There is a disturbing tendency amongst Island municipal councils (and their agencies) to regard the maintenance and steady replenishment of reserve funds as an optional luxury, and as such, are among the first up on the chopping block when things get tough. This is particularly unfortunate given that rural municipalities are nearly always facing tough times (not surprising when one considers that the municipal tax bite is a fraction of the provincial or federal take, but carrying many of the burdens more properly the prevue of the upper tiers of government).
Since, generally speaking, things are always tough for rural municipalities, a knee-jerk reaction to raid the reserve piggy bank or to not contribute a sensible amount to savings set aside for rainy days or important municipal projects might seem to be a rational course of action. It isn’t.
There are those who will set the rallying cry that “we can’t afford to put money aside,” but to that the answer must be “we cannot afford not to.”
It is no secret that the infrastructure deficit of municipalities across the nation is immense. They are not only failing to collect enough money to deal with necessary maintenance on the infrastructure we have, they are also failing to put enough money away to deal with the crisis that will inevitably arise from that failure.
Placing funds into reserve accounts is a key aspect of responsible government and a critical part of planning for the future. By its very nature, reserves stand as evidence of long term planning. It is a source of black humour that those who argue that governments should operate as a business are often the first to call for the pillaging of reserves. One of the key elements of business failure is a failure to properly manage cash flow.
Reserve funds play a number of roles in municipal finance and are a critical part of leveraging the opportunities to deal with infrastructure challenges. Nearly all provincial and federal cost-sharing programs look to municipalities to pony up a significant portion of the fiddler’s bill in order to access their largesse. Municipalities seeking to repair bridges, upgrade roads, replace an arena roof, renovate to reduce energy costs or a host of other worthy, and quite often critical projects, apply for funds from the province and/or the federal government. It is reserve funds that often provide the funds that a municipality must pony up.
Further, when a sudden and critical issue arises such a failed road, a defunct culvert or a collapsing building wall, it is to reserve funds that a municipality can look to lessen the blow on the taxpayer. Other options, such as financing the project, come at a cost and might even be necessary in addition to reserves, but deficit financing is rarely a great option for municipal governments, given the limitations of revenues almost exclusively property tax based.
While current interest rates may make borrowing seem like an attractive option, those of an age will remember the disastrous impact that rising rates can have, particularly when we enter interesting times—and make no mistake, interesting times lie ahead.
Reserve fund levels are always a balancing act, but any prudent municipality will ensure that there are enough coins rattling around in the old piggy bank to meet rationally anticipated future needs. As a bonus, a reasonably maintained discretionary reserve account ensures that a municipality can provide its own bridge financing between taxation cycles so that it does not have to actually resort to its interim financing bylaw.
