Financial Plan

Part 6 Division 1 of the Community Charter and Part 24 Division 5 of the Local Government Act require municipalities and regional districts to prepare a financial plan annually.
 

What is Required

The financial plan must be adopted annually by bylaw and it must cover a minimum of a five year period; year one relates to the year in which it comes into force, years two through five are the following four years. Each year, the financial plan from the previous year remains in place until the financial plan for the current year is adopted.
 

Required Content
 

Municipalities Only
Section 165(3.1) of the Community Charter requires municipal five-year financial plans to include a more explicit form of revenue and tax policy disclosure. The financial plan must set out the municipality’s objectives and policies in relation to each of the following, for each year of the planning period:

• for each of the funding sources described in s. 165(7), the proportion of total revenue that is proposed to come from that funding source;
• the distribution of property value taxes among the property classes that may be subject to the taxes; and
• the use of permissive tax exemptions.

Municipalities and Regional Districts

1. Proposed Expenditures
   The following must be set out separately in the financial plan:
   • the amount required to pay interest and the amount required to pay principal on debt;
   • the amount required for capital purposes;
   • the amount required to cover a prior year deficiency; and
   • amounts required for other purposes (all expenditures that do not fall into one of the prescribed categories).
2. Proposed Revenue Sources
   The financial plan must include separate amounts for each of the following:
   • revenue from property value taxes;
   • revenue from parcel taxes (to include all revenue raised from a parcel tax and revenue from frontage taxes raised under an existing bylaw that has been carried forward under the Community Charter transitional provisions);
   • revenue from fees and charges (to include all revenue from all fees and charges);
   • proceeds from borrowing (all borrowing sources should be included, other than revenue anticipation borrowing under the Community Charter s. 177 or the Local Government Act s. 821); and
   • revenue from other sources (all proposed revenue that does not fall into one of the other prescribed categories).
3. Proposed Transfers Between Funds
   The proposed transfers between funds must set out separate amounts for:
   • the amount to be transferred to and from each reserve fund under Division 4 of Part 6 of the Community Charter (sections 188-189); and
   • the aggregate amount to be transferred to and from accumulated surplus. Reserve accounts are considered as part of accumulated surplus.

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Expenditures Must Not Exceed Revenues
The financial plan must not plan for a "deficit". For each year of the plan, the total of proposed expenditures and transfers to other funds must not exceed proposed funding sources plus transfers from other funds [Community Charter s. 165(5) and Local Government Act s. 815(5)].
 

If actual expenditures and transfers to reserves exceed actual revenues and transfers from other funds in any one year, the resulting deficiency must be included as an expenditure in the financial plan for the next year [Community Charter s. 165(9) and Local Government Act s. 815(11)].
 

Lawful Expenditure Authority
The financial plan provides the expenditure authority for the local government. Expenditures may not be incurred unless they are provided for in the financial plan for the current year.
 

Emergencies
The only exception to the rule that expenditures may only be made if they are in the financial plan is when expenditures are required to deal with an "emergency" situation. In this case, expenditures should be made as demanded by the situation. The financial plan must then be amended as soon as possible afterwards to reflect the expenditures and funding sources for the expenditures.
 

The Act does not define what constitutes an "emergency". Local governments are required to establish procedures to authorize expenditures to deal with emergencies and for the reporting of such expenditures. Such procedures should be developed and put in place should any "emergency" arise.
 

Public Consultation
Prior to the adoption of the proposed financial plan or amendment of the financial plan, the local government must undertake a process of public consultation.
 

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When to Consider

The financial plan must be adopted annually by bylaw. Municipalities may adopt the financial plan bylaw at any time before the date on which the annual property tax bylaw is adopted (the annual property tax bylaw must be adopted after the adoption of the financial plan but before May 15). Regional Districts must adopt their financial plan bylaw by March 31.
 

The financial plan can be amended by bylaw at any time [Community Charter s. 165(2) and Local Government Act s. 815(2)].
 

What to Consider

Revenue and Tax Policy Disclosure Requiremnents
The Community Charter’s revenue and tax policy disclosure requirements are intended to further enhance municipal accountability to the public and assist municipalities in making more considered and meaningful decisions regarding their revenue and tax policies.
 

When developing objectives and policies municipalities may wish to consider any existing revenue and tax policies the municipality already has in place (by, for example, reviewing bylaws, formal policy documents or past meeting minutes, or through discussions with their councils). Municipalities may also focus on assessing their current situation (such as, for example, in relation to the distribution of property taxes among property classes), by asking themselves questions like:

• what choices have led us to the current state (e.g. the current distribution of property tax rates)?
• why have these choices been made?
• what impact are our current choices having?
• are we happy with the current situation?
• is our current situation acceptable or sustainable, or does it require change?
• how do we want to change?
• what will this change look like?

Municipalities can then develop a long-term vision for their revenue and tax policies that describes where they are headed and why, and how they are going to get there (i.e. details on the objectives, policies and actions that will be necessary to achieve the municipality’s long-term vision). [For more information on financial plan revenue and tax policy disclosure requirements, see Circular No.07:14].
 

Annual Property Tax Rate Bylaw
Before adopting their annual property tax rate bylaws, all municipalities must, under s. 197(3.1) of the Community Charter, consider their proposed tax rates for each property class in conjunction with the objectives and policies as set out in the financial plans under s. 165(3.1)(b) [the distribution of property taxes among property classes] of the Community Charter.
 

Public Consultation
Section 166 of the Community Charter and section 816 of the Local Government Act, require the local government to undertake a process of public consultation regarding a proposed financial plan before it is adopted. The legislation does not specify the format of the public consultation process and it may be varied at the local government's discretion to suit the local community. Public consultation could include such methods as town hall meetings, surveys, focus groups, open houses, use of web sites and newspaper ads.
 

It is intended that backup documentation also be prepared to give as much detailed information as needed to the council or to the board and to the local government’s staff. This documentation would not form part of the bylaw, but it could be used to provide information to taxpayers and members of the public or as part of the financial plan consultation process.
 

Development Cost Charges
If a local government imposes development cost charges (DCC’s) pursuant to the Local Government Act s. 933, capital costs attributable to projects to be partially funded by DCC’s must be included in the financial plan [Local Government Act s. 937(2)]. If the time frame for the DCC capital program exceeds five years, the time frame for the capital expenditures in the financial plan must be extended to match the time frame of the DCC program.
 

Please contact the financial analyst responsible for your area if you have questions or comments.