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05-002_Annual Surplus Deficit Allocation Policy_20215-002 Page 1 of 3 FINANCE DEPARTMENT Policy #5 -002: Annual Surplus/Deficit Allocation Policy Approval Date: June 12, 2017 Approval Authority: Council, Resolution Effective Date: June 12, 2017 Next Scheduled Review Year: 2025 Department: Finance Last reviewed: 2021 Revision Date/s: Schedules: POLICY STATEMENT The purposes of this policy are: • To ensure that operating surpluses are returned to the taxpayers; • To establish a priority framework for the allocation of any operating surpluses and eliminate any operating deficits through the use of the same priority framework. SCOPE This policy applies to all Town of Tillsonburg departments, excluding Building, which contributes surpluses and allocates deficits from the Obligatory Building Permit Cost Stabilization Reserve. This policy does not apply to revenues generated from Development Charges. These funds are to be allocated to the appropriate Development Charge Reserve. This policy does not apply to proceeds received through the Federal Gas Tax program. Unspent Gas Tax funds are to be allocated to the Gas Tax Rebate Reserve. 5-002 Page 2 of 3 POLICY Guiding Principles • Surpluses which are not required to fund reserve balance thresholds, as set out in the Town's Reserve Fund Policy, shall be distributed as outlined in the "Priority Allocation for Operating Surpluses" section below. • A deficit shall be funded as outlined in the "Priority Application for Operating Deficits" below • Department staff will respect the nature of and manage a global budget by first offsetting higher than expected spending in one area through savings in another. Priority Allocation for Operating Surpluses Certain Reserve Funds have been established with the primary source of funding as an allocation from operating surpluses. Each of these Reserve Funds have targeted upper limits. An operating surplus is to be allocated as follows 1. Fleet and Equipment reserve, until the upper limit of the fund as defined in By- law 4107 Reserve Policy is met; However, the Director of Finance and CAO may approve a lesser amount a. The Minimum contribution shall be equal to the lesser of: i. The amount required to fund capital projects funded from Reserves as approved in the subsequent budget year; or ii. The entirety of the operating surplus 2. The remaining of any operating surplus shall be allocated to reserves by the CAO and Director of Finance in collaboration with the Senior Leadership Team, until the upper limit of the funds as defined in By-law 4107 Reserve Policy is met. a. Where no reserve has been previously established, the Director of Finance is authorized to create the necessary reserves. The creation of reserves shall be contingent on a review of budget obligations, which in the opinion of the CAO and the Director of Finance are material; 3. Tax Rate Stabilization Reserve until the upper limit of the fund as defined in By- law 4107 Reserve Policy is met; 4. If surplus funds still remain, the amount shall be carried forward to the subsequent years' budget in accordance with the provisions of the Municipal Act. Priority Application for Operating Deficits 5-002 Page 3 of 3 An operating deficit is to be allocated as follows: 1. Transfer the necessary funds from the Tax Rate Stabilization Reserve unless these funds have been included in the subsequent years' budget funding estimates; Priority Application for Operating Deficits (continued) 2. Review the status of discretionary reserves and, in collaboration with Senior Leadership Team, transfer any available funds from these reserves to the operating deficit; 3. Transfer the necessary funds from the Asset Management Funding Reserve, unless these funds have been included in the subsequent year's budget funding estimates; 4. If a deficit still remains, the amount shall be carried forward to the subsequent years' budget in accordance with the provisions of the Municipal Act and staff shall be directed to review their budgets to find savings equal to the unfunded deficit amount. Approval Process In addition to any information requested by Council, or that the Director of Finance consider appropriate, Council shall be presented with a report for their approval detailing the following no later than the date at which the Audited Financial Statements are presented: 1. The recommended distribution of the operating surplus or deficit funding 2. A list of any reserves created under Paragraph 2.a. of “Priority Allocation for Operating Surpluses” which will include their revenue source, use of funds (expenses) and minimum/maximum fund limits. This policy will be reviewed annually after the year end surplus or deficit figures have been verified.