BOROUGH OF POOLE
REPORT OF THE HEAD OF FINANCIAL SERVICES
FOR PORTFOLIO HOLDER DECISION
5 AUGUST 2003
LICENSED DEFICIT APPLICATIONS
1. PURPOSE OF THE REPORT
1.1 This report seeks member approval for a licensed deficit of £200,000 for Corfe Hills School and £72,263 for Ashdown School. Both deficit applications are in relation to capital projects to improve facilities and have received the support of previous policy directors for education.
2. RECOMMENDATIONS
2.1 It is recommended that the Corfe Hills application for a £200,000 deficit be approved subject to:
· A written assurance from the school that 8 of its existing under-sized classrooms will be taken out of commission as general classrooms by the time the new classroom block comes on line.
· A written assurance from the school that it will undertake the necessary repairs to the drive and car park following completion of the project and that the refenestration works identified in the Borough’s Asset Management Plan will be completed by March 2004.
2.2 It is recommended that the Ashdown application for a £72,263 capital deficit be approved and repaid out of the school’ s future devolved capital funding.
3. BACKGROUND
3.1 The Borough’s LMS scheme enables a school to apply to run a licensed deficit where:
· Immediate balancing of the budget would have a serious detrimental effect on the running of the school or
· The purpose of the deficit is to improve the buildings or infrastructure of the school.
3.2 In order for a deficit to be approved, a school must be able to satisfy the council that the following conditions have been met:
· The maximum period over which a school may repay a deficit is normally 3 years
· The proposals fit in with the Borough’s Asset Management Plan, that the works need to be done at this time rather than later, that the school does not already have a deficit budget, that there are no alternative funding mechanisms and that the project represents an effective use of resources.
· The maximum size of deficit allowed is 10% of the school’s annual revenue budget or £100,000, whichever is the lower. These limits are not to be regarded as entitlements, nor are they to be restrictive if there are exceptional circumstances.
3.3 The maximum proportion of the collective balances held by the LEA that can be used to back deficit arrangements is 40% or £1million, whichever is the lower.
3.4 The school agrees to pay interest on the licensed deficit at 1% above bank base rate.
3.5 If the school is granted a licensed deficit, then the School Standards Grant should be spent on reducing the deficit. Additionally, if the deficit is granted for capital purposes, then capital formula grants should also be used to reduce the deficit. These restrictions can be varied in agreement with the LEA.
3.6 The total value of existing deficits is £170,000 compared with an overall limit for the council of £1million at the beginning of the financial year to 31 March 2004.
3.7 Two further licensed deficit applications totalling £22,000 are currently under review to cover revenue shortfalls this year.
4. Corfe Hills
4.1 Corfe Hills are in the process of building and furnishing a new classroom block to provide eight classrooms of the size recommended by the Department for Education and Skills (DfES). At the same time, eight under-sized classrooms in the existing building will be removed by converting to specialist rooms.
4.2 A licensed deficit application has been made for £200,000. The deficit was informally approved last year and building works to improve classroom facilities are now at an advanced stage and due for completion in September 2003. The project totals £700,000 and is funded from reserves of £500,000 plus the licensed deficit of £200,000.
4.3 The application was assessed against the following criteria:
· Educational benefit.
The scheme has the support of the school’s assigned advisor as pupils are currently being taught in classrooms unfit for the purpose.
· Compliance with the Borough’s AMP.
The proposal was assessed for the effect on pupil number capacity at the school as this would impact on other schools in the Borough and against the priority of this project against other outstanding works at the school. The proposal was found to meet the set criteria with the proviso that the school would undertake essential refenestration work by the end of March 2004 and make repairs to the drive after completion of the works. The school is willing to give these assurances. Given these, plus the fact that the LEA would undertake the project itself in time, if it had sufficient resources, there is a good case for supporting this project on AMP grounds.
· Financial appraisal.
The £200,000 licensed deficit sought represents only 3.5% of the school’s annual revenue budget. This is well below the 10% stipulated in the scheme, however, it exceeds the £100,000 limit and, therefore, needs to be considered as an extraordinary case. The schools financial plan has been assessed and considered reasonable, if not cautious. As a result, the deficit has been demonstrated as repayable within 3 years, if not sooner. The school is currently projecting to be in deficit by only £168, 828 by 31 March 2004 and will draw on the deficit only as needed.
· Effective use of resources.
The school requested tenders to compare the cost of building over 2 years or just 1. Without a deficit, the school would need to opt for the 2-year build. This would result in additional costs of approximately £120,000 and increase disruption in the school. Building over 9 months, an option available only with a licensed deficit, offers better value for money.
4.4 Conclusion – The application made by the school is well thought out, satisfies the conditions laid down in the Boroughs LMS scheme, except for the breach of the £100,000 limit per school, and represents an effective use of resources.
5. Ashdown
5.1 The project is for the new build for a learning support centre as there is no suitable existing accommodation available for conversion.
5.2 A licensed deficit application has been made for £90,000 but the amount sought is now only £72,263 or £44,948 depending on how we agree to treat the revenue contribution. This is to be financed from devolved formula capital over the next 2 years. The project totals £150,000 with £40,000 having already being provided by the LEA through Seed Challenge and Access Initiative.
£
Cost 150,000
Funded by:
LEA 2002/3 funding - SEED 40,000
LEA 2003/4 funding- SEED 9,589
2003/4 Devolved capital funding 58,746
less capital deficit brought forward 30,598 28,148
Revenue reserves used 2003/4 27,315
Deficit Requested 2003/04 £ 44,948
Without the use of revenue reserves, the capital deficit would be £27,315 higher - £72,263. If all these reserves were committed to the project, the school would have no reserves for day to day management. It is therefore suggested that the deficit to be considered be for a maximum of £72,263.
5.3 The application was assessed against the following criteria:
· Educational benefit.
The scheme has the support of the school’s assigned advisor. It is in line with the LEA’s policy on social inclusion.
· Compliance with the Borough’s AMP.
The Learning Support Centre project was identified as a need by the school and supported by the previous Policy Director for Education and the current Head of Pupil & Parent. However, it is not an AMP identified project.
· Financial appraisal.
The school had a capital deficit at the end of March 2003 of £30,598, which will need to be repaid.
· The licensed deficit sought represents only 3.2% of the school’s annual revenue budget. This is well below the 10% stipulated in the scheme and is within the £100,000 limit.
· However, the school is intending to finance the deficit from future devolved formula capital. The projections for 2004/5 and 2005/6 are £67,000 and £69,000 respectively. Formula capital will be required for other capital expenditure during the period of the deficit and this is projected to be approximately £21,000 based on the latest condition survey. On these predictions, the deficit will be repaid within 3 years.
· Guidelines on the use of devolved capital formula state that it is possible to bring froward future year allocations but this is permissible only if the LEA fund this by withholding payments to other schools. This we are not proposing to do. The proposal is to fund the balance of the capital work from the modernisation funding in 2003/4 and repay this fund from devolved capital funding in future years. One purpose of the modernisation funding is to improve facilities for children with Special Education Needs. The Learning Support Centre does fit into this category.
· The school is continuing to seek support from charitable trusts to minimise the licensed deficit.
· There is a grant available from the DfES for Local Centre projects for which the Head of Pupil & Parent Support is currently seeking bids from schools. This grant must be spent by 31 August 2004 and a decision is yet to be made regarding an allocation to the Ashdown project.
· Effective use of resources.
The Department for Education and Skills expects each secondary school to have a Learning Support Centre. There is no existing accommodation that can be converted at the school and, therefore, a new build is the only option.
5.4 Conclusion – The application made by the school should be approved for the £72,263 to enable some level of revenue reserves to be maintained by the school and to utilise the capital resources available to the LEA. The deficit to be granted subject to the agreement that the devolved capital funding will be used to repay the deficit along with any capital money advanced for the project from the LEA or any Charitable Trusts.
Contact Name: Nicola Webb, Senior Finance Manager
Financial
Contact Telephone Number: 01202 633296
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