Item - 2023.EX10.10

The Executive Committee recommends that:

1. City Council approve the establishment of an obligatory reserve fund called the FCM Funded Retrofit Reserve Fund in Schedule 15 – Third Party Agreements Obligatory Reserve Funds, for the purpose of managing funds received from the Federation of Canadian Municipalities to support the Taking Action on Tower Renewal Program with criteria set out in Appendix C to the report (November 20, 2023) from the Chief Financial Officer and Treasurer.

Reserves and Reserve Funds

Reserves and Reserve Funds established by Toronto City Council (Council) are key to support the financial management and operations of the City of Toronto (City). These funds are set aside to help offset future capital needs, future obligations such as employee expenses, fiscal pressures from ongoing programs and unforeseen costs or to offset revenue shortfalls, minimizing annual tax rate fluctuations. As an example, prudent financial management requires the City to retain a Tax Rate Stabilization Reserve balance as a contingency to address unanticipated and emergency events. The City has committed to maintaining a Tax Rate Stabilization Reserve balance of no less than 2% of annual property tax revenues for this purpose.

Reserves and Reserve Funds are drawn upon to finance operating and capital expenditures as designated by Council; the contributions to, or draws from, Reserve and Reserve Funds represent a source or use of funds. Contributions to Reserves and Reserve Funds are not revenue earned by the City; similarly, draws are not expenses. Total Reserve and Reserve Funds are consolidated within the City's Accumulated Surplus position on the Consolidated Statement of Financial Position. These balances have accumulated over the last several years with half of the contributions made to address COVID-related financial challenges at the expense of contributions that otherwise would have supported the City's capital program. Outside of planned reserve contributions for specific uses, when possible, contributions may be made when there are excess cash inflows over budgeted amounts, when there are lower expenditures than budgeted or when there are timing impacts to commitments originally planned and approved. With the sustained impacts of the pandemic and the increased financial pressures on the City, these balances are being drawn down. The COVID-19 backstop is expected to be nearly depleted in 2023 and then fully depleted in 2024.

This report provides 2023 activity to September 30, 2023, for the City's Reserves and Reserve Fund balances.

Reserves and Reserve Funds balances as at September 30, 2023 totalled $5,518.6 million, an increase of $87.0 million over the December 31, 2022 balance of $5,431.6 million. This change is the result of various deliberate contributions for capital investments in housing and capital infrastructure, contributions to vehicle and equipment replacement, and the proceeds from land sales credited directly to the land acquisition reserve fund, as authorized by Council. The majority of the City's reserve and reserve fund balances ($5,245.0 million, or 95.0%) are committed to future Council directed activities that include capital and operating expenditures and rate-based activities. Only the remaining balance of $273.6 million, or 5.0% of total reserves and reserve funds is uncommitted and available to respond to various unanticipated costs, stabilize various funding sources, including the tax base, or for emergency purposes such as extreme weather events.

Of the $5.5 billion in committed reserve and reserve funds, there are approximately

$15.4 billion in future commitments and obligations against the existing reserves and discretionary reserve fund balances, which are consistent with Council approved plans over the 2023-2032 capital planning period. These commitments and obligations are nearly 3 times greater than the current reserve and discretionary reserve fund balances, requiring continued reserve contributions to support planned expenditures.

This report also requests Council approval for an administrative amendment to the City of Toronto Municipal Code Chapter 227, Reserves and Reserve Funds ("Chapter 227") to establish an obligatory reserve fund called the FCM Funded Retrofit Reserve Fund.