Vancouver City Council

TABLE OF CONTENTS

Mayor and Councillors 1
Officials 2
Boards 3
Report of the Director of Finance 4
Auditors' Report 9
Consolidated Statement of Financial Position 10
Consolidated Statement of Financial Activities 11
Consolidated Statement of Cash Flows 12
Notes to Consolidated Financial Statements 13
Auditors' Report 23
Schedules of Financial Activities

Revenue Fund 24
Capital Fund 25
Capital Financing Fund 26
Sinking Fund 27
Property Endowment Fund 28
Utilities 29

MAYOR AND COUNCILLORS

(NOTE FROM CLERK: photos of Mayor and Council not available)

OFFICIALS

Corporate Management Team

City Manager J. Rogers, M.P.A.
Deputy City Manager B. MacGregor, P. Eng.
Chief Constable J. Graham
Director of Legal Services F. Connell, LL.B
Acting Director of Vancouver Public Library E. Smith, C.A.
General Manager of Community Services J. Forbes-Roberts
General Manager of Corporate Services E. Lo, B. Comm, M.B.A., C.M.A.
General Manager of Engineering Services D. Rudberg, P. Eng.
General Manager of Fire and Rescue Services R. Holdgate
General Manager of Human Resource Services M. Zora, B.Comm.
General Manager of Parks and Recreation S.J. Mundick, B.R.I.S., R.D.M.R.

Financial Services

Director of Finance E. Lo, B. Comm, M.B.A., C.M.A.
Director of Financial Services T. Corrigan, C.A., M.P.A.
Director of Financial Planning and Treasury K.B. Bayne, B.A., M.Sc. (Bus.)
Manager of Accounting Services E. Lee, B. Comm, C.A.
Director of Budget Services A. Klein, M.B.A.
City Treasurer and Collector G. Merchant, M.B.A.

City Clerk S. Baxter

_________________________

City Auditors
KPMG _LLP, Chartered Accountants
_________________________

Bankers
Bank of Montreal
_________________________

Fiscal Agent - Worldwide
RBC Dominion Securities Inc.
_________________________

Fiscal Agents for Certain Functions
Relating to Eurobond Issues
Royal Bank of Canada, London

Relating to Book Entry Only Issues
Canadian Depository for Securities Ltd.
__________________________

BOARDS

REPORT OF THE DIRECTOR OF FINANCE

City Hall, Vancouver

April 11, 2003

Mayor L. Campbell and
Members of Council

It is my pleasure to submit the Consolidated Financial Statements for the City of Vancouver for the year ended December 31, 2002. These financial statements include the financial position and results of operations of the City, all its boards and the City's owned/controlled corporations.

Reporting Changes

The City has been applying the Public Sector Accounting Board (PSAB) standards to the financial statements since 2000. The PSAB standards are national accounting and reporting principles established by the Canadian Institute of Chartered Accountants to bring consistency of financial reporting across all Canadian senior and local governments. The benefit to the City of adopting these standards is that it facilitates meaningful comparisons of the City's financial position to other Canadian municipalities.

In 2002, the City has made further enhancements to the financial statements by adopting PSAB recommendations in accounting for the activities of the Property Endowment Fund. The most significant changes that result from the conversion are:

· Property acquisitions will be reported as capital expenditures in the Consolidated and Property Endowment Fund Statements of Financial Activities with a corresponding increase in Equity in Capital Assets.
· Proceeds on sale of assets are recorded as revenues in the Consolidated and Property Endowment Fund Statements of Financial Activities.
· Depreciation is not recorded in the Statements of Financial Activities.
· Revenue from prepaid long term leases is reported as revenue in the year the lease is transacted.
The changes have been applied retroactively and the comparative numbers have been restated to reflect the changes.

While we have made significant progress towards the adoption of the PSAB standards, we will continue to enhance our financial statement reporting and to monitor the development of new public sector accounting standards.

2002 Financial Highlights

The City continued to maintain a strong financial position in 2002:

1. Cash position of the City, including temporary investments, remained strong at $477.3 million. This is a 44.3% increase compared to the $331.1 million in 2001. There were a number of factors contributing to the increase: a $100 million debenture issued during the year to finance capital projects; the increase in the actuarial provision for debt repayment in the sinking fund; an increase in reserves set aside by Council for specific purposes and an improvement in revenue collections.
2. The City kept expenditures within the operating budget ending the year with a surplus of $0.2 million. This brings the total Revenue Fund surplus to $7.7 million, a 2.6% increase compared to the surplus of $7.5 million in 2001.
3. Expenditures on capital works totalled $149.4 million, compared to the $110.9 million in 2001, a 35% increase. Analysis of the expenditures is discussed in the `Capital Fund' section below.
4. Reserves set aside for specific purposes by Council increased during 2002 by $14.6 million to $196.7 million. Reasons for the increase are identified in the `Reserves' section below.
5. Funding of $4.2 million was provided for deferred payroll costs related to accumulated overtime costs. This funding is important because the City faces increased employment related payments over the next five to ten years as a result of anticipated retirement of long term staff.

REPORT OF THE DIRECTOR OF FINANCE

6. In April 2002, the City issued $100 million of non-callable serial debentures to finance the City's capital projects. The debentures have maturity dates commencing in 2003 and continuing until 2012. The debentures carry coupon rates increasing from 3.5% in year 1 to 6.125% in year 10 with an average yield of 5.98% over the ten year period. This serial debenture is the largest issued by a Canadian municipality, was well timed and well received by both the institutional and retail investors.
7. The total debt outstanding at December 31, 2002 was $546.1 million, of which $419.2 million was held externally; the balance of $126.9 million was held by the Sinking Fund and the Capital Financing Fund. Of this internally held debt, $20.8 million is to be recovered from individual property owners through local improvement charges. All the debt is payable in Canadian dollars.

Property Tax Receivable

Tax collections continue to out perform previous years. The collection of 2002 property taxes, including those amounts raised for other taxing authorities, amounted to $815.9 million, or 99.96% of the total 2002 property taxes levied. During the year, the City collected $24.4 million (63.86%) of the $38.3 million property tax outstanding at the beginning of 2002.

Taxes outstanding, after provision for uncollectible taxes of $4.2 million, totalled $30.9 million, a decrease of $4.4 million from 2001.

At year end, advance payments under the Tax Installment Prepayment Program were $17.4 million compared to $14.1 million at the end of 2001, an increase of 23%. These amounts are included in `Accounts Payable and Accrued Charges' in the Statement of Financial Position.

The growth in the prepayments is indicative of the increasing participation of property owners in this program. The increased participation is mainly attributable to the program revisions to offer interest on prepayments, the automatic withdrawal of final tax balance and the active promotion of the program.

Revenue Fund

The Revenue Fund accounts for the general operations for the City. Spending authority and control for the fund are provided by Council through the annual operating budget process.

Revenues for the year totalled $743.0 million and expenditures, debt repayments and transfers amounted to $742.8 million, resulting in a revenue fund surplus of $0.2 million. The total fund balance of the Revenue Fund currently stands at $7.7 million.

Total operating revenues increased $31.8 million from 2001 mainly due to:

· Revenue from taxation increased $19.4 million or 4.7% from $413.6 million to $433.0 million. City Council approved a 4.0% increase in the property tax levy in 2002 generating $15.0 million tax revenues. Taxes from new construction added another $3.1 million to the property tax revenue. Interest and penalty revenue was lower in 2002 by $0.5 million. Payment-in-lieu of taxes from the Vancouver Port Authority were higher in 2002 by $1.8 million due to the construction of the new cruise ship terminal.

· An increase in solid waste utility fees of $3.0 million or 9.4% as a result of higher commodity prices received for recycled material collected as well as higher tipping fees and volumes of demolition waste received in the landfill site.

REPORT OF THE DIRECTOR OF FINANCE

· An increase in Park Board revenues of $2.2 million or 7.5% mainly due to increased participation in programs and food concession revenues.
· An increase of $1.8 million or 11.0% in revenues from the street parking program due to a rate increase and improved compliance that resulted from the implementation of on-street handheld ticket issuing technology.
· An increase in other fees, rates and cost recoveries of $6.6 million due to a combination of developer contribution ($2.3 million), increased license and permit fees ($0.6 million), service and inspection fees ($0.6 million), Olympic Bid recoveries ($0.4 million), planning project fees ($0.3 million), recoveries on the Downtown Eastside projects under the Vancouver Agreement previously netted against expenditures ($1.0 million), and other miscellaneous recoveries ($1.2 million).
· A decrease in short term investment income of $3.3 million or 20.5% as a result of declining interest rates during 2002.

Total operating expenditures amounted to $644.5 million, an increase of $24.2 million. It was mainly related to the annual wage adjustment, adding approximately $12 million to the 2002 expenditures.

Other major areas of increased expenditures are:

· Police expenditures increased by $4.3 million as a result of the adjustments to salaries and wages ($2.1 million), increase in overtime ($1.3 million), costs of recruitment of sworn officers ($0.6 million) and the addition of 15 civilian positions ($0.3 million).
· A $2.8 million increase to the cost of water from the Greater Vancouver Regional District due to growth in water consumption.
· Parks and Recreation costs related to operating expenditures associated with new facilities added $0.4 million in expenditures.
· General Government expenditures increase of $5.7 million related to the 2002 election, filling of vacancies in approved positions, and Olympic Bid expenditures.
· Planning and Development expenditures increase of $3.5 million was mainly due to a number of projects such as the Downtown Transportation Plan, Grow Busters, New Comers Guide, Secondary Suites, Design and Streetscape, South East False Creek development and the Trade and Convention Centre.

Capital Fund

The Capital Fund accounts for the City's capital expenditures or programs supporting civic infrastructure as well as the related financing. It also holds all properties required for civic use and the related long term debt. Spending authority and control are provided through the annual Capital Budget and the Three Year Capital Plan approved by Council.

The Capital Fund ended the year with a fund surplus of $16.7 million compared to a fund deficit of $14.9 million in 2001, an improvement of $31.6 million. This reflects the fact that the City issued $100 million in debentures in 2002 to finance current and future capital expenditures.

The Property Endowment Fund and the Capital Financing Fund have provided $99.3 million interim financing to the Capital Fund for certain capital projects. Debenture financing will not be required for these capital expenditures. The interim financing will be repaid with interest from future operating savings, additional fees and service charges and within the existing property taxation level provided in Operating Budget.

When the interim financing from the Property Endowment Fund and the Capital Financing Fund are taken into consideration with the closing fund balance, there is $116.0 million in funds available to finance future capital expenditures.

REPORT OF THE DIRECTOR OF FINANCE

At the year end, approximately $10.1 million of general borrowing authority and $8.1 million of sewer and water borrowing authority from the 2000 - 2002 and prior Capital Plans had not been exercised by Council through issuance of debentures. In November 2002, for the 2003 - 2005 Capital Plan, the electorate approved new borrowing authority of $116.7 million for general purposes. Council has also indicated that an additional $104.7 million in borrowing authority would be approved for sewer and water expenditures.

During 2002, the City spent $149.4 million on capital works. Capital expenditures range from maintenance and improvements to roads, streets, sewers and water distribution systems to fire protection and parks and recreation facilities. Some of the major spending in 2002 included:

· $4.6 million on construction of a new Engineering works yard
· $3.0 million on technology infrastructure
· $3.0 million on construction and capital maintenance of City buildings
· $1.8 million on construction of a firehall
· $22.2 million on vehicle and equipment
· $35.9 million on streets and traffic and safety
· $4.7 million on the Stanley Park S-curve
· $24.9 million on main sewer construction and pollution abatement
· $25.4 million on water works distribution system
· $6.4 million on daycare and community service facilities
· $11.0 million on parks, community centres, playing fields, ice rinks and land purchases.

Sinking Fund

The Sinking Fund is a statutory requirement of the Vancouver Charter and provides for the retirement of the City's sinking fund debentures. The accumulation of annual principal installments collected through tax levies, together with interest earned, provide for retirement of principal at maturity. The Sinking Fund actuarial reserve for debt retirement at December 31, 2002 was $143.8 million. Approximately $56.7 million relates to internally held debt.

Surplus funds over and above those required to meet future debt maturities are transferred to the Revenue Fund. During 2002, the transfer was $3.6 million.

At the year end, the Sinking Fund had $108.9 million of the City's $126.9 million internally held debentures.

Property Endowment Fund (PEF)

The Property Endowment Fund accounts for real estate properties not required for civic purposes including non-market housing sites, other residential and commercial properties and parking garages. The Fund is also a source of internal financing for civic projects. All purchases, sales and transfers of property by the Fund require Council approval.

In 2002, the Property Endowment Fund spent $17.4 million on capital assets. Of this amount, $4.4 million was spent on parking structures financed from the parking sites reserve. Another $4.0 million was spent to acquire two sites for non-market housing development. The remaining $9.0 million was spent on land acquisition and development for future strategic purposes.

During 2002, $7.0 million of the net revenue from operations was transferred to the Revenue Fund to support general operations. By the end of the year, the PEF had advanced $19.0 million to the Capital Fund as financing for specific capital projects.

REPORT OF THE DIRECTOR OF FINANCE

Capital Financing Fund (CFF)

The CFF provides funds for the purchase of City of Vancouver debentures, the financing of capital works and the City's solid waste program. Spending authority and control are provided by Council through specific authority.

By the end of the year, the CFF had advanced $80.3 million to the Capital Fund to finance specific capital projects and held $18 million of the City's internally held debentures.

Reserves

These are reserves established by Council resolutions or legislative authority for specific purposes. At the end of 2002, total reserves were $283.8 million made up of $87.1 million of Sinking Fund Provision for external Debt Retirement and $196.7 million of reserves set aside for other purposes.

The $196.7 million of reserves represents an increase of $14.6 million over 2001 or an 8% increase. The most significant changes were:

· The Sewer and Water Utility Rate Stabilization Reserves increased by $1.6 million to $18.5 million as a result of surpluses from operations.
· The Solid Waste Capital Reserve increased by $4.2 million to $47.4 million as a result of surpluses from operations. This reserve is intended to fund landfill site development as well as closure and post-closure costs.
· The Plant and Equipment Reserve which funds the long term equipment replacement plan decreased by $9.2 million as a result of $22.2 million in expenditures on plant and equipment offset by a transfer to the reserve through internal equipment rates and fixed provisions in the operating costs of $ 13.0 million.
· The Community Amenities Reserve increased by $8.1 million due contributions received mainly from the downtown area.
· The Childcare Endowment Fund Reserve increased by $2.5 million from community amenity contributions received in 2002.
· The Capital Facilities Reserve increased by $5.5 million as a result of the transfer of net proceeds on sale of 1005 Beach Ave.

Conclusion

The City of Vancouver has continued to maintain a strong financial position going into 2003. The financial strength of the City reflects the careful attention to prudent financial management.

Respectfully submitted,

Estelle Lo
Director of Finance

AUDITORS' REPORT TO THE MAYOR AND COUNCILLORS OF
THE CITY OF VANCOUVER

We have audited the consolidated statement of financial position of the City of Vancouver (the "City") as at December 31, 2002 and the consolidated statements of financial activities and cash flows for the year then ended. These financial statements are the responsibility of the City's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position of the City as at December 31, 2002 and the results of its operations and its cash flows for the year then ended in accordance with Canadian generally accepted accounting principles. As required by the Vancouver Charter, we report that, in our opinion, these principles have been applied, after giving retroactive effect to the changes in accounting policy described in note 2 to the consolidated financial statements, on a basis consistent with that of the preceding year.

Chartered Accountants

Vancouver, Canada

April 4, 2003

KPMG LLP, a Canadian owned limited liability partnership established under the laws of Ontario, is a member firm of KPMG International, a Swiss association

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000's)
Year Ended December 31, 2002

The City of Vancouver was incorporated in 1886 and is governed by the Vancouver Charter, a private bill consented to by the Legislative Assembly of the Province of British Columbia.

1. SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of Presentation

The consolidated financial statements of the City have been prepared, in all material respects, in accordance with Canadian generally accepted accounting principles for local governments as recommended by the Public Sector Accounting Board (PSAB) of the Canadian Institute of Chartered Accountants (CICA).

Changes in accounting policy, including those required to conform to PSAB recommendations, have been applied retroactively. Prior years' comparative figures have been restated to give effect to the changes in accounting policy and are disclosed in Note 2.

(b) Reporting Entity

The consolidated financial statements reflect the assets, liabilities, revenues, expenditures, and changes in fund balances of all funds of the reporting entity. The reporting entity is comprised of all the organizations that are accountable for the administration of their financial affairs and resources to Council and that are owned or controlled by the City. Inter-fund and inter-corporate balances and transactions have been eliminated. The entities included are as follows:

Outside Boards Owned/Controlled Corporations
Parks & Recreation Harbour Park Development Ltd.
Vancouver Public Library City of Vancouver Public Housing Corporation
Vancouver Police Vancouver Civic Development Corporation
Vancouver Civic Theatres Hastings Institute Inc.

Parking Corporation of Vancouver

Also included in these statements are certain assets owned by the City that are managed by the following organizations:

Vancouver Art Gallery Society H.R. MacMillan Space Centre
Vancouver Museum Vancouver Maritime Museum

(c) Fund Accounting

The resources and operations of the reporting entity are comprised of the funds listed below. Supporting schedules to the consolidated financial statements are included to show the financial activities and balance of each fund.

Capital

Accounts for financing and capital expenditures and holds all properties required for civic use and the related long term debt.

Revenue

Accounts for revenues and expenditures for the general operations of the City including sewer, solid waste and water utilities.

Property Endowment

Accounts for properties not required for civic use which are leased to third parties, or held for, or are being developed for resale or lease.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000's) continued
Year Ended December 31, 2002

1. SIGNIFICANT ACCOUNTING POLICIES - continued

(c) Fund Accounting (continued)

Sinking

Accounts for the accumulation of installments generated from tax levies in accordance with the actuarial requirements for the retirement of sinking fund debt at maturity.

Capital Financing

Accounts for funds designated for the financing of capital works, for the acquisition of the City's debentures and for funds set aside for the City's solid waste disposal program.

(d) Cash and Temporary Investments

Cash includes short-term investments, recorded at cost, with maturity dates within 90 days of acquisition. Temporary investments are recorded at cost, which approximates market value, and are comprised of money market instruments, term deposits and bonds with maturity dates greater than 90 days after acquisition.

(e) Trust Funds

Certain assets have been conveyed or assigned to the City to be administered as directed by agreement or statute. The City holds the assets for the benefit of, and stands in a fiduciary relationship to, the beneficiary. The trust funds are excluded from the financial statements and are disclosed in Note 10.

(f) Basis of Accounting

(i) Revenues are recorded in the period in which the transactions or events that gave rise to the revenues occur. Amounts that have been received in advance of services being rendered are considered deferred revenue until the City discharges the obligations that led to the collection of funds.
(ii) Expenditures, including transfer payments where no value is received directly in return, are recorded in the period in which the goods or services are acquired and a liability is incurred or transfers are due.
(iii) Inventory of supplies and materials are valued at cost with allowances made for obsolete stock. Cost is determined on a moving average basis.
(iv) The preparation of financial statements in accordance with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenues and expenditures during the reporting period. Actual results will depend on future economic events and could differ from the estimates. Adjustments, if any, will be reflected in the period of settlement or upon a change in the estimate.

(g) Capital Assets

(i) Capital Fund (for civic use)

Capital assets purchased or constructed and work-in-progress are reported as capital expenditures in the period they are acquired. Government contributions for the acquisition of capital assets are reported as capital revenue and do not reduce the related capital costs.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000's) continued
Year Ended December 31, 2002

1. SIGNIFICANT ACCOUNTING POLICIES - continued

(g) Capital Assets - continued

(i) Capital Fund (for civic use) - continued

Capital assets are recorded in the capital fund on the following basis:

Land - At 'actual' value for assessment purposes as determined annually by the B.C. Assessment Authority. Crown land properties beneficially owned by the City are recorded at assessed value.

Waterworks and engineering assets - At cost less accumulated depreciation. Depreciation is provided at varying rates determined by the City Engineer and is reflected as a reduction in the City's equity in capital assets.

Buildings - at cost.
Plant and equipment - at cost.

Artworks and artifacts - at estimated and/or insured values.

(ii) Property Endowment Fund (for sale or lease)

Assets in the fund are valued as follows:

Land

At 'actual' value for assessment purposes as determined annually by the B.C. Assessment Authority. The development costs incurred are charged against equity to reflect their contribution to the increases in the 'actual' value of land.

Buildings

At cost less accumulated depreciation of $32.7 million (2001 - $30.0 million). Depreciation is charged against Equity in Capital Assets on a 5% straight-line basis on the buildings on parking sites, and on a 5% declining balance basis on leased buildings.

Equipment

At cost less accumulated depreciation of $1.5 million (2001 - $1.2 million). Depreciation is calculated on a 30% declining balance basis and is charged to Equity in Capital Assets.

Property subject to sale option

At option price. The land parcel is subject to purchase by the lessee at a minimum value of $8.4 million (with an expiry date of January 31, 2005).

(h) Reserves for Future Expenditures

Reserves are established at the discretion of Council to set aside funds for future operating and capital expenditures. Transfers to and/or from reserves are reflected as an adjustment to the respective fund.

(i) Obligations to be Funded from Future Revenues

A provision has been made for liabilities such as deferred payroll costs, landfill closure and post-closure, debenture and mortgage interest. The City provides funding in current operating budgets to meet these obligations as they come due. Details are disclosed in Note 7.

(j) Comparative Figures

Certain of the 2001 figures have been reclassified to conform with current year presentation.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000's) continued

Year Ended December 31, 2002

2. CHANGES IN ACCOUNTING POLICY

The City adopted the following changes in accounting policy:

(a) Property Endowment Fund

The financial activities of the Property Endowment Fund (PEF) for prior years have been restated to reflect the following changes:

i) Accounting for property acquisitions as capital expenditures. In prior years, these transactions were recorded as increases to Capital Assets; increases in Equity in Capital Assets only included the change in the `actual' value of land for assessment purposes. The effect of this restatement is to increase Equity in Capital Assets and to decrease Fund Balance by a like amount.
ii) Proceeds of sale of assets recorded as revenues. In prior years, proceeds were treated as income and the cost of the property was recorded as cost of sales.
iii) Depreciation is not recorded in the Statement of Financial Activities. In prior years, depreciation was charged against operations in the Statement of Financial activities.
iv) Recognition of prepaid lease revenues at the time of receipt. The City has entered into land leases with terms ranging from 40 to 99 years, some of which have been prepaid. Previously, the City recorded these prepaid leases as deferred income and revenue was recognized over the term of the lease on a straight-line basis.

(b) City of Vancouver Public Housing Corporation

The results of operations of the City of Vancouver Public Housing Corporation (VPHC) for prior years have been restated to reflect the adoption of PSAB recommendations of the CICA. Changes were made to the recording of capital assets expenditures and assets and related amortization. Reserves were reclassified as deferred income.

(c) Library Funds

The Vancouver Public Library Endowment Fund was reclassified as a reserve.

The above-noted changes in accounting policy have been applied retroactively and comparative figures have been restated as follows:

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000's) continued
Year Ended December 31, 2002

3. ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE

4. FUND BALANCES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000's) continued

Year Ended December 31, 2002

5. CAPITAL ASSETS

6. EQUITY IN CAPITAL ASSETS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000's) continued
Year Ended December 31, 2002

7. OBLIGATIONS TO BE FUNDED FROM FUTURE REVENUES

(a) Landfill Closure and Post-Closure Costs

The City has agreed with the Ministry of Environment Lands and Parks to assume certain obligations in order to obtain the Operating Certificate for its landfill site. Those obligations include closure and post-closure liability. The City's estimated liability for these expenditures is recognized as the landfill site's capacity is used and the reported liability of $10.9 million (2001 - $10.4 million) represents the portion of the estimated total expenditure recognized as at December 31, 2002. This liability and annual expenditure is calculated based on the ratio of current usage to total capacity of the site and the discounted estimated future cash flows associated with closure and post-closure activities.

The reported liability is based on estimates and assumptions with respect to events extending over the remaining life of the landfill. The remaining capacity of the landfill site is estimated at 18.3 million tonnes, which is 59% of the site's total capacity. The discounted future cash flows for closure and post-closure cost is estimated at $30.6 million as at December 31, 2002. The landfill site is expected to reach its capacity in 2042.

In accordance with an agreement between the City and the Greater Vancouver Sewerage and Drainage District, the City is responsible for 87% of the overall liability for closure and post-closure costs. The City has provided a reserve to fund future landfill capital expenditure and waste diversion programs with a balance as at December 31, 2002 of $47.4 million (2001 - $43.1 million).

(b) Deferred Payroll Costs

Employees of the City are entitled to accumulate earned benefits related to sick leave and may defer vacation and overtime entitlements. Sick leave, gratuity and deferred vacation are valued at management's best estimate, which is based on past experience and assumptions about retirements, wage and salary increases, employee turnover and rates of return.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000's) continued
Year Ended December 31, 2002

8. CONTINGENCIES AND COMMITMENTS

(a) Liability for Debentures Issued by Others

The City is contingently liable in respect of debentures of the Greater Vancouver Water District, the Greater Vancouver Sewerage and Drainage District and the Greater Vancouver Regional District.

(b) Collection of Taxes on Behalf of Other Taxing Authorities

The City is obligated to collect and transmit the tax levies of the following bodies. Such levies are not included in the revenues of the City.

Provincial Government - Schools British Columbia Assessment Authority

Greater Vancouver Regional District Municipal Finance Authority

Greater Vancouver Transportation Authority

(c) Municipal Pension Plan

The City and its employees contribute to the Municipal Pension Plan (the "Plan"), a jointly trusted pension plan. The board of trustees, representing plan members and employers, is responsible for overseeing the management of the Plan, including investment of the assets and administration of the Plan. The Plan is a multi-employer contributory defined benefit pension plan with about 125,000 active contributors, including approximately 28,000 contributors from local governments.
Every three years an actuarial valuation is performed to assess the financial position of the plan and the adequacy of plan funding. The most recent valuation as at December 31, 2000 indicates a surplus of $436 million. The Joint Trust Agreement specifies how surplus assets can be used. The actuary does not attribute portions of the surplus to individual employers. The City paid $30.5 million (2001 - $29.4 million) for employer contributions to the Plan in 2002. The employees' contributions amounted to $22.4 million (2001 - $21.5 million) in 2002.


(d) Contingent Legal Liabilities

As at December 31, 2002, there were various legal claims pending against the City arising in the ordinary course of its operations. The City has made provision for certain uninsured claims in its self-insurance liability reserve, but has made no specific provision for those where the outcome is presently indeterminable.

(e) Property Assessment Appeals

As at December 31, 2002, there were various assessment appeals pending with respect to properties. The outcome of those appeals may result in adjustments to property taxes receivable for the current and prior years. The City makes an annual provision against property taxes receivable for the impact of appeals including specific provision where the results of an appeal are reasonably determinable, and general provision for those where the outcome is presently indeterminable.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000's) continued
Year Ended December 31, 2002

8. CONTINGENCIES AND COMMITMENTS - continued

(f) Mortgage Debentures Payable

Mortgage debentures payable on the Library Square Project have an interest rate of 9.875% per annum compounded semi-annually and a 28-year term maturing January 14, 2021, with monthly principal and interest repayments which commenced in 1996. The debentures are secured by a first charge on the land and any proceeds from the sale of the land on which the office building is situated, the office building and any improvements to it including machinery, plant and equipment, and any proceeds of the lease of the office building.
The City has executed a 25-year lease of the office building with the Federal Government which commenced April 30, 1995. Annual lease payments of $6.7 million will fully offset debenture principal and interest payments. The lease provides options to purchase the office building at the end of the 10^th and 20^th years and at the end of the lease term.

Principal payments on the mortgage debentures over the next 5 years and thereafter are as follows

9. RESERVES

These amounts are set aside by Council resolution for specific purposes:

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (000's) continued
Year Ended December 31, 2002

10. TRUST FUNDS

The following trust funds and assets are administered by the City:

11. LONG TERM DEBT

Debenture debt is shown at its face amount. The City does not carry debt issued by other organizations.

The rates of interest payable on the principal amount of the debentures vary between 3.5% and 10.5% per annum. The average rate of interest payable for the year ended December 31, 2002 approximates 6.37%. The average rate of interest payable for externally held debt is 6.09%. All debentures are payable in Canadian funds.

12. EXPENDITURES BY OBJECT

AUDITORS' REPORT TO THE MAYOR AND COUNCILLORS OF
THE CITY OF VANCOUVER

We have audited and reported separately herein on the consolidated financial statements of the City of Vancouver as at and for the year ended December 31, 2002.

Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements of the City taken as a whole. The current year's supplementary information included in the following Schedules of Financial Activities of the Revenue Fund, Capital Fund, Capital Financing Fund, Sinking Fund, Property Endowment Fund and Utilities is presented for the purposes of additional analysis and is not a required part of the consolidated financial statements. Such supplementary information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and, in our opinion, is fairly stated in all material respects in relation to the consolidated financial statements taken as a whole.

Chartered Accountants

Vancouver, Canada

April 4, 2003

KPMG LLP, a Canadian owned limited liability partnership established under the laws of Ontario, is a member firm of KPMG International, a Swiss association

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© 2002 City of Vancouver