City of Ottawa Annual Report 2014

Transcription

1 City of Ottawa Annual Report 2014

2 Mayor s Message August 2015 The City of Ottawa s 2014 Annual Report confirms that we continue to be on solid fiscal footing and demonstrates the progress we have made in building a livable city. The tireless efforts and work of City Councillors and staff, working with residents every day in communities across the city, allow the City to continue to deliver high quality services in a responsible manner. The City s employing of sound financial and resource management practices have enabled us to maintain our excellent credit ratings. We will continue to build on the momentum we have started and focus our energies on building an even better city. Work continues on the Confederation Line, the City of Ottawa s world-class light rail transit system. This is the most transformative project in our city s history since the building of the Rideau Canal. We are making excellent progress on the project, which remains on time and on budget. The first stage in Ottawa s future light rail network, the 12.5-kilometre Confederation Line will re-energize our neighbourhoods, improve our mobility in the community, and boost our local economy. In November of 2013, City Council unanimously adopted a plan for Stage 2 of Light Rail Transit to include 35 kilometres of new track that will further connect residents and visitors to destinations across the city. Under the Stage 2 plans, LRT will be extended to Bayshore in the west, to Baseline Station in the southwest, to Place d Orléans in the east, and south to Riverside South at Bowesville. This significant extension of light rail transit will help improve connectivity across the city and will bring close to 70 per cent of the city s population within about five kilometres of LRT. To get our city ready for light rail transit, we have done significant infrastructure work over the past few years. We have built, enhanced and repaired roads, we have made improvements to watermains that run underneath the city, and we have added many kilometres of cycling infrastructure all of which helps to revitalize neighbourhoods, while increasing mobility through enhanced transit, cycling and pedestrian options. In 2014, we celebrated the official opening of the redeveloped Lansdowne Park. TD Place also opened, as we welcomed the Ottawa RedBlacks and celebrated the return of CFL football to the nation s capital, along with the Ottawa Fury FC of the North American Soccer League. Lansdowne Park has become a destination here in our city; a

3 place where people can gather and enjoy many amenities, including beautiful green spaces, restaurants, shops, activities and entertainment. This treasured, historical property on the Rideau Canal has come alive again. Through our Economic Development and Innovation Department, we are further developing and strengthening our local economy. We have focussed on supporting local entrepreneurs, while showcasing Ottawa s exceptional talent and economic potential. In addition to building strong relationships with our business community, we are bolstering the city s ability to attract investment and jobs. To this end, we look forward to an exciting future of economic development initiatives, including the Innovation Centre at Bayview Yards, which will help us build on this momentum. We continue to showcase Ottawa as a destination for major events through our Bid More, Win More, Host More strategy. Working with our partners at Ottawa Tourism, we hosted games for the successful 2015 FIFA Women s World Cup, and we look forward to hosting more national and international events as we move towards 2017 and the 150 th anniversary of Canada s Confederation. The environment is a priority for the City of Ottawa, as we work to foster healthy and vibrant communities. The City remains committed to protecting and preserving the health of the Ottawa River and waterways with the implementation of the Ottawa River Action Plan. We have significantly reduced the volume of combined sewage overflows into the river. We look forward to work on the Combined Sewage Storage Tunnel project, which will help to reduce occurrences of combined sewer overflows and increase the overall reliability of the wastewater collection system. We can all be very proud of our city and of our accomplishments together. We are fortunate to have a safe, clean and vibrant city that offers an excellent quality of life. I am proud to serve as Mayor of the City of Ottawa a place I truly believe is the best in the world in which to live, work, play and raise a family. Sincerely, Jim Watson Mayor

4 2014 Annual Report Message from the City Manager August 2015 I am pleased to present the City of Ottawa s 2014 Annual Report. Every year presents new challenges and in each year we must rise to the tasks at hand to ensure that our City continues to maintain its traditionally sound financial position. We have succeeded in this effort in That success is measured in different ways. Again this year, the City s credit rating has been reconfirmed as Aaa by Moody s Investors Service and as AA+ Stable by Standard and Poor s. The Moody s rating is the highest possible and it is worth noting that the City of Ottawa has maintained this level of confidence for almost four full decades, since At the same time, our net long-term debt remains manageable and is proportional to the value of our assets. Its growth though we added no new debt in 2014 has been in line with other similar-sized cities in Ontario, as we invest in necessities for the future for our growing city, like the Confederation Line, updating century-old water and sewer lines, or maintaining and upgrading roads and sidewalks across the city. City of Ottawa debt is also well within the prudent parameters established by City Council and the Province of Ontario. Another measure of success lies within the strength and engagement of our workforce. I am particularly pleased that in November 2014, the City of Ottawa was named as one of the Top 100 employers in Canada, following a rigorous annual survey conducted for The Globe and Mail. This marked four years in a row that we have received this award and it is a testament to all of our employees and managers and their collective ability and dedication to work together in the service of our community. The City of Ottawa is in a healthy fiscal state. We have in place the tools and the organization s commitment to maintain this position of financial strength as we go forward. Staff will continue to strive to find ways to make tax dollars work to the very best advantage for our residents. Sincerely, Kent Kirkpatrick City Manager

5 2014 Financial statement discussion and analysis

6 INTRODUCTION The City of Ottawa 2014 Annual Financial Report contains the audited consolidated financial statements prepared in accordance with Canadian public sector accounting standards established by the Public Sector Accounting Board [ PSAB ] of the Chartered Professional Accountants of Canada [ CPA Canada ], as required by the Ontario Municipal Act. The City of Ottawa Administration is responsible for preparing the following financial statement discussion and analysis (FSD&A). It should be read in conjunction with the audited consolidated financial statements and the financial and statistical schedules. The FSD&A reports to stakeholders on how the financial resources entrusted to the City are being managed to provide municipal infrastructure and services, and presents significant issues that affected 2014 results or that may have an impact on future results. ECONOMIC ENVIRONMENT As indicated in the statistics provided below, the City of Ottawa has experienced an increase in housing starts and building permits activity during At December 31, 2014, with comparative information for Economic Environment % Change Population 951, ,260 1% Residential housing starts 1 5,762 6, % Value of building permits issued ( in millions) 2,682 2, % Inflation, CPI annual increases 2 (%) % Unemployment rate 2 (%) % The City of Ottawa had an estimated population of 951,727 at the end of 2014, which represents an increase of 16.9% since 2001 (814,200). This growth rate is faster than Ontario s (15.0%) and faster than Canada s rate (14.6%). Ottawa accounts for approximately three-quarters of the population of the Greater Ottawa-Gatineau Area, which had a combined population of over 1.4 million at the end of Population growth is expected to continue. The City has prepared population growth projections for the period from 2011 to From 2014 to 2031 the City s Official Plan projects a 20% population increase from 951,727 to 1.14 million people. Immigration is a major reason Ottawa s population will continue to grow. 1 Canada Mortgage and Housing Corporation (CMHC) 2 Statistics Canada

7 THE OUTLOOK Ottawa s economy continues to strengthen in a low interest environment. The City achieved positive increases in the total value of building permits issued in comparison to the previous year. The City s unemployment rate remained below the provincial 2014 rate of 7.3%. The City has developed constructive relationships with other levels of government and the private sector in order to obtain sustainable funding to provide the municipal infrastructure necessary to support healthy local, provincial and national economies. Partnership agreements with local partners have allowed for the redevelopment of Lansdowne Park raising the City s national profile by providing a venue for large sports and entertainment events. Similarly, continued gas tax funding, combined with federal and provincial commitments to assist with funding the City s Confederation Line light rail construction project, will ensure the required infrastructure is in place to support the transit needs of our residents. FINANCIAL HIGHTLIGHTS CONSOLIDATED FINANCIAL POSITION As at December 31, 2014, with comparative information for 2013 [dollars in thousands] Consolidated financial position A. Financial assets $2,361,011 $ 2,440,302 B. Financial liabilities 3,799,690 3,703,525 C. Net debt (A - B) (1,438,679) (1,263,223) D. Non-financial assets 13,235,073 12,704,116 E. Accumulated surplus (C + D) 11,796,394 $11,440,893 Construction of the Confederation Line in 2014 continued to have a significant impact on the consolidated financial statements. Amounts paid to the contractor through milestone payments as well as amounts expended by the contractor to be paid in future milestone payments have been capitalized as assets under construction and represents $306 million of the total $884 million acquisition of tangible capital assets. The portion of expenses accrued and payable for 2014 in the amount of $49 million is included as a financial liability on the consolidated statement of financial position. The consolidated financial statements also include amounts received and receivable from senior governments for their share of the project. Government transfers related to the Confederation Line in the amount of $228 million are included as revenue on the consolidated statement of operations and the portion receivable in the amount of approximately $24 million is included as a financial asset on the consolidated statement of financial position. Financial assets decreased by approximately $79 million due primarily to decreases in cash and investments of approximately $88 million. This decrease was due primarily to

8 the fact that the City did not issue any debt in This was partially offset with an $11 million increase in investment in government business enterprise related to the increased value of the net assets of Hydro Ottawa Holding Inc. Financial liabilities increased by approximately $97 million. Increases in accounts payable and accrued liabilities in the amount of approximately $100 million related primarily to higher accruals for the Confederation Line and other trade payables. Employee benefits and pension agreements increased by approximately $74 million due mainly to a lower discount rate which had the effect of increasing employee benefit liabilities, and the impact of new WSIB legislation that recognized certain cancers as workplace related. Financial liabilities increases also included deferred revenue which increased by approximately $23 million primarily due to higher development charges collected but not yet spent. Development charges receipts are recorded as deferred revenue until the fiscal year when the related expenses are incurred at which point they are recorded as revenue Offsetting the increases in financial liabilities was a decrease of approximately $91 million for net long term debt. This change reflects the repayment of debt principal as no new debt was issued in Non-financial assets which include primarily tangible capital assets increased approximately $531 million, and include the significant investments in the Confederation Line Light Rail System and the redevelopment of Lansdowne Park. Net debt is comprised of the difference between financial liabilities and the City's financial assets. It is a measure of the future revenues required to pay for past transactions. Net debt increased slightly by $175 million to $1.439 billion in 2014 from $1.263 billion in Accumulated surplus shows the investment in assets, net of all liabilities, which will be available to provide services to future generations.

9 FINANCIAL ANALYSIS REVIEW Budget to Actual Comparison For the year ended December 31, 2014 [dollars in thousands] Revenues Budget to Actual Comparison Budget 2014 Actual 2014 Favourable/ (Unfavourable) Taxes available for municipal purposes $ 1,569,492 $ 1,568,444 $ (1,048) Government transfers 776, ,153 8,825 Fees and user charges 789, ,985 (22,313) Contributed tangible capital assets 142, ,112 0 Development charges 118, ,776 0 Investment income 44,669 47,232 2,563 Fines and penalties 27,717 26,771 (946) Other revenue 34,719 55,363 20,644 Equity in earnings of government business enterprises 27,383 30,318 2,935 Total Revenues $ 3,530,494 $ 3,541,154 $ 10,660 Fees and user charges were lower than anticipated partly due to lower transit related adult regular and express passes, combined with lower water and sewer volume. Investments income was higher than anticipated as a result of higher returns on the portfolio generating higher income than planned. Other revenue was higher than budget due to increased revenue from land developed and sold through the City s wholly owned land development subsidiaries, and revenue from the sale of other surplus lands for the City.

10 Sources of Revenue [dollars in thousands] $ % Taxes available for municipal purposes $ 1,568,444 44% Government transfers 785,153 22% Fees and user charges 766,985 22% Development charges and contributed tangible capital assets 260,888 7% Other 159,684 5% Total Revenue $ 3,541, %

11 Budget to Actual Comparison For the year ended December 31, 2014 [dollars in thousands] Expenses Budget to Actual Comparison Budget 2014 Actual 2014 Favourable/ (Unfavourable) General government $ 111,195 $ 107,681 $ 3,514 Protection to persons and property 565, ,943 (8,337) Roads, traffic and parking 394, ,660 (2,324) Transit 518, ,456 (11,598) Environmental services 366, ,582 8,774 Health services 157, ,304 (2,663) Social and family services 427, ,195 6,159 Social housing 232, ,261 (10,023) Recreation and cultural services 323, ,790 7,146 Planning and development 69,176 78,781 (9,605) Total expenses $ 3,166,696 $3,185,653 $ (18,957) Protection to persons and property expenses were higher than budget due to increased fleet maintenance related to fire and higher deputization and equipment rental costs related to the Parking Enforcement Agency program in By-law Services. Environmental services expenses were lower primarily due to lower leachate volumes resulting in lower disposal costs and reduced disposal costs due to less tonnage processed by Plasco. Social and family services expenses were lower, in part, due to the lower utilization of subsidized child care as a result of the implementation of Full Day Kindergarten. Social housing expenses were higher than budget due to higher legislated payments to social housing providers. Planning and development expenses were higher than budget due primarily to higher costs incurred in developing properties sold through the City s wholly owned land development subsidiaries. Favorable revenue variances associated with these land sales more than offset the unfavourable expense variance incurred in developing the properties.

12 Expenses [dollars in thousands] $ % General government $ 107, % Protection to persons and property 573, % Roads, traffic, and parking 396, % Transit 530, % Environmental services 357, % Health services 160, % Social and family services 421, % Social housing 242, % Recreation and cultural services 316, % Planning and development 78, % Total Expenses $ 3,185, %

13 Revenues - Comparison to Prior Year For the year ended December 31, 2014, with comparative information for 2013 [dollars in thousands] Revenues Comparison to prior year Actual 2014 Actual 2013 Increase/ (Decrease) Taxes available for municipal purposes 1,568,444 $ 1,511,051 $ 57,393 Government transfers 785, ,490 (196,337) Fees and user charges 766, ,396 20,589 Contributed tangible capital assets 142, ,010 (52,898) Development charges 118, ,931 (43,155) Investment income 47,232 36,316 10,916 Fines and penalties 26,771 24,466 2,305 Other revenue 55,363 40,912 14,451 Equity in earnings of government business enterprises 30,318 34,008 (3,690) Total Revenues $3,541,154 $3,731,580 $(190,426) Taxes available for municipal purposes increased due to a combination of a 1.99% property tax increase for all City properties, and the effect of growth in the property tax base. Government transfers decreased partly due to the one-time impact in 2013 of recognizing prior year unspent balances associated with a change in accounting for government transfers. This accounted for approximately half of the overall decrease. The balance of the decrease reflects the effect of front ending agreements with senior levels of government for the Confederation Line which resulted in lower revenue in 2014 compared to Contributed tangible capital assets represent assets that are donated or contributed to the city by developers. The amount of recognized revenue fluctuates from year to year. Development charges decreased due to onetime funding in 2013 for projects for: Lansdowne, Barrhaven South Kanata North Recreation Center, as well as Trim Road and Jockvale Road. Investment income increased as a result of higher investment balances and a higher rate of return. Equity in earnings of government business enterprises reflects the decrease in earnings of the City s wholly owned subsidiary Hydro Ottawa Holding Inc. Fines and Penalties increased due to higher fines associated with the Provincial Offences Act, water administration accounts and the Ottawa Public Library.

14 Other Revenue increased due to increased revenue from land developed and sold through the City s wholly owned land development subsidiaries, and increased revenue from the sale of other surplus lands for the City.

15 Expenses Comparison to prior year For the year ended December 31, 2014, with comparative information for 2013 [dollars in thousands] Expenses Comparison to prior year Actual 2014 Actual 2013 Increase General government $107,681 $100,869 $6,812 Protection to persons and property 573, ,752 51,191 Roads, traffic, and parking 396, ,029 37,631 Transit 530, ,037 30,419 Environmental services 357, ,589 20,993 Health services 160, ,229 12,075 Social and family services 421, ,668 14,527 Social housing 242, ,455 10,806 Recreation and cultural services 316, ,167 22,623 Planning and development 78,781 70,248 8,533 Total expenses $3,185,653 $2,970,043 $215,610 Protection to persons and property increased mainly due to higher WSIB costs associated with fire due to new provincial legislation. Renovations to police facilities and software purchases by other protective services accounted for the balance of the increase. Roads, traffic and parking increased mainly due to higher amortization and repair costs associated with growth in assets. Higher employee benefit costs and legal claims accounted for the balance of the increase. Transit expenses increased primarily due to inflationary impacts in compensation, fuel, insurance and general operations. Repairs and maintenance for buildings and stations accounted for the balance of the increase. Environmental Services increased mainly for wastewater treatment. There was an increase in compensation to support the City s sewer use monitoring program and wastewater management initiatives. There was also an increase in repairs and maintenance, biosolid disposal, and fleet contracts. Recreation and Cultural Services expenses increased primarily due to higher employee benefit and debt servicing costs for capital projects. Growth in assets also contributed to higher amortization costs.

16 NET LONG TERM DEBT The City of Ottawa is rated by two international agencies: Moody's Investors Service and Standard & Poor's. Moody's has given the City an Aaa rating - the highest possible ranking and one the City has maintained since Standard & Poor's (S&P) has assigned an AA+ stable rating to the City. The capital financing policy approved by Council allows the City to provide additional capital assets such as roads, water and sewer systems, buildings, and transit infrastructure that will be funded over the long term by taxpayers benefiting from the use of these capital assets. This policy follows Provincial regulations which require that capital assets financed by debt have a useful life at least as long as the term of the debt. No new debentures were issued in 2014 and total net long term debt decreased from $1.65 billion to $1.56 billion. Debt levels are carefully monitored to ensure the ongoing financial well being of the City in accordance with its fiscal framework principles. Two of the key targets established by Council which are to be reported on annually by the Treasurer are as follows: 1) Principal and interest payments for tax supported debt are not to exceed 7.5% of the City s own source revenue, and principal and interest on water and sewer rate supported debt will be limited to no more than 15% of rate revenues; for a combined target of 8.5% of total own source revenues; 2) The increase in debt servicing for non-legacy projects in any year will not be greater than one-quarter of 1 per cent of taxes from property taxes: With respect to the first key target, the total debt interest and principal payments in 2014 for tax and rate supported long-term debt was $138 million, which represents 5.5% of the City s own source revenues. These revenues include all revenues shown on the Consolidated Statement of Operations, except for government grants and contributed tangible capital assets and development charge revenues. Regarding the second key target, non-legacy projects are defined as capital works associated with the rehabilitation and renewal of existing City infrastructure along with the construction of new infrastructure to address growth pressures. The increase in debt servicing as it affects property tax increases is within the target mentioned above.

17 TANGIBLE CAPITAL ASSETS Tangible capital assets represent a significant investment for the City and the related information is vital for stewardship, accountability, costing, and the development of asset management plans. Assets are valued at their historical cost on the date of purchase or construction and are amortized over their useful lives. The residual net book value of these assets represents the value of assets available to serve future generations. The City s tangible capital assets consist primarily of water and wastewater infrastructure, land, roads, buildings, and machinery, plant and equipment. Costs associated with construction of the Confederation Line are included in assets under construction. The overall value of tangible capital assets (which makes up the bulk of non - financial assets) increased by approximately $775 million from $16.7 billion to $17.5 billion on a gross cost basis. Approximately $306 million (or 40%) of this increase is attributable to increased spending on the Confederation Line. Other significant projects that contributed to this increase included the Lansdowne Park redevelopment ($134 million), road related projects ($195 million), water / wastewater infrastructure ($81 million) and construction of the Minto Recreation Center ($51 million). Tangible Capital Assets [dollars in thousands] $ NBV % Buildings and improvements $1,332, % Roads 2,067, % Water/wastewater 3,886, % Land 2,689, % Land improvements 355, % Machinery, plant and equipment 889, % Vehicles 560, % Assets under construction 1,406, % Total Tangible Capital Assets $13,186, %

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19 Document 1 Consolidated Financial Statements The City of Ottawa December 31, 2014

20 MANAGEMENT S REPORT The integrity, relevance and comparability of the data in the accompanying consolidated financial statements are the responsibility of management. The consolidated financial statements are prepared by management, in accordance with Canadian public sector accounting standards established by the Public Sector Accounting Board (PSAB) of the Chartered Professional Accountants of Canada. They necessarily include some amounts that are based on the best estimates and judgements of management. Financial data elsewhere in the report is consistent with that in the financial statements. To assist in its responsibility, management maintains accounting, budget and other controls to provide reasonable assurance that transactions are appropriately authorized, that assets are properly accounted for and safeguarded, and that financial records are reliable for preparation of financial statements. The Auditor General s office reports directly to Council, and on an ongoing basis, carries out its audit program to ensure internal controls and their application are reviewed and financial information is tested and independently verified. City Council fulfils its responsibility for financial reporting through its Audit Sub-Committee and Finance and Economic Development Committee. Ernst & Young LLP, Chartered Professional Accountants, have been appointed by City Council to express an opinion on the City s consolidated financial statements. Their report follows. Kent Kirkpatrick City Manager Marian Simulik City Treasurer Ottawa, Canada June 10, 2015

21 INDEPENDENT AUDITORS REPORT To the Mayor and Members of Council We have audited the accompanying consolidated financial statements of The City of Ottawa, which comprise the consolidated statement of financial position as at December 31, 2014 and the consolidated statements of operations and accumulated surplus, change in net debt, and statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Management s responsibility for the consolidated financial statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Canadian public sector accounting standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained in our audit is sufficient and appropriate to provide a basis for our audit opinion.

22 Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of The City of Ottawa as at December 31, 2014 and the results of its operations, its change in net debt and its cash flows for the year then ended in accordance with Canadian public sector accounting standards. Ottawa, Canada, June 10, 2015 Chartered Professional Accountants Licensed Public Accountants

23 CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at December 31, 2014, with comparative information for 2013 [dollars in thousands] Financial assets Cash and cash equivalents $435,469 $ 575,849 Accounts receivable [note 3] 435, ,974 Investments [note 4] 1,097,205 1,045,753 Investment in government business enterprise [note 5] 392, ,726 Total financial assets 2,361,011 2,440,302 Liabilities Accounts payable and accrued liabilities [note 6] 784, ,924 Deferred revenue [note 7] 530, ,843 Employee future benefits and pension agreements [note 8] 562, ,861 Accrued interest 23,963 24,762 Landfill closure and post-closure liabilities [note 9] 10,269 9,649 Net long-term debt [note 10] 1,559,170 1,650,292 Mortgages payable [note 11] 215, ,880 Capital lease obligations [note 12] 113, ,314 Total liabilities 3,799,690 3,703,525 Net debt (1,438,679) (1,263,223) Non-financial assets Tangible capital assets [note 13] 13,186,499 12,658,942 Inventories 24,586 22,988 Prepaid expenses 23,988 22,186 Total non-financial assets 13,235,073 12,704,116 Accumulated surplus [note 14] 11,796,394 11,440,893 See accompanying notes Contingencies and Commitments [note 15]

24 CONSOLIDATED STATEMENT OF OPERATIONS AND ACCUMULATED SURPLUS For the year ended December 31, 2014, with comparative information for 2013 [dollars in thousands] 2014 Budget [note 20] 2014 Actual 2013 Actual Revenue Taxes available for municipal purposes [note 16] $ 1,569,492 $1,568,444 $ 1,511,051 Government transfers 776, , ,490 Fees and user charges 789, , ,396 Contributed tangible capital assets 142, , ,010 Development charges 118, , ,931 Investment income 44,669 47,232 36,316 Fines and penalties 27,717 26,771 24,466 Other revenue 34,719 55,363 40,912 Share of earnings of government business enterprise [note 5] 27,383 30,318 34,008 Total revenue 3,530,494 3,541,154 3,731,580 Expenses 2014 Budget [note 20] 2014 Actual 2013 Actual General government 111, , ,869 Protection to persons and property 565, , ,752 Roads, traffic and parking 394, , ,029 Transit 518, , ,037 Environmental services 366, , ,589 Health services 157, , ,229 Social and family services 427, , ,668 Social housing 232, , ,455 Recreation and cultural services 323, , ,167 Planning and development 69,176 78,781 70,248 Total expenses [note 17] 3,166,696 3,185,653 2,970,043 Annual surplus 363, , ,537 Accumulated surplus, beginning of the year 11,457,500 11,440,893 10,679,356 Accumulated surplus, end of the year $11,821,298 $11,796,394 $11,440,893 See accompanying notes

25 CONSOLIDATED STATEMENT OF CHANGE IN NET DEBT For the year ended December 31, 2014, with comparative information for 2013 [dollars in thousands] Consolidated statement of change in net debt 2014 Budget 2014 Actual 2013 Actual Annual surplus $363,798 $355,501 $761,537 Acquisition of tangible capital assets including contributed assets (883,710) (883,710) (1,163,906) Amortization of tangible capital assets 288, , ,741 Loss on disposal of tangible capital assets 65,743 65,743 40,278 Proceeds on disposal of tangible capital assets 2,134 2,134 10,063 Supply of inventories (1,598) (1,598) 2,934 Prepaid expenses (1,802) (1,802) (4,695) Change in net debt (167,159) (175,456) (83,048) Net debt, beginning of the year (1,227,700) (1,263,223) (1,180,175) Net debt, end of the year $(1,394,859) $(1,438,679) $(1,263,223) See accompanying notes

26 CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended December 31, 2014, with comparative information for 2013 [dollars in thousands] OPERATING ACTIVITIES Annual surplus $355,501 $ 761,537 Items not affecting cash Share of earnings of government business enterprise (30,318) (34,008) Amortization of tangible capital assets 288, ,741 Contributed assets (142,112) (195,010) Loss on disposal of tangible capital assets 65,743 40,278 Cash provided by operating activities, adjusted for non-cash items 537, ,538 Change in non-cash assets and liabilities Decrease (increase) in accounts receivable 1,381 (148,776) Decrease (increase) in inventories (1,598) 2,934 Increase in prepaid expenses (1,802) (4,695) Increase in accounts payable and accrued liabilities 100, ,371 Increase (decrease) in deferred revenue 23,542 (90,349) Increase in employee future benefits and pension agreements 73,334 55,706 Increase (decrease) in accrued interest (799) 2,886 Increase in landfill closure and post-closure liabilities 620 1,653 Total cash provided by operating activities 731, ,268 CAPITAL ACTIVITIES Acquisition of tangible capital assets (741,598) (968,896) Proceeds on disposal of tangible capital assets 2,134 10,063 Cash applied to capital activities (739,464) (958,833) INVESTING ACTIVITIES Net decrease (increase) in investments (51,452) 199,793 Dividend from Hydro Ottawa Holding Inc. 19,300 18,600 Cash provided (applied) to investing activities (32,152) 218,393 FINANCING ACTIVITIES New debt issued 4, ,535 Net interest earned on sinking funds (2,498) (2,045) Debt principal repayments Net long term debt (88,752) (87,830) Mortgages (10,710) (11,076) Capital lease obligations (2,799) (2,564) Cash provided by (applied to) financing activities (100,591) 213,020 Change in cash and cash equivalents Net increase (decrease) in cash and cash equivalents during the year (140,380) 275,848 Cash and cash equivalents, beginning of the year 575, ,001 Cash and cash equivalents, end of the year $435,469 $575,849 See accompanying notes

27 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2014 [dollars in thousands] 1. NATURE OF BUSINESS The City of Ottawa [the City ] was created through provincial legislation on December 20, 1999 and commenced operations on January 1, The City is responsible for providing municipal services such as employment and financial assistance, long-term care, community services and libraries, emergency and protective services including police, fire and ambulance, and transportation, utilities and public works, including roads, sewers and wastewater, drinking water, waste collection and disposal. As sole shareholder of Hydro Ottawa Holding Inc. and the Ottawa Community Housing Corporation [ OCHC ], the City also provides hydro and housing services to the residents of Ottawa. In 2009, the Ottawa Community Lands Development and the Manotick Mill Quarter Community Development Corporations were created for the purpose of promoting and undertaking community improvements in the City by managing real property. 2. SIGNIFICANT ACCOUNTING POLICIES Basis of accounting The consolidated financial statements are prepared by management in accordance with Canadian public sector accounting standards established by the Public Sector Accounting Board [ PSAB ] of the Chartered Professional Accountants of Canada [ CPA Canada ]. Since a precise determination of many assets and liabilities is dependent upon future events, the preparation of periodic consolidated financial statements necessarily involves the use of estimates, which have been made using careful judgment.

28 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2014 [dollars in thousands] 2. SIGNIFICANT ACCOUNTING POLICIES [CONTINUED] Basis of consolidation The consolidated financial statements of the City reflect the assets, liabilities, revenue and expenses for the activities of all committees of Council and the following boards, Business improvement areas [ BIAs ] and entities: The Police Services Board The Ottawa Public Library Board The Ottawa Board of Health The Ottawa Community Housing Corporation Manotick Mill Quarter Community Development Corporation Ottawa Community Lands Development Corporation The Bank Street BIA The Westboro BIA The Sparks Street BIA The Somerset Street Chinatown BIA The Glebe BIA The Orleans BIA The Carp Road Corridor BIA The Carp Village BIA The Vanier BIA The Manotick BIA The Sparks Street Mall Authority The Somerset Village BIA The Preston Street BIA The Byward Market BIA The Rideau BIA The Barrhaven BIA The Wellington West BIA The Kanata North BIA The Bells Corners BIA All interfund assets and liabilities, revenue and expenses have been eliminated. Condensed supplementary information for the Ottawa Public Library Board is provided in Appendix 1. Hydro Ottawa Holding Inc. and its subsidiaries are accounted for on a modified equity basis, consistent with the generally accepted accounting treatment for such government business enterprise [see note 5]. Under the modified equity basis, the business enterprise s accounting policies are not adjusted to conform to those of the City, and interorganizational transactions and balances are not eliminated. Pine view Municipal Golf Course and The Ottawa-Nepean Campsite Authority were no longer part of the City s reporting entity in The City terminated the leases with the National Capital commission relating to the Ottawa Nepean Campsite Authority, and Pine view Municipal Golf course on January 1, 2014 and March 1, 2014 respectively. School boards The taxation, other revenue, expenses, assets and liabilities with respect to the operations of the school boards are not reflected in these consolidated financial statements.

29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2014 [dollars in thousands] 2. SIGNIFICANT ACCOUNTING POLICIES [CONTINUED] Revenue and expenses Revenue and expenses are reported on the accrual basis of accounting, which recognizes revenue as they are earned and measurable; expenses are recognized as they are incurred and measurable, as a result of receipt of goods or services. Use of estimates and measurement uncertainty The preparation of consolidated financial statements in conformity with Canadian public sector accounting standards requires management to make estimates and assumptions on such areas as employee benefits, assessment appeals and environmental provisions. These estimates and assumptions are based on the City s best information and judgment and may differ significantly based on actual results. Tax revenue Annually, the City bills and collects property tax revenue for municipal purposes, provincial education taxes on behalf of the Province of Ontario [the Province ], payment in lieu of taxes, local improvements and other charges [see note 16]. The authority to levy and collect property taxes is established under the Municipal Act, 2001, the Assessment Act, the Education Act, and other legislation. Taxation revenue consists of non-exchange transactions. It is recognized in the period to which the assessment relates and reasonable estimates of amounts can be made. Annual revenue also includes adjustments related to reassessments or appeals related to prior years. Government transfers Government transfers are transfers from senior levels of government that are not the result of an exchange transaction. Government transfers are recognized in the fiscal years during which events giving rise to the transfer occur, provided the transfers are authorized, eligibility criteria and stipulations have been met and reasonable estimates of the amounts can be made. In addition, the City provides transfers to individuals or organizations. These transfers are recognized as expenses once they are authorized and eligibility criteria, if any are met. Fees and user charges Fees and user charges relate to transit fares, utility charges (water, wastewater, and solid waste) licensing fees, fees for use of various programming, and fees imposed based on specific activities. Revenue is recognized when the activity is performed or when the services are rendered.

30 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2014 [dollars in thousands] Contributed tangible capital assets Contributed tangible capital assets represents assets that are donated or contributed to the City by developers. Revenue is recognized in the year the assets are contributed and have been recognized at fair value at the date of contribution.

31 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2014 [dollars in thousands] 2. SIGNIFICANT ACCOUNTING POLICIES [CONTINUED] Development charges Development charges are one-time fees levied by municipalities on new residential and non-residential properties to help pay for a portion of the growth-related capital infrastructure requirements. In general, development charges are received when a building permit is issued, and recognized as revenues when the related expenses are incurred. Amounts received which relate to revenues that will be earned in a subsequent year, are deferred and reported as deferred revenue. Investment income Investment income is recorded as revenue in the period it is earned. The investment income also includes distributions from the City s Endowment fund. Other revenue Other revenue includes revenue from cash in lieu of parkland, cash in lieu of parking and other miscellaneous revenue. Revenue is recognized in the fiscal year in which the related expenses are incurred. Amounts received which relate to revenues that will be earned in a subsequent year, are deferred and reported as deferred revenue. Financial instruments The City s financial instruments consist of cash and cash equivalents, accounts receivable, investments, accounts payable and accrued liabilities, accrued interest, long-term debt, and mortgages payable. The City uses derivative financial instruments consisting of bank swaps to reduce its exposure to interest rate risk related to its debt. The City does not use financial instruments for trading or speculative purposes. The City uses bank swaps to manage commodity price fluctuations. These bank swaps are used to set a fixed price for a specific quantity over a defined term and settle on specific dates commensurate with the defined term. Swaps result in a payment or receipt of funds to or from the counterparty to the transaction. Gains (receipts) or losses (payments) are recognized in the same period as the delivery of the underlying commodity. Cash and cash equivalents Cash and cash equivalents include cash on hand and highly liquid investments with original maturities of 90 days or less from the date when the securities are purchased.

32 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2014 [dollars in thousands] 2. SIGNIFICANT ACCOUNTING POLICIES [CONTINUED] Investments The Investments are recorded at amortized cost less amounts written off to reflect a permanent decline in value. Investments consist of authorized investments pursuant to provisions of the Municipal Act and comprise financial instruments issued by the Canadian government and Schedule I, II, and III banks, as well as asset-backed securities and eligible commercial paper. Investments for the Endowment Fund also include Canadian equities and corporate bonds as authorized by Provincial Regulation 438/97 and the Investment Policy approved by City Council. Investments with original maturity dates of more than 90 days are classified as investments on the consolidated statement of financial position. Environmental provisions The City provides for the cost of compliance with environmental legislation when conditions are identified which indicate non-compliance and costs can be reasonably determined. The estimated amounts of future restoration costs are reviewed regularly, based on available information and governing legislation. Where the costs are deemed to be likely and reasonably determinable, claims are reported as operating expenses and included in accounts payable and accrued liabilities on the consolidated statement of financial position. Deferred Revenue Certain amounts are received pursuant to legislation, regulation or agreement and may only be used in the conduct of certain programs or in the completion of specific work. In addition, certain user charges and fees are collected for which the related services have yet to be performed. These amounts are recorded as deferred revenue and are recognized as revenue in the year during which the related expenses are incurred provided eligibility criteria and stipulations have been met. Employee benefit plans The City has adopted the following policies with respect to employee benefit plans:

33 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2014 [dollars in thousands] 2. SIGNIFICANT ACCOUNTING POLICIES [CONTINUED] [a] The costs of post-employment benefits are recognized as a liability when the event that obligates the City occurs; costs include projected future income payments, health care continuation costs, and fees paid to independent administrators of these plans, calculated on a present value basis. [b] The costs of post-retirement benefits are actuarially determined using the projected benefits method prorated on service and management s best estimate of retirement ages of employees, salary escalation, expected health care costs, and plan investment performance. [c] Past service costs for plan amendments related to prior-period employee services are accounted for in the period of the plan amendment. The effects of gain or loss from settlements or curtailments are expensed in the period during which they occur. Net actuarial gains and losses related to employee benefits are amortized over the estimated average remaining service life of the related employee group. Employee future benefits are discounted using current interest rates on long-term bonds. [d] The cost of workplace safety and insurance obligations is actuarially determined and are expensed in the period they occur. [e] The costs of termination benefits and compensated absences are recognized when the event that obligates the City occurs; costs include projected future income payments, health care continuation costs, and fees paid to independent administrators of these plans, calculated on a present value basis. Pension agreements [a] The contributions to a multi-employer, defined benefit pension plan are expensed when contributions are due. [b] The actuarial valuation is determined using the projected unit credit method prorated on credited service. It is also based on management s best estimate assumptions that include assumptions for employee retirement ages, salary escalation, and plan investment performance which is used for discounting benefits. Plan assets are valued using a market-related value, determined over a three-year period. Legal claims and contingencies Estimated costs to settle legal claims and possible legal claims are determined based on available information. Where the costs are deemed to be likely and reasonably determinable, claims are reported as an expense on the Consolidated Statement of Operations and Accumulated Surplus and a liability on the Consolidated Statement of Financial Position.

34 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2014 [dollars in thousands] 2. SIGNIFICANT ACCOUNTING POLICIES [CONTINUED] Landfill closure and post-closure liabilities The estimated costs to close and maintain solid waste landfill sites is based on future expenses, adjusted for inflation and discounted to current dollars. These costs are reported as a liability on the Consolidated Statement of Financial Position. 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 beyond the current year and are not intended for sale in the ordinary course of operations. [a] Tangible capital assets Tangible capital assets are recorded at cost, which includes amounts that are directly attributable to acquisition, construction, development, or betterment of an asset. The costs, less residual value, of the tangible capital assets, excluding land, are amortized on a straight-line basis over their estimated useful lives, as follows: Asset - Useful life -Years Minimum Maximum Buildings and Improvements Infrastructure Linear-Roads Infrastructure Linear-Water/Wastewater Land Improvements Machinery, Plant and Equipment Vehicles 5 15 Assets under construction are not amortized. All assets start amortization in the month following the in service date. [b] Contributions of tangible capital assets Tangible capital assets received as contributions have been recorded at their fair market value at the date of receipt and are included in revenue in the year of contribution. [c] Intangible assets Intangible assets and natural resources that have not been purchased are not recognized as assets in the consolidated financial statements. [d] Interest capitalization The City s tangible capital asset policy does not allow for the capitalization of interest costs incurred by the City associated with the acquisition or construction of a tangible capital asset.