SUBJECT:

SINKING FUND FINANCIAL STATEMENTS AND DISTRIBUTION OF SURPLUS

OBJET :

États financiers du fonds d'amortissement et RÉPARTITION DES EXCÉDENTS

REPORT RECOMMENDATIONS

That the Audit Sub-Committee recommend that the Finance and Economic Development Committee recommend Council approve:

1. The Sinking Fund Financial Statements for 2011; and

2. The distribution of the sum of $1,671,412.36 from the City of Ottawa Sinking Fund representing the surplus in excess of the debenture commitment authorized by By-law 33 of 1991 which matured on February 28, 2011, to the City of Ottawa.

RecommandationS du rapport

Que le Sous-comité de la vérification recommande au Comité des finances et du développement économique de recommander au Conseil d’approuver ce qui suit :

1. Les états financiers du fonds d’amortissement de 2011;

2. La répartition du montant de 1 671 412,36 $ du fonds d’amortissement de la Ville d’Ottawa, représentant l’excédent en surplus de l’engagement, autorisé par le Règlement 33 de 1991, des obligations non garanties, lesquelles sont échues le 28 février 2011, à la Ville d’Ottawa.

Background

When sinking fund or term debentures are issued, an annual contribution is made to the sinking fund, which together with interest earnings derived from the investment of these funds, will accumulate to an amount which will be sufficient to pay the debentures on maturity. Investments are held in the Sinking Fund and are expected to grow to amounts which will be sufficient to meet the principal payments which are required when the debenture issues mature. When the sinking fund balance for a debenture issue is more than sufficient to pay the principal amount of the debenture issue at the maturity date, this surplus may be distributed to the general fund in accordance with Section 409 of the Ontario Municipal Act, 2001.

DISCUSSION

The accounts for the sinking fund have been closed and audited for the year ending December 31, 2011. The value of the Sinking Fund portfolio including short-term investments (cash and cash equivalents) as at December 31, 2011 was $87.15 million on an amortized cost basis (the market value was $92.73 million). The portfolio exceeds the actuarial requirements of $82.46 million which is the minimum amount required as at December 31, 2011, to accumulate sufficient funds to meet total sinking fund debentures at maturity. Commitments of $382.84 million are scheduled to mature from 2012 to 2042. New commitments of $150 million with actuarial requirements beginning in 2012 were added in 2011.

By-Law 33 of 1991

On February 28, 1991 the former Regional Municipality of Ottawa Carleton issued debentures in the amount of $100,000,000 on behalf of the former City of Ottawa and for Regional purposes. In accordance with this by-law the amount of $3,024,258 was contributed each year to the Sinking Fund in order to accumulate sufficient funds to meet the amount of the debenture maturity on February 28, 2011. This levy was reduced to $2,000,000 commencing February 28, 2006 and was further reduced to $1,000,000 on February 28, 2008 as approved by City Council.

The last sinking fund levy in the amount $1,000,000 was made on February 28, 2011. An amount of $100,000,000 was transferred from the Sinking Fund to the City to meet the debenture commitment on maturity. Interest earnings for 2011 have been attributed to the sinking fund account for By-law 33 of 1991 up to February 28, 2011 which results in a surplus of $1,671,412.36 and may be distributed to the City in 2012.

For reporting purposes this amount has been included in the 2011 year-end Environmental Resource Areas Acquisition Reserve Fund balance, which now totals $5.4 million.

RURAL IMPLICATIONS

There are no rural implications associated with this report.

CONSULTATION

No public consultation was required.

LEGAL IMPLICATIONS

There are no legal impediments to approving the recommendations of this report. Section 409 of the Municipal Act, 2001 deals with distribution of any surplus from the Sinking Fund.

RISK MANAGEMENT IMPLICATIONS

There are no risk management impediments to distributing the surplus in accordance with the recommendation of this report since the debt commitment has matured and sufficient funds were available to meet the commitment in full.

FINANCIAL IMPLICATIONS

Sinking Fund levies are budgeted as debt charges until such time as the contribution is reduced or discontinued in accordance with Section 409 of the Municipal Act.

In accordance with Council direction, and as mentioned in the Disposition of 2011 Tax and Rate Supported Operating Surplus/Deficit report (ACS2012-CMR-FIN-0008) which was considered at Council on March 28, 2012, an additional contribution of $1.67 million, representing the distribution of the surplus from the Sinking Fund has been taken into consideration in arriving at the projected year-end balance for the Environmental Resource Areas Acquisition Reserve Fund.

ACCESSIBILITY IMPACTS

Not Applicable.

Technology Implications

There are no technology implications associated with this report.

TERm of council priorities

Not applicable.

SUPPORTING DOCUMENTATION

Document 1 - Sinking Fund Financial Statements 2011.

DISPOSITION

Following consideration by the Audit Sub-Committee and the Finance Committee and Economic Development Committee, the recommendation will be forwarded to Council for approval.