Item - 2023.EX6.8

The Executive Committee: 

1. Received the report (June 26, 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.  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 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, 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 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, some contributions are made when there are excess cash inflows over budgeted amounts, or when there are lower expenditures than budgeted or when there are timing impacts to commitments originally planned and approved. With the ongoing impacts of the pandemic and the increased financial pressures on the City, it is likely these balances will be drawn down. It is essential to understand that based on current practices and the current budget there is no predictable source of funding to replenish the balances.

This report provides 2022 activity to December 31, 2022 for the City's Reserves and Reserve Fund balances.

Reserves and Reserve Funds balances as at December 31, 2022 totalled $5,431.6 million, an increase of $1,321.3 million over the December 31, 2021 balance.  This change is the result of prior year budget surplus allocations, along with various deliberate contributions, such as 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 ($5,135.6 million, or 94.6%) are committed to future Council directed activities that include capital and operating expenditures and rate-based activities.  Only the remaining balance of $296 million, or 5.4% 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.