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ITEM EX6B - ANNEX 1

EXECUTIVE – 22 JANUARY 2002

REVENUE BUDGET AND MEDIUM TERM FINANCIAL
PLAN 2002/03 TO 2005/06

STRATEGIC MEASURES AND USE OF RESERVES

1. This annex considers what is currently included in the Medium Term Financial Plan for capital financing, and contributions to and from reserves. It also considers whether there are any options for using reserves to assist with the budget in 2002/03. Advice on the appropriate level of balances is contained in the Strategic Overview report.

Capital Financing

2. The County Council has a policy of borrowing the maximum allowed by the Government (via Basic and Supplementary Credit Approvals) to finance the capital programme. The Council also makes provision within the revenue budget for repaying the debt.
3. The Government has announced a high level of credit approvals available to the authority for 2002/03. If the authority continues to borrow to the maximum allowed, it is estimated that the additional financing costs arising from this new borrowing would be £0.450m in 2002/03, with a full year effect of £3.0m in 2003/04. These costs have been included in the draft Medium Term Financial Plan. Given the pressures on the revenue budget, members will need to consider whether they wish to continue with the policy of maximising borrowing, bearing in mind that any change to this policy would have consequences for the capital programme.

Contribution to/from Reserves

4. The Council has used certain reserves to help finance the revenue budget and capital programme in previous years. In some cases these reserves need to be replenished. There is a repayment to the capital reserves of £1.0m in 2002/03, with a further £0.5m in 2003/04 included within the draft Medium Term Financial Plan.
5. The repayment of capital resources is needed to finance the capital programme. If this repayment is not made or deferred then the Council may need to cut back on planned capital schemes.

Other Reserves

6. It is planned that the cashflow shortfalls projected for both the capital and revenue elements of the City Schools Reorganisation will be met from other reserves. A contribution of £6.1m is needed by 2002/03 to fund the cashflow shortfall for the capital programme. A City Schools Reorganisation reserve has been set up to meet the capital cashflow shortfall. By the end of 2002/03 this will comprise of £2.5m interest due on certain earmarked reserves, £2.5m transferred from the Insurance Fund and £1.1m school balances on deposit with the Council. It is anticipated that this will be repaid in 2003/04 from capital receipts arising from the sale of surplus sites. The revenue costs of the reorganisation of £1.7m by the end of 2001/02, rising to £3.0m by 2002/03 and to £3.6m by 2003/04, are to be treated as a charge to the Education Carry Forward Reserve, to be recovered in 2004/05 and future years from savings in the formula allocation arising from the reorganisation.