Mayor, council hear about the health of New West's reserve funds

Based on presentations given on Wednesday to mayor and council, it looks like the city’s general reserves fund will need some TLC over the next few years.

The city has two kinds of reserves: statutory reserves, where a municipality receives money for any purposes like park land sales or off-street parking spaces. The second kind is a non-statutory reserve, where council can use bylaws to create a reserve fund for a specific purpose—think equipment replacement, for instance.

“In total, the general fund reserve is forecasted to trend downward is the key message, but we’re also replacing assets is the positive message,” explained Harji Varn, the city’s director of finance.

The general fund is set to go from $147M in 2022 down to $67M by 2027.

Varn also talked about the importance of advocating for third-party funding to be able to deliver on goals as outlined in the city’s five-year plan.

“I think we’ve talked about the need to advocate, and the support we need there to help us deliver. We may need to pause or slow down or defer works until we have that financial security, and economic confidence,” explained Varn, who also mentioned the importance of ensuring the city finishes the projects that it had previously started before taking on new ones, in order to avoid overspending that might come from inflation or other potential cost surprises.

At the end of the presentation, Mayor Patrick Johnstone commented on how big of a range 5-10% is, and wanted to know what the recommended strategy was.

“Is the strategy to get it to, 5% and stick there and stay above 5? Or is our strategy to try to get it to 10? Or does the difference between those two strategies depend on some other factor like interest rates or [the life span] of assets or is there some other feed into our decision about why we want to get this to … a magic number. Or is there one?”

Varn responded by saying that the bare minimum is 5%. “For me the general fund, based on the health of the other reserves and the asset replacement plans, I’m leaning towards 10% for our city. And we’re not even close. That’s what I would say at this given time.”

“So it is a risk management decision we make at some point, when we get to 5%, we’re going to continue to have this conversation about risk management and evaluate what our risks are, and decide whether we need to get to 10,” clarified Johnstone.

“Yeah,” responded Varn.

Cou. Daniel Fontaine said that reading the numbers were ‘sobering and scary at the same time.’ “We are undertaking a significant amount of capital projects in the city, and having visited, in the last three months a number of different sites, and as recently as yesterday going to the works yard and seeing that the roof leaks, and the water’s going in … we have some serious issues with older infrastructure.”

As has been the case with a plethora of things, Varn added the COVID-19 pandemic didn’t do any favours for the fund.

“The general fund is also really important to the city in the sense that, when COVID hit, there’s variable components to our city’s budget, there’s parking revenues, gaming revenues, user pay programs, we’re pretty stable because most of our income is fixed … through our utility revenue and our property taxes. But we do become vulnerable as a city from about 11 to 15 million if things like the pandemic hits.”

Varn adds the provincial government did give the city a $6M grant, which was useful in keeping things business as usual.

“But we would have to go to serious measures, to layoffs or really compromising services, and with the general fund, holding it at that level, allows us to continue to serve through crisis,” said Varn, who went on to add that there will be a request coming in another report next week to ask to use the general reserve fund one time to help steer the city away from some sort of tax rate increase.

Fontaine said that in the future he’d like to see a comparison in other reports down the line that would allow New Westminster to be compared to other cities.

“What I thought was missing, although it was a fantastic report, seeing how we’re doing compared to other cities. Are we punching above our weight? Are we falling behind? I keep hearing places like Burnaby have a billion dollars sitting in their reserves, and they’re well-stocked in terms of having a big vault to build projects, and New Westminster is struggling,” suggested Fontaine.

You can view the report as presented to council here. It starts on page three.