Notes to the Consolidated Financial Statements

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YORK REGION>About Us>Annual Reports>2002

December 31, 2002

The Corporation of the Regional Municipality of York (the “Region”) was incorporated as a municipality in 1971 by the Province of Ontario. The area municipalities within the regional boundaries include the towns of Aurora, East Gwillimbury, Georgina, Markham, Newmarket, Richmond Hill, Whitchurch-Stouffville, the Township of King and the City of Vaughan.

1. Accounting Policies

The consolidated financial statements of the Regional Municipality of York are the representations of management prepared in accordance with generally accepted accounting principles for local governments established by the Public Sector Accounting Board (PSAB) of the Canadian Institute of Chartered Accountants.
The focus of PSAB financial statements is on the financial position of the Region and the changes thereto. The Consolidated Statement of Financial Position reports the financial assets and liabilities, and the non financial assets and liabilities of the Municipality. Financial assets are those assets which could provide resources to discharge existing liabilities or finance future operations. Municipal position represents the financial position and is the difference between assets and liabilities. This provides information about the Municipality’s overall future revenue requirements and its ability to finance activities and meet its obligations.

a) Basis of Consolidation

These consolidated financial statements reflect the assets, liabilities, sources of financing and expenditures in the Current Fund, Capital Fund, Reserves and Reserve Funds, and include the activities of all committees of Council, the York Region Police Services Board, York Regional Housing Corporation, and Region of York Housing Corporation.
The 2001 comparative figures have been reclassified to conform to current presentation.

ii)

The financial activities of the sinking fund are not included in these statements.

iii)

Funds held in trust by the Region for the residents of Newmarket Health Centre and Maple Health Centre and their related operations are not included in the financial statements. The financial activity and position of the trust funds and donations received on behalf of the Centres are reported separately in the Residents’ Trust Funds and Donation Account Statement of Financial Position, and Statement of Financial Activities.

b) Basis of Accounting

Accrual Basis of Accounting
Sources of financing and expenditures are reported on the accrual basis of accounting. The accrual basis of accounting recognizes revenues as they become available and measurable; expenditures are recognized as they are incurred and measurable as a result of receipt of goods or services and the creation of a legal obligation to pay.

ii)

Capital Assets
The historical cost and accumulated depreciation for capital assets are not recorded for municipal purposes. Capital assets are reported as an expenditure on the Consolidated Statement of Financial Activities in the year of acquisition.

iii)

Use of Estimates
Since precise determination of many assets and liabilities is dependent upon future events, the preparation of periodic financial statements necessarily involves the use of estimates and approximations.

iv)

Deferred Revenue-Obligatory Reserve Funds
Development Charges, collected under the authority of Sections 33 to 35 of the Development Charges Act 1997, are reported as Deferred Revenue in the Consolidated Statement of Financial Position in accordance with the standards of the Public Sector Accounting Board (PSAB). Amounts applied to qualifying capital projects are recorded as revenues in the fiscal period in the funds are expended on qualifying capital projects.

Reserves and Reserve Funds
Certain amounts, as approved by Regional Council, are set aside in reserves and reserve funds for future operating and capital purposes. Transfer to and/or from reserves and reserve funds are an adjustment to the respective fund when approved.

vi)

Government Transfers
Government transfers are recognized in the period in which the 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.

vii)

Investments
Investment income earned on surplus current fund, capital fund, reserves and reserve funds (other than development charges) are reported as revenue in the period earned. Investment income on the development charge reserve funds is added to the fund balance and form part of the respective deferred revenue balances.
Investments are carried at lessor of cost and market value. Any discount or premium is amortized over the remaining term of the investments.

viii)

Pensions and Employee Benefits
The Region accounts for its participation in the Ontario Municipal Employee Retirement Fund (OMERS), a multi-employer public sector pension fund, as a defined contribution plan. Vacation entitlements are accrued for as entitlements are earned. Sick leave benefits are accrued where they are vested and subject to pay out when an employee leaves the Region’s employ.
Other post-employment benefits are accrued in accordance with the projected benefit method prorated on service and management’s best estimate of salary escalation and retirement ages of employees. The discount rate used to determine the accrued benefit obligation was determined by reference to market interest rates at the measurement date on high-quality debt instruments with cash flows that match the timing and amount of expected benefit payments.

ix)

Budget Figures
The Regional Municipality of York Council completes a review of its operating and capital budgets each year. The approved operating budget for 2002 is reflected on the Consolidated Schedule of Current Fund Operations and is included in the budget figures presented in the Consolidated Statement of Financial Activities. The budget as approved by Regional Council includes those expenditures which are part of current tax levies and user charges. Figures are restated to include accruals for amounts accounted for in these financial statements subject to future funding.
Budgets established for the Capital Fund and Reserves and Reserve Funds are set on a project-oriented basis, spending of which may be carried out over one or more fiscal years. The budgets reflected in the Consolidated Schedule of Capital Fund Operations and the Consolidated Schedule of Reserves and Reserve Funds and included in the Consolidated Statement of Financial Activities is an annual budget only as required by the recommendations of the Public Sector Accounting Board of the Canadian Institute of Chartered Accountants.

2. Restatement

a) During the year, the Region adopted the accounting recommendations of CICA PS3250 Retirement Benefits and CICA PS3255 Post-employment Benefits, Compensated Absences and Termination Benefits. This change was adopted retroactively. As a result, the following represents the restatement adjustment recorded by the Region:

Statement of Financial Position:		2001
Decrease in Employee benefit obligations		$8,119,653
Statement of Financial Activities:		2001
Increase in General Government expenditures		$547,555

b) During the year, it was determined that balances shown in the 2001 financial statements as an obligation to fund debentures issued by the Ontario Housing Corporation were obligations that were not transferred at the time the housing stock was transferred by the Ontario Housing Corporation to the York Regional Housing Corporation. Accordingly, the amounts reflect a restatement to eliminate the assumption of this obligation. The effect of this restatement is as follows:

Statement of Financial Position:		2001
Decrease in net long-term liabilities at the end of the year		$10,751,489
Statement of Financial Activities:		2001
Decrease in expenditure-Social Housing		$730,767
Decrease in Social Housing Stock Acquired		$10,999,684

3. Investments

Included in cash and cash equivalents are short-term investments of $788,322,799 (2001 - $650,585,794) with a market value of $789,447,786, (2001 - $671,352,105).
Long-term investments of $28,892,991 (2001 - $67,112,631) have a market value of $29,592,858 (2001 - $69,774,557).
Under legislation, $387,740,010 ($2001 - $342,685,157), is comprised of both cash and cash equivalents and investments, is restricted as it is required to fund obligatory reserve funds.

4. Accounts Receivable

This amount is comprised of the following receivables:

	2002	2001
	$	$
Government of Canada	4,163,821	3,368,773
Government of Ontario	410,548	2,777,354
Other Municipalities	42,916,907	40,111,940
Others	26,065,779	32,360,526

	73,557,055	78,618,593
Less: Allowance for Doubtful Accounts	1,887,323	459,774

	71,669,732	78,158,819

5. Long-Term Liabilities

a) The balance for long-term liabilities reported on the Consolidated Statement of Financial Position is made up of the following items. Interest rates for the debts range from 3% to 12%.

	2002	2001
	$	$
Total long-term liabilities incurred by the Municipality including those incurred on behalf of school boards and area municipalities and outstanding at the end of the year amount	339,668,442	335,178,980
to
Mortgages payable by Region of York Housing Corporation	88,396,479	90,022,886

	428,064,921	425,201,866
Retirement and sinking fund debenture	1,099,449	9,788,580
Less:
Recoverable from area municipalities	22,295,169	21,611,570
Recoverable from school boards	52,528,610	63,900,234

Net Long-term Liabilities at the end of the year	354,340,591	349,478,642

b) Long-term liabilities are repayable as follows:

2003		$34,085,903
2004		25,993,585
2005		36,166,440
2006		24,814,216
2007		31,476,874
Thereafter		200,704,124
Net sinking fund debt repayable according to actuarial recommendations		1,099,449

		$354,340,591

c) Charges for Net Long-term Liabilities
Total interest charges for the year for net long-term liabilities which are included in the Consolidated Statement of Financial Activities were $21,768,972 (2001 - $18,329,659).

6. Municipal Position – Capital Fund

Approval of Council has been obtained for the pending issues of long-term liabilities and for those commitments to be financed from revenues beyond the term of Council.

7. Amounts to be Recovered

Amounts to be recovered represent liabilities established for accrual accounting purposes. In some cases, reserves have been established to fund these amounts. In other cases, the liabilities are to be funded from future years’ budgetary allocations. Net increase in amounts to be recovered is $28,403,419, (2001 - $115,385,832).

	2002	2001
	$	$
Long-term liabilities	353,241,142	328,445,177
Benefits payable for early retirees (c)	16,087,283	15,019,889
Vested sick leave benefits (a)	10,537,217	9,900,532
Vacation payable	6,644,235	5,524,420
Insurance claims (Note 9b)	2,632,936	2,310,137
Accrued interest payable on long-term liabilities	2,001,052	1,681,976
Workers� compensation obligations (d)	1,458,009	1,316,324

	392,601,874	364,198,455

Actuarial valuations: The following table sets out the extrapolated results for each of the plans as at December 31, 2002:

	Benefits payable for early retirees	Vested sick leave benefits	Workers' compensation	2001 Total
	$	$	$	$
Accrued benefit liability, beginning of year	15,019,889	9,900,532	1,316,324	24,037,583
Current service cost	510,215	777,625	513,755	2,141,313
Interest cost	893,559	592,988	92,075	1,444,292
Benefit payments	(336,380)	(733,928)	(464,145)	(1,388,444)

Accrued benefit liability, end of year	16,087,283	10,537,217	1,458,009	26,234,744

The actuarial valuations of the plans were based upon a number of assumptions about future events, which reflect management’s best estimate. The following represents the more significant assumptions made:

	Benefits payable for early retirees	Vested sick leavebenefits	Workers' compensation
Expected inflation rate	3%	3%	3%
Expected level of salary increases	4%	4%	N/A
Interest discount rate	6%	6%	7%

a) Liability for Vested Sick Leave Benefits

Regional Operations
Since 2000, the accumulated sick leave plan has been replaced by a Short-term Disability plan for employees in Regional Operations. Under the plan, employees with five or more years of service were given the option of receiving a cash payout of fifty percent of the balance in their sick leave bank as at December 31, 1999 or deferring payment until termination of employment with the Region. The estimated value of the liability of the accumulated days for employees who chose the deferral option is $1,246,070 (2001 - $2,669,045) at the end of the year. Employees who had less than five years of service at December 31, 1999 are given the option on the fifth anniversary of their hire date to either receive payment for the value of accumulated sick days as at December 31, 1999 or defer payment until termination of their employment with the Region. From time to time, the Region is required to settle severance payouts which are funded from the Sick Leave Reserve. The estimated amount of these payouts cannot be determined at this time. A reserve has been established for the past service liability and severance payouts and is reported on the Consolidated Statement of Financial Position. The reserve balance at December 31, 2002 is $4,617,667 (2001 - $4,743,571).

Police Services
Under the sick leave benefit plan, unused sick leave can accumulate and employees may become entitled to a cash payment of one-half of the sick bank balance to a maximum of six months salary when they leave the municipality’s employ.
The liability for the accumulated days to the extent that they have vested and could be taken in cash by an employee on termination amounted to $9,291,147 (2001 - $15,351,140). A reserve was established to provide for a portion of the Police Services past service liability and the balance at the end of the year is $9,532,287 (2001 - $8,089,443).
According to an independent actuarial valuation report dated March 21, 2003 the total estimated liability is $10,537,217 (2001 - $9,881,603).

b) Pension Agreement

The Region contributes to the Ontario Municipal Employees Retirement System (OMERS), a multi-employer plan on behalf of approximately 3,003 members of its staff. The plan is a defined benefit plan and specifies the amount of the retirement benefit to be received by the employees based on length of credited service and average earnings.
The latest actuarial valuation as at December 31, 2001 indicates that current member and employer contribution rates are sufficient to fund future benefits. Currently, OMERS members and employers are enjoying a full contribution holiday. From August 1, 1998 to December 31, 2002 member and employer contribution rates are 0%. In January 2003, contribution rates will resume and OMERS is proposing to raise its contribution rates to full levels in 2004.

c) Post Employment Benefits

Employees who retire under the OMERS pension plan at age fifty or greater with a minimum of twenty years of service with the Region, are entitled to continued coverage for extended health and dental benefits until they reach age sixty-five. As at December 31, 2002 eighty-five early retirees were covered under the plan. According to an independent actuarial valuation report dated February 27, 2003 the total future cost associated with these benefits is $16,087,283 and is reported in the Consolidated Statement of Financial Position.

d) Workers’ Compensation

Under the Workplace Safety and Insurance Act, the Region is a self-insured employer (Schedule II) for the majority of its employees.
According to an independent actuarial valuation dated February 27, 2003 the estimated liability for all claims incurred to December 31, 2002 are $1,458,009, (2001 - $1,316,324).

8. Contractual Obligations and Commitments

a) Water Agreements

Under the terms of agreements with the Ministry of the Environment and the City of Toronto, the Region is entitled to purchase water at rates established every year. Payments in respect of these agreements amounted to $17,028,323 (2001 - $16,447,180). Payments under these agreements are financed by area municipalities based on water consumption.

b) York-Peel Water Supply Agreement

In 2001, the Region entered into an inter-regional water servicing agreement with the Regional Municipality of Peel. Under the terms of the agreement, the Region is entitled to purchase water from Peel at a negotiated rate, beginning in 2004. The agreement provides for a buy-in payment of $52.4 million, payable in three equal installments of $17.46 million. The first installment was paid in 2001 and subsequent payments are due in 2004 and 2011. The Region of York will be required to pay operating costs to the Region of Peel for water consumption based on the York Wholesale Rate, commencing in 2004, through to 2031 and beyond. The York Wholesale Rate will include a component to be contributed to a Capital Repair and Replacement Reserve. Payments under this agreement will be financed by the area municipalities based on water consumption.

c) Sale-leaseback Agreement

Under the terms of an agreement, the Region sold and leases back computer and communications equipment. The proceeds from the sale of the equipment are used to offset lease payments over a period of three years.

d) Operating Leases

Under the terms of various operating lease agreements, future minimum payments for the next 5 years are as follows:

Year	$
2003	4,925,736
2004	4,567,655
2005	3,898,415
2006	4,105,626
2007	4,089,558

e) York Rapid Transit Plan

In 2002, the Region entered into a public-private partnership with York Consortium 2002 to implement the York Rapid Transit Plan (YRTP). The YRTP was developed from the Region’s Transportation Master Plan, which identified the need to implement a rapid network that would reduce the rate of traffic congestion and support economic and residential growth. Implementation of the York Rapid Transit Plan is estimated to cost $1.5–2.2 billion over the next 10 years.
Using the innovative public-private partnership approach, York Region and York Consortium 2002 intend to focus leveraging private and public monies to bring improved transit and transportation services to the Region in an expedient manner.

f) Solid Waste Haulage and Disposal Services

Due to the scheduled closure of the Keele Valley Landfill Site at the end of 2002, the Region entered into agreements for the haulage and disposal of waste. The agreements, with Green Lane Landfill, Onyx Waste Services Inc. and Republic Services Inc., provide for waste to be hauled from the Region’s transfer stations to sites in Southwold Township, Ontario and Michigan, U.S.A. The initial term of the agreements is five years and the total contract amount for the first year is $10,405,000. In subsequent years, the rate change per tonne will be adjusted in accordance with the inflation rate.
Effective January 1, 2003 the Region will assume the responsibility for waste disposal and diversion from the nine area municipalities. The incremental operating costs of $8.4 million associated with this initiative will be added to the Region’s tax levy in 2003.

9. Contingent Liabilities

a) Long-term Liabilities

The Region is contingently liable for long-term liabilities for which the responsibility for the payment of principal and interest is recoverable from other municipalities, school boards and unconsolidated local boards. The total amount outstanding as at December 31, 2002 is $74,823,779, (2001 - $85,511,804) and is recorded on the Consolidated Statement of Financial Position.

b) Public Liability Insurance

During 2002, the Region insured public liability through participation in a reciprocal insurance exchange, Ontario Municipal Insurance Exchange (OMEX).
Public liability insurance limits are at $50,000,000. The Region increased its level of self-insured retention, from the various deductible levels under the independent insurance policies, to $100,000 on January 1, 1998 under the OMEX policies.
Insurance premiums, claims under the deductible provisions of policies and claims in excess of insurance limits are paid from a Self Insurance Reserve Fund established by the Region. The Region makes annual contributions to the reserve on the basis of type of coverage, deductibles and insurance limits. Contributions in 2002 were $1,251,113, (2001 - $887,158) and are reported in the Consolidated Statement of Financial Activities.
The Region estimates that the liability as at December 31, 2002 for all outstanding public liability claims is $2,632,936.
Environmental impairment liability is fully self-insured by the Region. Total reserve available for public liability and environmental impairment is $4,556,036, (2001 - $4,487,063).

c) Contingencies

In the normal course of its operations, the Region is subject to various litigation and claims. The ultimate outcome of these claims cannot be determined at this time. However, the Region’s management believes that the ultimate disposition of these matters will not have a material adverse effect on its financial position.

10. Expenditures by Object

The consolidated statement of financial activities reports expenditures by function. The Regional Municipality of York’s expenditures by object are as follows:

	2002	2001
	$	$
Current Fund Expenditures
Salaries, wages and benefits	200,301,557	187,088,820
Long-term debt charges	21,768,972	18,329,659
Materials, services, rents and financial items	261,348,715	268,509,930
Asset acquisitions	23,836,714	21,223,712
Transfers to other governments and the public	79,658,840	57,513,779

	586,914,798	552,665,900

Capital Fund Expenditures
Materials, services, rents and financial items	154,642,273	148,615,042
Asset acquisitions	29,268,588	19,453,200
Transfers to other governments and the public	13,089,828	12,262,275

	197,000,689	180,330,517

11. Funding of 10-5-5 Capping Requirement of Bill 140

Bill 140, the “Continued Protection for Property Taxpayers Act, 2000” maintained the Province’s commitment to limit property tax reform-related increases to 5% per year for the Commercial, Industrial and Multi-residential classes. This legislation, together with the Municipal Act, requires that the Region manage any necessary inter-municipal tax adjustments. The Region will only transfer funds between area municipalities as part of the related tax adjustments and does not incur any direct financial cost.

12. Social Housing Reform Act (“Bill 128”)

Effective January 1, 2001 under the Provisions of Bill 128, the Province of Ontario transferred responsibility for social housing administration to municipal control.

13. Provincial Offences Administration

Effective July 12, 1999 the Region assumed the responsibilities of administering collection of revenues arising under the Provincial Offences Act (POA) from the Ministry of Attorney General. A Local Side Agreement was signed by the nine area municipalities setting out the terms and conditions of the transfer of responsibilities.
The Region administers prosecutions and the collection of related fines and fees under the authority of the POA. The POA is a procedural law for administering and prosecuting provincial offences, including those committed under the Highway Traffic Act, Compulsory Automobile Insurance Act, Trespass to Property Act, Liquor Licence Act, Municipal By-laws and minor federal offences. Offenders may pay their fines at any court office in Ontario, at which time their receipt is recorded in the Integrated Courts Operation Network system (“ICON”). The Region recognizes fine revenue when the receipt of funds is recorded by ICON regardless of the location where payment is made.
The gross revenues consist of fines levied under Part I, II and III (including delay penalties) for POA charges and amount to $5,592,047 (2001 - $6,250,663). The net loss amounts to $1,832,576 (2001 - $392,109). Balances arising from operation of the POA offices are consolidated with these financial statements.

14. Service Contracts with the Ministry of Community, Family and Children’s Services

The Region has service contracts with the Ministry of Community, Family and Children’s Services (MCFCS). One requirement of the service contracts is the production of a report by management, Annual Program Expenditure Reconciliation (APER) which shows a summary by service of all revenues and expenditures and any resulting surpluses and deficits that relate to the service contracts.
A review of these reports shows the following services to be in a surplus position for the year ended December 31, 2002:

Child Care Services		$329,414
Homelessness		532,508
Business Transformation Project		0

The surplus amounts due back to MCFCS are reflected in the corporate liabilities account. Subsidy revenue has been recognized according to the approved service contract and not based on cash flowed.