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AGENDA ITEM No ...& AGENDA ITEM No ....&.......... NORTH LANARKSHIRE COUNCIL REPORT To: POLICY & RESOURCES COMMITTEE Subject: ESTABLISHMENT OF NON PROFIT DISTRIBUTING ORGANISATION TO OPERATE THE COUNCIL'S CULTURAL SERVl CES. Date: 18 SEPTEMBER 2012 Ref: LMcM/MS 1. INTRODUCTION The purpose of this report is twofold, to present to the Policy & Resources Committee details of the outline Business Plan for the proposed non profit distributing organisation (NPDO) to operate the council's Cultural Services, and to seek approval to move into the third phase of the process namely, the establishment of the stand alone non profit distributing organisation to deliver the in scope services by 1st April 2013. 2. BACKGROUND 2.1 Previous Committee/Council Decision Committee is reminded that, at a special meeting of the Learning and Leisure Services committee, held on 22nd September 2011, it was agreed that the Head of Community Information and Learning be authorised to progress the detailed business planning stage of the establishment of an NPDO to operate cultural services, country parks, Kilbowie Outdoor Centre and other associated services by formulating a draft outline business plan for the cultural NPDO, submitting a report to a future meeting of Committee on the outcome of the draft business planning phase. 2.2 Recap on Phase 1 Options Appraisal 2.2. I Drivers for Change At the initiation of this process a number of key drivers were identified, in that it was understood that the establishment of a cultural NPDO would have to guarantee the following outcomes which are now reflected in both the outline business plan and proposed delivery structure for the NPD0:- a sustainable future for arts, libraries, museums, parks and outdoor learning services whilst securing savings to the local authority; securing continuous improvement of services; 0 effective partnership working; reaching new audiences; and achieving freedom to operate in a swift and entrepreneurial way. 1 2.2.2 Services within Scope The services within scope during the business planning phase remained the same as during the options appraisal. These services are:- * creative services (venues, community arts, museums, archives and play services); libraries and learning through technology; community facilities; Kilbowie Outdoor Centre; country parks; and associated services. On completion of the phase 1 options appraisal, a financial and performance baseline was established for the in-scope services. At that point in time the in scope services: expended f 1,600,114 on National Non Domestic Rates payments employed 340.50fte (465 individual employees excluding cleaninglcatering and grounds maintenance) operated 121 facilities 2.3 Component Parts of Phase 2 - Business Plannina The major elements of the business planning phase, completed between October 2011 and June 2012, were:- * detailed cost modelling; 5 year budget projections; development of the legal framework (including delivery vehicle); analysis of support services framework; finalising approach to g overnance/manag ement/m on itoring structure; further risk analysis and development of mitigation plan; and setting timeline for implementation of new approach to service delivery (transition road map). 3. CONS1DERATIONS 3.1 Followins the Public Pound Principles and Business Planninq Committee is advised that in developing the outline Business Plan for L,e establishment of a cultural NPDO, Audit Scotland’s ‘Following the Public Pound’ principles have been used to guide the approach. Careful consideration has been given, from the standpoint of the council, to: 0 clearly articulating the purpose of establishing the NPDO for the in scope services; 0 setting out a suitable financial regime; 0 the monitoring arrangements for the NPDO’s financial and service performance; representation on the board; establishing the basis of involvement in the NPDO; and 0 maintaining audit access to support accountability. In order to achieve this, the project team took cognisance of the principles outlined in the Audit Scotland report, ‘Arms-Length External Organisations: Are You Getting It Right?’ which is summarised below: governance for arms length organisations (ALEO) can be complex, strong and effective governance is required from the outset; 2 councils should specify the business practices and standards they expect the ALE0 to observe; clarity about roles and responsibilities is vital; and monitoring of ALEO’s should be risk-based and proportionate. 3.2 The Draft Outline Business Plan 3.2.1 Format and Content Although the draft outline business plan will require to be adopted and further developed by the NPDO (initially by a shadow board) it represents the foundation stone for the NPDO defining an approach that accords with Audit Scotland’s advance practice model which states “where services are delivered through arms length organisations the Council has a well- developed and strongly based strategy for the delivery of services in this manner which is clearly linked to the council’s wider strategic objectives and priorities”. The NPDO’s shadow board will further develop the business plan and present the final version to the Council for approval. The outline business plan for the NPDO sets out:- aims and objectives of the business plan; mission vision and values; services; context (social, economic, strategic); market analysis; PEST and SWOT analysis; financial strategy and projections; treatment of assets; structure of NPDO; challenges and risks; key delivery outcomes 2013-201 8; and com mun icat ion and marketing. 3.2.2 Mission Statement and Values for Proposed NPDO The project team has developed an early draft mission and vision statement for the proposed NPDO which has been circulated to all in scope service employees for comments. The overall mission of the NPDO will be to:- “deliver in North Lanarkshire high quality and inspiring cultural and outdoor experiences and facilities which promote and increase participation, meet customer and visitor expectations and improve the quality of life”. The draft values are: customer focus integrity effort continuous improvemen t adaptability quality partnership and collaboration ingenuity equality 3 3.2.3 Summary of Benefits and Costs at Phase 1 - Option Appraisal High level financial modelling was carried out during the options appraisal which took into account:- 0 potential NNDR saving at 95% relief; 0 indirect overhead apportionment (HR, finance and directorate); 0 increased income at 5%; and 0 VAT input tax restriction and output tax cost. Within the phase 1 report it was identified that an extensive exercise would be carried out to refine and complete the financial plan during the business planning phase. Further work has been completed to prepare a consolidated reconciliation for all in scope services. In view of the fact that the inclusion of country parks within the cultural NPDO does not release a saving in terms of NNDR or VAT the Director of Environmental Services is recommending that the operation of country parks be retained in house. The reasons for excluding the Country Parks from the Cultural NPDO are largely twofold in relation to Non Domestic Rates savings and in relation to future opportunities to generate capital receipts or produce additional rental income for the Council. In relation to Non Domestic Rates, there is provision within the rating legislation whereby parks and ancillary facilities are not entered in the Valuation Roll 2 and as such there will be no rates savings by transferring the Country Parks to the new organisation. In addition, the Council are looking to explore the various possibilities of generating capital receipts by means of the sale of land forming part of the parks along with a detailed analysis of opportunities to lease other areas which will provide rental income to the Council. Likewise with Kilbowie Outdoor Centre, the strong links with schools and the delivery of Curriculum for Excellence, set against a minimal NNDR saving, would indicate that this facility continue to be operated in house within the Council. 3.2.4 Phase 2 - Financial Plan In building up the Financial Plan for the new NPDO, to existing budgets, potential cost pressures and potential future efficiency savings from the in-scope services have all been taken into consideration. The impact ,on VAT of externalising these particular services has also been investigated and applied. Account has also been taken of the services provided both to and from these services where no charge is currently applied. It is assumed for the purpose of this report that these arrangements will continue. 3.2.4.I Baseline Budgets Information on existing budgets has been received from both Learning and Leisure and Environmental Services. 4 The sum of potentially transferring budgets totals El8.5miIlion, details of which are detailed in Table 1 below. Table 1 Creative Services, Building Libraries, Cleaning & Catering Total Community Caretaking Facilities Expenditure Employee Costs 7,621,119 3,023,699 675,096 11,319,914 Property Costs 7,829,669 39,058 7,030 7,875,757 Supplies & Services 1,199,998 12,250 575,352 1,787,600 Transport & Plant 250,396 15,390 3,000 268,786 Administration 1,243,058 285,132 4,360 1,532,550 I Capital Financing I 3,202,980 I 1,091 I 0 I 3,204,071 I PTOB 341,136 0 0 341,136 Other Costs 0 0 Total Expenditure 21,688,356 3,376,620 1,264,838 26,329,814 ./ Income (3,101,095) (3,371,681) (1,306,058) (7,778,834) 2012113 Net Budget 18,587,261 4,939 (41,220) 18,550,980 In establishing an initial management fee for the NPDO, the following budget adjustments require to be applied:- Opening 201211 3 Budget f 18,550,980 Budget Realignments Removal of Capital financing Cost budgets (3,204,071) Increased budget for Overheads not currently included 377,518 Play area budget transfer from Environmental Services 306,269 Further realignment to NNDR Budgets 96,867 Estimated Opening Management Fee 2013/14 (before savings) f 16,127,563 3.2.4.2 Future Cost Pressures In line with North Lanarkshire Council’s 10 year financial plan, cost modelling has been carried out to establish the key financial pressures which the NPDO will encounter over the first 5 years of operation.
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