A staff report predicts poor investment income outcome for the short to medium term as rates are expected to stay low throughout the remainder of the year.
The report, part of the July 27 council meeting agenda, will be put before council to be received as information.
"The economic recovery remains highly dependent on the evolution of the COVID-19 pandemic," says the report. "The movement in the Bank of Canada’s overnight interest rate is a primary driver in the City’s investment income performance. The Bank of Canada’s overnight interest rate is expected to remain at a low rate of 0.25% until the inflation target is under control, stable, and predictable, which is anticipated to take place in the second half of 2022."
The report says that investment income reduces the amount required from property taxation and user fees to finance city services and it increases the value of reserve funds used to finance future expenditures.
"The amount of investment income earned in 2020 was about $1.6 million in the general or tax-supported fund and approximately $2.3 million in the reserve fund.
Some of the key findings the report highlights is that the value of the city’s reserve funds and general fund investments was $127 million as of Dec. 31, plus cash holdings of $57.8 million.
Further, the report says, the investment balance increased by $8.6 million over 2019. This was because the city invested more of its cash holdings in 2020 compared to 2019 as the Bank of Canada kept its overnight interest rate low throughout 2020. This move increased the need to invest more into products with higher interest rates, compared to the lower interest rates on cash held at the bank.
Overall, notes the staff report, the city's investment income increased year-over-year in 2020 compared to 2019 by $0.1 million. This was largely due to increased carrying value of reserve fund investments offset by the significant decreases in the Bank of Canada’s overnight interest rate in 2020.
A carrying value is a measure of value of an asset or company based on the figures in the company's balance sheet. For physical assets, such as machinery or computer hardware, carrying cost is calculated using original cost plus accumulated depreciation.
The council meeting begins at 5 p.m. and can be viewed via live stream available on the city's YouTube channel.
