Staff Report (Finance): Approval of 2018 Statement of Financial Information (SOFI)

CITY OF LANGFORD

Statement of Financial Information
(Pursuant to the Financial Information Act)
City of Langford, British Columbia, Canada
2018

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Table of Contents

• Statement of Financial Information Approval
• Schedule of Debts
• Unaudited Schedules
  • Schedule of Guarantee and Indemnity Agreements
  • Schedule of Grants or Contributions
  • Schedule of Employee Remuneration and Expenses
  • Schedule of Council Remuneration and Expenses
  • Schedule of Payments to Suppliers for Provision of Goods and Services
• 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.

• Michael Dillabaugh, CPA, CA — 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 2017 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.

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

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Schedule of Employee Remuneration and Expenses (unaudited)

*indicates vacation payout

There were two severance agreements under which payment commenced between The City of Langford and it's non-unionized employees during the fiscal year 2018. 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

Total of vendor totals over $25,000: 78,388,111.11
Under $25,000: 2,659,902.68
Total: 81,048,013.79

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, 2018

City of Langford, British Columbia, Canada

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City of Langford — Key Officials & Contacts

• Mayor: Stewart Young
• Councillors: Denise Blackwell; Matt Sahlstrom; Lanny Seaton; Norma Stewart; Lillian Szpak; Roger Wade
• Chief Administrative Officer: Darren Kiedyk, CPA, CGA
• Director of Finance: Michael Dillabaugh, CPA, CA
• City Engineer: Michelle Mahovlich, M.Eng., P.Geo., P.Eng.
• City Planner: Matthew Baldwin, MCIP, RPP
• Fire Chief: Christopher Aubrey
• Auditors: KPMG
• Solicitors: Young Anderson
• Bankers: Bank of Montreal
• Police: RCMP - West Shore

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Financial Statements Table of Contents

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

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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 (summary)

• Auditor: KPMG LLP, Victoria, Canada
• Report Date: May 6, 2019

Opinion: In KPMG's opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the City as at December 31, 2018 and its consolidated results of operations, its changes in net financial debt and its consolidated cash flows for the year then ended in accordance with Canadian public sector accounting standards.

(See full Independent Auditors' Report in original PDF for complete auditor responsibilities and details.)

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Consolidated Statement of Financial Position

December 31, 2018, with comparative information for 2017

Commitments, contingencies and contractual rights: (note 11 and 12)

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Consolidated Statement of Operations

Year ended December 31, 2018, with comparative information for 2017

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Consolidated Statement of Changes in Net Debt

Year ended December 31, 2018, with comparative information for 2017

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Consolidated Statement of Cash Flows

Year ended December 31, 2018, with comparative information for 2017

Supplemental cash flow information:

• Cash paid for interest: 626,079 (2018) | 505,352 (2017)
• Cash received from interest: 516,566 (2018) | 385,210 (2017)

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Notes to Consolidated Financial Statements

Year ended December 31, 2018

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.

(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

The City has an approved operating line of credit of $10,500,000.

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3. Deferred revenue

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

Development cost charges detail:

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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 60 basis points.

(b) Long-term debt: Long-term debt from the TD Bank consists of five year floating rate term loans maturing from 2019 to 2022, with a current interest rate of 2.43%.

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

• 2019: $529,600
• 2020: $535,100
• 2021: $559,600
• 2022: $555,100
• 2023: $552,900

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5. Tangible capital assets

(a) Assets under construction: Assets under construction have a value of $3,621,581 (2017 - $23,750,061) 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 $26,797,555 (2017 - $24,949,117) comprised of land $19,927,362 (2017 - $15,450,982), land improvements $21,000 (2017 - $N/A), sewer and storm infrastructure $3,035,188 (2017 - $3,695,381) and roads infrastructure $3,814,005 (2017 - $5,802,754).

(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 2018 or 2017.

(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.

Detailed Tangible Capital Assets table (Cost, Accumulated Amortization, Net book value) is provided in the financial statements including breakdown for Land, Land Improvements, Buildings, Vehicles, Machinery & Equipment, Sewer and Storm Infrastructure, Roads Infrastructure, Assets Under Construction, West Shore Parks & Recreation Society. (See full table in statements.)

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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. 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 $4,510,953 (2017 - $833,452) and corresponding remaining cost to be recovered. The remaining cost to be recovered is reduced as SCRF's are collected by WSES.

During the 2018 year, the remaining costs to be recovered were in excess of the amount owing. In accordance with the agreement, the City has recorded an agency fee of the excess in the amount of $2,098,712.

(Opening, increase, decrease, and closing cost table provided in full statements.)

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7. Accumulated surplus

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

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8. Taxation

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

Less taxes levied for other authorities (detailed list included), resulting in taxation net of other authorities:

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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 $7,286,366 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 197,000 active members and approximately 95,000 retired members. Active members include approximately 39,000 contributors from local government.

Every three years, an actuarial valuation is performed to assess the financial position of the plan and adequacy of plan funding. The actuary determines an appropriate combined employer and member contribution rate to fund the plan. The actuary's calculated contribution rate is based on the entry-age normal cost method, which produces the long-term rate of member and employer contributions sufficient to provide benefits for average future entrants to the plan. This rate may be adjusted for the amortization of any actuarial funding surplus and will be adjusted for the amortization of any unfunded actuarial liability.

The most recent actuarial valuation as at December 31, 2015 indicated a $2,224 million funding surplus for basic pension benefits on a going concern basis. As a result of the 2015 basic account actuarial valuation surplus and pursuant to the joint trustee agreement, $1,927 million was transferred to the rate stabilization account and $297 million of the surplus ensured the required contribution rates remained unchanged. 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 $775,858 (2017 - $696,187) for employer contributions while employees contributed $673,497 (2017 - $609,185) to the Plan in fiscal 2018.

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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 2019 estimated cost of this contract is $7,496,600.
• 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, 2018, the following major contracts were in progress:

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12. Contractual rights

The City has entered into various contracts for rental revenue within the normal course of operations. The estimated contractual rights under these contracts for the years ending December 31 are as follows:

• 2019: $766,525
• 2020: $750,000
• 2021: $760,000
• 2022: $775,000
• 2023: $780,000

Total estimated contractual rights: $3,831,525

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13. Financial plan

The financial plan data presented in these consolidated financial statements is based upon the 2018 operating and capital financial plans approved by Council on May 7, 2018. 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 — Revenues:

• Operating: 44,926,748
• Capital: 38,215,150
• West Shore Parks & Rec Society: 3,022,311
  Less:
• Transfers from own funds; Proceeds on debt issue: 9,274,685

Total revenue: 76,889,524

Expenses:

• Operating: 44,926,748
• Capital: 38,215,150
• West Shore Parks & Rec Society: 3,022,311
  Less:
• Capital expenditures: 38,215,150
• Transfer to own funds: 4,447,000
• Debt principal payments: 2,157,900

Total expenses: 41,344,159

Annual surplus: 35,545,365

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14. 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 municipal members 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. Effective January 1, 2018, the CRD is no longer a member of the Society.

Lands and facilities were transferred in proportionate share as specified in the Co-Owners' Agreement. Reallocation occurred on January 1, 2007 when the Town of View Royal became a member. For 2018, the City's share of improvements purchased by the Society on its behalf is $44,299.

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 2018, the City of Langford's share is $97,446.

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 2018 the City's proportion for consolidation purposes was 50.77% (2017 - 50.55%).

Condensed financial information for the Society is as follows:

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15. Segmented information

The City provides services in the following segments: General Government Services; Protective Services; Engineering and Public Works; Community Services; Utility and Enterprise Services. The accounting policies used in these segments are consistent with those followed in the preparation of the financial statements as disclosed in Note 1.

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.

Detailed segmented revenue and expense information for 2018 and 2017 is provided in the statements. Summary 2018 segmented results:

(See the full segmented tables in the consolidated financial statements for detailed line items.)

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