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Agenda Item No. 7(f)

 

THE VALE OF GLAMORGAN COUNCIL

 

COUNCIL MEETING: 7TH MARCH, 2012

 

REFERENCE FROM CABINET: 29TH FEBRUARY, 2012

 

 

C1636           FINAL CAPITAL PROGRAMME PROPOSALS 2012/13 (L) (SCRUTINY - CORPORATE RESOURCES) -

 

Approval was sought for the final Capital programme proposals for 2012/13.

 

The initial capital budget proposals were considered by Cabinet on 16th November 2011 and were subsequently referred to each Scrutiny Committee and their comments were passed to the Scrutiny Committee (Corporate Resources).  The minutes and recommendations of the Scrutiny Committees were referred to the Cabinet on 18th January 2012 and were then referred 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 were as set out below:

 

Scrutiny Committee (Corporate Resources) considered the budget and the comments from other Scrutiny Committees.  Their recommendations were as 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 was as set out below:

  • That Scrutiny Committee (Corporate Resources) would support a full options appraisal being undertaken on the A4055 Biglis roundabout to Southra Park Estate, Dinas Powys. (BWG response - an options appraisal had already been prepared on this scheme with a view to submitting a bid for grant funding from the South East Wales Transportation Alliance on the scheme.)
  • That Cabinet and the BWG consider that a specific reference be included in the Capital Programme for the Cross Common Road, 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 would be funded from the Sub-Standard Bridges capital allocation.)
  • 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 was currently a projected underspend within the 2011/12 Education capital budget and, as Education had confirmed that Albert Road Primary School external repairs was the next highest priority for the Department, it had been agreed to utilise 2011/12 capital funding to proceed with these works.)

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

 

Peterston Primary School, renew water heater - a successful capital bid for 2012/13 was submitted to replace the aged and inefficient water heater at the school.  As the system was breaking down regularly, it had become necessary to proceed with the works immediately and it had been accepted that the works be completed before March using a virement from the 2011/12 Education capital budget.  As such the 2012/13 bid had been removed from the proposed Capital Programme 2012/13 to 2016/17 as detailed in Appendix A to the report. 

 

On 3rd February 2012, the Welsh Government (WG) had 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 had therefore agreed that this funding could be used for schemes already completed utilising internal capital funds during 2011/12.  The proposal was 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 was to replace demountable classrooms which were nearing the end of their economic life at Llancarfan and Gwenfo Primary Schools.  Appendix A to the report had been amended to reflect this additional funding for 2012/13.

 

Gardenhurst Resource Centre - a refurbishment budget of £100,000 had been included as part of the Initial Capital Programme Proposals report on 16th November 2011 for this property.  Works were currently proceeding on site which had required that its clients be temporarily transferred whilst the intrusive works were undertaken.  It had 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 was therefore 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 would be used to carry out further fire officer recommended works which required planning permission and therefore could not be completed during 2011/12. 

 

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

 

Demolition of buildings at Court Road Depot, Barry - a budget of £50,000 for this work had been included as part of the Initial Capital Programme Proposals.  It had 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 was therefore proposed that the budget be brought forward to 2011/12 in order to facilitate these works as soon as possible.

 

Local Government Borrowing Initiative, Highways - the WG had announced the above scheme with the objective of boosting the Welsh economy and improving the local highway infrastructure.  WG would 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 three year period 2012 to 2015.  This Authority would receive £151,813 by way of revenue grant in 2012/13.  Beyond 2012/13, the funding would be added to the Council’s Revenue Support Grant to a total of £9.12m. up to and including 2033/34.  The amounts allocated would enable borrowing of approximately £6.7m. over the three year period between 2012/13 and 2015/16, based on an annuity interest rate of 3.21%.  No sum was included in the Capital programme as the detail was yet to be finalised. 

 

St. Paul’s Church - works were 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 the Council’s Building Control Section.  It had been estimated that the works would cost £250,000 and S106 funding for Penarth heights was to be used to fund them.  As this money was not expected to be received until the occupation of the 275th dwelling on the new development was achieved, it had been agreed with the Director of Finance, ICT and Property that the works would be funded initially from the Miscellaneous Buildings Fund, to be reimbursed once the S106 monies were received.

 

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 had been increased by £1m. to £2.975m. to allow for this possibility.  This additional sum could be funded from the Leisure Management Strategy Reserve. 

 

School Investment Strategy

 

The 21st Century Schools Programme was the WG’s funding initiative for investment in schools.  The first tranche of schemes, Band A, were submitted to the WG in November 2011.  These schemes run from 2014/15 to 2019/20 and WG funding was for 50% of the cost.  Penarth Learning Community was being funded under separate transitional arrangements.

 

In December, the WG announced that the bid had been successful in outline.  The next stage was for the submission of more detailed business cases but the guidance on this had yet to be received.

 

The following table showed the total spending on the School Investment Strategy to 2019/20, the final year of Band A schemes.  The bid included at Appendix B to the report did not cover all aspects of capital spending on schools, in particular expenditure on asset renewal or Information Technology.  These had 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

 

The sum could 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

 

The above table indicated that Receipts of £4m. from sales of school land would be received.  This was critical to ensure further phases of expenditure on schools. 

 

The Capital Programme assumed that the £1.5m. to come from other Councils towards the Penarth Learning Community would be received as a capital contribution.  If this was not the case, the Vale would 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 was a potential risk that these revenue contributions could reduce should pupil places taken up by those Councils fail.

 

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 could be met by Education revenue budgets although this would very severely constrain the Council’s ability to fund any future schemes.  This was of concern, due to the poor state of repair of some school buildings in the Vale.

 

The Education revenue budget could support circa £600k. for capital charges on unsupported (prudential) borrowing and so the unsupported borrowing outlined the table above could be afforded (£1m. borrowing would cost around £80k. p.a. in annual capital charges based on current interest rates).  It was essential that every effort be made to realise capital receipts from the sale of land.

 

Capital Programme 2012/13

 

Appendix A to the report outlined the proposed 2012/13 Capital Programme.

 

Housing Improvement Programme - the Major Repairs Allowance (MRA), which was the grant that provided capital funding to the Housing Revenue Account (HRA), for 2012/13 had not yet been announced by the WG, but the assumed budget in Appendix A to the report remained at £2.7m.

 

Included in the Capital Programme Proposals was a match-funding budget of £500k. for the Castleland Renewal Area.  The 2012/13 grant offer from WAG in the sum of £838k. had now been received by the Authority. 

 

In addition to funding from the WG, the Council would finance part of the Capital Programme from its own resources e.g. capital receipts and reserves.  The table below detailed 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

 

On 2nd February 2012, the WG announced the final 2012/13 General Capital Funding.  There had been a 6.8% reduction in funding for 2012/13 which was marginally lower than had been assumed in the Initial Capital Programme Proposals report in November 2011.  Further cuts of 11.5% in 2012/13 and each year thereafter had been assumed in the details contained within Appendix A to the report.

 

If the schemes shown at Appendix A to the report were approved, the effect on General Fund useable capital receipts would be as shown below:

 

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

 

It was noted that the amount and profiling of all future capital receipts shown above were estimated and that should any of these not materialise, that alternative funding would need to be identified.

 

A Project Fund existed to finance capital and revenue projects.  The aim of the Fund was to initially finance a project with repayment of such advances (including interest) being credited back to the Fund.  The following showed 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

 

It was stressed that the above forecast balances needed to be seen in the context of significant pressures for spending which were not yet included in the Capital Programme.  These included the backlog of school, highway and building repairs.

 

Annual Minimum Revenue Provision Statement 2012/13 (supported borrowing i.e. supported for Revenue Support Grant Purposes) - there were two elements of cost where capital expenditure was 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 is considers to be prudent”.

 

The WG had issued guidance on what constituted prudent provision and that required the Council to approve a statement each year of the policy on making MRP.  The MRP charge in 2012/13 for capital expenditure incurred would 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 had been used more accurately reflected the MRP that should be charged.

 

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

 

Revenue Provision for capital expenditure financed by Prudential (unsupported) borrowing - the Authority had 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 was possible that this sum may slip into 2012/13. 

 

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).

 

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.

 

The 2012/13 budget proposals would require the approval of Council.

 

RESOLVED -

 

T H A T Cabinet recommend to Council:

 

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

 

(2)       T H A T Budgets in future years, highlighted in bold in Appendix A to the report, be approved now, while the remainder are indicative only.

 

(3)       T H A T the Director of Environmental and Economic Regeneration present a report on the Cross Common Bridge to a future Cabinet.

 

(4)       T H A T the budget for the Demolition of Empty Buildings at Court Road Depot be transferred from 2012/13 to 2011/12.

 

(5)       T H A T the sum of £50,000 from the budget for the Gardenhurst Resource Centre be transferred from 2012/13 to 2011/12.

 

(6)       T H A T 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)       T H A T 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)       T H A T the policy for making minimum revenue provision in 2012/13 be approved and recommended to Council for approval.

 

Reasons for decisions

 

(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.”

 

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