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Agenda Item No

 

The Vale of Glamorgan Council

 

Cabinet Meeting 29th February 2012

 

Report of the Leader

 

Final Capital Programme Proposals 2012/13

 

Purpose of the Report

1.             To gain approval for the final capital programme proposals for 2012/13. 

Recommendations

That Cabinet recommend to Council that:-

1.             The final budget proposals for the 2012/13 Capital Programme as set out in Appendix A be approved.

2.             Budgets in future years, highlighted in bold in Appendix A, be approved now, while the remainder are indicative only.

3.             That the Director of Environmental and Economic Regeneration present a report on the Cross Common Road Footbridge to a future Cabinet.

4.             The budget for the Demolition of Empty Buildings at Court Road Depot be transferred from 2012/13 to 2011/12.

5.             The sum of £50,000 from the budget for the Gardenhurst Resource Centre be transferred from 2012/13 to 2011/12.

6.             The Director of Finance, ICT and Property, in consultation with the Cabinet Member responsible for Finance, is given delegated authority to make additions, deletions       or transfers to or from the 2012/13 Housing Capital Programme as appropriate.

7.             The Director of Finance, ICT and Property, in consultation with the Cabinet Member responsible for Finance, is given delegated authority to make additions, deletions or transfers to or from 2012/13 Asset Renewal budgets as appropriate.

8.             The policy for making minimum revenue provision in 2012/13 be approved and recommended to Council for approval.

Reasons for the Recommendations

1.             To set and approve future capital programmes.

2.             To allow schemes that span more than one year to be fully approved.

3.             To outline the position on the Cross Common Road Footbridge.

4.             To enable works to proceed in 2011/12.

5.             To enable works to continue in 2011/12 and to minimise disruption to clients.

6.             To enable the Housing Capital budget to be managed efficiently.

7.             To enable the Asset Renewal budgets to be managed efficiently.

8.             For Council to agree the basis of the MRP calculation for 2012/13.

Relevant Issues and Options

2.             The initial capital budget proposals were considered by Cabinet on 16th November 2011 (minute no. C1510). They were subsequently referred to each Scrutiny Committee during November/December 2011 and their comments were passed         to the Corporate Resources Scrutiny Committee, which is the Lead Scrutiny Committee on the budget. The minutes and recommendations of Scrutiny were referred to the Cabinet on the 18th January 2012 and referred by them for consideration by the Budget Working Group (BWG). Subsequently the BWG noted all the Scrutiny recommendations and took responses into account in drafting the final budget proposals. Specific comments are set out below.

3.             Corporate Resources Scrutiny Committee, at its meeting on the 20th December 2011 (minute 748), considered the budget and the comments from other Scrutiny Committees. Their recommendations are set out below. The BWG considered all the deliberations and concerns of the Scrutiny Committees. With regard to specific recommendations, other than those that were noted only, the BWG response is set out below:

·               that Corporate Resources Scrutiny Committee would support a full options appraisal being undertaken on the A4055 Bigliss roundabout to Southra Park Estate, Dinas Powys. (BWG response - an options appraisal has already been prepared on this scheme with a view to submitting a bid for grant funding from the South East Wales Transportation Alliance - SEWTA - on the scheme.

·               that Cabinet and the BWG consider that a specific reference be included in the capital programme for the Cross Common Road footbridge, given the condition of the bridge. (BWG response - a separate Cabinet report has been requested from the Director of Environmental and Economic Regeneration to address the issues with this scheme. Any future costs of the scheme will be funded from the Sub-Standard Bridges capital allocation included in Appendix A.)

·               that Cabinet be requested to consider that the priority currently afforded to the bid in respect of funding external repairs to Albert Road Primary School be increased, a view being expressed that, if necessary, the bid relating to the installation of a Council Chamber conferencing system be dropped to accommodate it. (BWG  response - as there is currently a projected underspend within the 2011/12 Education capital budget and, as Education have confirmed that Albert Road Primary School external repairs is the next highest priority for the Department, it has been agreed to utilise 2011/12 capital funding to proceed with these works).

4.             Other than the recommendations outlined above, all Scrutiny Committees either noted or endorsed the proposals.

5.             Peterston Primary School, renew water heater - a successful capital bid for 2012/13 was submitted to replace the aged and inefficient water heater at this school. However, as the system is breaking down regularly it has become necessary to proceed with the works immediately. It has been accepted that the works be completed before March, using a virement from the 2011/12 Education capital budgets which are projecting an underspend for the year. As such, the 2012/13 bid has been removed from Appendix A.  

6.             On 3 February 2012 the Welsh Government (WG) allocated the Vale of Glamorgan Council £411,174 capital funding to carry out capital repairs and maintenance works on school buildings. The grant had to be spent during 2011/12 and WG required confirmation of the intended projects before 10th February 2012. Due to the extremely short timescale it was not possible to spend this funding on new projects. The WG has therefore agreed that this funding can be used for schemes already completed utilising internal capital funds during 2011/12. The proposal is to substitute internal capital funding, planned for asset renewal schemes, with this grant funding and slip the £411,174 internal funding to the 2012/13 Education capital programme. Due to the sum involved, the preferred option is to replace demountable classrooms which are nearing the end of their economic life at Llancarfan and Gwenfo Primary schools. The short timescales imposed by the Welsh Government has meant that it has not been possible to carry out site investigations to confirm costs for these schemes as yet. Appendix A has been amended to reflect this additional funding for 2012/13.

7.             Gardenhurst Resource Centre - a refurbishment budget of £100,000 was included as part of the Initial Capital Programme Proposals report on 16th November 2011 for this property. Works are currently proceeding on site which have required that its clients be temporarily transferred whilst the intrusive works are undertaken. It has been proposed that in order to avoid further disruption to these same clients in 2012/13 as part of the £100,000 scheme, that intrusive works such as replacing the fire alarm, decorating and electrical works be brought forward into 2011/12. This would ease disruption to clients and save on ancillary costs such as scaffolding etc.  It is proposed that the sum of £50,000 be transferred from 2012/13 into 2011/12 to continue with the current phase of works on site. The balance will be used to carry out further fire officer recommended works which require planning permission and therefore cannot be completed during 2011/12. This work will not cause any further disruption to the clients.

8.             Housing Improvement Programme – included in Appendix A is an allocation of £76.4M on council housing improvements between 2012/13 and 2016/17. £13.5M of this is assumed Major Repairs Allowance grant funding from WG. This level of investment is required to meet the Wales Housing Quality Standard, which is expected to be achieved by 2016/17.

9.             Demolition of building at Court Road Depot, Barry - a budget of £50,000 for this work was included as part of the Initial Capital Programme Proposals report on 16th November 2011. It has become necessary, however, for the works to be brought forward to this financial year in order to avoid complications of further deterioration of the building. It is therefore proposed that the budget be brought forward to 2011/12 in order to facilitate these works as soon as possible.

10.        Local Government Borrowing Initiative, Highways - The Welsh Government (WG) has announced the above scheme with the objective of boosting the Welsh economy and improving the local highway infrastructure. WG will provide an annual sum over 22 years to meet revenue pressures, in order to free up the Local Authority’s own revenue resources to undertake prudential borrowing for capital highway improvement investment over the 3 year period 2012 to 2015. This Authority will receive £151,813 by way of revenue grant in 2012/13, (this is around 3.8% of the amount being distributed across Wales). Beyond 2012/13, the funding will be added to our Revenue Support Grant (RSG), to a total of £9.12M, up to and including 2033/34. The amounts allocated would enable borrowing of approximately £6.7m over the 3 year period between 2012/13 and 2015/16, based on an annuity interest rate of 3.21% (PWLB rate 1st Feb 2012). The term of the prudential borrowing should match the life of the enhanced asset. The total debt charges over the period would be around £9.12m, which is equal to the total funding from the WG.  No sum is included in the Capital Programme as the detail is yet to be finalised. A separate report is being prepared on this initiative by the Director of Environmental and Economic Regeneration and will be brought to Cabinet shortly.

11.        St Pauls Church – works are required at this Council-owned property in order to provide a safe and secure environment for its users, Penarth Amateur Boxing Club and Penarth Gymnastics Club, who were required to vacate the building when it was deemed dangerous by our Building Control Section. It has been estimated that the works will cost £250,000 and s106 funding expected for Penarth Heights shall be used to fund them. As this money is not expected to be received until the occupation of the 275th dwelling on the new development is achieved it has been agreed with the Director of Finance, ICT and Property that the works will be funded initially from the Miscellaneous Buildings Fund, to be reimbursed once the s106 monies are received. Appendix A has been updated to reflect this scheme. 

12.        As part of the tendering process to seek a partner for the Leisure Centres, bidders were asked to indicate their price should up to an additional £1M be invested by the Council on improvements to the Leisure Centres. This sum was only to be invested if the annual cost of the capital could be funded from a reduced contract price. Consequently, the sum included in the programme for improvement works at Leisure Centres has been increased by £1M to £2.975M to allow for this possibility. The additional sum can be funded from the Leisure Management Strategy Reserve.

School Investment Strategy

13.        The 21st Century Schools Programme is the Welsh Governments funding initiative for investment in schools. The first tranche of schemes, Band A, were to be submitted to the Welsh Government by November 2011. Band A schemes run from 2014/15 to 2019/20 and Welsh Government funding is for 50% of the costs. As reported to Cabinet on the 16th November 2011, a bid for funding for Band A projects was submitted by this Council and a summary of that bid is attached at Appendix B. Penarth Learning Community is being funded under separate transitional arrangements.

14.        In December the Welsh Government announced that the bid had been successful in outline. The next stage is for the submission of more detailed business cases but the guidance on this has not yet been received.

15.        The following table shows the total spending on the School Investment Strategy to 2019/20, the final year of Band A schemes. The bid included at Appendix B does not cover all aspects of capital spending on schools, in particular expenditure on asset renewal or Information Technology. These have been added (£750K) to the bid for each of the years 2017/18 to 2019/20 to better estimate capital spend in those years.

 

Year

Gross Expenditure

 

£'000

2012/13

6,051

2013/14

23,712

2014/15

18,399

2015/16

8,742

2016/17

6,654

2017/18

4,351

2018/19

3,362

2019/20

3,459

Total

74,730

 

16.        The total of £74,730 can be funded as follows: 

Source

£'000

General Capital Funding

17,196

School Investment Strategy Reserve

I.T.Fund                                              

4,769

1,200

Prudential Borrowing pending capital receipts from sale of land

4,000

Prudential Borrowing

1,444

Contributions from other Councils

1,500

Section 106

783

Welsh Government Grant

43,838

Total

74,730

 

17.        As the previous table shows, it is anticipated that capital receipts of £4M from sales of school land will be received. This is critical to ensure further phases of expenditure on schools.

18.        The Capital Programme assumes that the £1.5M to come from other Councils towards the Penarth Learning Community will be received as a capital contribution. If this is not the case the Vale will need to prudentially borrow for those sums and recoup the costs through increased charges for school places for those Councils not making the capital contribution. There is a potential risk that these revenue contributions could reduce should pupil places taken up by those Councils fall.

19.        Consequently there may be a need for prudential borrowing to be undertaken up to a maximum of £6.9M. The repayment of this level of debt can be met by Education revenue budgets although this would very severely constrain the Council's ability to fund any future schemes. This is a concern, due to the poor state of repair of some school buildings in the Vale.

20.        The Education revenue budget could support circa £600K for capital charges on unsupported (prudential) borrowing and so the unsupported borrowing outlined in the table above can be afforded (£1M borrowing would cost around £80K p.a. in annual capital charges based on current interest rates).  However, this level of debt incurs significant interest repayments and limits the service’s ability to respond to future pressures on both revenue and capital budgets. It is essential therefore that every effort is made to realise capital receipts from the sale of land.

Capital Programme 2012/13

21.        Appendix A outlines the proposed 2012/13 Capital Programme.

22.        Housing Improvement Programme – The Major Repairs Allowance (MRA), which is the grant that provides capital funding to the Housing Revenue Account (HRA), for 2012/13 has not yet been announced by the Welsh Government but the assumed budget in Appendix A remains at £2.7M. 

23.        Included in the Capital Programme Proposals is a match-funding budget of £500k for the Castleland Renewal Area.  The 2012/13 grant offer from WAG in the sum of £838K has now been received by the Authority. Appendix A has been updated to reflect this additional funding. 

24.        In addition to funding from the Welsh Government, the Council will finance part of the capital programme from its own resources, e.g. capital receipts and reserves. The table below details the General Capital Funding and internal resources required to fund the proposed schemes.

Analysis of Net Funding Required for the Indicative 2012/13 Capital Programme

General Fund                                                                   £’000      £’000

Welsh Government Resources:      

Supported Borrowing                                                           3,765

General Capital Grant                                                          1,906

            5,671

Council Resources:

Capital Receipts       980

Reserves/Leasing                                                                 7,171

            8,151           

Net Capital Resources                                                                                        13,822                       

 

Housing

Welsh Government Resources:      

Supported Borrowing                                                          560

                                                                                                                       560

Council Resources:

Capital Receipts                                                                 757        

Housing Reserves    5,046

            5,803

Net Capital Resources                                                                                          6,363

 

Resource Implications (Financial and Employment and Climate Change, if appropriate)

25.        On 2nd February 2012 the Welsh Government announced the final 2012/13 General Capital Funding. There has been a 6.8% reduction in funding for 2012/13 which is marginally lower than had been assumed in the Initial Capital Programme Proposals report in November 2011 (£6.231M compared to £6.239M assumed in November 2011). Further cuts of 11.5% in 2012/13 and each year thereafter have been assumed in Appendix A. A table representing the capital funding from the Welsh Government, as assumed in Appendix A, is shown below.

 

Resources from Welsh Government

2012/13

2013/14

2014/15

2015/16

2016/17

 

£000

£000

£000

£000

£000

Supported Borrowing - General Fund

3,765

3547

3108

2718

2373

Supported Borrowing - HRA

   560

  280

  280

  280

  280

General Capital Grant

1,906

1687

1492

1321

1169

 

6,231

5,514

4,880

4,319

3,822

 

26.        If the schemes shown in Appendix A are approved, the effect on General Fund useable capital receipts will be as shown in the following table.

General Fund Capital Receipts

        £'000

Estimated Balance as at 31st March 2012

10,200

 

Anticipated Requirements – 2012/13

(980)

Anticipated Receipts – 2012/13

439

Balance as at 31st March 2013

9,659

 

Anticipated Requirements – 2013/14

(3,039)

Anticipated Receipts – 2013/14

170

Balance as at 31st March 2014

6,790

 

Anticipated Requirements – 2014/15

(571)

Anticipated Receipts – 2014/15

0

Balance as at 31st March 2015

6,219

Anticipated Requirements – 2015/16

(1,027)

Anticipated Receipts – 2015/16

448

Balance as at 31st March 2016

5,640

Anticipated Requirements – 2016/17

(2,112)

Anticipated Receipts – 2016/17

438

Balance as at 31st March 2017

3,966

 

27.        It should be noted that the amount and profiling of all future capital receipts shown above are estimated and that should any of those included not materialise that alternative funding would need to be identified.

28.        A Project Fund exists to finance capital and revenue projects.  The aim of the Fund is to initially finance a project with repayment of such advances (including interest) being credited back to the Fund.  The following table shows the projected position of the fund. 

Project Fund Balance

             £'000

Estimated Balance as at 1st April 2012

4,499

 

Anticipated Requirements – 2012/13

      (510)

Anticipated Receipts – 2012/13

     124

 

Balance as at 31st March 2013

 4,113

 

Anticipated Requirements – 2013/14

       (120)

Anticipated Receipts – 2013/14

      70

 

Balance as at 31st March 2014

 4,063

 

Anticipated Requirements – 2014/15

    (1,200)

Anticipated Receipts – 2014/15

       70

 

Balance as at 31st March 2015

 2,933

 

Anticipated Requirements – 2015/16

0

Anticipated Receipts – 2015/16

70

Balance as at 31st March 2016

3,003

 

29.        The above forecast balances need to be seen in the context of significant pressures for spending which are not yet included in the capital programme. These include the backlog of school, highway and buildings repairs.

30.        Annual Minimum Revenue Provision Statement 2012/13 (supported borrowing i.e. supported for Revenue Support Grant Purposes) - there are two elements of cost where capital expenditure is financed by long-term borrowing. Interest on borrowing and principal (or capital) element charged as ‘minimum revenue provision’ (MRP). Until recently, the amount of MRP to be charged was determined by regulation, although the Council was allowed to make an additional “voluntary” charge to the revenue account. The Local Authorities (Capital Finance and Accounting) (Wales) (Amendment) Regulations 2008 which came into force on 31st March 2008, replaced the detailed statutory rules for calculating MRP with: 'A local authority must calculate for the current financial year an amount of minimum revenue provision which it considers to be prudent.'

31.        The Welsh Government (WG) has issued guidance on what constitutes prudent provision and that requires the Council to approve a statement each year of the policy on making MRP. The MRP charge in 2012/13 for capital expenditure incurred will continue to be calculated in accordance with the methodology prescribed by the regulations in force until 31st March 2008. Another option would have been to calculate the MRP on the non-housing Capital Financing Requirement at the end of the preceding year, i.e. without making the adjustment. However, the option that has been used more accurately reflects the MRP that should be charged.

32.        The basis of the calculation is as follows:

                                                                                                     £’000

Non Housing Capital Financing Requirement at 31.03.12*                      111,971

Add Adjustment A **                                                            2,004

Total                                                                                        113,975

4% of the Total (the adjusted CFR)

=  MRP 4,559

 

* The Non Housing Capital Financing Requirement measures the Council’s underlying need to borrow for capital purposes and is the Council’s cumulative capital expenditure not financed by other means, less the total MRP made in previous years.

**    Adjustment A nullifies the revenue effect of the changes to MRP calculation following the introduction of the Prudential Code in 2004.

33.        Capital expenditure incurred during 2012/13 will not be subject to a MRP charge until 2013/14.

34.        Revenue Provision for capital expenditure financed by Prudential (unsupported) borrowing - the Authority has included a potential grant of £6.9M to the National Trust in its capital programme for 2011/12, in respect of a Dyffryn House contribution. It is possible that the sum may ‘slip’ into 2012/13.

35.        The current intention is that the sum would be advanced from the Project Fund. However, if it was eventually deemed more appropriate to fund this by prudential borrowing the sum will be added to the Capital Financing requirement. This unsupported borrowing (i.e. not supported for Revenue Support Grant Purposes) would be repaid over a 20 year period. This would match the period of the first break clause in the 50 year lease agreement entered into between the Authority and the National Trust.

36.        Expenditure incurred would require a first principal instalment to be made either in 2012/13 or in 2013/14 in the sum of £345,000 (£6,900,000 divided by 20).

37.        The payment would not impact on the Council Tax to be raised, as it would be offset by revenue monies included in the base estimate for Dyffryn House which would not then be required.

Legal Implications (to Include Human Rights Implications)

38.        The Council is required to show that capital expenditure is covered by identified resources.

Crime and Disorder Implications

39.        The obligations of the Council with regard to Section 17 need to be fully considered in the budget decision making process.

Equal Opportunities Implications (to include Welsh Language issues)

40.        Additional finance improves the Council’s opportunities for assisting disadvantaged members of society.

Corporate/Service Objectives

41.        Contributes to the corporate priority of Corporate Resources by the provision of sound financial management

Policy Framework and Budget

42.        This report follows the procedure laid down in the constitution for the making of the budget.  The 2012/13 budget proposals will require the approval of Council

Consultation (including Ward Member Consultation)

43.        The Management Team and all Scrutiny Committees have been consulted on the proposals.

Relevant Scrutiny Committee

44.        Corporate Resources

Background Papers

Bids received from departments

Correspondence received from the Welsh Government

 

Contact Officer

Laura Davis Tel. No. 01446 709249

 

Officers Consulted

The following Officers have been consulted on the contents of this report:-

Management Team

 

Responsible Officer:

Sian Davies

Director of Finance, ICT and Property

 

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