1. SIGNIFICANT ACCOUNTING
POLICIES
The
consolidated financial statements of The Corporation of The Town of Markham are
the representations of management prepared in accordance with local government
accounting standards, as recommended by the Public Sector Accounting Board
(“PSAB”) of the Canadian Institute of Chartered Accountants. Significant aspects of the accounting
policies are as follows:
Reporting
entity
These consolidated financial
statements reflect the assets, liabilities, revenues and expenditures of the
operating fund, capital fund, and reserve and reserves funds of the reporting
entity. The reporting entity is
comprised of all organizations, local boards and committees accountable for the
administration of their financial affairs and resources, to the Town, and which
are owned or controlled by the Town, including the following:
Town of Markham Public Library Board
Old Markham
Village Business
Improvement Area
Unionville Business Improvement
Area
Toronto Buttonville
Airport (Markham) Inc.
All material inter-entity
transactions and balances are eliminated on consolidation.
Investment
in Markham EnTERPRISES
Corporation
Markham Enterprises Corporation and its subsidiaries
are accounted for on a modified equity basis, consistent with the generally
accepted accounting principles as recommended by PSAB for government business
enterprises. Under the modified equity
basis of accounting, the business enterprise’s accounting principles are not
adjusted to conform to those of the Town, and inter-organizational transactions
and balances are not eliminated. The
Town recognizes its equity interest in the annual income or loss of Markham Enterprises
Corporation in its statement of financial activities with a corresponding
increase or decrease in its investment asset account. Any dividends that the Town may receive from
Markham Enterprises Corporation will be reflected as reductions in the
investment asset account.
Accounting
for Region and School Board transactions
The taxation, other revenues, expenditures, assets and
liabilities with respect to the operations of the school boards and the Region
of York are not reflected in the municipal fund balances of these financial
statements.
1. SIGNIFICANT ACCOUNTING POLICIES
(continued)
Trust
Funds
Trust funds and their related operations administered
by the municipality are not consolidated, but are reported separately on the
"Trust Funds Statement of Financial Position" and the "Trust
Funds Statement of Financial Activities and Fund Balances".
Basis of Accounting
Revenues are recorded in the
period in which the transactions or events occurred that gave rise to the
revenue.
Expenditures are the cost of
goods and services acquired in the period whether or not payment has been made
or invoices received.
Tangible
Capital Assets
Expenditures made on capital
assets are reported as capital expenditures in the statement of financial
activities in the period incurred.
Government Transfers
Government transfers are
recognized in the financial statements in the period in which the events giving
rise to the transfer occur, providing that the transfers are authorized, any
eligibility criteria have been met, and reasonable estimates of the amounts can
be made.
Deferred Revenue
Funds received for specific
purposes are accounted for as deferred revenue until the Town discharges the
obligation, which led to receipt of the funds.
TAXATION AND RELATED REVENUES
Property tax billings are prepared by the Town based
on assessment rolls compiled by the Municipal Property Assessment Corporation
("MPAC"). Tax rates are established annually by Town Council,
incorporating amounts to be raised for local services and amounts that the Town
is required to collect on behalf of the Region of York and for education purposes.
Realty taxes are billed based on the assessment rolls provided by MPAC.
Taxation revenues are recorded at the time tax billings are issued.
1. SIGNIFICANT
ACCOUNTING POLICIES (continued)
A normal part of the assessment process is the
issuance of supplementary assessment rolls that provide updated information
with respect to changes in property assessment. Once a supplementary
assessment roll is received, the Town determines the taxes applicable and
issues supplementary tax bills. Assessments and the related property
taxes are subject to appeal. Any supplementary billing adjustments made
necessary by the determination of such changes will be recognized in the fiscal
year they are determined and the impact shared with the regional government and
school boards as appropriate.
The Town is entitled to collect interest and penalties
on overdue taxes. These revenues are recorded in the period the interest
and penalties are levied.
Employee Future Benefits
The Town accounts for its
participation in the Ontario Municipal Employee Retirement System (OMERS), a
multi-employer public sector pension fund, as a defined contribution plan.
Vacation entitlements are accrued for as entitlements are earned. Sick leave
benefits are accrued where they are vested and subject to pay out when an
employee leaves the Town’s employ. Other post-employment benefits are accrued
in accordance with the projected benefit method prorated on service and
management’s best estimate of salary escalation and retirement ages of
employees. The discount rate used to determine the accrued benefit obligation
was determined by reference to market interest rates at the measurement date on
high quality debt instruments with cash flows that match the timing and amount
of expected benefit payments.
INVESTMENT
INCOME
Investment income earned on
surplus operating funds, capital funds, reserves and reserve funds (other than
obligatory reserve funds) is reported as revenue in the period earned.
Investment income earned on obligatory reserve funds, such as development
charges, is added to the fund balance and forms part of the respective deferred
revenue balance.
Use
of Estimates
The preparation of financial statements 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 expenditures during the period.
Actual results could differ from these estimates.
1. SIGNIFICANT
ACCOUNTING POLICIES (continued)
BUDGET FIGURES
The
approved operating and capital budgets for 2006 are reflected on the
Consolidated Schedules of Operating Fund Activities, Capital Fund Activities
and Financial Activities. The budgets
established for the capital fund operations are on a project-oriented basis,
the costs of which may be carried out over one or more years and, therefore,
may not be comparable with the current year actual amounts. As well, the municipality does not budget for
activity within Reserve Funds, with the exception being those transactions
which affect either the operating or capital funds.
2. OPERATIONS OF SCHOOL BOARDS AND THE REGION OF YORK
Further
to Note 1, requisitions were made by the York Region and School Boards
requiring the Town to collect property taxes and payments in lieu of property
taxes on their behalf. The amounts collected and remitted are summarized as
follows:
3. TRUST FUNDS
Trust
funds administered by the municipality for the benefit of others amounting to $
1,674 (2006 - $1,551) have not been
included in the "Consolidated Statement of Financial Position" nor
have their operations been included in the "Consolidated Statement of
Financial Activities". The trust funds
have been reported separately on the "Trust Funds Statement of Financial
Position" and "Trust Funds Statement of Financial Activities and Fund
Balances".
4. CASH AND CASH EQUIVALENTS
Investments,
which are reported at cost for money market and face value for bonds , had a
market value of $ 301,413 (2006 - $286,797) at the end of the year. Investments consist of authorized investments
pursuant to the provisions of the Municipal Act and include short-term instruments
of various financial institutions, Government bonds, and Treasury Bills. For the year 2006, the average rate of return
earned was 4.41% (2006 – 4.40%).
5. PENSION AGREEMENTS
The municipality makes contributions to the
Ontario Municipal Employees Retirement System (OMERS), which is a
multi-employer plan, on behalf of its staff.
The plan is a defined benefit plan which specifies the amount of the
retirement benefit to be received by the employees based on the length of
service and rates of pay.
The amount contributed to OMERS for 2007 was $4,844
(2006 - $4,758).
6. AMOUNTS TO BE RECOVERED
7. TAXES RECEIVABLE
The balance in taxes
receivable, including penalties and interest, is comprised of the following:
MPAC continues to refine the property assessment
based on values established in 2005 in the Town and across the Province. These values were used by the Town to compute
the 2007 property tax bills. However,
the property tax revenue and tax receivables of the Town are subject to
measurement uncertainty as a number of submitted appeals have yet to be heard. Thus
remaining outstanding tax appeals retroactive to 1998, many of which have not
yet been finalized. This additional financial uncertainty continues the need
for the allowance established for tax appeals in the amount of $1,724 (2006 - $1,881). The provision is required due to a number of
different types of tax adjustments, including frozen assessment listing (“FAL”)
appeals, new construction retroactive appeals, and commercial vacancy
rebates. Any supplementary billings
adjustments made necessary by the determination of such changes will be
recognized in the fiscal year they occur and the effect shared with the regional
government and school boards as appropriate.
As part of its 2004 budget, the Ontario Government
implemented new provisions through Bill 83 that permitted Ontario municipalities to expand capping
provisions for the multi – residential, commercial and industrial classes
beginning with the 2005 tax year. The Region of York adopted these new tax
policies and the effect is to limit annual assessment – related tax increases
to 10% over the previous year tax level or 5% of previous year full Current
Value Assessment (“CVA”) taxes. The effect of these policies is to move
properties to full CVA taxes sooner. The
adjustments caused by this legislation may also impact the amounts of rebates
which the municipality must issue to certain charitable organizations and the
interest and penalties the municipality can collect on arrears of taxes where
it is subsequently determined that such amounts have been overstated. These
policies continued in Region of York in 2007.
This program is administered by the Region of York on behalf of the
area municipalities, and therefore, there is no impact on the “Consolidated
Statement of Financial Activities”.
8. CLASSIFICATION OF
EXPENDITURES BY OBJECT
The
Consolidated Statement of Financial Activities presents the expenditures by
function; the following classifies those same expenditures by object:
9. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities include
financial obligations to outside organizations and individuals as a result of
transactions and events on or before the end of the accounting period. They are the result of contracts, agreements
and legislation in force at the end of the accounting period that require the
Town of Markham
to pay for goods and services acquired or provided prior to the accounting
date. A breakdown of the accounts
payable and accrued liabilities is as follows:
10. DEFERRED
REVENUE
Deferred revenues represent user charges and
fees which have been collected but for which the related services have yet to
be performed. These amounts will be
recognized as revenues in the fiscal year the services are performed. The following is the current status of the
deferred revenues:
11.
USER CHARGES
12. EMPLOYEE FUTURE BENEFITS LIABILITIES
EMPLOYEE
FUTURE BENEFITS
Employee Future Benefits are
health and dental benefits that the Town of Markham pays on behalf of its current and
retired employees. The Town recognizes
these post-retirement costs as they are earned during the employee’s tenure of
service. The benefit liability at December 31, 2007 is
$6,516 (2006 - $5,643). The liability recorded by the Town has been determined
by an actuarial study completed December 2007.
Information about the Town’s
defined benefit plans is as follows:
12.
EMPLOYEE
FUTURE BENEFITS LIABILITIES (continued)
The actuarial valuations of
the plans were based upon a number of assumptions about future events, which
reflect management’s best estimates. The following represents the more
significant assumptions made:
VESTED SICK LEAVE BENEFITS
Under the sick leave benefit
plan, which is available only to the Town's firefighters, employees can accumulate
unused sick leave and may become entitled to a cash payment when they leave the
municipality's employment. The liability
for these accumulated days, to the extent that they have vested and could be
taken in cash by an employee on termination, amounted to approximately $4,750 (2006 - $4,383). The accrued benefit liability
and the net periodic benefit cost were determined by an actuarial valuation updated
December 2007.
WORKPLACE SAFETY & INSURANCE OBLIGATIONS
Effective January 1, 1999, the Corporation
of the Town of Markham
became a Schedule II employer under the Workplace Safety and Insurance Act and
follows a policy of self insurance for all its employees. The Town remits payments to the WSIB as
required to fund disability payments.
The estimated future liability relating to WSIB amounted to $715 (2006 – $614) and was determined by an
actuarial evaluation completed December 2004 and updated December 2007. A
Workplace Safety and Insurance Reserve Fund, funded by annual contributions
from the Operating Fund, has also been established to protect against any
unknown future liability.
The Town also maintains an
insurance policy, which protects the Corporation against single claims in
excess of $1,000.
13.
COMPARATIVE
FIGURES
Certain
comparative figures have been reclassified to conform with the financial
statement presentation adopted in the current year.
14. MUNICIPAL FUND BALANCES AT THE END OF THE YEAR
(a) Operating
fund balance
(b)
Capital
fund balance
14. MUNICIPAL
FUND BALANCES AT THE END OF THE YEAR (continued)
(c)
Reserves
and Reserve Funds
15. LEASE
OBLIGATIONS
(a) As at December 31, 2007, the
Town is committed to minimum annual operating lease payments for premises and
equipment as follows:
(b)
The Toronto Buttonville Airport
(Markham) Inc.
("TBAI"), a wholly-owned subsidiary of the Town, entered into an
agreement to lease the Buttonville
Airport property for a
period of nine years for the term of January 1, 2002 to December 31, 2010. Annual rental payment is limited to the
funding provided by the Region of York, the Greater Toronto Airport Authority
and from any other source during the term of this lease, whether paid directly
or as rent.
16. CONTINGENCY
UNSETTLED LEGAL CLAIMS AND POTENTIAL OTHER CLAIMS
The Town has been named as
the defendant in certain legal actions in which damages have been sought. The outcome of these actions is not
determinable at this time and, accordingly, no provision has been made in these
financial statements for any liability that may result.
MARKHAM ENTERPRISES
CORPORATION
A class action
claiming $500,000 in restitutionary payments plus interest was served on November 18, 1998. This action has been brought under the Class
Proceedings Act, 1992. The plaintiff class seeks $500,000 in restitution for
amounts paid to Toronto Hydro and to other Ontario municipal electric utilities
(“LDCs”) who received late payment penalties which constitute interest at an
effective rate in excess of 60% per year, contrary to section 347 of Criminal
Code. Pleadings have closed in this action. The action has not yet been
certified as a class action and no disclosures have been held, as the parties
were awaiting the outcome of a similar proceedings brought against Enbridge Gas
Distribution Inc. (formerly Consumers Gas).
The
Electricity Distributors Association is undertaking the defence of this class
action. At this time it is not possible
to determine the effect, if any, on the financial position of Markham Enterprises
Corporation and on that of the Town of Markham.
17. ACCOUNTS RECEIVABLE - POWER STREAM INTEREST
Included in Accounts Receivable is $4,777
being the 5.58% per annum interest due for the period October to December 2006 to
December 2007 on promissory notes issued by PowerStream. Council has approved
the deferral of this payment and future quarterly interest payments due up to
September 2008 for a period of 5 years from September 2008. The Town will
receive full repayment of the accumulated interest due on October 31, 2013.
The Town will receive from PowerStream
secondary interest on the deferred interest payments from April 2007 up to
October 2013.
18. INVESTMENT IN MARKHAM
ENTERPRISES CORPORATION
The Town of Markham
incorporated corporations under the laws of the Province of Ontario.
Markham Enterprises Corporation (Previously Markham Energy Corporation) is
wholly owned by the Town of Markham.
Markham Enterprises Corporation owns 100% of Markham District Energy Inc. and
43% (2006 – 43%) of PowerStream Inc.
In accordance with the June 1, 2004 shareholders’ agreement, Markham
Enterprises Corporation exercised its option to purchase from treasury, an
additional 2% of all the issued and outstanding shares after giving effect to
the exercise of such an option. An additional 35.0877 common shares were
purchased in 2005 for cash consideration of $6,800. At year end, of the total
1,035.0877 common shares issued, by PowerStream Inc., 445.0877 (2006 – 445.0877)
common shares were registered under Markham Enterprises Corporation.
The Shareholder’s Agreement, consistent with the
original intent of the shareholders, provides the Town of Markham, through its
wholly owned subsidiary Markham Enterprises Corporation, with “substantive
participating rights” that establish joint control with the City of Vaughan,
through its wholly owned subsidiary Vaughan Holding Inc., over the strategic operating, investing and
financing policies of PowerStream.
The following consolidated financial statements of
Markham Enterprises Corporation include the financial information of its
subsidiaries Markham District Energy Inc., and PowerStream Inc. for the period
from January 1, 2007
to December 31, 2007.
18. INVESTMENT IN MARKHAM ENTERPRISES CORPORATION (continued)
19. TANGIBLE CAPITAL ASSETS
In June 2006,
Public Sector Accounting Board (PSAB), approved the revisions to Section 3150
of the Public Sector Accounting Handbook - Tangible Capital Assets stating that
effective January 1, 2009
all municipal governments will be required to capitalize Tangible Capital
Assets (TCA) at historic cost and amortize these assets over their useful life.
Public Sector Guideline 7 (PSG - 7) of the Public Sector Accounting Handbook of
the Canadian Institute of Chartered Accountants provides transitional guidance
on presenting information related to tangible capital assets by way of a note
to the financial statements until Section 3150 – Tangible Capital Assets comes
into effect on January 1, 2009.
In order to be
fully compliant with the above new requirements, the Town of Markham is currently in the process of
inventorying its assets, as at December
31, 2007. Inventories are
anticipated to be significantly complete in the second quarter of 2008.
The valuation of
assets, at their historic costs, is also currently underway on inventories
which are substantially complete. Where historical accounting records are not
available, the Town will apply a consistent method in estimating the historic
cost. The valuation process is
anticipated to be substantially complete by December 31, 2008. Upon completion of the valuation,
amortization, using the straight line method, will be calculated on all assets.
The Town will draft a formal TCA policy, which
will include a complete list of asset categories and their corresponding useful
lives. This document is anticipated to
be completed by the end of 2008.
Effective January 1, 2009 the Town’s
Capital Budget will include only projects which meet the criteria for a
TCA. All other expenditures must be
included in the Operating Budget and be expensed in the period in which they
occur.
