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Agenda Item No. 9(e)

 

THE VALE OF GLAMORGAN COUNCIL

 

COUNCIL MEETING:  5 MARCH 2014

 

REFERENCE FROM CABINET:  24 FEBRUARY 2014

 

C2211      FINAL CAPITAL PROPOSALS 2014/15 TO 2018/19 (L) (SCRUTINY COMMITTEE – CORPORATE RESOURCES) -

 

Approval was sought for the final capital programme proposals for the years 2014/15 to 2018/19. 

The initial capital proposals went to Cabinet on 18th November 2013 (minute C2074). They were subsequently referred to Scrutiny Committees in December 2013.

 

In responding to the initial capital programme budget proposals, Corporate Resources Scrutiny Committee, at its meeting on the 10th December 2013 (Minute No. 688), considered comments from other Scrutiny Committees. Specific comments were set out below.

  • Economy and Environment – 3rd December – noted report.
  • Housing and Public Protection – 4th December – noted report.
  • Lifelong Learning – 9th December – noted report
  • Social Care and Health – 2nd December – noted report. Members noted the reduced size of the proposed Capital Programme and enquired if this was as a result of choice or necessity.  In response, Members were advised that the bids were based on pragmatism.  In addition in response to a question, Members were informed that the Welsh Government had agreed a further Capital injection towards Flying Start, and the Directorate had bid for £250,000 for 2014/15.

The minutes and recommendations of Scrutiny were referred to Cabinet on the 16th December 2013 (Minute No.C2140) and referred by them for consideration by the Budget Working Group. Subsequently the Budget Working Group noted all the Scrutiny recommendations and took responses into account in drafting the final budget proposals. With regard to the comments made by Social Care and Health Scrutiny regarding the reduced size of the capital programme, the Budget Working Group concurred that the reduced number of bids was due to pragmatism. With regard to the comment on Flying Start the Council has been awarded £150,000 in 2014/15 and this had been included in the Final Capital Proposals.  

 

On 11th December 2013, the Welsh Government announced the final 2014/15 General Capital funding settlement. There had been a £36K (0.65%) reduction in funding from 2013/14, which was a slightly greater reduction than had been assumed in the Initial Capital Programme Proposals report in November 2013 (£5.528M compared to £5.530M). The figure for 2015/16 was based on the forward indication from Welsh Government and maintained the level of Capital Funding at £5.528M. General predictions for public sector finances was for a continuing period of austerity.

 

Consequently, further cuts of 10% in 2016/17, and each year thereafter, had been assumed. A table representing the capital funding from the Welsh Government was shown below:  

Resources from Welsh Government

2014/15

2015/16

2016/17

2017/18

2018/19

 

£’000

£’000

£’000

£’000

£’000

Supported Borrowing - General Fund

3,437

3,437

3,093

2,784

2,505

General Capital Grant

2,091

2,091

1,882

1,694

1,525

Totals

5,528

5,528

4,975

4,478

4,030

 

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 2014, the forecast balance of useable General Fund capital receipts was £8.845M with a further £1.185M estimated to be generated between 2014/15 and 2018/19. It should be noted, however, that projected future capital receipts was not guaranteed.

 

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

General Fund Capital Receipts

 £'000

Estimated Balance as at 31st March 2014

8,845

Anticipated Requirements – 2014/15

(2,343)

Anticipated Receipts – 2014/15

1,185

Balance as at 31st March 2015

7,687

Anticipated Requirements – 2015/16

(865)

Anticipated Receipts – 2015/16

0

Balance as at 31st March 2016

6,822

Anticipated Requirements – 2016/17

(3,233)

Anticipated Receipts – 2016/17

0

Balance as at 31st March 2017

3,589

Anticipated Requirements  - 2017/18

(1,695)

Anticipated Receipts - 2017/18

0

Balance as at 31st March 2018

1,894

Anticipated Requirements  - 2018/19

0

Anticipated Receipts   - 2018/19

0

Balance as at 31st March 2019

1,894

 

Capital expenditure could also be funded by revenue contributions or the utilisation of existing reserves. A reserve was a sum of money that had been set aside by the Council for a specific purpose. They were voluntary and could be made when the Council determined. Advances could be made from a reserve for the purchase of assets, which were then repayable over the life of the asset and the reserve was constantly replenished e.g. Vehicle Renewals Fund.

 

Alternatively schemes could be funded from reserves with no repayment, however, once spent that source of funding was lost.

 

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 was at 31st March 2014 was £4.217M. The following table showed the projected position of the fund over the next five years. 

 

Project Fund Balance

             £'000

Estimated Balance as at 1st April 2014

4,217

Anticipated Requirements – 2014/15

(1,754)

Anticipated Receipts – 2014/15

402

Balance as at 31st March 2015

2,865

Anticipated Requirements – 2015/16

(450)

Anticipated Receipts – 2015/16

100

Balance as at 31st March 2016

2,515

Anticipated Requirements  - 2016/17

(400)

Anticipated Receipts   - 2016/17

60

Balance as at 31st March 2017

2,175

Anticipated Requirements – 2017/18

(100)

Anticipated Receipts – 2017/18

60

Balance as at 31st March 2018

2,135

Anticipated Requirements – 2018/19

0

Anticipated Receipts – 2018/19

0

Balance as at 31st March 2019

2,135

 

In a similar vein, the Council had an IT Fund estimated at £4.374M at the end of 2013/14. The Council relied heavily on technology to deliver its services and the Fund allowed investment in the infrastructure and also enabled the Council to exploit opportunities to reduce the cost of services. This was in accordance with a report from the Wales Audit Office in December 2012 entitled 'Use of Technology to Support Improvement and Efficiency in Local Government’.  Best practice highlighted in the report recommended that 'A corporate technology development fund was used to fund all developments with commitment that efficiencies replenish funds'.

 

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 £42.757M could be over two thirds more than the level of General Capital Funding for the same period (£24.541M). Many of these schemes required a match funding contribution to be made by the Authority to the cost of the scheme.

 

When considering options for capital financing, the ability of the Council to finance the repayment of any loans it raised for the funding of capital schemes must be considered.  Part 1 of the Local Government Act 2003 required local authorities to have regard to the Prudential Code, that had been developed by CIPFA (the Chartered Institute of Public Finance and Accountancy) as a professional code of practice. In setting the capital programme, the Council must ensure that the key objectives of the Prudential Code were complied with. The Council must ensure that its capital investment plans:

 

Are affordable, and that

  • All external borrowing and other long term liabilities are within a prudent  and sustainable level.
  • The consequent treasury management decisions for Prudential Borrowing (also referred to as Unsupported Borrowing) are taken in accordance with good professional practice

The Code recognised that in making capital investment decisions the Council must have had regard to option appraisal, asset management planning and strategic planning. However, given, the expected severity of cuts in future revenue resources, the potential for servicing debt not funded by Welsh Government as part of General Capital Funding or already provided for (e.g. Prudential Borrowing for the Schools Investment Programme and Housing Improvement Programme) was extremely limited as this would need to be funded through the revenue budget.

 

The projected amount of prudential borrowing utilised at 31st March 2014 was £6.46M which was made up of £4.46M for Highway Improvements under the Local Borrowing Initiative and £2M for Penarth Learning Community. After allowing for repayments the balance was expected to be £6.176M.

 

Scheme

2014/15

2015/16

2016/17

2017/18

2018/19

Total

 

 

£000

£000

£000

£000

£000

£000

Affordability

Penarth Learning Community and Llantwit Learning Community

3,370

2,074

0

0

0

5,444

Up to £313k p.a. for Penarth and up to £210 p.a for Llantwit to be funded from savings identified from the scheme and Education revenue budgets

Housing Improvement Programme

6,034

12,225

12,529

1,152

1,051

32,991

Repayments factored in as part of Housing Business Plan

Local Highway Network Improvements

2,230

0

0

0

0

2,230

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

Totals

11,634

14,299

12,529

1,152

1,051

40,665

 

 

Total new Prudential Borrowing over the next 5 years was estimated at £40.665M of which £32.991M related to the Housing Improvement Programme.

 

At the end of the Capital Programme period (31st March 2019) the outstanding prudential borrowing taking into account repayments was expected to be £11.858M General Fund and £31.284M HRA.

 

Proposed Capital Programme 2014/15 to 2018/19

 

Following consideration of all of the above, the proposed 5-year capital programme 2014/15 to 2018/19 was attached at Appendix A to the report. Since the Initial Capital Proposals were prepared, a small number of amendments were received and were outlined below.

 

An additional bid had been received from Social Services for urgent works required to Hen Goleg clock tower to address the health and safety risk for falling masonry at the site. Social Services were asked to reprioritise their schemes in light of the urgent nature of these works and as a result removed the proposed schemes at Gardenhurst.

 

As part of the review of schemes it was identified that the works at Castleland Community Centre relating to roof renewal that were programmed in for 2014/15 had been carried out in 2013/14, therefore this scheme had been removed from the programme.

 

Given the number of issues encountered with schools in 2013/14 Capital programme, particularly given the issue with Lath and Plaster at the authority’s Victorian schools and other issues with falling masonry, a specific programme was required to address the issue.  To help minimise the risk of occurrence of a similar problem in future provision had been made within the capital programme for property condition surveys in schools. The costs of these surveys would be funded by a contribution from the School Investment Strategy Reserve. In addition, additional Asset Renewal Funding was being proposed the Final Capital programme of £300k in each of 2014/15 and 2015/16 this should be funded by a contribution from the School Investment Strategy Reserve. Additional funding had also been provided in 2015/16 for the School Investment Programme of £500k.  This would also be funded from a contribution from the School Investment Strategy Reserve.

 

Given the importance of the Highways network, additional asset renewal of £300k in 2014/15 and £300k in 2015/16 had been included in the Capital programme to be funded from the Visible Services Reserve.

 

The Final Capital Programme for Housing includes an additional £600K for Void Properties in 2014/15 to be funded using a revenue contribution.

 

Whilst no specific sum had been included in the Capital Programme at this time, the Council would be investigating the possibility of improving facilities at Jenner Park. The costs of any improvements would be funded by a contribution from the Visible Services Reserve.

 

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 Welsh Government by November 2011. Band A schemes ran from 2013/14 to 2018/19 and Welsh Government funding available covered 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 between 2013-14 and 2018/19 were: - Nant Talwg (£2.737M), Dewi Sant (£3.039M), Barry Cluster (£4.2M) and Llantwit Learning Community (£22.100M), small discrepancies between the figures shown and in the table below were due to additional funding allocated from reserves or asset renewal for the schemes.

 

The following table showed the total spending on the Education  Programme from 2013/14 to 2018/19  incorporating expenditure as part of the School Investment programme under 21st Century Schools funding (the final year of Band A schemes), with gross expenditure totalling £85.401M. Asset renewal includes £50k annually to be ring fenced as a contingency for urgent schemes. Any unspent portion of this £50k may be rolled forward to the following financial year.

 

Proposed 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

22,397

15,012

4,680

0

0

0

42,089

Demolition of St Cyres

300

0

0

0

0

0

300

Demolition of Ysgol Maes Dyfan

0

200

0

0

0

0

200

Nant Talwg

1,227

1,498

39

0

0

0

2,764

Dewi Sant

302

1,823

848

68

0

0

3,041

Llantwit Learning Community

0

0

7,104

9,471

5,525

0

22,100

Barry Cluster (Ysgol Gwaun Y Nant and Oakfield)

0

2,747

600

500

0

0

3,847

Barry Cluster Colcot

0

0

0

250

250

0

500

Barry Comp. Art Block

0

315

10

0

0

0

325

School Investment Programme

0

0

500

0

0

0

500

Asset Renewal

1,356

950

950

650

650

650

5,206

School IT

200

200

200

200

200

200

1,200

Property Condition Surveys

0

40

40

0

0

0

80

Schools Capital Loan Scheme

300

300

300

300

300

300

1,800

Other

759

0

0

0

0

0

759

Learning in Digital Wales Grant

690

0

0

0

0

0

690

 

27,531

23,085

15,271

11,439

6,925

1,150

85,401

 

The schemes in the Education Capital Programme included the enhanced scheme for Llantwit Learning Community with a revised cost of £22.1M. The Business Case had been submitted to Welsh Government using Delegated Powers. There were various risks in the funding for the scheme regarding Capital Receipts and additional Welsh Government grant required to fund the scheme, these could be mitigated to a certain extent through a combination of delaying the amalgamation stage of the scheme to qualify for funding under Band B of 21st Century Schools funding, value engineering the scheme to reduce its overall costs and limited additional use of reserves. However if no additional grant was received from Welsh Government and no Capital Receipt was received from the Eagleswell site the Council would be unable to progress the scheme.

 

The Education Capital Programme was funded as followed in the table below;

 

Funding of Education Programme to 2018/19

 

 

 

 

 

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

5,141

3,354

1,724

4,079

1,650

650

16,598

Capital Receipts

427

147

552

611

1,763

0

3,500

Revenue Contribution

794

0

0

0

0

0

794

School Investment Programme Reserve

2,086

2,029

1,534

1,195

125

0

6,969

Schools Rationalisation and Improvements Reserve

300

300

300

300

300

300

1,800

IT Fund

200

200

200

200

200

200

1,200

Prudential Borrowing Pending Receipts

2,000

2,000

0

0

0

0

4,000

Prudential Borrowing

0

1,370

2,074

0

0

0

3,444

Total Internal Funding

10,948

9,400

6,384

6,385

4,038

1,150

38,305

Other Councils’ Contributions

0

0

1,330

0

0

0

1,330

S106 agreements and other External Contributions

120

693

0

0

0

0

813

Welsh Government Grant

16,463

12,992

7,557

5,054

2,887

0

44,953

 Total Funding

27,531

23,085

15,271

11,439

6,925

1,150

85,401

 

 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 Welsh Government in December 2013, 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 2014/15 had not yet been announced by the Welsh Government but the assumed budget in Appendix A attached to the report remained at £2.8M p.a., as received in 2013/14.

 

The Final Capital Programme included an additional £600K for Void Properties in 2014/15 to be funded using a revenue contribution.

 

The latest Business Plan projections were reported to Cabinet on 2nd December 2013 (minute no. C2113) and approved at the Council meeting of 18th December 2013.  The Plan outlined an increase in the total amount of Prudential Borrowing required than was previously assumed from £32.4M to £33.9M. The date anticipated that all prudential debt could be repaid was now 2032/33 (previously 2031/32).

 

Other Schemes

 

A sum of £400k had been scheduled for 2014/15 for a Replacement Client Record System in Social Services.

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

 

Flood Risk Management funding of £100K was provided in addition to funding slipped from 2013/14 for Flood Risk Management Schemes at Coldbrook and Boverton.

 

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. 

 

Funding for Disabled Facilities Grants of £4.6M had been provided over the 5 years.

 

The Capital Programme included funding for the Space Project £1.195M in 2014/15 and £300K in 2016/17. This investment was funded by the Project fund was expected to achieve net revenue savings.

 

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 2014/15 Capital Programme

General Fund                                

£’000

Welsh Government Resources:   

3,437

Supported Borrowing                                     

2,091

 

 

Council Resources:

 

Capital Receipts                                                   

2,343

Unsupported (Prudential ) Borrowing                       

5,600

Revenue/Reserves/Leasing                                 

8,307

 

 

Net Capital Resources                                  

21,778

 

 

Housing

 

Council Resources:

 

Capital Receipts                                          

1,525

Unsupported (Prudential) Borrowing                               

6,034

Housing Reserves                                            

7,987

 

 

Net Capital Resources                                  

15,546

 

Reduced resources would restrict the number and size of capital schemes that the Council was able to fund. The gross value of schemes assessed as lower corporate priority and risk totals £8.956M between 2014/15 and 2018/19 and as advised in the 18th November 2013 Initial Capital Proposals are not included in the Final Proposed Capital Programme 2014/15 to 2018/19.

 

There would also be significant pressures on spending post 2018/19 which were not yet funded. These include 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 2014/15 - 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). 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 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 2014/15 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 had been used more accurately reflected the MRP that should be charged. Such costs are supported by Revenue Support Grant.

 

MINIMUM REVENUE PROVISION                                             £’000

Estimated Non Housing Capital Financing Requirement      

 at  31.03.14*                                                                            109,957                                                                            

Add Adjustment A **                                                                    2,004

Total                                                                                         111,961

4% of the Total (the adjusted CFR)

 MRP                                                                                            4,478

 

*      The Non Housing Capital Financing Requirement measured 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. (Supported Borrowing).

**     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 2014/15 would not be subject to a MRP charge until 2015/16.

 

The Authority had included in its 2014/15 revenue estimates a principal repayment of £348k in respect of the Prudential (unsupported) borrowing i.e. not supported for Revenue Grant purposes for the Penarth Learning Community scheme and the Local Road Network Improvement scheme.

 

The Section 151 Officer considered that the estimated costs of unsupported borrowing are both prudent and sustainable

 

Sustainability was one of the main strands of the financial strategy for capital. Several of the schemes included in the proposals would assist in addressing the impact of climate change. Details were set out in the main body of the report.

One of the purposes of the Sustainable Development Working Group was to review the sustainability of major capital schemes. Wherever possible, the Council strove to reduce carbon emissions and improve energy efficiency and positively encourages waste reduction initiatives.

 

This was a matter for Council decision.

 

RESOLVED –

 

That the following be recommend to Council :-

 

(1)          T H A T the final budget proposals for the Capital Programme for the years 2014/15 to 2018/19 as set out in Appendix A attached 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 2014/15 to 2018/19 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 2014/15 to 2018/19 Asset Renewal budgets as appropriate.

 

(4)          T H A T the Renewal Area Grant, once approved by the Welsh Government, be automatically included in the 2014/15 Capital Programme.

 

(5)          T H A T the policy for making Minimum Revenue Provision in 2014/15 be approved.

 

(6)          T H A T the Managing Director and her staff and Directorates be thanked for their hard work and input in bringing together the report.

 

Reasons for decisions

 

(1)          To set and approve future capital programmes to 2018/19.

 

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

 

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

 

(4)          To update the 2014/15 Capital Programme.

 

(5)          To agree the basis of the Minimum Revenue Provision calculation for 2014/15.

 

(6)          To acknowledge the hard work of the staff

 

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