BH.04.MAR2819.R02 - Reserves and Reserve Funds Status as at December 31, 2018

RECOMMENDATION(S):

(a) That the Finance + Facilities Committee makes recommendation to the Board of Health to receive this Report, as presented, for information.

(b) That the Finance + Facilities Committee makes recommendation to the Board of Health to approve the transfer of the $157,616 Cost-Shared Mandatory Programs surplus to the Contingency Reserve Fund.

(c) That Finance + Facilities Committee makes recommendation to the Board of Health to initiate an updated reserve fund study in response to the evolving operating context of the organization.

BACKGROUND:

Reserves and Reserve Funds are tools used to accumulate cash for future capital disbursements and other permissible expenditures of the organization. These resources allow Wellington-Dufferin-Guelph Public Health (WDGPH) to plan ahead and systematically save for a specific purpose or project and to smooth the financial impact over multiple years. They can also help protect the organization against risks, such as a potential lawsuit or a major funding reduction.

Reserve Fund refers to a discretionary fund with assets restricted for a specific purpose. It is based on a Board of Health (BOH) By-law or defined liability payable in the future and is usually prescriptive as to the basis for collection and use of monies in the fund. It is used to earmark revenue to finance a future expenditure, and to set aside a certain portion of any years’ revenues so that the funds are available, as required.

Reserve refers to an allocation from net revenue that is made at the discretion of the BOH as part of an overall strategy for funding programs or projects that are set out in annual budgets or budget forecasts. It has no reference to any specific asset as in the case of a reserve fund. A reserve may be established for a predetermined purpose and applied for that purpose at the discretion of the BOH.

Reserve Funds

WDGPH maintains the following Reserve Funds:

• Guelph Facilities Reserve Fund – for the purpose of funding future major capital repairs and maintenance to the WDGPH owned facility at 160 Chancellors Way, in Guelph.
• Orangeville Facilities Reserve Fund – for the purpose of funding future major capital repairs and maintenance to the WDGPH owned facility at 180 Broadway, in Orangeville.

The Guelph and Orangeville Facilities Reserve Funds were created by the BOH in December 2014, in compliance with Section 6.9 of the Ontario Public Health Organizational Standards and BOH By-law No. 3 (Property).

The BOH Reserve Fund Plan was developed by the Altus Group Limited and outlines the estimated annual expenditures from the Reserve Funds and the projected annual contributions to the Reserve Funds required to have sufficient funds to meet future requirements. This approach ensures that when major capital repairs or replacements are required, such as a new roof or replacement of elevators, there will not be a significant one-year impact on the operating budget of the organization.

In 2018, higher than estimated interest was earned on the Guelph and Orangeville Reserve Funds due to increasing Bank of Canada interest rates driving increases to bank prime rates. Additionally, an expenditure included in the 30-year expenditure table, in each plan, for the updating of the plan was not made in 2018.

The 2018 transactions in WDGPH’s Guelph and Orangeville Facilities Reserve Funds are as follows:

The balances in WDGPH’s Reserve Funds for Guelph and Orangeville facilities, as of December 31, 2018, in comparison with the closing balance required per the BOH approved Reserve Fund Plans, are as follows:

In 2014, the Altus Group conducted a capital reserve fund study for WDGPH. At that time it was recommended that the annual contribution amounts to each reserve fund should be re-evaluated in the future. In addition By-Law No. 3 (Property) states that the reserve fund plan shall be updated from time to time. Based on this, Management recommends that the BOH initiate an updated reserve fund study in response to the evolving operating context of the organization – this in an effort to help right-size the Agency’s annual contributions to the facility reserve’s funds. The results of this study will help inform the 2020 budget.

Reserves

In addition to the Guelph and Orangeville Facilities Reserve Funds, WDPGH had the following reserves as of December 31, 2018:

• Reserve for Contingencies – general/working reserve;
• Reserve for Information Technology (IT) – to fund future major IT related capital expenditures (software, hardware, and infrastructure);
• Reserve for Fluoride Varnish Program – to fund costs associated with providing fluoride varnish applications to students at five additional high-risk elementary schools across Wellington-Dufferin-Guelph; and
• Reserve for Poverty Elimination Task Force – this reserve belongs to the Poverty Elimination Task Force, a community collaborative that is housed at WDGPH. These funds have been set aside by the Task Force in order to offset any potential costs that may be incurred by WDGPH should the Task Force discontinue operations or incur other unexpected costs.

The transactions in the reserves in 2018 and balances as of December 31, 2018 were as follows:

(1) Pending approval by BOH.

PUBLIC HEALTH AND/OR FINANCIAL IMPLICATIONS:

2018 Year-end Transfers to Reserves

WDGPH Management recommends transferring the year-end surplus into reserves as follows:

• Transfer $157,616 into the Reserve for Contingencies at December 31, 2018.

REFERENCES

WDGPH By-Law No. 3 – Being a By-Law Relating to Property;

CA.45.01.514 - Reserves and Reserve Fund Policy; and

CA.45.02.514 - Reserves and Reserve Fund Procedure.

APPENDICES

N/A.

Prepared by: Robert Cunnington, Manager, Finance

Reviewed by: David Kingma, Director of Administrative Services

Approved by: Dr. Nicola Mercer, Medical Officer of Health & CEO