Lloyd Russell Commissioner of Finance and Regional Treasurer

To the Members of Regional Council, Residents and Ratepayers of the Regional Municipality of York, Newmarket, Ontario

Presented herein are the financial statements of the Corporation of The Regional Municipality of York for the year ended December 31, 2005. This report highlights ongoing financial policies, practices, budgetary initiatives, and financial performance related to the delivery of the Region’s programs and services and presents the key financial results for the 2005 fiscal year.

financial responsibility and accountability
York Region is committed to the goal of financial accountability through initiatives to evaluate and report on our performance and also to seek feedback from our citizens. The Region is in compliance with the guidelines of the Municipal Performance Measurement Program, a Provincial Ministry of Municipal Affairs and Housing program which requires municipalities to report on measures reflecting the efficiency and effectiveness of programs and services. In addition, York Region is a leading participant in the Ontario Municipal CAOs Benchmarking Initiative (OMBI), a project with a focus on identifying and sharing best practices of service delivery and quality standards in Ontario municipalities.

As a result of our innovative service delivery, creative partnerships and excellence in customer service, York Region has achieved many successes in 2005. With responsible, prudent fiscal policies, sustainable financial strategies and constantly improving financial planning processes, York Region strives to ensure that programs and services continue to be delivered to the community in an effective and efficient manner. Readers are encouraged to visit the Region’s Web site at www.york.ca
for updates on performance and progress achieved throughout the course of the year.

financial statements
The financial statements contained herein and related information contained in this report are the responsibility of the management of the Municipal Corporation and have been prepared in accordance with accounting policies that conform to local government accounting standards established by the Public Sector Accounting Board of the Canadian Institute of Chartered Accountants. Where the determination of assets and liabilities is dependent upon future events, amounts are based upon reasonably determined estimates, forecasts and judgments. 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 Commissioner of Finance and Regional Treasurer who ensures that all corporate accounting records and reports conform to Council budgetary requirements, bylaws, policies, procedures, accounting principles and financial reporting requirements. York Region’s financial statements, as well as the Financial Information Return which is submitted to the Ministry of Municipal Affairs and Housing, are prepared on a basis consistent with the prescribed accounting practices.

The Municipal Act requires the Region to engage independent auditors to express an opinion as to whether the financial statements present the Region’s financial position and operating results fairly in all material respects. In fulfilling this duty, the external auditors are provided full access to all Regional records and transactions and meet periodically with staff to address matters arising from the audit or from new policies and procedures introduced during the fiscal year.

The financial statements have been audited by the Region’s external auditors, KPMG LLP, in accordance with Canadian Generally Accepted Auditing Standards, and they have expressed an unqualified opinion that these statements present fairly the financial position of the Region at December 31, 2005. Publication of these financial statements adds to the Region’s commitment to accountability.

For the eighth consecutive year, the Government Finance Officers Association (GFOA) of the United States and Canada awarded a Canadian Award for Financial Reporting (CANFR) to The Regional Municipality of York for its annual financial report for the fiscal year ended December 31, 2004. 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 finance officials preparing these reports.

In order to be awarded a Canadian Award for Financial Reporting, 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 for consideration once again this year.

Additionally, the GFOA of the United States and Canada presented The Regional Municipality of York with its Distinguished Budget Presentation Award for the 2005 annual budget. This award reflects the commitment of the governing body and staff to meeting the highest principles of governmental budgeting. This is the first time York Region has received this award and represents a significant achievement.

financial management and control
The financial management and control of The Regional Municipality of York is largely governed through bylaws 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 Regional Municipality 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 both traditional insurers and 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 the likelihood of reoccurrence.

In addition, the Region has established an Audit Services Branch within the CAO’s Office, to assist Regional Council, the Audit Committee, Senior Management and all departments in the effective and efficient discharge of their responsibilities and achievement of their objectives. This service 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.

economic overview
York Region is a major growth centre in the GTA and contains 16 per cent of the GTA’s population base and 14 per cent of its employment population. As one of the fastest growing municipalities in Canada, York Region’s 2005 population of 918,383 residents represents a 3.2 per cent increase over 2004. In 2005, about 33 per cent of the Greater Toronto Area’s population increase occurred in York Region. By the year 2031 it is estimated that York Region’s population will be 1.5 million and employment will be nearly 780,000.

There are currently approximately 450,000 jobs in York Region; an increase of 120,000 since the 1998 Employment Survey was undertaken and an increase of 10,000 in 2005 alone. In the past five years, growth has been particularly strong in the business service and retail sectors. There are now an estimated 28,000 businesses located and operating in York Region.

Manufacturing continues to be the Region’s largest individual employment sector, followed by business services and personal services. However collectively, service oriented employment is the most prevalent, accounting for approximately 69 per cent of all Regional jobs.

strong assessment growth

Consistent with strong population and economic growth within York Region and continuing the postive trend of recent years, assessment growth for 2005 was 3.7%

a growing region

York Region continues to be one of the fastest growing municipalities in Canada with a population of 918,383 at year end, attracting 28,800 new residents and 10,000 new jobs in 2005.

York Region again experienced a significant level of new construction in 2005. The value of new construction was $2.92 billion making York Region among the highest construction start areas in Canada. All elements of the construction sector remained strong as industrial, commercial and institutional (ICI) construction continued to generate 32 per cent of the total value. In the residential sector, 8,992 homes were completed and 9,497 new residential units started within the Region last year. This trend of economic vitality is anticipated to continue in 2006 and beyond.

strategic planning
Vision 2026 is the Region’s long term strategic document and is intended to guide decisions to ensure the Region’s high quality of life now and in the future. Eight goals are outlined in Vision 2026 to help set a broad context and framework for the Region’s corporate strategies and business plans:
• Quality communities for a diverse population
• Enhanced environment, heritage and culture
• A vibrant economy
• Responding to the needs of our residents
• Housing choices for our residents
• Managed and balanced growth
• Infrastructure for a growing region
• Engaged communities and a responsive region

The Region measures annual progress in achieving the goals of Vision in the Indicators of Progress annual report. York Region aligns and co-ordinates the activities of all departments to ensure a focused and co-operative effort to achieve the Region’s long term Vision 2026 goals. This approach links overall corporate strategies to departmental initiatives, and ultimately, to individual employee performance plans. The Region utilizes a multi-year business planning process to ensure budget decisions are consistent with the Region’s long term sustainability.

fiscal strategy

reserve management
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.

In accordance with the Region’s Council approved reserve strategy, the 2005 surplus was transferred to the Capital Reserve and the Tax Stabilization reserve. Furthermore, a portion of the operating surplus in Social Assistance and Social Housing programs was transferred in accordance with the reserve strategy to the Social Housing Reserve, and the Working Capital Reserve.

building continued stability

Reserves and Reserve Funds ($ millions) (Excludes Development Charges)

Reserve blanaces are continuously monitred to ensure their adequacy to meet the currrent and future needs of the residents of York Region in a fiscally responsible manner.

growth management strategy
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 2005, the Region committed to spend $907.8 million on capital programs, which includes the 2005 budget allocation plus prior year cost carryovers. This amount provided for the costs to acquire, construct or improve infrastructure and long term assets.

Key capital initiatives continued in 2005:
• Quickstart Transit Infrastructure program (VIVA)
• Water Cost Sharing of Works with Peel (Water Supply)
• Diversion of Sewage Flows to Peel Region
• Land purchase for Markham Bypass Phase 3
• Redevelopment of major regional roads to facilitate traffic flow
• Various intersection and road service improvements

projected capital expenditures to 2015

It is estimated that about $5.9 billion of new capital infrastructure will be required to accommodate approved growth projections to 2015

projected funding sources to 2015

Annual reviews of capital expenditures and associated funding are undertaken as part of the business plan and buget review process.

progress reporting and key performance indicators
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 organization and to our community stakeholders, and proactively address areas requiring improvement.

York Region continued its efforts in 2005 to focus on program results and service delivery commitments. Detailed quarterly progress reporting for all Regional service areas has allowed the organization to better monitor business plan objectives and budgeted expenditures.

cost per lane kilometre of road maintenance

Key Performance Indicators (KPIs) in each program area assist with understaindng delivery objectives and aid in setting appropriate cost and quality targets.

vehicle density - congestion

Examples illustrate how York Region incorporates a balanced approach to measure efficiency, effectiveness and community impact of service delivery.

York Region continued its participation in the Ontario Municipal CAOs Benchmarking Initiative (OMBI) in 2005. As a leader among peer municipalities, this initiative involves comparing our activities to those of other municipalities to continually identify improved and innovative methods of service delivery.

the 2005 approved budget
The Budget Review Committee comprised of the Regional Chair and CEO, the Chief Administrative Officer, the Commissioner of Finance and Regional Treasurer, and the Director of Business Planning and Budgets, reviews proposed Business Plans and Budgets to ensure compliance with Regional Council guidelines and to balance competing priorities.

On February 17, 2005, York Regional Council adopted a total gross expenditure budget of $1.5 billion. After assessment growth of 3.7 per cent, the net tax levy increase for all Regional services was 5.32 per cent. This budget addressed the challenges associated with managing a rapidly growing region. Major enhancements to Police Services, Emergency Medical Services, York Region Transit, Viva Rapid Transit, Social Assistance and various capital programs accounted for the majority of the Region’s increased financial pressures on the 2005 budget.

In preparing the 2005 Business Plan and Budget, all Regional business units prepared budgets according to the following categories:

2005 financial results
York Region’s 2005 financial activities reflect accelerated capital investments in response to growth and development. Consolidated fund balances increased by $22.2 million compared to the prior year as transfers from reserves contributed toward the financing of capital projects. Another important component of the Region’s financial strategy is the timely and effective use of long-term debenture financing. As demands for new and updated infrastructure grow within the Region and its area municipalities, so too has the need for capital financing. In 2005, the Region issued public debentures throughout the year, borrowing a total of $268.4 million at historically low interest rates. The Region’s share of these issues totalled approximately $239.9 million and the balance of $28.5 million was borrowed on behalf of area municipalities. This debt is financed by tax levy, user rates for water and sewer and development charges. Highlights of the financial results are detailed on the right.

REVENUES

(in $ millions)

current fund expenditures
Expenditures for Current Fund Operations totalled $823.1 million in 2005, including:
• Community Services ($188.4M)
• Protection to Persons & Property ($154.2M)
• Transportation ($122.8M)
• Social Housing ($104.6M)
• Environmental Services ($111.1M)
• Health & Emergency Services ($74.2M)
• General Government ($59.3M)
• Planning & Development Services ($8.5M)

current fund expenditures

(in $ millions *)

capital fund expenditures
Capital Fund Expenditures in 2005 totalled $542.3 million, including:
• Environmental Services ($277.6M)
• Road Improvements and Expansion of the Transit System ($235.1M)
• Protection to Persons & Property ($7.7M)
• Community Services & Housing ($4.2M)
• General Government ($14.7M)
• Health & EMS ($3.0M)

capital fund expenditures

(in $ millions )

partnerships
The Regional Municipalities of York and Peel have entered into a partnership arrangement for the provision of water and waste water infrastructure. These agreements provide the services for the growth areas within the western parts of York Region.

conclusion - here to serve you
Providing service to over 918,000 residents and an employment base of 450,000 in a rapid growth environment requires proactive financial management and the development of sustainable financial strategies. To assist in conducting the various financial functions and transactions of the Region, professional services are provided to the Region of York by the following companies:

Banker:
   TD Canada Trust

Fiscal Agents:
   RBC Dominion Securities Inc.
   CIBC World Markets Inc.
   Scotia Capital Inc.
   BMO Nesbitt Burns Inc.
   National Bank Financial Inc.

Auditor:
   KPMG LLP, Chartered Accountants

I would like to express a note of gratitude for the co-operation and support of Regional Council and the staff of all departments in addressing the challenges of the past year. In addition, I would like to acknowledge the professional efforts of the Finance team for their commitment and dedication during 2005; most notably those of Sandra Cartwright, who retired from the position of Commissioner of Finance and Regional Treasurer, February 2006. I am pleased to assume the leadership and carry on the high standards of fiscal excellence at York Region.

Lloyd Russell

Commissioner of Finance and Regional Treasurer
April, 2006