Staff Report - Draft 2019 Consolidated Financial Statements

City of Langford

Consolidated Financial Statements
For the fiscal year ending December 31, 2019

Table of Contents (selected)

• Management's Responsibility for the Consolidated Financial Statements
• Independent Auditors' Report
• Consolidated Statement of Financial Position
• Consolidated Statement of Operations
• Consolidated Statement of Change in Net Debt
• Consolidated Statement of Cash Flows
• Notes to Consolidated Financial Statements

---

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.

---

Consolidated Statement of Financial Position

December 31, 2019, with comparative information for 2018

The accompanying notes are an integral part of these consolidated financial statements.

---

Consolidated Statement of Operations

Year ended December 31, 2019, with comparative information for 2018

| Annual surplus | $30,597,292 (Plan) | $31,720,769 (2019) | $43,210,150 (2018) |

| Accumulated surplus, beginning of year | $472,462,818 (Plan) | $472,462,818 (2019) | $429,252,668 (2018) | | Accumulated surplus, end of year | $503,060,110 (Plan) | $504,183,587 (2019) | $472,462,818 (2018) |

The accompanying notes are an integral part of these consolidated financial statements.

---

Consolidated Statement of Changes in Net Debt

Year ended December 31, 2019, with comparative information for 2018

The accompanying notes are an integral part of these consolidated financial statements.

---

Consolidated Statement of Cash Flows

Year ended December 31, 2019, with comparative information for 2018

Supplemental cash flow information:

• Cash paid for interest: $739,169 (2019); $626,079 (2018)
• Cash received from interest: $888,676 (2019); $516,566 (2018)

The accompanying notes are an integral part of these consolidated financial statements.

---

Notes to Consolidated Financial Statements

Year ended December 31, 2019

1. Significant accounting policies

(a) Reporting entity
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.

(b) Basis of accounting
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.

(c) Revenue recognition
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.

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.

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.

(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

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

(iii) 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.

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

(v) 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; and (4) a reasonable estimate of the liability can be made.

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.

(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.

---

2. Cash and cash equivalents

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

---

3. Deferred revenue

Development cost charges reconciliation:

---

4. Debt

Debt from the TD Bank is comprised of an interim financing facility which bears interest at Bankers Acceptance Rate plus stamping fee of 60 basis points. The current rate of interest is 2.15%.

Principal payments on long term debt and budgeted repayments on short‑term debt for the next five years are as follows:

---

5. Tangible capital assets

(a) Assets under construction have a value of $6,417,023 (2018 – $3,621,581) and have not yet been amortized. Amortization of these assets will commence when the asset is put into service.

(b) 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 $19,116,957 (2018 – $26,797,555) comprised of land $12,717,447 (2018 – $19,927,362), land improvements $118,240 (2018 – $21,000), sewer and storm infrastructure $2,525,206 (2018 – $3,035,188) and roads infrastructure $3,756,064 (2018 – $3,814,005).

(c) Works of art and historical treasures are not recorded as tangible capital assets and are not amortized.

(d) No tangible capital assets were written down in 2019 or 2018.

(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.

Tangible capital assets (summarized):

(Complete cost, accumulated amortization and additions/disposals details are included in the financial statements.)

---

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 $2,256,983 (2018 – $4,510,953) 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.

During the 2019 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 $9,241,729 (2018 – $2,098,712).

Summary:

---

7. Accumulated surplus

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

---

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.

---

10. Municipal pension plan

The City and its employees contribute to the Municipal Pension Plan (the "Plan"), a jointly trusteed pension plan. The most recent actuarial valuation as at December 31, 2018 indicated a $2,866 million funding surplus for basic pension benefits on a going concern basis. The next valuation will be as at December 31, 2021 with results available in 2022.

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). The City paid $877,689 (2018 – $775,858) for employer contributions while employees contributed $740,612 (2018 – $673,497) to the Plan in fiscal 2019.

---

11. Commitments and contingencies

(a) Contingent liabilities: 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.

(b) Litigation liability: 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.

(c) Commitments: As at December 31, 2019, the following major contracts were in progress:

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 2020 estimated cost of this contract is $8,036,600.

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.

The City is a shareholder and member of the Capital Region Emergency Service Telecommunications (CREST) Incorporated. 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.

---

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:

In addition to these contractual rights, the City has agreements with other parties that provide payments to the City based on a percentage earned throughout the year.

---

13. Financial plan

The financial plan data presented in these consolidated financial statements is based upon the 2019 operating and capital financial plans approved by Council on May 6, 2019. 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.

---

14. Subsequent Event

Subsequent to December 31, 2019, the COVID‑19 outbreak was declared a pandemic by the World Health Organization. This situation presents uncertainty over the City's future cash flows and may have a significant impact on the City's future operations. Potential impacts on the City's business could include future decreases in revenue, future increases in expenses, impairment of receivables, impairment of investments or reduction in investment income and delays in completing capital project work. As the situation is dynamic and the ultimate duration and magnitude of the impact of the economy are not known, an estimate of the financial effect on the City is not practical at this time.

---

15. Comparative Figures

Certain comparative figures have been reclassified to conform with the financial statement presentation adopted for the current year. The City has adjusted the prior year comparative figures for revenue and expenses to reflect the gross up of contractual revenues and expenses which were previously netted.

---

16. 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. The lands and facilities were transferred in their proportionate share as specified in the Co‑Owners' Agreement. The lands and facilities were reallocated among the members on January 1, 2007 when the Town of View Royal became a member. For 2019, the City's share of improvements purchased by the Society on its behalf is $352,050.

(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 2019 the City's proportion for consolidation purposes was 52.07% (2018 – 50.77%).

Condensed financial information for the Society is as follows:

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 2019, the City of Langford's share is $573,588. Included in this amount is the reallocation of the shares previously owned by the Juan de Fuca Electoral Area.

---

17. 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. 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.

2019 Segmented Information (condensed)

2018 Segmented Information (condensed)

---

[End of extracted pages 97–118]