Meeting documents

Councillor Mordue

Cabinet Member for Finance and Resources

 

To consider the attached report.

 

Contact Officer:  Nuala Donnelly (01296) 585164

(a)          Decision(s)

 

That the principles adopted for the emerging capital strategy for 2019/20 and the updated Capital Programme appended to the Cabinet report, be approved for the purposes of scrutiny.

 

(b)          Reason(s) for Decision(s)

 

It is part of the Council’s financial strategy to review the Capital Programme at reasonably regular intervals to ensure the availability of funds for approved capital schemes.

 

(c)        Alternative Options Considered

 

None as such.  The Cabinet report set out the current position and highlighted the issues that had been taken into account in finalising the Capital Programme for 2019/20 to 2022/23.

 

(d)       Relevant Scrutiny Committee

 

Finance and Services.  That Committee would be receiving a similar update at its next meeting in January 2019.  The final Capital Programme proposals will be submitted to full Council in due course.

 

(e)        Conflicts of Interest / Dispensation(s)

 

None.

Cabinet considered a report giving an update on the Capital Programme for the current year and setting out a revised programme for 2019/20 onwards.  Cabinet's comments would be passed to the Finance and Services Scrutiny Committee for review as required under policy framework requirements. After consideration of the review by scrutiny, Cabinet would be make formal proposals to Council on 6^th February 2019.

The Capital Programme had been updated to include changes and new proposals agreed by Council and Cabinet during the last year.  The focus of the Capital Programme was on delivery of existing schemes which had already been approved by Council.  The plan reflected the Council strategy to ensure both the prudent use and the maximisation of available capital resources.

The Council maintained an integrated strategic Capital Programme which was divided into three main sections:-

·                     Major Projects – These being the largest and highest profile.

·                     Housing Schemes – Being the housing enabling and housing grant based schemes.

·                     Other Projects – Being all the other schemes included within the capital programme.

The Programme was reviewed annually with the current Programme being last approved and adopted at Council in February 2018.  Since then, the Programme had been altered and amended on several occasions in response to organisational pressures, and agreements with Cabinet and Council where necessary, the Cabinet report reflects all those changes.

At the time of writing the report, the Secretary of State had confirmed his decision to create a single unitary district council for Buckinghamshire which would come into existence in May 2020.

This fundamental change would happen during the period of the proposed capital plan.  This clearly removed the need for medium term planning for Aylesbury Vale as a single entity organisation, as the new organisation would want to determine its own priorities.  However, the Council remained obligated to handover its affairs to the new organisation in the best state it could. 

At this early stage, the financial implications of the announcement were yet to be fully understood.  As thinking and understanding were progressed, the significant financial impacts would be reported to Members.

Future investment and borrowing decisions might be influenced by the outcome of the unitary arrangements and The Cabinet report provided an updated position with respect to forecast receipts and the position with regards to current and future major investment projects.

The report set out the high level issues facing the Council in terms of developing its capital plans.

In addition to the unitary decision, there remained a number of other key uncertainties, e.g. financial impact of Brexit and changes to the economy.  Economic and interest rate forecasting remained difficult with so many external influences weighing on the UK.

Investment returns were likely to remain low during 2019/20 but appeared to be on a gently rising trend over the next few years.  Borrowing interest rates had been volatile so far in 2018-19 and had increased modestly since the summer.  The policy of avoiding new borrowing by running down spare cash balances had served AVDC well over the last few years and the intention was to continue to do this where balances allowed.

The focus of the capital plan would now be primarily on 2019/20, but consideration would still be given to 2020 and beyond because of the obligation to hand Aylesbury Vale’s affairs to its successor in a fit state.  

A number of external and internal factors had a bearing on the available resources for the Capital Programme.   Changes in anticipated resources effectively increased or reduced the level of resources available to fund new schemes and so impacted directly on Council decisions to invest or borrow resources.

The changes in anticipated resources which needed to be factored into the programme were as follows:-

 

·         Revenue Contribution – Currently there was a proposed £400,000 contribution from revenue to supplement existing capital resources.  In the Provisional Finance Settlement the Government was anticipated to announce the removal of Negative Revenue Support Grant (RSG) and the indication was that the financial impact of the proposed change would benefit the Council by circa £0.7m. This would be a non-recurrent re-alignment of funding.  Given the non-recurrent nature of the proposed additional funding, it had been felt that the funding should be ring fenced to support likely and known pressures during 2019-20, specifically £0.4m to meet the costs of the car park changes detailed in the Car Park Strategy.

·         Reserve utilisation of £4.5m for the Town Centre Regeneration.  This scheme had previously been agreed by Council.

·         Borrowing would be required to support the Capital Programme.  The plan included £8m of borrowing to support spend on the Silverstone Enterprise Zone and also Pembroke Road.  The revenue costs of the borrowing had been included in the agreed business plans.    The level of borrowing would be managed in year  and only actioned after cash balances had been utilised.

·         Share of house sale receipts from VAHT - These flowed from the stock transfer agreement and ran for 25 years from the transfer date. The number of sales had been forecast to be 14 for 2018/19, with the same number being forecast for 2019/20 equating to sales of an estimated £1.5million.  The number of residual RTB house sales had consistently fallen over the last couple of years.

·         Asset Sales - These were sums released from the disposal of Council owned assets, mainly land or property. The generation of any significant receipts from the Council’s current reduced asset base was no longer possible, but periodically some small receipts were received from parcels of land and capital repayments from some loans.  No asset sales had been assumed for 2019/20, but did include £0.440m in 2019/20 for AVE loan repayments

·         Lottery, Grants & Section 106 – This related to external resources not related to asset sales.  

A table was submitted showing the available resources at the beginning of 2018/19 and projected resources during 2018/19 and 2019/20, before any expenditure had been taken into account.

The Capital Programme had been appended to the Cabinet report.  As it was split into three sections, Major Projects, Housing Schemes and Other Projects, these were covered separately.

Major Projects: The following were listed under the Major Projects section –Pembroke Road Depot, Silverstone Heritage Centre, Silverstone Enterprise Zone and the Town Centre Regeneration. The Capital Programme included the latest forecast costs for the individual schemes and reflected the current position.

Depot - Pembroke Road

·         The scheme to develop the existing waste and recycling depot site at Pembroke Road continued.  The scheme had been agreed by Council in October 2016.

·         The total scheme cost was £9.2 million.  The scheme included £1.9 million for the provision of expanded vehicle testing facilities and the business decision to continue with this element of the scheme was still under review.

·         The report and business case had been predicated on the cost of the scheme being met from borrowing, whilst recognising that the amount might be reduced if there were additional capital resources received during the year.   Expenditure incurred thus far for the scheme (mainly design and demolition) had been funded from the balances of unallocated capital resources.  The Programme presented included an assumption of borrowing for the scheme.   However, it was proposed that all unallocated capital resources were allocated in the first instance in lieu of borrowing as a mechanism to reduce borrowing costs.   The borrowing costs had been included in the business case for the development.

·         The review of resources undertaken within this report continued to balance the Council’s need to invest in schemes with the anticipated unallocated resources available to it.  Borrowing was not usually earmarked for individual purposes but instead intended to cover any gap between spending and income.

              Silverstone Heritage Centre

·      At its meeting on the 14th September 2016 Council had agreed to be part of a joint funding arrangement for a new Silverstone Heritage Centre by contributing £2 million by way of a loan facility.

·      This levered a £9.3m Heritage Lottery fund award and financial commitments provided by surrounding councils and the two LEPS.  Together, this provided a maximum loan facility.

·      The Silverstone management team gave a presentation to the Finance and Services Scrutiny Committee in October 2018.  Progress on the development was good and there was an anticipated opening date in the  spring of 2019.

           

 

            Silverstone Enterprise Zone

·      In Autumn 2017 Council had agreed to provide Capital funding for enabling works for the Silverstone Enterprise Zone in the form of loan to be repaid from the additional Business Rates generated on site.

·      Aylesbury Vale was the accountable body for the 3 Enterprise Zones and so borrowed the sums required for infrastructure development on behalf of the constituent bodies.   It also collected the Business Rates payable and offset its borrowing costs from these receipts.  

·      There was no net cost to the Council of this decision, but the borrowing decision needed to be reflected to the Council’s approved Programme.

            Westcott Innovation Centre

·      A Business case for the expansion of the Westcott Innovation Centre was currently being considered by the Aylesbury Vale Enterprise Zone Board.  With a business funding model aligned to the Enterprise Zone, the Board was broadly supportive of the Scheme and so would be seeking AVDC funding of circa £1.5million for the business case.  This would be presented for further consideration at a future meeting, with the intention that this be included in the final Capital Programme proposals being recommended to Council on 6^th February.

            Town Centre Regeneration

·      At a meeting of Council on19 September, AVDC had agreed to invest in the rejuvenation of the Aylesbury Town centre public spaces. The planned investment into Kingsbury and Market Square would address the operational and aesthetic challenges, while making improvements to the safety, sustainability and accessibility of the areas. The improvements would also look to emphasise Kingsbury as the gateway to the old town, celebrating Aylesbury’s rich heritage as a market town.

·      The funding would be sourced from specifically earmarked funding and grants, including: existing Section 106 funding allocated to Aylesbury town centre, a Heritage Lottery Funding Townscape Grants bid and New Homes Bonus. This would enable AVDC to achieve its prospects without the need to borrow.

·      Although Council required the scheme to be re-presented once further planning work had taken place, the full provision had been included in the Capital Programme in order to reserve the funding.

            Housing Schemes

·      The main element of funding within this category related to the Council’s housing enabling function.

·      The Programme presented proposed that all receipts from RTB and the affordable housing element of New Homes Bonus were ring-fenced for the purpose of affordable housing investment.

Other Projects

A number of new projects were included as well as provision for schemes that had been delayed for reasons outside of the Council’s control.

·         Notable other projects in this section of the Capital Programme included £1.25m for the purchase of new vehicles to support bringing the provision of the Street Cleaning and Horticulture contract in-house.  The vehicles were required in order to provide the statutory functions of the horticulture services and would be required whether the existing contract was extended or the service brought in-house.  

·         The Programme allowed for a rolling replacement for 5 food waste vehicles.

·         The car parking strategy agreed by Cabinet in December 2018 outlined a need for capital funding to upgrade payment equipment in AVDC car parks in other towns across the Vale.  Provision for this equipment had been included in the capital plan for 2019/20, together with a contribution from Revenue to fund the cost of these works.

·         Finally, spend on Community Centre renewal, funded by the receipts from the sale of Elmhurst Community Centre some years ago, and also some play area renewal work. In these cases the prioritisation of Section 106 funds (of which £10m was held for open spaces and leisure purposes) would be made before any capital expenditure.

Members noted that the major development for the Exchange was due for completion in 2018/19 with no further expenditure planned.   The Exchange scheme had commenced in January 2017 and consisted of restaurants, one and two bedroom apartments above and a new public square.  The scheme also provided commercial space.

Council had approved a proposed Commercial Property Strategy including a capital fund of £100m to be met from borrowing from the Public Works Loans Board, and a revenue budget of £100,000 from the New Homes Bonus (NHB) Fund. Work was still on-going in order to timetable how these investments might be made and as such was summarised in the Programme but was subject to change with market conditions and as opportunities arose. As yet no draw down had taken place, and was now unlikely given the unitary decision. 

Although not a funding pressure the Programme for 2019/20 included provision for a payment to be made for the transfer of deferred developer sums to Coldharbour Parish Council for the maintenance of the riverine corridor which ran through Fairford Leys.  This sum had previously been provided by the developer for the maintenance obligations as part of the original land transaction.  Transfer of this sum to the Parish Council had been previously agreed, but long delayed whilst the legal ownership was being resolved.

The CIPFA revised 2017 Prudential and Treasury Management Codes required, for 2019-20, all local authorities to prepare an additional report setting out the Council’s Capital Strategy.

The purpose of the Capital Strategy was to drive the authority’s capital investment ambition over a 20-30 year time frame, whilst also ensuring appropriate capital expenditure, capital financing and treasury management in the context of the sustainable, long term delivery of services. 

The Capital Programme for the Council would normally be a long term ambition, with the lifetime of new and existing assets stretching far into the future. The obligation for maintaining and improving council dwellings and operational buildings was very long term and as such should be considered accordingly in financial and asset management planning.

The development of the Capital Strategy for AVDC was disadvantaged by the uncertainty resulting from the unitary decision.  However, to comply with statutory requirements,  an expanded, but still abridged strategy, (reflecting a single year planning period) would still be presented alongside the Treasury Management Strategy in January 2019.  However, the key principles of the strategy were set out below for contextual consideration.

 

The Capital Strategy for AVDC for 2019-20 would focus on core principles that underpinned the Council’s Capital Programme in the short term only and the issues and the risks that would impact on the delivery of the programme; and the governance framework required to ensure the Capital programme was delivered and provided value for money for residents of Aylesbury Vale.

 

Within a shorter timeframe the focus of the capital strategy was towards the delivery and implementation of existing capital schemes.

 

Within the short term timeframe the Capital Programme might still be amended by the introduction of urgent, high priority capital schemes. The Programme would need to be flexible to ensure that the Capital Programme could incorporate schemes to meet the requirements or opportunities that might arise. As part of Capital Programme and resource management, schemes might be phased over multiple years due to factors such as complexity, resourcing, legal and planning requirements.

 

The development, management and monitoring of capital investments for 2019/20 would remain under the control of AVDC.     

The overriding objective of asset management within the Council was to achieve a corporate portfolio of property assets that was appropriate, fit for purpose and affordable.  The Council’s property portfolio now mainly consisted of small land holdings and operational buildings i.e. offices, leisure facilities, public conveniences etc.

The Council was currently maintaining an under-borrowed position.  This meant that the capital borrowing need (the Capital Financing Requirement), had not been fully funded with loan debt as cash supporting the Council’s reserves, balances and cash flow has been used as a temporary measure. This strategy was prudent as investment returns were low and counterparty risk was still an issue that needed to be considered.

 

The Council would not borrow more than, or in advance of, its needs purely in order to profit from the investment of the extra sums borrowed. Any decision to borrow in advance would be within forward approved Capital Financing Requirement estimates, and would be considered carefully to ensure that value for money could be demonstrated and that the Council could ensure the security of such funds.

 

Risk was an important aspect of the consideration of any proposed capital or investment proposal. The risks would be considered in line with the risk management strategies currently in place and commensurate with the Council’s low risk appetite.

 

The Treasury Management Strategy for 2019-20, to be presented to Council for approval, would include detail on expenditure plans and the associated prudential indicators.

 

The development of capital investments beyond 2020 would ultimately be delivered by the new Authority. 

 

 

 

RESOLVED –

 

That the principles adopted for the emerging capital strategy for 2019/20 and the updated Capital Programme appended to the Cabinet report, be approved for the purposes of scrutiny.