Item - 2024.EX17.14

The Chief Financial Officer and Treasurer recommends that:

1. City Council approve the establishment of an obligatory reserve called the New Deal – Building Faster Fund Reserve Fund in City of Toronto Municipal Code Chapter 227, Reserves and Reserve Funds, Appendix C, Schedule 15 – Third Party Agreements Obligatory Reserve Funds. The purpose of this reserve fund is to hold funds provided by the Provincial government under the Toronto-Ontario New Deal Agreement, aimed at supporting the building targets of new rental and affordable housing supply set in the HousingTO 2020-2030 Action Plan in Toronto.

2. City Council approve the establishment of an obligatory reserve called the New Deal – Subway and Transit Operations Reserve Fund in City of Toronto Municipal Code Chapter 227, Reserves and Reserve Funds, Appendix C, Schedule 15 – Third Party Agreements Obligatory Reserve Funds. The purpose of this reserve fund is to hold funds from the Provincial government under the Toronto-Ontario New Deal Agreement to support subway and transit safety, recovery, and sustainable operations.

3. City Council approve the establishment of an obligatory reserve called the New Deal - Gardiner Expressway and Don Valley Parkway Upload Reserve Fund in City of Toronto Municipal Code Chapter 227, Reserves and Reserve Funds, Appendix C, Schedule 15 – Third Party Agreements Obligatory Reserve Funds. The purpose of this reserve fund is to hold funds from the Provincial government under the Toronto-Ontario New Deal Agreement to support the rehabilitation, operations, and maintenance of the Gardiner Expressway and Don Valley Parkway while the due diligence assessment for the upload of these assets to the Province is underway.

4. City Council authorize that the City’s policy concerning the allocation of investment earnings to reserve accounts be amended as follows:

a. delete the paragraph under the section Determination of Quantum of Earnings and replace with: The amount to be assigned to each reserve fund account be the lesser of the (i) 3-month treasury bill rate as estimated at the time of the preparation of the annual operating budget or (ii) 1 percent, credited on November 30th each year based on the account’s average balance.

This report summarizes the activities of the City's Reserves and Reserve Fund balances for the six months ended June 30, 2024, and recommends Council approval to establish three obligatory reserve funds to hold provincial funding contributions from the Ontario-Toronto New Deal Agreement.

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, in order to minimize annual tax rate fluctuations.

Reserves and Reserve Funds balances as at June 30, 2024 totaled $5,530.0 million, an increase of $238.3 million from December 31, 2023 ($5,291.7 million). This net increase is the result of deliberate contributions for capital investments in housing, transit, capital infrastructure, and vehicle and equipment replacement as authorized by Council. The majority of the City's reserve and reserve fund balances ($5,303.3 million, or 95.9%) are committed to future Council directed activities that include capital and operating expenditures and rate-based activities. Only the remaining balance of $226.7 million, or 4.1% 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 $5,303.3 million in committed reserve and reserve funds, there are approximately $15,720.8 million in future commitments and obligations against the existing reserves and discretionary reserve fund balances, which are consistent with Council approved plans over the 2024-2033 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.

There are no financial implications arising from the adoption of the recommendation in this report.

To ensure prudent financial management and considering uncertain levels of federal and provincial funding support in future years, the City must retain a contingency amount as part of its reserves and reserve funds to be in a position to address both unanticipated costs, while still maintaining a balanced budget. 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.

Reserve and Reserve Fund balances as at June 30, 2024, totaled $5,530.0 million, an increase of $238.3 million from the December 31, 2023 balance of $5,291.7 million. The net increase is the result of various Council approved contributions for capital investments in housing, transit and capital, and contributions to vehicle and equipment replacement.

As of June 30, 2024, 95.9% of the City’s reserve and reserve fund balances are fully committed to supporting future operating expenses, or other Council-directed commitments, and expenditures in the 10-year capital plan. The remaining 4.1% of the City's reserves and reserve funds are uncommitted and being retained for emergency purposes such as stabilization of various funding sources, including the tax base, or for emergency purposes such as extreme weather events. The uncommitted amount represents 1.3% of the total 2024 approved Operating Budget of $17,119.6 million.