TAMRMS#: B06
6.1
REQUEST FOR DECISION
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Review of Financial Council Policies
Presented by: Stella Tam and Stanley Chan, Financial Controllers, Financial and Strategic Services
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RECOMMENDED MOTION(S)
recommendation
That Standing Committee of the Whole recommend to Council that amendments to the following Council Policies, provided as attachments to the report entitled “Review of Financial Council Policies” dated December 10, 2024, be approved:
C-FS-01 Financial Reserves
C-FS-02 Investments
C-FS-04 Cash Management
C-FS-11 Operating and Capital Carry Forwards and Closed Projects
C-FS-16 Municipal Fees and Charges
C-FS-19 Taxation of Vacant Residential Lands.
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SUMMARY
Administration is required by policy to review specific Council Financial Policies on a regular basis. These policies have been reviewed by Administration and proposed amendments are provided to Council for consideration.
ALIGNMENT TO COUNCIL DIRECTION OR MANDATORY STATUTORY PROVISION
N/A
BACKGROUND AND DISCUSSION
As part of our annual review, Administration undertook a comprehensive analysis of our financial policies. This included discussions with subject matter experts, departments, and other municipal comparators to ensure best practices are being adhered too. Based on this, Administration is recommending updates to 6 financial council policies.
The complete list of all changes is provided as an attachment titled “Update to Financial Council Policies (Detailed)”. Red-lined versions of each policy are also provided as attachments.
The following section provides an overview of the major proposed changes within each policy.
C-FS-01 Financial Reserves
To provide for consistency, only those reserves that are bound by external requirements are interest bearing. This impacts the Risk Management Reserve, Children’s Festival Fund, Internal Financing Reserve, and Lands & Facilities Reserve.
Schedule O1 Stabilization
Administration did a fiscal review of the City’s reserve policy, in particular the Stabilization reserve, to ensure adherence to sound fiscal responsibility. To review best practices, Administration reached out to various municipalities to understand reserve thresholds, funding sources and use of funds. While each municipality uses their Stabilization reserve for emergent items, the funds’ applications differ depending on the other types of reserves the municipality has. However, commonalities did exist:
• Many municipalities require a minimum balance on their stabilization reserve to ensure enough funds are set aside to cover unanticipated emergent needs or disaster recovery.
• Many municipalities set a maximum balance tied to their operating revenues/expenses.
• No municipality had an annual budget transfer to their stabilization reserve; all were funded from year end operating surpluses.
Limited benchmarking with other municipalities shows the following policies in relation to a “stabilization” fund:
City of Airdrie 7% of operating budget Max Balance
Calgary 5%/15% of operating budget Min/Max Balance
City of Grand Prairie 5% of operating budget Min Balance
City of Edmonton 5%/8.3% of operating budget Min/Max Balance
Strathcona County 5% of operating budget Max Balance
Based on the common features of other municipalities, and in an effort to ensure minimum funds are available for emergent needs or disaster recovery, Administration is recommending a minimum balance of 2% of current municipal operating budget be maintained. If the reserve is below the minimum balance, Administration will recommend any year end surpluses to be transferred to the Stabilization reserve first to meet the minimum balance. As the 2024 approved operating budget is $254 million this would result in a minimum balance of $5 million.
Administration is also recommending increasing the ceiling to 10% of the municipal operating budget. This would represent the maximum value and does not mean that there will be a requirement to top up the reserve to this maximum on an annual basis.
Schedule O3 Risk Management
The ceiling has been updated to exclude annual interest increases. The limit within the reserve has been deemed adequate to accommodate any potential funds required from changes in insurance and risk management.
Schedule O7 Safety Enhancement Reserve
The operating budget includes an annual transfer from the Safety Enhancement Reserve to fund safety initiatives. As there is now an ongoing source of funding there is no need to have a calculated portion of the reserve balance be used as an offset to the base budget. Therefore, the recovery/offset against the base is not required in the policy.
Consolidate Schedules C2 Major Recreational Lands & Facilities Reserve and C5 Municipal Land & Facilities Reserve into C2 Land & Facilities
Currently, C2 Major Recreational Lands & Facilities can only be used for the purchase or development of recreational land and facilities and the C5 Municipal Land & Facilities Reserve can only be used for commercial/ non recreational land and facilities. As a review of all capital projects are done on an annual basis and prioritized based on the approved Capital Prioritization Matrix consolidating the two reserves into one will allow for better application of reserves to fund Council prioritized projects.
As Parkland Funds are prescribed within the Municipal Government Act and the Dog License Fund is funded through as a dog license surcharge, they will remain as independent funds.
Schedule C4 Lifecycle Reserve
The current lifecycle program does not include funds for the planned and responsive rehabilitation of Heritage Facilities. Historically, any rehabilitation required would be approved as a capital project when the need arose. Establishing a reserve for Historic Buildings allows the City to address this gap. As the reserve will be funded out of current operating transfer to lifecycle funds there is no impact to the tax base.
Schedule C7 Energy Efficiency
Since the establishment of the Energy Efficiency Reserve, administration has identified challenges in accurately monitoring and quantifying savings from energy efficiency initiatives. Given that the primary goal of these initiatives is to mitigate future tax increases by offsetting operating budget pressures with potential savings, it is recommended that these savings be applied directly to the operating budget.
To align with this approach, it is recommended to remove the text “year-end transfer of energy savings into the reserve” from the reserve schedule.
The Clean Energy Improvement Program (CEIP), supported by the Federation of Canadian Municipalities (FCM), requires separate tracking for the loan loss provision to cover potential defaults on resident loans, as well as for interest earned on these loans to ensure we can meet interest obligations on the City’s line of credit. Once all grant reporting obligations are complete, any remaining funds from the loan loss provision and interest components may be redirected toward future energy efficiency initiatives.
C-FS-02 Investments
Through our review and discussions with our financial advisors we have updated this policy to adjust restrictions on terms and portfolio percentages to ensure more diversification, mitigation of risks, and adding flexibility in investments considering current and future market conditions.
The major changes were made in the Service Standards/Expectations, Schedule 1 City Managed Funds and Schedule 2 Custodian Managed Funds as follows:
Under Service Standards/Expectations section, we updated City Managed Funds from terms of up to 3 years to up to 5 years to allow for more flexibility with cashflow needs and the ability to lock in at potentially higher interest rates.
In both schedules:
• Added total portfolio limits column to provide more clarity on maximums on the overall investment portfolio (for both short term and long-term investments). Total portfolio limit maximum percentages are listed to reflect risk tolerance levels in each of the categories. The same limits are used in both schedules to be consistent.
• Increased the maximum percentage in Government of Canada as it is very low risk.
• Reduced maximum investment percentages in provincial and municipal governments, chartered banks and other financial institutions to ensure diversification.
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In schedule II there are additional updates:
• Removed limitation of minimum 30% in government securities for custodian managed funds to allow for more flexibility in investing in other safe instruments.
• Added maximum restriction of 15% in a specific security for custodian managed funds to further reduce risk.
• Added additional minimum and maximum percentages of credit quality in a specific security to further minimize risk by excluding low-rated instruments
C-FS-19 Taxation of Vacant Residential Lands
Council Policy C-FS-19 is intended to allow for a higher rate of taxation on serviced residential lots which have remained vacant & undeveloped for a defined period of time.
On August 18, 2014 the following motion was passed by Council:
C399-2014
That Administration bring forward guiding principles for the development of a bylaw and/or policies for Council's consideration in Q2, 2015 that would allow for taxation of vacant residential lands that have remained undeveloped for more than 5 years.
C-FS-19 was developed in 2015 as a response to this motion.
The purposed change better aligns with the legislated physical condition date of December 31st Administratively, policy change also minimizes the opportunity for error as it reduces the inspections of properties to once in the annual assessment cycle.
Reversion to Regular Residential Tax Rate
• Once a property is improved, the tax rate reversion will be enacted in the following tax year. Prior, it was pro-rated within the tax year.
C-FS-04 Cash Management, C-FS-11 Operating and Capital Carry Forwards and Closed Projects, and C-FS-16 Municipal Fees and Charges
These policies have minor changes to wording/update to comparators and references to other polices/directives.
STAKEHOLDER COMMUNICATIONS OR ENGAGEMENT
None
IMPACTS OF RECOMMENDATION(S)
Financial:
None at this time
Compliance & Legal:
Recommended changes will ensure that Council policies are up to date, relevant, legislatively compliant, support best practice and reflect specific direction provided by Council.
Program or Service:
None at this time
Organizational:
None at this time
Risks
Development of financial policies and procedures to ensure appropriate financial internal controls are in place. Fiscal responsibility is ensured through monitoring and compliance of policies and procedures. Risks of not updating the policies would include not having sufficient internal controls in place and not having clear direction.
ALIGNMENT TO PRIORITIES IN COUNCIL’S STRATEGIC PLAN
N/A
ALIGNMENT TO LEVELS OF SERVICE DELIVERY
Development of financial policies and procedures to ensure appropriate financial internal controls are in place. Fiscal responsibility is ensured through monitoring and compliance of policies and procedures.
IMPACTS OF ALTERNATIVES CONSIDERED
Alternative 1. Standing Committee of the Whole may choose to approve only some or none of the recommendations provided or may provide specific alternate direction for Administration to incorporate and bring back to the Standing Committee of the Whole or Council for further review or approval.
Financial:
None at this time
Compliance & Legal:
If policies are not updated, there is a risk that Council policies are out of date, irrelevant, or may be non-compliant with legislation. In addition, the policies may not support best practice and may not reflect previous direction provided by Council.
Some of the recommendations are related to previous Council direction and are required to be incorporated/excluded into/from the relevant policies.
Program or Service:
None at this time
Organizational:
None at this time
Risks:
None at this time.
Alternative 2. Do nothing.
Financial:
None at this time
Compliance & Legal:
Recommended changes will ensure that Council policies are up to date, relevant, legislatively compliant, support best practice and reflect specific direction provided by Council.
Program or Service:
None at this time
Organizational:
None at this time
Risks:
None at this time.
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Report Date: December 10, 2024
Author(s): Stella Tam, Stanley Chan
Department: Financial & Strategic Services
Department Director: Anne Victoor
Managing Director: Diane McMordie
Chief Administrative Officer: Bill Fletcher