Top

Top

Agenda Item No. 9(i)

 

 

THE VALE OF GLAMORGAN COUNCIL

 

COUNCIL MEETING: 6TH MARCH, 2013.

 

REFERENCE FROM CABINET: 25TH FEBRUARY, 2013.

 

C1231     FINAL CAPITAL PROGRAMME PROPOSALS 2013/14 to 2017/18 (L) (SCRUTINY COMMITTEE – CORPORATE RESOURCES) –

 

Approval was sought for the final capital programme proposals for the years 2013/14 to 2017/18. 

 

In responding to the initial capital programme budget proposals, Corporate Resources Scrutiny Committee, at its meeting on the 11th December 2012 (minute no.648), considered recommendations from other Scrutiny Committees. Specific recommendations are set out below.

  • Economy and Environment – 4th December – noted report.
  • Housing and Public Protection – 6th December – endorsed.
  • Lifelong Learning – 10th December - agreed report.
  • Social Care and Health – requested that Corporate Resources be informed of its concern that the cumulative effect of the substantial nature of the cuts proposed in the report may negatively impact on the provision of services. 

The minutes and recommendations of Scrutiny were referred to Cabinet on the 17th December 2012 (minute no.C1953) 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 schemes for asset renewal in Social Services properties were included within the Capital Programme.

 

On 11th December 2012, the Welsh Government announced the final 2013/14 General Capital Funding settlement. There had been a 10.7% reduction in funding from 2012/13, which was marginally lower than had been assumed in the Initial Capital Programme Proposals report in November 2012 (£5.564M compared to £5.566M). The figure for 2014/15 was based on the forward indication from WG. General predictions for public sector finances was for a continuing period of austerity. Consequently, further cuts of 10% in 2015/16, and each year thereafter, had been assumed. On this basis, a table representing the capital funding from the Welsh Government was shown below:

 

Resources from Welsh Government

2013/14

2014/15

2015/16

2016/17

2017/18

 

£’000

£’000

£’000

£’000

£’000

Supported Borrowing - General Fund

3,281

3,281

2,925

2,604

2,315

Supported Borrowing – HRA

   280

  280

  280

  280

  280

General Capital Grant

2,003

2,003

1,803

1,622

1,460

 Totals

5,564

5,564

5,008

4,506

4,055

 

Another means of financing capital expenditure was through capital receipts resulting from the sale of assets. Receipts from the sale of Housing Revenue Account (HRA) assets could only be spent in the HRA and could not be used to finance General Fund capital schemes. As at 31st March 2013, the forecast balance of useable General Fund capital receipts was £10.176M with a further £1.056M estimated to be generated between 2013/14 and 2017/18. It should be noted, however, that projected future capital receipts were not guaranteed.

 

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 2013

10,176

Anticipated Requirements – 2013/14

(5,287)

Anticipated Receipts – 2013/14

170

Balance as at 31st March 2014

5,059

Anticipated Requirements – 2014/15

(1,475)

Anticipated Receipts – 2014/15

0

Balance as at 31st March 2015

3,584

Anticipated Requirements – 2015/16

(2)

Anticipated Receipts – 2015/16

448

Balance as at 31st March 2016

4,030

Anticipated Requirements – 2016/17

(2,107)

Anticipated Receipts – 2016/17

438

Balance as at 31st March 2017

2,361

Anticipated Requirements – 2017/18

(315)

Anticipated Receipts – 2017/18

0

Balance as at 31st March 2018

2,046

 

Capital expenditure could also be funded by revenue contributions or the utilisation of existing reserves. One such reserve was the Project Fund that 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), where possible, being credited back to the fund. The estimated balance of the Fund as at 31st March 2013 was £5.009M. The following table outlined the projected position of the fund over the next five years. 

 

Project Fund Balance

             £'000

Estimated Balance as at 1st April 2013

5,009

Anticipated Requirements – 2013/14

      (1,272)

Anticipated Receipts – 2013/14

     152

Balance as at 31st March 2014

 3,889

Anticipated Requirements – 2014/15

       (1,594)

Anticipated Receipts – 2014/15

      350

Balance as at 31st March 2015

 2,645

Anticipated Requirements – 2015/16

      (450)

Anticipated Receipts – 2015/16

       100

Balance as at 31st March 2016

 2,295

Anticipated Requirements – 2016/17

(100)

Anticipated Receipts – 2016/17

60

Balance as at 31st March 2017

2,255

Anticipated Requirements – 2017/18

(100)

Anticipated Receipts – 2017/18

60

Balance as at 31st March 2018

2,215

 

In a similar vein, the Council had an IT Fund estimated at £2.6M as at the end of 2012/13. The Council relies heavily on technology to deliver its services and the Fund allows investment in this infrastructure and also enables the Council to exploit opportunities to reduce the cost of services.

 

Other means of generating income to fund capital projects was through monies forthcoming under S106 planning obligations and the new Community Infrastructure Levy.

 

Outside of the above, the Council was heavily dependent on specific grant funding to supplement its own resources if certain capital schemes were to be progressed. Generally, this came via Welsh Government, although contributions from other public sector organisations or associated bodies were also forthcoming. It was estimated that over the next 5 years, the level of specific grant funding for General Fund schemes at just over £41.25M could be over two thirds more than the level of General Capital Funding for the same period (£24.7M). This however, assumed that the priorities of the grant funding body were the same as those of the Council as many schemes required  match funding contribution to be made by the Authority to the cost of the scheme.

 

Scheme

2013/14

2014/15

2015/16

2016/17

2017/18

Total

 

 

£000

£000

£000

£000

£000

£000

Affordability

 

 

 

 

 

 

 

 

Penarth Learning Community

2,000

3,370

74

0

0

5,444

Up to £600k p.a. funded from Education revenue budgets

Housing Improvement Programme

0

8,267

11,089

10,950

768

31,074

Repayments factored in as part of Housing Business Plan

Local Highway Network Improvements

2,230

2,230

0

0

0

4,460

Repayments funded from savings in existing highways expenditure now funded through additional RSG

Totals

4,230

13,867

11,163

10,950

768

40,978

 

 

 

 

 

 

 

 

 

 

The report outlined that Total Prudential Borrowing over the next 5 years was estimated at £40.98M of which

£31.1M relates to the Housing Improvement Programme

 

One of the main purposes of the Budget Review was to develop a strategy to maximise the availability of resources to address Council priorities for the Capital Programme. As such, the outcome of the exercise to establish relative corporate priority and risk had been invaluable in setting a scale against which bids could be assessed and scarce resources allocated appropriately.

 

Underpinning this was the consideration of the direction of travel that the Council wished to pursue in respect of its Capital Programme over the next 5 years (and beyond). As could be seen from the Draft Corporate Plan 2013 to 2017, this was very much based upon the twin themes of regeneration and sustainability.

 

Certainly, the two biggest capital project areas in terms of the School Investment Programme and the Housing Improvement Programme had and would continue to bring with them opportunities for growth in terms of the local economy (e.g. use of local labour and sub-contractors), development of the surrounding infrastructure and potential inward investment.

 

Proposed Capital Programme 2013/14 to 2017/18

 

The proposed 5-year capital programme 2013/14 to 2017/18 was attached at Appendix A. As outlined in the financial strategy it was very much predicated upon the themes of regeneration and sustainability. Since the Initial Capital Proposals were prepared, a small number of additional bids were received and were included in the appendices to the report. In addition to the assessment of corporate priority and risk, the values and timings of bids had also been reviewed.

 

Having regard to the resources available, only those schemes assessed as corporate priority 1 or medium risk were included in the proposals. This included schemes that were termed as committed as these generally would score higher in terms of the risks associated with the failure to fulfil contractual obligations. Committed projects included the schemes which form part of the School Investment Programme and investment required to meet the Welsh Housing Quality Standard School Investment programme.

 

School Investment Programme

 

The 21st Century Schools Programme was the Welsh Government’s funding initiative for investment in schools. The first tranche of schemes, Band A, was submitted to the WG in November 2011. Band A schemes ran from 2013/14 to 2018/19 and WG funding available covers 50% of the costs. (Penarth Learning Community was now under construction and was being funded under separate transitional arrangements.)

 

The schemes included under the Band A submission were:- Nant Talwg (£2.739M), Dewi Sant (£2.496M), Barry Cluster (£3.95M) and Llantwit Learning Community (£12.476M). Funding for the Band A schemes are shown in the table below.

 

Band A scheme Funding Source

£'000

General Capital Funding

9,329

School Investment Strategy Reserve                                              

1,737

General Capital Receipts

114

Welsh Government Grant

10,481

Total

21,661

 

In December 2012, the Welsh Government announced that the Band A bid had been successful in outline. The next stage was for the submission of a more detailed business cases for the schemes. To date only one relevant business justification case had been submitted – for Ysgol Nant Talwg. A response from WG was awaited.

 

The following table showed the total spending on the School Investment Programme from 2013/14 to 2018/19 (the final year of Band A schemes), with gross expenditure totalling £69.713M. Asset renewal included £50k annually to be ring fenced as a contingency for urgent schemes. Any unspent portion of this £50k could be rolled forward to the following financial year.

 

Funding of Education Programme to 2018/19

 

 

 

 

 

 

13/14

14/15

15/16

16/17

17/18

18/19

TOTAL

By Scheme

£’000

£’000

£’000

£’000

£’000

£’000

£’000

 

Penarth Learning Community

 

22,962

 

14,828

 

4,680

 

0

 

0

 

0

 

42,470

Nant Talwg

1,000

1,671

68

0

0

0

2,739

Dewi Sant

300

0

1,280

916

0

0

2,496

Llantwit Learning Community

0

0

2,000

8,476

2,000

0

12,476

Barry Cluster

0

3,200

0

250

250

250

3,950

Barry Comp. Art Block

0

315

10

0

0

0

325

Asset Renewal

650

650

650

650

650

650

3,900

School IT

150

150

150

150

150

150

900

Other

7

250

200

0

0

0

457

 

25,069

21,064

9,038

10,442

3,050

1,050

69,713

 

 

 

Funding of Education Programme to 2018/19 - con't

 

 

 

 

 

 

13/14

14/15

15/16

16/17

17/18

18/19

TOTAL

By Funding Source

£'000

£'000

£'000

£'000

£'000

£'000

£'000

 

General Capital Funding

 

5,705

 

  3,570

 

2,040

 

4,079

 

1,650

 

775

 

17,819

General (non-Education) Capital Receipts

0

0

0

114

0

0

114

School Investment Programme Reserve

1,586

965

694

1,278

125

0

4,648

IT Fund

150

150

150

150

150

150

900

Prudential Borrowing Pending Receipts

2,000

2,000

0

0

0

0

4,000

Prudential Borrowing

0

1,370

74

0

0

0

1,444

Total Internal Funding

9,441

8,055

2,958

5,621

1,925

925

28,925

Other Councils’ Contributions

0

0

1,330

0

0

0

1,330

S106 agreements

55

693

0

0

0

0

748

WG Grant

15,573

12,316

4,750

4,821

1,125

125

38,710

 

25,069

21,064

9,038

10,442

3,050

1,050

69,713

                 

 

In order to achieve this, it was anticipated that capital receipts of £4M from sales of school land would be received. The Programme assumes £1.44M Prudential Borrowing with up to a possible further £4M on a temporary basis pending realisation of the land sales receipts. A sum of £1.33M had now been committed by a neighbouring authority as a capital contribution towards the Penarth Learning Community. Where councils had not made a capital contribution, their ‘share’ of investment costs would be recouped through increased charges for school places.  There was a potential risk that these revenue contributions could reduce should pupil places taken up by those Councils fall.

 

Consequently, there could be a need for Prudential Borrowing to be undertaken up to a maximum of £5.44M. Should the capital receipts be delayed or not materialise, the repayment of this debt would be met by Education revenue budgets. This would, however, very severely constrain the Council's ability to fund any future schemes. This was a 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 above could be afforded.  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 was essential, therefore, that every effort was made to realise capital receipts from the sale of land.

 

It was intended that the proposals outlined for funding of the School Investment Programme replace those under the former School Investment Strategy approved in 2005.

 

Housing Improvement Programme

 

The Welsh Government required all local authorities who retained their housing stock to submit an acceptable Housing Business Plan annually that incorporated a detailed financial forecast in the form of a 30 year financial model. The Business Plan was the primary tool for a local authority’s housing landlord service and included all assets within the Council’s Housing Revenue Account (HRA).

 

The latest annual Plan was submitted to WG in December 2012, and formed the basis of the Major Repairs Allowance (MRA) grant application, a pivotal financing component for the Housing Improvement Programme (to meet the Welsh Housing Quality Standard).

 

The MRA for 2013/14 had not yet been announced by the Welsh Government but the assumed budget in Appendix A remained at £2.8M p.a., as received in 2012/13.

 

The latest Business Plan projections were reported to Cabinet on 17th December 2012 (minute no. C1943) and approved at the Council meeting of 23rd January 2013.  The Plan outlined a reduction in the total amount of Prudential Borrowing required than was previously assumed from £32.9M to £32.4M. However, the date anticipated that all prudential debt could be repaid was now 2031/32 (previously 2029/30).

 

Other Schemes

 

A sum of £800k per annum was included to address high priority Visible Services assets and infrastructure improvements. A further £1M was included to address Ewenny Road Bridge and £2.230M under the Local Government Borrowing Initiative was being utilised in both 2013/14 and 2014/15 for local road network improvements.

 

Section 106 agreement funding would be used on various schemes including a skate park at Paget Road, Penarth £174k, various play area upgrades totalling £74k, public art at Pencoedtre Splash Pad £26k, Cogan Hill/Plassey Street junction improvements, £196k, Llantwit Major Beach Slipway, £20k (towards a £100k scheme), Sully Moors Road pedestrian/cycle route £11k, St Pauls Church £250k and £55k towards the Penarth Learning Community. These are all included in Appendix A.

 

A sum of £300k had been allocated annually in relation to the Barry Regeneration Partnership. As well as being used for preparatory work (e.g. site investigations), this could also be applied as match funding to lever additional sources of grant funding. In addition, a further £150k had been allocated each year to fund regeneration initiatives including feasibility studies. A sum of £50k had been allocated in 2014/15 and 2015/16 for feasibility studies into future improvements at Penarth Esplanade and other Penarth regeneration. 

 

The Llanmaes Flood Management scheme was included at £1.114M (of which the Council contribution was £167k). A further £1.15M towards flood risk management and drainage issues had been funded via a revenue contribution with any underspend in a financial year being automatically rolled forward to the next. A sum of £110k per annum had been set aside for inspection and works relating to coastal protection and drainage whilst £725k was allotted to prioritised energy schemes associated with street lighting. The replacement roof at the Civic Offices at £400k incorporates solar panels as a source of renewable energy.

 

Funding for Disabled Facilities Grants of £4.9M had been provided over the 5 years. However, it should be noted that the £1.2M budget for Disabled Facility Grants for 2013/14 in Appendix A includes proposed ‘one off’ slippage of £200k brought forward from 2012/13.

 

The table below detailed the General Capital Funding and internal resources required to fund the schemes proposed in Appendix A.

 

Analysis of Net Funding Required for the 2013/14 Capital Programme

General Fund                                                                      £’000               £’000

Welsh Government Resources:      

Supported Borrowing                                                           3,281

General Capital Grant                                                          2,003

                                                                                                                      5,284

Council Resources:

Capital Receipts                                                                   5,287

S106 agreement funding                                                        556

Unsupported (Prudential ) Borrowing                                  4,230

Revenue/Reserves/Leasing                                                 6,681                

                                                                                                                   16,754

Net Capital Resources                                                                              22,038           

Housing           

Welsh Government Resources:      

Supported Borrowing                                                             280

                                                                                                                         280

Council Resources:

Capital Receipts                                                                      392

Housing Reserves                                                              12,382

                                                                                                                   12,774

Net Capital Resources                                                                              13,054

 

Reduced resources would restrict the number and size of capital schemes that the Council was able to fund. The value of schemes assessed as lower corporate priority and risk totals £24.86M. There would also be significant pressures on spending post 2017/18 which were not yet funded. These included the backlog of school, highway and buildings repairs which in time could expand beyond issues associated with repairs and maintenance to those of ‘fit for purpose’ considerations.

 

Annual Minimum Revenue Provision Statement 2013/14  - 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 it considers to be prudent.'

 

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 2013/14 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 (CFR) 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. Such costs were supported by Revenue Support Grant.

 

The basis of the calculation is as follows:

 

            Minimum Revenue Provision                                        £’000

Non Housing Capital Financing Requirement at 31.03.13*       113,456

Add Adjustment A **                                                                    2,004

Total                                                                                          115,460

4% of the Total (the adjusted CFR)

MRP                                                                                               4,618

 

 

*      The Non Housing Capital Financing Requirement measures the Council’s underlying need to borrow for capital purposes and was 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.

 

Capital expenditure incurred during 2013/14 would not be subject to a MRP charge until 2014/15.

The Authority had included in its 2013/14 revenue estimates a principal repayment of £86k in respect of unsupported borrowing for capital expenditure on Local Road Network Improvement incurred during 2012/13. The loan was repayable over 20 years.

 

The proposed 2013/14 capital programme estimate included Penarth Learning Community (£22.962M) and further expenditure on Local Road Network Improvement (£2.230M). It was intended to fund £2M of the Penarth Learning Community Scheme and all of the Local Road Network Improvement scheme by Prudential Borrowing. This unsupported borrowing (i.e. not supported for Revenue Grant purposes) would be repaid over a suggested 30 year and 20 year period respectively.

 

Expenditure incurred in 2013/14 would require a first principal instalment to be made in 2014/15 of circa £121k. The section 151 Officer considered that the costs of unsupported borrowing were both prudent and sustainable.

 

This was a matter for Council decision.

 

RESOLVED -

 

That Cabinet recommend to Council –

 

(1)         T H A T the final budget proposals for the Capital Programme for the years 2013/14 to 2017/18 as set out in Appendix A to the report be approved.

 

(2)         T H A T the Director of Resources, in consultation with the Cabinet Member responsible for Finance, be given delegated authority to make additions, deletions or transfers to or from the 2013/14 to 2017/18 Housing Capital Programme as appropriate.

 

(3)         T H A T the Director of Resources, in consultation with the Cabinet Member responsible for Finance, be given delegated authority to make additions, deletions or transfers to or from the 2013/14 to 2017/18 Asset Renewal budgets as appropriate.

 

(4)         T H A T the proposals outlined for funding of the School Investment Programme replace those under the former School Investment Strategy approved in 2005.

 

(5)         T H A T Slippage of £200k on Disabled Facilities Grants from 2012/13 to 2013/14 be approved.

 

(6)         T H A T the Renewal Area Grant, once approved by the Welsh Government, be automatically included in the 2013/14 Capital Programme.

 

(7)         T H A T the policy for making the Minimum Revenue Provision in 2013/14 be approved and recommended to Council for approval.

 

Reasons for decisions

 

(1)         To set and approve future capital programmes to 2017/18.

 

(2)         To enable the Housing Capital budget to be managed effectively.

 

(3)         To enable the Asset Renewal budgets to be managed effectively.

 

(4)         To enable the School Investment Programme to be progressed.

 

(5)         To gain Council approval for slippage.

 

(6)         To update the 2013/14 Capital Programme.

 

(7)         To gain Council agreement to the basis of the Minimum Revenue Provision calculation for 2013/14.