Where the Money Comes From
Overall Funding Sources
Money comes in through property taxes, grants and user fees. The money collected is required for both the operating and capital budget.
Municipalities use a variety of revenue sources to pay for the range of services that residents and businesses depend on and use regularly. The major revenue sources that are typically used to pay for service include, property tax, user fees, and operating grants and subsidies.
We also have access to other forms of funding which are generally used for capital projects including: grants from other levels of government; proceeds from long-term borrowing; and reserve funds (funds saved up over a time for large projects).
Here is a summary of funding sources to fund Town expenditures:
- Grants – regional, provincial & federal
- Fines, penalties & interest – POA, by-law charges & fines, general penalties & interest
- Taxation (Levy) – property taxes
- Financial revenue – income from trust funds, property sales, investment income, capital asset sales
- User fees & service charges - Licenses, Permits, Admin Fees, Sales, Recreation Revenue, Donations, Advertising
- Fees and charges are reviewed and presented to Council annually for adoption
- They are user pay model - the rationale for charging user fees is that those who clearly benefit from a service should be the ones to pay for it
- Funding programs and services through taxation results in the general tax-base funding Town programs and services whether or not they receive any direct benefit from them
- Long-term borrowing – is not a revenue source, but a method of funding large capital projects.
- Growth – or assessment growth refers to the increase in property taxes received from new and/or expanded homes and businesses. Assessment growth decreases the tax burden on existing tax payers.
- Reserves – planned savings, dollars set aside through the operating budget to fund future projects
Breaking Down Reserves & Reserve Funds
Reserves and reserve funds are an important component of the Town’s long-term financial planning and sustainability. Reserves allow the Town to set aside funds for a future purpose, which is an integral part of the municipal budget process.
The primary purposes are:
- To provide for the replacement and rehabilitation of existing Town assets
- Provide rate stabilization
- Ensure adequate cashflows to the organization
- Provide a source of internal financing
These are dollars set aside by the approval of council and not restricted by legislation. Reserves can be related to a project or to mitigate the fluctuations in revenues and expenditures.
Examples of reserves currently used are:
- Equipment Reserve
- Operating Rate Stabilization
- Capital Rate Stabilization
- Insurance Reserve
- Election Reserve
Reserves do not receive an annual interest allocation, therefore, any interest earned by the Town from the investment of funds is retained as revenue in the operating fund.
Reserve funds are segregated and restricted to meet a specific purpose, either through legislation or by Council direction. Reserve funds are interest bearing and therefore, any interest earned on reserve funds must be allocated to the specified fund that earned it.
There are two types of reserve funds:
Obligatory Reserve Funds - are created whenever a provincial statute requires revenue received for special purposes to be segregated from the general revenues of the municipality. Obligatory reserve funds can only be used for their prescribed purpose. Examples include:
- Development Charge Reserve Funds
- Cash-in-Lieu Reserve Funds such as Parkland
- Building Stabilization Reserve Funds
- Federal Gas Tax Reserve
Discretionary Reserve Funds - these funds are established based on Council direction and are used to finance specific future expenditures or to fund specific contingent liabilities. These funds are also segregated from the general revenues of the Town. Examples include:
- Water Reserve Fun
- Wastewater Reserve Fun
- Building and Facility Reserve Fund
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