My Exchange With The Treasurer

Here is the note sent by the Treasurer to me concerning reserve funds.

I like him a lot. He seems to be a "straight-shooter" in answering questions both at Council and in email responses he has made to me and to others that I have seen on other financial issue! He has a job to do and I respect him for that as well.

Note that the email was sent at 10:40 PM after the Council meeting. I appreciate how promptly that the Treaurer answers questions unlike some of his colleagues.

----- Original Message -----
From: Colucci, Onorio
To: Ed Arditti
Sent: Monday, April 16, 2007 10:40 PM
Subject: RE: Reserve funds

Mr. Arditti,

the $74.1 million figure that you quote comes from the 2005 Financial Information Return (FIR) that all Ontario municipalities submit annually to the Ministry Of Municipal Affairs and Housing. That is the document that is used for comparative purposes by most municipalities and is the source for the BMA data that you quote in your e-mail. The FIR consolidates the direct municipal data as well as that of Local Municipal Boards and Commissions. In the City of Windsor's case these other entities include among others the Essex Windsor Solid Waste Authority, The Windsor Public Library, etc. The figures include both Reserve Funds as well as Reserve Accounts.

The Figure of $39 million quoted in the Star is not at all comparable to the $74.1 million in the FIR. The $39 million includes only the City's direct Reserve Funds it does not include the City's reserve accounts (approximately $8 million as of the end of 2006) or the reserves of the other consolidated local Boards and Commissions. We are in the process of compiling the 2006 FIR and the total consolidated data (inclusive of the other Boards and Commissions) is not yet available. The latest BMA study (based on 2005 figures, the latest available) does show Windsor as the third lowest in terms of total reserves as a percentage of expenditures. Similarly the Financial Indicators Review shows that that the City has lower reserves than its peers. That is why the mayor has announced his intention to develop a plan to enhance reserves.

Reserves do fluctuate over periods of time based on many factors. One of these factors has to do with projected inflows into reserves. Budgeted draws from reserves are based in large part on projected inflows of revenues into the reserves. When inflows are lower than projected, it can impact on the balances of reserves. This is especially problematic during downturns in the economy. Similarly, some reserves are set aside for a specific purpose and may be non-replenishing or one-time in nature. Therefore, when they are used for the intended purpose, the level of reserves will decline. I would expect our reported reserves (based on the FIR) as of the end of 2006 to decline somewhat from the 2005 figures due to these types of reasons, but certainly not because of a mentality of "raiding" reserves. The current financial plans are very much based on ongoing long term sustainability. This prudent financial management concept is embodied in the mayor's financial plan that calls for a reserves enhancement strategy. The recommended 5-year capital plan that will be deliberated by council at the end of the month, provides for new transfers of some $35 million into the reserves.

I should further point out that in 2001 (i.e., the year prior to the start of the debt reduction plan and the pay-as-you-go plan) the capital budget amounted to $48.5 million of which fully $23.2 million was funded by the issuance of long term debt, and an additional $18.4 million came from reserves. By contrast, the recommended 2007 capital budget of approximately $75 million has zero debt financing and only $5.9 million coming from reserves (those being replenishing type of reserves that have regular inflows of revenue). Fully $62 million of the 2007 capital budget will come from ongoing pay-as-you-go sources of funds (up from just $5.5 million in 2001). This funding transformation has allowed the enhancement of the capital program (up more than 50%) at the same time as reducing debt and fully funding some very major capital projects. This is, in my view, is a very clear testament to the efficacy of Council's current financial policies.

Regards.

Onorio Colucci
City Treasurer



----- Original Message -----
From: OJIBWAY NOW!
To: Onorio Colucci
Sent: Tuesday, April 17, 2007 10:27 AM
Subject: Fw: Reserve funds


I am very disturbed by your reply.

You have of course not answered my specific questions. You have not explained at all the figures in a matter that can be examined in concrete terms. What does the number of $39M in the Star story represent exactly? You can give a number of $39M but then you tell me that "Reserves do fluctuate over periods of time based on many factors. One of these factors has to do with projected inflows into reserves." You must have some idea what is going in and out in order to give a specific number. I would appreciate knowing how you made the calculation.

In effect, what you are saying is that the Mayor in his Inaugural speech overstated the City-only reserves by lumping in the reserves of other entities. Does the $39 M also lump in other entities? It would appear that the City was in worse shape than the Mayor stated at the time respecting City-only reserves. I quoted NOT from "the 2005 Financial Information Return (FIR)" as you suggested but from what the Mayor said at the public session. He said specifically:

• "The size of our reserve fund is an indicator of a city’s financial strength.
  
  And it also provides us with the security to deal with emergencies. It’s our savings account. And our savings account is lower than most of our peer municipalities.
  
  Today, our debt-to-reserve ratio is 2.55.
  
  That means we have 2.55 times more debt, than we have in our Savings Account.
  
  Today, Windsor has $74.1 million in reserves. We need $140 million." [emphasis added]

There was absolutely NO qualifier in his speech that the amount of $74.1M "consolidates the direct municipal data as well as that of Local Municipal Boards and Commissions. In the City of Windsor's case these other entities include among others the Essex Windsor Solid Waste Authority, The Windsor Public Library, etc." A citizen leaving that meeting would have thought that the City of Windsor's reserves were the specific amount stated at the meeting. Moreover, it would appear that the City does not have $74.1M for emergencies either since some reserves have been set aside for specific purposes.

Neither I nor any other member of the public should be required to have a copy of the City's financials on our knees as the Mayor speaks to try and interpret what he is saying. His comments were very clear without any qualification.

To be fair then, what was the actual amount of the City's reserves less that of Local Municipal Boards and Commissions at the time of the Mayor's speech? Presumably it was less. What would the ratio have been using City only reserves and City only debt and how are you making that calculation and with what figures? What amount was actually available for "emergencies?" What are those numbers as of today?

Is the City allowed to take money out of the reserves of the other organizations for its purposes thereby weakening the financial position of the other organizations?

I am tired of playing with numbers. Why just the other day the Mayor in talking about Tunnel revenues on Melanie Deveau's show talked about Tunnel net revenues of $4-5M last year when he full well knows that you projected the net revenues this year to be in the $1 M range. I thought Detroit Council was in fact told as well in the Joint Councils meeting that our net revenues were $6.6M only months before you announced a sharp drop! Again overstatements are not helpful in understanding whether the Tunnel deal makes sense and whether the City can pay for it.

The issue is a vital one for understanding Windsor's fiscal health. I am certain that you have seen the National Post story about Toronto's reserves today:

• "Toronto’s 2007 operating budget will obliterate reserve accounts and leave the city in “serious shape” next year, the chief financial officer said yesterday.
  
  Joseph Pennacheti said plans to use $202-million in reserve funds to balance the budget will empty some accounts and leave the city with greater financial burdens in future years. “We are down to the last discretionary reserves,” Mr. Pennacheti told the city’s executive committee.
  
  
  Mr. Pennacheti warned draining reserves “could adversely affect both capital and operating expenditure plans” in upcoming years."

I am suprised as well at your comment in the Star reserves story:

• "The plan is cut down on the amount coming out and develop an enhancement program putting money back in,” Colucci said...
  
  “The general philosophy is of taking care of existing assets rather than adding new assets,” Colucci said."

Yet only two days later, the Mayor announced the adding of an asset: "the City of Windsor has entered into a US$75-million agreement with Detroit to take full control of the Windsor-Detroit tunnel." Which City funds will be used to pay for that asset or will the funds have to be borrowed? Is the City instead looking for a P3 partner and if so, will there be an RFP for that or will it be "single-sourced?"

I am not trying to be difficult contrary to what some may think. I would like to have the facts in order to make an informed decision.

I thank you for your co-operation.

Ed Arditti