Item - 2024.EX16.15

The Executive Committee recommends that:

1. City Council approve the establishment of a reserve called the Toronto Shelter and Support Services Stabilization Reserve in City of Toronto Municipal Code Chapter 227, Reserves and Reserve Funds, Appendix A, Schedule 3 - Stabilization Reserves, for the purpose of providing funding to stabilize Toronto Shelter and Support Services’ shelter operations resulting from changes in shelter demand and changes to intergovernmental funding support.

2. City Council direct that $200.0 million reflected in the 2023 operating year-end Toronto Shelter and Support Services results be transferred from the 'Working Capital Reserve' to the newly created 'Toronto Shelter and Support Services Stabilization Reserve'.

3. City Council direct that $48.4 million generated from the 2023 revenue recognized as part of the ‘Canada Community-Building Fund’ be transferred to the ‘Capital Financing Reserve’.

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 has been nearly depleted in 2023 and will be fully depleted by the end of 2024.

This report provides a summary of activities for the year ended December 31, 2023 for the City's Reserves and Reserve Fund balances.

Reserves and Reserve Funds balances as at December 31, 2023 totaled $5,291.7 million, a decrease of $139.9 million from the December 31, 2022 balance of $5,431.6 million. This net decrease is the result of a drawdown of the COVID-19 backstop, partially offset by 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 ($5,000.1 million, or 94.5%) are committed to future Council directed activities that include capital and operating expenditures and rate-based activities. Only the remaining balance of $291.6 million, or 5.5% of total reserves and reserve funds is uncommitted and available to respond to various unanticipated costs, stabilize funding sources, including the tax base, or for emergency purposes such as extreme weather events.

Of the $5,000.1 million in committed reserve and reserve funds, there are approximately

$15,447.3 million 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.