Capital Programme 2006/07

SPECIAL MEETING OF SHEFFIELD CITY COUNCIL

3 MARCH 2006

 

CAPITAL PROGRAMME REPORT

2006/2007

 

REPORT OF THE CHIEF EXECUTIVE AND THE DIRECTOR OF CORPORATE RESOURCES

 

 

PURPOSE OF REPORT

 

1.                  This report relates to the City Council’s Capital Programme, and covers a 5-year period as part of the Council’s Financial and Service Strategy.  It aims to present a balanced Capital Programme position over the medium term, and is effectively a Corporate summary of all currently approved Capital programmes, projects and schemes.  It includes details of:

 

·                    The 2005/2006 Capital Programme position (being that approved by Council on 4 March 2005, as amended by additional schemes approved by Cabinet or under delegated arrangements)

 

·                    The 2006/2007 Capital Settlement, (i.e. the extent to which the Government is providing support towards Capital expenditure via supported borrowing), and the priorities to which these resources are to be applied

 

·                    The 2006/2007 Capital Programme position, amounting to in excess of £1.1bn of investment over the life of the Programme for schemes and projects that are presently approved and funded.

 

2.            Reports concerning the Local Transport Plan, and the Neighbourhoods Investment Plan, which were separately considered by Cabinet on 22 February 2006 have effectively been incorporated into the 2006/2007 Capital Programme. The 2005 Capital Strategy (which was also the subject of a separate report to Cabinet on 22 February 2006) is included with this report for ease of reference.

 

 

2005/2006 CAPITAL PROGRAMME POSITION

 

3.         The Programme for 2005/2006 was set on 4 March 2005, showing a broadly balanced programme over its life.  This has been revised as additional resources have been secured, and to reflect the impact of newly approved schemes, together with the net effect of the 2004/2005 Out-turn, resulting in a revised position (see Appendix 1).  This continues to reflect a broadly balanced position, although there are some in-year cashflow pressures to be managed, particularly in 2006/2007.  It is presently considered that the scale of these is manageable within the overall Programme.

 

4.         The Asset Management Group (AMG), Financial and Service Strategy Group (FSSG), Executive Management Team (EMT) and Cabinet have been in receipt of periodic reports during 2005/2006 dealing with Capital Programme issues and monitoring.  More specific reports regarding monitoring and forecasting of Capital schemes have been produced within Directorates for their Directorate Management Teams (DMT), or for specific monitoring panels (e.g. Heart of the City).

 

5.         As set out at Appendix 1 the current Programme reflects a balanced position for 2005/2006, and, on the basis of the latest monitoring information (as at 31 December, and as presented to AMG on 10 February 2006) this balanced position is predicted to be achievable.  Wherever possible, attempts are made to match the timing of the receipt of resources and the incurrence of expenditure to protect the Council’s cashflow position.  Where this is not possible, and where the levels of expenditure are significant, then individual management arrangements are put in place to mitigate the impact as far as possible.  These are overseen by the Deputy Director of Corporate Resources, in conjunction with the respective Head of Service. 

 

6.         There is always some potential for slippage on Capital schemes, which Directorates attempt to identify in-year as part of their monitoring arrangements, and it is anticipated that further slippage will occur in the run up to the 2005/2006 year end.  This generally results in both scheme expenditure and income slipping forward into future years, and therefore has no net effect on the overall position.

 

7.                  Attempts continue to identify and dispose of additional surplus assets in order to generate Capital receipts.  Many significant sites and properties have already been either sold, earmarked for sale, or have been identified as an integral part of larger developments/regeneration schemes, making this option more difficult in the longer term (although it will continue to support the Programme over the short to medium term).  The actual level of general Capital receipts realised during 2005/2006 (as at 31 January 2006, and as reported to AMG on 10 February 2006) is £15.8m, against the in year target of £18m.  An update on this position will be reported to AMG each month.  This year-end target is considered to be challenging, but remains achievable.  Whilst every effort is being directed at delivering such receipts, there are many factors involved in each and every receipt that make precise forecasting difficult. 

 

 

 

2006/2007 CAPITAL SETTLEMENT

 

8.         Details of the Capital Settlement were announced during December 2005/January 2006.  This announcement is made up of a number of service related component parts, which collectively form a Single Capital Pot (SCP) that receives Government financial support.  Sheffield’s share of these resources is currently estimated to be £23.6m, and these are detailed at Appendix 2, where they are compared to previous years for information.

 

9.         The Capital Strategy Group (CSG) has met frequently over the autumn period to consider how the resources made available by the settlement should be managed, and the priority areas into which they should be invested.  The process has followed the principles established in the Capital Strategy.  A detailed report has been presented to EMT, CMT, and Cabinet alongside this report, and a summary of the schemes to which these resources are to be applied is included at Appendix 3.

 

10.      A Corporate Resource Pool (CRP) of £5m p.a. was created using elements of the Capital settlement, supplemented by Capital receipts.  These are general Capital receipts which have not been earmarked for other projects, more details are included within the Capital Strategy report.  These are additional resources being applied to new Corporate priority schemes that are not directly funded from other sources, which are generally related to backlog maintenance.  As these are general resources, any slippage that occurs, whether in a planned, or unplanned manner, will have a beneficial impact upon the management of the Programme in cashflow terms.  For this reason, Directorates have been asked to separately monitor such schemes in year, and to report specifically upon the progress of these schemes.  Any slippage arising can then be re-focused on reserve schemes (which have been identified as part of the process), or used to temporarily manage the Corporate position, as appropriate. 

 

Other Resources

 

11.      In addition to the resources provided through the Single Capital Pot, the       Government also provides Capital resources by other means, the most significant of which is Capital Grants.  These are provided in relation to specified projects, and thus do not contribute towards the closing of any overall funding gap.  The main area that will benefit from the provision of these specific resources are Schools and Housing tenants.  The outcome of bids for such resources are reported to Cabinet in order to obtain approval for the schemes to proceed as they arise. 

 

12.      The other significant source of Capital resources are Capital receipts (i.e. funds generated from the disposal of surplus assets, generally being land and property).  For 2006/07 it is recommended that an indicative target of £22m be set for non-Housing receipts.  This target is demanding, and is higher than those previously set, but it is considered to be achievable taking account of the nature of the presently identified surplus assets, and the state of the local property market.

 

13.            Capital receipts are subject to monthly review at the Asset Management Group (AMG).  In due course this role may be taken up by the (newly formed) Strategic Asset Management Advisory Group (SAMAG), which has been created to take a more strategic view of Asset Management as part of the implementation of the Council’s Estates Strategy.

 

14.      At times, certain sites that would under other circumstances be available for disposal are withheld as they have an interest declared in them, owing to their potential to stimulate regeneration activities (e.g. Housing Market Renewal, City Centre regeneration).  Where this occurs, the sites are identified and their ‘declared interest’ status in subject to quarterly review at the AMG.

 

15.      The Council has the power to finance Capital schemes using Prudential Borrowing, being borrowing that does not attract financial support from the Government.  The principles for entering into such borrowing were approved by Cabinet on 22 September 2004, and generally relates to ‘Invest to Save’ schemes, including Land Assembly.      

 

 

FURTHER INFORMATION

 

16.            Appendix 3 lists the schemes 2006 that are to be funded from the Corporate Resource Pool, and Appendix 4 summarises the expenditure currently included within the Approved Programme.

 

17.       The Council is also able to undertake Leasing arrangements where it is beneficial, either in financial or service delivery terms to do so.  The most significant elements of the Leasing programme relates to vehicles and equipment. 

 

18.       A study was carried out by the Director of Corporate Resources during 2005 which concluded that where the circumstances are favourable it may be in the Council’s overall financial interest to substitute Prudential Borrowing for Leasing.  The protocol regarding Prudential Borrowing was approved by Cabinet on 22 September 2004, which generally relating to ‘Invest to Save’ schemes.  It is considered that borrowing for Leasing purposes could be undertaken as an element of ‘Invest to Save’ (in that it would be undertaken in those circumstances where it is considered to be more cost effective over the whole life of the lease when compared to Leasing), and would be contained within the overall annual limit established for such borrowing.  The Prudential Borrowing regime is still in its infancy, and the Protocol may need to be revised in due course in the light of experience gained.

 

19.      It is proposed that limits be set upon Prudential Borrowing as part of this Capital Programme process for 2006/07 as follows:

 

 

 

·        General ‘Invest to Save’ (including Land Assembly)            £5m

 

·        In lieu of Leasing                                                                        £5m.

 

20.       These limits are considered to be realistic in terms of the related Programmes, and within affordable limits.  They will be reviewed annually by the Director of Corporate Resources, taking account of their usage over 2006/07, the size of the respective Programmes at that time, and the extent to which that they are affordable.

 

21.       The Neighbourhoods Investment Programme is being brought forward for Cabinet approval on 22 February 2006, alongside this report.  Over the past 2 years significant progress has been made in drawing together the General and Housing Capital Programmes.  This includes regular attendance by Neighbourhoods officers at the Asset Management Group (AMG), and the attendance by Corporate officers at the Neighbourhoods Investment Programme Board.   Workshops have been held, and more explicit approvals gained in respect of a number of Capital schemes, often of a regeneration or transformational nature, which cross Directorate boundaries (most significantly in relation to Housing Market Renewal).   A further example of cross Directorate working relates to the Community Buildings Team that has been established within the Neighbourhoods Directorate, and which is presently engaged in developing a strategy for addressing needs in respect of such buildings across the Council.

 

 

FINANCIAL IMPLICATIONS

 

22.       In summary, the Capital Programme for 2006/2007 will be broadly balanced over its 5-year life based upon the assumptions made above. 

 

23.       Should the anticipated level of Capital receipts (or any other combination of resources detailed above) not meet expectations, and in the absence of any other means of funding any arising shortfall, it will need to constitute a charge against the Revenue Budget and/or Reserves.

 

24.       Should the Council enter into Prudential Borrowing then it will incur additional Capital financing costs for which it does not have an income stream.  Therefore, such borrowing will only be entered into where it can be demonstrated that savings will occur elsewhere within the overall Council budget to compensate for these additional costs.

 

25.       A report dealing with the Revenue Budget for 2006/2007 appears elsewhere on today’s agenda.

 

 

EQUALITIES IMPACT, HUMAN RIGHTS, COMMUNITY SAFETY, PROPERTY AND ENVIRONMENTAL IMPLICATIONS

 

26.       This report contains details of substantial levels of investment over the coming 5 years.  However, it is a consolidation of a range of reports and schemes that have been, or will be subject to more detailed reports as they progress.  These more detailed reports will contain details of the Equalities Impact, Human Rights, Property and Environmental implications relevant to the individual project or scheme, and it is therefore not considered necessary or appropriate for them to be detailed in this report.

 

 

SUMMARY

 

27.       The overall Capital Programme remains balanced over its 5-year life, based upon the assumptions above.  A Capital Programme Out-turn report for 2005/2006 will be brought forward to Cabinet during June/July 2006 (either separately, or as part of an overall financial Out-turn report), and its impact upon the overall position will be assessed at that time.

 

 

RECOMMENDATIONS

 

28.      It is recommended that Members approve the revised position on the Capital Programme as summarised at Appendix 1 (and shown in greater detail at Appendix 4). 

 

29.       It is recommended that an overall limit for Prudential Borrowing be set for 2006/2007 of £10m (of which £5m will relate to general ‘Invest to Save’ initiatives, and £5m to be used in lieu of Leasing), and that its deployment be controlled by the Director of Corporate Resources, in conjunction with the Cabinet Member for Finance. 

 

 

 

 

Eugene Walker

Deputy Director of Corporate Resources

February 2006