REPORT - Approval of 2016 Statement of Financial Information (Staff Report - Finance)

2016 CITY OF LANGFORD

Statement of Financial Information
(Pursuant to the Financial Information Act)
City of Langford, British Columbia, Canada

Table of Contents

• Statement of Financial Information Approval — 1
• Schedule of Debts — 2

Unaudited Schedules:

• Schedule of Guarantee and Indemnity Agreements — 3
• Schedule of Grants or Contributions — 3
• Schedule of Employee Remuneration and Expenses — 4
• Schedule of Council Remuneration and Expenses — 5
• Schedule of Payments to Suppliers for Provision of Goods and Services — 6–9

Audited Financial Statements (Includes Financial Reporting Responsibility)

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Statement of Financial Information Approval

The undersigned, as authorized by the Financial Information Regulation, Schedule 1, Subsection 9(2), approves all the statements and schedules included in this Statement of Financial Information, produced under the Financial Information Act.

Steve Ternent
Director of Finance

Matt Sahlstrom
Councillor

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Schedule of Debts

Information on all long term debts for this organization is included in Note 4 to the 2016 Audited Financial Statements.

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Schedule of Guarantee and Indemnity Agreements (Unaudited)

There are no Financial Guarantee and Indemnity Agreements in place which required government approval prior to being given under the Financial Administration Act.

Schedule of Grants or Contributions

The City of Langford does not consider grant-in-aid applications.

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Schedule of Employee Remuneration and Expenses (unaudited)

There was one severance agreement under which payment commenced between The City of Langford and it's non-unionized employee during the fiscal year 2016. Compensation was determined based on salary.

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Schedule of Council Remuneration and Expenses (unaudited)

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Schedule of Payments to Suppliers for Provision of Goods and Services (vendors over $25,000)

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Total of vendor totals over $25,000: 70,876,035.65
Under $25,000: 3,021,017.67
Total: 73,897,053.32

The Schedule of Payments to Suppliers for the Provision of Goods and Services has been prepared on a cash basis and the financial statements have been prepared on an accrual basis, therefore no reconciliation of this schedule with the financial statements has been prepared.

Included in the above payments are collections for other governments, capital and property purchases, refunds of deposits on hand, transfers of funds to other institutions, and transfer of funds to other Municipalities (Casino Revenue Share).

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Consolidated Financial Statements

For the fiscal year ending December 31, 2016
City of Langford, British Columbia, Canada

Officials

Mayor: Stewart Young

Councillors:

• Denise Blackwell
• Matt Sahlstrom
• Lanny Seaton
• Winnie Sifert
• Lillian Szpak
• Roger Wade

Administrator: Jim Bowden, MPA
Treasurer: Steve Ternent
City Engineer: Michelle Mahovlich, M.Eng., P.Geo., P.Eng.
City Planner: Matthew Baldwin, MCIP
Fire Chief: Bob Beckett, MA
Auditors: KPMG
Solicitors: Young Anderson
Bankers: Bank of Montreal
Police: RCMP - West Shore

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Financial Statements (Contents)

• Management's Responsibility for the Consolidated Financial Statements — 1
• Independent Auditors' Report — 2
• Consolidated Statement of Financial Position — 3
• Consolidated Statement of Operations — 4
• Consolidated Statement of Change in Net Debt — 5
• Consolidated Statement of Cash Flows — 6
• Notes to Consolidated Financial Statements — 7

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Management's Responsibility for the Consolidated Financial Statements

The accompanying consolidated financial statements of the City of Langford (the "City") are the responsibility of management and have been prepared in compliance with legislation, and in accordance with Canadian public sector accounting standards for local governments as recommended by the Public Sector Accounting Board of The Chartered Professional Accountants of Canada. A summary of the significant accounting policies are described in note 1 to the consolidated financial statements. The preparation of financial statements necessarily involves the use of estimates based on management's judgment, particularly when transactions affecting the current accounting period cannot be finalized with certainty until future periods.

The City's management maintains a system of internal controls designed to provide reasonable assurance that assets are safeguarded, transactions are properly authorized and recorded in compliance with legislative and regulatory requirements, and reliable financial information is available on a timely basis for preparation of the consolidated financial statements. These systems are monitored and evaluated by management.

The Administration and Finance Committee meets with management and the external auditors to review the consolidated financial statements and discuss any significant financial reporting or internal control matters prior to their approval of the consolidated financial statements.

The consolidated financial statements have been audited by KPMG LLP, independent external auditors appointed by the City. The accompanying Independent Auditors' Report outlines their responsibilities, the scope of their examination and their opinion on the City's consolidated financial statements.

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Independent Auditors' Report

KPMG LLP
St. Andrew's Square II
800-730 View Street
Victoria BC V8W 3Y7
Canada

Telephone 250-480-3500
Fax 250-480-3539

INDEPENDENT AUDITORS' REPORT

To the Mayor and Councilors of The City of Langford

We have audited the accompanying consolidated financial statements of The City of Langford, which comprise the consolidated statement of financial position as at December 31, 2016, the consolidated statements of operations, change in net debt and cash flows for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.

Management's Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Canadian public sector accounting standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors' Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of The City of Langford as at December 31, 2016, and its consolidated results of operations, its consolidated change in net debt and its consolidated cash flows for the year then ended in accordance with Canadian public sector accounting standards.

Chartered Professional Accountants
April 18, 2017
Victoria, Canada

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Consolidated Statement of Financial Position

December 31, 2016, with comparative information for 2015

Commitments and contingencies (note 11)

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Consolidated Statement of Operations

Year ended December 31, 2016, with comparative information for 2015

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Consolidated Statement of Changes in Net Debt

Year ended December 31, 2016, with comparative information for 2015

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Consolidated Statement of Cash Flows

Year ended December 31, 2016, with comparative information for 2015

Supplemental cash flow information:
Cash paid for interest: $494,067 (2016); $629,081 (2015)
Cash received from interest: $303,020 (2016); $332,520 (2015)

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Notes to Consolidated Financial Statements

Year ended December 31, 2016

The City of Langford (the "City") is incorporated and operates under the provisions of the British Columbia Local Government Act and the Community Charter of British Columbia.

1. Significant accounting policies:

The consolidated financial statements of the City are prepared by management in accordance with Canadian public sector accounting standards for local governments as recommended by the Public Sector Accounting Board ("PSAB") of the Chartered Professional Accountants of Canada. Significant accounting policies adopted by the City are as follows:

(a) Reporting entity:
The consolidated financial statements include the assets, liabilities, revenues and expenses of the City. The consolidated financial statements also include the City's proportionate interest in the West Shore Parks and Recreation Society ("West Shore"), an organization jointly controlled by the City. The City does not administer any trust activities on behalf of external parties.

(b) Basis of accounting:
The City follows the accrual method of accounting for revenues and expenses. Revenues are normally recognized in the year in which they are earned and measurable. Expenses are recognized as they are incurred and measurable as a result of receipt of goods or services and/or the creation of a legal obligation to pay.

(c) Revenue recognition:
Government transfers are recognized in the consolidated financial statements as revenues in the period in which events giving rise to the transfer occur, providing the transfers are authorized, any eligibility criteria have been met, and reasonable estimates of the amounts can be made, except when and to the extent the transfer gives rise to an obligation that meets the definition of a liability.
Property tax revenue is recognized on an accrual basis using approved tax rates and the anticipated assessment for the current year. Parcel tax revenues are recognized in the year that they are levied.

(d) Deferred revenue:
Deferred revenue includes grants, contributions and other amounts received from third parties pursuant to legislation, regulation and agreement which may only be used in certain programs, in the completion of specific work, or for the purchase of tangible capital assets. In addition, certain user charges and fees are collected for which the related services have yet to be performed. Revenue is recognized in the period when the related expenses are incurred, services performed, or the tangible capital assets are acquired thereby extinguishing any liability to the City.

Development cost charges are amounts which are restricted by government legislation or agreement with external parties. When qualifying expenditures are incurred, development cost charges are recognized as revenue in amounts which equal the associated expenses.

(e) Refundable deposits:
Receipts restricted by third parties are deferred and reported as refundable deposits under certain circumstances. Refundable deposits are returned when the third party meets their obligations or the deposits are recognized as revenue when qualifying expenditures are incurred.

(f) Investment income:
Investment income is reported as revenue in the period earned. When required by the funding government or related Act, investment income earned on deferred revenue is added to the investment and forms part of the deferred revenue balance.

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(g) Cash equivalents:
Cash equivalents include short-term, highly liquid investments that are cashable on demand or have a term to maturity of 90 days or less at acquisition.

(h) Long-term debt:
Long-term debt is recorded net of related repayments and actuarial earnings.

(i) Non-financial assets:
Non-financial assets are not available to discharge existing liabilities and are held for use in the provision of services. They have useful lives extending beyond the current year and are not intended for sale in the ordinary course of operations.

(i)(i) Tangible capital assets:
Tangible capital assets are recorded at cost which includes amounts that are directly attributable to acquisition, construction, development or betterment of the asset. The cost, less residual value, of the tangible capital assets, excluding land, are amortized on a straight line basis over their estimated useful lives as follows:

• Land improvements: 10–50 years
• Buildings: 25–70 years
• Vehicles, machinery, equipment: 5–25 years
• Sewer and storm infrastructure: 75–100 years
• Road infrastructure: 10–75 years

Non-financial assets are written down when conditions indicate that they no longer contribute to the City's ability to provide goods and services, or when the value of future economic benefits associated with the asset are less than the book value of the asset.

(ii) Contributions of tangible capital assets:
Tangible capital assets received as contributions are recorded at their fair value and are recorded as revenue at the date of receipt.

(iii) Works of art and cultural and historic assets:
Works of art and cultural and historic assets are not recorded as assets in these financial statements.

(iv) Leased tangible capital assets:
Leases which transfer substantially all of the benefits and risks incidental to ownership of property are accounted for as leased tangible capital assets. All other leases are accounted for as operating leases and the related payments are charged to expenses as incurred.

(v) Inventory of supplies:
Inventory of supplies held for consumption is recorded at the lower of cost and replacement cost.

(vi) Contaminated sites:
Contaminated sites are defined as the result of contamination being introduced in air, soil, water or sediment of a chemical, organic, or radioactive material or live organism that exceeds an environmental standard. A liability for remediation of contaminated sites is recognized, net of any expected recoveries, when all of the following criteria are met:

1. an environmental standard exists
2. contamination exceeds the environmental standard
3. the City is directly responsible or accepts responsibility for the liability
4. future economic benefits will be given up, and
5. a reasonable estimate of the liability can be made

(j) Employee benefits:
The City and its employees make contributions to the Municipal Pension Plan. These contributions are expensed as incurred. The costs of a multi-employer defined contribution pension plan, such as the Municipal Pension Plan, are the employer's contributions due to the plan in the period.

(k) Use of estimates:
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the period. Significant estimates include assumptions used in estimating historical cost and useful lives of tangible capital assets, estimating fair value of contributed tangible capital assets and in estimating provisions for accrued liabilities. Actual results could differ from these estimates.

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2. Cash and cash equivalents:

2016 / 2015

• West Shore Parks and Recreation Society: $1,571,268 / $1,569,819
• Cash: $6,813,102 / $6,160,233
• Bank overdraft: - / $(1,169,377)
• Term deposits: $9,999,961 / $10,000,000

Total: $18,384,331 (2016) / $16,560,675 (2015)

The City has an approved operating line of credit of $7,500,000.

3. Deferred revenue:

Deferred revenue, reported on the consolidated statement of financial position, is comprised of the following:

Development cost charges detail:

• Opening balance of unspent funds: 9,288,738 (2016 opening) / 9,579,792 (2015)
• Development cost charges received during the year: 3,717,218 (2016) / 2,979,335 (2015)
• Interest earned: 78,997 (2016) / 85,953 (2015)
• Less amount spent on projects and recorded as revenue: (2,281,856) (2016) / (3,356,342) (2015)
• Closing balance: 10,803,097 (2016)

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4. Debt:

(a) Short-term debt:
Short-term debt is comprised of an interim financing facility through the TD Bank due on demand which bears interest at the Bankers Acceptance Rate plus stamping fee of 75 basis points.

(b) Long-term debt:
Long-term debt consists of the following:

Long-term debt through the MFA is presented net of repayments and actuarial earnings, where the MFA invests the City's repayments so that the repayments, plus investment income, will equal the original outstanding debt amount at the end of the repayment period. Actuarial earnings on debt represent the allocation by the MFA of surplus investment income generated by the principal repayments. As at December 31, 2016, the debt through MFA has been fully repaid.

Long-term debt from the TD Bank consists of five year floating rate term loans maturing from 2017 to 2021, with a current interest rate of 1.93%.

(c) Principal payments on long term debt and budgeted repayments on short-term debt for the next five years are as follows:

• 2017: 1,388,800
• 2018: 1,221,500
• 2019: 535,200
• 2020: 559,500
• 2021: 555,100

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5. Tangible capital assets:

(a) Assets under construction:
Assets under construction have a value of $18,196,375 (2015 - $10,330,582) and have not yet been amortized. Amortization of these assets will commence when the asset is put into service.

(b) Contributed tangible capital assets:
Contributed tangible capital assets have been recognized at fair market value at the date of contribution. The value of contributed capital assets received during the year is $19,827,108 (2015 - $12,230,536) comprised of land $10,256,607 (2015 - $7,271,605), land improvements $130,086 (2015 - $106,375), buildings $NIL (2015 - $NIL), sewer and storm infrastructure $3,453,072 (2015 - $2,113,823) and roads infrastructure $5,987,343 (2015 - $2,738,733).

(c) Works of art and historical treasures:
The City manages and controls various works of art and non-operational historical cultural assets including buildings, artifacts, paintings and sculptures located at City sites and public display areas. These assets are not recorded as tangible capital assets and are not amortized.

(d) Write-down of tangible capital assets:
No tangible capital assets were written down in 2016 or 2015.

(e) West Shore Parks and Recreation Society:
The City's proportionate share of West Shore Parks and Recreation Society assets includes land, buildings, and equipment which are subject to amortization policies consistent with those of the City.

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Note 5 (continued) — Tangible Capital Assets (Cost, Accumulated Amortization, Net Book Value)

*Note: Rows in the original table were presented across columns for cost, accumulated amortization and net book value; the net totals for the category are as reported.

Net book value, end of year: $377,097,407 (2016) vs $344,053,137 (2015)

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6. Sewer franchise agreement:

During 2004, the City entered into a franchise and partnering agreement with West Shore Environmental Services Inc. ("WSES") and Terasen Utility Services Inc. The term of the agreement is 21 years, with a single 21 year renewal. Under the agreement, the City grants an exclusive franchise to WSES to design, construct, finance, own, and operate and maintain sanitary sewers in the City. The City also grants an exemption from municipal property tax for sewer infrastructure and WSES has been granted an Order in Council to extend that exemption to property taxes for all other jurisdictions. Upon termination of the agreement, the sewer infrastructure constructed by WSES will be acquired by the City for a nominal payment.

WSES will recover its capital costs by imposition of a sewer capital recovery fee ("SCRF") on owners of property who wish to connect to the sewer. WSES will also bill and collect all user fees. Fees were frozen for five years ended in 2009. WSES will pay the City franchise fees that are estimated to total $11 million over the 21 year term of the agreement.

The City records the costs of sewer infrastructure constructed by WSES $939,042 (2015 - $905,271) and corresponding remaining cost to be recovered. The remaining cost to be recovered is reduced as SCRF's are collected by WSES.

The cost of WSES sewer infrastructure, less residual value, is amortized on a straight line basis over their estimated useful lives, 60 to 70 years.

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7. Accumulated surplus:

Accumulated surplus consists of individual fund surplus and reserves and reserve funds as follows:

Accumulated surplus (total): $381,819,454 (2016) / $341,516,114 (2015)

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8. Taxation:

Taxation revenue, reported on the consolidated statement of operations, is comprised of the following:

9. Government transfers:

The City recognizes the transfer of government funding as revenue when received and all related eligibility criteria and stipulations have been satisfied.

During the year, the City transferred $3,497,858 of assets under construction to other governments, representing project costs incurred to design, engineer, construct and commission roads infrastructure crossing into other government jurisdictions, based on terms of the agreement between the City and Ministry of Transportation of the Province of BC. The transfer is recorded as an expense in the consolidated statement of operations.

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10. Municipal pension plan:

The City and its employees contribute to the Municipal Pension Plan (the "Plan"), a jointly trusteed pension plan. The board of Trustees, representing plan members and employers, is responsible for overseeing the management of the Plan, including investment of the assets and administration of benefits. The pension plan is a multi-employer defined benefit pension plan. Basic pension benefits provided are based on a formula. The plan has about 189,000 active members and approximately 85,000 retired members. Active members include approximately 37,000 contributors from local government.

The most recent actuarial valuation as at December 31, 2015 indicated a $2,224 million funding surplus for basic pension benefits. The next valuation will be as at December 31, 2018 with results available later in 2019.

Employers participating in the Plan record their pension expense as the amount of employer contributions made during the fiscal year (defined contribution pension plan accounting). This is because the Plan records accrued liabilities and accrued assets for the Plan in aggregate with the result that there is no consistent and reliable basis for allocating the obligation, assets and cost to the individual employers participating in the Plan.

The City paid $625,934 (2015 - $629,637) for employer contributions to the Plan in fiscal 2016.

11. Commitments and contingencies:

(a) Contingent liabilities:
The CRD debt, under provisions of the Local Government Act, is a direct, joint and several liability of the CRD and each member municipality within the CRD, including the City of Langford.

The City is a shareholder and member of the Capital Region Emergency Service Telecommunications (CREST) Incorporated who provides centralized emergency communications, and related public safety information services to municipalities, regional district, the provincial and federal governments and their agencies, and emergency services organizations throughout the Greater Victoria region and the Gulf Islands. Members' obligations to share in funding ongoing operations and any additional costs relating to capital assets are to be contributed pursuant to a Members' Agreement.

(b) Litigation liability:
From time to time, the City is subject to claims and other lawsuits that arise in the ordinary course of business, some of which may seek damages in substantial amounts. Liability for these claims and lawsuits are recorded to the extent that the probability of a loss is likely and it is estimable. It is considered that the potential claims against the City resulting from such litigation will be covered by insurance and therefore will not materially affect the consolidated financial statements of the City.

(c) Commitments:
The City entered into a long-term contract with the Royal Canadian Mounted Police (RCMP) for the provision of police services effective October 1, 1994. Under the terms of this contract, the City is responsible for 90% of policing costs. The 2017 estimated cost of this contract is $6,372,000.

On February 7, 2013, the City entered into a purchase of service agreement with the YMCA/YWCA of Greater Victoria to provide access for Langford residents to an aquatic facility to be built in Langford. The City agreed to pay $750,000 per year to be indexed by population every two years from the opening date to a maximum of $950,000 per year for a period of 25 years.

As at December 31, 2016, the following major contracts were in progress:

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12. Financial plan:

The financial plan data presented in these consolidated financial statements is based upon the 2016 operating and capital financial plans approved by Council on May 2, 2016. Amortization expense was not contemplated on development of the financial plan and, as such, has not been included. The chart below reconciles the approved financial plan to figures reported in these consolidated financial statements.

Financial plan amount (summary):

• Revenues:

  • Operating: 37,593,700
  • Capital: 47,713,200
  • West Shore Parks & Rec Society: 3,163,121
  • Less: Transfers from own funds, Proceeds on debt issue: 8,184,200 / 7,320,100
  • Total revenue: 72,965,721

• Expenses:

  • Operating: 37,593,700
  • Capital: 47,713,200
  • West Shore Parks & Rec Society: 3,163,121
  • Less: Capital expenditures: 47,713,200
  • Transfer to own funds: 1,886,000
  • Debt principal payments: 2,399,100
  • Total expenses: 36,471,721

Annual surplus: 36,494,000

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13. West Shore Parks and Recreation Society:

(a) Capital asset transfer:
The Capital Regional District (the "CRD") transferred the lands and facilities comprising the Juan de Fuca Recreation Centre to the following municipal members (the "Municipalities") effective January 2, 2002; City of Langford, City of Colwood, District of Highlands, District of Metchosin and the CRD (on behalf of a portion of the Juan de Fuca Electoral Area). Effective January 1, 2007 the Town of View Royal became a member of the Society.

In 2002 the lands and facilities were transferred to the Municipalities in their proportionate share, as specified in the Co-Owners' Agreement. The lands and facilities were reallocated amongst the members on January 1, 2007 when the Town of View Royal became a member. Future improvements are allocated among the members as per the cost sharing formula in effect each year for each service or facility, as outlined in a Members' Agreement. For 2016, the City's share of improvements purchased by the Society on its behalf is $NIL.

Because the cost sharing formula in the Members' Agreement produces different cost shares for the members from year-to-year, there is a gain or loss on the opening fund balances. In 2016, the City recorded a gain of $275,402.

The Municipalities have each become members in the Society, which was incorporated to provide parks, recreation and community services to the Municipalities under contract. Under terms of an Operating, Maintenance and Management Agreement, the Society is responsible to equip, maintain, manage and operate the facilities located at the recreation centre.

(b) Consolidation:
Financial results and budget for the Society are consolidated into the City's financial statements proportionately, based on the cost sharing formula outlined in the Members' Agreement. In 2016 the City's proportion for consolidation purposes was 50.55% (2015 - 49.96%).

Condensed financial information for the Society is as follows:

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14. Segmented information:

The City is a diversified municipal government institution that provides a wide range of services to its citizens, including General Government Services, Protective Services, Engineering and Public Works Services, Community Services and Utility and Enterprise Services. Service Areas were created for the purpose of recording specific activities to attain certain objectives in accordance with regulations, restrictions or limitations.

City services are provided by departments and their activities are reported in these Service Areas. Departments disclosed in the Segmented Information, along with the services they provide are as follows:

• General Government Services: adopting bylaws; adopting administrative policy; levying taxes; acquiring, disposing and managing City assets; ensuring effective financial management; monitoring performance and ensuring that high quality City services standards are met.
• Protective Services: Police and Bylaw Enforcement; Fire Protection and Emergency Response; Building Inspection.
• Engineering and Public Works: transportation services within the City (roads, storm drains, sidewalks, street lighting).
• Community Services: Environmental and Development Services; Recreation and Cultural Services.
• Utility and Enterprise Services: administering the Sewer Franchise Agreement (note 6).

The accounting policies used in these segments are consistent with those followed in the preparation of the financial statements as disclosed in Note 1. The following table provides additional financial information for the foregoing segments. Taxation and grants in lieu of taxes are apportioned to the functions based on their share of the net budgeted expenditures in the Financial Plan.

2016 Segmented Information (continued)

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2015 Segmented Information (continued)

(Comparative segmented information for 2015 is included in the statements and reflects a similar format of revenue and expense allocation by segment. See the consolidated statements above for the 2015 totals.)

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End of pages 144–177.