THE REGIONAL MUNICIPALITY OF YORK
Notes to the Consolidated Financial Statements
December 31, 2005

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

1. 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, Housing York Inc. and York Region Rapid Transit Corporation (Rapidco).
   
   The 2004 comparative figures have been reclassified to conform to current presentation.
   
   
2. The financial activities of the sinking fund are not included in these statements.
   
   
3. 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

1. 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 the cost of goods and services and are recognized when acquired in the period, whether or not payments have been made or invoices received.
   
   
2. Capital Assets
   The historical cost and accumulated depreciation for capital assets are not recorded for municipal purposes. Capital assets are reported as expenditures in the Consolidated Statement of Financial Activities in the year of acquisition.
   
   
3. 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.
   
   
4. 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 recommendations of PSAB. Amounts applied to qualifying capital projects are recorded as revenues in the fiscal period in which the funds are expended on qualifying capital projects.
   
   
5. 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.
   
   
6. 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.
   
   
7. 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 the lower of cost and market value. Any discount or premium is amortized over the remaining term of the investments.
   
   
8. Pensions and Employee Benefits
   The Region accounts for its participation in the Ontario Municipal Employee Retirement System (OMERS), a multi-employer public sector pension fund, as a defined benefit 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. Actuarial valuations, where necessary for accounting purposes, are performed triennially. 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. Unamortized actuarial gains or losses are amortized on a straight-line basis over the expected average remaining service life of the related employee groups. Unamortized actuarial gains/losses for event-triggered liabilities, such as those determined as claims related to WSIB are amortized over the average expected period during which the benefits will be paid. The cost of plan amendments is accounted for in the period they are adopted.
   
   Where applicable, the Region has set aside reserve funds intended to fund these obligations, either in full or in part. These reserve funds were created under municipal by-law and do not meet the definition of a plan asset under CICA PS 3250 Retirement Benefits. Therefore, for the purpose of these financial statements, the plans are considered unfunded.
   
   
9. 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 the Council.

2. BUDGET FIGURES

The Regional Municipality of York’s Council completes a review of its operating and capital budgets each year. The approved operating budget for 2005 is reflected on the 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 Schedule of Capital Fund Operations and the 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.

3. INVESTMENTS

Included in cash and cash equivalents are short-term investments of $222,542,140 (2004 - $705,715,095) with a market value of $222,407,604 (2004 - $705,599,263).

Long-term investments of $738,516,896 (2004 - $261,459,911) have a market value of $746,094,561 (2004 - $264,120,630).

Under legislation, $515,056,311 (2004 - $448,844,479), 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:

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%.

b) Long-term liabilities are repayable as follows:

Long-term liabilities are financed through a combination of development charges, water and sewer rates, and tax levy.

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 are $33,966,086
(2004 - $25,338,739).

6. DEFERRED REVENUE-OBLIGATORY RESERVE FUNDS

Included in deferred revenue are development charges of $507,948,979 (2004 - $448,844,479) and federal gas tax rebate of $7,107,332 (2004 - $0).

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 $246,806,829 (2004 - $191,793,877).

Actuarial valuations: The following table sets out the extrapolated results for each of the plans as at December 31, 2005:

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:

a) Liability for Vested Sick Leave Benefits

Regional Operations

Commencing in 2000, the accumulated sick leave plan was 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 $1,513,780 (2004 - $1,502,551) 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. A reserve has been established for the past service liability and is reported in the Consolidated Statement of Financial Position. The reserve balance at December 31, 2005 is $4,310,184 (2004 - $4,254,698).

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 $11,588,052 (2004 - $10,485,919). 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 $10,648,786 (2004 - $10,253,799) and is reported in the Consolidated Statement of Financial Position.

According to an independent actuarial valuation report dated February 13, 2006 the total estimated liability for both regional operations and police services is $13,101,832 (2004 - $11,988,470).

b) Pension Agreement

The Region contributes to the Ontario Municipal Employees Retirement System (OMERS), a multi-employer plan on behalf of approximately 3,778 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.
In 2005, employer contributions amount to $16,425,037 (2004 - $13,935,255) and is included as an expenditure in the Consolidated Statement of Financial Activities. Employee contributions also amount to $16,425,037.

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.
According to an independent actuarial valuation report dated February 13, 2006 the total future cost associated with these benefits is $22,686,110 (2004 - $20,948,661) 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 all of its employees.

According to an independent actuarial valuation dated February 13, 2006 the estimated liability for all claims incurred to December 31, 2005 is $2,900,127 (2004 - $2,255,934) and is reported in the Consolidated Statement of Financial Position. The unamortized actuarial loss as at December 31, 2005 is $411,242 (2004 - $456,935).

e) Long-Term Disability Self Funding Arrangement

In October 2002, the Region adopted a self-insured arrangement for its long-term disability benefit (LTD). Under this arrangement, the Region funds its own claims through a segregated reserve and contracts with an insurance carrier to adjudicate and administer all claims on an Administrative Services Only (ASO) basis. According to an independent actuarial valuation dated February 15, 2006 the estimated liability for claims incurred is $8,775,688 (2004 - $5,660,181) as at December 31, 2005 and is reported in the Consolidated Statement of Financial Position.

f) OSIFA Loans

On September 24, 2003 and January 6, 2004 the Region entered into two separate financing agreements with the Ontario Municipal Economic Infrastructure Financing Authority (OMEIFA), subsequently renamed the Ontario Strategic Infrastructure Financing Authority (OSIFA), for loan commitments of $50 million each to finance capital projects. Under the terms of the financial agreements, OSIFA is to provide cost effective financing, first in form of short-term loans for costs incurred during the construction and development stage of these projects, and thereafter upon substantial completion of the projects converting to long-term borrowing in the form of debentures issued by the Region to OSIFA. Total short-term loan advances received by the Region and not yet converted to debentures as at December 31, 2005 are $75,274,298 (2004 - $24,445,265). Interest rates for the loans range from 1.45% to 1.70%.

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 $19,946,750 (2004 - $16,733,261). 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. The Region of York began purchasing water from the Region of Peel in late 2005. The agreement provides for a buy-in payment of $52.4 million, payable in three equal installments of $17.46 million. Two payments have been made to date, with the third and final installment due in 2011. The Region of York is required to pay operating costs to the Region of Peel for water consumption based on the York Wholesale Rate, commencing in 2005, through to 2031 and beyond. The York Wholesale Rate includes 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) Lease Agreement-Information Technology

The Region has entered into an agreement for the supply, service and lease of information technology for a period of 3 years commencing 2003. The estimated lease payment for 2006 is $4.1 million.

d) Operating Leases

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

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 and is contingent upon future funding agreements with the provincial and federal governments.

In September, 2005 the rapid transit service, known as VIVA, began operations. Full rollout of the service will be completed in January, 2006.

f) Solid Waste Haulage and Disposal Services

Due to the 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. In subsequent years, the rate charge per tonne will be adjusted in accordance with the inflation rate.

Under provisions of the contracts in place with third parties for the disposal of waste, the Region has no obligations relating to the closure or post-closure maintenance of the disposal sites.

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, 2005 is $86,095,868 (2004 - $71,545,310) and is recorded on the Consolidated Statement of Financial Position.

b) Public Liability Insurance

During 2005, the Region insured public liability through participation in a reciprocal insurance exchange, Ontario Municipal Insurance Exchange (OMEX).

Public liability insurance limits are set 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 2005 are, $1,425,696 (2004 - $3,710,929) and are reported in the Consolidated Statement of Financial Activities.

The Region estimates that the liability as at December 31, 2005 for all outstanding public liability claims is $3,216,699 (2004 - $2,901,100).
Environmental impairment liability is fully self-insured by the Region. The total reserve available for public liability and environmental impairment is $3,076,213 (2004 - $3,309,445).

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:

11. LOCAL SERVICE REALIGNMENT COSTS

Current liabilities include a $7,074,720 (2004 - $4,205,415) obligation due to the Province for Local Service Realignment costs for Social Assistance and Social Housing attributed to Greater Toronto Area (GTA) Pooling.

Annual Local Service Realignment costs for 2005 have been included as expenditures in the Consolidated Statement of Financial Activities based on billings from the Province for Social Assistance, an interim agreement with the Province for Social Housing payments, and estimates for unbilled amounts relating to 2005.

For the year 2005, Regional Council approved a budget of $86.7 million for GTA pooling costs and instructed staff to cap payments at $81.6 million. The balance of $5.1 million has been accrued and is reported as a liability in the Consolidated Statement of Financial Position.

12. PROVINCIAL OFFENCES ADMINISTRATION

The Region administers prosecutions and the collection of related fines and fees under the authority of the Provincial Offences Act (“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 Offences 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 $7,827,496 (2004 - $6,758,975). The net loss amounts to $1,222,392 (2004 - $1,911,503). Balances arising from operation of the POA offices are consolidated with these financial statements.

13. SERVICE CONTRACTS WITH THE MINISTRY OF COMMUNITY AND SOCIAL SERVICES AND MINISTRY OF CHILDREN AND YOUTH SERVICES

The Region has service contracts with the Ministry of Community and Social Services (MCSS) and Ministry of Children and Youth Services (MCYS). 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, 2005:

Subsidy revenue has been recognized according to the cost sharing formula in the approved service contracts and not based on cash flowed. The deficit amounts above are net cash flow owed to the Region of York for these services contracts from MCSS and MCYS and are reflected in the corporate liabilities account.

14. LIMITATION ON PROPERTY TAX INCREASES AND FUNDING FOR BUSINESS CLASSES UNDER THE MUNICIPAL ACT, 2001

The Municipal Act, 2001 (the “Act”) requires that municipalities limit or cap any annual assessment related property tax increases to 5% on the Commercial, Industrial, and Multi-Residential property classes. The Act also provides that the costs of capping can be funded through retaining assessment related property decreases. Starting in 2005, the Province allowed additional capping options. The Region adopted the following capping options for 2005 and future taxation years:

1. Assessment-related property tax increases be capped at the greater of 10% of the previous year’s annualized capped taxes, or 5% of the previous year’s annualized full Current Value Assessment (CVA) taxes;
2. Properties for which tax increase have been capped (protected), but are within $250 of their full CVA taxes, be moved to the CVA tax level within the current taxation year;
3. Properties for which tax decreases have been retained (clawed back), but are within $250 of their full CVA taxes, be moved to the CVA tax level within the current taxation year.
4. Capped taxes on eligible new construction/new-to-class properties be phased out by 2008 through annual increments to the minimum property tax payable.

The Region is also required by the Act to perform a “bankering” role for the local municipalities to ensure that they would have neither a surplus nor a shortfall as a result of this process. The Region will only transfer funds between area municipalities as part of the tax related adjustments and does not incur any direct financial costs to area municipalities.