Draft Consolidated Financial Statements Year ended December 31, 2018

Town of View Royal

Year ended December 31, 2018

45 View Royal Avenue Victoria, BC Canada V9B 1A6 www.viewroyal.ca

TABLE OF CONTENTS

Management's Responsibility for Financial Reporting | 1 Independent Auditors' Report | 2 Consolidated Financial Statements Statement A: Consolidated Statement of Financial Position | 4 Statement B: Consolidated Statement of Operations | 5 Statement C: Consolidated Statement of Change in Net Financial Assets | 6 Statement D: Consolidated Statement of Cash Flows | 7 Notes to Consolidated Financial Statements | 8 Supporting Schedules Schedule 1: Consolidated Schedule of Segment Disclosure by Service - 2018 | 25 Schedule 2: Consolidated Schedule of Segment Disclosure by Service - 2017 | 26 Schedule 3: Consolidated Schedule of Tangible Capital Assets | 27

MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING

The consolidated financial statements have been prepared by management in accordance with Canadian public sector accounting standards for British Columbia local governments and the integrity and objectivity of these statements are management's responsibility. Management is also responsible for all the statements and schedules, and for ensuring that this information is consistent, where appropriate, with the information contained in the financial statements.

Management is also responsible for implementing and maintaining a system of internal controls to provide reasonable assurance that reliable financial information is produced.

View Royal's Mayor and Council are responsible for ensuring that management fulfils its responsibilities for financial reporting and internal control and exercises this responsibility by meeting with management and the external auditors to review the consolidated financial statements and to discuss any significant financial reporting or internal control matters prior to their acceptance of the consolidated financial statements.

The external auditors, Grant Thornton LLP, conduct an independent examination, in accordance with generally accepted auditing standards, and express their opinion on the financial statements. Their examination includes a review and evaluation of the Town of View Royal's system of internal control and appropriate tests and procedures to provide reasonable assurance that the financial statements are presented fairly. The external auditors have full and free access to the Mayor and Council.

May 1, 2019

Statement A

Town of View Royal

Consolidated Statement of Financial Position

as at December 31, 2018

Statement B

Town of View Royal

Consolidated Statement of Operations

Year ended December 31, 2018

Statement C

Town of View Royal

Consolidated Statement of Change in Net Financial Assets

Year ended December 31, 2018

Statement D

Town of View Royal

Consolidated Statement of Cash Flows

Year ended December 31, 2018

Notes to Consolidated Financial Statements

Year ended December 31, 2018

The Town of View Royal (the "Town") was incorporated on December 5, 1988 by letters patent issued by the Province of British Columbia. Its principal activities are the provision and coordination of local government services to residents of the incorporated area. These services include general government administration, bylaw enforcement, planning and development services, building inspection, fire protection and emergency response planning, public transportation, parks and recreation, solid waste collection and disposal, sewer collection and disposal, and street lighting.

1. Significant accounting policies

a) Principles of consolidation The Town follows Canadian public sector accounting standards. The consolidated financial statements of the Town are prepared in accordance with the recommendations of the Public Sector Accounting Board (PSAB).

b) Reporting entity The consolidated financial statements reflect the combined assets, liabilities, accumulated surplus, revenue and expense of all of the Town's activities and funds. The consolidated financial statements also include the Town's proportionate share of the West Shore Parks and Recreation Society (West Shore). Interfund transactions and fund balances have been eliminated on consolidation.

c) Basis of accounting The Town follows the accrual method of accounting for revenue and expense. Revenue is normally recognized in the year in which it is earned and measurable. Expense is recognized as it is incurred and measurable as a result of receipt of goods or services and/or the creation of a legal obligation to pay. Expense paid in the current period and attributable to a future period is recorded as prepaid expense.

d) Property tax revenue Property tax revenue is recognized at the date property tax notices are issued, based on property assessment values issued by BC Assessment for the current year and tax rates established annually by bylaw. Assessments are subject to appeal and tax adjustments are recorded when the results of appeals are known.

1. Significant accounting policies (continued)

e) Government transfers Government transfers are recognized as revenue in the period the transfers are authorized and any eligibility criteria have been met, except to the extent that transfer stipulations give rise to an obligation that meets the definition of a liability. Transfers are recognized as deferred revenue when transfer stipulations give rise to a liability and recognized in the statement of operations as revenue as the stipulation liabilities are settled.

f) Deferred revenue Deferred revenue includes grants, contributions and other amounts received from third parties pursuant to legislation, regulation and agreement which may only be used in certain programs, in the completion of specific work, or for the purchase of tangible capital assets. In addition, certain user charges and fees are collected for which the related services have yet to be performed. Revenue is recognized in the period when the related expenses are incurred, services performed, or the tangible capital assets are acquired.

Development cost charges are amounts which are restricted by government legislation or agreement with external parties. When qualifying expenses are incurred development cost charges are recognized as revenue in amounts which equal the associated expenses.

g) Investment income Investment income is reported as revenue in the period earned. When required by the funding entity or related legislation, investment income earned on deferred revenue is added to the deferred revenue balance.

h) Cash equivalents Cash equivalents are comprised primarily of Municipal Finance Authority (MFA) pooled investments including money market, intermediate and bond funds. Town funds invested with MFA are pooled with other local governments and managed independently by Phillips, Hager & North Ltd. The investments are carried at market value which approximates cost.

i) Deposits Receipts restricted by third parties are deferred and reported as deposits and are refundable under certain circumstances. Deposits that are prepayments are recognized as revenue when qualifying expenditures are incurred.

1. Significant accounting policies (continued)

j) Employee benefits and retirement obligations The Town and its employees make contributions to the Municipal Pension Plan. The Town’s contributions are expensed as incurred and are included within the Statement of Operations.

Sick leave and other retirement benefits are also available to the Town’s employees. The costs of these benefits are actuarially determined based on service and best estimates of retirement ages and expected future salary and wage increases. The obligations under these benefit plans are accrued based on projected benefits as the employees render services necessary to earn the future benefits.

k) 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.

i) Tangible capital assets Tangible capital assets are recorded at cost, net of disposals, write-downs and amortization. The cost of tangible capital assets includes all amounts that are directly attributable to acquisition, construction, development or betterment of the asset. The cost less residual value of the tangible capital assets, excluding land, is amortized on a straight line basis over the estimated useful life as follows:

Amortization is calculated monthly, including in the year of acquisition and disposal. Assets under construction are not amortized until the asset is available for productive use.

Tangible capital assets are written down when conditions indicate that they no longer contribute to the Town's ability to provide goods and services, or when the value of future economic benefits associated with the asset is less than the book value of the asset.

1. Significant accounting policies (continued)

ii) Contributions of tangible capital assets Tangible capital assets received as contributions are recorded at their fair value at the date of receipt, with the value of the contribution recorded as revenue.

iii) Works of art and cultural and historical treasures The Town manages and controls various works of art and non-operational historical cultural assets including buildings, artifacts, paintings and sculptures located at Town sites and public display areas. These assets are not recorded as tangible capital assets and are not amortized due to the subjectivity of their value.

iv) Interest capitalization The Town does not capitalize interest costs associated with the acquisition or construction of a tangible capital asset.

v) Leased tangible capital assets Leases which transfer substantially all of the benefits and risks incidental to ownership of property are accounted for as leased tangible capital assets. All other leases are accounted for as operating leases and the related payments are charged to expenses as incurred.

vi) Inventory of supplies Inventory is recorded at the lower of cost and replacement cost.

l) 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 financial statements, and the reported amounts of revenue and expense during the period. Significant estimates include assumptions used in estimating provisions for accrued liabilities, performing calculations of employee future benefits, sick benefits liability, collectability of accounts receivable, amortization of capital assets, determination of liability for contaminated sites, deferred charges and provisions for contingencies. Actual results could differ from those estimates. Adjustments, if any, will be reflected in operations in the period of settlement.

2. Prior period adjustment

In 2018, the Town identified several development cost charge eligible projects that were funded from the Sewer System Capital reserve fund and casino revenue appropriated surplus account in years 2001 – 2011 in error. The total value of these projects is $3,737,918.

Adjustments to the affected accounts have been applied retroactively and the 2017 comparative figures have been restated as follows:

3. Financial instruments

The Town’s financial instruments consist of cash and temporary investments, accounts receivable, accounts payable and accrued liabilities, deposits, and long-term debt. The carrying amount of these financial instruments approximates their fair value because they are short-term in nature or because they bear interest at market rates.

Unless otherwise noted, it is management’s opinion that the Town is not exposed to significant interest or credit risks arising from these financial instruments.

4. Cash and cash equivalents

Temporary investments consist of short-term investments in the MFA money market, intermediate, and short-term bond funds. The market value is equal to the carrying value. Temporary investments have yields ranging from 1.66% to 1.91%.

Included in cash and temporary investments are the following restricted amounts:

The Town has an operating line of credit with the Toronto Dominion Bank for an authorized amount of $1,000,000, bearing interest at bank prime rate less 0.50% per annum. At December 31, 2018 the balance outstanding was $nil (2017 - $nil).

5. Accounts Receivable

6. Assets held for sale

In 2018 the Town acquired a parcel of land, a portion of which it intends to subdivide and sell. Total costs to prepare the parcel for sale at the end of the year were $148 (2017 - $nil).

7. Accounts payable and accrued liabilities

8. Community Works Fund

Community Works Fund is a component of the Gas Tax Agreement funding provided by the Government of Canada and administered through the Union of British Columbia Municipalities (UBCM). Community Works Funds transfers are recorded as revenue when received, then held as reserves until spent on eligible expenditures.

9. Deferred revenue

Deferred revenue reported on the statement of financial position includes the following:

10. Long-term debt

a) Debt outstanding

b) Debenture debt

The loan agreements with the Capital Regional District and the MFA provide that if, at any time, the scheduled payments provided for in the agreements are not sufficient to meet the MFA’s obligations in respect of such borrowings, the resulting deficiency becomes a liability of the Town.

The Town issues its debt instruments through the MFA. Debt is issued on a sinking fund basis, where the MFA invests the Town’s sinking fund principal payments so that the payments, plus investment income, will equal the original outstanding debt amount at the end of the repayment period. Actuarial adjustments on debt represent the repayment and/or forgiveness of debt by the MFA using surplus investment income generated by the principal repayments.

Principal payments on long term debt for the next five years are as follows:

c) Interest expense

Total interest expense during the year was $260,633 (2017 - $260,633).

11. Employee benefit and retirement obligations

Employee benefit obligations represent accrued benefits as follows:

Accrued vacation is the amount of unused vacation entitlement carried forward into the next year. Accrued sick leave is the estimated liability for sick leave for all employees. Sick leave entitlements can only be used while employed by the Town and are not paid out upon retirement or termination of employment. The accrued sick leave cost was estimated by an actuarial valuation completed effective for December 31, 2018.

Information about liabilities for accrued sick leave is as follows:

The accrued benefit liability is included as part of employee benefit obligations on the Statement of Financial Position. The actuarial gain is amortized over a period equal to the employees’ average remaining service lifetime of 11 years.

The significant actuarial assumptions adopted in measuring the Town’s accrued benefit obligations are as follows:

11. Employee benefit and retirement obligations (continued)

Municipal Pension Plan

The Town 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 pension plan. Basic pension benefits provided are based on a formula. As at December 31, 2017, the plan has about 197,000 active members and approximately 95,000 retired members. Active members include approximately 39,000 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 may be adjusted for the amortization of any actuarial funding surplus and will be adjusted for the amortization of any unfunded actuarial liability.

The most recent actuarial valuation of the Municipal Pension Plan as of December 31, 2015, indicated a $2.224 million funding surplus for basic pension benefits on a going concern basis. As a result of the 2015 basic account actuarial valuation surplus and pursuant to the joint trustee agreement, $1,927 million was transferred to the rate stabilization account and $297 million of the surplus ensured the required contribution rates remained unchanged.

The Town paid $284,739 (2017 - $247,506) for employer contributions while Town employees contributed $231,811 (2017 - $198,355) to the plan in fiscal 2018.

The next valuation will be as at December 31, 2018 with results available in 2019.

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.

12. Tangible capital assets

a) Assets under construction and completed assets not yet in service Assets under construction totaling $924,121 (2017 - $555,540) have not been amortized. Amortization of these assets will commence when the asset is put into service.

12. Tangible capital assets (continued)

b) Contributed tangible capital assets Contributed tangible capital assets have been recognized at fair market value at the date of contribution. The value of contributed capital assets received during the year is $3,495,413 (2017 - $4,594,255).

c) Gain or loss on disposal of tangible capital assets During the year, the Town recognized a $21,832 loss on disposal of tangible capital assets. (2017 - $43,390 loss). This amount is included as an expense on the Statement of Operations.

d) Write down of tangible capital assets The write down of tangible capital assets during the year was $nil (2017 - $nil).

13. Accumulated surplus

Accumulated surplus consists of individual fund surplus and reserve funds as follows:

Interest on internal borrowing is calculated and funded annually by the general fund. As a result the internal borrowing has no impact on the annual investment interest allocated to the reserves.

14. Taxes for municipal purposes

The Town is required to collect taxes on behalf of and transfer these amounts to the government agencies noted below. Taxes levied over or under the amounts requisitioned are recorded as accounts payable or receivable.

15. Gaming revenue

The Town has an agreement with the Province whereby 10% of the net gaming revenue from community casinos is to be paid to local governments. The Town has also has a casino revenue sharing agreement with neighbouring municipalities whereby 55% of the revenue received from the Province in respect of the gaming facility situated within the Town is to be disbursed to these governments. This disbursement is netted against the gaming revenue in the financial statements for the Town as disclosed below.

16. Government grants and transfers

17. Commitments and contingencies

a) The Capital Regional District ("CRD") debt, under provisions of the Local Government Act, is a direct, joint and several liability of the CRD and each member municipality within the CRD, including the Town.

b) The Town is a shareholder and member of the Capital Region Emergency Service Telecommunications Incorporated ("CREST") which provides centralized emergency communications, and related public safety information services to municipalities, regional districts, the provincial and federal governments and their agencies, and emergency service organizations throughout the Greater Victoria region and the Gulf Islands. Members’ obligations to share in funding ongoing operations and any additional costs relating to capital assets are to be contributed pursuant to a Members’ Agreement.

c) The Town is a defendant in various lawsuits. Whether claims are in progress or have yet to be initiated, the Town records an accrual in respect of legal claims that are likely to be successful and for which an amount is reasonably determinable.

d) Under borrowing arrangements with the MFA, the Town is required to lodge security by means of demand notes and interest bearing cash deposits based on the amount of the borrowing. As a condition of these borrowings, a portion of the debenture proceeds is withheld by the MFA as a debt reserve fund. These deposits are included in the Town's financial assets as restricted cash and are held by the MFA as security against the possibility of debt repayment default. If the debt is repaid without default, the deposits are refunded to the Town. At December 31, 2018 there were contingent demand notes of $204,201 (2017 - $204,201).

e) The Town entered into a long term contract with the Federal Government and the Royal Canadian Mounted Police for the provision of police services. Under the terms of this contract, the Town is responsible for 70% of policing costs, which in 2019 are estimated to be $1,850,000.

17. Commitments and contingencies (continued)

f) The Town has purchase orders in the amount of $1,060,790 open as at December 31, 2018 which have not been recorded. These amounts have been taken into account in the budget and will be recorded in the period the goods and services to which they relate are received.

g) On December 4, 2018, the Town of View Royal awarded a contract to Safetek Fire Apparatus of Abbotsford, BC in the amount of $814,600, excluding taxes for the purpose of replacing one heavy rescue fire apparatus. Delivery of the fire truck is expected to occur in 2020.

18. Contaminated site

The Town owns one property not in productive use with levels of contamination exceeding current environmental standards. Testing of the contamination in 2003 found no known threats to human health or safety. The property is surrounded by the ocean and undeveloped privately owned land with no current development applications. The property and surrounding privately owned land were historically occupied by a plywood mill. Due to uncertainty regarding the future development of the surrounding private property, the Town is unable to reasonably estimate what, if any, loss of future economic benefits will occur. As such no liability has been recorded in the financial statements for the year ending December 31, 2018.

19. Financial plan

The financial plan amounts presented throughout these financial statements are audited and represent the five year financial plan bylaw approved by Council on March 20, 2018. The summary below reconciles the 2018 adopted financial plan to the Consolidated Statement of Operations.

The budgeted deficit represents the planned results of operations prior to transfers between reserve funds and appropriated surpluses, debt repayments and capital expenditures.

20. West Shore Parks and Recreation Society

a) Capital asset transfer The lands and facilities comprising the Juan de Fuca Recreation Centre are owned by the member municipalities (the “Municipalities”) in their proportionate share, as specified in the Co-Owners’ Agreement. The Town became party to the agreement effective January 1, 2007. Future improvements are allocated among the partners as per the cost sharing formula in effect each year for each service or facility, as outlined in a Members’ Agreement. For 2018, the Town’s share of improvements purchased by the Society on its behalf is $12,802 (2017 - $nil).

Because the cost sharing formula in the Members’ Agreement produces different cost shares for the members from year to year, there is a gain or loss on the opening fund balances. In 2018, the Town recorded a gain of $28,162 (2017 - $nil).

The participating Municipalities have each become members in the Society, which was incorporated to provide parks, recreation and community services to the Municipalities under contract. Under terms of an Operating, Maintenance and Management Agreement, the Society is responsible to equip, maintain, manage and operate the facilities located at the recreation centre.

b) Consolidation Financial results and budget for the Society are consolidated into the Town’s financial statements proportionately, based on the cost sharing formula outlined in the Members’ Agreement. In 2018, the Town’s proportion for consolidation purposes was 14.671% (2017 - 14.608%). Condensed financial information for the Society is as follows:

21. Segmented information

The Town is a diversified municipal organization that provides a wide range of services to its citizens. Town services are provided by departments and their activities reported separately. Certain functions that have been separately disclosed in the segmented information, along with the services they provide, are as follows:

a) General Government The general government operations provide the functions of corporate administration, finance, human resources and legislative services and any other functions categorized as non-departmental.

b) Protective Services Protective Services includes the View Royal Fire Rescue which is a composite fire department responsible to provide fire suppression service, fire inspections of public buildings, and training and education of volunteer firemen as well as the citizens of View Royal. In addition, it also includes policing provided by the RCMP, emergency planning, animal control and the maintenance and enforcement of building and construction bylaws as well as all other municipal bylaws. Fire protection services are provided to the Songhees and Esquimalt First Nation communities under contract.

c) Transportation Transportation services comprises a wide variety of services such as the annual maintenance of all municipally owned roads and bridges, sidewalks, street signage, boulevards, bus shelters, street lighting and traffic signals. Transportation also includes the design, inspection, and maintenance of the storm drain collection systems.

d) Environmental health services Environmental health services includes solid waste collection and disposal as well as collection and disposal of liquid waste through the sanitary sewer service.

e) Planning and development services Environmental development services include all land use, planning and zoning issues in the Town.

f) Recreation and cultural services Recreation and culture includes maintenance and development of all parks and green spaces within the Town as well as the Town's financial contribution to the services provided by the Greater Victoria Public Library and the Town’s portion of West Shore Parks and Recreation Society.

g) Consolidated schedules of segmented disclosure by service Schedules 1 and 2 provide additional financial information for the foregoing functions. Certain allocation methodologies have been employed in the preparation of the segmented financial information. Taxation is apportioned based on budgeted taxation revenue as presented in the consolidated financial plan.

22. Comparative figures

Certain comparative figures have been restated to conform with the current year's presentation.

Schedule 1

Town of View Royal

Consolidated Schedule of Segment Disclosure by Service

Year ended December 31, 2018

Schedule 2

Town of View Royal

Consolidated Schedule of Segment Disclosure by Service

Year ended December 31, 2018

Schedule 3

Town of View Royal

Consolidated Schedule of Tangible Capital Assets

Year ended December 31, 2018