Commissioner of Finance and Regional Treasurer Sandra Cartwright

To the Members of Regional Council, Residents, and Ratepayers of the Regional Municipality of York, Newmarket, Ontario
Herein are presented the financial statements of the Corporation of The Regional Municipality of York for the year ended December 31, 2002. This report highlights ongoing financial policies, practices, budgetary initiatives, and financial performance related to the Region’s programs and service delivery and presents the key financial results for the 2002 fiscal year.

The financial statements and related information contained in this report are the responsibility of the management of the Corporation. They have been 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. Management is confident that it has developed a system of internal control that ensures the financial information presented in the financial statements is both accurate and reliable.

The accounting function of the Corporation is the responsibility of the Regional Treasurer who ensures that all corporate accounting records and reports conform to Council budgetary requirements, by-laws, policies, procedures, accounting principles and financial reporting requirements. York Region’s financial statements as well as the Financial Information Return (FIR) which is submitted to the Ministry of Municipal Affairs and Housing are prepared on a basis consistent with the accounting practices.

The accounting firm of KPMG LLP was appointed by Regional Council to perform an independent audit of the Region’s 2002 financial statements. Its reports are included with the financial statements.

For the fifth consecutive year, the Government Finance Officers Association of the United States and Canada (GFOA) awarded a Canadian Award for Financial Reporting to The Regional Municipality of York for its annual financial report for the fiscal year ended December 31, 2001. The Canadian Award for Financial Reporting program was established to encourage municipal governments throughout Canada to publish high quality financial reports and to provide peer recognition and technical guidance for officials preparing these reports.

In order to be awarded a Canadian Award for Financial Reporting (CANFR), a government unit must publish an easily readable and efficiently organized annual financial report, whose contents conform to program standards. Such reports should go beyond the minimum requirements of generally accepted accounting principles and demonstrate an effort to clearly communicate the municipal government’s financial picture, enhance an understanding of financial reporting by municipal governments, and address user needs. Management believes the current report is reflective of the high standards associated with the CANFR Award and it will be submitted to GFOA.

	Moody’s Investors Service maintained the Regional Municipality of York’s domestic currency debt rating at AAA.			York Region’s high quality long-term debt rating is a product of its wealthy and growing resource base, low debt ratios and high degree of financial flexibility.

The financial management and control of The Regional Municipality of York is largely governed through by-laws that prescribe purchasing, accounting, investment, risk management procedures and debt policy. York Regional Council has sole authority to allocate funds through the approval of the operating and capital budgets.

The Region of York has established risk management programs and procedures to protect the Corporation's assets against the financial consequences of accidental loss. Through a combination of self-insuring and the purchase of insurance, corporate assets are preserved and public service capabilities are protected. Insurance coverage is purchased from a combination of traditional insurers and from a municipal insurance exchange.

The Region has also established a Risk Management Committee. This cross-functional committee helps to ensure, from a Regional perspective, that the various risk management programs support the business of the Region. The committee reviews claims against the Corporation to prevent them from reoccurring or at the very least minimize adverse impact or likelihood of reoccurrence.

Regional Council approved the establishment of an Internal Audit role to assist the Region to achieve its objectives. This role provides advice on managing and controlling risk, performs independent appraisals on control systems, and participates as an advisor in the identification of efficiencies and improvements in new and existing processes, programs and services.

Since 1996 York Region’s population has grown by 33% and is one of the fastest growing municipalities in Canada. In 2002, about 30% of the Greater Toronto Area’s population increase occurred in York Region. By the year 2011 it is estimated that York Region’s population will be over 1 million and employment will be over 540,000.

A Growing Region

York Region continues to be one of the fastest growing municipalities in Canada with a population of 830,000 at year end, attracting 38,000 new residents and 20,000 new jobs in 2002.

Manufacturing continues to be the Region’s primary employment sector, with strength in the printing, plastics, computer, auto parts and furniture manufacturing categories. There has been strong growth (approximately 50%) in the business services sector over the past three years. Computer systems design and related services remain the most significant category, accounting for nearly half of employees within the sector. The retail, food and entertainment sectors are also expanding rapidly, supporting the Region’s population growth.

Total construction value was over $2.7 billion in 2002, ranking York Region among the highest in Canada. All elements of the construction sector remained strong as industrial, commercial and institutional (ICI) construction continued to generate 34% of the total value. In the residential sector, 12,474 homes were completed and 11,941 new residential units started within York Region last year.

Strong Assessment Growth

Consistent with strong population and economic growth within York Region and continuing the positive trend of recent years, assessment growth for 2002 was 3.8%.

This trend of economic vitality is anticipated to continue in 2003 and beyond.

	One of the fastest growing municipalities in Canada with 38,000 new residents in 2002.			Among the highest in Canada with total construction value of over $2.6 billion.
	Continued strong assessment growth of 3.8%.

On February 21, 2002 Regional Council adopted Vision 2026, a strategic blueprint for creating strong, caring and safe communities in York Region. Following 14 months of consultations with citizens, community service providers, staff and Council through various meetings and workshops, this framework builds upon earlier developed long-range goals, with an expanded mandate that now includes human services such as social housing and public transit.

The Regional Corporation utilizes a multi-year approach to business planning. This approach links overall corporate strategies directly to individual employee performance plans and allows the Region to expand the traditional one-year time frame to include a further outlook of budgetary pressures. The critical focus is to ensure that decisions made during the annual budget process are sustainable and maintain a strong, viable long-term strategy for the Region.

Strategic Alignment

York Region has adopted a strategy of aligning and co-ordinating the activities of all departments to ensure a focused and co-operative effort to achieve the Region’s long term Vision 2026 goals.

The establishment, maintenance and prudent management of reserves are important components of the Region’s financial strategy. Reserve funding supports a significant portion of infrastructure capital costs and plays an instrumental role in offsetting unforeseen cost increases during uncertain economic cycles.

The 2002 operating surplus of $18.2 million was transferred to the Capital Reserve ($16.8 million), the Social Assistance Reserve Fund ($0.8 million) and the Working Capital Reserve ($0.6 million) in accordance with the Region’s Council approved reserve strategy.

As part of the 2002 review of reserves and reserve funds, staff undertook a survey to compare the size and type of reserves that other municipalities operated as compared to those held by the Region. It was revealed that most of the major municipalities had a specific reserve for tax stabilization purposes that may be utilized to fund temporary tax revenue shortfalls or dramatic one time increases for unforeseen expenditures. The new Tax Stabilization Reserve Fund created by the Region will be financed by directing a contribution of up to 50% of any unallocated year end surplus. The GFOA recommends as part of its “best practices” that an appropriate reserve target for a municipality the size of York Region should be 5% of regular general fund operating revenues. Based on the derived amount from the 2002 operating budget, the recommended target should be $16 million.

Building Continued Stability

Reserve balances are continuously monitored to ensure their adequacy to meet the current and future needs of the residents of York Region in a fiscally responsible manner.

York Region’s policies ensure that growth and development are financed in a fiscally responsible manner to meet the future needs of the Region’s communities. In 2002, The Region had undertaken several studies to prepare to meet the future infrastructure demands of new growth including:

Projected Capital Expenditures to 2026

It is estimated that about $8.2 billion of new capital infrastructure will be required to accommodate approved growth projections to 2026.

Projected Funding Sources to 2026

Council’s growth-pays-for-growth policy ensures that the capital infrastructure required for growth is funded through development charges on new non-residential and residential development.

The Budget Review Committee, comprised of the Regional Chair, the Chief Administrative Officer, the Regional Treasurer, and the Director of Business Planning and Budgets, reviews proposed Business Plan and Budgets, to ensure compliance with Council guidelines and to balance competing priorities.

On January 24, 2002 York Regional Council adopted a total gross expenditure budget of $1.151 billion. After assessment growth, the net tax levy impact for all Regional services was 2.3%, consistent with inflation. Subsequent to Budget adoption, Council approved an additional $4.2 million in various program funding, throughout 2002, bringing the total gross expenditure budget to $1.155 billion with no additional net tax levy impact.

The Budget addressed the challenges associated with managing both a rapidly growing Region and the increasing responsibilities given to municipalities as a result of recent provincial program re-alignments. Major enhancements to Policing, Emergency Medical Services, York Region Transit, and various capital programs, combined with a decrease in Provincial subsidies, accounted for the majority of the Region’s increased financial pressures for the 2002 Budget.

In 2002, York Region continued to focus on program results and service delivery commitments. Detailed quarterly progress reporting for all Regional service areas has allowed the Corporation to better monitor business plan objectives and budgeted expenditures.

With the Region’s growing mandate and increased responsibilities, a greater emphasis is placed on the ability to monitor results, report timely information to both the departments within the Corporation and to our community stakeholders, and proactively address areas that require improvement.

Accountable Service Delivery

Key performance indicators in each program area assist with understanding delivery objectives and aid in setting appropriate cost and quality targets. Examples illustrate how York Region measures both the efficiency and effectiveness of service outcomes.

The Performance Measurement Program has become a crucial element of York Region’s business planning system by:

• developing key performance indicators to evaluate service delivery
• development of a cost allocation methodology to evaluate the full cost of service provision
• linking employee compensation to program delivery and performance
• public reporting of service delivery outcomes demonstrating to taxpayers how their dollars are being managed

In 2002, York Region continued its participation in the Ontario Municipal CAO’s Benchmarking Initiative (OMBI). This initiative involves comparing our activities to those of other municipalities to continually search for improved and innovative methods of service delivery.

	$1.2 billion gross expenditure budget for 2002.			Net tax levy increase of 2.3%, consistent with inflation.
	Enhanced performance measures to evaluate service delivery.

As a result of York Region’s 2002 financial activities, the consolidated fund balance increased by $47.8 million. The highlights of the financial results are detailed below.

Revenues
Total 2002 revenues of $802.5 million financed current fund operations, reserves and reserve funds and capital expenditures. The sources of revenues are as follows:

Revenues (in $ millions)

• $529.5 million through taxation and water and wastewater fees
• $109.6 million through provincial and federal transfer payments and subsidies
• $73.5 million through contributions from Development Charges
• $9.1 million through interest earned on Operating Funds, Reserves and Reserve Funds
• $80.8 million through direct service user fees and charges and other

Current Fund Expenditures
Expenditures for Current Fund Operations totaled $587.1 million in 2002.

Current Fund Expenditures (in $ millions)

Planning and Development Services initiatives totaling $5.5 million provided enhanced geographic information systems, promotion of economic development and tourism, and management of Regional growth planning policies and land use development.

Capital Fund Expenditures
Capital Fund Expenditures in 2002 totaled $197.0 million.

Capital Fund Expenditures (in $ millions)

	Provided $82 million towards the pooled cost of GTA social services.			Extensive construction of road, transit, water and sewer infrastructure to service the rapid growth of York Region.
	$4.2 billion of capital infrastructure required by 2026 to provide higher order transit service.

The York Rapid Transit Plan is focused on an extensive inter-regional network that reflects an integrated approach to transit development with the regions of Peel and Durham and the cities of Toronto, Brampton, Vaughan, Markham, and Richmond Hill.

Bus Rapid Transit, Light Rapid Transit, and subways are all under consideration for the York Rapid Transit system. Decisions on technology will be made in consultation with private and public sector partners. Approximately $4.2 billion of capital infrastructure will be required by 2026 to provide higher order transit service within York Region, based on assumed funding from senior levels of government equal to two-thirds of the gross capital costs. The Quick Start Program, which is proposed to include transit supportive capital improvements within the next three years, is estimated to cost $150 million.

On May 16, 2002 Council approved York Consortium 2002 as the successful partner to join York Region in an innovative Public-Private Partnership (PPP) to fast track an inter-regional rapid transit plan – a first of its kind in Canada.

The Provincial Government, through the Golden Horseshoe Transit Investment Partnership (GTIP) program, has indicated that initiatives with an inter-regional component and Public-Private Partnership (PPP) elements will be favourably considered for public transit funding.

The York-Peel Water Supply Agreement is a strategic partnership between York Region and neighboring Peel Region that will provide an increasing supply of Lake Ontario water to both current and future York Region residents through Peel Region’s supply and distribution system.

On February 14, 2002, York Regional Chair Bill Fisch joined Emil Kolb, Chair of the Region of Peel, and signed an agreement that will see the Region of Peel provide water services to York Region from 2004 until 2031.

York Region had considered three Lake Ontario-based options to supply the additional 380 million litres per day required to meet future demands, including purchasing an increased supply of water from other current municipal partners, and construction of new facilities.

York Region will receive water from Peel Region at a substantially lower cost than through other options under consideration. Execution of the York-Peel agreement will result in a capital cost savings over the next three decades between $87 million and $117 million compared to other construction alternatives.

Providing service to over 825,000 residents and an employment base of 400,000 in a rapid growth environment requires proactive financial management and development of a sustainable financial strategy.

Through creative partnerships, innovative service delivery and excellence in customer service, York Region has achieved many successes in 2002. With responsible fiscal policies and constantly improving financial planning processes, York Region will ensure that services are continually delivered to the community in an effective and efficient manner.

Sandra Cartwright
Commissioner of Finance and Regional Treasurer

June, 2003