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ITEM CA6
CABINET
- 18 APRIL 2006
CAPITAL
PROGRAMME 2006/07 – 2010/11
Report by
Director for Resources
Background
- The Council approved
a Capital Programme covering the period 2006/07 to 2008/09 at its meeting
on 14 February 2006, subject to further report on the utilisation of
surplus identified in the programme. The Capital Steering Group
was asked to consider further projects for inclusion within the Programme
and report back to the Cabinet. This report covers the recommendations
from the Capital Steering Group.
- In addition, the
Cabinet on 7 February 2006 requested a report back on the implications
of the Council continuing to maximise its borrowing allocations in light
of the removal of Government funding of Oxfordshire’s supported borrowing
under the changed revenue support grant arrangements. This report also
responds to that request.
Recommendations
from Capital Steering Group
- The approved a
Capital Programme agreed by Council on 14 February 2006 showed available
resources of £3.310m up to 2008/09 to fund new projects. The Capital
Steering Group has considered the outstanding capital needs identified
in the Asset Management Plan and Capital Strategy agreed by Council,
and other capital issues, and makes the following recommendations to
the Cabinet for projects to be added to the Programme.
- Time to
Change Project: The investment required to implement Phase II
of the Time to Change project in Social & Community Services
is £1.2m. The investment will produce revenue budget efficiency savings
of £0.333m in 2007/08 rising to £0.998m in 2008/09.
- Maltfield House:
The refurbishment of Maltfield House Children’s Home (costing £0.227m)
is required to enable the transfer of children from Holme Leigh. This
will facilitate the sale of Holme Leigh, the capital receipt from which
is included within the current estimated funding for the approved Capital
Programme.
- Yarnton House:
The project for Yarnton House (£0.150m) currently in the programme is
no longer required as the accommodation needs will be dealt with as
part of the Review of Property Assets. The overall cost to the programme
is therefore £0.077m.
- Watlington
Library: The library premises, including the first floor flat, are
held by the County Council under a charitable trust. The Council is
required to make appropriate use of the assets of the trust and to use
all of the capital receipts and income from the assets for the purpose
of the trust. The first floor flat has been unoccupied for some time
and does not have access other than through the library. The library
does not meet current standards.
- A preferred developer
has been selected with the intention that the premises be refurbished
to provide an improved library with the costs funded from the increased
value of the first floor flat. Although Watlington Library is not one
of the highest priorities for improvement, if a small contribution is
available in order to secure a viable scheme then it should secure good
value for the Council and ensure that the terms of the charitable trust
are met.
- Bicester Library:
An opportunity has occurred in Bicester to provide a new enlarged library
in a building to be provided in the town centre redevelopment which
is being promoted by Cherwell District Council. This would give a new
library in a good position in Bicester and allow the sale of the existing
library. The proposal would also relocate office accommodation within
the new development.
- Discussions are
continuing with the District Council. There will be a report to the
County/District bilateral meeting on 7 April when it is hoped that the
basis of an agreement will be reached. That is likely to require a contribution
of capital funding from the County Council. The overall costs of building
and fitting out the library element are estimated at £2.4m, offset by
capital receipts from the sale of the current library and office accommodation
and developer funding. The net cost is estimated at approximately £820,000.
An update will be given at the Cabinet meeting.
- There will be
increased running costs of the library which are currently being assessed.
It is anticipated that increased staffing costs, if required, will be
met within the existing service budget. There will be service charges
on the building, plus additional utilities and rates costs which will
be a budget pressure.
- Highways Depots:
A list of proposals totalling £2.5m were considered as a strategy to
deal with health and safety and environmental regulations at the Highways
Depots. The three most urgent projects have been proposed for inclusion
in the programme at a total cost of £0.210m. These are to relocate fuel
storage at Deddington (£0.070m); to improve drainage and containment
at Deddington (£0.080); and to improve drainage at Drayton (£0.060m).
Summary
- The proposals
come to a net total of £2.307m, which leaves an unallocated balance
on the programme of £1.003m. This will provide a contingency for any
future urgent projects which arise up to 2008/09.
City Schools
– Repayment to DfES
- The Council has
received a reply from the DfES on our request to retain all or part
of the additional capital receipts obtained from sale of surplus sites
from the City School Reorganisation project. Hitherto it has been assumed
that a payment of £8.8m would need to be made to the DfES. The DfES
proposal reduces that figure to £5.55m. An update will be given at the
Cabinet meeting.
Implications
of Continuing to Maximise Borrowing Allocations
- The table below
sets out the Council’s budgeted costs of borrowing from 2005/06 to 2008/09,
which show how the trend of borrowing costs increases as the Council
takes up the full supported borrowing allocations given by government
departments. The costs of prudential (unsupported) borrowing
are stripped out within the table.
Borrowing
Costs |
2005/06
|
2006/07
|
2007/08
|
2008/09
|
|
£000
|
£000
|
£000
|
£000
|
Principal
Repayment |
11,989
|
13,718
|
14,901
|
15,761
|
Interest |
16,963
|
18,204
|
19,462
|
20,505
|
|
28,952
|
31,922
|
34,363
|
36,266
|
Less Prudential
Borrowing Costs |
-48
|
-256
|
-623
|
-974
|
Year on
Year Increase |
|
+2,714
|
+2,074
|
+1,552
|
Cumulative
Increase |
|
+2,714
|
+4,788
|
+6,34
|
- From the table
it can be seen that the Council’s borrowing costs will increase by £6.340m
during the period 2006/07 to 2008/09. Part of this increase will reflect
the full year costs of borrowing undertaken in 2005/06. In the first
year of borrowing only a half year’s interest is budgeted.
Comparison
with Government Support
- The total Formula
Grant to be paid to the Council in 2006/07 is £91.433m. This represents
27.47% of the budget requirement of £332.873m. In 2007/08 the
Formula Grant will be £92.261m, which represents 26.79% of the budget
requirement of £344.329m. The build up of the Council’s Formula
Grant for 2006/07 and 2007/08 is as follows:
|
2006/07
|
2007/08
|
|
£m
|
£m
|
Grant
for Previous Year |
88.144
|
91.433
|
Function
Changes |
1.408
|
-1.598
|
Amending
Report |
0.089
|
|
Base
Grant |
1.793
|
|
Plus
2% |
|
2.426
|
Plus
2.7% |
91.433
|
92.261
|
- This support based
on a four block model is shown below:
|
2006/07
|
2007/08
|
|
£m
|
£m
|
Relative
Needs |
69.777
|
72.103
|
Relative
Resources |
-62.277
|
-64.07
|
Fixed amount
per head |
76.265
|
77.461
|
Damping |
7.669
|
6.775
|
|
91.433
|
92.261
|
- The support for
the costs of borrowing are included within the Relative Needs
Formula (RNF). As the Council takes more supported borrowing the element
for capital financing within the RNF increases, thus in theory providing
more grant support. However, as the Council’s Formula Grant share
is below the minimum level guaranteed by the Government, the Council
receives damping grant to make up the difference. As our borrowing
costs increase our relative needs increase and the damping grant reduces.
So whilst the Council is in the damping grant mechanism our additional
borrowing costs attract no extra grant, effectively falling on the Council
Tax.
- The total inflation
included in the Medium Term Financial Plan for 2007/08 is around £8.4m.
This is some £6m more than the increase in Formula Grant. So no additional
grant is received towards the increased borrowing costs shown in the
table in paragraph 17. This is why the Cabinet should therefore
give consideration as to whether the Council should utilise the full
amount of supported borrowing available.
Impacts
of Reducing the Amount of Supporting Borrowing
- There are several
impacts of reducing the amount of supported borrowing taken, notably:
- The Council
will not be able to deliver service improvement through new capital
projects and will put at risk improvements to Best Value Performance
Indicators that have an impact on CPA ratings (road conditions for
example).
- It may prejudice
the level of supported borrowing approved by Government in future
years. An example would be Transport Funding for the Local Transport
Plan where financial penalties and rewards are already in operation
in relation to performance against targets and programmes – not spending
the awarded money would carry a high risk of penalty and a spiral
of reduction in available finance.
- The reduced
cost of borrowing will bring savings to the Medium Term Financial
Plan, thus allowing headroom for improving services in other areas.
- The Relative
Needs of the Council will reduce, with a compensating increase in
the damping grant. There should be no change in the level of Formula
Grant received.
- It will take
the Council longer to work its way out of the damping mechanism as
our Relative Needs Formula increases more slowly. Thus we may lose
the benefit of increased grant in future years by still being caught
in the damping mechanism.
- As an example
of the savings that could be made by reducing the amount of supported
borrowing taken up by the Council, taking £10m less supported borrowing
would save the Council £250k in the first year and £900k in a full year.
- Council could
decide to continue its existing policy of maximising the use of supported
borrowing, accepting the revenue funding implications. If however
the Council wished to reduce the amount of supported borrowing taken
up, the Capital Programme would have to be reduced by an equivalent
amount, and the Council would need to consider which areas of
the Programme to reduce. This could be either schools, transport or
other services, or a combination of those areas. It is suggested
that the Cabinet should consider this issue as part of the budget planning
for 2007/08, and this issue will therefore be included in a report to
Cabinet in September 2006.
- The new system
for allocating support to local authorities is extremely complex. The
Lyons inquiry is currently looking at alternative options for funding
local authorities and this could lead to significant future changes
to funding.
RECOMMENDATIONS
- The Cabinet
is RECOMMENDED to:
- endorse
the additions to the Capital Programme 2006/07 to 2008/09 shown
in paragraphs 4 to 13 of the report, and RECOMMEND these to
Council for approval;
- consider
the implications of continuing to maximise borrowing allocations
with a view to possible variation of the Council’s policy in
this regard, as part of the budget planning process for 2007/08.
JOHN
JACKSON
Director for
Resources
Background
Papers: Nil
Contact
Officer: Mike Petty, Strategic Finance Manager Tel: 01865 815622
April
2006
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