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AGENDA - Finance Advisory Committee - 20150811FINANCE ADVISORY COMMITTEE MEETING AGENDA TUESDAY,AUGUST 11,2015 5:30 P.M. LEKSAND ROOM AURORA TOWN HALL PUBLIC RELEASE August 7,2015 TOWN OF AURORA FINANCE ADVISORY COMMITTEE MEETING AGENDA DATE:Tuesday,August 11,2015 TIME AND LOCATION:5:30 p.m.,Leksand Room,Aurora Town Hall 1.DECLARATION OF PECUNIARY INTEREST AND GENERAL NATURE THEREOF 2.APPROVAL OF THE AGENDA RECOMMENDED: THAT the agenda as circulated by Legal and Legislative Services be approved. 3.RECEIPT OF THE MINUTES Finance Advisory Committee Meeting Minutes of May 26,2015 pg.1 RECOMMENDED: THAT the Finance Advisory Committee meeting minutes of May 26,2015,be received for information. 4.DELEGATIONS 5.CONSIDERATION OF ITEMS 1.CFS15-033 –Updated Investment Policy –Final Draft pg.5 RECOMMENDED: THAT Report No.CFS15-033 be received;and THAT the final draft of the revised Investment Policy –Policy No.61 be referred to a future Council meeting for its review and approval;and Finance Advisory Committee Meeting Agenda Tuesday,August 11,2015 Page 2 of 2 THAT a ONE Investment Program enabling participation bylaw be brought to a future Council meeting for its review and approval. 6.NEW BUSINESS 7.ADJOURNMENT TOWN OF AURORA FINANCE ADVISORY COMMITTEE MEETING MINUTES Date:Tuesday,May 26,2015 Time and Location:5:30 p.m.,Holland Room,Aurora Town Hall Committee Members:Councillor Michael Thompson (Chair),Councillor Harold Kim,and Mayor Geoffrey Dawe (arrived 5:32 p.m.) Member(s)Absent:None Other Attendees:Councillor Tom Mrakas,Neil Garbe,Chief Administrative Officer,Dan Elliot,Director of Corporate and Financial Services/Treasurer,Jason Gaertner,Manager of Financial Planning,Laura Sheardown, Financial Analyst,Cash Flow and Investments,and Samantha Kong, Council/Committee Secretary The Chair called the meeting to order at 5:30 p.m. 1.DECLARATION OF PECUNIARY INTEREST AND GENERAL NATURE THEREOF There were no declarations of pecuniary interest under the Municipal Conflict of Interest Act. 2.APPROVAL OF THE AGENDA Moved by Councillor Kim Seconded by Councillor Thompson THAT the agenda as circulated by Legal and Legislative Services,with the following addition,be approved: Item 3 –Memorandum from Chief Administrative Officer Re:Citizen Budget Survey –Original Script CARRIED Finance Advisory Committee Meeting Agenda Tuesday,August 11,2015 Minutes Page -1 -1 - Finance Advisory Committee Meeting Minutes Tuesday,May 26,2015 Page 2 of 4 3.RECEIPT OF THE MINUTES Finance Advisory Committee Meeting Minutes of April 28,2015 Moved by Councillor Kim Seconded by Councillor Thompson THAT the Finance Advisory Committee meeting minutes of April 28,2015,be received for information. CARRIED 4.DELEGATIONS None 5.CONSIDERATION OF ITEMS 1.Memorandum from Chief Administrative Officer Re:Costs for Citizen Budget Survey Staff presented an overview of the base package and potential add-ons of the Citizen Budget Survey and indicated that the base package is currently on reserve and suggested that customizations one and two would be beneficial investments. Staff further stated that the Survey would be promoted at various Town events during the summer months towards its launch in September.The results would be presented to Council at a workshop for consideration at budget discussions.The Committee was pleased with the concept of the Survey,however,the Committee requested that staff investigate the approaches of neighbouring municipalities to ensure best practices and to identify a method to measure the effectiveness of the Survey. Moved by Mayor Dawe Seconded by Councillor Kim THAT the memorandum regarding Costs for Citizen Budget Survey be received for information. CARRIED Finance Advisory Committee Meeting Agenda Tuesday,August 11,2015 Minutes Page -2 -2 - Finance Advisory Committee Meeting Minutes Tuesday,May 26,2015 Page 3 of 4 2.CFS15-028 –Updated Investment Policy –Draft for Discussion Staff introduced an updated draft Investment Policy (Corporate Policy No.61), which guides the decisions and activities for the management of the Town's investment portfolio,largely comprising surplus operating cash and reserve fund balances.Staff explained that the proposed Investment Policy update would permit pooled participation in an equity fund managed jointly by AMO/LAS and the Municipal Finance Officers Association,which offers a number of pooled, professionally managed funds with differing short-or long-term focuses.The Committee expressed concerns regarding the preservation of capital,however,it is supportive of diversification and requested that staff report back on limits with rationale. Moved by Councillor Kim Seconded by Mayor Dawe THAT Report No.CFS15-028 be received;and THAT the comments from the Finance Advisory Committee discussion be referred back to staff for incorporation into a final revised Investment Policy,to be presented at a future Finance Advisory Committee meeting. CARRIED 3.Memorandum from Chief Administrative Officer Re:Citizen Budget Survey –Original Script (Added Item) Staff presented the original script of the Citizen Budget Survey to receive feedback from the Committee.The Committee suggested phrasing the questions more generically to facilitate unbiased responses,and to launch the survey in June to receive responses earlier.Staff indicated that the intention of the questions is to educate residents about the impacts of property tax increases,as well as to receive their concerns.Staff further stated that they are unable to launch the survey in June 2015,however,it is possible to have an earlier launch date in the following year. The Committee suggested including a field at the beginning of the survey that identifies the area in which the resident resides in,which would allow staff to address concerns appropriately.Staff indicated that including a postal code field would be possible. Moved by Mayor Dawe Seconded by Councillor Kim THAT the memorandum regarding Citizen Budget Survey –Original Script be received for information. CARRIED Finance Advisory Committee Meeting Agenda Tuesday,August 11,2015 Minutes Page -3 -3 - Finance Advisory Committee Meeting Minutes Tuesday,May 26,2015 Page 4 of 4 6.NEW BUSINESS Staff indicated that a document regarding budget processes,principles,and directives is being developed,and is expected to be presented to the Committee for discussion at its next meeting. 7.ADJOURNMENT Moved by Councillor Kim Seconded by Mayor Dawe THAT the meeting be adjourned at 6:36 p.m. CARRIED COMMITTEE RECOMMENDATIONS ARE NOT BINDING ON THE TOWN UNLESS ADOPTED BY COUNCIL AT A LATER MEETING. Finance Advisory Committee Meeting Agenda Tuesday,August 11,2015 Minutes Page -4 -4 - FINANCE ADVISORY COMMITTEE REPORT CFS15-033 SUBJECT:Updated Investment Policy –Final Draft FROM:Dan Elliott,Director,Corporate &Financial Services -Treasurer DATE:August 11,2015 RECOMMENDATIONS THAT Report No.CFS15-033 be received;and THAT the final draft of the revised Investment Policy –Policy No.61 be referred to a future Council meeting for its review and approval;and THAT a ONE Investment Program enabling participation bylaw be brought to a future Council meeting for its review and approval. PURPOSE OF THE REPORT The Town’s Investment Policy guides decisions and activities for the management of the Town’s investment portfolio,comprised substantially of surplus operating cash,and reserve fund balances.This report presents the proposed final draft of the Town’s updated investment policy document for the Finance Advisory Committee’s (FAC)final review and referral to Council for final approval.This final draft reflects all previous feedback received from the Finance Advisory Committee. BACKGROUND Municipalities are restricted by provincial legislation in regard to the types of financial investments which can be acquired to optimize the yield of idle cash holdings.Section 418 of the Municipal Act,2001,S.O.2001,c.25 as amended (the “Act”),coupled with a regularly updated regulation O.Reg.438/97.The current Investment Policy of the Town, Corporate Policy #61,was last updated in 2003.Since that time,a few minor changes have occurred in the Regulations which constrain eligible investments. Further,the current trend amongst municipalities,such as Markham,has been to move away from specific duplication of bits of the regulation limits,rather now set general goals and objectives,followed by a referral to the regulation for eligible investment types. One key development within the investment regulations in the last few years has been the introduction of certain Canadian corporate equity products.The only way to participate in this is through acquisition of a participation interest in the ONE Investment TOWN OF AURORA Finance Advisory Committee Meeting Agenda Tuesday,August 11,2015 Item 1 Page -1 -5 - August 11,2015 -2 -Report No.CFS15-033 Program’s equities fund,managed jointly by AMO/LAS and the Municipal Finance Officers Association.The ONE Investment Program offers a number of pooled, professionally managed funds with differing short or long term focuses,including a money market fund,a bond fund and an equities fund.Our previous policy did not specifically permit this pooled participation,with the proposed replacement policy allowing it. An earlier proposed draft of the Town’s updated investment policy was brought to Finance Advisory Committee for its review and feedback on May 26,2015.All feedback received from the committee has been integrated into the proposed final draft of this policy. COMMENTS The final revised draft policy has stepped back from specifying asset mix limits,product mix limits,and moved to the provision of more flexible guidance allowing the policy to remain applicable regardless of swings in the economics of the market place and interest rates.This new draft policy allows for changes to occur to applicable municipal act driven regulations without a requirement for policy update.This policy achieves this through defining its key limiting criteria as the noted municipal act driven regulations, which are subject to amendment from time to time.The most current municipal regulations will continue to be attached to this policy. The only limits that remain within this draft of the updated investment policy which are in addition to the limits as defined in the municipal act driven regulations relate to the maximum share of the Town’s total investment portfolio that investments of an equity nature and protected principal notes (PPNs)can make up. Through open reference to the current applicable regulations,the participation in the ONE Investment Program is now permitted under this updated policy,which is currently not permitted through silence in the prescriptive style current policy.However,a separate enabling participation bylaw of Council is required before the Town is able to begin utilizing the ONE Program. The new draft policy also references directly the financial controls and authorities in place for the management of the actual approvals process of investment purchase transactions.Each purchase requires a same day wire transfer to the broker account, using specific electronic approvals by two different persons,each equipped with special two-factor authentication codes for use on the TD Bank’s secure on-line banking wire transfer service.The process is set out in the Town’s Cheque Signing and Banking Authorities By-law 5614-14. Finance Advisory Committee Meeting Agenda Tuesday,August 11,2015 Item 1 Page -2 -6 - August 11,2015 -3 -Report No.CFS15-033 Prior Finance Advisory Committee discussions of this policy included whether or not the FAC was satisfied with the absence of specific asset mix limits,product mix limits,or sector limits.In addition,it was deemed important that the staff administering the policy were required by the policy to ensure preservation and protection of capital through diversification. LINK TO STRATEGIC PLAN Reviewing and updating the Town’s investment policy to allow for the participation in emerging investment vehicles and opportunities contained within the current restrictive regulations supports the Strategic Plan guiding principles of improved accountability and transparency of the municipal government,while building and maintaining the fiscal strength and sustainability of the organization,and by extension,the community. ALTERNATIVE(S)TO THE RECOMMENDATIONS The Final Draft of the Town’s Investment Policy can be further reviewed and updated by the FAC prior to its referral to Council for final review and approval. FINANCIAL IMPLICATIONS The existing applicable Provincial Regulations have been developed and are continually monitored by the Province,AMO,and the Municipal Finance Officers Association (MFOA)for adequacy,security,safety,yet also for flexibility and opportunity. The Town’s current investment strategy is governed through its compliance with its own policy,as well as the applicable provincial regulations.With the limited number of transactions,and the very limited selection of investment products,Town staff currently identify their investment need,(value and term)and solicit offers from a selection of preselected brokers across the country.The product with the highest net yield rate, most closely matching our term needs is then selected for purchase that day.Each broker holds the Town’s actual investments on its behalf,and monitor’s them for continued relevance given changes in the market place and will provide advice to the Town on these investments,as necessary. Most investments are intended to be held to maturity,although occasionally they are sold prior to maturity based upon broker recommendations in order to optimize overall portfolio yields.Staff work closely with the individual brokers in understanding market trends and recommendations.Unfortunately,hiring an experienced portfolio manager in-house is cost prohibitive for the Town,as the salary demand would be prohibitive,but also the volume of activity for such does not match the need for a full time staffer. Hiring a contract manager only adds to our portfolio carrying costs and diminishes the net returns of the portfolio.With the very restrictive limits on the types of investments Finance Advisory Committee Meeting Agenda Tuesday,August 11,2015 Item 1 Page -3 -7 - August 11,2015 -4 -Report No.CFS15-033 allowable,and the few transactions made,it is difficult to recommend that the Town could benefit from the engagement of a specialist portfolio manager on a long term basis at this time.However,as the Town and its investment portfolio continue to grow perhaps the business case for a full time staffer of this nature will become stronger. The Town has not experienced any difficulties in communication,compliance or custody matters with any of its brokers while using the current processes,policy and reviews. CONCLUSIONS Reflecting previously received FAC feedback,staff have created the attached final draft of the Town of Aurora’s updated Investment Policy.This updated policy has been fashioned after the review and consultation on the investment policies of several municipalities.The new policy retains the same risk averse,conservative investment strategies of the previous policy,however,it predominantly simply defers to the prevailing provincial investment regulations for municipalities,which limit investment options to only highly conservative and mostly guaranteed products.This updated policy also allows the Town to take advantage of all available investment products such as the ONE Investment Program. As a result,it is recommended that the FAC sponsor this updated Investment Policy to Council for its review and approval. It is also recommended that the FAC sponsor the presentation of a ONE Investment Program enabling participation bylaw to Council for its review and approval. PREVIOUS REPORTS None ATTACHMENTS Attachment #1 –Proposed Final Draft Investment Policy Attachment #2 –Current Investment Policy (#61) PRE-SUBMISSION REVIEW N/A Finance Advisory Committee Meeting Agenda Tuesday,August 11,2015 Item 1 Page -4 -8 - Finance Advisory Committee Meeting Agenda Tuesday,August 11,2015 Item 1 Page -5 -9 - Topic:Investments Affects:Finance Staff Only Section:Financial Planning Replaces:June 25,2003 Effective Date:June 1,2015 Revision Date:tbd Prepared By:Corporate and Financial Services Approval Authority:Council PURPOSE The purpose of this investment policy is to ensure integrity of the investment management process. POLICY STATEMENT The Town will manage the investment of surplus cash,in accordance with the Provisions of the Municipal Act, 2001,S.O.2001,c.25 as amended (the “Act”)and regulations thereto,including the current O.Reg.438/97 – Eligible Investments and Related Financial Agreements (as currently amended). APPLICATION All Town employees who are responsible for the control,administration and reporting of investments managed by the Corporation. In order of priority,the investment objectives of the Town are: 1.Compliance with Portfolio Restrictions 2.Preservation of Principal 3.Maintenance of Liquidity 4.Maximization of the Rate of Return 1.Compliance with Portfolio Restrictions The legal authority to invest funds comes from the Act.All investments acquired shall be in conformity with portfolio restrictions and permissions set out in O.Reg.438/97 –Eligible Investments and Related Financial Agreements,as amended from time to time (See Schedule 1 for current version at time of approval). The Town shall not invest in a security that is expressed or payable in any currency other than Canadian dollars. 2.Preservation of Principal Investments shall be undertaken in a manner that seeks to ensure the preservation of principal in the overall portfolio.Investments shall be made with judgement and care,not for speculation,but for investment, considering the probable safety of the principal invested as well as the probable income derived. TOWN OF AURORA Corporate and Financial Services Corporate Policies,Programs and Procedures Investment Policy –Policy No.61 Attachment #1 Finance Advisory Committee Meeting Agenda Tuesday,August 11,2015 Item 1 Page -6 -10 - Town of Aurora –Corporate Policies,Programs and Procedures Corporate and Financial Services –Investment Policy Page 2 of 16 This policy acts to minimize credit risk,i.e.the risk of loss due to the failure of the security issuer or backer,by limiting investments to the safest types of security investments and diversifying the investment portfolio so that potential losses on individual securities will be minimized.The limits imposed by the Province of Ontario in regulation shall act as the limitations on investment types and vehicles for these purposes. Staff shall endeavor to mitigate credit and interest rate risk as follows: Credit Risk: Limiting investments to safer types of securities; Pre-qualif ying the financial institutions,broker/dealers,intermediaries,and advisers with which the Corporation does business; Diversif ying the investment portfolio so that potential losses on individual securities will be minimized;and Setting dollar limits on the size of portfolio investments in asset sectors (fixed income and equities)and in individual credit names. Interest Rate Risk: Structuring the investment portfolio so that securities mature to meet ongoing cash flow requirements,thereby reducing the need to sell securities on the open market prior to maturity; Investing operating funds primarily in shorter-term securities or approved liquid investment pools; Diversif ying longer-term holdings to mitigate effects of interest rate volatility; Use of Forward Rate Agreements when appropriate;and Investing in shares or equities of Canadian corporations through the ONE Investment Program. 3.Maintenance of Liquidity The investment portfolio shall remain sufficiently liquid to meet all operating requirements that may be reasonably anticipated. All investments will pay a nominal amount of interest,as discount or interest bearing securities.Equity exposure will be limited to investments in the ONE Investment Program equity funds. The Town’s investment portfolio should be well staggered,with investments of at least 1-10 years.This ladder approach will allow investments to mature at various times,and allow the Town the opportunity to build up the portfolio based on market conditions/opportunities.Where known,maturity dates will approximate estimated need for capital funding based on the Town’s Asset Management and Capital Investment Plan.Short term investments of terms with less than one year will be used for investment of excess cash and managing the cash flow requirements of daily operations,and the remittance of taxes and development charges to York Region and the school boards. Finance Advisory Committee Meeting Agenda Tuesday,August 11,2015 Item 1 Page -7 -11 - Town of Aurora –Corporate Policies,Programs and Procedures Corporate and Financial Services –Investment Policy Page 3 of 16 A portion of the portfolio may be place in the approved local government investment pool (ONE Investment Program)which offers compliance and liquidity. 4.Maximization of Rate of Return The investment portfolio shall be designed with the goal of maximizing the long term rate of return throughout budgetary and economic cycles,taking into account the investment risk constraints and liquidity needs.Staff will explore and utilize any eligible investment vehicles in building the Town’s investment portfolio. The investment portfolio will be managed with prudent investment principles,in order to maximize returns within established risk parameters. To take advantage of short-term fluctuations in interest rates,securities may be sold prior to maturity. Investments shall be purchased once multiple bids are received and analysed.The highest yielding bid,which meets the Town’s cash flow requirements,will be accepted.If the highest yielding bid is not selected,an explanation describing the rationale shall be provided.The Town staff involved will retain written records of each transaction,including the name of the financial institutions,rates quoted,description of the security, investment selected,and any special considerations that had an impact on the decision. With the goal of maximizing the long term rate of return on its investments,staff may utilize eligible investment vehicles for which there is a sole available supplier,such as the ONE Investment Program products.In instances such as this,multiple bids will not be solicited. STANDARD OF CARE Prudence and Risk Tolerance Investments shall be made with judgement and care,under circumstances then prevailing,with which persons of prudence,discretion and intelligence would exercise in the management of their own affairs,not for speculation,but for investment,considering the probable safety of their principal as well as the probable income to be derived. Investment officers and employees exercising due diligence and acting in accordance with written procedures and this Policy shall be relieved of personal responsibility for an individual security’s credit risks or market price changes,provided deviations from expectations are reported in a timely fashion. Within the limits of the investment types permissible by Regulation,the Town of Aurora will ensure the portfolio remains diversified in investment term durations,product types,issuers and risk ratings so as to minimize market and credit risk exposures to the Town.The Town has low risk tolerance with respect to its investment of funds,all of which are to be used for municipal purposes to the benefit of the community,and treated with the utmost of care. Forward rate agreements will not be used without the specific authorization of Council in appropriate circumstances. Ethics and Conflicts of Interest Officers and employees involved in the investment process shall refrain from personal business activity that could conflict with the proper execution and management of the investment program,or that could impair their ability to make impartial investment decisions.Officers and employees involved in the investment procedures shall disclose any material interests in financial institutions with which they conduct business.They shall further disclose any personal financial/investment positions that could be related to the performance of the investment portfolio.Officers and employees shall not undertake personal investment transactions with the Finance Advisory Committee Meeting Agenda Tuesday,August 11,2015 Item 1 Page -8 -12 - Town of Aurora –Corporate Policies,Programs and Procedures Corporate and Financial Services –Investment Policy Page 4 of 16 same individual with whom business is conducted on behalf of the Town.Any such disclosures of conflict or potential perceived conflict shall be made in writing to the Chief Administrative Officer. Additional Local Limitations on Investments 1)Investments made under paragraph 7,7.1,7.2 or 8.1 of Section 2 of O.Reg.438/97 (equity investments through the ONE Fund)shall not,on a combined value basis,exceed 25%. 2)Investments in “Principle Protected Notes”or other similar investment products shall not exceed 5%. The portfolio percentage restrictions apply at the time an investment is made.Should one of the upper limits be exceeded due to fluctuations of the total portfolio value,no further investments in these categories will be undertaken until there is sufficient space within the above limitation.If the limitations are exceeded due to fluctuations in the total portfolio value,the previously made investments are not to be sold,but held until it is to the Town’s advantage to sell them or they mature. ADMINISTRATIVE PROCEDURES All investment transactions are to be recorded and interest earnings distributed in accordance with Town policies and generally accepted accounting principles for municipalities. Reporting Procedures The Treasurer shall prepare and provide to Council each year an investment report. The investment report shall contain: A statement about the performance of the investments during the period covered by the report; A description of the estimated proportion of the total investments that are invested in its own long- term and short-term securities to the total investment of the Town and a description of the change, in any,in that estimated proportion since the previous year’s report; A statement by the Treasurer as to whether or not,in their opinion,all investments are consistent with the investment policies and goals of the Town; Listing of all investments by maturity date; Percentage of total portfolio that each type of investment represents. Authorized Financial Institutions and Brokers/Dealers The following is a current list of all financial institutions authorized to provide investment services to the Town of Aurora.This list will be maintained and updated as the business environment changes: TD Canada Trust CIBC Wood Gundy BMO Nesbitt Burns Inc. RBC Dominion Securities Inc. Scotia McLeod Inc. Raymond James Ltd. ONE Investment Program Related Policies and Documents Town By-law #5614-14 Persons Authorized to sign cheques and other banking related authorities on behalf of the Town.See Schedule #2 for extract of Investment transaction details. Finance Advisory Committee Meeting Agenda Tuesday,August 11,2015 Item 1 Page -9 -13 - Town of Aurora –Corporate Policies,Programs and Procedures Corporate and Financial Services –Investment Policy Page 5 of 16 SCHEDULE 1 ELIGIBLE INVESTMENTS UNDER THE MUNICIPAL ACT ONTARIO REGULATION 438/97 (as currently amended) ELIGIBLE INVESTMENTS AND RELATED FINANCIAL AGREEMENTS 1.A municipality does not have the power to invest under section 418 of the Act in a security other than a security prescribed under this Regulation.O.Reg.438/97,s.1;O.Reg. 399/02,s.1. 2.The following are prescribed,for the purposes of subsection 418 (1)of the Act,as securities that a municipality may invest in: 1.Bonds,debentures,promissory notes or other evidence of indebtedness issued or guaranteed by, i.Canada or a province or territory of Canada, ii.an agency of Canada or a province or territory of Canada, iii.a country other than Canada, iv.a municipality in Canada including the municipality making the investment, iv.1 the Ontario Strategic Infrastructure Financing Authority, v.a school board or similar entity in Canada, v.1 a university in Ontario that is authorized to engage in an activity described in section 3 of the Post-secondary Education Choice and Excellence Act, 2000, v.2 the board of governors of a college established under the Ontario Colleges of Applied Arts and Technology Act,2002, vi.a local board as defined in the Municipal Affairs Act (but not including a school board or a municipality)or a conservation authority established under the Conservation Authorities Act, vi.1 a board of a public hospital within the meaning of the Public Hospitals Act, vi.2 a non-profit housing corporation incorporated under section 13 of the Housing Development Act, vi.3 a local housing corporation as defined in section 24 of the Housing Services Act,2011,or vii.the Municipal Finance Authority of British Columbia. 2.Bonds,debentures,promissory notes or other evidence of indebtedness of a corporation if, i.the bond,debenture or other evidence of indebtedness is secured by the assignment,to a trustee,as defined in the Trustee Act,of payments that Canada or a province or territory of Canada has agreed to make or is required to make under a federal,provincial or territorial statute,and ii.the payments referred to in subparagraph i are sufficient to meet the amounts payable under the bond,debenture or other evidence of indebtedness,including the amounts payable at maturity. Finance Advisory Committee Meeting Agenda Tuesday,August 11,2015 Item 1 Page -10 -14 - Town of Aurora –Corporate Policies,Programs and Procedures Corporate and Financial Services –Investment Policy Page 6 of 16 3.Deposit receipts,deposit notes,certificates of deposit or investment,acceptances or similar instruments the terms of which provide that the principal and interest shall be fully repaid no later than two years after the day the investment was made,if the receipt, note,certificate or instrument was issued,guaranteed or endorsed by, i.a bank listed in Schedule I,II or III to the Bank Act (Canada), ii.a loan corporation or trust corporation registered under the Loan and Trust Corporations Act,or iii.a credit union or league to which the Credit Unions and Caisses Populaires Act, 1994 applies. 3.1 Deposit receipts,deposit notes,certificates of deposit or investment,acceptances or similar instruments the terms of which provide that the principal and interest shall be fully repaid more than two years after the day the investment was made,if the receipt,note, certificate or instrument was issued,guaranteed or endorsed by, i.a bank listed in Schedule I,II or III to the Bank Act (Canada), ii.a loan corporation or trust corporation registered under the Loan and Trust Corporations Act, iii.a credit union or league to which the Credit Unions and Caisses Populaires Act, 1994 applies. 4.Bonds,debentures,promissory notes or other evidence of indebtedness issued or guaranteed by an institution listed in paragraph 3. 5.Short term securities,the terms of which provide that the principal and interest shall be fully repaid no later than three days after the day the investment was made,that are issued by, i.a university in Ontario that is authorized to engage in an activity described in section 3 of the Post-secondary Education Choice and Excellence Act,2000, ii.the board of governors of a college established under the Ontario Colleges of Applied Arts and Technology Act,2002,or iii.a board of a public hospital within the meaning of the Public Hospitals Act. 6.Bonds,debentures,promissory notes,other evidence of indebtedness or other securities issued or guaranteed by the International Bank for Reconstruction and Development. 6.1.Bonds,debentures,promissory notes or other evidence of indebtedness issued or guaranteed by a supranational financial institution or a supranational governmental organization,other than the International Bank for Reconstruction and Development. 7.Asset-backed securities,as defined in subsection 50 (1)of Regulation 733 of the Revised Regulations of Ontario,1990 made under the Loan and Trust Corporations Act. 7.1 Bonds,debentures,promissory notes or other evidence of indebtedness issued by a corporation that is incorporated under the laws of Canada or a province of Canada,the terms of which provide that the principal and interest shall be fully repaid more than five years after the date on which the municipality makes the investment. 7.2 Bonds,debentures,promissory notes or other evidence of indebtedness issued by a corporation that is incorporated under the laws of Canada or a province of Canada,the terms of which provide that the principal and interest shall be fully repaid more than one year and no later than five years after the date on which the municipality makes the investment. Finance Advisory Committee Meeting Agenda Tuesday,August 11,2015 Item 1 Page -11 -15 - Town of Aurora –Corporate Policies,Programs and Procedures Corporate and Financial Services –Investment Policy Page 7 of 16 8.Negotiable promissory notes or commercial paper,other than asset-backed securities, maturing one year or less from the date of issue,if that note or commercial paper has been issued by a corporation that is incorporated under the laws of Canada or a province of Canada. 8.1 Shares issued by a corporation that is incorporated under the laws of Canada or a province of Canada. 9.Bonds,debentures,promissory notes and other evidences of indebtedness of a corporation incorporated under section 142 of the Electricity Act,1998. 10.Bonds,debentures,promissory notes or other evidence of indebtedness of a corporation if the municipality first acquires the bond,debenture,promissory note or other evidence of indebtedness as a gift in a will and the gift is not made for a charitable purpose. 11.Securities of a corporation,other than those described in paragraph 10,if the municipality first acquires the securities as a gift in a will and the gift is not made for a charitable purpose. 12.Shares of a corporation if, i.the corporation has a debt payable to the municipality, ii.under a court order,the corporation has received protection from its creditors, iii.the acquisition of the shares in lieu of the debt is authorized by the court order, and iv.the treasurer of the municipality is of the opinion that the debt will be uncollectable by the municipality unless the debt is converted to shares under the court order.O.Reg.438/97,s.2;O.Reg.265/02,s.1;O.Reg.399/02,s.2;O. Reg.655/05,s.2;O.Reg.607/06,s.1;O.Reg.39/07,s.1;O.Reg.373/11,s.1. 2.1 A security is prescribed for the purposes of subsection 418 (1)of the Act as a security that a municipality may invest in if, (a)the municipality invested in the security before January 12,2009;and (b)the terms of the municipality’s continued investment in the security have been changed pursuant to the Plan Implementation Order of the Ontario Superior Court of Justice dated January 12,2009 (Court file number 08-CL-7440)and titled “In the matter of the Companies’Creditors Arrangement Act,R.S.C.1985, c.C-36 as amended and in the matter of a plan of compromise and arrangement involving Metcalfe &Mansfield Alternative Investments II Corp.et al”.O.Reg. 292/09,s.1. 3.(1)A municipality shall not invest in a security under subparagraph 1 iii,v.1,v.2,vi.1, vi.2 or vi.3 or paragraph 3.1 or 4 of section 2 unless the bond,debenture,promissory note or evidence of indebtedness is rated, (a)REVOKED:O.Reg.265/02,s.2 (1). (b)by Dominion Bond Rating Service Limited as “AA(low)”or higher; (b.1)by Fitch Ratings as “AA-”or higher; (c)by Moody’s Investors Services Inc.as “Aa3”or higher;or (d)by Standard and Poor’s as “AA-”or higher.O.Reg.438/97,s.3 (1);O.Reg. 265/02,s.2 (1);O.Reg.399/02,s.3 (1);O.Reg.655/05,s.3 (1,2);O.Reg. 607/06,s.2;O.Reg.39/07,s.2. Finance Advisory Committee Meeting Agenda Tuesday,August 11,2015 Item 1 Page -12 -16 - Town of Aurora –Corporate Policies,Programs and Procedures Corporate and Financial Services –Investment Policy Page 8 of 16 (2)REVOKED:O.Reg.655/05,s.3 (3). (2.1)A municipality shall not invest in a security under paragraph 6.1 of section 2 unless the security is rated, (a)by Dominion Bond Rating Service Limited as “AAA”; (b)by Fitch Ratings as “AAA”; (c)by Moody’s Investors Services Inc.as “Aaa”;or (d)by Standard and Poor’s as “AAA”.O.Reg.655/05,s.3 (4). (3)A municipality shall not invest in an asset-backed security under paragraph 7 of section 2 that matures more than one year from the date of issue unless the security is rated, (a)by Dominion Bond Rating Service Limited as “AAA”; (a.1)by Fitch Ratings as “AAA”; (b)by Moody’s Investors Services Inc.as “Aaa”;or (c)by Standard and Poor’s as “AAA”.O.Reg.265/02,s.2 (2);O.Reg.399/02,s.3 (2);O.Reg.655/05,s.3 (5). (4)A municipality shall not invest in an asset-backed security under paragraph 7 of section 2 that matures one year or less from the date of issue unless the security is rated, (a)by Dominion Bond Rating Service Limited as “R-1(high)”; (a.1)by Fitch Ratings as “F1+”; (b)by Moody’s Investors Services Inc.as “Prime-1”;or (c)by Standard and Poor’s as “A-1+”.O.Reg.265/02,s.2 (2);O.Reg.399/02,s.3 (3);O.Reg.655/05,s.3 (6). (4.1)A municipality shall not invest in a security under paragraph 7.1 of section 2 unless the security is rated, (a)by Dominion Bond Rating Service Limited as “AA(low)”or higher; (b)by Fitch Ratings as “AA-”or higher; (c)by Moody’s Investors Services Inc.as “Aa3”or higher;or (d)by Standard and Poor’s as “AA-”or higher.O.Reg.292/09,s.2 (1). (4.2)A municipality shall not invest in a security under paragraph 7.2 of section 2 unless the security is rated, (a)by Dominion Bond Rating Service Limited as “A”or higher; (b)by Fitch Ratings as “A”or higher; (c)by Moody’s Investors Services Inc.as “A2”;or (d)by Standard and Poor’s as “A”.O.Reg.292/09,s.2 (1). (5)A municipality shall not invest in a security under paragraph 8 of section 2 unless the promissory note or commercial paper is rated, (a)by Dominion Bond Rating Service Limited as “R-1(mid)”or higher; (a.1)by Fitch Ratings as “F1+”; (b)by Moody’s Investors Services Inc.as “Prime-1”;or (c)by Standard and Poor’s as “A-1+”.O.Reg.265/02,s.2 (2);O.Reg.399/02,s.3 (4);O.Reg.655/05,s.3 (8). Finance Advisory Committee Meeting Agenda Tuesday,August 11,2015 Item 1 Page -13 -17 - Town of Aurora –Corporate Policies,Programs and Procedures Corporate and Financial Services –Investment Policy Page 9 of 16 (6)If an investment made under subparagraph 1 iii,v.1,v.2,vi.1,vi.2 or vi.3 of section 2 or paragraph 3.1,4,6.1,7,7.1,7.2 or 8 of section 2 falls below the standard required by this section,the municipality shall sell the investment within 180 days after the day the investment falls below the standard.O.Reg.292/09,s.2 (2). (6.1)Subsection (6)does not apply with respect to an investment made by a municipality under paragraph 7 of section 2 on a day before the day this subsection comes into force. O.Reg.292/09,s.2 (3). (7)A municipality shall not invest in a security under paragraph 9 of section 2 unless,at the time the investment is made and as long as it continues,the investment ranks,at a minimum,concurrently and equally in respect of payment of principal and interest with all unsecured debt of the corporation.O.Reg.265/02,s.2 (2). (8)A municipality shall not invest in a security under paragraph 9 of section 2 unless,at the time the investment is made,the total amount of the municipality’s investment in debt of any corporation incorporated under section 142 of the Electricity Act,1998 that would result after the proposed investment is made does not exceed the total amount of investment in debt,including any interest accrued on such debt,of the municipality in such a corporation that existed on the day before the day the proposed investment is to be made.O.Reg.265/02,s.2 (2). (9)Any investment made under paragraph 9 of section 2,including any refinancing,renewal or replacement thereof,may not be held for longer than a total of 10 years from the date such investment is made.O.Reg.265/02,s.2 (2). (10)Subsections (7),(8)and (9)do not prevent a municipality from holding or disposing of a security described in paragraph 9 of section 2 issued by a corporation incorporated under section 142 of the Electricity Act,1998,if the municipality acquired the security through a transfer by-law or otherwise under that Act.O.Reg.655/05,s.3 (9). (11)A municipality shall sell an investment described in paragraph 10 or 11 of section 2 within 90 days after ownership of the investment vests in the municipality.O.Reg. 655/05,s.3 (9). (12)REVOKED:O.Reg.292/09,s.2 (4). 4.(1)A municipality shall not invest more than 25 per cent of the total amount in all sinking and retirement funds in respect of debentures of the municipality,as estimated by its treasurer on the date of the investment,in short-term debt issued or guaranteed by the municipality.O.Reg.438/97,s.4 (1). (2)In this section,“short-term debt”means any debt,the terms of which provide that the principal and interest of the debt shall be fully repaid no later than 364 days after the debt is incurred.O.Reg.438/97,s.4 (2). Finance Advisory Committee Meeting Agenda Tuesday,August 11,2015 Item 1 Page -14 -18 - Town of Aurora –Corporate Policies,Programs and Procedures Corporate and Financial Services –Investment Policy Page 10 of 16 4.1 (1)A municipality shall not invest in a security under paragraph 7 of section 2 or in a promissory note or commercial paper under paragraph 8 of section 2 unless,on the date that the investment is made, (a)the municipality itself is rated,or all of the municipality’s long-term debt obligations are rated, (i)by Dominion Bond Rating Service Limited as “AA(low)”or higher, (i.1)by Fitch Ratings as “AA-”or higher, (ii)by Moody’s Investors Services Inc.as “Aa3”or higher,or (iii)by Standard and Poor’s as “AA–”or higher;or (b)the municipality has entered into an agreement with the Local Authority Services Limited and the CHUMS Financing Corporation to act together as the municipality’s agent for the investment in that security,promissory note or commercial paper.O.Reg.265/02,s.3;O.Reg.399/02,s.4;O.Reg.655/05,s. 4 (1,2). (1.1)A municipality shall not invest in a security under paragraph 7.1 or 8.1 of section 2 unless,on the date the investment is made,the municipality has entered into an agreement with the Local Authority Services Limited and the CHUMS Financing corporation to act together as the municipality’s agent for the investment in the security. O.Reg.655/05,s.4 (3). (1.2)Subsection (1.1)does not apply to investments in securities by the City of Ottawa if all of the following requirements are satisfied: 1.Only the proceeds of the sale by the City of its securities in a corporation incorporated under section 142 of the Electricity Act,1998 are used to make the investments. 2.The investments are made in a professionally-managed fund. 3.The terms of the investments provide that, i.where the investment is in debt instruments,the principal must be repaid no earlier than seven years after the date on which the City makes the investment,and ii.where the investment is in shares,an amount equal to the principal amount of the investment cannot be withdrawn from the fund for at least seven years after the date on which the City makes the investment. 4.The City establishes and uses a separate reserve fund for the investments. 5.Subject to paragraph 6,the money in the reserve fund,including any returns on the investments or proceeds from their disposition,are used to pay capital costs of the City and for no other purpose. 6.The City may borrow money from the reserve fund but must repay it plus interest. O.Reg.655/05,s.4 (3). Finance Advisory Committee Meeting Agenda Tuesday,August 11,2015 Item 1 Page -15 -19 - Town of Aurora –Corporate Policies,Programs and Procedures Corporate and Financial Services –Investment Policy Page 11 of 16 (2)The investment made under clause (1)(b)or described in subsection (1.1),as the case may be,must be made in the One Investment Program of the Local Authority Services Limited and the CHUMS Financing Corporation with, (a)another municipality; (b)a public hospital; (c)a university in Ontario that is authorized to engage in an activity described in section 3 of the Post-secondary Education Choice and Excellence Act,2000; (d)the board of governors of a college established under the Ontario Colleges of Applied Arts and Technology Act,2002; (d.1)a foundation established by a college mentioned in clause (d)whose purposes include receiving and maintaining a fund or funds for the benefit of the college; (e)a school board;or (f)any agent of an institution listed in clauses (a)to (d.1).O.Reg.265/02,s.3;O. Reg.655/05,s.4 (4);O.Reg.607/06,s.3;O.Reg.292/09,s.3;O.Reg.52/11, s.1. 5.A municipality shall not invest in a security issued or guaranteed by a school board or similar entity unless, (a)the money raised by issuing the security is to be used for school purposes;and (b)REVOKED:O.Reg.248/01,s.1.O.Reg.438/97,s.5;O.Reg.248/01,s.1. 6.(1)A municipality shall not invest in a security that is expressed or payable in any currency other than Canadian dollars.O.Reg.438/97,s.6 (1). (2)Subsection (1)does not prevent a municipality from continuing an investment,made before this Regulation comes into force,that is expressed and payable in the currency of the United States of America or the United Kingdom.O.Reg.438/97,s.6 (2). 7.(1)Before a municipality invests in a security prescribed under this Regulation,the council of the municipality shall,if it has not already done so,adopt a statement of the municipality’s investment policies and goals.O.Reg.438/97,s.7. (2)In preparing the statement of the municipality’s investment policies and goals under subsection (1),the council of the municipality shall consider, (a)the municipality’s risk tolerance and the preservation of its capital; (b)the municipality’s need for a diversified portfolio of investments;and (c)obtaining legal advice and financial advice with respect to the proposed investments.O.Reg.265/02,s.4. (3)REVOKED:O.Reg.655/05,s.5. (4)In preparing the statement of the municipality’s investment policies and goals under subsection (1)for investments made under paragraph 9 of section 2,the council of the municipality shall consider its plans for the investment and how the proposed investment would affect the interest of municipal taxpayers.O.Reg.265/02,s.4. Finance Advisory Committee Meeting Agenda Tuesday,August 11,2015 Item 1 Page -16 -20 - Town of Aurora –Corporate Policies,Programs and Procedures Corporate and Financial Services –Investment Policy Page 12 of 16 8.(1)If a municipality has an investment in a security prescribed under this Regulation,the council of the municipality shall require the treasurer of the municipality to prepare and provide to the council,each year or more frequently as specified by the council,an investment report.O.Reg.438/97,s.8 (1). (2)The investment report referred to in subsection (1)shall contain, (a)a statement about the performance of the portfolio of investments of the municipality during the period covered by the report; (b)a description of the estimated proportion of the total investments of a municipality that are invested in its own long-term and short-term securities to the total investment of the municipality and a description of the change,if any,in that estimated proportion since the previous year’s report; (c)a statement by the treasurer as to whether or not,in his or her opinion,all investments are consistent with the investment policies and goals adopted by the municipality; (d)a record of the date of each transaction in or disposal of its own securities, including a statement of the purchase and sale price of each security;and (e)such other information that the council may require or that,in the opinion of the treasurer,should be included.O.Reg.438/97,s.8 (2);O.Reg.655/05,s.6. (2.1)The investment report referred to in subsection (1)shall contain a statement by the treasurer as to whether any of the following investments fall below the standard required for that investment during the period covered by the report: 1.An investment described in subparagraph 1 iii,v.1,v.2,vi.1,vi.2 or vi.3 of section 2. 2.An investment described in paragraph 3.1,4,6.1,7,7.1,7.2 or 8 of section 2. 3.An investment described in subsection 9 (1).O.Reg.292/09,s.4. (3)Upon disposition of any investment made under paragraph 9 of section 2,the council of the municipality shall require the treasurer of the municipality to prepare and provide to the council a report detailing the proposed use of funds realized in the disposition.O. Reg.265/02,s.5. 8.1 If an investment made by the municipality is,in the treasurer’s opinion,not consistent with the investment policies and goals adopted by the municipality,the treasurer shall report the inconsistency to the council of the municipality within 30 days after becoming aware of it.O.Reg.655/05,s.7. 9.(1)Despite this Regulation,an investment by a municipality in bonds,debentures or other indebtedness of a corporation made before March 6,1997 may be continued if the bond, debenture or other indebtedness is rated, (a)REVOKED:O.Reg.265/02,s.6. (b)by Dominion Bond Rating Service Limited as “AA(low)”or higher; (b.1)by Fitch Ratings as “AA-”or higher; (c)by Moody’s Investors Services Inc.as “Aa3”or higher;or (d)by Standard and Poor’s as “AA-”or higher.O.Reg.438/97,s.9 (1);O.Reg. 265/02,s.6;O.Reg.399/02,s.5;O.Reg.655/05,s.8. Finance Advisory Committee Meeting Agenda Tuesday,August 11,2015 Item 1 Page -17 -21 - Town of Aurora –Corporate Policies,Programs and Procedures Corporate and Financial Services –Investment Policy Page 13 of 16 (1.1)Despite subsection 3 (4.1),an investment in a security under paragraph 7.1 of section 2 made on a day before the day this subsection comes into force may be continued if the security is rated, (a)by Dominion Bond Rating Service Limited as “A”or higher; (b)by Fitch Ratings as “A”or higher; (c)by Moody’s Investors Services Inc.as “A2”;or (d)by Standard and Poor’s as “A”.O.Reg.292/09,s.5 (1). (2)If the rating of an investment continued under subsection (1)or (1.1)falls below the standard required by that subsection,the municipality shall sell the investment within 180 days after the day the investment falls below the standard.O.Reg.438/97,s.9 (2); O.Reg.292/09,s.5 (2). FORWARD RATE AGREEMENTS 10.(1)A municipality that enters into an agreement to make an investment on a future date in a security prescribed by section 2 may enter one or more forward rate agreements with a bank listed in Schedule I,II or III to the Bank Act (Canada)in order to minimize the cost or risk associated with the investment because of fluctuations in interest rates.O. Reg.655/05,s.9. (2)A forward rate agreement shall provide for the following matters: 1.Specifying a forward amount,which is the principal amount of the investment or that portion of the principal amount to which the agreement relates. 2.Specifying a settlement day,which is a specified future date. 3.Specifying a forward rate of interest,which is a notional rate of interest applicable on the settlement day. 4.Specifying a reference rate of interest,which is the market rate of interest payable on a specified future date on an acceptance issued by a bank listed in Schedule I,II or III to the Bank Act (Canada). 5.Requiring a settlement payment to be payable on the settlement day if the forward rate and the reference rate of interest are different.O.Reg.655/05,s.9. (3)A municipality shall not enter a forward rate agreement if the forward amount described in paragraph 1 of subsection (2)for the investment whose cost or risk the agreement is intended to minimize,when added to all forward amounts under other forward rate agreements,if any,relating to the same investment,would exceed the total amount of the principal of the investment.O.Reg.655/05,s.9. (4)A municipality shall not enter a forward rate agreement unless the settlement day under the agreement is within 12 months of the day on which the agreement is executed.O. Reg.655/05,s.9. (5)A municipality shall not enter a forward rate agreement if the settlement payment described in paragraph 5 of subsection (2)exceeds the difference between the amount of interest that would be payable on the forward amount calculated at the forward rate of interest for the period for which the investment was made and the amount that would be payable calculated at the reference rate of interest.O.Reg.655/05,s.9. Finance Advisory Committee Meeting Agenda Tuesday,August 11,2015 Item 1 Page -18 -22 - Town of Aurora –Corporate Policies,Programs and Procedures Corporate and Financial Services –Investment Policy Page 14 of 16 (6)A municipality shall not enter a forward rate agreement except with a bank listed in Schedule I,II or III to the Bank Act (Canada)and only if the bank’s long-term debt obligations on the day the agreement is entered are rated, (a)by Dominion Bond Rating Service Limited as “A(high)”or higher; (b)by Fitch Ratings as “A+”or higher; (c)by Moody’s Investors Service Inc.as “A1”or higher;or (d)by Standard and Poor’s as “A+”or higher.O.Reg.655/05,s.9. 11.(1)Before a municipality passes a by-law authorizing a forward rate agreement,the council of the municipality shall adopt a statement of policies and goals relating to the use of forward rate agreements.O.Reg.655/05,s.9. (2)The council of the municipality shall consider the following matters when preparing the statement of policies and goals: 1.The types of investments for which forward rate agreements are appropriate. 2.The fixed costs and estimated costs to the municipality resulting from the use of such agreements. 3.A detailed estimate of the expected results of using such agreements. 4.The financial and other risks to the municipality that would exist with,and without, the use of such agreements. 5.Risk control measures relating to such agreements,such as, i.credit exposure limits based on credit ratings and on the degree of regulatory oversight and the regulatory capital of the other party to the agreement, ii.standard agreements,and iii.ongoing monitoring with respect to the agreements.O.Reg.655/05,s.9. 12.(1)If a municipality has any subsisting forward rate agreements in a fiscal year,the treasurer of the municipality shall prepare and present to the municipal council once in that fiscal year,or more frequently if the council so desires,a detailed report on all of those agreements.O.Reg.655/05,s.9. (2)The report must contain the following information and documents: 1.A statement about the status of the forward rate agreements during the period of the report,including a comparison of the expected and actual results of using the agreements. 2.A statement by the treasurer indicating whether,in his or her opinion,all of the forward rate agreements entered during the period of the report are consistent with the municipality’s statement of policies and goals relating to the use of forward rate agreements. 3.Such other information as the council may require. 4.Such other information as the treasurer considers appropriate to include in the report.O.Reg.655/05,s.9. Finance Advisory Committee Meeting Agenda Tuesday,August 11,2015 Item 1 Page -19 -23 - Town of Aurora –Corporate Policies,Programs and Procedures Corporate and Financial Services –Investment Policy Page 15 of 16 SCHEDULE 2 Extract from Town By-law #5614-14 Being a By-law to provide for persons authorized to sign cheques and other banking authorities on behalf of the Town. 1.THAT all cheques issued by the Town upon the Town’s general bank account shall require two (2)signatures and shall be signed: (a)firstly,by any one (1)of the following officers or employees of the Town: i.the Treasurer;or ii.the Manager of Accounting &Revenues –Deputy Treasurer;or iii.the Manager of Financial Planning –Deputy Treasurer; (b)and secondly,by any one (1)of the following officials,officers or employees of the Town: i.the Mayor;or ii.the Deputy Mayor;or iii.the Acting Mayor;or iv.the Chief Administrative Officer;or v.the Town Solicitor;or vi.the Town Clerk;or vii.the Director of Parks &Recreation Services. … 6.THAT the Treasurer or his/her designate be and is hereby authorized to establish business relationships,accounts,and enter into agreements on behalf of the Town with investment brokers or financial institutions for the purposes of purchasing,trading,and holding financial investments as deemed appropriate by the Treasurer or his/her designate from time to time. 7.THAT the purchase of financial investments and all wire transfers of funds from the Town’s general bank account shall be made only to the benefit of those investment brokers or financial institutions pre-approved in writing with the Town’s lead bank.The execution of any necessary or ancillary documents required to perform any of the actions set out in this paragraph shall be signed in the same manner as provided for in paragraph 1 of this By-law. 8.THAT with respect to the actual purchase of investment transactions,the transaction shall be approved in writing in two (2)stages,and using the secured wire payments facility of the Town’s lead bank,as follows: Finance Advisory Committee Meeting Agenda Tuesday,August 11,2015 Item 1 Page -20 -24 - Town of Aurora –Corporate Policies,Programs and Procedures Corporate and Financial Services –Investment Policy Page 16 of 16 (a)firstly,by any one (1)of the following officers or employees of the Town: i.a Financial Analyst;or ii.the Manager of Financial Planning –Deputy Treasurer; (b)and secondly,by any one (1)of the following officers or employees of the Town: i.the Treasurer;or ii.the Manager of Accounting &Revenues –Deputy Treasurer;or iii.the Manager of Financial Planning –Deputy Treasurer; and the same person may not approve any subject transaction in both stages. Finance Advisory Committee Meeting Agenda Tuesday,August 11,2015 Item 1 Page -21 -25 - No.61 Page 1 of 11 Town of Aurora Administration Procedure No.61 Subject:Investment Policy Effective:June 25,2003 Authority:Council Revised: TABLE OF CONTENTS Section I -Scope and Objectives Page 2 Section II -Standard of Care Page 4 Section III -Eligible Investments and Parameters Page 5 Section IV -Reporting Requirements Page 6 Section V -Safekeeping and Custody Page 7 Section VI -Responsibilities Page 7 Section VII -Eligible Investments and Sector Limitations Page 8 Section VIII -Portfolio Term Limitations Page 9 Section IX -Definitions Page 10 Attachment #2 Finance Advisory Committee Meeting Agenda Tuesday,August 11,2015 Item 1 Page -22 -26 - No.61 Page 2 of 11 Investment Policy Update Effective:June 25,2003 Section I -Scope and Objectives THAT the Town’s Investment Policy be adopted as follows: Scope:This policy constitutes the Town’s policy governing the effective and efficient management of surplus and idle cash resources within the general,capital,reserve and reserve funds. Objectives:The policy establishes the following as its core objectives: Adherence to statutory requirements for eligible investments; Preservation and security of capital; Maintenance of necessary liquidity;and Realizing a competitive rate of return. Adherence to Statutory Requirements This policy applies to the management of all monies of the Operating Fund,Capital Fund, Reserve and Reserve Funds.Section 418 of the Municipal Act,2001 (as amended)governs investments made by municipalities as prescribed in Ontario Regulation 438/97 as amended by Ontario Regulation 265/02.In exercising the statutory responsibility of a Municipal Treasurer, the Director of Finance/Treasurer for the Town of Aurora is responsible for the administration of this policy in compliance with the requirements prescribed in the Municipal Act,2001 as amended from time to time. Preservation and Security of Capital The Town’s investment policy is directed toward the preservation and security of capital identified for specific future uses and purposes such as (but not limited to)levy requisitions of the Regional Municipality of York,the Boards of Education and the Town’s own requirements. Investments shall be undertaken in a manner that seeks to ensure the preservation of capital within the overall investment portfolio.Credit and interest rate risks are to be mitigated as follows: Credit Risk: Limiting investments to guaranteed securities; Pre-qualifying the financial institutions,brokers/dealers,intermediaries and advisers with whom the Town completes transactions for eligible investments subject to approval by the Director of Finance; Finance Advisory Committee Meeting Agenda Tuesday,August 11,2015 Item 1 Page -23 -27 - No.61 Page 3 of 11 Section I -Scope and Objectives (Con’t) Credit Risk (Con’t): Diversifying the investment portfolio so to manage risk of poor performance on individual securities or overall economic conditions. Interest Rate Risk: Structuring the investment portfolio so the securities mature to meet on-going cash flow requirements,thereby reducing the need to sell securities on the open market prior to maturity; Investing operating funds primarily in shorter-term securities;and Diversifying longer-term holdings to match term exposure to requirements of underlying reserve funds and to mitigate effects of interest rate volatility. Maintenance of Necessary Liquidity The investment portfolio shall remain sufficiently liquid to meet all operating and cash flow requirements.This shall be done where possible by structuring the portfolio such that securities mature concurrent with anticipated cash flow demands.Furthermore,since all possible cash demands cannot be anticipated,the portfolio shall consist largely of securities with active secondary or resale markets. Realizing Competitive Rate of Return Without compromising other objectives,the Town shall maximize the rate of return earned on its portfolio by implementing a sound investment strategy as part of its investment program.Trends in economic variables will be monitored including interest rates and inflationary pressures. Diversification,as well as ensuring safety of principal by limiting exposure to credit,sector or term risks,also provides opportunities to enhance investment returns of the Town’s portfolio by means of prudent and timely adjustments to the asset mix. Finance Advisory Committee Meeting Agenda Tuesday,August 11,2015 Item 1 Page -24 -28 - No.61 Page 4 of 11 Section II -Standard of Care Prudent Investment Principles Investments shall be made in accordance with the policy,under the prevailing circumstances. Consideration of the probable safety of principal,as well as income to be derived,should be of utmost importance.Town staff,acting in accordance with this policy and other corporate policies &procedures and having exercised due diligence,shall be relieved of personal responsibility for any individual security’s credit risk or market price changes,provided deviations from expectations are reported in a timely manner and the liquidation or sale of such securities are carried out in accordance with the terms of this policy. Ethics and Conflicts of Interest Employees involved in the investment process shall refrain from personal business activity that could conflict with the proper execution and management of the Town’s investment program,or that could impair their ability to make impartial investment decisions.Employees involved in investment procedures shall disclose any material interests in financial institutions with which they conduct business.They shall further disclose any personal financial/investment positions that could be related to the performance of the Town’s investment portfolio.Town employees and financial institution officers shall not undertake personal investment transactions with the same individual with whom business is conducted on behalf of the Town. Delegation of Authority The Director of Finance/Treasurer has overall responsibility for establishing and implementing a prudent investment strategy for the Town’s portfolio in a manner consistent with this policy.The Director of Finance/Treasurer shall be responsible for all transactions undertaken,and shall exercise control over any staff delegated to implement the investment program. Competitive Selection of Investment Instruments All security purchase/sale transactions will be completed through a competitive process and with financial institutions approved by the Director of Finance/Treasurer.The Town will accept an offer to purchase,which (a)has the highest rate of return for the investment term required;and (b)optimises the investment objectives of the overall portfolio.When selling a security,the Town will select the bid that generates the highest sale price. It will be the responsibility of the Director of Finance/Treasurer to produce and retain written records of each transaction,including the names of financial institutions solicited,rate quoted, description of the security,investment selected,and any special considerations that had an impact on the final decision. Finance Advisory Committee Meeting Agenda Tuesday,August 11,2015 Item 1 Page -25 -29 - No.61 Page 5 of 11 Section III -Eligible Investments and Parameters Eligible Investments The following are eligible investments: Bonds,debentures,or other evidences of indebtedness of or guaranteed by the Government of Canada,the Province of Ontario,or another province of Canada; Bonds,debentures,term deposits,deposit receipts,deposit notes,certificates of instruments issued,accepted,guaranteed or endorsed by any bank in Schedule I or II to the Bank Act (Canada)or by credit unions and trust companies as defined in the Credit Unions and Caisses Populaires Act;and Bonds,debentures or promissory notes of a metropolitan,regional or district municipality,a school board,or a local board as defined in the Municipal Act. All eligible investments must meet or exceed the minimum credit rating as defined in Section VII of this policy and are to be used in conjunction with the sector limitations noted in the below under the reference Investment Parameters. Investment Parameters The investment parameters shall be achieved through diversification by: Limiting investments to avoid over-concentration in securities of a specific type,from a specific issuer or sector (excluding Government of Canada instruments); Limiting investments in securities to those that have higher credit ratings; Investing in securities with varying maturities;and Investing in mainly liquid,marketable securities,which have an active secondary market, to ensure that appropriate liquidity is maintained in order to meet on-going cash flow requirements. In order to promote diversification in the Town’s portfolio holdings,percentage weightings for sector and security type shall be established and maintained (See Section VII). To the extent possible,the Town shall match its term structure with anticipated cash flow requirements.Unless matched to specific cash flow requirements,the Town will not directly invest in securities maturing more than ten (10)years from the date of purchase.Reserve Funds and other longer-term investment horizons may be invested in securities exceeding the ten (10) years if the maturity of such investments are made to coincide,as near as possible,with the expected use of such funds.The final column of Section VII sets out the maximum term in order to ensure liquidity requirements are maintained. Finance Advisory Committee Meeting Agenda Tuesday,August 11,2015 Item 1 Page -26 -30 - No.61 Page 6 of 11 Section IV -Reporting Requirements Reports to Council The Director of Finance/Treasurer shall provide an investment report to Council annually.The report will include the following: Listing of individual securities held at the end of the preceding fiscal year; Realized and unrealized gains or losses resulting from appreciation or depreciation by listing the cost and market value of securities over the one-year duration; Percentage of total portfolio which each type of investment represents; Summary statement about the performance of the investment portfolio during the period covered by the report; An estimated ratio of the total long-term and short-term securities compared to the total investments and a description of the change,if any,in that estimated proportion since the last year’s report; A statement (opinion)by the Director of Finance/Treasurer as to whether or not all investments were made in accordance with the investment policies and objectives adopted by the Town and in compliance with the Municipal Act;and Such other information that Council may require or that,in the opinion of the Director of Finance/Treasurer,should be included. Performance Benchmarks The investment portfolio will be managed in accordance with the parameters specified within this policy.Short-term funds will be compared to the return on the Scotia McLeod’s Capital 30 day Treasury Bill Index and the 91 day Treasury Bill Index as well as the ONE Funds Money Market Fund.Long-term funds will be compared to the Scotia McLeod’s Capital –All Government –Bond Index and the ONE Funds Bond Fund. Finance Advisory Committee Meeting Agenda Tuesday,August 11,2015 Item 1 Page -27 -31 - No.61 Page 7 of 11 Section V -Safekeeping and Custody The custody and safekeeping of the Town’s investments is held off site with the broker from whom the investment was purchased.All securities shall be held in the name of the Corporation of the Town of Aurora. The brokerage organization shall issue a confirmation receipt to the Town listing specific investment instrument details,rate,maturity and other pertinent information.On a monthly (or quarterly basis depending on the broker)the broker will also provide reports which list all securities held for the Town,the book value of the holdings and the market value of the holdings as of the month (period)end date. Section VI -Responsibilities The responsibilities of the Director of Finance/Treasurer are as follows: Enters into arrangements with banks,investments dealers,brokers and other financial institutions for the purchase,sale,redemption,issuance,transfer and safekeeping of securities; Executes and signs documents on behalf of the Corporation of the Town of Aurora and performs all other related acts in the day-to-day operation of the investment and cash management program; Develops and maintains all necessary operating procedures for the effective control and management of the investment function and reasonable assurance that the Corporation’s investments are properly managed and adequately protected;and Ensures that adequate insurance coverage to guard against any losses that may occur due to misappropriation,theft,or other acts of fraud with respect to the Corporation’s financial assets. Finance Advisory Committee Meeting Agenda Tuesday,August 11,2015 Item 1 Page -28 -32 - No.61 Page 8 of 11 Section VII -Eligible Investments and Sector Limitations Minimum Credit Rating (DBRS)1 Money Market Rating Investment Type /Sector Exposure Limitation 2 (maximum) Sector Term Limitation (maximum) Federal 3 (Canada)AAA R-1 high 100 %20 years Provincial 4 AA R-1 mid 80 %20 years A R-1 mid 20 %10 years BBB R-1 mid 10 %5 years Provincial Total Maximum =80%of portfolio Municipal Regional or Other Municipalities AA or A 40 %10 years Banks Schedule I Banks R-1 mid/low 75 %5 years Schedule II Banks, Credit Unions and Trust Companies R-1 mid 15 %6 months Bank Total Maximum =75%of portfolio 1.DBRS =Dominion Bond Rating Service 2.Exposure %limitations to be applied to the par value of the total portfolio 3.Includes Federal Government Guarantees 4.Includes Provincial Government Guarantees Finance Advisory Committee Meeting Agenda Tuesday,August 11,2015 Item 1 Page -29 -33 - No.61 Page 9 of 11 Section VIII -Portfolio Term Limitations Term Limitations Percentage of Portfolio by Term (maximum) Less than 90 days 100 % Less than 1 year 100 % From 1 year up to, but not including 5 years 70 % From 5 years up to, but not including 10 years 70 % From 10 years up to 20 years 50 % Over 20 years 10 % Finance Advisory Committee Meeting Agenda Tuesday,August 11,2015 Item 1 Page -30 -34 - No.61 Page 10 of 11 Section IX -Definitions Money Market Ratings Rating Definition R-1 (high)Short-term debt rated R-1 (high)is of the highest quality,and indicates an entity that possesses unquestioned ability to repay current liabilities as they fall due. Entities rated in this category normally maintain strong liquidity positions,conservative debt levels and profitability which is both stable and above average. R-1 (mid)Debt rated R-1 (mid)is of superior credit quality and in most cases, ratings in this category differ from R-1 (high)credits to only a small degree. R-1 (low)High quality debt with a strong degree of safety regarding timely repayment of financial obligations. Dominion Bond Rating Service (DBRS)–Investment Grade Obligations Rating Definition AAA Highest rating possible where the capacity to pay interest and repay principal is extremely strong. AA Has a very strong capacity to pay interest and repay principal and differs from AAA to a small degree. A Has a very strong capacity to pay interest and repay principal,but more susceptible to adverse developments than the higher rated categories. BBB Average to adequate capacity to pay interest and repay principal. Current levels of protection are adequate but adverse economic conditions are more likely to lead to a weakening capacity to fulfil financial obligations. Finance Advisory Committee Meeting Agenda Tuesday,August 11,2015 Item 1 Page -31 -35 - No.61 Page 11 of 11 Section IX -Definitions (Con’t) Other Definitions: Credit Risk:the risk to an investor that an issuer will default in its obligation to pay interest and/or principal on a security. Diversification:the process of investing assets among a range of security types,across business sectors,with varying term and quality of credit rating. Duration:a measure of the timing of cash flows,such as the interest payment and principal repayment dates,to be received from a fixed-income investment instrument. The calculation is based on three variables:term to maturity,coupon rate and yield to maturity.The duration of an investment instrument is a useful indicator of its price volatility in relation to fluctuations in interest rates. Interest Rate Risk:the risk associated with declines or rises in interest rates,which result in the fixed-income investment instrument to increase or decrease in value. Investment-grade Obligations:an investment instrument suitable for purchase by institutional investors under the prudent person rule. Investment-grade is restricted to those obligations rated BBB or higher by a recognized rating agency. Liquidity:a measure of an asset’s convertibility to cash. Market Risk:the risk that the value of a security will rise or decline as a result of changes in capital market conditions. Market Value:current market price of a security. Maturity:the date on which payment of a financial obligation is due and payable.The final stated maturity date is the date on which the issuer must retire a bond and pay the face value to the bondholder. Safekeeping:the role of holding assets (e.g.securities)by a financial institution on behalf of the investor. Finance Advisory Committee Meeting Agenda Tuesday,August 11,2015 Item 1 Page -32 -36 - TOWN OF AURORA ADDITIONAL ITEMS FOR FINANCE ADVISORY COMMITTEE Tuesday, August 11, 2015 5:30 p.m. Leksand Room  Item 2 – CFS15-029 – Council Budget Process, Policies and Directives RECOMMENDED: THAT Report No. CFS15-029 be received; and THAT Finance Advisory Committee comments and discussion be referred to staff for preparation of an updated Council Budget Process, Policies and Directives report for adoption and recommendation at a future meeting of the Finance Advisory Committee. Wk i TOWN OF AURORA AURORA FINANCE ADVISORY COMMITTEE No. CFS15-029 SUBJECT: Council Budget Process, Policies and Directives FROM: Dan Elliott, Director, Corporate & Financial Services - Treasurer DATE: August 11, 2015 RECOMMENDATIONS THAT Report No. CFS15-029 be received; and THAT Committee comments and discussion be referred to staff for preparation of an updated Council Budget Process, Policies and Directives report for adoption and recommendation at a future meeting of the Finance Advisory Committee. PURPOSE OF THE REPORT To present a framework for the annual budget review process of Council and Committee which streamlines the review time and process, while balancing the need for detailed reviews. The report outlines draft Budget Principles of Council, draft Council Budget Process, and a draft set of Budget Directives for staff preparation of the 2016 and forecast budgets. BACKGROUND At its first meeting held in April, Finance Advisory Committee discussed approaches for future budget reviews by Council which would seek to streamline the review timelines and number of meetings of Council members, while balancing the need for detailed reviews of each section of the budget. COMMENTS A number of municipalities are able to review and approve their annual operating budgets in short order on a recurring basis. This normally arises through the use of Council having set clear objectives and targets for the preparation of the budget. Staff then prepare and present a draft budget which meets the directives of Council for prompt approval. Discussion is limited to the key pressure points which had to be overcome during the budget preparation, and any changes in service levels which may be noticed by members of the public in the coming year. August 11, 2015 - 2 - Report No. CFS15-029 The greatest difficulty in following such budget approach is that Council must have a clear outlook of the budget realities facing the municipality in the coming years, and once having informed knowledge of such, set appropriate directives for staff for preparation of the budget. Making significant budget adjustments late in the budget review process is challenging, as often the lead time for service level adjustments or even rate changes can be long, as program and services are often flowing from one year to another, and incorporated into program guides, and other materials for the public. Adjusting service levels, rates and programs requires lead time. Accordingly, it is helpful to all participants in the budget process to have a very clear understanding of the expected processes, timelines, and even Council's expectations for the end result set out in writing. Multi year budget approaches can also be incorporated where the detailed budgets are produced following the budget principles and directives of Council for the upcoming and three successive budget years all at the same time. Information of the outlook years is then used by Committee in reviewing and setting budget directives for the subsequent year, if change is needed. The attached draft Council Budget Principles, Process and Directives is for discussion only at this time. Despite requests, staff have yet to receive any input or samples from other municipalities. Some material was gleaned from the Town of Markham. Accordingly, the attached document is considered substantively original by staff. The Council Budget Principles portion is intended to set a clear and open framework of budget principles upon which Council expects the budget to be prepared. These are higher level statements addressing such things as the reality of infrastructure funding shortfalls, fluctuating interest rates, fluctuation inflation, continual growth of the community, and need to maintain services and facilities as we grow and as we age. These Council Budget Principles are proposed to be reviewed in detail in the first year of each Council term. The Council Budget Process portion is intended to set out high level overview of the budget review process undertaken by Council and or Committee each year. This includes establishing distinct components of each annual budget which must be considered independent of each other for their specific purposes. Segregation in this way, like segregating Operating from Capital budget review, allows the key issues of each to be separately discussed and debated for approval. This process also outlines a proposed detailed budget review to be conducted on a continually rotating basis of each town department, intended to occur after each budget approval, with recommendations to be incorporated in the following year budget. This Council Budget Process document would not be expected to change much at all year to year, or even term to term. It is anticipated that this Process portion would be reviewed and affirmed in the first year of each term of Council. August 11, 2015 - 3 - Report No. CFS15-029 Council Directives for Annual Budget preparation by staff is a set of more specific, definitive type statements of Council for staff to follow in preparing the upcoming budget details. Should staff deliver a draft budget and forecast which meets these directives, it is anticipated by both Council and staff that such budget could be expected to be approved without significant debate, change or delay, to allow planned business operations to continue uninterrupted as outlined in the budget. Immediately following the annual operating budget approval, Council, through Committee would review, update and set the Council Budget Directives for the following year's budget and forecast preparation. The use of documented Council Budget Principles, Council Budget Processes, and Council Budget Directives is intended to bring about adoption and use of common understanding and language for Council, members of the public who follow such, and staff. These three documents would be made public on the Town's website in the applicable annual budget information and review section for easy reference by all parties. LINK TO STRATEGIC PLAN Bringing forward high level statements of budget principles, process, and directives for the annual budget cycle support the broad guiding principles of the Town's Strategic Plan of Leadership in Corporate Management, and Progressive Corporate Excellence and Continuous Improvement. ALTERNATIVE(S) TO THE RECOMMENDATIONS 1. None, Discussion and comments from Finance Advisory Committee to be referred back to staff for incorporation into a final version for presentation at a future meeting of Committee. 2. Committee may provide alternative directions for budget cycle preparation and review. FINANCIAL IMPLICATIONS No direct financial implications of this report. CONCLUSIONS At the request of Finance Advisory Committee, staff have prepared some overarching budget framework statements and principles for consideration by Committee. These August 11, 2015 - 4 - Report No. CFS15-029 have been organized into three sections: Council Budget Principles, Budget Process, and Council Budget Directives. Comments and directions from Committee will be incorporated into a future report to Committee. PREVIOUS REPORTS IONS ATTACHMENTS Attachment #1 — Council Budget Process, Principles and Directives — DRAFT for discussion PRE -SUBMISSION REVIEW Executive Leadership Team - Thursday, May 28, 2015 Prepared by. Dan Elliott, Director of Corporate & Financial Services - Treasurer r liott, CPA, CA Director of Corporate & Financial Services - Treasurer Patrick goyle, Interim Chief Ad ' istrative Officer Attachment #1 CFS15-029 Finance Advisory Committee — August 11, 2015 Council Budget Principles The Council of the Town of Aurora is responsible for two key elements in carrying out their duties. Council must represent and advance the interests, needs and actively plan for the future, and serve the residents and businesses of the community of the Town of Aurora, while also responsibly managing a large municipal corporation, including its future, resources, assets, needs and interests. The funding raised and used by the corporation comes primarily from within the community, and must be used wisely, obtaining good value and cared for responsibly. Within the context of annual corporation budgets, Council is committed to remain engaged with the community and continually strengthen the municipal corporation's overall fiscal sustainability, balanced with the need for Aurora's property taxation levels and water rates to remain comparable and affordable within the context of the Greater Toronto Area. Council recognizes that there are many different external influences which have impacts to the Town's budgets, costs and services. The following items each cause tax increase pressures upon the budgets of the Town. Council is committed to address each of these issues in a manner which respects the taxpayer, the financial health of the municipal corporation and our staff serving Aurora: • New and emerging legislative compliance requirements increasing demand on municipal resources and staffing • Growth of the community, and the resultant volumetric increase in demand for services and facilities provided and available. Such costs are normally offset by growth in base revenues arising from the new residents and businesses. • Community expectations for newer, evolving and additional services and facilities over and above today's existing service levels • The need to develop the financial capacity to meet current and future capital infrastructure replacement needs to provide reasonable service levels in a sustainable manner. Infrastructure sustainability funding has historically been a low priority for municipal governments across the country. Aging and deteriorating infrastructure requiring urgent repair or replacement has now brought this issue to the forefront for all levels of government. • Economic pressures such as interest rate fluctuations and inflationary pressures • Cost increases in some supply sectors which exceed inflation, such as electricity • Pressures on wage and benefits costs, including collective agreements • Service and supply contract renewals and existing committed multi -year contracts Council recognises that during every budget debate, various perspectives and interests are represented and raised at the Council table. To assist in these prospective discussions, Council has reviewed and agreed on a consensus basis that the following principles will guide the development, review and approval processes of each budget for the Town. These Budget Principles will be reviewed by Council in the first year of each Council term, and at any other time as requested by Council. 1 Attachment #1 CFS15-029 Finance Advisory Committee — August 11, 2015 Council Budget Principles The following principles will guide the preparation, review and evaluation for approvals of the Annual Operating, Capital and Utility budgets for the Town: Open and Transparent Process 1. The Annual Budget Process shall include opportunities for input from members of the public and community groups. All feedback, comments and suggestions received through solicitation tools such as email, website, surveys or others, will be conveyed to FAC as they are received throughout the budget review process. 2. All meetings of the Budget Review process shall be open to the public, except those aspects which are permitted and appropriate to be held in closed session, such as but not limited to discussions regarding collective agreement negotiation provisions, personnel matters, or litigation. 3. Budget materials, presentations, disclosures and Committee review processes shall be open and transparent. All materials will be prepared with the intended audience being a member of the general public where reasonable and practical. A specific section of the Town's website will contain all relevant budget materials, presentations, summaries and reports throughout the process, and updated to reflect the final approved budgets. 4. Council will undertake to complete the review and approval of the annual operating budgets prior to the commencement of the new budget year. For a budget in respect of the year following a municipal general election, the budget review process will begin early in the new budget year, as required by statute. 5. In making comparisons to other municipalities in respect to processes, performance, service levels, cost, revenue rates or any other basis, the Town shall have regard to, at minimum, the following municipalities: a. All other lower tier municipalities of York Region. b. Municipalities in the Durham Region, Peel Region, and Region of Halton Hills which have populations within 30% of the Town's population. c. York Region where applicable. Budgets to be Fiscally Responsible 6. The Town will prepare a traditional municipal balanced budget for review. Ontario Regulation 284/09 allows for exclusion from such budget certain accounting estimates such as amortization, and post -employment benefit liabilities. The impact of these excluded items will be presented separately as part of the budget submission as required of the Regulation. 2 Attachment #1 CFS15-029 Finance Advisory Committee — August 11, 2015 7. The Town will not use or rely upon prior year operating surpluses to fund or balance the Operating Budget. 8. The Town will not rely on one-time or short-term temporary funding sources to fund or balance the Operating Budget, unless directly associated with corresponding temporary expenses for events or special purpose programs. 9. Council and staff will continually look to implement changes in technique, tools or approaches to delivering all services and functions which will reduce costs, or improve the efficiency or effectiveness of our work and programs. Where necessary, capital investments required to achieve such improvements will be prioritized. 10.The annual operating budget will not be impacted by year to year fluctuations of the actual capital budget approval. Rather a singular, stable and predictable funding transfer to Infrastructure Sustainability Reserves will be included. 11. Council is committed to adequately fund infrastructure repair, replacement and improvements through annually evaluating the future funding needs, and when indicated, increase annual contributions to infrastructure sustainability reserves. Such increases will be included in the Fiscal Strategy budget area. Additionally, the Town will ensure the planned capital program attempts to replace assets at the optimal point in time for efficient and effective use of scarce capital funding in accordance with the Ten Year Asset Management and Investment Plan, balancing this with meeting community expectations, and the need for maintaining reliable services. 12. Council recognizes that budget decisions made in one year may have ripple -type impacts to future budget years. To ensure open and public awareness, for each annual operating budget presented for tax funding, an accompanying forecast of the next three budgets and related tax impacts shall also be presented. These forecasts will be updated as budget decisions are made during review. The forecasts presented will always include three or more years for consistency of vision. Using multi -year budgets and forecasts improves fiscal health and service delivery through: a. better coordination of budgeting and strategic priorities, b. greater certainty for departments in managing expenditures and service levels c. improved fiscal discipline of the organization d. streamline annual budget reviews to focus on key changes in assumptions and outlooks, and the reasons driving such changes e. allow staff to develop budgets with fixed targets in place, allowing early response to circumstances and budget constraints of such targets. 13. A separate Special Phasing Budget will be used to address significant permanent tax pressures. These pressures will be mitigated through phase -in in over multiple years, using tax stabilization reserves where necessary. Foreseen pressures, such as the operating costs for a facility under construction, will be phased -in in advance 9 Attachment #1 CFS15-029 Finance Advisory Committee — August 11, 2015 where possible. Unforeseen pressures will be phased -in as promptly as appropriate. Phasing of such tax pressures may result in tax rate increases which are in excess of inflation so as not to adversely impact existing services and facilities provided. Where appropriate, growth revenues will be allocated towards the new costs. 14. In the event that previously established Operating Budget directives are sought to be reduced by FAC or Council, a balanced approach will be used whereby 50% of such amount will be through internal cost reductions which have minimal impact on service levels, with the other 50% through new revenue streams, fee increases exceeding inflation, or definitive service or program reductions identified by FAC. Inflation is a Reality for both the community and the Corporation 15. Council and our taxpayers recognize that annual tax increases approximating inflation are necessary to support perpetuation of existing services, facilities and operations, while accommodating new growth in population and the demand for more of these same levels of services, facilities and operations such growth creates. For reference, Council will refer to the annual 12 month CPI index for the Toronto Area, as reported by Statistics Canada for the period July 1 to June 30, ending in the year prior to the budget under review. 16. It is reasonable to expect administrative support overhead type costs are necessary, and should remain in a consistent ratio to the cost of core outward services and operations. The growth of the community and demand for services affects both outward and administrative functions of the corporation. The Town will Advance Priorities 17. Council is committed to advancing strategic priorities set out in our Strategic Plan, balanced with affordable and coordinated advancements of the goals and objectives set out in our various Master Plans, including: a. Communications Strategic Plan b. Corporate Administrative Plan C. Corporate Environmental Action Plan d. Cultural Master Plan e. Downtown Revitalization Plan f. Economic Development Master Plan g. Information Technology Strategic Plan h. Long Range Asset Management and Investment Plan i. Official Plan (community growth plan) j. Parks Master Plan k. Promenade Plan I. Pursuit of Top 100 Employer status m. Servicing Master Plan n. Trails and Open Spaces Master Plan o. Transportation Master Plan Is Attachment #1 CFS15-029 Finance Advisory Committee — August 11, 2015 It is recognized that it may not be financially possible to make advancement in all areas each year. Council will annually identify and prioritize such items during the annual budget review process. 18. Innovation, efficiencies, service excellence, maintaining public safety, and service level improvements come through the continuous learning and development of our staff. Training and development funding will be provided in the budget in the range of x% to x% (to be determined) of the Total Salaries and Benefits costs. In the first year of each term of Council, data from the comparator municipalities will be presented to confirm the Town's percentage allocation. Historical Underfunding must be Addressed 19. A separate annual Fiscal Strategy budget is intended to: a. Eliminate the infrastructure funding gap which arose from a long history of underfunding the costs of wear & tear on (consumption of) our infrastructure. b. Reduce the reliance upon unsustainable revenue sources by the Operating budget, such as interest from the Hydro Investment Reserve Funds. The driver for the need for current tax increases in this regard is a historical underfunding of contributions to infrastructure reserves, and the recently mandated detailed planning and forecasting taking place for the management of capital asset infrastructure. This situation is being experienced in virtually all municipalities across Canada, particularly by those municipalities such as Aurora who implemented long periods without increasing taxes. The "no tax increase" years actually made matters worse for each of these municipalities, as the core operations experience inflationary pressures every year, as does the cost of rehabilitation and replacement of infrastructure. Current service levels of the base operating budget should not suffer due to the need to address this historical funding issue. Council is committed to increase property taxes in order to increase its contributions to reserves for funding necessary infrastructure rehabilitation and renewal. The Town's Ten Year Asset Management and Investment Plan outlines and updates this strategy each year. It is understood that the Fiscal Strategy budget will normally push the tax rate impact to the resident beyond inflation rates when combined with the Operating Budget. 20.The Province has quietly been providing "tax room" to municipalities since 1998: Since the substantial changes of property taxes with the introduction of Current Value Assessment in Ontario in 1998, the Province of Ontario has generally held education tax rates revenue neutral for existing properties each year, resulting in a decline of the portion of the property tax bill going toward education. Together with 5 Attachment #1 CFS15-029 Finance Advisory Committee — August 11, 2015 recent uploading from the Region of York and others of the Social Pooling allocation, and other social and provincial responsibilities, the Province has continually reduced their burden on the property tax bill incrementally each year. Some of these reductions have been offset by increased regulatory compliance requirements which have directly or indirectly added costs to the municipalities. Overall, it needs to be recognized that due to the net zero tax increases for education taxes, the province annually opens "tax room" on the bill for municipalities to address funding pressures such as infrastructure and compliance costs. Council and the community need to recognize that to access this tax room, the local taxes need to increase by more than general inflationary levels. Failing to access this tax room in one year is difficult to recapture in future years. Council Budget Review and Approval Process The annual budget review and approval process includes the following distinct components, each with their separate Council Review and Approval Process flow: November/December each vear (January to March followina an election Operating Budget o CAO controlled operations o Aurora Public Library Board funding request o Aurora Cultural Centre Board funding request o Aurora Historical Society funding request o Central York Fire Services Budget o Utilities Operations Budgets • Annual Fiscal Strategy Budget • Annual Special Phasing Budget • Three Year Forecast Budgets • Budget Directives for the next year's budget October each year (January following an election) • Capital Budget o Ten Year Asset Management and Investment Plan o Annual Capital Budget March to September • Annual Detailed Review — departmental detailed review (rotating) Operating Budget The annual operating budget will be reviewed by the Finance Advisory Committee of Council (FAC) in the fall period prior to each budget year, except budgets for the year 0 Attachment #1 CFS15-029 Finance Advisory Committee —August 11, 2015 following an election. All meetings of the Finance Advisory Committee are open to the public. Attendance, input and inquiries of members of Council not formally part of the Committee is encouraged. A multi -year budget approach is to be used by Aurora. The current year's budget, plus similarly detailed forecasted budgets of the subsequent three years are to be prepared and presented by staff, in accordance with directives from Council. The basic premise of the multi -year budget approach is that a current budget which meets the previously approved forecast and budget directives of Council will generally be approved by FAC and Council. Staff can more effectively plan multi -year programs, revenue streams and staffing based on the presumption of having complying budget forecasts receiving approval. Any variations from forecast would need to be fully explained in the presentation of such budget. It is important to note that Committee or Council can still make amendments to those future approved forecasts based on new initiatives, new regulations, or changing economic circumstances. Using this presumed approval and multi -year approach to developing budgets will give several advantages: • improved coordination of budgeting for strategic priorities, • greater certainty for departments in managing expenditures and service levels • improved fiscal discipline of the organization • streamline annual budget reviews to focus on key changes in assumptions and outlooks, and the reasons driving such changes • allow staff to develop budgets with fixed targets in place, allowing early response to circumstances and budget constraints of such targets. In conducting its annual operating budget review and approval process, the FAC will consider the following components and their related three year forecasts: o CAO controlled operations including Building Services Budget o Aurora Public Library Board funding request o Aurora Historical Society funding request o Central York Fire Services Budget (as recommended by Joint Council Committee) o Utilities Operations Budgets o Annual Fiscal Strategy Budget o Annual Special Phasing Budget Once these budget components have been reviewed by FAC, FAC will recommend adoption to General Committee. General Committee will recommend adoption to Council. Operating Budget — Aurora Cultural Centre Board funding request To fulfil the requirements of the Cultural Services Agreement with the Aurora Cultural Centre Board, their annual report and budget request for funding of operations will be 7 Attachment #1 CFS15-029 Finance Advisory Committee — August 11, 2015 presented to General Committee. General Committee will deliberate on the funding request and make any adjustments to the Operating Budget as appropriate. Budget Communications Strategy and Key Messages Following recommendation for adoption of the annual operating budget and forecasts, FAC will discuss and provide direction to staff regarding key messages and budget highlights, including any specific statements or strategies to be included in media releases, website and other communications regarding the approval of the budget. Budget Directives for Next Budget Following resolutions regarding Communications Strategy Key Messages, the FAC will turn its attention to reviewing the budget directives for the preparation of the subsequent budget. The directives presented by staff for consideration will be those of Council from the prior year, with any changes recommended being highlighted. FAC will recommend a set of Budget Directives to General Committee for adoption by Council. Capital Budget The annual review and approval of the Ten Year Asset Management and Investment Plan will be completed prior to the end of October prior to the budget year. This timing allows for pricing advantage of early tendering, as well as allowing integration of the capital plan into the operational plans, capacities and requirements of the affected business units within the Operating Budget as applicable. FAC will recommend adoption to General Committee. General Committee will recommend adoption to Council. Funding allocations approved in the annual capital budget will be effective January 1 of the budget year, unless otherwise specifically approved by Council. Rotating Annual Departmental Detailed Budget Reviews Separate from and completed subsequent to the annual final budget approval, a specific group of town budget areas will be examined in detail each year during the period of April to September or as otherwise determined by Committee. The FAC will review the operational budget details of each operating department on a rotating basis, so as to review all operating departments of the Town once each term. Recommended adjustments will be reflected by staff in the following year's operating budget submission. This rotating approach balances the need to review the details of each departmental budget with the expectation of efficient and effective use of Committee time commitment for the annual budget process. Detailed review of every department every year is not practical. The rotational approach allows for ongoing assurance by Council, new members to Council, and the general public that all areas of the budget have been reviewed in extensive detail within the last few years by a committee of Council, and that such reviews continue on a regular basis on a fixed schedule. This approach ensures that the annual budget review of the overall corporate budget submission can remain at a higher level of consolidation, focusing on service levels, performance N Attachment #1 CFS15-029 Finance Advisory Committee — August 11, 2015 indicators and overall compliance with budget directives and prior forecasts, and the forecasts for the following years. The rotation of detailed reviews will be as follows (calendar year of term): Year 1 Council Administration CAO/ Administration Legal & Legislative Services Corporate Accounts Year 2 Parks, Recreation and Culture Services Infrastructure & Environmental Services Utilities Operation Budget Year 3 Building Services Division (fees funded budget) Building & Bylaw Services Planning & Development Services Corporate & Financial Services Year 4 None due to municipal election The detailed review will include, but is not limited to: • the current approved operating budget, with provided expanded details; • all related fees and rates charged; • activities, services and service levels provided by the department; • open capital projects and status • the area's related content details within the Ten Year Asset Management and Investment Plan • adequacy of staffing and funding to meet mandatory activities, services, commitments, and approved non -mandatory services, activities and programs and general expectations of Council; Directives of Council to Staff for Preparing 2016 Budget and Forecasts Council, staff and the taxpayers need to recognize the necessity to increase base operating budgets, in expense allocations as well as fees & charges, by inflationary allowances each year. Not doing so will constrain the Town's ability to continue to deliver services and programs year after year without slow or clear dilution of the quality or quantity of such. Increasing expenses for inflation, but ignoring fees will add additional pressure to the tax rate in excess of inflation levels. Increased tax revenue from a growing municipality, or "growth revenue" needs to be used to fund the expansion and extension of operational services to these new residents and business 9 Attachment #1 CFS15-029 Finance Advisory Committee — August 11, 2015 through increased spending, and should not be considered a mitigating factor for inflation or tax increases. Historical underfunding for infrastructure sustainability must be addressed in addition to the normal pressures of the Operating Budget, and are seen as a surcharge. Definitions In this section, the following terms are defined as follows: a) Base Operations are the programs, services, costs and revenues of the following budget departments/components: a. Parks, Recreation & Culture including Aurora Cultural Centre Board services b. Infrastructure & Environmental Services c. Building Services Division d. By-law Enforcement Division e. Planning & Development Services f. Council Administration g. Chief Administrative Officer/Administration h. Legal & Legislative Services i. Corporate & Financial Services j. Access Aurora/Customer Service Centre k. Corporate Revenues and Expenses I. Aurora Public Library Board services m. Aurora Historical Society funding grant, excluding any costs included in the Fiscal Strategy budget and the Special Phasing budget. b) Consumer Price Index (CPI) is the 12 month July to June Toronto Area Consumer Price Index (CPI) as reported by Statistics Canada in the year prior to the subject budget year. For future years contained in the budget forecasts, the indices of reference shall be those prepared by the Town's lead bank Chief Economist as released closest to the release of the above CPI index by Statistics Canada. c) Service Level Sustainability Index is a value plus or minus 1 calculated as A/(B+C) where: A= The percentage increase in total combined expenditures of the Base Operations of the Town B= The estimated assessment base growth year over year from the year prior to the subject budget year C= The rate of CPI as defined above. 10 Attachment #1 CFS15-029 Finance Advisory Committee — August 11, 2015 Commencing with the 2016 Operating Budget, the following directives are to be followed by staff when preparing and presenting annual and forecast budgets: 1) Base Operations combined net budget tax pressures are to be limited to CPI by: a. All fees, charges and other non -tax operating revenue rates or charges to be indexed individually by a minimum of CPI, unless otherwise restricted by statute or contract such as a lease agreement. b. The Town's Base Operations expenditure budget be targeted to a year over year Fiscal Sustainability Index value of between 0.90 and 1.0, excluding corporate expenditure and new services or service enhancement items. c. The Town's non -tax revenues budget be targeted to a similar year over year "revenue sustainability index" value of between 0.90 and 1.1, excluding corporate revenue items. 2) A Fiscal Strategy tax surcharge of an additional tax increase to be levied for purposes of increasing the contributions to infrastructure reserves for the ultimate rehabilitation and replacement of infrastructure, to reduce the operational budget reliance on interest from the hydro reserves and to reduce the budget reliance on temporarily high supplementary tax revenues. Such surcharge will be determined during review and approval of the Ten Year Capital Investment Plan. 3) In addition to the Base Operations budget and Fiscal Strategy surcharge tax pressures, a 1.3% tax increase be levied in each year through to 2020 inclusive to fund the multi -year budget requirements of Central York Fire Services and their pending expansion of services. A proportionate share of current year growth revenue will be allocated to mitigate this specific 1.3% amount. 11