Staff Report: 2022 Consolidated Financial Statements

City of Langford — Consolidated Financial Statements

For the fiscal year ending December 31, 2022

Officials and Contacts

• Mayor: Scott Goodmanson
• Councillors: Kimberley Guiry; Colby Harder; Mark Morley; Lillian Szpak; Mary Wagner; Keith Yacucha
• 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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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 2 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.

City of Langford Council 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 Auditor's Report outlines their responsibilities, the scope of their examination and their opinion on the City’s consolidated financial statements.

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Consolidated Statement of Financial Position

December 31, 2022, with comparative information for 2021

Commitments, contingencies and contractual rights (note 11 and 12)
Subsequent event (note 16)

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Consolidated Statement of Operations

Year ended December 31, 2022, with comparative information for 2021

Expenses (summary by function):

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Consolidated Statement of Changes in Net Financial Assets

Year ended December 31, 2022, with comparative information for 2021

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Consolidated Statement of Cash Flows

Year ended December 31, 2022, with comparative information for 2021

Supplemental cash flow information:

• Cash paid for interest: $452,070 (2021 - $229,896)
• Cash received from interest: $1,518,970 (2021 - $459,577)

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Notes to Consolidated Financial Statements

Year ended December 31, 2022

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 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.

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.

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:

(c) Revenue recognition: (see above)

(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.

(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: 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
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.

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.

(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. 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 and undrawn operating line of credit of $10,500,000.

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3. Deferred revenue

Development cost charges reconciliation:

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4. Debt

(a) Debt: (principal payments for the next five years and thereafter)

Interest expense on debt during the year was $452,070 (2021 - $229,826).

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 5.15%.

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5. Tangible capital assets

(a) Assets under construction have a value of $13,004,317 (2021 - $10,090,636) and have not yet been amortized. Amortization will commence when the asset is put into service.

(b) Contributed tangible capital assets: The value of contributed capital assets received during the year is $20,694,131 (2021 - $35,560,283) comprised of:

• land $10,529,309 (2021 - $25,083,926)
• land improvements $nil (2021 - $495,814)
• vehicles, machinery, equipment $nil (2021 - $nil)
• sewer and storm infrastructure $4,496,782 (2021 - $3,804,536)
• roads infrastructure $5,668,040 (2021 - $6,176,007)

(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 2022 or 2021.

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

Tangible capital assets — cost, accumulated amortization and net book value (2022 vs 2021)

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6. Sewer franchise agreement

Remaining cost to be recovered:

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 $2,985,435 (2021 - $4,477,152) 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 2022 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 $5,858,523 (2021 - $4,655,362).

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7. Accumulated surplus

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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:

Net taxation revenue recognized by the City:

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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.

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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 Plan is a multi-employer defined benefit pension plan. 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) because the Plan records accrued liabilities and accrued assets in aggregate and there is no consistent and reliable basis for allocating the obligation, assets and cost to individual employers.

The most recent actuarial valuation as at December 31, 2021 indicated a $3,761 million funding surplus for basic pension benefits on a going concern basis. The next valuation will be as December 31, 2024 with results available in 2025.

The City paid $1,066,448 (2021 - $1,043,259) for employer contributions while employees contributed $929,789 (2021 - $870,767) to the Plan in fiscal 2022.

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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. 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: (see above)

(c) Commitments: The City has commitments under various operating and capital contracts. Major contract amounts in progress as at December 31, 2022:

Other commitments and contractual obligations disclosed include:

• The CRD debt 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 CREST Incorporated; members' obligations to share in funding ongoing operations and capital assets are pursuant to a Members' Agreement.
• 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 2023 estimated cost of this contract is $11,500,000.
• 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. In 2023, the City agreed to increase this amount by an additional $950,000.
• In 2022, the City entered into agreements for various property purchases. The estimated commitment as of December 31, 2022 is $5,348,405. Subsequent to December 31, 2022, the City has entered into agreements for property purchases and other capital projects with an estimated commitment of $1,950,325.

Operating contracts include a cost of living factor for subsequent years. These have not been included in the total amount of the contract as the cost of living factor for subsequent years is currently not determinable.

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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:

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.

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13. Financial plan

The financial plan data presented in these consolidated financial statements is based upon the 2022 operating and capital financial plans approved by Council on May 2, 2022. 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.

Revenues:

Expenses:

Annual surplus (Financial Plan): $38,550,909

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14. West Shore Parks and Recreation Society

(a) Capital asset transfer: The Capital Regional District transferred the lands and facilities comprising the Juan de Fuca Recreation Centre to municipal members effective January 2, 2002. The assets were allocated among members per the Co-Owners' Agreement. The City’s share of improvements purchased by the Society on its behalf in 2022 is $336,084.

(b) Consolidation: Financial results and budget for the Society are consolidated into the City's financial statements proportionately, based on the cost sharing formula. In 2022 the City's proportion for consolidation purposes was 53.76% (2021 - 53.66%).

Condensed financial information for the Society (total amounts):

Breakdown of accumulated surplus:

Condensed statement of operations (Society):

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15. Segmented information

The City is organized into the following service areas for reporting purposes: General Government Services; Protective Services; Engineering and Public Works; Community Services; Utility and Enterprise Services. Accounting policies used in the segments are consistent with those followed in the preparation of the financial statements. 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.

2022 Segmented Revenue and Expenses

Revenue by segment (2022):

Expenses by segment (2022):

| Annual surplus (by segment) | $18,559,056 | $1,958,402 | $12,464,535 | $9,451,795 | $6,644,820 | $49,078,608 |

2021 Segmented Revenue and Expenses

Revenue by segment (2021):

Expenses by segment (2021):

| Annual surplus (by segment) | $15,700,578 | $979,303 | $19,970,340 | $18,808,802 | $7,499,715 | $62,958,738 |

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16. Subsequent Event

Subsequent to December 31, 2022, the City of Langford has received funds from the Province of BC under the Growing Communities Fund (GCF) in the amount of $16,464,000.

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17. Safe Restart Grant Schedule (Unaudited)

The City of Langford received $4,878,000 under the COVID-19 Safe Restart Grant for Local Governments in 2020.

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