Hamilton Future Fund - Governance Review and Reserve Strategy
The Hamilton Future Fund (HFF) was established in 2002 when the proceeds of $137 M from the creation of Hamilton Hydro Inc. were received by the City of Hamilton. The mission of the HFF is to create a permanent legacy for current and future generations of Hamiltonians to enjoy economic prosperity and improved quality of life.
Two reserves were created with the funds: Fund A and Fund B.
Fund A
Fund A of $100 M was to be invested and protected for a five-year period from inception to provide investment income as a permanent source of funding. After the five-year initial investment period and growth of the HFF, the funds could be used for capital projects.
Fund A investments, however, were not protected during the first five-year period, as was required when the fund was established. Some of the funds were used during the first five years to reduce taxes and as an internal source of borrowing for City capital projects. The loans to the City were promissory notes to be repaid to the HFF with interest. These loans were an alternative to taking on external debt to finance capital projects and the principal and interest is repaid annually.
Significant uses of Fund A since inception include:
- Reduction of property taxes through the transfer of $13.8 M in investment interest
- Loans to the City of Hamilton for approximately $98 M to fund various capital projects;
- Grants for the Poverty Reduction Investment Strategy for construction of affordable rental housing for a total of $20 M;
- Grants for $55.2 M in 2009 for capital projects related to the 2015 Pan-Am Games; and
- Loans to external organizations for capital projects for the McMaster Health Campus ($10 M), Good Shepherd Centre ($5 M) and Bob Kemp Hospice (forgivable loan for $1.5 M).
Loans provided to the City from the HFF are being repaid and the intent is to replenish the fund to its original amount. As at December 31, 2022, the reserve balance in fund A is $61.9 M.
Fund B
Fund B of $37 M was to be used to provide funding for various capital projects both within City programs and for external organizations. The funds are grants which are awarded as part of an application process.
Fund B grants were awarded, for example, for the capital improvement or construction of sports facilities, for the purchase of orthopaedic robotics surgery equipment and for the construction of a common area in a residential hospice.
As at December 31, 2022, the reserve balance in fund B is $1.9 M.
Board of Governors
A Board of Governors was established to provide oversight of the HFF. The Board is currently composed of the Mayor, four City Councillors and 13 citizen members. The Board of Governors reports to the General Issues Committee (GIC) and makes recommendations regarding the use of the HFF reserves.
In 2021, the Office of the City Auditor (OCA) reviewed the HFF’s fund governance and oversight including the processes to manage grants and loans, and the adequacy of performance measures and presented 10 recommendations to strengthen the fund’s governance, including:
- Development of a strategic plan for the use of funds, which incorporates public consultation;
- Formalization of the roles of City employees to support the HFF, including a fund administrator;
- Improvements in the processes for grant awards; and
- Monitoring of performance measures for projects receiving funding.
In June of 2022, Council directed staff to develop and execute public engagement and consultation on the fund’s governance and reserve strategy. In September of 2022, the Board of Governors reviewed the public engagement framework presented by staff and expressed that Board of Governors supports the 2002 Council approved principle that Fund A serve as a self-sustaining Fund, satisfying the principle of permanence, with a target balance of $100 million.