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ITEM EX6C

EXECUTIVE 22 JANUARY 2002

CAPITAL PROGRAMME 2001/02 TO 2003/04

Report by Director for Business Support & County Treasurer
and Director of Environmental Services

 

Capital Settlement 2002/03

  1. The County Councils’ capital allocation for 2002/03 comes under the new Single Capital Pot arrangements. We have received a Basic Credit Approval (BCA) of £28.987m for 2002/03. The BCA is calculated from individual Service Annual Capital Guidelines (ACG) and a discretionary element of BCA as follows:
     

    £’000

    Education

    		 8,666

    Transport

    		18,613
    Social Services 550
    Other Services 577
    Total Annual Capital Guidelines 28,406
    Less Receipts Taken Into Account -738
    Discretionary BCA 27,668
    Basic Credit Approval 1,319
      28,987
       
       

  2. In theory the Single Capital Pot allows the County Council greater freedom to spend capital resources on its own priorities. There is an anticipation from government that there will be improved outcomes and better services arising from the introduction of the Single Capital Pot as follows:

    1. More autonomy and accountability and greater responsibilities for local authorities in making their decisions;

    2. Better planning, by giving greater predictability in funding levels and allowing more flexibility;

    3. Better corporate and strategic working and more effective tackling of cross cutting issues; and

    4. Better use and management of assets.

  3. However the Transport Settlement letter indicated that there is an expectation that authorities spend sufficient funds on transport to enable them to work towards, and ultimately meet, the objectives and targets contained within their LTPs. This will be monitored through the Transport Annual Progress Reports.

  4. The level of capital support for 2002/03 is similar to 2001/02. What is new is a discretionary element of the BCA which can be spent as we see fit. The discretionary sum represents an allocation of 5% of the total available capital resources within the Single Capital Pot. The allocation is based on evaluation under the new central government assessment system of the Council’s Capital Strategy and Asset Management Plan, plus assessments of service areas. Our Capital Strategy and Asset Management Plan were both assessed as satisfactory, the categories being "good", "satisfactory" or "poor". Our service area assessments were as follows (the categories being "well above average", "above average", "average", "below average", and "well below average"):

    5. Service Area Assessment

    Education Average

    Social Services Above Average

    Transport Above Average

    Overall Performance Above Average

  5. A number of comments were made on the relevant strengths and weaknesses across the Capital Strategy and Asset Management Plan and these will be taken into account when submitting our revised Capital Strategy and Asset Management Plans to the Government in July 2002. We will bring forward drafts to the Executive for approval in due course.

    6. Financial Position

  6. The financial summary shows a surplus of funding for the capital programme in 2001/02 (£4.8m), a deficit of £0.7m in 2002/03 and a surplus of £8.7m after 2002/03. However no schemes have been added to the programme to reflect the new annual capital guidelines received for 2002/03, other than a single line added to the Environmental Programme to reflect the net effect of the Transport Settlement. The Director of Environmental Services will be proposing a detailed allocation of the settlement in due course, and the analysis will be included in the next capital programme update.

    Summaries 1 - 3 (download as .rtf file)

    Financing of Capital Programme (download as .rtf file)

  7. The overall financial position for each service block is analysed below:

    		8.

     

    2001/02

    2002/03

    After 2002/03

    Total

     

    £m

    £m

    £m

    £m

     

     

     

     

    Education

    6.7

    -3.8

    7.4

    10.3

    Transport

    0.9

    -1.9

    -1.1

    -2.1

    Social Services

    -2.8

    1.1

    4.2

    2.5

    Environmental, Protective and Cultural Services (EPCS)

     

     

     

    -0.3

    -0.4

    -0.4

    -1.1

     

     

     

     

     

    Sub Total

    4.5

    -5.0

    10.1

    9.6

     

     

     

     

    Capitalisation of Revenue

     

    1.0

    0.5

    1.5

    Discretionary BCA unallocated

     

    1.3

     

    1.3

    Potential Slippage

     

    2.0

    -2.0

    0.0

    Other Adjustments

    0.3

    0.1

    0.4

    Surplus / Deficit (-)

    4.8

    -0.7

    8.7

    12.8

  8. In addition we have received Supplementary Credit Approval for 6th Forms basic need of £641,000 in 2002/03, £916,000 in 2003/04 and £275,000 in 2004/05. Additional grant has also been approved for New Deal for Schools and devolved capital. These items will be added to the next capital programme when details have been worked out.

  9. In the commentary below and the draft Capital Programme, the programme areas of the former committees have been retained. The divisions will be reviewed for the future in line with the Revenue Budget arrangements.

    10. Education

  10. The Education Committee has a surplus of £2.9m at the end of 2002/03 rising to £10.3m by 2004/05. This surplus mainly reflects the new credit approvals received for 2002/03 (£2.6m) and the commitment to further credit approvals of £3.7m in 2003/04 and £1.1m in 2004/05.

  11. However, included within the resources available to fund the Education programme (download as .rtf file) in 2002/03 is a contribution of £3m in respect of Wallingford School from the trustees who owned part of the land sold in 2000/01. Although there was an understanding that the Trustee’s share of the capital receipt would be used to contribute to the cost of the works on the Lower School site the receipt has not yet been paid over and there are still discussions being held on the interest in the Lower School site to be transferred to the Trustees in consideration for the £3m. If the payment is not made in 2002/03 then the Education programme would be in deficit at the end of that year by some £0.1m, returning to a surplus of £7.3m by 2004/05.

  12. Under existing rules the Education Service can plan on the basis of having a programme balanced with resources available. This allows them to bring forward projects totaling £10.3m for inclusion in the programme from 2002/03, of which no more than £2.9m should arise in 2002/03. However if the Wallingford Contribution is not received the Programme will only have £7.3m available for new projects and could not commit schemes until 2003/04.

  13. The Education credit approvals are based on bids made to the Department for Education & Skills and reflect basic need (i.e. roofs over heads) as a result of rising pupil numbers. The Education department is planning on the basis of developing new schemes for an April 2003 start. This will incur fees in 2002/03 but these should be contained within the overall programme. In 2002/03 only schemes with specific grant will come through into the programme. This covers the position if the Wallingford contribution is not obtained.

    14. Social Services

  14. The Social Services programme (download as .rtf file) shows an overall surplus of £2.5m by 2003/04. However there is a funding shortfall of £2.8m in 2001/02 falling to £1.7m by the end of 2002/03 before returning to surplus. The programme includes the anticipated sales and purchases arising from the Homes for Older People transfer. The impact of the transfer on capital and revenue is attached to the Strategic Overview Report.

  15. Social Services are allowed to plan on the basis of a programme balanced to their available resources. Technically they can add new projects to the value of £2.5m into their programme after 2002/03.

  16. The Homes for Older People (HOP) transfer will require a switch of resources between revenue and capital as part of the financing in the early years is through capital receipts and lease premiums. The Council will have to capitalize revenue payments in 2002/03, totaling £2.4m, and £2.1m in 2003/04. This will also affect the receipts taken into account adjustment in the BCA for 2003/04 and this has been allowed for in the overall resources available to the programme.

    17. Environment

  17. The Environmental programme has been updated to include the effect of the new credit approvals received under the Local Transport Settlement (LTS). A single line has been included in the expenditure tables at this stage to reflect the net resources to be allocated. Of the £18.6m settlement some £1.4m has been reserved for the Banbury Hennef Way Dualling Stage 1 project. The Transport Settlement is based on bids made by the Council. Of the £18.6m received there is an indicative figure of £8.013m for local road maintenance, although this allocation is not ring-fenced. The Environmental programme is allowed to spend all the resources allocated through the LTS. The Director of Environmental Services will be bringing forward proposals for allocating these resources in due course and these will be included in the next capital programme update.

  18. The Environmental programme (download as .rtf file) shows a deficit of £2.1m which has arisen from approvals given in previous years for fees on developer funded schemes and preparation pool schemes for which no funding is available. There may be a requirement to approve additional fees money for these purposes in future years but no additional money is sought at the moment. Allocations in earlier years have ranged from £0.5m to £0.75m.

    19. Public Protection

  19. There have been no additions to the Public Protection capital programme.(download as .rtf file)

    20. Cultural Services

  20. There have been no additions to the Cultural Services capital programme (download as .rtf file)

    21.   Operations

  21. The Operations Sub-Committee capital programme includes a scheme for improvements to County Hall in 2002/03 totaling £0.4m for which a project appraisal is attached to this report for approval (Annex 2).
    (Strategy & Resources capital programme (download as .rft file))

    22. Broadband Network

  22. The County Council agreed to the installation of a Broadband network at its meeting on 11 December. A budget provision of £1.5m has been approved from 2002/03 to meet part of the costs associated with providing the network.

  23. This leaves unfunded costs of £821,000 in 2001/02 and £918,000 in 2002/03. The costs for 2002/03 assumed a receipt of £250,000 E-Government funding from the Government. This figure has now been reduced to £200,000 increasing the deficit in 2002/03 to £968,000. The report on the Broadband Network identified potential income sources to meet part of the unfunded costs. Negotiations are ongoing to secure contributions, but none have been agreed to date.

  24. It is proposed to charge the 2001/02 capital costs outstanding to the Capital Programme (£697,000). The 2002/03 costs could be offset by external income.

    25. Capital / Revenue Flexibility

  25. Whilst the earlier part of the report sets out the traditional way in which the Council would allocate its capital resources for 2002/03, the Executive may wish to consider an alternative strategy, which would create some flexibility in the revenue budget. It can be seen that there is very limited flexibility in the capital programme to introduce schemes for 2002/03 as there is only £4.1m of unallocated resources. This does not allow for the possible loss of the Wallingford School contribution of £3m and £0.7m has been proposed to be used for Broadband Capital Costs. The 2002/03 programme also includes an assumption that £2m of natural slippage will occur in 2002/03. This could leave the programme with just £0.4m surplus in 2002/03.

  26. There is also need to capitalize some revenue payments to facilitate use of the capital receipts from the HOPS transfer.

  27. In 2001/02 it is anticipated that there is some £5m of expenditure within the revenue budget that is capable of being capitalized, being structural maintenance of roads and buildings and vehicle purchase. Similar amounts are likely to be available in 2002/03.

  28. In 2001/02 it would be possible to capitalize some £2m of structural road maintenance and charge it to the Transport Supplementary Credit Approval received. This can be done as there is likely to be £2m slippage on spending the full Transport SCA in 2001/02. This releases £2m from revenue which could be carried forward to help fund the budget in 2002/03.

  29. In 2002/03 it is proposed that the Council charges £1.0m of revenue expenditure of a capital nature against credit approvals to release a further £1.0m of revenue monies to help fund the budget in 2002/03. This is the maximum that can realistically be released whilst enabling the delivery of a realistic transport capital programme.

  30. This can be achieved in the short term. In the long term the Council has to demonstrate that it can deliver its Local Transport Plan through the Annual Progress Review in order to achieve favourable Transport Settlements.

  31. The Director of Environmental Services has raised no objection to the capital/revenue switch but on the basis that the Council replaces the lost transport capital monies from revenue in future years. This point has also been made by the Environment Scrutiny Committee (see further below). This concern could be met by allocating £1.0m a year from the revenue budget to support the Capital Programme from 2003/04 to 2005/06.

  32. Part of the £5m revenue expenditure remaining (£2.4m in 2002/03) will be needed to facilitate the use of HOPs capital receipts to meet the payment streams arising in the early years from the HOPS transfer.

    33. Other Options

  33. The Executive may wish to consider alternative options to allocating capital resources. Any changes in policy would need to be incorporated within the Council’s Capital Strategy to be submitted to the Government by the end of July 2002.

    34. Capital Programme and Asset Management Steering Group (CPAMSG)

  34. The steering group met to consider the highest priority bids from service departments with a view to advising the Executive on the priority projects to be met from any available funding. Their views will be reported at the meeting.

    35. Priming / Private Finance Initiative

  35. The Leader of the Council has requested a report on the potential for the Council to undertake a Priming exercise and to identify potential areas for a Private Finance Initiative project. Consultants have been asked to advise on this and their report is due back towards the end of March. A report will be taken to the Executive in April to present the consultants’ advice and to give recommendations on any schemes which are considered potentially suitable and eligible for PFI and on options for the Council for using the value of its assets to secure funding for new investments.

    36. Oxford City Schools Reorganisation

  36. A detailed analysis of the City Schools Reorganisation is included as part of the Education capital programme. The cashflow position is analysed below:

    37. Year

    Shortfall(-) /Surplus

    Cumulative Shortfall(-) /Surplus

     

     

     

    2000/01

    (984)

    (984)

    2001/02

    (3,989)

    (4,973)

    2002/03

    (1,096)

    (6,069)

    2003/04

    7,154

    1,085

    2004/05

    (1,085)

    0

  37. The cashflow position has improved in 2001/02 and 2002/03 due to a small element of slippage on the programme. Proposals to fund the cashflow shortfall are included in Annex 1.(download as .rtf file).

    38. Project Appraisals

  38. The following project appraisals are submitted to the Executive for approval:

    39. OP48 County Hall Improvements (attached, Annex 2) (download as .rtf file)

    ED580 West Oxford School (see Exempt part of the Agenda)

  39. The Executive are recommended to approve the appraisal for County Hall Improvements funded from the discretionary element of the single capital pot. The West Oxford School Project is proposed to be funded from anticipated supplementary credit approval, Wallingford contribution or reprioritisation of the Education Capital Programme.

    40.   Prudential Guidelines

  40. The Government is to introduce a new system of prudential guidelines to replace the current capital finance system. Implementation is anticipated to be from April 2004. Details of the system are included in the White Paper – Strong Local Leadership – Quality Public Services dated December 2001. The key features are the abolition of credit approvals, authorities being able to borrow without government approval, more flexibility for the Council’s Capital Programme and a system of prudential limits to avoid Council’s debt going out of control, backed by reserve powers for the Government to set a ceiling on the growth of a Council’s borrowing. Government support for capital investment will continue but the form has not been decided. The main benefits of the new system are as follows:

    • Authorities will be free to borrow for investment without Government consent, provided they can afford to service the debt.

    • That means more spending on locally important projects – e.g. promoting better quality of life.

    • Authorities will be more accountable and responsible.

    • Local people will have a greater say in decisions.

    • Authorities spending will be less tied in to rigid annual bidding rounds.

    • The system will be simpler to operate and easier for officers, councillors and the public to understand.

    • The new freedoms will be balanced by sensible safeguards .

Recommendations from Committees

  1. The Strategy & Resources Committee in October 2001 deferred consideration of a bid from the Operations Sub-Committee to allocate further funding to the Energy Conservation Capital Budget from 2002/03 to allow the programme of Energy Conservation works to continue at its current level. This recommendation was considered by the CPAMSG, who have identified it as a high priority project to be included in the 2002/03 capital programme.

  2. The Environment Scrutiny Committee acknowledge the need to make use of flexibility between revenue and capital funding as outlined in the Draft Budget Strategy but advise the Executive that if any capital funds are diverted from the transport block to assist with the revenue budget pressures in 2002/03, these will need to be repaid to the transport capital programme within the term of the Local Transport Plan if the objectives of the Plan are to be met and highway safety will not be compromised.

    3. Determinations to be made by Local Authorities under part 4 of the Local Government and Housing Act 1989

  3. Under Section 45 of the Local Government and Housing Act 1989 each Local Authority must determine for each financial year before the commencement of the year in question:

    1. Their overall borrowing limit;

    2. Their short term borrowing limit;

    3. A limit on the proportion of interest which is payable at variable rates.


    Overall Borrowing Limit

  4. This is interpreted to mean the total borrowing from both external and internal sources for capital financing purposes and the upper limit for revenue financing purposes. Capital investment is partly financed by borrowing through the consolidated loans fund, where debt outstanding at 31 March 2002 is estimated to be £197m, made up as follows:
    External Borrowing (fixed rate) £167m
    Internal Borrowing (variable rate) £30m
      £197m

  5. In addition the Council is anticipating receiving credit approval for the 2002/03 Capital Programme (which automatically carries with it borrowing approval) of up to £30m.

  6. The maximum permitted borrowing for revenue purposes in 2002/03 is estimated at £67m based on the relevant population figure for Oxfordshire. The total overall borrowing limit proposed for 2002/03 is therefore £294m (£197m + £30m + £67m).

    7. Short Term Borrowing Limit

  7. This limit is to encompass all borrowing that may not be of a long term nature at any particular time. It is therefore suggested this should be the total limit as determined under paragraph 46 less the present long term loans from the Public Works Loan Board and the money market (external borrowing in paragraph 44). On the basis of the present estimates this would give the figure of £127m (i.e. £294m less £167m).

    8. Proportion of Interest Payable at Variable Rates

  8. In the case of the County Council, this figure should be the same as the Short Term Borrowing Limit i.e. £127m.

    9. Conclusions

  9. The Capital Programme has a surplus of £4.1m at the end of 2002/03 although this will be reduced by the proposal to fund the Broadband costs (£697,000) in 2001/02 and may be further reduced if the contribution of £3m from Trustees in Wallingford is not received. There is therefore little headroom for introducing new schemes into the capital programme in 2002/03.

  10. The impact of this is that Education may not be able to introduce new schemes into the programme in 2002/03 even though they have received some £2.8m towards new basic need priorities. There is not much flexibility for dealing with urgent priority bids from departments, particularly Annual Programmes.

    11. RECOMMENDATIONS

  11. The Executive is RECOMMENDED to:

          1. approve the Project Appraisal at Annex 1 to the report;

          2. consider the recommendations from the Capital Programme and Asset Management Steering Group (to be reported at the meeting) and determine which projects should be included in the Capital Programme;

          3. agree that it is appropriate to meet the Capital costs of Broadband in 2001/02 (£697,000) from the capital programme;

          4. subject to the above, to approve the Draft Capital Programme and refer it to Council for approval;

          5. RECOMMEND Council to:

    1. approve an overall borrowing limit of £294m for 2002/03;

    2. approve an overall borrowing limit for short term borrowing of £127m for 2002/03; and

    3. approve the maximum amount of borrowing with interest payable at variable rates as £127m for 2002/03.

 

CHRIS GRAY
Director for Business Support & County Treasurer

DAVID YOUNG
Director of Environmental Services

Background Papers Nil

Contact Officer - Mike Petty Tel.( 01865) 815622

 

January 2002

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