FINANCIAL OVERVIEW. Property tax: $1, City of Prince George 2015 Annual Report

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1 FINANCIAL OVERVIEW How much does it actually cost to deliver various City services? Using a representative property assessment of $233,513, here are the figures: Property tax: $1, Police:... $ % Fire:... $ % Recreation services and facilities:... $ % Grants (Community Partnerships, Social, Tourism PG):... $ % Planning and Development, including Transit:... $ % Economic Development:... $ % Bylaw Services:... $ % Snow Control:... $ % Transportation, including lighting and storm drainage:... $ % Parks, including cemetery: $ % Civic facilities, Engineering, Fleet:... $ % Public Library:... $ % Corporate services, including Finance, HR, Legislative Services, Communications:... $ % Total:... $1, City of Prince George 2015 Annual Report 26

2 2015 MUNICIPAL May 26, 2015 FINANCIAL STATEMENTS AND ANNUAL REPORT 2016 Municipal Financial Statements and Annual Report To Mayor Hall and Members of Council: I hereby submit the Municipal Financial Report for the City of Prince George for the fiscal year ended December 31, 2015, pursuant to section 167 of the British Columbia Community Charter. The annual report includes the Consolidated Financial Statements, the Auditor s Report and supplementary schedules. In accordance with PSAB standards, the City s consolidated statements include the Prince George Public Library, Initiatives Prince George Development Corporation and Tourism Prince George Society (Other Controlled Entities). Finance staff has strived to provide the readers and users of our financial statements with summarized information that clearly presents the City s financial position and results for 2015 in comparison to The City s 2015 Financial Statements and Annual Report have two sections, which are as follows: 1) Financial Information This section contains the Auditor s Report, and the City s Consolidated Financial Statements with supporting notes. The consolidated statements reflect the City s overall financial position as at December 31, 2015, with comparative amounts for The statements are represented as the Statement of Financial Position, Statement of Operations, Statement of Change in Net Financial Debt and Statement of Cash Flows. The budgetary figures reported are those that were approved by Council in the annual 2015 budget bylaw, and not subsequent budget amendments approved by Council. The Notes to the Consolidated Financial Statements provide further detail as to specific accounting policies and the composition of certain financial numbers, and should be read in conjunction with the statements. 2) Supplementary Financial Information This section contains non-consolidated (fund and controlled entities) results as a supplement to the consolidated financial statements. The non-consolidated results are shown by fund for financial position and operations. The statement of segment disclosure provides comparative detail for 2015 and Details of balances in reserve funds, tangible capital assets, and trust funds are provided as well as additional detailed information on consolidated revenues, expenditures, expenditures by object, and short-term and long-term debt. Financial Management and Control The City prepares multi-year operational and capital expenditure plans each year that represent the programs that Council wishes to see implemented. The City Manager is responsible to provide overall guidance with respect to Council s direction concerning service and the City s operational and capital expenditure plans. Departments are responsible for developing and managing the budgets.

3 The Finance Department is responsible for the preparation of the financial statements. While there is close consultation with the City s auditors, management is ultimately responsible for decisions relating to the form and content of these statements and for the treatment and reporting of transactions Capital Project Highlights There were approximately 113 individual capital projects worked on in 2015, culminating in $23.3 million in total capital expenditures Capital Expenditures by Fund and Project Type Fund Expenditures % Project Type Expenditures % General 16,955, Betterment 10,294, Land 309, New Asset 6,224, District Energy 298, Replacement 6,776, Sewer 2,282, Water 3,450, Total 23,296, Total 23,296, The largest single, notable and combined projects are listed below. Road Rehabilitation Levy and Capital Program => $7,150,973 The road rehabilitation program provides for the restructure and resurfacing of local, arterial and collector roads. The City of Prince George has a general levy for road rehabilitation projects. Levy funds are transferred to a road rehabilitation reserve which is used for funding annual rehabilitation projects. In 2015 the total spent was $7.151 million. The actual funding came from $4.982 million levy, $0.151 prior years surplus and $2.018 million from Community Works (Gas Tax) grant revenue. In 2015, the road rehabilitation program was used to resurface approximately 56.2 lane kilometers of roadway for the following projects: Resurfaced Road From >> To Kms 1st Ave Tabor Blvd >> Ospika Blvd 1.3 3rd Ave Victoria St >> Vancouver St 0.3 4th Ave Victoria St >> Queensway 1.0 5th Ave Ospika Blvd >> Ruggles St th Ave Bypass >> Johnson th Ave Ospika Blvd >> Foothills Blvd th Ave Victoria St >> Alward St th Ave Foothills Blvd >> Robertson St 1.6 Blackwater Rd 2014 Paving Limit >> City Limits 2.6 Boeing Rd Boundary Rd >> Old Cariboo Hwy 1.3 Brunswick St 7th Ave >> 4th Ave 0.5 Cantle Rd Hwy 16 >> Hartman Rd 1.1 Continental Way 2011 Limit >> Industrial Way 1.7 Croft Rd Cook Cres >> Oakridge Cres 1.4

4 Resurfaced Road From >> To Kms Foothills Blvd Southbound 2013 Paving Limit >> 5th Ave 3.2 George Paul Lane 18th Ave >> End 0.3 Irene Rd Hwy 16 >> Henrey Rd 1.4 Kerry St Rainbow Dr >> Davie Ave 0.7 Killoren Cres 5th Ave >> Hunter Ave 0.5 Landooz Rd Northwood Pulpmill Rd >> 2014 Paving Limits 2.7 N. Nechako Rd Sydney Pl >> Hwy 97 N Bound on Ramp 0.9 N. Nechako Rd Foothills Blvd >> Rosia Rd 1.9 Otway Rd 2014 Limit >> City Limits 2.9 Pinewood Ave Sycamore Cres >> Westwood Dr 0.8 Queensway Moyie St >> 20th Ave 6.5 Redwood St 15th Ave >> 20th Ave 1.0 Simon Fraser Rd Selkirk Cres >> Gladstone Dr 2.0 Southridge Ave Marleau Rd >> St. Lawrence Ave 1.6 Spruce St 20th Ave >> Milburn Ave 1.2 Tony Rd Hwy 16 Frontage >> Henrey Rd 1.5 Tyner Blvd University Heights >> UNBC 3.7 Upland St Milburn Ave >> Hwy 97 Underpass 1.4 Wiebe Rd Range Rd >> Vance Rd 0.8 Winslow Dr Croft Rd >> Birchwood Dr 1.6 Thompson Dr Miller Cres >> Park Dr 0.7 Mobile Equipment Purchases => $3,446,909 There was approximately 21 new pieces of mobile equipment plus attachments purchased in Upgrades to Waste Water Treatment Plant => $968,710 There are a number of projects going on at the Waste Water Treatment Centre to repair and improve the operation of the facility. $1.296 million has been spent over 2014 and 2015 on seven separate projects. Project Titles (WWTC) Total Valve and Actuator Upgrades $5,223 $80,621 $85,844 Screening Equipment 50,898 44,117 95,015 Sludge Collection 19, , ,428 Integrate Boiler-Turbine 2,425 22,215 24,640 Fibre Optics Installation 214,126 73, ,151 PLC Upgrade 35, , ,753 Digester Upgrades 19,268 19,268 Totals $327,390 $968,710 $1,296,099

5 Sidewalk Rehabilitation => $652,822 In keeping with the large increase in spending on sidewalk work in 2014, this year another $653k was invested into rehabilitation and enhancement of our pedestrian network. Including the $265k grant funded transit improvements on the Hart Highway, $1.970 million has been spent over 2014 and 2015 on sidewalk projects. Hoferkamp Road Landslide Mitigation => $515,853 Work was necessary to stabilize 500m of road around McMillan Creek to prevent the road from ultimately becoming impassable for local residents and to stop further environmental damage to the creek. Boundary to Danson Road Water Connection => $453,308 This is an ongoing multi-year $1.5 million dollar project to connect to the Danson Reservoir PW827, allowing for enhanced water supply to the BCR/Danson industrial areas. The connection will provide for additional water supply to the BCR/Danson, which is now served by a single well that is almost at operating capacity. The additional water supply is required to accommodate the build-out of recent development along Willow Cale Road and other potential development in the BCR/Danson industrial area. Foothills Bridge Reinforcing => $355,961 It was determined upon inspection that the bridge doesn t meet the specifications in place today for similar engineered structures and that the bridge girders should be reinforced. This is a $1million multiyear project that is scheduled to spend another $650k in Fluoride Tanks Decommissioning => $112,058 Most of the work necessary to complete the removal of residual fluoride, tanks and other apparatus was completed in 2015, with some carryover into The project has a budget of $143k Financial Results General Operating Fund Accumulated Surplus The accumulated surplus level in the General Operating Fund for 2015, excluding Other Controlled Entities was approximately $9.98 million compared to $11.24 million in Reserve Fund Levels Fund Change Endowment Fund $24,441,109 $16,810,725 $7,630,384 Capital Expenditure Reserve (General) 2,657,665 3,694,342 (1,036,677) Local Area Service Reserve 113, ,606 1,823 Storm Drainage Reserve 48,182 62,006 (13,824)

6 Fund Change Debt Reduction Reserve 2,353,436 1,758, ,727 North Meadow Paving Reserve Land Development Reserve 240, ,000 Road Rehabilitation Reserve 39, ,213 (137,357) Canada Winter Games Reserve 0 1,263,278 (1,263,278) General Infrastructure Reserve 2,151,134 1,665, ,889 Capital Expenditure Reserve (Sewer) 8,272,836 4,861,395 3,411,441 Capital Expenditure Reserve (Water) 19,682,409 13,674,739 6,007,670 Mobile Equipment Reserve 3,577,326 3,431, ,754 Computer Equipment Reserve 1,756,318 1,179, ,581 Recreation Area Reserves 116, ,105 1,840 Parkland Acquisition Reserve 17,039 51,975 (34,936) Downtown Off-Street Reserve 2,015,559 1,718, ,593 Cemetery Development Reserve 3,009 2, Fortis BC LILO Reserve 3,199,498 3,867,284 (667,786) Ospika/Marleau Extension Reserve 212, ,102 3,318 Solid Waste Reserve 130, ,568 (179,913) Total $71,028,979 $54,966,679 $16,062,300 Investment Earnings The City of Prince George invests funds that are in excess of current financial obligations. The investment portfolio was invested primarily with the Municipal Finance Authority due to competitive rates and ease of administration. Investment earnings in 2015 were approximately $1.23 million compared to $1.06 million in The average monthly investment was $80.8 million and the weighted average rate of return was 1.61%. External Short-Term Debt Short-term debt (including capital leases and excluding Other Controlled Entities) principal outstanding was approximately $2.71 million at the end of 2015, compared to $3.63 million at the end of Short-term debt is defined as financial obligations for terms of less than five years. External Long-Term Debt Long-term debt (including capital leases) principal outstanding was approximately $ million at the end of 2015 ($88.17 million General Capital Fund, $3.00 million District Energy Capital Fund, $10.34 million Water Capital Fund, and $1.83 million Sewer Capital Fund), compared to $96.87 million at the end of The Fortis BC (formerly Terasen Gas Inc) capital lease of $29.27 million is included in 2015 long-term debt.

7 Significant Financial Management Practices Revolving Reserve Fund The City operates the Endowment Reserve Fund as a revolving fund. Appropriations from this reserve are treated much like debt, and annual contributions or transfers are made from the General Operating Fund to repay the monies appropriated, with interest, over a period of 5 to 20 years, depending upon the size of the appropriation. The appropriations from the reserve are referred to as internal debt, and are reflected in the financial statements. Interest rates and repayment schedules are occasionally adjusted to moderate the impact that the creation of new internal debt may have on the annual budget. Repayment of monies appropriated from this reserve is not a legal requirement. However, the guidelines of repayment of the appropriations has been followed, as this Reserve Fund provides an attractive alternative to borrowing money on the open market because repayment schedules are more easily tailored to current budget needs and because interest and principal repayments can be deferred in the event of economic need. Financing of Utilities The City s policy is to not use general taxation to fund the provision of water and sanitary sewer services, or the operation of the solid waste collection service. These services are financed by a combination of user charges and parcel taxes applicable only to those who benefit from the service(s), and government grants. A management fee is included in the cost structure of these services so that the users of the services provide a contribution to the City s general overhead costs, including the provision of facilities, office, and general corporate services such as human resources and accounting. Land Development A program of land acquisition, development and sales has been in place for many years. In general, the objective is to ensure that there is a reasonably balanced inventory of residential and commercial lots for future development. The land development program is completely self-funding, and as such, no contribution is made to the program from Operating Funds. Profits made from land development are used to finance capital projects such as recreation and cultural facilities, roads, and other infrastructure required to support the City s operations. Summary Compiling financial statements and annual report information requires the input and assistance of numerous City staff members throughout the year and at year-end. I would like to thank all of the City staff members who contribute to this process on an on-going basis. Respectfully submitted, Kris Dalio Director of Finance

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10 Consolidated Statem ent of Financial Position as at December 31 (in thousands of dollars) FINANCIAL ASSETS Cash and Cash Equivalents (Note 2) $ 14,936 $ 15,620 Receivables (Note 3) 15,534 15,657 Investments (Note 4) 91,450 66,661 Deposits - Municipal Finance Authority (Note 5) 2,255 2, , ,237 LIABILITIES Accounts Payable and Accrued Liabilities (Note 6) 27,247 32,016 Deferred Revenues (Note 7) 12,228 12,372 Deferred Development Cost Charges (Note 8) 6,409 5,888 Reserves - Municipal Finance Authority (Note 5) 2,255 2,299 Short-Term Debt, Including Capital Lease (Schedule 10) 2,818 3,755 Long-Term Debt, Including Capital Lease (Schedule 11) 103,338 96, , ,196 NET DEBT (30,120) (52,959) NON-FINANCIAL ASSETS Prepaid Expenses 963 1,015 Inventories Tangible Capital Assets (Note 9) 615, , , ,620 ACCUMULATED SURPLUS (Note 11) $ 587,148 $ 560,661 Commitments and Contingencies (Note 14) K. Dalio, Director of Finance 1 To be read in conjunction with the Notes to the Consolidated Financial Statements

11 Consolidated Statem ent of Operations 2015 Original for the year ended December 31 Budget Bylaw (in thousands of dollars) (Note 1 (a)(v)) Actual Actual REVENUES (Schedule 7) Taxation and Grants in Lieu, net $ 95,874 $ 96,585 $ 93,348 Sales of Services, User Rates and Rentals 50,550 54,858 49,809 Investment Income 3,125 4,092 3,540 Development Cost Charges Contributions Contributions from Other Governments & Agencies 7,947 9,701 10,343 Sinking Fund Surplus Other Revenue 18,936 8,311 7,929 (Loss) Gain on Sale of Tangible Capital Assets - (417) 850 Asset Contributions , , , ,530 EXPENSES (Schedules 8 and 9) General Government 22,233 19,255 18,247 District Energy ,098 Protective Services 44,077 46,158 43,430 Transportation Services 33,199 29,040 29,614 Water and Sewer 14,696 16,070 15,093 Sanitation and Waste Removal 3,389 3,422 3,458 Public Health and Welfare Planning and Environmental Development 2,857 1,800 2,099 Parks, Recreation and Cultural Services 21,321 24,642 22,287 Other Controlled Entities 4,826 6,405 6, , , ,819 ANNUAL SURPLUS (Note 13) $ 29,256 26,487 26,711 ACCUMULATED SURPLUS, Beginning of Year 560, ,950 ACCUMULATED SURPLUS, End of Year $ 587,148 $ 560,661 To be read in conjunction with the Notes to the Consolidated Financial Statements 2

12 Consolidated Statement of Change in Net Debt 2015 Original for the year ended December 31 Budget Bylaw (in thousands of dollars) (Note 1 (a)(v)) Annual Surplus $ 29,256 $ 26,487 $ 26,711 Amortization of Tangible Capital Assets 16,110 19,937 19,401 Proceeds on Disposal of Tangible Capital Assets - 1,014 1,326 Change in Inventories and Prepaid Expenses (Loss) Gain on sale of Tangible Capital Assets (850) Acquisition of Tangible Capital Assets (43,986) (25,176) (29,437) Decrease in Net Debt 1,380 22,839 17,357 Net Debt, Beginning of Year (84,689) (52,959) (70,316) Net Debt, End of Year $ (83,309) $ (30,120) $ (52,959) 3 To be read in conjunction with the Notes to the Consolidated Financial Statements

13 Consolidated Statement of Cash Flows for the year ended December 31 (in thousands of dollars) NET INFLOW (OUTFLOW) OF CASH RELATED TO THE FOLLOWING ACTIVITIES: Operating Annual Surplus $ 26,487 $ 26,711 Non-cash Charges to Operations Amortization 19,937 19,401 Loss (Gain) on Sale of Tangible Capital Assets 417 (850) 46,841 45,262 Decrease in Receivables 123 7,155 Decrease (Increase) in Prepaid Expenses 52 (126) Decrease in Inventories (Decrease) in Accounts Payable and Accrued Liabilities (4,768) (2,524) (Decrease) in Deferred Revenues (144) (1,718) Increase in Deferred Development Cost Charges 521 1,009 42,733 49,390 Capital Acquisition of Tangible Capital Assets (25,176) (29,437) Proceeds on Disposal of Tangible Capital Assets 1,014 1,326 (24,162) (28,111) Investing Increase in Investments (24,789) (27,835) Financing Debt Proceeds 16,821 10,630 Repayment of Debt (11,287) (10,759) 5,534 (129) Increase in Cash and Cash Equivalents (684) (6,685) Cash and Cash Equivalents, Beginning of Year 15,620 22,305 Cash and Cash Equivalents, End of Year (Note 2) $ 14,936 $ 15,620 To be read in conjunction with the Notes to the Consolidated Financial Statements 4

14 Notes to the Consolidated Financial Statements For the year ended December 31, 2015 General The Notes to the Consolidated Financial Statements are an integral part of these statements. They explain the significant accounting and reporting policies and the principles that form the basis for these financial statements. The Notes also provide important supplementary information and explanations which cannot be conveniently integrated into the Consolidated Financial Statements. 1. Significant Accounting Policies a) Basis of Presentation The Consolidated Financial Statements of the City of Prince George (the "City") are prepared by management in accordance with Canadian Public Sector Accounting Standards. The Consolidated Financial Statements reflect the combined results and activities of the reporting entity which comprises all organizations that are accountable for the administration of their financial affairs and resources to the Council and are controlled or owned by the City. Controlled entities include Prince George Public Library, Initiatives Prince George Development Corporation and Tourism Prince George Society. The City's general classification of funds and the purpose of those funds are shown below: i) Operating Funds These Funds include the General, District Energy, Water, and Sewer operations of the City. Operating Funds are used to record the costs associated with providing City services. ii) Capital Funds These Funds include General, District Energy, Water, Sewer, and Land Capital Funds. These Funds track the acquisition costs of various capital assets and the funding of these assets including related short-term and long-term debt. iii) Reserve Funds Under the Community Charter of British Columbia, City Council may by bylaw establish special Reserve Funds for specific purposes. Money in a Reserve Fund and interest earned thereon must be used only for the purpose for which the Fund was established. If the amount in a Reserve Fund is greater than required, City Council may, by bylaw, transfer all or part of the balance to another Reserve Fund. iv) Trust Funds These Funds have been created to hold cash assets that must be used for specific purposes and/or beneficiaries and according to certain agreements. In accordance with Canadian public sector accounting standards, Trust Funds administered by the City are not to be included in the City's Consolidated Financial Statements. These trust funds are presented in Schedule 6. 5

15 Notes to the Consolidated Financial Statements For the year ended December 31, 2015 v) Original Budget Bylaw The original budget bylaw, stated in the consolidated statements of operations and changes in net debt, represents the budget bylaw adopted in May Any budget amendments subsequently adopted by Council have not been included. b) Revenue Recognition Taxation revenues are recognized when levied in May of each year as this is when taxation revenues are authorized and the taxable event occurs. Taxation revenue is initially measured at realizable value. At year end, the City evaluates the ultimate collectability of taxation receivables and adjusts any valuation allowance. Interest and operating grants are recognized as earned. Capital grants are recognized as revenues in the year in which the related expenditures are incurred. Sales of services, user fees and rentals are recognized when the service or product is provided by the City. Government transfers without stipulations are recognized as revenues in the period in which the transfer is authorized, any eligibility criteria have been met, and reasonable estimates of the amounts can be made. Government transfers with stipulations are recognized as revenue in the period the transfer is authorized and all eligibility criteria have been met, except when and to the extent that the transfer gives rise to an obligation that meets the definition of a liability. Any such liability is reduced, and an equivalent amount of revenue is recognized as the liability is settled. Grants in lieu of taxes are recorded on an accrual basis when it is possible to reasonably estimate the amounts receivable. c) Deferred Revenues The City defers a portion of the revenue collected from permits, licenses and other fees and recognizes such revenue in the year in which related inspections or other related expenditures are incurred. d) Expenses Expenses are generally recognized as they are incurred and when the goods and services are received and/or a legal obligation to pay is established. e) Accumulated Surplus Accumulated surplus is the amount by which all financial and non-financial assets exceed all liabilities and indicates the net economic resources available to provide future services. Accumulated surplus is represented by various fund balances and equity in capital assets. f) Cash and Cash Equivalents Cash and cash equivalents consist of cash and highly liquid money market investments that are readily convertible to known amounts of cash and that are subject to an insignificant risk of change in value. These short-term investments generally have a maturity of three months or less at acquisition and are held for the purpose of meeting short term cash commitments rather than for investing. 6

16 Notes to the Consolidated Financial Statements For the year ended December 31, 2015 g) Investments Investments are recorded at cost less any impairments which are other than temporary, including bonds which are recorded net of premium or discount. Interest is accrued at the invested rate. When there has been a loss in value that is other than a temporary decline, the respective investment is written down to recognize the loss. h) Financial Instruments The City's financial instruments consist of cash and cash equivalents, receivables, investments, deposits and reserves with the Municipal Finance Authority, accounts payable and accrued liabilities, and short term and long term debt. Unless otherwise noted, it is management's opinion that the City is not exposed to significant interest, currency or credit risks arising from these financial instruments. The fair value of these financial instruments approximate their carrying values, unless otherwise noted. i) Use of Estimates The preparation of consolidated financial statements in conformity with Canadian Public Sector Accounting Standards requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the consolidated financial statements and the reported amount of revenues and expenses during the period. Items requiring estimates include the collectability of accounts receivable, accrued liabilities, useful lives of tangible capital assets, rates for amortization, employee benefits and impairment of investments and tangible capital assets. Estimates are based on the best information available at the time of preparation of the consolidated financial statements and are reviewed annually to reflect new information as it becomes available. Measurement uncertainty exists in these consolidated financial statements. Actual results could differ from these estimates. j) Post-Employment Benefits The City of Prince George does not accrue expenses for post-employment benefits such as retirement allowances. The City also does not accrue compensated absences (sick leave) for management but does accrue a percentage for CUPE employees. City employees retiring do not receive any retirement allowance that either vests or accrues over the period of employment. CUPE sick benefits are vested at 25% and are also accrued. Management sick benefits do not accrue and are not vested. The City recognizes the expense for management sick time when the event obligates the City to pay. k) Inventories Inventories consist of supplies, repair parts and materials consumed in operations and capital projects. Inventory is recorded at cost which is determined on a weighted average basis. 7

17 Notes to the Consolidated Financial Statements For the year ended December 31, 2015 l) Land and Land Development Reserve Fund Land under development is recorded at the lower of cost and net realizable value. Cost is determined on the basis of an entire project, including interest incurred during development. Cost is then allocated to the individual subdivided lots from the project where applicable. Costs of the lots are removed from Land once the lots have been sold and title has passed to the purchaser. Land Development Reserve Fund monies are used to fund land development costs. Proceeds from the sale of developed land in excess of carrying value and development costs are transferred to the Endowment Fund Reserve. m) Non-Financial Assets Non-financial assets are not available to discharge existing liabilities and are held for use in the provision of services. They have useful lives extending beyond the current year and are not intended for sale in the ordinary course of operations. The change in non-financial assets during the year, together with the annual surplus, provides the Change in Net Debt for the year. n) Tangible Capital Assets Tangible capital assets are recorded at cost which includes all amounts that are directly attributable to the acquisition, construction, development, or betterment of the asset, excluding interest costs. Assets under construction are not amortized until the asset is available for productive use. Tangible capital assets received as contributions are recorded at their fair value at the date of receipt, and that fair value is also recorded as revenue. The cost, less residual value, of tangible capital assets (except for Initiatives Prince George Development Corporation and Tourism Prince George Society's tangible capital assets) are amortized on a straight-line basis over their estimated useful lives as follows: Land Not amortized Building & Improvements years Vehicles, Machinery, & Equipment 3-20 years Other 5-50 years Infrastructure Roads years Parks years Water years Sanitary Sewer years Storm Drainage years Energy & Communication years 8

18 Notes to the Consolidated Financial Statements For the year ended December 31, 2015 n) Tangible Capital Assets, continued Initiatives Prince George Development Corporation uses the following methods and rates to amortize its assets: Buildings & Improvements Vehicles, Machinery, & Equipment Leasehold Improvements 4% Declining Balance 20-30% Declining Balance 5 Years Straight-Line Tourism Prince George Society uses the following methods and rates to amortize its assets: Vehicles, Machinery, & Equipment Leasehold Improvements 20-55% Declining Balance 4 Years Straight-Line o) Long-Term Debt Long Term Debt is recorded net of any related sinking fund balances. Principal debt repayment is recorded in operating funds in the year that it is repaid. p) Capital Leases Leases that, from the point of view of the lessee, transfer substantially all the benefits and risks incident to ownership of the property to the City of Prince George are considered capital leases. These are accounted for as an asset and an obligation. Capital lease obligations are recorded at the present value of the minimum lease payments excluding executor costs, ie. insurance, maintenance costs, etc. The discount rate used to determine the present value of the lease payments is the lower of the City of Prince George's rate for incremental borrowing or the interest rate implicit in the lease. 2. Cash and Cash Equivalents (000's) (000's) Cash $ 8,652 $ 10,325 Cash Equivalents 5,006 3,967 13,658 14,292 Other Controlled Entities Cash 1,278 1,328 $ 14,936 $ 15,620 9

19 Notes to the Consolidated Financial Statements For the year ended December 31, Receivables (000's) (000's) General Operating Fund Property Taxes $ 5,211 $ 5,397 Federal Government 1,532 1,291 Provincial Government 1, Regional District of Fraser-Fort George Accounts Receivable 1,856 1,818 Refuse Rates $ 10,700 $ 10,267 Water Operating Fund Water Utility Rates $ 2,218 $ 1,969 Sewer Operating Fund Sewer Utility Rates $ 1,475 $ 1,291 General Capital Fund Provincial Government $ 313 $ 1,455 Miscellaneous $ 848 $ 1,705 Other Controlled Entities Prince George Public Library $ 17 $ 22 Initiatives Prince George Development Corporation Tourism Prince George Society $ 293 $ 425 Total $ 15,534 $ 15, Investments (000's) (000's) M.F.A. Intermediate Fund $ 59,534 $ 54,730 M.F.A. Bond Fund 26,916 11,931 86,450 66,661 Integris Term Deposit 5,000 - $ 91,450 $ 66,661 The annual weighted average rate of return for 2015 was 1.61% per annum ( %). The rate of return is calculated on the Money Market Fund (cash equivalents), Intermediate Fund, and the Bond Fund. The Integris Term Deposit investment was made on December 31, The maturity date for the Term Deposit is December 31, 2017 and the rate of return is 2.158% per annum. 10

20 Notes to the Consolidated Financial Statements For the year ended December 31, Municipal Finance Authority Offsetting Municipal Finance Authority Deposits and Reserves consist of the following: (000's) (000's) Cash Deposits $ 2,255 $ 2, Accounts Payable and Accrued Liabilities (000's) (000's) General Operating Fund Federal Government $ 5,917 $ 5,340 Provincial Government 2,237 1,998 Regional District of Fraser-Fort George Trade Accounts Payable 8,012 9,488 Payroll Statutory Liabilities 2,385 6,941 Vacation, Sick Leave, and Firefighters Gratuities 6,590 5,969 Accrued Interest on Capital Lease Accrued Interest on Debt $ 26,701 $ 31,246 District Energy Operating Fund Accrued Interest on Debt $ 5 $ 6 Water Operating Fund Accrued Interest on Debt $ 150 $ 151 Sewer Operating Fund Accrued Interest on Debt $ 51 $ 59 General Capital Fund Accrued Interest on Debt $ 13 $ 15 Other Controlled Entities Prince George Public Library $ 200 $ 205 Initiatives Prince George Development Corporation Tourism Prince George Society $ 327 $ 539 Total $ 27,247 $ 32,016 11

21 Notes to the Consolidated Financial Statements For the year ended December 31, Deferred Revenue The City records deferred revenue for funds received in advance on services not yet rendered and is recognized into revenue during the period when service is provided. The City also records deferred revenue when a contract specifies how the resources are to be used and therefore funds received in advance are deferred until the period when the requirement is met. Because these funds are restricted in nature they are shown as a liability (000's) (000's) Operating Funds Taxes $ 5,529 $ 5,883 Fees and charges General 3,773 3,209 Water Sewer Capital Funds Fees and Charges Contributions Received for Land Grants Community Works Fund 1,701 1,965 Gaming Revenue Other ,104 12,212 Other Controlled Entities Prince George Public Library Initiatives Prince George Development Corporation - 56 Tourism Prince George Society Total $ 12,228 $ 12, Deferred Development Cost Charges (DCC) The City collects development cost charges to pay for a proportionate share of infrastructure related to new growth. In accordance with the Community Charter of British Columbia, these funds must be deposited into a separate reserve fund. When the related costs are incurred, the DCCs are recognized as revenue. Because these funds are restricted in nature they are shown as a liability. 12

22 Notes to the Consolidated Financial Statements For the year ended December 31, Deferred Development Cost Charges (DCC), continued (000's) (000's) Deferred DCC by Type Roads $ 2,016 $ 1,761 Drainage 1,563 1,674 Parkland Sewer 1,856 1,695 Water $ 6,409 $ 5,888 Deferred DCC Balance, Beginning of Year $ 5,888 $ 4,879 Investment Income DCCs Levied in the Year 784 1, ,163 Transfers to General Capital (324) (119) Transfers to General Asset Maintenance (4) (35) Transfers to Water Asset Maintenance (30) - (358) (154) Balance, End of Year $ 6,409 $ 5, Tangible Capital Assets (000's) (000's) Land $ 96,358 $ 95,853 Building & Improvements 74,804 76,170 Vehicles, Machinery, & Equipment 14,971 13,667 Other 1,206 1,074 Infrastructure Roads 150, ,988 Parks 11,955 12,058 Water 85,875 86,963 Sanitary Sewer 65,895 64,597 Storm Drainage 51,788 52,072 Energy & Communication 54,238 56,131 Balance Carried Forward 607, ,573 13

23 Notes to the Consolidated Financial Statements For the year ended December 31, Tangible Capital Assets, continued (000's) (000's) Balance Brought Forward $ 607,327 $ 605,573 Assets Under Construction 8,186 6,132 $ 615,513 $ 611,705 For additional information, see the Schedule of Tangible Capital Assets (Schedule 5). During the year there were no write-downs of assets ( $nil). In addition, assets contributed to the City totaled $842,353 ( $3,527,104) and were capitalized at their fair value at the time of receipt. 10. Capital Lease Obligation Recorded in the Capital Fund (Schedule 11): (000's) (000's) Concert Realty Services Ltd. Interest at the rate of 9.5% per annum, 11 remaining annual payments of $584,702 plus property taxes and insurance. Included in Accounts Payable and Accrued Liabilities in the General Operating Fund is accrued interest of $370,871 ($389,423 in 2014) related to this capital lease $ 3,904 $ 4,099 Municipal Finance Authority Leasing Corporation Repayable in monthly installments of $162,890, including interest at 1.79% per annum 2,569 3,489 Fortis BC Repayable in annual installments of $273,108, including interest at 5.46% per annum 1,381 1,571 Other Controlled Entities: 7,854 9,159 Konica Minolta Repayable in monthly installments of $230, including interest at 6%, secured by specific equipment 7 8 $ 7,861 $ 9,167 14

24 Notes to the Consolidated Financial Statements For the year ended December 31, Accumulated Surplus Accumulated Surplus is comprised of the following: (000's) (000's) Operating - Residual Balance $ 6,683 $ (5,472) Reserves (Schedule 4) 71,029 54,967 Investment in Tangible Capital Assets 509, , Lease Agreements $ 587,148 $ 560,661 The City entered into an agreement with Fortis BC (formerly Terasen Gas Inc.) that has resulted in the creation of the Fortis BC Reserve Fund. Capital Lease - under the terms of the agreement, the City has entered into a 35 year capital lease with Terasen Gas Inc. commencing November 1, 2004, for the natural gas distribution system within the municipality's boundary. The City has prepaid $57,000,000 of the capital lease obligation and has financed the prepayment through debenture debt. The remaining obligation of $3,000,000 which is included in long term debt, will be paid with annual lease payments of $273,108 including interest based on Terasen approved pre-tax weighted average cost of capital of 8.596% per annum. Operating Lease - the City has also entered into a 17 year operating lease with Terasen Gas Inc. commencing November 1, 2004, whereby the City leases back to Terasen Gas Inc. the operations of the gas distribution system. Under the operating lease, Terasen Gas Inc. is required to make annual lease payments to the City calculated by a formula specified in the agreement which is based on the total annual revenue generated by the transaction. At the end of the 17 year term, Terasen Gas Inc. has the option of making a termination payment to the City equal to the unamortized portion of the City's $57,000,000 prepayment which is estimated to be $29,389,000 or negotiate a new 18 year operating lease with a continuation of the annual lease payments which existed under the previous 17 year operating lease. 13. Budgeted Surplus The planned surplus of $29,256, reflected in the Original Budget Bylaw Column on the Consolidated Statement of Operations was approved by Council in May 2015 upon finalization of the 2015 Annual Budget Bylaw. The approved annual budget bylaw included the purchase of tangible capital assets and servicing debt but these have been adjusted in the Original Budget Bylaw Column, as well as the incorporation of amortization expense, to more accurately reflect actual expenses. 15

25 Notes to the Consolidated Financial Statements For the year ended December 31, Commitments and Contingencies a) The City of Prince George is jointly and severally liable, as a member of the Regional District of Fraser-Fort George for any sinking fund deficiencies, and capital debt issued through the Regional District. b) The employer and its employees contribute to the Municipal Pension Plan (a jointly trusteed pension plan). The board of trustees, representing plan members and employers, is responsible for administering the plan, including investment of assets and administration of benefits. The plan is a multi-employer defined benefit penion plan. Basic pension benefits are based on a formula. As at December 31, 2014, the plan has about 185,000 active members and approximately 80,000 retired members. Active members include approximately 37,000 contributors from local governments. Every three years, an actuarial valuation is performed to assess the financial position of the plan and adequacy of plan funding. The actuary determines an appropriate combined employer and member contribution rate to fund the plan. The actuary's calculated contribution rate is based on the entry-age normal cost method, which produces the long-term rate of member and employer contributions sufficient to provide benefits for average future entrants to the plan. This rate is then adjusted to the extent there is amortization of any funding deficit. The most recent actuarial valuation as at December 31, 2012 indicated a $1,370 million funding deficit for basic pension benefits on a going concern basis. The City of Prince George paid $5,239,949 for employer contributions to the plan in fiscal 2015, which represents 0.31 per cent of the total plan contributions. The City of Prince George expects to pay $4,435,870 for employer contributions in the next fiscal year. The Prince George Public Library paid $168,789 for employer contributions to the plan in fiscal 2015, which represents 0.01 per cent of the total plan contributions. The Prince George Public Library expects to pay $166,349 for employer contributions in the next fiscal year. The next valuation will be as at December 31, 2015, with results available in Employers participating in the Plan record their pension expense as the amount of employer contributions made during the fiscal year (defined contribution pension plan accounting). This is because the plan records accrued liabilities and accrued assets for the plan in aggregate, resulting in no consistent and reliable basis for allocating the obligation, assets and cost to the individual employers participating in the plan. The City of Prince George paid $5,239,949 ( $4,384,658) and the Prince George Public Library paid $168,789 ( $164,546) for employer contributions to the Plan in fiscal

26 Notes to the Consolidated Financial Statements For the year ended December 31, Commitments and Contingencies, continued c) The City of Prince George has been named as a defendant in various legal actions. No reserve or liability has been recorded regarding any of these legal actions or possible claims because the amount of the loss, if any, is undeterminable. Settlement, if any, made with respect to these actions would be accounted for as a charge to expenditures in the period in which it is likely that a future event will confirm the existence of a liability and the amount can be reasonably estimated. d) The City is committed to a third party under an agreement for the supply and operation of an off-street parking facility. The City's annual payment in respect of this commitment is $183,208 for a period of 20 years commencing August 1, e) The City has issued a Demand Note to the Municipal Finance Authority (the "Authority") in the amount of $4,605,866 ( $4,687,856). This Demand Note together with the cash deposit, as disclosed in Note 6, comprise an amount equal to one-half of the average annual installment of principal and interest for repayment of debenture debt issued by the Authority on behalf of the City of Prince George, and is a requirement of the Authority. 15. Segmented Information The City of Prince George is a government institution that provides a wide range of services to its citizens, including police, fire, recreation and culture, transportation and public transit, development planning, sanitation, water and sewer. For management reporting purposes the City's operations and activities are organized and reported by fund. Funds were created for the purpose of recording specific activities to attain certain objectives in accordance with special regulations, restrictions or limitations. City services are provided by departments and their activities are reported by these funds and are disclosed in the segmented information. The accounting polices used in these segments are consistent with those followed in the preparation of the consolidated financial statements as disclosed in Note 1. For additional information see the Statement of Segment Disclosure (Schedule 3). For each reported segment, revenues and expenses represent both amounts that are directly attributable to the segment and amounts that are allocated on a reasonable basis. The General Revenue Fund reports on municipal services that are funded primarily by taxation such as property and business tax revenues. Certain division and departments that have separately disclosed in the segmented information along with the services they provide are as follows: 17

27 Notes to the Consolidated Financial Statements For the year ended December 31, Segmented Information, continued Protective Services Protective Services includes Police Protection, Fire Protection, Emergency Measures and Bylaw Enforcement. Police Protection is provided to the City of Prince George by the Royal Canadian Mounted Police through a police services contract with the Province of BC. Together the RCMP and the 63 municipal employees at the detachment are committed to optimizing public safety through the community policing concept. Fire Protection includes fire suppression and protection, first responder medical services and emergency rescue, and fire dispatch within the City and regional district. Emergency Measures provides a comprehensive emergency plan for coordinating response to emergencies and disasters. Bylaw Enforcement provides animal and parking control and other enforcement as required to support the bylaws in place within the community for the purpose of health, safety and security. Community Services The Community Services Department provides public services that support recreation, sport and leisure activities in the aquatic and arena facilities, convention, entertainment, meeting, events and sport activities in the CN Centre and Civic Centre, the development of partnerships for health and social solutions at the community level and the provision of civic facilities for the community. Transportation Services This segment includes the provision of Street Maintenance which includes pavement repair, line painting, street cleaning, dust control, sidewalk maintenance, traffic sign and street light installation and maintenance. Transit services are provided in partnership with BC Transit; Parking lots and parkades provide for off-street parking for downtown businesses; Fleet vehicles service the organization's operational requirements; Storm drainage controls drainage through open and piped systems; and Snow and Ice control provides snow removal and salt and sanding applications to the road network. Planning and Environmental Development Planning includes both short and long term development planning and application processing and permits as well as inspections, records management, planning for neighbourhoods, parks, open spaces and pathways, and infrastructure planning and management. Environmental Development includes services and planning related to community forest, wildfire hazards, air quality, climate change, natural environment, ecosystem and habitat protection. Sanitation and Waste Removal This segment provides residential and (limited) commercial solid waste collection service and annual spring clean-up operations. 18

28 Notes to the Consolidated Financial Statements For the year ended December 31, Segmented Information, continued Public Health and Welfare This segment provides for the Memorial Park Cemetery service and maintenance of the grounds. Finance and Administration The Finance and Administration of the City of Prince George is captured under this section which includes Council, Office of the City Manager, Human Resources, Risk and Procurement and IT services. District Energy This segment provides energy for space heating and domestic water heating to buildings located within a service area. The infrastructure and operations are funded through a combination of user fees and contributions from general operating fund. Water Services The Water Service provides potable water to the community which includes the pumping, treatment and distribution system and the wells and reservoirs. The infrastructure and operations are funded through a combination of user fees, grants, and special levies. Sewer Services The Sewer Service provides for the collection and treatment of sewage which includes operation of the lift stations and wastewater treatment centre. The infrastructure and operations are funded through a combination of user fees, grants, and special levies. Asset Maintenance This segment provides the investment in asset maintenance funded through transfers from reserves or DCCs. The costs represent amounts incurred for capital asset maintenance that do not meet the capitalization threshold as established for financial report purposes. Reserves and Other Funds Reserve funds have been created to hold financial assets for specific future requirements. Reserve funds are generally used for tangible capital asset acquisition and reinvestment. Other Controlled Entities Other controlled entities include the Prince George Public Library, Initiatives Prince George Development Corporation and Tourism Prince George Society. 19

29 Notes to the Consolidated Financial Statements For the year ended December 31, Segmented Information, continued Other Controlled Entities, continued During the year, the City of Prince George decided not to renew its contract ending December 31, 2015 with Initiatives Prince George Development Corporation. As a result, the Organization has ceased operations as of December 31, 2015 and is in the process of winding up operations. 16. Comparative Figures Certain 2014 figures have been reclassified to conform to the 2015 financial statement presentation. 20