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Plummeting city savings a concern

Reserve funds depleting, could impact budgets

By Joel WittnebelThe Oshawa Express

Without intervention, the City of Oshawa will see reserves meant to fund capital projects plummet in the coming years as more and more dollars are needed to address infrastructure needs, a recent report explains.

For councillors, this information isn’t new, having heard much the same tune during budget discussions last year, during which a one per cent tax levy increase was applied to the budget in order to raise funds strictly to address this infrastructure deficit, which currently sits around $464 million. That figure represents the cost for projects over the next nine years that will need to be completed, but do not yet have a funding source.

During a recent presentation from the city’s executive director of finance and treasurer Stephanie Sinnott, the declining capital reserves were brought into stark reality when a graph depicting the reserve accounts showed healthy, upward trending lines for both operating and development charge reserves, but showed a capital reserve line steeply declining into the area of  $100,000 million in debt by 2026.

“What the graph is telling you is that the capital needs of the city far outweigh the contributions that are going into these reserves,” Sinnott stated.

For that reason, the city’s finance department is throwing out a lifeboat upon which council hopes to float their financial woes in the coming years, recommending a series of financial changes that will hopefully pour more dollars into these quickly eroding accounts.

Among the recommended changes are increasing the cap on certain reserves to allow more dollars to flow into them, and while also expanding the cap, expanding the scope to allow certain reserves to be used for a variety of purposes and projects.  It is also recommended that the one per cent levy applied to the tax increase last year solely for infrastructure be reviewed come budget time.

Sinnott noted that moving forward, council would need to show a “disciplined approach” to putting money into reserves, and that the past practice of pulling money from reserves in order to lower the tax levy increase was now a large part of the pressure being placed upon them.

For Councillor John Shields, the vice-chair of the finance committee, the information was “troubling” and the infrastructure gap was a growing issue.

“It seems no matter what we do we aren’t making a dent in it,” he said. “I think that’s where our tough jobs come into play and we see what we can do at budget time.”

Come budget time, council will have its work cut out.

“We have significant challenges ahead of us,” Sinnott said.

In terms of the capital reserves, in order to pull them back to a break-even position, council will need to find an additional $41 million. Sinnott explained that as a general rule, for every $1 million of additional funding required, it equates to a one per cent increase on the tax levy.

For Councillor Amy McQuaid-England, looking beyond the 2018 budget was also important in order to ensure that future councils avoid the issues this council currently faces, especially when it comes to making presumably small changes come budget time.

“We have the huge infrastructure deficit that continues to grow and we have political decisions that need to happen that might not be in line with financial decisions,” she said, noting that those small changes could have longer lasting impacts into the future. She requested that come budget time, staff have more information related to potential funding decisions and how they may impact budgets in the future.

McQuaid-England also suggested that council look at making reserves more prescriptive in order to ensure that those dollars are spent on the things they are meant for.

“If council wanted to make some recommendations about more specific uses of the fund…you could do that,” Sinnott said. “You could put strong policy wording around what you can and cannot do with the reserve.”

However, with that said, council has shown that policies can be subverted.

Earlier this year, due to an increase in the scope of work to replace runway 12/30 at the Oshawa airport – costs for which nearly doubled to $6 million, compared to the original proposal – council pushed aside its policy on debt by taking out a further $4 million.

The debt was issued through an interfund note, and currently, council’s policy for such a process states that no more than 40 per cent of the city’s minimum cash balance should be invested in this type of debt. The minimum cash balance for 2016 was approximately $35 million, meaning the debt should be capped at $14 million. The $4 million needed for the runway pushed council’s interfund note debt load to $14.8 million.

However, for Councillor Dan Carter, chair of the finance committee, the presentation was not all bad news, as the city continues to pay down its substantial debt load, and that the policies they are looking to put in place are steps towards improvement.

“I don’t want everyone running out of this room saying the world is on fire,” he said.

For Sinnott, she agreed, noting that the city is taking steps towards improvement, but they would need to stay the course.

“There’s discipline and rigour around how the reserve funds are contributed to,” she said. “Deviations from the policy will only set us back.”

Council will be reviewing the report and reserve account information ahead of a meeting to discuss next steps and approval of the policy options, currently slated for Oct. 26.