund balance was $86,592. The following table summarizes current year activity and provides 2015 figures for comparison: Parkland Levy Reserve Fund Balance, beginning of year $ 31,666 $309,847 Add: Cash-in-lieu of parkland collected 54,279 74,824 Interest income 647 1,941 $ 86,592 $386,612 Deduct: Net transfer to Capital Funds -0- (354,946) Balance, end of year $ 86,592 $ 31,666 For information purposes, the 2015 funds were used on the Eddie Bush Memorial Arena. Appendix A is a description of each of the DC reserve funds established by the Town. Appendix B provides the breakdown of the reserve fund activity for Development Charges and Cash-in-lieu of Parkland from January 1, 2016 to December 31, Appendix C identifies the capital projects to which the $4.3 million of DC funds were transferred as well as any transfers to capital from the Parkland Levy reserve if applicable. DC s are transferred to capital projects at the time of substantial completion. The schedule also discloses the non-dc funding associated with these capital projects, as required under the DCA and PA. Appendix B also illustrates the operating costs to which $261,818 of funding was transferred. The operating costs largely represent repayment of principal and interest on debt issued to fund capital projects or for Growth-related studies. Appendix D provides details on the activity and balance of credits issued to developers. 5. EFFECT ON TOWN FINANCES The Annual Treasurer s Statement is required by the Development Charges Act, 1997 and the Planning Act. This report and its accompanying appendices have been prepared for Council s information and to fulfill the legislative and regulatory reporting requirements of the Annual Treasurer s Statement. This statement will be made available to the public on the Town s website following Council s approval of the recommendation. There is no financial impact to this report Statement of Development Charge and Cash-in-Lieu of Parkland Reserve Funds Page 4 of 6 6 of 120

7 6. APPENDICES & OTHER RESOURCES Appendix A Appendix B Appendix C Appendix D DC Reserve Funds Description Annual Treasurer s Statement of Development Charges and Cash-in-Lieu of Parkland Reserve Funds Capital and Operating Transactions DC Credit Continuity Schedule SIGNATURES Prepared by: Marjory Leonard, Treasurer Town of Collingwood 2016 Statement of Development Charge and Cash-in-Lieu of Parkland Reserve Funds Page 5 of 6 7 of 120

8 Appendix A Development Charge Reserve Funds Pursuant to the Development Charges Act, 1997 S.O c.27, as amended, monies collected under the act shall be placed into a separate reserve account for the purpose of funding growthrelated net capital costs for which the development charge was imposed under the Development Charges By-laws and Reserve funds were established for the following purpose: Roads & Related Water Wastewater Storm Water Management (BAC) Fire Protection Police Protection Growth-related Studies Airport Transit Municipal Parking Indoor Recreation Outdoor Recreation Library Funds are collected for construction of the transportation infrastructure as it relate to growth as well as capital costs related to building and fleet components of Public Works. Funds are collected for the construction of water distribution and treatment infrastructure as it relates to growth. Funds are collected for the construction of water distribution and treatment infrastructure as it relates to growth. Funds collected for this service are area specific and relate to Black Ash Creek channelization debt reduction. This fund is used for growth-related projects supporting the fire service including fire facilities, vehicles and equipment. This fund is used for growth-related projects supporting the police service including fire facilities, vehicles and equipment. Funds collected are used for growth-related studies such as DC Background Studies, PRC Master Plans etc. This fund was established to finance the cost of growth-related airport facility needs. Funds collected for this service are used to finance the cost of growth-related transit services including facilities, vehicles and bus stops. Funds collected for this service are to be used for the design and construction of additional parking spaces. The fund is used to finance the cost of growth-related investment in recreation facility infrastructure. Funds collected for this service are to be used for growth-related investment in parkland and park development projects. Funds collected for this service are to be used for growth-related investment in Library facilities and collection materials Statement of Development Charge and Cash-in-Lieu of Parkland Reserve Funds Page 6 of 6 8 of 120

9 Appendix B Municipality of The Town of Collingwood Annual Treasurer's Statement of Reserve Funds for By-Law and By-Law for the Year Ended December 31, 2016 Services to which the Development Charge Relates Non-Discounted Services Discounted Services Parkland Description Roads and Related Water Wastewater Storm Water Fire Protection Police Protection Growth Related Studies Airport Transit Municipal Parking Indoor Recreation Services Outdoor Recreation Services Library DC Reserve Fund Total Levy Reserve Fund Opening Balance, January 1, ,808, ,852 6,777,418 0 (1,276,591) 1, ,955 78,658 (52,178) 184, ,024 1,435, ,930,129 31,666 Plus: Collections 2,110,904 1,076,357 2,025,618 56, ,181 46,534 42,397 24,304 32,238 53, ,881 1,155, ,742 7,248,716 54,279 Accrued Interest 32,098 11,770 85, ,323 4,685 20, , Repayment of Monies Borrowed from Fund and Associated Interest 6,043 6,043 Credits Allowed 157, , , ,660 Sub-Total 2,300,442 1,250,487 2,254,246 56, ,181 46,652 43,257 25,303 32,238 56, ,565 1,175, ,815 7,870,303 54,926 Less: Amount Transferred to Capital (or Other) Funds 2 (3,892,238) (56,341) (27,446) (107,958) (10,102) (31,194) (348,079) (170,784) (4,644,141) Amounts Refunded 0 Interest on inter-fund borrowing (5,838) (206) (6,043) Amounts Loaned to Other D.C. Service Category for Interim Financing 0 Credits 3 (157,440) (162,360) (136,860) (456,660) Sub-Total (4,049,678) (162,360) (136,860) (56,341) (5,838) (27,446) (107,958) 0 (10,307) 0 (31,194) (348,079) (170,784) (5,106,845) 0 Closing Balance, December 31, ,059,443 1,619,979 8,894,804 0 (1,064,248) 20,403 46, ,961 (30,247) 240, ,395 2,263,185 13,215 14,693,587 86,592 1 By-Law relates to the Town-wide development charges and By-Law is the Black Ash Creek Watershed and Special Policy Area (BAC). The relevent amounts for the BAC Reserve Fund are shown under Storm Water Management. 2 See Appendix B for details 3 See Appendix C for details The Municipality is compliant with s.s (1) of the Development Charges Act, whereby charges are not directly or indirectly imposed on development nor has a requirement to construct a service related to development been imposed, except as permitted by the Development Charges Act or another Act. 9 of 120

10 Capital Fund Transactions Gross Capital Cost D.C. Reserve Fund Draw Appendix C Municipality of The Town of Collingwood Amount Transferred to Capital (or Other) Funds - Capital Fund Transactions For the Period January 1, 2016 to December 31, 2016 D.C. By-Law Period D.C. Debt Financing DC Recoverable Cost Share Grants, Subsidies, Other Contributions Post D.C. By-Law Period Post-Period Benefit/Capacity Interim Financing Grants, Subsidies, Other Contributions Other Reserve/Reserve Fund Draws Tax Supported Operating Fund Contributions Non-D.C. Recoverable Cost Share Rate Supported Operating Fund Contributions Debt Financing Grants, Subsidies, Other Contributions Roads & Related R-29 High Street/Third Street Intersection 59,183 5,918 53,265 R-58 Huron Street sidewalk Niagara to Napier 17,314 11,543 5,771 R-3 Hume Street Reconstruction 10,412,320 3,874,777 4,537,543 2,000,000 Sub-Total - Roads & Related Services 10,488,817 3,892, ,596, ,000,000 Police Protection P-2 Upgrade cells and remove fuel tanks 66,349 27,446 15,139 23,764 Sub-Total - Services Related to Police Protection 66,349 27, , ,764 Growth Related Studies A-2 Parks Master Plan - Waterfront Plan 145, ,459 40,623 Sub-Total - Growth Related Studies Capitalized 145, , , Transit T-3 Bus Shelters 11,224 10,102 1,122 Sub-Total - Transit 11,224 10, , Outdoor Recreation Services PLD-1 Sunset Point phased 19, ,025 PLD-3 New Park south of Admiral School PLD-5 New Park - Mountain Croft subdivision 13,608 12,247 1,361 PLD-7 New Park - Riverside Park 9,142 8, PLD-12 Fisher Field 3,809 2,572 1,236 PLD-14 Heritage Park phase 2 281, ,298 3,144 25,000 PLD-18 Playground Upgrades - Old Village 2, ,334 PLD-29 Docking - Finger Docks 6,675 6, PLD-31 Community Trails 40,753 36,678 4,075 PRVE-9 Mower (1 annually) 10,943 1,663 9,279 PRVE-10 Truck for Facilities Division 30,135 25,267 2,807 2,060 Sub-Total - Outdoor Recreation Services 420, , , ,060 Total Capital Fund Transactions 11,131,551 4,382, ,698, ,050, of 120

11 Operating Fund Gross Capital Cost D.C. Reserve Fund Draw Appendix C Municipality of The Town of Collingwood Amount Transferred to Capital (or Other) Funds - Operating Fund Transactions For the Period January 1, 2016 to December 31, 2016 DC Recoverable Cost Share D.C. By-Law Period D.C. Debt Financing Grants, Subsidies Other Contributions Post D.C. By-Law Period Post-Period Benefit/Capacity Interim Financing Grants, Subsidies Other Contributions Other Reserve/Reserve Fund Draws Tax Supported Operating Fund Contributions Non-D.C. Recoverable Cost Share Rate Supported Operating Fund Contributions Debt Financing Grants, Subsidies Other Contributions Growth Related Studies A-5 Official Plan - Landfill Studies 5,183 3,499 1,685 Sub-Total - Growth Related Studies 5,183 3, , Library LM-1 Provision for Materials 96,123 83,185 12,938 Sub-Total - Library 96,123 83, , Total Operating Fund Transactions 101,306 86, , Appendix C Municipality of The Town of Collingwood Amount Transferred to Capital (or Other) Funds - Operating Debt Related Fund Transactions For the Period January 1, 2016 to December 31, 2016 D.C. Reserve Fund Draw Post D.C. By-Law Period Non-D.C. Recoverable Cost Share Note: Annual Debt Repayment Operating Fund Transactions Amount Principal Interest Principal Interest Source Principal Interest Source Storm Water (BAC) Debenture By-Law ,973 34,880 21, , ,361 Tax Supported Sub-Total - Services Related to Storm Water 561,973 34,880 21, , ,361 Library L-1 New Facility - Debt Principal 267,159 47, ,945 Tax Supported L-2 New Facility - Debt Interest 169,910 40, ,526 Tax Supported Sub-Total - Library 437,070 47,214 40, , ,526 Indoor Recreation Services IR-7 Principal repayment - shop/garage 40,001 15,796 24,205 Tax Supported IR-8 Interest repayment - shop/garage 25,440 15,397 10,043 Tax Supported Sub-Total - Indoor Recreation Services 65,441 15,796 15, ,205 10,043 Total Debt related Transactions 1,064,484 97,891 77, , ,929 In the instances of debt repayment from DC's for Storm Water the reserve fund did not contain sufficient funds to cover the full portion that should have been recovered. 11 of 120

12 Credit Holder Appendix D Municipality of The Town of Collingwood Statement of Credit Holder Transactions As at December 31, 2016 Applicable D.C. Reserve Fund Credit Balance Outstanding Beginning of Year 2016 Additional Credits Granted During Year Credits Used by Holder During Year Credit Balance Outstanding End of Year Ontario Inc. Water 301, ,995 Lotco II Limited Roads 542,118 (157,440) 384,678 Lotco II Limited Sewer 471,255 (136,860) 334,395 Lotco II Limited Water 559,060 (162,360) 396,700 Credit Holder F 1,874,428 (456,660) 1,417, of 120

13 Submitted to: Submitted by: Subject: Strategic Initiatives Standing Committee Council Marjory Leonard, Treasurer Policy Updates STAFF REPORT #T Strategic Financial Plan Policy Paper 5 Policy Updates 8/9/2017 8/21/2017 Amendments: None PURPOSE The purpose of this report is to recommend policy updates to enable compliance with the Town s existing financial policies, to recommend changes to some of the existing policies and to introduce new policies required by legislation or funding agreements. RECOMMENDATION THAT Council receive Staff Report T for information; AND THAT Council approve the recommended changes to the Surplus Management Policy by enacting By-Law No XXX. AND THAT Council approve the recommended changes to the Debt Management Policy by enacting By-Law No XXX. AND THAT Council approve the Reserve and Reserve Fund Management Policy by enacting By-Law No XXX. AND FURTHER THAT Council approve the Use of Federal Gas Tax Funds Standard Operating Procedure as presented. AMENDMENTS None T Policy Updates Page 1 of 4 13 of 120

14 1. BACKGROUND The financial policies adopted by Council provide that an annual review of the policies be undertaken prior to the initiation of budget preparation. The Town currently has 15 formal approved policies including Budget Preparation, Cash Management, Investments, Debt, Donations, Operating Surplus/Deficit and Tangible Capital Assets. With the exception of the Investment Policy, adopted in 2016, the remainder of the policies have not undergone major revisions since approval. The existing policies were written in 2010 and, since then, there have been changes in Provincial legislation such as Capital Asset Planning as well as changes in Federal and Provincial funding programs. Further, municipal direction has been clarified with the adoption of the Community Based Strategic Plan (CBSP). Updates to a majority of the current policies are now required. It is staff s intention to introduce policy revisions over a period of time beginning with policy statements governing Surplus Management, Debt Management and Reserve and Reserve Fund Management. Once these are approved, individual policies that define the reserve and reserve funds in use will follow. 2. INPUT FROM OTHER SOURCES This report was circulated to Department Heads on August 1, 2017 for comment. 3. APPLICABLE POLICY OR LEGISLATION Municipal Act, 2001 Development Charges Act, 1997 Planning Act BMA Reports 4. ANALYSIS The following policies are being introduced or revised at this time in order to: comply with Federal Gas Tax requirements; update the Operating Surplus/Deficit Policy to reflect the funding priorities of the CBSP; and, comply with current municipal legislation. Surplus Management Policy (Appendix A) The existing Operating Surplus/Deficit Policy does not allow for: the reserves and reserve funds established for stability and flexibility to be maintained; reducing the debt through the paying off of internal loans; and, ensuring an adequate balance can be maintained in the reserve and reserve funds dedicated to major capital expenditures. T Policy Updates Page 2 of 4 14 of 120

15 Changes to the policy have been highlighted and staff recommend that Council approve the revisions including the name change from Operating Surplus/Deficit Policy to Surplus Management Policy. Debt Management Policy (Appendix B) The original Debt Management Policy (Appendix B-1) was also adopted in The revised Policy (Appendix B-2) with several highlighted areas noted on the policy. The changes are a composite of several benchmarked policies available from the Municipal Finance Officers Association and Government Finance Officers Association websites. The key changes to the policy statements begin on page 6 of the document and result from Council having adopted debt servicing cost limits in The section that staff are recommending be included in the policy states clearly those limits as goals to ensure financial sustainability and flexibility and provides measures that will be used to monitor progress toward those goals. On page 7 of the document staff are recommending the addition of statements related to exchange and interest rate risk, hedging and variable rate debt instruments. These are standard clauses in the benchmarked policies. While we do not use these types of debt instruments currently, variable rate debentures and long-term bank loans were used in the past. The last paragraph referring to Lease Financing Agreements has a particular relevance to P3 partnerships. Again, we have not used this type of financing however, the Waterfront Master Plan may offer opportunities that would need to be investigated. Pages 10 and 11 are also highlighted. Sections 5.3, 6.1 and 6.2 are new and are standard clauses in the benchmarked policies. Sections 6.3 and 6.4 were included in the original Debt Management Policy and are part of the reorganization of the document. Reserve and Reserve Fund Management Policy (Appendix C) This is a new policy required for compliance with the Federal Gas Tax program. The Association of Municipalities of Ontario (AMO) administers the FGT and has provided examples of best practice Reserve and Reserve Fund Management Policies for municipalities to adapt to their own situations. The purpose of this policy is to govern the use and management of reserves and reserve funds. It establishes the objectives of reserves and reserve funds, standards of care and sets out the responsibilities for their management and administration. The statements contained in this policy are standard wording from the sample policies with exception of statements made on pages 5 and 6 related to reducing the need for taxlevy funded debentures. Reference has been made to the Town s debt servicing cost limit and adoption of the pay-as-you-go philosophy. T Policy Updates Page 3 of 4 15 of 120

16 Use of Federal Gas Tax Funds (Appendix D) To be eligible for Federal Gas Tax a municipality must answer a Risk Management Questionnaire. There are twelve yes/no questions related to policies and standard operating procedures that should all be answered positively. As of December 31, 2016, we could answer yes to six of the twelve questions. By December 31, 2017 we would like to have the remaining six completed. 5. EFFECT ON TOWN FINANCES There is no effect on Town finances from this report. 6. APPENDICES & OTHER RESOURCES Appendix A Appendix B-1 Appendix B-2 Appendix C Appendix D Surplus Management Policy Original Debt Management Policy Revised Debt Management Policy Reserve and Reserve Fund Management Policy Use of Federal Gas Tax Funds Standard Operating Procedure SIGNATURES Prepared by: Marjory Leonard, Treasurer Town of Collingwood T Policy Updates Page 4 of 4 16 of 120

17 Surplus Management Policy APPENDIX A POLICY NUMBER: FIN Purpose The purposes of this policy are: to ensure that operating surpluses are returned to the taxpayers; and, to establish a priority framework for the allocation of any operating surpluses and eliminate any operating deficits through the use of the same priority framework. This policy is limited to all reserves or discretionary reserve funds. Scope: This policy applies to all Town departments, boards, committees, and other organizations falling within the financial reporting requirements of the Town of Collingwood. Exclusions to this policy are related to user fee funded operations currently limited to Wastewater and Parking infrastructure requirements. Recommendation is to replace the Exclusions sentence with: Exclusions from this policy are those services that are fully funded through user fees. Recommendation is to insert the following section: Definitions: Year-end Operating Surplus. The year-end operating surplus will be any excess funds generated during the year after all budgeted transfers to reserve or reserve funds have been accounted for. Guiding Principles: A deficit shall be funded as outlined in the Priority Application for Operating Deficits noted below. Surpluses not required to fund reserve balance thresholds shall be distributed as outlined in the Priority Application for Operating Surpluses noted below. Department staff will respect the nature of and manage a globall budget by first offsetting higher than expected spending in one area through savings in another. Priority Allocation for Operating Surpluses: Page of 3 17 of 120

18 Surplus Management Policy FIN Certain Reserve Funds (Lifecycle Replacement Reserve Fund, Tax Rate Stabilization Reserve Fund, 10% Non DC Growth Reserve Fund) have been established with the primary source of funding as an allocation from operating surpluses. Each of these Reserve Funds have targeted upper limits. Recommendation is to delete this paragraph and replace it with: The Council of the Town of Collingwood is committed to demonstrating financial stability and sustainability. This framework assists in formalizing a defined and transparent process for ensuring stability and sustainability while maintaining the flexibility to react to changing circumstances. The Treasurer is authorized to allocate any year-end operating surplus in the following manner: a) Transfer 30% of any operating surplus to the Tax Rate Stabilization Reserve Fund until the upper limit of the fund as defined in the Tax Rate Stabilization Reserve Fund establishing by-law is reached; b) Transfer 30% of any operating surplus to the Lifecycle Replacement Reserve Fund until the upper limit of the fund as defined in the Lifecycle Replacement Reserve Fund establishing by-law is reached; c) Transfer 10% of any operating surplus to the 10% Non DC Growth Reserve Fund until the upper limit of the fund as defined in the 10% Non DC Growth Reserve Fund establishing by-law is reached; d) The remaining 30% of any operating surplus shall be allocated to reserves by the CAO and Treasurer in collaboration with the Senior Management Team. Where no reserve has been previously established, the Treasurer is authorized to create the necessary reserves. The creation of reserves shall be contingent on a review of budget obligations, which in the opinion of the CAO and Treasurer are material. e) If surplus funds still remain, the amount shall be carried forward to the subsequent years budget in accordance with the provisions of the Municipal Act. Recommendation is to delete items a) to e) and replace the section with: a) Transfer to Capital Contingency Reserve, General Reserve, Operating Contingency Reserve and the Working Capital Reserve Fund sufficient funds to maintain their target balances. b) Transfer 10% of the remaining surplus to reduce the outstanding balance of internal loans. c) Transfer 60% of the remaining surplus to the Lifecycle Replacement Reserve Fund. d) Transfer 10% of the remaining surplus to the 10% Non DC Growth Reserve Fund. e) When a reserve fund reaches and maintains the target balance, remaining surplus funds shall be transferred in proportion to the remaining funds that are not at their targeted limit. Priority Application for Operating Deficits: Page of 3 18 of 120

19 Surplus Management Policy FIN In the event of an operating deficit, the Treasurer is authorized to: a) Transfer the necessary funds from the Tax Rate Stabilization Reserve Fund unless these funds have been included in the subsequent years budget funding estimates; Recommendation is to replace a) with: a) Transfer the necessary funds from the Working Capital Reserve Fund. Reporting Requirements In addition to any information requested by Council or that the CAO and/or Treasurer consider appropriate, Council shall receive a report detailing the distribution of the operating surplus or deficit funding. Policy Review: This policy will be reviewed annually after the year-end operating surplus or deficit figures have been verified. Revision History: Review Date Description Page of 3 19 of 120

20 Financial Policy and Procedure Manual APPENDIX B-1 SECTION: Finance POLICY #: DE-01 POLICY: Debt Management Policy DATE: November 2010 REV. DATE: September 2012 COVERAGE: All Departments PAGE #: 1 of 10 POLICY STATEMENT: This policy ensures compliance with all statutory requirements with respect to incurring debt for operating and capital purposes and the issuance of debentures and prescribed financial instruments for or in relation to the debt. SCOPE: This policy applies to all Town departments, boards, committees, and other organizations falling within the financial reporting requirements of the Town of Collingwood. DEFINITIONS: The following definitions do not include all of the possible debt instruments that a municipality could use for long-term financing purposes. The Town of Collingwood generally limits its longterm financing to either amortizing or serial type debentures but has made use of sinking fund debentures in the past. The definitions include only those more common methods of financing. Amortizing Debentures: Debentures for which the total annual payment (principal and interest) is approximately even throughout the life of the debenture issue. Banker s Acceptance: A short-term credit obligation created by a non-financial firm such as the Corporation and guaranteed by a bank as to payment. Capital Financing: A generic term for the financing of capital assets using debt instruments including financing leases. Construction Financing: A form of debt financing in which the issuer does not pay any principal and/or interest for a period up to 5 years during the construction or rehabilitation of the facility from which a revenue stream is expected to be generated. Debenture: A formal written obligation to repay specific sums on certain dates. In the case of a Municipality, debentures are typically unsecured. Debt and Financial Obligation Limit: A calculation provided annually to a municipality by the Ministry of Municipal Affairs and Housing that determines the maximum amount of new annual debt servicing costs that a municipality can undertake or guarantee without seeking the approval of the Ontario Municipal Board. 20 of 120

21 SECTION: Finance POLICY: Debt Management Policy Financial Policy and Procedure Manual POLICY #: DE-01 DATE: November 2010 REV. DATE: September 2012 COVERAGE: All Departments PAGE #: 2 of 10 Debt: Any obligation for the payment of money. The Town considers debt to consist of debentures, notes or cash loans from financial institutions, loans from reserves and non-statutory reserve funds, financing leases, loan guarantees, mortgages or demand loans. Financing Lease: A lease allowing for the provision of municipal capital facilities if the lease may or will require payment by the municipality beyond the current term of Council. Fiscal Agents: An individual, group of investment bankers or Infrastructure Ontario appointed by Council to assist in the pricing, issuance timing, and sale of new debentures. Installment (Serial) Debentures: Debentures of which a portion of the principal matures each year throughout the life of the debenture issue. Long-Term Bank Loan: Long-term debt provided by a bank or a syndicate (group) of banks. Long-Term Debt: Any debt for which the repayment of any portion of the principal is due beyond one year. Infrastructure Ontario: An entity established by the Province of Ontario to provide Ontario municipalities, universities and hospitals access to alternative financing service for longer-term fixed rate loans for the building and renewal of public infrastructure. Project Financing: Financing in which principal and interest payments are structured so as to more closely match the revenues or cost savings of a specific project. Also includes financing for which the lender, in the case of default, would have no or limited recourse to the issuer beyond the assets purchased with the proceeds of the financing. Refunding: As applied to debentures, describes the process of retiring existing debt by issuing new securities to either reduce the interest rate or extend the maturity date or both. Rolling Stock: Equipment that moves on wheels used for transportation and/or transit purposes. Examples include cars, trucks, and buses. Short-Term Debt: Any debt for which the repayment of all the principal is due within one year. Sinking Fund Debentures: Debentures for which money is accumulated on a regular basis in a separate custodial account that when combined with interest earned is used to redeem the debentures. 21 of 120

22 SECTION: Finance POLICY: Debt Management Policy Financial Policy and Procedure Manual POLICY #: DE-01 DATE: November 2010 REV. DATE: September 2012 COVERAGE: All Departments PAGE #: 3 of 10 Term Debentures: Debentures that are comprised of a combination of installment and sinking fund debentures. Town: Refers to the Corporation of the Town of Collingwood. Variable Interest Rate Debentures: Debentures that provide for one or more variations in the rate of interest payable on the principal during the term of the debenture DESCRIPTION: Philosophy for Capital Financing and Debt Issuance Council may, where it is deemed to be in the best interest of its taxpayers, approve the issuance of debt for its own purposes, or those of its municipal business corporations. "Best interest" will be consistent with the following key financial principle with respect to capital financing and debt practices: "Capital financing and debenture practices will be responsive and fair to the needs of both current and future taxpayers and will be reflective of the underlying life cycle and the nature of the expenditure." This philosophy will be met through the objectives outlined below. Capital Financing and Debt Objectives The primary objectives for the Corporation s capital financing and debt program, in priority order, shall be: Adhere to statutory requirements; Ensure long term financial flexibility; Limit financial risk exposure; Minimize long-term cost of financing; Match the term of the capital financing to the useful life of the related asset. a) Adhere to Statutory Requirements Capital financing may only be undertaken when in compliance with the relevant sections of the applicable legislation including the Municipal Act, 2001 (the Act ), the Ontario Municipal Board Act, and regulations related to Local Improvements (O. Reg. 586/06) Requirements include but are not limited to the following: i. The term of temporary or short-term debt for operating purposes will not exceed the current fiscal year; 22 of 120

23 SECTION: Finance POLICY: Debt Management Policy Financial Policy and Procedure Manual POLICY #: DE-01 DATE: November 2010 REV. DATE: September 2012 COVERAGE: All Departments PAGE #: 4 of 10 ii. The term of the capital financing shall not exceed the lesser of 40 years or the useful life of the underlying asset; iii. Long-term debt will only be issued for capital projects; iv. The total financing charges after issuance of the proposed debt will not exceed the Debt and Financial Obligation Limit for the municipality responsible for repaying the debt, unless otherwise approved by the Ontario Municipal Board; v. Prior to authorizing a financing lease, a report will be prepared assessing the costs as well as financial and other risks associated with the proposed lease with other methods of financing; vi. Prior to passing a debenture by-law under clause 408(4)(d) of the Act (authorizing the issuance of construction financing debentures ) which provides that installments of principal or interest, or both, are not payable during the period of construction of an undertaking, Council will adopt a statement of policies and goals related to construction financing and in preparing such statement the Council shall consider the various items specified in O. Reg. 278/02 including all financial and other risks related to construction financing. Furthermore, the awarding of any contract under this Policy, unless otherwise authorized by Council, will follow the procedures and authorities set out in the Town s Procurement By-law. b) Ensure Long-Term Financial Flexibility i. The capital financing program will be managed in a manner consistent with other long-term planning, financial and management objectives. ii. Prior to the implementation of any new capital financing, consideration will be given to its future impact on taxpayers as a means to achieve an appropriate balance between capital financing and other forms of funding. iii. To the extent practicable, replacement assets as well as regular and/or ongoing capital expenditures will be recovered on a pay as you go basis through rates, tax levy, user fees and/or reserve fund monies. However, where long-term financing is required, due consideration will be paid to all forms of financing including debentures, construction financing instruments and financing leases. c) Limit Financial Risk Exposure i. The capital financing program will be managed in a manner to limit, where practicable, financial risk exposure. ii. It will be the general practice to issue debt instruments that are denominated in Canadian dollars and where the interest rates will be fixed over their term. d) Minimize Long-Term Cost Of Financing For each project or purpose for which long-term financing is requested, the timing, type and term of financing will be determined with a view to minimizing long-term cost. 23 of 120

24 SECTION: Finance POLICY: Debt Management Policy Financial Policy and Procedure Manual POLICY #: DE-01 DATE: November 2010 REV. DATE: September 2012 COVERAGE: All Departments PAGE #: 5 of 10 Factors to be considered will include current versus future interest rates; the availability of related reserve fund monies; the pattern of anticipated revenues or costs savings attributable to the project or purpose; and, all costs related to the financing of the project whether by debenture, construction financing instruments or financing lease. e) Match Term Of The Capital Financing To The Useful Life Of The Related Asset The maximum term over which a capital asset may be financed is 20 years unless otherwise specifically approved by Council. In no case may the term of financing exceed the anticipated useful life of the related asset. Standard of Care An appropriate standard of care will be achieved in the following manner: a) Ethics and Conflicts of Interest Officers and employees involved in the capital financing process shall: i. Refrain from personal business activity that could conflict with the proper execution and management of the capital financing program, or that could impair their ability to make impartial decisions; ii. Disclose any material interests in financial institutions with which they conduct business; iii. Disclose any personal financial/investment positions that could be related to the performance of their capital financing duties; and iv. Not undertake personal financial transactions with the same individual with whom business is conducted on behalf of the City. b) Delegation of Authority The Treasurer has overall responsibility for capital financing by the Town and is responsible for the implementation of the capital financing program and the establishment of procedures consistent with this Policy. No person may engage in a capital financing activity except as provided under the terms of this Policy. c) Requirement for Outside Advice Town staff is expected to have sufficient knowledge to properly evaluate standard transactions. However, when in their opinion the appropriate level of knowledge does not exist for instances such as capital financing transactions that are unusually complicated or non-standard, or as otherwise directed, outside financial and/or legal advice will be obtained. Suitable and Authorized Financing Instruments The form of financing that meets the objectives listed above will be dependent in part upon its term and the type of asset to be financed. 24 of 120

25 SECTION: Finance POLICY: Debt Management Policy Financial Policy and Procedure Manual POLICY #: DE-01 DATE: November 2010 REV. DATE: September 2012 COVERAGE: All Departments PAGE #: 6 of 10 1) Short-Term Under One (1) Year Financing of operational needs for a period of less than one (1) year pending the receipt of taxes and other revenues, or interim financing for capital assets pending long-term capital financing may be from one or more of the following sources: i. Reserves and reserve funds excluding Development Charge Reserve Funds. (This may be used as the primary source of short-term financing provided that interest is paid at the prevailing market rate); ii. Bank line of credit; iii. Short-term promissory notes issued to aforementioned institutions; and iv. Bankers' Acceptances; and v. Infrastructure Ontario short-term advances pending issuance of long-term debentures. 2) Long-Term Greater than One (1) Year Financing of assets for a period of greater than one year may be from any of the following sources: a) Debentures (including those issued to Infrastructure Ontario), which may be in the following form or a combination thereof: i. Installment (including those with a refunding provision) ii. Sinking Fund iii. Term iv. Amortizing v. Variable Interest Rate Fixed rate debentures will be the standard form of long-term financing used by the Town. b) Reserves and Reserve Funds These may be used for both interim and medium-term (up to five (5) years) financing if deemed cost effective or otherwise necessary. It is recognized however, that reserves and reserve funds are for a defined purpose and must be available when that purpose occurs or requires them. c) Long-Term Bank Loans (including Syndicated Bank Loans) This may be used if deemed cost effective or otherwise necessary. d) Construction Financing May be used for a period up to 5 years during the construction or rehabilitation of certain facilities for which a revenue stream will be generated. The Construction 25 of 120

26 SECTION: Finance POLICY: Debt Management Policy Financial Policy and Procedure Manual POLICY #: DE-01 DATE: November 2010 REV. DATE: September 2012 COVERAGE: All Departments PAGE #: 7 of 10 Financing provision may also be utilized to smooth out the long-term debt repayments and mitigate the impact on taxation through deferral of interest and/or principal. The following financial and other risks associated with this type of financing will be considered in relation to other forms of financing and where possible mitigated prior to use. The financial risks include the following: Interest rates fall from the time the rate on the construction financing loan is established and completion of construction; and The final cost of construction could be materially less than initially forecasted and financed. Other risks include: The construction project may not be able to proceed or is not completed for technical or other reasons. e) Financing Lease May be used when it provides material and measurable benefits compared with other forms of financing. Financing leases could include rolling stock leases. The following financial and other risks associated with this type of financing will be considered in relation to other forms of financing, and where possible mitigated prior to that use. The financial risks include the following: The ability for lease payment amounts to vary if based on changes in an underlying benchmark debt instrument (generally expressed as a particular Government of Canada Bond); The ability for lease payment amounts to vary based on changes in the assumed residual values of the asset being leased; and Uncertainty over leasing costs if the contract needs to be extended or renewed. Other risks include: The potential for the seizure and removal of leased equipment if the leasing company goes into default of its obligations to creditors, and Its creditors have the legal right to seize assets of the leasing company. f) Financing Through Infrastructure Ontario 26 of 120

27 SECTION: Finance POLICY: Debt Management Policy Financial Policy and Procedure Manual POLICY #: DE-01 DATE: November 2010 REV. DATE: September 2012 COVERAGE: All Departments PAGE #: 8 of 10 Infrastructure Ontario will be the prescribed primary lender for debenture requirements. g) Mortgages May be used for a period up to 10 years if deemed cost effective or otherwise necessary. Reporting Requirements a) In addition to any information requested by Council or that the CAO and Treasurer considers appropriate, the following reports will be provided: i) Requests authority for temporary borrowing up to a stipulated amount to meet day-today expenditures, pending receipt of tax levies, user fees and revenues anticipated during the year; ii) Requests authority, if required, to finance certain capital items detailing for each item the type, amount, and the maximum term of financing; iii) iv) States the sum, if any, that must be raised for sinking fund purposes in that year; Lists any outstanding construction financing debentures including the following details: (a) A description of the estimated proportion of the total construction financing debentures of the Town to the total long-term debt of the Town and a description of the change, if any, in that estimated proportion since the previous year s report; (b) A statement from the Treasurer as to whether, in his or her opinion, all construction financing debentures were made in accordance with the statement of policies and goals relating to construction financing adopted by the Town; (c) An update of the detailed estimate with respect to the terms of the Town s expectations of revenue generation from the undertaking for which the construction financing debentures were issued; (d) A record of the date of the repayment of each installment of principal, interest or both principal and interest made during the period of construction of the undertaking for which the construction financing debentures were issued; (e) A statement of the outstanding installments of principal, interest or both principal and interest repayable during the currency of the construction financing debentures that will be due and payable in each year; and (f) Such other information that the Council may require or that, in the opinion of the CAO and Treasurer should be included. O. Reg. 278/02, s.3 (2). b) The Treasurer shall submit to Council when required, the following: 27 of 120

28 SECTION: Finance POLICY: Debt Management Policy Financial Policy and Procedure Manual POLICY #: DE-01 DATE: November 2010 REV. DATE: September 2012 COVERAGE: All Departments PAGE #: 9 of 10 i) A report, before entering into a financing lease which is other than a non-material lease with a recommendation assessing the costs and financial and other risks associated with the proposed financing lease. This report shall include: (a) A comparison between the fixed and estimated costs and the risks associated with the proposed lease and those associated with other methods of financing; (b) A statement summarizing, as may be applicable, the effective rate or rates of financing for the lease, the ability for lease payment amounts to vary, and the methods or calculations, including possible financing rate changes, that may be used to establish that variance under the lease; (c) A statement summarizing any contingent payment obligations under the lease that in his or her opinion would result in a material impact for the municipality, including lease termination provisions, equipment loss, equipment replacement options and guarantees and indemnities; (d) A summary of the assumptions applicable to any possible variations in the lease payment and contingent payment obligations; and (e) Any other matters the CAO and Treasurer or Council considers advisable. ii) A statement of policies and goals before passing a by-law providing for construction financing through the issue of construction financing debentures which shall consider: (a) The fixed and estimated costs to the Town; (b) Whether the costs of the proposed financing for the construction of the undertaking are lower than other methods of financing available to the Town; (c) A detailed estimate with respect to the terms of the Town s expectations of revenue generation from the undertaking, once constructed; (d) The risks to the Town if the undertaking is not constructed or completed within the period of construction as estimated by Council; and (e) The financial and other risks for the Town. RESPONSIBILITIES: Mayor The Mayor or, in the absence of the Mayor, Deputy-Mayor executes and shall sign appropriate documents on behalf of the Town with respect to the issuance of debt instruments of the Town. Treasurer Reviews and recommends the type and term of financing for capital projects and operating requirements; Calculates the financial debt and obligation limit for the Town as prescribed by the Act; In consultation with the fiscal agents, approves the timing and structure of debt instrument issues; 28 of 120

29 SECTION: Finance POLICY: Debt Management Policy Financial Policy and Procedure Manual POLICY #: DE-01 DATE: November 2010 REV. DATE: September 2012 COVERAGE: All Departments PAGE #: 10 of 10 Clerk Coordinates the preparation of debt instrument by-laws for Town Council; Executes and signs appropriate documents on behalf of the Town and performs all other related acts with respect to the issuance of debt instruments of the Town; The Clerk shall certify and sign documents on behalf of the Town with respect to the issuance of debt instruments of the Town. Policy Review This policy will be reviewed when changes to the Municipal Act or Ontario Regulations affect the provisions contained herein. REFERENCE: Municipal Act, 2001, S.O. 2001, c. 25 Sections 401 to 424; Ontario Regulation 266/02 - Financing Leases for Municipal Capital Facilities Ontario Regulation 278/02 - Construction Financing Ontario Regulation 403/02 Debt and Financial Obligation Limits Ontario Regulation 586/06 Local Improvement Charges Priority Lien Status 29 of 120

30 Debt Management Policy APPENDIX B-2 POLICY NUMBER: FIN POLICY STATEMENT: This policy ensures compliance with all statutory requirements for incurring debt for operating and capital purposes and the issuance of debentures and prescribed financial instruments for or in relation to debt. This policy governs the use and administration of capital financing and debt. Recommendation is to add sentence. APPLICATION: This policy applies to all Town departments, boards, committees and other organizations failing within the financial reporting requirements of the Town of Collingwood. Recommendation is to replace paragraph with the following: The Debt Management Policy covers all debt or financial obligations including related agreements and lease financing agreements for capital that are entered into by the Corporation, its boards and subsidiaries as well as those employees responsible for control, administration or management of capital financing and debt issuance activities. Recommendation is to insert the following section 1. PURPOSE This policy establishes objectives, standards of care, authorized financing instruments, reporting requirements and responsibilities for the prudent financing of the Corporation s operating and infrastructure needs. 2. DEFINITIONS The following definitions do not include all of the possible debt instruments that a municipality could use for long-term financing purposes. The Town of Collingwood generally limits its long-term financing to either amortizing or serial type debentures but has made use of sinking fund debentures in the past. The definitions include only those more common methods of financing. Page of of 120

31 Debt Management Policy FIN Amortizing Debentures: Banker s Acceptance: Capital Financing: Construction Financing: Debentures for which the total annual payment (principal and interest) is approximately even throughout the life of the debenture issue. Recommendation is to replace with the following wording: A debenture that has a blended principal and interest payment that is equal in each repayment period. A short-term credit obligation created by a non-financial firm such as the Corporation and guaranteed by a bank as to payment. A generic term for the financing of capital assets using debt instruments including financing leases. Recommendation is to replace the definition with: A generic term for the financing of capital assets. Although this can be achieved through the use of a variety of funding sources, for the purposes of this policy it is assumed to mean the use of debt. A form of debt financing in which the issuer does not pay any principal and/or interest for a period up to five (5) years during the construction or rehabilitation of the facility from which a revenue stream is expected to be generated. Recommendation is to remove the highlighted section of the sentence. Recommendation is to add the following definition: Corporation: Refers to the Corporation of the Town of Collingwood. Debenture: Debt and Financial Obligation Limit: Debt: A formal written obligation to repay specific sums on certain dates. In the case of a municipality, debentures are typically unsecured. A calculation provided annually to a municipality by the Ministry of Municipal Affairs and Housing that determines the maximum amount of new annual debt servicing costs that a municipality can undertake or guarantee without seeking the approval of the Ontario Municipal Board. Any obligation for the payment of money. The Town considers debt to consist of debentures, notes or cash loans from financial institutions, loans from reserves and non-statutory reserve funds, financing leases, loan guarantees, mortgages or demand loans. Recommendation is to change non-statutory to discretionary and add internal loans to the list. Page of of 120

32 Debt Management Policy FIN Recommendation to add the following definitions: Debt Servicing Refers to the cash that is required to cover the repayment of Costs: interest and principal on a debt for a particular period. Financial Guarantee: Hedging: Infrastructure Ontario (IO) or its successor organization: Installment (Serial) Debentures: An agreement whereby the Corporation will take responsibility for the payment of debt in the event that the primary debtor fails to perform. A strategy used to offset or mitigate financial risk such as currency and/or interest rate risk. Any entity established by the Province of Ontario to provide Ontario municipalities, universities and hospitals access to alternative financing and procurement service and to longer-term fixed rate loans for the building and renewal of public infrastructure. Debentures of which a portion of the principal matures each year throughout the life of the debenture issue. Recommendation to add the following definition: Lease Financing Agreements: A lease for the purpose of obtaining long-term financing of a capital undertaking which requires payment by the Corporation beyond the current term of Council. Long-Term Bank Loan: Long-term debt provided by a bank or a syndicate (group) of banks. Long-Term Debt: Any debt for which the repayment of any portion of the principal is due beyond one year. Recommendation to add the following definition: Municipal Capital Facilities: Includes land, as defined in the Assessment Act, works, equipment, machinery and related systems and infrastructures. Project Financing: Refunding: Financing in which principal and interest payments are structured so as to more closely match the revenues or cost savings of a specific project. Also includes financing for which the lender, in the case of default, would have no or limited recourse to the issuer beyond the assets purchased with the proceeds of the financing. As applied to debentures, describes the process of retiring existing debt by issuing new securities to either reduce the interest rate or extend the maturity date or both. Page of of 120

33 Debt Management Policy FIN Rolling Stock: Short-term Debt: Sinking Fund Debentures: Term Debentures: Town: Variable Interest Rate Debentures: Equipment that moves on wheels used for transportation and/or transit purposes. Examples include subway cars, trucks, buses and tractor trailers. Any debt for which the repayment of the entire principal is due within one year. Debentures for which money is accumulated on a regular basis in a separate custodial account that when combined with interest earned is used to redeem the debentures. Debentures that are comprised of a combination of installment and sinking fund debentures. Refers to the Corporation of the Town of Collingwood Debentures that provide for one or more variations in the rate of interest payable on the principal during the term of the debenture. 3. DESCRIPTION 3.1 Philosophy for Capital Financing and Debt Issuance Council may, where it is deemed to be in the best interest of its taxpayers, approve the issuance of debt for its own purposes, or those of its municipal business corporations. Best interest will be consistent with the following key financial principle with respect to capital financing and debt practices: Capital financing and debenture practices will be responsive and fair to the needs of both current and future taxpayers and will be reflective of the underlying life cycle and the nature of the expenditure. This philosophy will be met through the objectives outlined below. 3.2 Objectives of the Capital Financing and Debt Program The primary objectives for the Corporation s capital financing and debt program, in priority order shall be: a. Adherence to statutory requirements b. Ensure long term financial sustainability, stability and flexibility c. Limit financial risk exposure Page of of 120

34 Debt Management Policy FIN d. Minimize long-term cost of financing e. Match the term of the capital financing to the useful life of the related asset. a. Adherence to Statutory Requirements Capital financing may only be undertaken when in compliance with the relevant sections of the Municipal Act, 2001 (the Act ), the Ontario Municipal Board Act, and regulations related to Local Improvements (O. Reg. 586/06). Recommendation is to shorten to: Capital financing may only be undertaken when in compliance with the relevant sections of the Municipal Act, 2001 (the Act ) and related regulations. Requirements include but are not limited to the following: i. The term of temporary or short-term debt for operating purposes will not exceed the current fiscal year. ii. The term of the capital financing shall not exceed the lesser of 40 years or the useful life of the underlying asset. iii. Long-term debt will only be issued for new capital projects. iv. The total financing charges after issuance of the proposed debt will not exceed the Debt and Financial Obligation Limit for the municipality responsible for incurring the debt unless otherwise approved by the Ontario Municipal Board. v. Prior to authorizing a financing lease (change to) lease financing agreement), a report will be prepared for Council assessing the costs as well as the financial and other risks associated with the proposed lease in relation to other methods of financing. vi. Prior to passing a debenture by-law under clause 408(4)(d) of the Act (authorizing the issuance of construction financing debentures ) which provides that installments of principal or interest, or both, are not payable during the period of construction of an undertaking, Council will adopt a statement of policies and goals related to construction financing and in preparing such statement the Council shall consider the various items specified in O. Reg. 278/02 including all financial and other risks related to construction financing. Recommendation is to replace paragraph vi with: Prior to passing a debenture by-law which provides that installments of principal or interest, or both, are not payable during the period of construction of an undertaking, Council shall consider all financial and other risks related to the proposed construction financing. Furthermore, the awarding of any contract under this Policy, unless otherwise authorized by Council, will follow the procedures and authorities set out in the Corporation s Procurement By-law. b. Ensure Long-term Financial Sustainability, Stability and Flexibility Page of of 120

35 Debt Management Policy FIN The capital financing program will be managed in a manner consistent with other long-term planning, financial and management objectives. Prior to the issuance of any new capital financing, consideration will be given to its impact on future taxpayers and/or ratepayers in order to achieve an appropriate balance between capital financing and other forms of funding. Regular and/or ongoing capital expenditures and the current portion of future rehabilitation and replacement costs will be recovered on a pay as you go basis through rates, tax levy, user fees and/or reserve fund monies. Adequate reserve funds must be developed and maintained for all capital assets owned by the Corporation to ensure long-term financial sustainability and flexibility. However, where long-term financing is required, due consideration will be paid to all forms of financing including debentures, construction financing, long-term bank loans and lease financing agreements. Recommendation to add the following: Financial sustainability depends on debt levels and debt servicing costs being consistent with the Corporation s level of affordability, both current and future. Debt issuance decisions must comply with ensuring long-term financial flexibility and sustainability for the Corporation. Goals and limits on debt, and financial measures to assess financial flexibility and sustainability are as follows: Goals Total tax supported debt servicing costs as a percentage of Town Own- Source Revenues shall not exceed 7%. Total water rate supported debt servicing costs as a percentage of Water Utility Own-Source Revenues shall not exceed 7%. Total wastewater rate supported debt servicing costs as a percentage of Wastewater Utility Own-Source Revenues shall not exceed 7%. Financial Measures Debt ratios are the key analytical measures used by credit rating agencies to evaluate the credit worthiness of a municipality. Three key debt ratios will be used to monitor the debt position: Debt servicing costs as a percentage of own source revenues Debt per capita Debt outstanding per $100,000 of assessment In addition, annually a third party assessment of the Corporation s financial health will be conducted to provide Council and tax/rate payers with an independent opinion on the Corporation s financial position and shall include but Page of of 120

36 Debt Management Policy FIN not be limited to all matters noted in the Goals and Financial Measures of the previous paragraph. c. Limit Financial Risk Exposure The capital financing program will be managed in a manner to limit financial risk exposure. As a result, it will be the Corporation s normal practice to issue debt that is only denominated in Canadian dollars with an interest rate that will be fixed over the term. Recommendation to add the following: In compliance with the Goals and Financial Measures, if a situation arises where there is a material financial advantage and/or it is deemed prudent for the Corporation to issue debt that is subject to fluctuations, in foreign currency and/or interest rates, a hedging strategy will be considered to either reduce or eliminate the risk. The hedging strategy would include the following: i. For debentures that are not denominated in Canadian currency, the rate of exchange will be fixed for the term of the obligation (both principal and interest payments) on or before the date of issuance. ii. For variable interest rate debentures with a term exceeding one year, the interest rate will be fixed within six (6) months of the issuance date. However, long-term bank loans for which the interest rate may vary will not be fixed if prevailing market conditions are such that in the opinion of the Treasurer it is in the Corporation s best interests to allow the rate to float where such debt, in addition to any other outstanding variable rate loans or debentures, does not exceed fifteen percent (15%) of the total outstanding debt of the Corporation. Lease financing agreements have different financial and other risks than traditional debt that must be considered and, where practicable, mitigated prior to use, including contingent payment obligations for items such as lease termination provisions, equipment loss, equipment replacement options, guarantees and indemnities. These risks will be identified prior to entering into any material lease financing agreement. d. Minimize Long-Term Cost of Financing The timing, type and term of financing for each capital asset will be determined with a view to minimize its overall long-term cost of financing. Factors to be considered will include: current versus future interest rates; the availability of related reserve fund monies; the pattern of anticipated revenues or cost savings attributable to the project; and, Page of of 120

37 Debt Management Policy FIN all costs related to the financing of the project whether by debenture, construction financing or lease financing. e. Match the Term of the Capital Financing to the Useful Life of the Related Asset The maximum term over which a capital asset may be financed is 20 years unless otherwise specifically approved by Council. In no case may the term of financing exceed the anticipated useful life of the related asset. 4. STANDARD OF CARE An appropriate standard of care shall be achieved in the following manner: 4.1 Ethics and Conflicts of Interest Officers and employees involved in the capital financing and debt management processes shall: a. Refrain from personal business activity that could conflict with the proper execution and management of the capital financing program, or that could impair their ability to make impartial decisions. b. Disclose any material interests in financial institutions with which they conduct business. c. Disclose any personal financial/investment positions that could be related to the performance of their capital financing duties. d. Not undertake personal financial transactions with the same individual with whom business is conducted on behalf of the Corporation. 4.2 Delegation of Authority The Treasurer has overall responsibility for capital financing by the Corporation and is responsible for the implementation of the capital financing program and the establishment of procedures consistent with this Policy. Such procedures shall include explicit delegation of authority to persons responsible for capital financing activities. No person may (change to shall) engage in a capital financing activity except as provided under the terms of this Policy. 4.3 Requirement for Outside Advice The Corporation s staff is expected to have sufficient knowledge to properly (change to prudently) evaluate standard financing transactions. However, when in their opinion the appropriate level of knowledge does not exist for instances such as capital financing transactions that are unusually complicated or non-standard, or as otherwise directed, outside financial and/or legal advice will be obtained. Page of of 120

38 Debt Management Policy FIN SUITABLE and AUTHORIZED FINANCING INSTRUMENTS The form of financing that meets the objectives listed above will be dependent in part upon its term and the type of asset to be financed. 5.1 Short-Term Under One (1) Year Financing of operational needs for a period of less than one (1) year pending the receipt of taxes and other revenues, or interim financing for capital assets pending long-term capital financing may be from one or more of the following sources: a. Reserves and specified discretionary reserve funds b. Bank line of credit c. Short-term promissory notes issued to aforementioned institutions d. Bankers Acceptances e. Infrastructure Ontario short-term advances pending issuance of long-term debentures 5.2 Long-Term Greater than One (1) Year Financing of assets for a period greater than one (1) year may be from any of the following sources: a. Debentures (including those issued to Infrastructure Ontario), which may be in the following form or a combination thereof: i. Installment (including those with a refunding provision) ii. Sinking Fund iii. Term iv. Amortizing v. Variable Interest Rate Fixed rate debentures will be the standard form of long-term financing used by the Corporation. b. Reserves and Specified Discretionary Reserve Funds These may be used for both short and medium-term (up to five (5) (change to three (3)) years) financing if deemed cost effective or otherwise necessary. It is recognized however, that reserves and reserve funds are for a defined purpose and must be available when that purpose occurs or requires them. Recommendation to add: Notwithstanding this policy, intra-fund borrowing between development charge reserve accounts for a longer period of time is permitted under the Development Charges Act. Page of of 120

39 Debt Management Policy FIN c. Long-Term Bank Loans (including Syndicated Bank Loans) recommended to be removed These may be used if deemed cost effective or otherwise necessary. These loans may be fixed or variable interest loans as determined by the Treasurer. d. Construction Financing May be used for a period up to five (5) years during the construction or rehabilitation of certain facilities for which a revenue stream will be generated. The Construction Financing provision may be utilized to smooth out the long-term debt repayments and mitigate the impact on taxation through deferral of interest and/or principal. Recommendation to replace with: May be used for a period up to five (5) years during construction or rehabilitation of certain facilities from which a revenue stream will be generated (i.e. water treatment plant, wastewater treatment plant) upon completion. e. Lease Financing Agreements May be used when it provides material and measurable benefits compared with other forms of financing. f. Mortgages Mortgages may be used for a period up to ten (10) years if deemed cost effective or otherwise necessary. Infrastructure Ontario or its successor organizations will be the prescribed primary lender for debenture requirements. Recommendation to add the following sections: 5.3 Debt Structures Debt issues are structured to achieve the lowest possible all-in net cost of funds, subject to the constraints prevailing capital market conditions, debt maturity, the capital asset being financed and the objectives of the Debt Policy. To the extent possible, debt will be structured to require repayment as soon as feasible so as to recapture borrowing capacity for future use and minimize costs where possible. 6. FINANCING RISK IDENTIFICATION AND MITIGATION STRATEGIES Financial risks associated with certain types of financing shall be identified and considered in relation to other forms of financing that would be available. The mitigation strategies discussed below will be used to reduce the additional risk when deemed practicable. 6.1 Availability of Debt Capacity for Future Priority Projects Page of of 120

40 Debt Management Policy FIN The Corporation could face the risk in any fiscal year of having insufficient debt capacity to fully execute its capital plan based on the goals for financial sustainability and flexibility or the Debt and Financial Obligation Limit established by the province. To manage this risk, the capital plan will show the amount of debt financing that will be required for each project and each year of the plan. Project prioritization will permit the most critical elements of the capital plan to proceed in an expeditious manner. 6.2 Refunding Risk The Corporation may issue debentures for which the amortization to retirement period is longer than the contractual term of the debenture, similar to a home mortgage where the term to retirement is 25 years and the renewal term is every five (5) years. For debentures of this type, the balance of debt remaining at the end of the contractual term will need to be refinanced. A risk to the Corporation would be that interest rates may be higher during the second financing period, resulting in higher than anticipated debt payments. For this reason the use of refunding debentures will not be the preferred method of financing by the Corporation. 6.3 Construction Financing Construction financing is unique in that the debt and interest may be accrued in advance of the project s completion and no payments are made during the building period. The following risks compared to other forms of financing will be considered prior to the use of construction financing: a. The financial risks include the following: i. Interest rates may fall from the time the rate for the construction loan is established and completion of construction. If there is a possibility of this occurring, the risk can be mitigated through the use of variable rate debt. ii. The final cost of construction could be materially less than initially forecasted and financed. Mitigation can be achieved by issuing debt that does not exceed 75% of the projected costs. b. Other risks include the construction project may not be able to proceed or is not completed for technical or other reasons. The mitigation strategy will be not issue long-term debt until all critical construction contracts have been awarded. 6.4 Lease Financing Agreements Leases may be used to finance equipment, buildings, land or other assets that the Corporation does not have a long-term interest in or may not be able to acquire through other means. The following risks compared to other forms of financing will be considered prior to the use of lease financing agreements: Page of of 120

41 Debt Management Policy FIN a. The financial risks include the following: i. The ability for lease payment amounts to vary if based on changes in an underlying debt instrument (generally expressed as a particular Government of Canada Bond). This risk usually only applies to new assets being added to a leasing schedule and would be the same as new debt being issued from time to time. ii. The ability for lease payment amounts to vary based on changes in the assumed residual values of the asset being leased. Again, this risk usually only applies to new assets being added to a leasing schedule and would not be riskier than other forms of financing. iii. Uncertainty over leasing costs if the contract needs to be extended or renewed. The normal practice of the Corporation will be to negotiate these costs prior to the agreement being executed. b. Other risks include the potential for the seizure and removal of leased equipment if the leasing company goes into default of its obligations to creditors, and its creditors have the legal right to seize assets of the leasing company. The normal practice of the Corporation will be to assess the financial strength of the leasing company prior to the agreement being executed. 7. REPORTING REQUIREMENTS In addition to any information requested by Council or that the CAO and Treasurer considers appropriate the following reports will be provided: a. Annually, the Treasurer shall submit to Council a report or reports that: i. Requests authority for temporary borrowing up to a stipulated amount to meet day-to-day expenditures, pending receipt of tax levies, user fees and revenues anticipated during the year. ii. Consistent with the Goals and Financial Measures adopted by Council, requests authority to finance certain capital items detailing for each item the type, amount and the maximum term of financing. iii. States the sum, if any, that must be raised for sinking fund purposes in that year. iv. Updates of the Debt Position of the Corporation. v. An independent third party assessment of the financial health of the municipality. vi. Lists and details of any outstanding construction financing debentures in accordance with the provisions of O. Reg. 278/02. b. Before entering into a lease financing agreement, the Treasurer shall submit to Council a report with a recommendation assessing the costs and financial and other risks associated with the proposed agreement. The report shall be prepared in accordance with the provisions of O. Reg. 266/02. Page of of 120

42 Debt Management Policy FIN c. Before passing a by-law providing for construction financing, the Treasurer shall submit to Council a report prepared in accordance with the provisions of O. Reg. 278/ RESPONSIBILITIES Council Council has the exclusive authority for authorizing debt issuance. Mayor The Mayor or, in the absence of the Mayor, Deputy-Mayor shall execute and sign the appropriate documents on behalf of the Corporation with respect to the issuance of debt instruments. Treasurer Clerk a. Reviews and recommends the type and term of financing for capital projects and operating requirements. b. Calculates the financial debt obligation limit for the Corporation as prescribed by the Act. c. Coordinates the preparation of debt instrument by-laws for Council. d. Executes and signs appropriate documents on behalf of the Corporation and performs all other related acts with respect to the issuance of debt securities including the payment of principal, interest or other related fees. e. Reviews and recommends to Council the financial and business aspects of any lease financing agreements and transactions. f. Ensures all reporting requirements identified within this Policy are met. The Clerk shall certify and sign documents on behalf of the Corporation with respect to the issuance of debt securities. 9. POLICY REVIEW This policy shall be reviewed when changes to the Municipal Act or Ontario Regulations affect the provisions contained herein. At a minimum this policy shall be reviewed every five (5) years. REFERENCES: Municipal Act, 2001, S.O c.25 Sections 401 to 424. Page of of 120

43 Debt Management Policy FIN Ontario Regulation 247/01 Variable Interest Rate Debentures and Foreign Currency Borrowing Ontario Regulation 266/02 Financing Leases for Municipal Capital Facilities Ontario Regulation 276/02 Bank Loans Ontario Regulation 278/02 Construction Financing Ontario Regulation 403/02 Debt and Financial Obligation Limits Ontario Regulation 586/06 Local Improvement Charges Priority Lien Status Ontario Regulation 653/05 Debt-Related Financial Instruments and Financial Agreements Revision History: Review Date Description Page of of 120

44 Reserve and Reserve Fund Management Policy APPENDIX C POLICY NUMBER: FIN POLICY STATEMENT: Reserves and reserve funds play a very important role in the Corporation s finances and provide a strong indicator of the overall health of the municipality. For this reason, the management of reserves and reserve funds is vitally important and therefore the primary basis for this policy. The policy is intended to establish consistent guidelines and standards which will assist in the management and administration of reserves and reserve funds in a responsible and consistent manner. APPLICATION: This policy applies to all employees who are responsible for the control, administration and management of the Corporation s reserve and reserve funds. 1. PURPOSE This policy establishes the objectives for reserves and reserve funds, standard of care, as well as it delineates the responsibilities for their management and administration. 2. DEFINITIONS Corporation: Debt: Development Charges: Refers to the Corporation of the Town of Collingwood. Any obligation for the payment of money. The Corporation considers debt to consist of debentures, notes or cash loans from financial institutions, loans from reserves and discretionary reserve funds, financing leases, loan guarantees, mortgages, demand loans and internal loans. Development charges are one-time fees levied by municipalities on new residential and non-residential properties to pay for a portion of growth-related capital infrastructure requirements. The charges are determined and accounted for by type of service component (i.e. roads, water, and fire protection) and are collected at the time a building permit is issued. Discretionary Reserve Funds are established, based on Council Page of of 120

45 Reserve and Reserve Fund Management Policy FIN Discretionary Reserve Funds: Obligatory Reserve Fund: Reserve: Reserve Funds: direction, to finance future expenditures for which the Town has the authority to spend money or to provide for a specific contingent liability. Discretionary reserve funds are segregated from the general revenues, earn interest and are created by by-law. Obligatory Reserve Funds are funds acquired by the Town for a legislated purpose through a financial agreement. These reserve funds are segregated and created solely for the purpose prescribed for them (i.e. Development Charge Reserve Funds, Federal and Provincial Gas Tax). A Reserve is an allocation of accumulated net revenue set aside at the discretion of Council to provide future expenditure requirements such as working funds, contingencies, equipment replacement or any other municipal need. It has no reference to any specific asset and does not require the physical segregation of money or assets as in the case of a reserve fund. They are generally used but are not limited to use in conjunction with the operating fund to support or supplement activities which are normally funded from general revenues. Funds that have been set aside either by a bylaw of the municipality or by a requirement of legislation to meet a future event. As a result, reserve funds are either discretionary being those set up by Council or obligatory being those set up by virtue of a requirement of a provincial statute. Municipal councils may set up reserve funds for any purpose for which they have the authority to spend money. A policy approved by Council that directs the allocation of any operating surpluses on an annual basis. Surplus Management Policy: Transfer to Capital Contingency Reserve, General Reserve, Operating Contingency Reserve and the Working Capital Reserve Fund sufficient funds to maintain their target balances. Transfer 10% of the remaining surplus to reduce the outstanding balance of internal loans. Transfer 60% of the remaining surplus to the Lifecycle Replacement Reserve Fund. Transfer 10% of the remaining surplus to the 10% Non DC Growth Reserve Fund. When a reserve fund reaches and maintains the target balance, remaining surplus funds shall be transferred in proportion to the remaining funds that are not at their targeted limit. Page of of 120

46 Reserve and Reserve Fund Management Policy FIN 3. DESCRIPTION 3.1 Philosophy for Reserves and Reserve Funds Reserve and Reserve Funds are a critical component of the Corporation s long term financial strategy. Their creation and use should be based on the following financial principles: 1. Replace or rehabilitate major Corporate assets as required. 2. Provide for future liabilities. 3. Provide a source of contingency funding for one time and unforeseeable events beyond the control of the Municipality. 4. Provide flexibility to manage debt levels and protect the Corporation s financial position. Adequacy of these funds is paramount in the affordability and sustainability of the community. Building on these principles, this Policy s philosophy is to promote fiscal prudence through the creation and management of reserves, as well as to achieve a best practice for reserving among municipal governments. While the Town does not seek financing in the marketplace, this policy acknowledges that reserves have a direct impact on the credit rating awarded by Bond Rating Agencies and therefore, the Town s long-term cost of financing. 3.2 Objectives of Reserve and Reserve Funds The primary objectives for reserves and reserve funds shall be in priority order: Adherence to statutory requirements; Promotion of financial stability and flexibility; Provision for major replacement or rehabilitation of existing Town assets; and, Reduce the need for tax-levy funded debentures. a. Adherence to Statutory Requirements It shall be the Corporation s practice to establish and maintain segregated funds and/or reserves that meet all statutory obligations. Appendix A identifies the current statutory reserve funds as well as reference to their applicable legislation. Page of of 120

47 Reserve and Reserve Fund Management Policy FIN All reserves and reserve funds will be managed in accordance with provincial legislation. Included in the Municipal Act are the following requirements: Section 417 (3) that money raised for a reserve fund shall be paid into a special account and shall be invested only in securities or classes of securities prescribed; Section 418 (3) a municipality may combine money held in any fund for investment purposes; and Section 418 (4) that earnings from combined investments shall be credited to each segregated fund in proportion to the amount invested in it. Furthermore, it will be the Corporation s practice to establish all reserves and reserve funds by by-law, Council Resolution or the annual budget process and all appropriations be approved by Council either through the annual budget or by specific resolution or by by-law. b. Promotion of Financial Stability and Flexibility It will be the Corporation s practice to maintain adequate non-capital reserves to achieve long-term financial stability and flexibility. To meet these objectives, the following types of funds will be established and adequately funded: Reserves for known and recurring material cash flow deficiencies (e.g. Winter Control); Reserves for large or erratic periodic or one time payments (e.g. Contingency); Reserves for long-term contingencies (e. g. Employee Future Benefits); Reserves for potential liabilities; and, Reserve for unanticipated expenditures (e.g. Contingency). Appendix B identifies the current reserves and reserve funds established for financial stability and flexibility. The Corporation will strive to maintain reserves and reserve funds that promote financial stability and flexibility within a target range of 5% - 15% of own source revenues and the Treasurer shall report to Council annually on this standard. Page of of 120

48 Reserve and Reserve Fund Management Policy FIN c. Provision for Replacement or Rehabilitation of Major Capital Assets It will be the Corporation s practice to maintain adequate reserves and reserve funds to replace and rehabilitate major capital assets, as required, and to provide for new capital assets that have been identified in the long-term corporate strategy. To achieve this, the following principles will apply where practicable: Reserve funds for the full cost of replacement or rehabilitation of major assets will be funded from ongoing operations at a rate which reflects the consumption of that asset by current taxpayers. Contributions to this reserve fund will commence in the fiscal year that the asset is acquired or put into service and will be based on an estimate of the useful life underlying the asset; Where the total cost is material, the purchase of minor assets which must be replaced on an ongoing basis (e.g. computers systems, furniture) the expenditure will be funded through operations; The Operating Budget will include an annual contribution for the replacement or rehabilitation of major capital assets as determined by Council. These contributions will be allocated to asset replacement reserve funds based upon reserve fund adequacy analyses. Reserve funds will be maintained for growth related capital projects that will be fully funded from developer contributions (Development Charge Reserve Funds). Reserve funds will be maintained for the component of the growth related project that benefits the existing ratepayers or for which a discount has been given. Reserves will be maintained for the acquisition of land and/or land and buildings that are strategic in nature, non-growth related and therefore not fundable through development charges, and not environmentally sensitive. Appendix C identifies current reserves and reserve funds established for major capital expenditures. d. Reducing the Need for Tax-Levy Funded Debentures It will be the Corporation s practice to fund reserves and reserve funds to ensure adequate funds are available to reduce the need to issue tax-levy debentures. The Town has adopted a debt servicing cost limit of 7% of own source revenues Page of of 120

49 Reserve and Reserve Fund Management Policy FIN and adopted a Pay As You Go philosophy for all spending as part of the longterm financial strategy. To succeed in reaching this goal, the following principles will apply: 1. Additional debt will not be undertaken until the debt servicing cost limit is achieved; 2. As debt charges decline due to the retirement of debt, savings will be applied to the Lifecycle Replacement Reserve Fund; and 3. Long-term debt for replacement and rehabilitation of existing capital assets will be reduced and ultimately eliminated by increased contributions to this reserve. 4. STANDARD OF CARE Reserves and reserve funds are important assets of the Corporation for which a high standard of care will be maintained. 4.1 Delegation of Authority The Treasurer will retain the overall administrative authority for establishing and managing reserves and reserve funds. 4.2 Management of Reserves and Reserve Funds It is the Corporation s policy to use best practices to manage its reserves and reserve funds. These practices will include: a. Establishing a Reserve or Reserve Fund Prior to establishing a new reserve or reserve fund, a financial plan will be prepared which identifies need, target funding level (if applicable), contribution sources and projected disbursements (when practicable) to meet planned future obligations. b. Reserve Funding Targets A target funding level will be established for every reserve or reserve fund at the time that it is created. This target will be reviewed annually by staff to ensure adequacy. In addition, annually a third party assessment of the Corporation s financial health will be conducted to provide Council and tax/rate payers with an independent opinion on the Corporation s financial position. Page of of 120

50 Reserve and Reserve Fund Management Policy FIN Methodologies for calculating targets are specific to each reserve or reserve fund however consideration will be given to the following: Purpose of the fund (operating or capital); Certainty of end needs (for contingent liability or long-term asset replacement); Economic factors (inflation, interest rates, cyclical pressures); Industry/Government/Accounting standards; and, Multi-year forecast of contribution and projected usage. A report forecasting reserve and reserve fund balances with discussion on adequacy to the target objectives shall be prepared annually based on the most current information available. c. Investment of Reserves and Reserve Funds Reserves and reserve funds may be invested for a term that will not exceed the expected date of need. The investment income will be credited to reserves and reserve funds when required by legislation in the proportionate share of the investment portfolio. Investments shall further be governed by the Corporation s Investment Policy. d. Contributions to/withdrawals from Reserves and Reserve Funds All contributions to and/or withdrawals from reserves and reserve funds shall be approved by Council, normally as part of the annual budget approval process or specifically by resolution with the following exceptions: Direct contributions to a reserve or reserve fund such as development charge contributions or Federal Gas Tax monies; Transfers that are the result of the Surplus Management Policy; Transfer of funds between asset replacement reserves based upon reserve adequacy analyses or other related information at the discretion of the Treasurer. Withdrawals from reserves or reserve funds will be made at the actual cost of the project or purchase. Where a project or purchase requires more than the amount of budgeted funding, staff will require Council approval for withdrawing additional funds in excess of 20% of budget. All contributions to and/or withdrawals from reserve and reserve funds will be clearly identified and segregated within the Corporation s accounting system and accounted for by entry either to or from an operating account or a capital project. Funding strategies developed for reserves and reserve funds will take into account fairness to current and future tax/rate payers, affordability and sustainability. Page of of 120

51 Reserve and Reserve Fund Management Policy FIN e. Lending/Transferring of Reserves and Reserve Funds for Other Purposes The following principles apply to only those reserves and reserve funds that Council exercises direct control over: i. Use for Other Purposes If required, Council may by by-law provide that the funds in a reserve or reserve fund be spent, pledged or applied to a purpose other than that for which it was established. ii. Internal Loans/Transfers Consistent with Goals and Financial Measures adopted by Council, intra-fund lending from reserves and reserve funds is permitted to temporarily finance capital fund expenditures or cash flow deficiencies to avoid external temporary borrowing costs. Funds will be returned to the lending reserve or reserve fund as soon as possible. In cases where a long-term loan is required, repayment of internal loans will be included in the budget on an annual basis with a maximum time of 10 years for repayment and bearing interest equivalent to the Bank of Canada overnight lending rate. 4.3 Reporting Requirements The Treasurer will provide Council with the following reports: Annual Treasurer s Statement of Development Charge and Cash-in-Lieu of Parkland Reserve Funds. This is a mandatory report required by the Development Charges Act, 1997 and the Planning Act. Components of the report are prescribed in the legislation. Annual Audited Financial Statements The consolidated financial statements shall include a statement of financial position, financial activities and changes in fund balances with notes on obligatory reserve funds and summarized reserve and reserve funds in the note on accumulated surplus. Annual Statement of Reserve and Reserve Funds This report will provide the change in reserve and reserve fund balances for the year. Adequacy Review Report Annually a review of the reserves and reserve funds will be made to determine if balances are adequate or if the need for a particular reserve or reserve fund still exists or if new reserves and reserve funds are required. Page of of 120

52 Reserve and Reserve Fund Management Policy FIN Annual Budget and Business Plan Contributions to and budget appropriations from reserves and reserve funds will normally be approved by Council as part of the annual Business Plan and Budget or specifically by resolution with the exception of those instances noted above. Annual Assessment of the Municipalities Financial Health Annually, an independent third party assessment of the financial health of the municipality will be presented to Council. 4.4 Responsibilities The Treasurer has overall responsibility for the management of reserves and reserve funds. These responsibilities include: Determining the need for reserves and reserve funds for operating and capital operation. Sets targets for various reserves and reserve funds where appropriate. Ensures a review and report to Council of the adequacy and continuing need for reserves and reserve funds is undertaken annually. Arranges for the preparation and presentation of required reports and/or by-laws for the creation or termination if any new or obsolete reserve or reserve funds. Develops appropriate strategies, procedures and processes for the investment of reserves and reserve funds. Develops long range fiscal planning strategy to effectively meet the Corporation s capital financing and capital asset replacement requirements. Ensures the appropriate allowances, contributions and/or withdrawals are accounted for in the annual budget and business plan relating to the financial requirements of the reserves and reserve funds. Monitors and reconciles all receipts to and disbursements from reserve and reserve fund accounts to ensure compliance with provincial regulations, PSAB and the Reserve and Reserve Fund Policy. Revision History: Review Date Description Page of of 120

53 Reserve and Reserve Fund Management Policy FIN APPENDIX A STATUTORY (OBLIGATORY) RESERVE FUNDS Reserve Fund Reference Legislation Development Charges Reserve Fund Development Charges Act, 1997 Building Stabilization Reserve Fund Building Code Act, 1992 (s (d)) Parkland Levy Planning Act Federal Gas Tax Reserve Fund Federal New Building Canada Plan Page of of 120

54 Reserve and Reserve Fund Management Policy FIN APPENDIX B RESERVES AND RESERVE FUNDS FOR STABILITY AND FLEXIBILITY Name Year Estb d By-law Purpose Sources of Funding Accessibility 2012 Reserve To fund accessible initiatives in Town owned facilities Unspent budgeted funds Balsam Debenture Employee Future Benefits General Municipal Election Operating Contingency 2013 Reserve 2009 Reserve Reserve Reserve 2013 Reserve Winter Control 2010 Reserve WSIB Reserve To reduce the Black Ash Creek debenture payments To fund the future liability for benefits to eligible retired employees. To fund cash flow deficiencies, Townhall refurbishment and other working capital requirements. To mitigate budget pressure in the year of election To provide for one-time or unexpected operating expenditures. To provide funding for winter control costs which exceed the amount provided for in the budget. To provide funding for any significant potential future claims, damage settlements or Ministry of Labour fines. Funds arose from the sale of 160 Balsam Street which was part of the Black Ash Creek Channelization debenture. Annual Operating Fund allocation. Allocation of Operating Surplus to maintain the reserve at target balance. Annual Operating Fund allocation. Allocation of Operating Surplus to maintain the reserve at target balance. Allocation of Operating Surplus. Contribution from Salary Contingency account in the Operating fund to maintain the target balance. Building Code Heritage Working Capital Reserve Fund Reserve Fund Reserve Fund To mitigate fluctuations in building permit fees. To provide funding for the establishment of a new Heritage Conservation District and/or expansion of the current district. To provide a source of funding for temporary cash shortfalls, urgent unforeseen expenditure requirements, and business continuity needs. Allocation of Building Department operating surplus. Contribution from the Operating Budget. Annual Operating Fund contribution. Allocation Operating surplus. Page of of 120

55 Reserve and Reserve Fund Management Policy FIN Name APPENDIX C RESERVES AND RESERVE FUNDS FOR MAJOR CAPITAL EXPENDITURES Capital Contingency Development Charges Federal Gas Tax Year Estb d By-law Purpose Sources of Funding To provide funding for emergency capital Allocation of Operating 2011 Reserve expenditures or Surplus to maintain the unforeseen costs on reserve at target balance. budgeted capital projects There is no bylaw for this reserve fund. To fund growth related capital To fund capital projects in the eligible categories defined in the Funding Agreement Parkland Levy To fund the acquisition of land for parks or any other public recreational purposes. Development charges are levied based on a fixed charge for residential and non-residential construction at the time a building permit is issued. Funding provided by the Government of Canada under the agreement signed with the Government of Ontario and AMO (who calculates the allocation for each municipality). Developer payments of cash-in-lieu of parkland dedication. Land Acquisition 2010 To provide a source of funding for the Town to acquire land and/or land and buildings that are strategic in nature, nongrowth related and not environmental sensitive Lifecycle Replacement 10% Non DC Growth To provide funding for expenditures related to the replacement or rehabilitation of existing capital infrastructure either in their entirety or on a component basis. To provide funding for the 10% mandatory deduction for soft service assets and those growth related items not eligible for Development Charge Funding Funds generated from the sale of municipally owned properties except those properties that have outstanding debentures against them or they have pledged as a funding source for another capital project. Annual Operating Fund allocation. Allocation of Operating Surplus to maintain the reserve at target balance. Allocation of Operating Surplus to maintain the reserve at target balance. Page of of 120

56 Reserve and Reserve Fund Management Policy FIN Parking Water Wastewater Water Waterfront Master Plan To provide funding for the ongoing maintenance and acquisition of parking related infrastructure needs. To fund major maintenance and replacement of water treatment and distribution infrastructure. It is also used to finance the nongrowth component of new infrastructure. To fund major maintenance and replacement of wastewater treatment and collection infrastructure. It is also used to finance the non-growth component of new infrastructure. To fund major maintenance and replacement of water treatment and distribution infrastructure. It is also used to finance the nongrowth component of new infrastructure. To provide a source of financing for the Town to implement the plan. Allocation of Parking Services operating surplus. Funding is from the surplus in the water annual operating budget. Funding is from the surplus in the wastewater annual operating budget. Funding is from the surplus in the water annual operating budget. To be determined. Public Art 2012 Reserve To provide funding to acquire, maintain and preserve Public Art on or in municipally owned assets. Public Works Reserve To provide funding for the replacement and refurbishment of Public Works vehicles and equipment to ensure that the current level of service is maintained. Annual Operating Fund allocation Contribution from the Operating budget based on an internal machine rental fee. Page of of 120

57 Use of Federal Gas Tax Funds APPENDIX D Standard Operating Procedure: SOP Purpose To implement a Standard Operating Procedure (SOP) for the use of Federal Gas Tax Funds. Responsibility: The Finance Department for the Town of Collingwood is responsible for monitoring the use of Federal Gas Tax Funds. Background: As outlined in Section 6.4 of the current Municipal Funding Agreement for the Transfer of Federal Gas Tax Funds (the Agreement) authorized by By-Law No , the Town of Collingwood acknowledges and agrees that the Funds are intended for and shall be used only for Eligible Expenditures in respect of Eligible Projects defined in Schedule C and Schedule B respectively of the agreement and attached hereto for reference. Procedure: As part of the annual budget process, the Town of Collingwood completes the following steps in regard to the use of Gas Tax Funds: The Treasurer 1 reviews the annual amount to be received Schedule A of the Agreement. as outlined in The Treasurer reviews the Eligible Project Categories as outlined in Schedule B of the Agreement. The Treasurer reviews the Eligible and Ineligible Expenditures as outlined in Schedule C of the Agreement. 1 Where the word Treasurer appears it should be read as Treasurer or designate. Page of 2 57 of 120

58 Use of Federal Gas Tax Funds SOP The Treasurer reviews and evaluates the projects submitted for inclusion in the Town s Draft Budget with the Agreement criteria as outlined above to determine which potential projects meet the requirements. The Treasurer reviews the potential application of Gas Tax Funding with the Department Head involved in the eligible projects. If the Treasurer and Department Head agree the project, in its entirety or specific elements, meet the criteria for funding the project data sheets are amended to include Gas Tax Funding as a source of financing the project and includes the project in the draft budget. Once the budget is adopted by Council, the projects will proceed. The Treasurer and the applicable Department Head monitor the project costs until the project is completed. The Treasurer will compile a statement outlining the full cost of the project and the amount to be funded from Gas Tax Funds. When the funding has been determined the Treasurer will record the applicable Gas Tax Amount as a credit to the applicable department revenue account and debit the Gas Tax Reserve Fund. The Treasurer completes the Annual Gas Tax Reporting requirements. The external Auditor reviews the Gas Tax expenditures and Annual Reporting Requirements as part of the yearend audit. Page of 2 58 of 120

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63 Submitted to: Submitted by: Subject: Strategic Initiatives Standing Committee Council Marjory Leonard, Treasurer Reserve and Reserve Fund Policies STAFF REPORT #T Strategic Financial Plan Policy Paper 6 Reserve and Reserve Fund Policies 8/9/2017 8/21/2017 Amendments: None PURPOSE The purpose of this report is to establish the reserve and discretionary reserve funds and define their purpose, source of funding and target funding level. RECOMMENDATION THAT Council receive Staff Report T for information; AND THAT Council approve the recommendations contained in the report. AMENDMENTS None 1. BACKGROUND Overview of Reserve and Reserve Funds Reserves and Reserve Funds are established by Council to assist with long term financial stability and financial planning. They are a critical component of the Town s financial plan. By maintaining reserves and reserve funds, the Town can accumulate funds for future or contingent liabilities a key component of prudent long-term financial planning practices. They also provide a cushion to absorb unexpected shifts in revenues and expenditures, fund one-time expenditure T Reserve and Reserve Funds Page 1 of 6 63 of 120