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TRAFFORD COUNCIL

Report to:Executive and Council Meeting

Date:24February 2010

Report for: Decision

Report of: Executive Member for Finance and Director of Finance

Report Title

Summary

Recommendation(s)

1. That the Executive approve :

1. That the Executive recommends the Council to approve the :

Contact person for access to background papers and further information:

Name: Graeme Bentley

Extension: 4336

Background Papers:Report to Executive on 14 December 2009

1.Background

1.1The impact of the current financial climate and recent recession has been reported upon on a regular basis. In respect of the Council’s Capital Programmethe effects are two-fold. Firstly the level of internal resources generated from land sales has been affected because of the difficulties in selling surplus assets inthe current property market. Secondly, it is anticipated that at a national level the amount of capital investment will be reduced significantly. The next Comprehensive Spending Review,possibly later this year, will give a firmer indication of the impact of this on the Council.

1.2Despite the current resourcing difficulties capital expenditure continues to be a priority for a number of reasons. It supports much needed jobs, with a large amount of work already being placed with local contractors. Also investment in public buildings and infrastructure is crucial in ensuring facilitiesused by the public are kept open as lack of investment will lead to health and safety issues and potential closures. It is even more of a priority that in the short term the Council’s capital investment plans support both our local residents and business community.

1.3This report provides an update on:-

The estimated level of resources available to support the Programme, including the current resource shortfall (Appendix 1)

Evaluation of Capital Bids (Appendix 34)

The updated 2010/13 Capital Programme

Risk Assessment

Prudential Indicators 2010/13 (Appendix 5)

2.Available Capital Resources

2.1The Capital Programme is resourced by a combination of resources. The Council has discretion over the use of internally generated capital resources which mainly include capital receipts from the sale of surplus assets and prudential borrowing. During the course of 2009/10 capital receipt projections have been included in the quarterly capital monitoring reports and these have shown a deterioration in estimated receipts due to the continuing impact of the economic recession and also decisions not to dispose of certain assets, for example those linked to the Old Trafford Masterplan. At this stage no estimates of capital receipts have been included for 2012/13 mainly because of the work on the long term accommodation strategy, which will include an asset strategy review.

2.2The reduction in estimated resources has given rise to a deficit on the current Programme of £6.2m. In December the figure reported to the Executive was £4.2m but since then this has increased due to the decision in respect of the Old Trafford Masterplan (£1.6m) and a further deterioration in estimated capital receipts (£0.4m).

2.3The Council receives external support from the Government towards a number of projects and this support is ring-fenced to particular areas of activity for which the Council does not have any discretion over its use eg school improvements, highways and housing. A number of assumptions have been made on the additional level of external support that can be expected and some provisional estimates of grant made but these are subject to change following the next Comprehensive Spending Review, possibly later in the year.

2.4 An estimate of the total resources available to support the overall Capital Programme is shown in the table below:

3.New Bids

3.1Notwithstanding the deficit position on the current Programme, a number of new capital bids have been received with a total value of £48.8m. Therefore the opportunity has been taken to reviewnot just the new bids but also of uncommitted schemes in the current programme that are supported by internal resources. The objective of the review was to identify priorities that were affordable given the constraints on capital resources and included at Appendix 1is a summary position detailing the resources available to support new capital schemes. This shows total (internally generated) resources of £17.7m over the next three years.

4.Evaluation of Capital Bids

4.1Capital projects with a value of £68.5m were evaluated comprising of new bids of £48.8m and uncommitted schemes in the current programme of £19.7m (See Appendix 2). All bids have been evaluated in accordance with the prioritisation criteria included in the Capital Strategy and detailed in Appendix 3. The justification for each bid has been considered carefully and the risk associated with not undertaking proposals has also been evaluated.

4.2Appendix 4 provides details of those schemes recommended for approval to be financed from internal capital resources.

5.Indicative Budget 2010/13

5.1 The following table provides an update on the overall Capital Programme. It must be noted that at this stage the figures do not include the long term accommodation project. This is currently part way through the procurement stage and it is expected that final decisions will be made in June when the scheme will be added to the Capital Programme. The borrowing costs on the scheme are already included in the MTFP.

Note 1 – A report on shortage of primary school places was considered by the Executive in June 2009. Since then the Government announcednew funding to enable local authorities to provide extra primary school places; Trafford’s allocation was £1m which is insufficient to meet costs. Therefore an updated assessment on need and cost is being carried out currently and will be reported upon in due course. For the purpose of the capital programme broad assumptions on cost have been assumed in the figures above and that these will be covered by a combination of grant and capital receipts from the sale of surplus sites. Any remaining balance to be covered by prudential borrowing financed by Dedicated Schools Grant (DSG). As mentioned, details are being worked up currently and discussions with the Schools Funding Forum will need to take place if costs are to be partly financed via DSG.

5.2The value of the recommended Programme of £115.5m exceeds the available resources as detailed in Table 1 by £1.8m., with the estimated deficit in 2010/11 being £3.6m. Rather than reduce investment plans to match precisely with the annual resource assumptions it is recommended that the investment programme is agreed as per Table 2 above. This is because the deficit will be largely recovered in 2011/12 and in any event some slippage in 2010/11 may occur. If a deficit does arise in 2010/11 temporary financing will be applied in that year and recovered in 2011/12. This position will be monitored during the year with an update on the position reported in the quarterly capital monitoring reports.

5.3If the proposals are agreed then the overall Programme can be summarised in the following table:

6.Risk Assessment

6.1The major areas of risk are:

Capital Receipts - Members are aware that the property market is still in a fragile state and that the lack of property transactions makes valuation and forecasting of values and receipts difficult in the current climate. Whilst some upturn in the market is expected the position will be monitored closely. Any significant adverse variations may require schemes to be temporary halted.

LSVT VAT Receipts(See Appendix 1note 3) - The Council has an ongoing contingent liability in respect of asbestos on former council houses for a further 26 years and any costs will have to be financed from these receipts. Monitoring will be undertaken of the level of income receivable and any asbestos claims values, particularly resulting from the demolition of four multi-storey blocks as part of the Old Trafford Masterplan project.

Primary School Strategy–There is a risk that the Schools Funding Forum do not agree to anyprudential borrowing proposals in respect of primary school places, in which case there would be a resourcing shortfall on this major project. Until updated capital allocations are made available by the DCSF following the next spending review this will not be known. A further report will be presented to the Executive shortly.

7.Prudential Indicators

7.1The Council is required to set indicators that are designed to support and record decisions taken on affordability and sustainability. There is also a requirement to impose limits on the Council’s treasury management activities to ensure decisions are made in accordance with professional good practice and risks are appropriate (These are included in the Treasury Management Strategy Report). The Director of Finance will monitor these and report on them at appropriate times. The Council can revise these indicators and limits at any time.

7.2All the indicators take account of the proposals in this report and a list of Prudential Indicators is included atAppendix 5.

8.Conclusions

8.1This report has identified the level of resources to support new capital investment. The Executive are requested to approve the changes to the Capital Investment Programme, as summarised in paras. 5.1 and 5.3, and to approve the Council’s prudential indicators for 2010/11 to 2012/13.

Other Options

All capital proposals submitted have been subjected to the prioritisation process included in the Capital Strategy, this includes a requirement for all schemes to have under gone an options appraisal.

Consultation

In recommending the schemes in the report for inclusion to the Capital Investment Programme, proposals have been the subject of review by CMT and Executive Briefing.

Reasons for Recommendation

The schemes recommended for inclusion to the Capital Investment Programme are those that meet the priorities included in the Capital Strategy and MTFP.

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DIRECTOR’S SIGNATURE(electronic)………………………………….…………….….………………

APPENDIX 3

Capital Strategy Prioritisation Criteria

All uncommitted projects and new bids have been prioritised in accordance with the criteria included in the Capital Strategy. The Strategy provides the framework and identifies the priorities that the current capital programme is based on. It was adopted in February 2007 with the purpose of giving clear direction for the Council’s capital investment plans. It details the key corporate objectives and how capital priorities will be identified to assist in delivering the objectives. The current Strategy ensures that capital spending decisions are based on the following:-

• Supporting the achievement of corporate objectives and key priorities;

• Ensuring the right capital assets are fit for purpose for the Council and partners;

• Supporting the priorities in the Asset Management Plan;

• Ensuring health and safety and other schemes of a statutory nature are delivered;

• Supporting the Medium Term Financial Strategy (MTFS) by ensuring that capital investment decisions are not taken in isolation from revenue spending

• Supporting the efficiency agenda.

All available resources have been allocated for the period 2009-12 on the basis of this Strategy, with the following prioritisation:

• Schemes of a mandatory nature e.g. health & safety;

• Invest to Save

• Supporting the Asset Base (backlog maintenance)

• Council priorities

• Other remaining projects

In July 2009 it was noted by the Executive that the update of the Strategy be deferred until the outcome of the next Government Spending Review given the expectation that allocations will be lower than current levels and that would be an opportune time to review the Strategy.

APPENDIX 5

Trafford MBC Prudential Indicators

Indicator 1: CAPITAL EXPENDITURE

The table shows the actual level of capital expenditure that was incurred in 2008/09 and estimates for 2009/10 and the next three years.

Indicator 2: CAPITAL FINANCING REQUIREMENT (CFR)

The table below reflects the estimated need to borrow for capital investment i.e. the anticipated level of capital expenditure not financed from capital grants and contributions, revenue or capital receipts.The actual calculation of the CFR is derived from the balance sheet as at 31/3/09.Estimates of the end of year capital financing requirement for the current and future years are:-