Item - 2023.EX3.5

The Executive Committee:

1. Received the report (March 7, 2023) from the Chief Financial Officer and Treasurer for information.

Reserves and Reserve Funds established by Toronto City Council (Council) are key in 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 revenue shortfalls, minimizing annual tax rate fluctuations.  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 of Toronto 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 and 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.  These balances are consolidated within the City's Accumulated Surplus position on the Consolidated Statement of Financial Position. These balances have been built up over a number of years with deliberate contributions over the last few years 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, contributions are made when there are excess revenues collected over budgeted amounts, or when there are lower expenditures incurred than budgeted. With the ongoing impacts of the pandemic these situations are less likely to occur and once these balances are drawn down, there is no predictable source of funding to replenish the balances and no guarantee on how long it would take to rebuild the balance.

This report provides 2022 activity to September 30, 2022 for the City's Reserves and Reserve Fund balances.

Reserves and Reserve Funds balances as at September 30, 2022 totalled $4,850.7 million, an increase of $740.4 million over the December 31, 2021 balance.  This change is the result of prior year surplus allocations in addition to transfers between funds as authorized by Council.  The majority of the City's reserves and reserve funds ($ 4,560.4 million, or 94.1%) are committed to future Council directed activities that include capital and operating expenditures and rate-based activities.  Only the remaining balance of $290.3 million, or 5.9% 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.  This remaining balance has also been leveraged as a $145 million one-time backstop in the event funding of $97 million is not received from the federal government to reimburse the City for 2023 refugee response costs; and a further $48 million from the province to reimburse the City for 2023 supportive housing costs. It is important to emphasize the use of these reserves is a one time solution as a funding source.