Lloyd Russell Commissioner of Finance & Regional Treasurer

We are pleased to present the financial statements of the Corporation of The Regional Municipality of York for the year ended December 31, 2006. This report highlights ongoing financial policies, practices, budget initiatives and financial performance related to the delivery of the Region’s programs and services along with key financial results for fiscal year 2006.

financial responsibility and accountability
Through innovative service delivery, creative partnerships and excellence in customer service, York Region has achieved many successes in 2006. With responsible, prudent fiscal policies, sustainable financial strategies and proactive 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.

York Region continues its commitment to the goal of financial accountability, through initiatives to evaluate and report on performance and also to seek feedback from citizens. The Region is in compliance with the guidelines of the Municipal Performance Measurement Program (MPMP), 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 CAO’s Benchmarking Initiative (OMBI), a project with a focus on identifying and sharing best practices of service delivery and quality standards in Ontario municipalities.

Readers are encouraged to visit York Region’s website at www.york.ca for updates on performance and progress achieved throughout the year.

strategic planning
Vision 2026 is York Region’s overarching 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 2026 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.

financial statements
The financial statements 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 and practices which conform to local government accounting standards established by the Public Sector Accounting Board (PSAB) of the Canadian Institute of Chartered Accountants (CICA). Where the determination of assets and liabilities is dependent upon future events, amounts are based upon reasonably determined estimates, forecasts and sound judgments. Management is confident that it has developed a system of internal controls 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, bylaws, 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 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, who has expressed an unqualified opinion that these statements present fairly the financial position of the Region at December 31, 2006. Publication of these financial statements fulfills the Region’s commitment to accountability.

GFOA Canadian Award for Financial Reporting
For the ninth consecutive year, the Government Finance Officers Association of the United States and Canada (GFOA) 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, 2005. 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 to 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 2006 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.

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 business plans and budgets.

York Region has established risk management programs and procedures to protect the Corporation's assets against the financial consequences of accidental loss. Through combined 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, an Audit Services Branch exists 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.

Moody's Investors Services
The Regional Municipality of York’s AAA credit rating is supported by a track record of prudent fiscal management, generating positive financial results, a growing assessment base, high levels of reserves and a well structured, albeit expanding, debt profile.

Standard and Poor's rating • AAA
The ratings on the Regional Municipality of York reflect its very strong long-term economic growth, robust liquidity levels, strong long-term operating results, superior taxable assessment growth and prudent financial management. These credit strengths are offset by very large growth-related capital spending requirements and a debt burden that is rising and high in comparison with its AAA rated international and domestic peers.

economic overview
York Region’s population is one of the fastest growing and most diversified municipalities in Canada, accounting for 16.9 per cent of the total GTA’s population. As of December 31, 2006, York Region’s population was estimated to be 950,674 residents, an increase of approximately 32,290 from 2005. By the year 2031 it is projected that York Region’s population will increase to 1.5 million based on the Province of Ontario’s Places to Grow forecasts.

As one of the fastest growing areas in Canada, the number of jobs in York Region is estimated to have grown by approximately 10,000. At the end of 2006, there were approximately 460,000 jobs in the Region. The growth is a reflection of the increased workforce of existing enterprises but more significantly an increase in the number of new enterprises to the Region.

Manufacturing continues to be York 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% of all Regional jobs.

	Consistent with strong population and economic growth within york Region assessment growth for 2006 was 3.3%

	Since its creation in 1971, York Region's population has risen dramatically from 169,000 to 950,700 in December 2006. During the last 30 years, York Region's population has been one of the fastest growing in North America.

Total construction for 2006 was valued at $3.12 billion. Residential construction was an estimated $2.2 billion in 2006. York Region had the third highest total residential construction value in Canada for 2006 and ranked third highest for new residential permits issued. The value of Industrial, Commercial and Institutional (ICI) construction decreased 1.5 percent in 2006. Despite the decrease in total values, strong growth was seen in the commercial construction sector, which was 16.8 per cent higher. In the residential sector, 10,162 homes were completed and 9,950 new residential units were started within York Region last year. This trend of economic vitality is anticipated to continue in 2007 and beyond.

reserve management
The establishment, maintenance and prudent management of reserves are important components of the Region’s financial strategy. Reserve funds support a significant portion of the cost of capital infrastructure and play an instrumental role in offsetting unforeseen cost increases during uncertain economic times.

In accordance with Council’s Reserve and Reserve Fund Policy, the 2006 surplus was transferred to the Capital, Insurance and Tax Stabilization reserves. Furthermore, a portion of the operating surplus in Social Housing programs was transferred to the Social Housing Reserve and the Working Capital Reserve.

In February 2006, Regional Council approved the development of a Long Range Fiscal Planning Strategy. This strategy consists of two components: a Capital Financing Plan and a Capital Asset Management Plan

In June 2006, Regional Council adopted a policy to allocate a portion of supplementary taxes (based on a share of the previous year’s actual supplementary tax receipts, net of write-offs) to fund rehabilitation and/or replacement of the Region’s capital assets. This contribution will be used, in part, to fund annual depreciation of new assets acquired in 2007.

A Capital Asset Management Plan is being developed in conjunction with the Region’s preparation to report capital assets in the financial statements by 2009, as mandated by the CICA and PSAB. This information is also being compiled to determine the adequacy of the Region’s reserve funds for asset replacement, and to support a long-term strategy to provide funding to tax levy and user-rate supported reserves.

Reserve & Reserve Funds ($ Millions) (excludes Development Charges)
	Since its creation in 1971, York Region's population has risen dramatically from 169,000 to 950,700 in December 2006. During the last 30 years, York Region's population has been one of the fastest growing in North America.

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 2006, the Region committed to spend $907.8 million on capital programs [budget of $516.7M plus $391.1M in carryovers]. Actual expenditures were $424.5M or 47% of the 2006 Budget. This amount provided for the costs to acquire, construct or improve infrastructure and long-term assets.

Key capital initiatives continued in 2006:
• Transit Infrastructure
• Redevelopment of major Regional roads to facilitate traffic flow
• Various intersection and road service improvements
• Water Cost Sharing of Works with Peel Region
• Diversion of Sewage Flows to Peel

the 2006 approved budget
The Budget Review Committee comprised of the York Region Chairman, the Chief Administrative Officer, the Regional Treasurer, and the Director of Business Planning and Budgets, reviews proposed Business Plans and Budgets, to ensure compliance with Council guidelines and to balance competing priorities.

On December 15, 2005 York Regional Council adopted a total gross expenditure budget of $1.61 billion. After assessment growth of 4.0%, the net tax levy increase for all Regional services was 2.9%. This budget addressed the challenges associated with managing a rapidly growing Region. Major enhancements to York Region Transit, Viva Rapid Transit, Police Services, Solid Waste Services, EMS and various capital programs, accounted for the majority of the Region’s increased financial pressures on the 2006 budget.

In developing the 2006 Business Plan and Budget, all Regional business units prepared budgets according to the following categories:

PROGRESS REPORTING AND KEY PERFORMANCE INDICATORS (KPIs)
As York Region continues to experience robust economic growth and increased responsibilities, a significant 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 to proactively address areas requiring improvement through the annual budget review process.

York Region continued its participation in the Ontario Municipal CAO’s Benchmarking Initiative (OMBI) in 2006. As a leader among peer municipalities, this initiative involves comparing York’s activities to those of other municipalities to identify improved and innovative methods of program and service delivery.

	Key Performance Indicators (KPIs) in each program area assist with understanding delivery objectives and aid in setting appropriate cost and quality targets. Examples illustrate how York Region incorporates a balanced approach to measure efficiency, effectiveness and community impact of service delivery.
* Vehicle kilometres per day (000s) per lane kilometre of roadway

2006 financial results
York Region’s 2006 financial activities continue to reflect accelerated capital investments in response to growth and development. Consolidated fund balances increased by $71.5 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 also has their capital financing needs grown. In 2006, the Region issued public debentures throughout the year, borrowing a total of $291.7 million at low historic interest rates. The Region’s share of these issues totalled approximately $229.9 million and the balance of $61.8 million was borrowed on behalf of area municipalities. Highlights of the financial results are detailed below.

innovative partnerships
The York-Durham Sewage System is a partnership between York and Durham Regions to provide sewage treatment at the Duffin Creek Water Pollution Control Plant, located in The Town of Pickering. Ownership and operation of this facility is governed by two agreements, with operating costs allocated pro-rata based on wastewater flows.

The new water supply from Peel Region that was implemented in 2005 assists growth and meets water consumption needs in the Yonge Street Aquifer corridor (Aurora, Newmarket & East Gwillimbury), Vaughan, Richmond Hill and Markham. The York-Peel Water Supply agreement is another strategic partnership designed to optimize the benefits of capital investments, contain costs and provide efficient services to the residents of both regions.

Durham and York Regions have formed a partnership to undertake a Residual Waste Planning Study and examine options to manage solid waste that remains after diversion. It is being conducted under the environmental assessment process and will examine suitable areas for an EFW Facility, determine size requirements for the facility, identify potential sites in either York or Durham, recommend a preferred solution and site. The study is expected to be completed by late fall or early winter of 2008, with construction following completion of the Study.

In March, 2006, the Province of Ontario announced that it would cost share an extension of the Spadina subway line to Vaughan Corporate Centre in York Region. This project represents a major inter-municipal rapid transit project involving York Region, the City of Toronto and the Toronto Transit Commission. The Province placed $670 million into the Move Ontario Trust for this project, or one-third of the estimated cost at that time.

In September 2006, Regional Council approved a capital cost share arrangement for construction of the subway extension. Under this arrangement, capital costs would be split 60/40 between the City of Toronto and York respectively. Also in 2006, staff at York Region, the City of Toronto and the Toronto Transit Commission initiated discussions to develop an agreement for operations of the subway extension into York Region. These discussions are ongoing in 2007.

conclusion - here to serve you
Providing service to 950,674 residents and an employment base of 460,000 in a rapid growth environment requires proactive financial management and development of sustainable financial strategies.

To assist in conducting the various financial functions and transactions of the Region, professional services are provided to the Regional Municipality of York by the following companies:

Auditor:
   KPMG LLP
   Chartered Accountants

Banker:
   TD Canada Trust

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

In closing, I would like to express appreciation and thanks 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 2006 in providing accurate and timely financial information to Regional Council, Committees, departments and community stakeholders. We are committed to providing high standards of fiscal excellence at York Region.

Lloyd Russell

Commissioner of Finance and Regional Treasurer
April, 2007