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5. SINKING FUND
DISPOSITION OF SURPLUS AND 2005 FINANCIAL STATEMENTS
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COMMITTEE RECOMMENDATIONS
That, in accordance with Section 409(12) of
the Ontario Municipal Act, Council approve:
1. The distribution of the amount of $962,681.30 from the City of Ottawa Sinking Fund representing the surplus in excess of the debenture commitment authorized by By Law 102 of 1986 to the City, and;
2. Receive
the Sinking Fund Financial Statements for 2005.
RECOMMENDATIONS DU COMITÉ
Que, conformément au
paragraphe 409(12) de la Loi sur les municipalités de l'Ontario, le
Conseil approuve :
1. la
répartition de la somme de 962 681,30 $ contenue dans le fonds
d'amortissement de la Ville d'Ottawa et représentant l'excédent enregistré par
rapport à l'engagement obligataire autorisé par le règlement 102 de 1986 de la
Ville;
2. prenne connaissance des
états financiers du fonds d'amortissement pour 2005.
DOCUMENTATION
1. Chief
Corporate Services Officer’s report dated 02 May 2006
(ACS2006-CRS-FIN-0017).
2. Extract of Draft Minute, 16 May 2006.
Report
to/Rapport au :
Corporate Services and Economic Development Committee
Comité des services organisationnels
et du développement économique
and Council / et au Conseil
Submitted by/Soumis par : Greg Geddes, Chief Corporate Services Officer/
Contact
Person/Personne ressource : Marian Simulik, Acting Director, Financial Services
and City Treasurer/Directrice des services financiers et Trésorière municipale
par intérim
Financial Services/Services financiers
(613) 580-2424 x 14159, Marian.Simulik@ottawa.ca
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SUBJECT: |
SINKING FUND DISPOSITION OF SURPLUS
AND 2005 FINANCIAL STATEMENTS |
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OBJET : |
AFFECTATION
DE L'EXCÉDENT DU FONDS D'AMORTISSEMENT ET ÉTATS FINANCIERS POUR 2005 |
REPORT RECOMMENDATIONS
That, in accordance with Section
409(12) of the Ontario Municipal Act, Corporate Services and Economic
Development Committee recommend Council approve:
1. The distribution of the amount of $962,681.30 from the City of Ottawa Sinking Fund representing the surplus in excess of the debenture commitment authorized by By Law 102 of 1986 to the City, and;
2. Receive
the Sinking Fund Financial Statements for 2005.
RECOMMANDATIONS DU
RAPPORT
Que, conformément au paragraphe 409 (12) de la Loi
sur les municipalités de l'Ontario, le Comité des services organisationnels
et du développement économique recommande au Conseil d'approuver :
1. la
répartition de la somme de 962 681,30 $ contenue dans le fonds d'amortissement
de la Ville d'Ottawa et représentant l'excédent enregistré par rapport à
l'engagement obligataire autorisé par le règlement 102 de 1986 de la Ville;
2. prenne connaissance des
états financiers du fonds d'amortissement pour 2005.
BACKGROUND
When
the City issues sinking fund debentures, annual contributions are made to the
Sinking Fund, which together with interest earnings derived from the investment
of these funds accumulate to an amount that will be sufficient to pay the debentures
on maturity.
When
the Sinking Fund balance for a debenture issue along with expected future
interest earnings is considered to be sufficient to pay the principal amount of
the debenture issue at maturity, Council may reduce the annual levy contribution
in accordance with Section 144(7) of the Ontario Municipal Act. When the sinking fund balance for a
debenture issue is already more than sufficient to pay the principal amount due
on the maturity date, this surplus may be distributed to the general fund in
accordance with Section 409 of the Ontario Municipal Act.
The accounts for the Sinking Fund have been closed and audited for the year ending 31 December 2005. The value of the Sinking Fund portfolio as at 31 December 2005 was $153.2 million on an amortized cost basis (the market value was $162.7 million). The portfolio exceeds the actuarial requirements of $133.1 million which is the minimum amount required as at 31 December 2005, to accumulate sufficient funds to meet total sinking fund debentures at maturity. Commitments of $300 million are scheduled to mature from 2006 to 2019. With respect to By-Law 102 of 1986, the amounts accumulated in the sinking fund account are already more than the amount required to meet the principal amount due on maturity and the excess amount may be distributed to the City.
ANALYSIS
On 15 May 1986, the former Regional Municipality of Ottawa-Carleton issued $40,000,000 Euro Canadian debentures due 15 May 1998 and $15,000,000 Euro Canadian debentures due 15 May 2006. The debentures maturing in 2006 were issued on behalf of the former Region and the former City of Kanata. In accordance with By-Law 102 of 1986 an amount of $453,638.81 was contributed to the Sinking Fund annually starting 15 May 1987. As at 31 December 2005, the Sinking Fund Account for this By-Law has accumulated to an amount of $15,962,681.30. Therefore the excess amount of $962,681.30 may be distributed to the City’s general funds without jeopardizing the ability of the Sinking Fund to meet the commitment on 15 May 2006.
CONSULTATION
The public consultation process is not applicable.
FINANCIAL IMPLICATIONS
Sinking Fund levies are budgeted as debt charges until such time as the contribution is reduced or discontinued in accordance with Section 144(7) of the Ontario Municipal Act. Since the accumulated value of the Sinking Fund Accounts for By-Law 102 of 1986 exceed the amount required to meet the principal amount due on maturity, the excess amount may be distributed without jeopardizing the ability of the Sinking Fund to make the principal payment on 15 May 2006.
SUPPORTING DOCUMENTATION
Annex A: 2005 Sinking Fund Financial Statements
DISPOSITION
Following consideration by the Corporate Services and Economic Development Committee, the recommendation will be forwarded to Council for its consideration.
ANNEX A
City of Ottawa
City of Ottawa
SINKING FUND |
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BALANCE SHEET |
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AS AT 31
DECEMBER (in thousands) |
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2005 |
2004 |
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$ |
$ |
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Assets |
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Cash |
95 |
93 |
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Investments (note
2) |
153,235 |
133,098 |
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Accrued interest |
1,854 |
1,849 |
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Total Assets |
155,184 |
135,040 |
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Liabilities and Fund Balance |
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Liabilities |
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Accounts payable -
contributors (note 4) |
962 |
6 |
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Actuarial
requirements (note 3) |
133,118 |
113,883 |
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Fund Balance |
21,104 |
21,151 |
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Total
Liabilities and Fund Balance |
155,184 |
135,040 |
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FUND BALANCE
STATEMENT OF CONTINUITY |
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YEAR ENDED 31
DECEMBER (in thousands) |
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2005 |
2004 |
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$ |
$ |
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Fund Balance
at the Beginning of the Year |
21,151 |
18,754 |
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Revenue
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Sinking Fund |
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Levies |
11,497 |
9,887 |
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Interest |
8,654 |
8,092 |
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20,151 |
17,979 |
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Expenditures |
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Provision for
actuarial requirements |
19,235 |
15,576 |
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Refund to
contributors |
963 |
6 |
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20,198 |
15,582 |
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Change in Fund
Balance |
(47) |
2,397 |
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Fund Balance
at the End of the Year |
21,104 |
21,151 |
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(See accompanying notes to
financial statements) |
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NOTES TO
FINANCIAL STATEMENTS
31 December 2005
Note 1. Significant
Accounting Policies
The financial statements of the City of Ottawa Sinking Fund have been prepared by management in accordance with Canadian generally accepted accounting principles applied on a basis consistent with that of the preceding year. Since a precise determination of many assets and liabilities is dependent upon future events, the preparation of periodic financial statements necessarily involves the use of estimates and approximations which have been made using careful judgment. The following is a summary of the accounting policies of the Sinking Fund.
a.
Investments
Investments are purchased with the intention of being held to maturity. Gains and losses are recognized when investments are sold. If there has been a decline in value of investments, other than temporary, the investments are written down to market value. Under certain circumstances, investments may be sold prior to maturity in accordance with the approved Sinking Fund Investment Policy. All investments are initially recorded at cost and are adjusted annually for amortization of discount or premium on the basis of the effective yield as determined at the date of purchase with the amount of such amortization included in interest revenue in the statement of continuity.
b. Provision for
Actuarial Requirements
The provision for actuarial requirements of the Sinking Fund for the year represents the amounts levied during the year as set out in the Sinking Fund debenture by-laws plus interest accrued thereon capitalized at specific rates compounded annually in accordance with paragraph 1 of Section 409 (2) of the Municipal Act, 2001. The actuarial requirement is to accumulate to an amount sufficient to pay the related debentures upon maturity. The excess of revenue over these requirements for the year is included in the fund balance.
c. Accounts
Payable - Contributors
When certain Sinking Fund balances are more than sufficient to meet the principal amount of the debentures represented by the Sinking Fund accounts at maturity date, City Council may distribute such excess in accordance with Section 409 (12) of the Ontario Municipal Act, 2001.
Note 2. Investments
at Amortized Cost
Investments consist of securities issued or guaranteed by the following:
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(in thousands) |
2005 |
2004 |
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$ |
$ |
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Government of Canada |
32,308 |
26,796 |
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Provincial governments and
agencies |
51,303 |
51,077 |
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Municipal governments |
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City |
33,776 |
31,390 |
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Other municipalities |
20,491 |
14,101 |
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Other |
15,357 |
9,734 |
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Amortized cost |
153,235 |
133,098 |
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Par value |
164,169 |
141,175 |
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Market value |
162,773 |
143,715 |
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Note 3. Actuarial
Requirements and Investments for
Debenture Retirement
a.
The following indicates the
continuity of the actuarial requirements for the year:
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(in thousands) |
2005 |
2004 |
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$ |
$ |
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Balance at the beginning of the
year |
113,883 |
98,307 |
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Provision for actuarial
requirements |
19,235 |
15,576 |
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Balance at the end of the year |
133,118 |
113,883 |
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b. Investments held by the Sinking Fund comply with Ontario Regulation 438 of 1997 as amended by Regulation 655 of 2005 which prescribe the types of investments eligible for investment. Investments and Sinking Fund debenture commitments mature as follows:
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(in thousands) |
Par Value |
Commitments at |
Actuarial |
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Investments |
Maturity |
Requirements |
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$ |
$ |
$ |
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2006 |
22,311 |
15,000 |
14,287 |
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2007 |
9,341 |
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2008 2009 |
9,500 6,985 |
50,000 |
36,817 |
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2010 2011-2015 |
9,174 91,009 |
150,000 |
74,734 |
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2016-2021 |
15,849 |
85,000 |
7,280 |
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164,169 |
300,000 |
133,118 |
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The weighted average yield to maturity on par value of investments held by the Sinking Fund as at 31 December 2005 is 5.67%.
Note 4. Accounts
Payable - Contributors
As approved by City Council on 11 May 2005, the accounts payable at 31 December 2004 of $6,281.37 was distributed on 12 May 2005. As of 31 December 2005, the value of the sinking fund account for by-law 102 of 1986 exceeded the amount required to meet the commitment when this by-law matures on 15 May 2006 by $962,681. Subject to the approval of City Council, this excess amount may be distributed to the City during 2006.
Note 5. Administration Costs
All administrative costs for the Sinking Fund have been borne by the City.
SINKING FUND DISPOSITION OF SURPLUS AND 2005
FINANCIAL STATEMENTS
AFFECTATION
DE L'EXCÉDENT DU FONDS D'AMORTISSEMENT ET ÉTATS FINANCIERS POUR 2005
ACS2006-CRS-FIN-0017
Mayor Chiarelli noted there was an error in the report recommendation, in that the wrong section of the Ontario Municipal Act was recited. The correct Section was 409(12) and not 144 (7). With this correction, the Committee approved the staff recommendations.
That, in accordance with Section 409(12) of
the Ontario Municipal Act, Corporate Services and Economic Development
Committee recommend Council approve:
1. The distribution of the amount of $962,681.30 from the City of Ottawa Sinking Fund representing the surplus in excess of the debenture commitment authorized by By Law 102 of 1986 to the City, and;
2. Receive the Sinking Fund Financial Statements for 2005.
CARRIED