Municipal Journal Achievement Awards 2017 Innovation in Finance Award Submission
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Summary: Aberdeen City Council has an ambitious capital investment programme to enhance the economic wealth of the region which required a Treasury Strategy that was diversified and dynamic. It was considered the most appropriate way to proceed was to issue a public bond on the London Stock Exchange. The bond issuance was successful and ended up over-subscribed on launch-day, with the book being closed at £370m. As the bond issue was priced ‘above- par’, the Council received c£415m on settlement day. Aberdeen City Council became the first Scottish Local Authority to achieve a public credit rating at Aa2 by Moody’s Investors Service.
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Bond Investment for City of Aberdeen: The Council has embarked upon an ambitious capital investment programme to deliver and enhance the economic diversity of the region. This was further supplemented through the Economic and Regional Strategy, City Region Deal and City Centre Masterplan all of which required a Treasury Strategy that was diversified and dynamic. The addition of a new Aberdeen Arena and Conference Centre resulted in a total capital investment of almost £1 billion over the next 5 years with a borrowing requirement of more than £500 million. As such the treasury portfolio needed to examine the opportunities of including debt products that provided the underlying strategy with diversification as well as flexibility within the portfolio and also complemented the underlying debt maturity profile. With this in mind, the existing debt maturity profile and asset classes were examined and are reflected below:
Current Maturity Profile
£60,000,000
£50,000,000
£40,000,000
£30,000,000
VALUE OF PRINCIPAL OF VALUE £20,000,000
£10,000,000
£0
FINANCIAL YEAR PWLB - maturity Market Temporary Borrowing
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As can be seen from the above it was clear that there was scope to deliver alternative competitively priced instruments available within the capital debt markets to support the investment within its diverse asset base including:
Aberdeen Exhibition and Conference Centre (£383m). The Aberdeen Western Peripheral Route (£75m). The new Lochside Academy (£48m). The delivery of new housing (£2m) through a 50:50 partnership vehicle delivering 1,000 affordable homes. The Energy from Waste project (£61m) waste disposal solution and Heat Network. Art Gallery Redevelopment (£30m) City Centre Regeneration (£28m)
It was considered the most appropriate way to proceed was to commence a project to progress the issuance of a public bond on the London Stock Exchange.
Aberdeen City Council became the first Scottish Local Authority to achieve a public credit rating. The Council was rated at Aa2 by Moody’s Investors Service, which is just one notch below the UK sovereign rating. The credit rating was part of an exercise to gain access to the debt capital markets which offer the opportunity for lower cost borrowing to fund the Council’s future capital programmes. The Bond would allow the debt profile to be better aligned with the nature of underlying cash flows, as compared to traditional PWLB fixed rate funding, and will allow ACC to ensure funding and reduce reliance on borrowing from Government. The bond issuance was successful and ended up over-subscribed on launch-day, with the book being closed at £370m. As the bond issue was priced ‘above-par’, the Council received c£415m on settlement day. To facilitate the process of obtaining a credit rating it was necessary for the Council to examine the “traditional” treasury management policy that Council’s operate under. As such this required the Council to consider its policy on liquidity, counter party list, long term prudential indicators as well as its short to medium term investment and borrowing strategy. The ultimate objective was to access the wider capital debt markets to products that had not traditionally been utilised to fund the wider capital investment requirements to deliver its asset management strategy and regeneration of the city centre. This was successfully achieved through the issuance of an index linked Bond listed on the London Stock Exchange and the achievement of a credit rating. The underlying initiative was to underpin the asset management’s strategy over the next 5 years capital investment was ultimately to seek to issue a bond. The journey to issuing the bond required a number of steps laid out below:
Develop a wider and more comprehensive Treasury Management Strategy; Forecast a 35-year financial model (Income and Expenditure, Balance Sheet and Cash Flow); Appointment of Sole Book Runner and Issuer (HSBC plc) as well as other key professional advisors;
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Presentation and interrogation of the council’s financial and economic factors to the credit rating agency; Achievement of a credit rating; Investor Presentations (over 3 days in Edinburgh and London); Pricing of the Bond; Bond Issuance.
While the above provides a high level timetable the whole process took almost 6 months from conception to execution, the immediate challenge to deliver this project was to identify a project team with suitable skills and to begin putting the appropriate governance arrangements in place. The project team consisted of 6 primary roles and was sponsored by the Chief Executive. During the process other staff contributed to the project on specific work streams such as economic data analysis, financial modelling and legal implications. The project team executed the various work streams outlined above in relation to the credit rating assessment which required the collation and submission of over 50 separate documents, the collation of economic data, and the production of a 35 year financial model which included the projected Income and Expenditure Account, Balance Sheet, Cash Flow Statement and Prudential Indicators. The financial data indicated above also had to reflect the focus placed on the financial assessment of the credit rating. This credit rating will need to be maintained going forward and the screenshot below shows the credit assessment received.
One of the other key tasks of the project team was to appoint and work alongside a number of external organisations to implement the execution phase of the project. Working within the capital debt markets does require an understanding of both the legal and regulatory framework (which hadn’t been considered before within Local Government in Scotland) and the need to appoint the following advisors:
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- Financial Advisors to help produce financial strategies and models; - Legal Advisors to the Council; - Legal Advisors to the Bond Holders; - Sole Book Runner and Advisor; - Bond Trustee and Calculation Agent.
The project team liaised closely with the advisors and produced detailed timelines and action plans to ensure that adequate resources would be available to hit key decision making points and ensuring that the project continued to prevent slippage against the key milestones contained within the project plan. Finally, one of the most critical pieces of planning required by the project team was to gain cross party political support for the whole process. The team worked with all the individual political groups talking them through the details of the Bond and what t would mean. This culminated in a unanimous vote in favour of issuing the Bond that was seen as one of the most critical elements in the successful delivery of the project by the team. The issuance of the Bond made a huge impact in delivering strategic and financial value to the Council. Its priorities are set out within its 5-year business and capital investment plan – “Aberdeen: the Smarter City” which aligns and demonstrates its commitment to:
- Digital Infrastructure; - Educational Attainment; - Jobs/economic development; - Affordable social housing; - Recycling, carbon management and sustainable transport.
In issuing the Bond the Council has a statutory requirement to deliver best value and ensure the long-term affordability of its capital investment programme. To this end a 35-year model was constructed (which included Prudential Indicators for the same period) and a rigorous analysis of the funding options to ensure the Bond did indeed demonstrate best value. The funding secured through the Bond achieved added financial value by:
- Generating lower cost capital investment; - Diversifying the borrowing portfolio; - Enhancing and complementing the debt maturity portfolio; - Providing a “holiday” period that matches the cash flow to capital investment funding required.
The graph below illustrates the complementary nature which the Bond brought to the Council’s debt maturity portfolio:
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With market rates varying daily the initial recommended financing solution was an index linked public bond providing the optimal solution as:
- It delivers the lowest net present cost of debt service over the terms of the finance; - It provides a better inflation hedge with project income than the next best option (PWLB), given project income is generally expected to rise with inflation over time; - It provides an ability to provide debt service to meet the cash flows of the capital programmes thereby offering flexibility that is not possible using PWLB; - A public Bond can be traded in the secondary bond market thereby potentially offering the Council the opportunity to “buy back” its own issued bonds at a point in the future. Any future sale of the bond has no impact on the cost to the Council as this is fixed; - This solution also means that the repayment of the bond will not start until 2019 thereby offering the council the additional benefit of deferring repayment (in line with private sector construction) during a period of austerity that the Council is likely to face over the next few years which means this solution provides all round better financial resilience for the Council; and - When compared with the original financing solution, the net present value of the cash flows associated with the bond offers potential savings to the Council of up to £99.8m over the 35-year lifespan of the instrument.
PWLB v. Bond debt servicing:
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Annual Debt Servicing - Bond Bond 40
35
30
25
£M 20
15
10
5
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Year The final Bond issued was for £370 million. The value of the Bond, because of prevailing market conditions, (and an underlying negative gilt rate) it was issued at “above par”. To put this in context for every £1 issued the amount raised was £1.12 – a 12% above par premium. The total sum received, therefore, was £415 million gross (however only £370 million is repayable) and shown below.
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This is the Aberdeen bond trading screen from Bloomberg
In issuing a Bond the Council now operates under a new regulatory framework which is now unique in virtually every local authority in the UK. As such a root and branch review has been undertaken to ascertain how best practice governance can be implemented going forward. This has already resulted in a number of changes to the council’s governance arrangements taking particular cognisance of London Stock Exchange Rules and Regulations:
- Public Disclosure of Inside Information (comprising information of a precise nature that has not been made public and which if it were would have a significant effect on the prices of the financial instrument); - Insider Lists (Market Abuse Regulations requires issuers to draw up a list of all persons who have access to inside information and will include elected members and be retained for 5 years); - Sanctions (The Financial Conduct Authority can suspend trading of a financial instrument, including bonds, where it considers it necessary, under Market Abuse Regulations}; - Disclosure and Transparency Rules (An issuer that discloses regulated information, such as inside information, must, at the same time, file that information with the FCA. An issuer must entrust a Regulation Information Service (such as Regulated News Service) with the disclosure of regulated information); - Securing and Retaining a Credit Rating (Before the Council was able to issue its Bond on the London Stock Exchange it had to secure a credit rating from a recognised credit rating agency).
The Council will now prepare detailed financial information disclosures to the ratings agency (and the London Stock Exchange) in order to demonstrate the level of stewardship and governance. The rating achieved through Moody’s was the third highest level that could be awarded (one below the UK Sovereignty rating) thereby demonstrating exceptionally strong financial stewardship and governance.
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A detailed risk register was prepared as part of the whole process and updated regularly (during the process this risk register was updated several times per DAY) to reflect the continual market movement – not just in relation to the pricing but also in relation to the economic and political factors, investor appetite, investor views on the Offering Circular (the Bond terms and conditions) to name but a few. One of the most important risks that the Council now has is the need to maintain its credit rating going forward. This is because one of the conditions of the Bond is that should the Council face a significant downgrading then investors have the option to request the Bond be repaid in full. As such the Council will now need to monitor its key financial metrics on which it has been assessed and requires a much greater transparency around its Balance Sheet. The main credit metrics are shown below:
The residual risk associated with the Bond is the indexation on the principal repayments and is the final remaining risk to the Council. To mitigate this risk the premium received from the Bond will be utilised as a hedging instrument against future inflation.
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NEWS RELEASE
Takki Sulaiman Head of Communications 07584 395465
Address
2 November 2016
Aberdeen City Council launches and prices a bond issue of £370m
Aberdeen City Council today (2 November 2016) announced the successful pricing of index linked bonds for an aggregate principal amount of £370 million that will help secure investment in the city to deliver its transformational capital and infrastructure programme.
The bond is the first of its kind by a Scottish local authority and demonstrates the strength of commitment to both Aberdeen and the Council by investors.
The Council's Leader Jennifer Laing said: "This is a remarkable achievement by this Council in securing this investment in the future of our city. Having already secured a credit rating from Moody's Investors Service at Aa2, the issue of the bond sees another step forward by the Council in delivering a stable and fiscally prudent financial strategy that is both affordable and sustainable for the future as demonstrated by investor confidence."
"To continue to compete on an international stage, it is vital that we deliver world class facilities for Aberdeen's citizens, businesses and visitors. Today's announcement is a major boost towards that objective."
Finance, Policy and Resources committee convener Councillor Willie Young said: "The bond issue is part of our strategy to maintain a diversified funding portfolio that provides us with greater financial flexibility.
This flexibility will help Aberdeen anchor its status as both a Global Energy Hub as well as ensuring that we have the infrastructure required to attract world class businesses as we seek to broaden and diversify our economic base."
The proceeds from the bond issue will be used to drive a capital programme which includes investment in vital infrastructure throughout the city. This includes the
comprehensive City Centre Masterplan, school and housing developments, roads construction, digital enhancements and a variety of key projects designed to act as a catalyst for economic growth.
In its credit opinion report of 24th October 2016, Moody's Investors Service reported that Aberdeen City Council's "internal governance and scrutiny is strong, supported by recent assessments from the Accounts Commission." In addition Moody's noted that the "Council has demonstrated a solid financial record for the last 5 years maintaining a net surplus against budget for the last 5 years with previous forecasts on expected outturns being realistic."
IMPORTANT INFORMATION
This announcement does not constitute or form part of any offer or invitation to sell, or any solicitation of any offer to purchase any bonds, and is not a prospectus for the purposes of EU Directive 2003/71/EC, as amended, and/or Part VI of the Financial Services and Markets Act 2000 (the "FSMA").
The bond issue and the distribution of this announcement and other information in connection with the issue in certain jurisdictions may be restricted by law. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction.
ENDS
Issued on behalf of Aberdeen City Council by Takki Sulaiman/Paul Smith. For further information email [email protected] or [email protected]. Phone 01224 523188 or 07584 395465 during office hours. Out of hours phone 07825 546396.
NOTES TO EDITORS
1. Moody's Investors Service confirmed an Aa2 issuer credit rating on October 7, with Aberdeen City Council becoming the first local authority in Scotland to be assigned a credit rating;
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2. On 25th October 2016 Aberdeen City Council announced its intention to pursue the option of issuing an index linked bond;
3. Aberdeen City Council provides local government services to 115,080 households and 8,651 businesses. The authority serves a population of 229,000 directly and on an operational basis the wider North-east population of 489,000;
4. The Council employs approximately 8,600 staff;
5. Aberdeen has recorded strong population growth, rising by 11% between 2004 and 2014. Migration internationally and from within the UK has been a major factor.
6. Aberdeen City Council's total spend is £911m, comprising £136m capital & £775m revenue expenditure;
7. The Aberdeen City Region Deal will bring £250m of funding from the UK and Scottish governments towards innovation, digital infrastructure and connectivity.
8. Aberdeen City Council comprises 43 councillors, representing 13 wards, and since the May 2012 election has been controlled by a Labour-Conservative- Independent coalition. Councillors are elected every five years by the citizens of Aberdeen;
9. Under the Council's constitution it has financial procedure rules which incorporate the Chartered Institute of Public Finance and Accountancy (CIPFA) code of practice on treasury management and requires the Council to produce a treasury management policy and have it approved by the Council;
10. The Council has the ability to delegate its powers and authorities to committees and officers. The power to borrow, including borrowing by means of issuing bonds on the debt capital markets, is delegate to the Head of Finance provided that the amounts borrowed are within the limits set out in the Council's treasury management strategy. The limit is set each year by Councillors when they approve the treasury management strategy as part of the Council's formal budget setting process;
11. The bonds are due in 2054 and will be listed on the London Stock Exchange;
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12. Aberdeen City Council's Aa2 issuer credit rating is one level below the United Kingdom as a whole;
13. The Council is subject to the Local Government (Scotland) Act 1975 as amended and in large part replaced by the 2016 Regulations in relation to borrowing for capital expenditure purposes. Under the 2016 Regulations, each local authority must determine before the start of each financial year how much external debt it can afford during that financial year and each of the subsequent two financial years.
14. Copies of the Council's annual report and statement of accounts are available at: www.aberdeencity.gov.uk .
4 The Journey to Issuing a Bond
Aberdeen City Council Background
What is a Bond?
• A bond is essentially an IOU; it is a promise by a borrower (an issuer) to repay money to an investor (a bondholder), usually with interest, over a set period of years
• Issuing bonds is a way of raising finance. The issuer borrows money by selling bonds to bondholders. Bonds are a type of debt instrument that can be traded (bought and sold) in the capital markets
Aberdeen City Council Why Issue a Bond?
• Capital investment – Level required over the next 5 years c.£1 billion (generating income streams)
• Portfolio diversification – Majority of Council’s existing borrowing is fixed term loans from Public Works Loan Board
• Debt maturity profile – Bond repayment profile fits in nicely with Council’s existing loan repayment commitments
• Holiday period – Bond structure means no principal repayments for the first three years
Aberdeen City Council Council’s Debt Profile - Before
Current Maturity Profile
£60,000,000
£50,000,000
£40,000,000
£30,000,000
VALUE OF PRINCIPAL OF VALUE £20,000,000
£10,000,000
£0
FINANCIAL YEAR PWLB - maturity Market Temporary Borrowing
Aberdeen City Council Council’s Debt Profile - After
• Same graph but with the bond
Aberdeen City Council Obtaining the Credit Rating
• A wealth of information on Council finances was requested by the Credit Rating Agency (Moody’s Investor Services)
• A Financial Model was developed which provided the Agency with key Credit Metrics around:- – 35 year model – Balance Sheet – Cash Flow
• Management Presentation to Credit Rating Agency
Aberdeen City Council What were we rated on?
Moody’s rating methodology for regional and local governments is comprised of 2 main factors:- • the government’s Baseline Credit Assessment (BCA) • the likelihood of extraordinary support in the event of acute liquidity stress.
Within this methodology, Moody’s also analyse:- • Local Economics • Institutional Framework • Financial Performance • Governance and Management
Aberdeen City Council The Credit Rating
The Council was awarded an Aa2 rating, with a ‘negative outlook’
• This rating is one ‘notch’ below UK Government, and is the 3rd highest level out of 21. This places the Council in a ‘high-grade investment’ bracket.
• The ‘negative outlook’ comment is not a comment on the City, or the Council. This mirrors the rating of the UK Government, and reflects the current uncertainty around ‘Brexit’
Aberdeen City Council Bond Process
Once the Council had obtained this Credit Rating, it was in a position to work towards issuing a Bond.
• A suite of necessary bond documents were worked on by officers, our legal representatives and the legal representatives which had been appointed on behalf of the investors.
• A detailed investor presentation was produced. This was sent to potential investors by HSBC (the Council’s appointed Book runner) as part of the ‘soft-sounding’ process.
Aberdeen City Council Investor Presentations
Investor ‘roadshows’ were held over three days in Edinburgh & London, with key Council Staff. These consisted of a short presentation followed by a Q & A, which focused on: • Institutional Framework of Scottish Local Authorities • Local Economy • Cash Flows and Revenue Volatility • Credit Risk • Bond Structure
Aberdeen City Council Bond Pricing Day
When the Bond was launched, bids were submitted electronically This screen shows what we saw on the day
Aberdeen City Council The Bond Structure
Aberdeen City Council Treasury Management Issues
• Counterparty List – This is the approved list of high-rated banks and other financial institutions to which the Council is allowed to lend money. The existing Counterparty list needed to be expanded to accommodate the receipt of the Bond monies
• Liquidity – To demonstrate good liquidity access, the Council wrote into its Investment Strategy that at least 50% of its excess funds would be kept ‘liquid’, to meet any impending commitments
• Short Term Borrowing/Investments – The receipt of the Bond monies allowed the Council to repay its temporary loans, except those which are really investments from third parties
Aberdeen City Council Transaction Highlights
• ACC, the Scottish Local Authority (“LA”), issued its inaugural capital markets transaction on Tuesday 8th November; • On the back of a detailed period of investor dialogue, ACC announced the transaction on Monday 24th October and met with accounts during a 3 day roadshow in London and Edinburgh; • Topics such as the inclusion of a 0% RPI floor, negative real yields and an Investor Put option upon a Scottish Independence Event were discussed, addressed and received positively amongst investors; • Investor feedback prompted ACC to open books at a price guidance of G+125bps area; • Supported by high quality orders, the issuer opted to set the reoffer spread at G+125bps and upsize the transaction from £350m to £370m; • Proceeds of the transaction will be utilised by ACC to fund their infrastructure linked capital investment programme; • The programme seeks to boost the local economy and includes the refurbishment of the flagship Aberdeen Exhibition and Conference Centre.
Aberdeen City Council Reflections
• Whole process took 6 months • Advisors were key • Need corporate buy in (Chief Executive, elected members) • Huge amount of work • Understand the risks • Don’t underestimate the need for appropriate delegated authority • Key decisions will need to be made
Aberdeen City Council Advisors
• Sole Book Runner and Sole Issuer (HSBC); • Legal Advisors (Brodies); • Financial Advisors (KPMG); • Bond Legal Advisors (Pinsent Masons); • Bond Trustee (BNY Mellon); • Audit Verification (Audit Scotland); • Internal Project Team (3 to 12 people).
Aberdeen City Council Aberdeen City Council Investor Presentation 21 October 2016
Aberdeen City Council RESTRICTED 1 Disclaimer
This presentation has been prepared by Aberdeen City Council (the “Authority”) exclusively to inform investors in relation to the proposed bond issue by the Authority (“Bonds”). This presentation is an advertisement and not a prospectus or offering circular. The Authority takes no responsibility for the use of this presentation by any party other than identified investors to consider the proposed offering of Bonds. The Authority confirms that, to the best of its knowledge and belief (having made all reasonable enquiries), the factual information contained in this presentation is at its date true and accurate in all material respects, has been prepared with all reasonable care and that the opinions expressed herein were, at the time they were given, honestly held. Unless otherwise stated the source of all information provided in this presentation is from the Authority and its subsidiaries. Where this presentation contains summaries of documents, those summaries should not be relied upon and the actual documentation must be referred to for its full effect. The information and opinions contained in this presentation are provided as at the date of this presentation and are subject to change without notice. Any purchase of the Bonds should be made solely on the basis of information in the Offering Circular published by the Authority. In particular, this presentation may contain certain forward looking statements and projections that are subject to the usual risk factors. Whilst the Authority believes the expectations reflected herein to be reasonable in light of the information available to them at this time, the actual outcome may be materially different owing to factors beyond the Authority’s control. Accordingly no reliance may be placed on the figures or other indications contained in any such potential forward-looking statements and projections. No representation or warranty of any kind is made with respect to the accuracy or completeness of the financial projections or other forward looking statements, any assumptions underlying them, the future operations or the amount of any future loss or income. The content of this presentation has not been approved by an authorised person within the meaning of the Financial Services and Markets Act 2000 (FSMA). This presentation does not constitute or form part of any offer or invitation to, or any solicitation of any offer to purchase, subscribe for or otherwise acquire any securities in the Authority or any other entity in any jurisdiction nor shall it or any part of it form the basis of or be relied on in connection with any contact relating to any securities. This presentation does not constitute an invitation to effect any transaction with the Authority. Reliance on the information contained in this presentation for the purposes of engaging in any investment activity may expose the investor to a significant risk of losing all of the property or assets invested. This presentation is intended for recipients that understand the risks associated with such investments and who should conduct their own investigation, evaluation and analysis of the matters contained herein. Neither the Authority nor any of its officers, employees, agents or advisers provides any legal, investment, financial or tax advice in relation to the matters contained in this presentation. If you are in any doubt about the investment to which this presentation relates you should consult a professional adviser authorised under FSMA who specialises in advising on investments of the kind described in this presentation. The information within this presentation is not intended for distribution to or use by any person or entity in any jurisdiction or country where such distribution would be unlawful or otherwise contrary to local laws or regulation and, in particular, is not for distribution in or into the United States. Neither the Authority nor any of its officers, employees, agents or advisers will be responsible for any unlawful distribution of this presentation to any third parties. The contents of this presentation, which may include non-public price sensitive information, are and must remain confidential. This presentation may not be reproduced or used in whole or in part for any other purpose, nor should it be disclosed to any other party without the consent of the Authority. By accessing this presentation you shall be deemed to have represented to us that you are a person to whom this presentation may be distributed without contravention of section 21 of FSMA or are otherwise a person to whom it may lawfully be distributed. By attending the presentation, or reading or accepting this document you agree to be bound by the above conditions and limitations.
Aberdeen City Council
2 Contents
Executive Summary 4
Detailed Sections
1 Aberdeen High Level Overview 15 2 Organisational Structure, Management & Governance 19 3 Local Economy & Demographics 24 4 Financial Information 37 5 Treasury & Debt Management 59 6 Indirect Obligations 64 7 Arm’s Length External Organisations (ALEOs) 67
8 Biographies 70 9 Financials 73
Aberdeen City Council RESTRICTED 3 Executive Summary
Aberdeen City Council RESTRICTED 4 Aberdeen – The City One of the most prosperous and strategically important cities for Scottish and UK governments
Third largest city in Scotland with continued demographic appeal –
Population of 229,000 (4.3% of Scotland’s population); strong population growth of 11% between 2004 and 2014 (at c.489,490 for the Aberdeenshire region), largely due to migration both internationally and from within the UK
Disproportionately large economic contribution to Scottish and UK economies relative to resident population –
GVA contribution at £18bn, with GVA per head of £37,460 being the second highest in the UK after Inner London (65% higher than Scottish average)
Prosperous region with high productivity and propensity for innovation –
25% higher workplace full-time weekly employee earnings versus Scottish average with 79% employment rate (73% Scottish average). Ranks second out of 63 UK cities on number of patents per 100,000 of population
Strategically important to UK and Scottish governments as an economic powerhouse and Energy Capital of Europe –
Significant contributor to the UK Exchequer largely due to O&G industry - ranks eighth in the “tax take per worker” (2014) in the UK, ranking higher than all other Scottish regions UK’s gateway to maximising economic recoveries from the UKCS, growing the UK and Scottish supply chain base and capitalising on the £46bn North Sea decommissioning market Politically supported ambition to become a globally recognised offshore technology base with internationally exportable expertise Research and innovation activities backed by the top Scottish Universities and significant research centres
Over £500m funding commitment from UK and Scottish government evidences overwhelming support for Aberdeen –
The City Region deal – a tripartite agreement between Scottish government (“SG”), UK government (“UKG”) and Aberdeen, with both governments committing to jointly investing £250m over next 10 years towards innovation, digital infrastructure and connectivity Additionally, SG pledge for another £254m funding towards infrastructure projects to act as catalyst for economic growth
Aberdeen City Council RESTRICTED 5 Aberdeen City Council (“ACC”) One of the most important of the 32 Scottish Councils and one of the most prosperous areas of the UK
Backed by strong political and financial support from both the Scottish and UK governments
Benefits from the mature and established UK and Scottish institutional framework – ensuring continued supervision, tight financial monitoring and strong fiscal linkages to both governments
Access to PWLB as funding backstop – Continued availability at competitive rates, minimal administrative burden, short turn around times
Reduced reliance on Scottish government funding due to region’s prosperity – 4th highest collector of NDRs and receives the lowest Total Revenue Allocations per head of population from the Scottish Government amongst all Scottish Councils
Financial performance has and is expected to remain steady despite oil and gas downturn - given smoothening mechanisms in revenue funding sources
Strong and experienced senior management team - track record of generating surpluses over last 5 years and growing reserves
Well developed capital investment programme - over £850m in next 5 years to deliver infrastructure improvements, connectivity and innovation towards its vision of “Aberdeen – the Smarter City”, expected to further boost economic growth and enhance ACC’s funding self- reliance
Aberdeen City Council RESTRICTED 6 Proposed Bond Issuance – An Overview
• ACC has a well articulated strategic plan to “shape” Aberdeen and make it the “smarter city”, built on political consensus and commitment to the Council's long-term priorities Background • To meet its objectives, ACC has developed an £850m capital spending plan for the next 5 years, which will deliver major infrastructure improvements, new schools and waste facilities as well as improving the region’s connectivity and boosting innovation
• Proposed bond issuance is in line with ACC’s strategy to secure financing from alternative sources so as to Rationale for maintain a diversified funding portfolio and reduce reliance on government/ PWLB funding issuance • Indexed-linked format (which is unavailable under PWLB) has been chosen over fixed rate funding to match the characteristics of ACC’s underlying long term cash flows
Size Flexible, TBD Maturity/ Average life 28 February 2054/ [20.4] years Rating Expected - Aa2 from Moody’s Format RPI, semi-annual payments Coupon 0.1% Repayment Fully amortising from 31 August 2019 onwards Terms of Issuance Benchmark Gilt [UKTI 1.125% 2037] Issuance price Above par Redemption • Voluntary redemption by the Issuer – Modified Spens at 20 bps provisions* • Redemption for Taxation reasons – par • Redemption for Index Event – par • Bondholder put option for Change of Status – Modified Spens at issuance credit spread
Listing London Stock Exchange Aberdeen City Council
*Please refer to Offering Circular for detailed Terms and ConditionsRESTRICTED 7 Key Credit Strengths
High likelihood of financial support from both UK and Scottish governments given ACC’s importance as key services provider to the region and its economic and strategic contributions
Strong and • Mature and highly developed local authority institutional framework with strong financial linkages to both governments established • Tight monitoring mechanisms with statutory requirement to set balanced budgets, ensuring prudent financial management institutional framework • Access to PWLB at competitive rates with short lead times and minimal administrative work ensures funding back stop
Exceptional • Region’s economic and strategic importance evident through tax contributions to UK exchequer as well as route to support from maximising financial value of UKCS to both governments UK and • Political ambition to develop a global R&D base with exportable expertise in the O&G sector Scottish governments • Strong government buy-in into region’s future with £500m+ committed funding from both governments
• Grant allocations from UKG to SG and from SG to local authorities driven by local population size and needs, thereby Resilience of allowing ACC to maintain steady financial position, largely immune from local economic performance revenue
sources • Resilience to cyclicality in the O&G sector also enhanced due to smoothening mechanisms in revenue funding sources
• Well established O&G sector, with diversification across other high growth areas such as tourism, food, life sciences • High prosperity and productivity enables ACC to be relatively more self-funded than other local councils, with reduced Wealthy local reliance on Scottish government funding per head of population economy • Commercial capital investment programme aimed towards increasing ancillary revenue sources to further strengthen ACC’s financial position
Experienced • Successful track record of prudent financial management and ability to deliver on significant savings plans senior • Net surpluses over budget delivered over last 5 years has improved level of reserves including funding and maintenance management of a unique £8.4m Risk Fund for contingencies (un-utilised since inception)
Aberdeen City Council RESTRICTED 8 Key Indicative Credit Metrics
Projections for the period 2016/17 to 2018/19 indicate continued strong financial performance
Gross operating balance / operating revenue (%) Interest payments / operating revenue (%)
15% 15%
10% 10%
5% 5%
% operating revenue operating % % operating revenue operating % 0% 0% 2017 2018 2019 2017 2018 2019 • Gross operating balance is defined as operating revenues received less operating • Interest payments comprises future interest payments on new and existing direct debt; expenditure paid, less interest paid. ancillary financing fees; and interest received on cash deposits less interest paid on • Gross operating balance is expressed as a percent of operating revenue. overdrafts. All quantities are calculated on a cash basis, with assumed working capital terms of 30 days • Interest payments are expressed as a percent of operating revenue. for receivables and payables.
Net direct and indirect debt / operating revenue (%) Short-term direct debt / total direct debt (%)
200% 15%
150% 10% 100% 5%
50%
% total direct debt direct total % % operating revenue operating % 0% 0% 2017 2018 2019 2017 2018 2019 • Total direct debt comprises forecast short-term and long-term borrowings (including the • Short term direct debt is expressed as a percent of total direct debt. index-linked bond). Net direct debt comprises total direct debt less cash, cash equivalents and short-term investments. • Indirect debt comprises short-term and long-term PPP liabilities. • Net direct and indirect debt is expressed as a percent of operating revenue
Note: Credit Metrics are indicative subject to confirmation as part of the final rating process. Aberdeen City Council RESTRICTED 9 Peer Comparison
Rating (vs. Strengths Weaknesses Sovereign)
Second wealthiest LA in the UK only after Inner London with a GVA per capita of 1.6x the UK average Χ Expected increase in the level of debt to fund an Aa2 Lesser funding pressure than English LAs explained by the ambitious economic driven capitals spending program (-1 notch) financial arrangements with the regional government Χ Limited revenue raising flexibility Strategic role in the development of the North East of the UK
Χ Increase in debt levels resulting from the movement into Wealthy LA with a GVA per capita of 1.24x the UK average and two areas outside of the traditional LAs service - well diversified economic area with low unemployment Aa2 economic development program and a lending to (-1 notch) Successful implementation of savings programs to cope with housing associations funding pressures from the central government Χ Limited revenue raising flexibility
Moderate debt burden (67% of revenues) Χ Significant level of savings still be delivered but expected to be tackled with the Devolution Deal Aa1 Proactive approach to material central government’s funding (--) reduction via the increase of own-source income and reduction Χ Relatively diversified sources of revenue resulting in in expenses lower reliance on central government grants than peers
Relatively diversified sources of revenue which lower GBC's Χ High Housing Revenue Account (HRA) related debt Aa1 reliance on central government grants relative to the sector (178% of revenues) (--) Good levels of liquidity and limited non-HRA debt, comprising Χ Sizeable and growing property investment property less than 3% of its operating revenue portfolio creating exposure to market risks
Χ Governance and procurement weakness identified by internal control now addressed (noted in 2014 Annual Moderate debt burden (55% of revenues) Audit Letter) Aa2 Despite the recent relatively weak financial performance, Χ Treasury management strategy exposes Council to (-1 notch) Lancashire has a track recorded of prudent budgetary planning, volatility of short-term rates. Short term financing (54% delivering significant budgetary savings in recent years total debt) somewhat offset by large investment portfolio Χ Significant level of savings still be implemented
Source: Moody’s
Aberdeen City Council RESTRICTED 10 Peer Comparison
Issuer Rating Aa2 Aa1 Aa1 Aa2 Aa2
Key financial indicators [1]
Net direct and indirect debt / 145% 67.3% 177.9% 55.6% 44.1% (<200%) operating revenue (%)
Interest Payments/Operating 4.3% 2.3% 4.3% 1.7% 1.4% Revenue (%)
Gross Operating Balance/Operating Revenue 7.5% 8.9% 15.3% -1.5% 7.3% (%)
Short-Term Direct Debt/Direct 3.7% 17.2% 7.2% 35.1% 11.7% Debt (%)
GDP per capita as % of 162% 53% 108% 75.3% 124% National Average
[1] Most recent figures, FY2015/16 for all LAs other than Aberdeen – Aberdeen figures are projected metrics for FY16/17. In brackets – Moody’s projected increase from debt issuance over the mid-term. Definitions of each metric as per previous slide on “Key Credit Metrics” Source: Moody’s Credit Opinion reports: Cornwall Council (1-Jul-16), Guildford Borough Council (1-Jul-16), Lancashire County Council (29-September-16), Warrington Borough Council (1-Jul-16)
Aberdeen City Council
RESTRICTED 11 Scotland: Background to Referendum Factual evidence from recent media coverage indicates low level of enthusiasm for a referendum and independence
• Brief chronology of referendums to date - despite media talks of desire for independence, status quo has and continues to persist – 1979 – Scottish devolution referendum – fewer than 40% (32.9%) of the registered electorate voted in favour of the Scotland Act 1978 (aiming at creating a devolved deliberative assembly for Scotland), and the Act was repealed – 1997 – Scottish devolution referendum - 74.3% in favour of creation of Scottish Parliament with devolved and tax-varying powers – 2014 – 55.3% (at turnout of 84.6%) voted against Scotland being an independent country – 2016 – Scotland voted in favour of UK staying in EU by 62% to 38%, with all 32 Councils backing Remain
• Statistics from recent polling show little to no evidence of a swing in favour of independence - Date(s) conducted Polling organisation/ client Sample size Yes (=independent Scotland)/ No/ Yes/ No (excluding Undecided) Undecided 5-11 Sep 2016 Ipsos Mori/ STV 1,000 45%/ 50% / 5% 48% / 52%
10 Aug -4 Sep 2016 TNS 1,047 41%/ 47% / 12% 47% / 53%
29-31 Aug 2016 YouGov 1,039 40% / 46% / 13% 46% / 54% 20-25 July 2016 YouGov 1,005 40% / 45% / 14% 47% / 53% 24-28 Jun 2016 Survation/ Scottish Daily Mail 1,055 47% / 41% / 12% 53% / 47% 25-26 June 2016 Panelbase/ Sunday Times 626 47% / 44% / 8% 52% / 48% 25 June 2016 Survation/ Daily Record 1,002 48% / 41% / 9% 53% / 47% 18 Sep 2014 Independence Referendum 3,623,344 44.7% / 55.3% / - 44.7% / 55.3%
• Polling statistics above show no material swing towards independence, thereby giving little to no confidence that a referendum, if held now, would be successful, although the SNP are now to consult the Scottish electorate on the terms of a draft independence referendum bill • Alistair Darling – “…Nicola Sturgeon is not going to risk everything, her reputation - she has seen what has happened to David Cameron, who the only thing people will remember about him I suspect when history is written in years to come is that he accidentally got us out of the EU and he didn't want it. If she loses, she knows she would be finished. That's why she is in no hurry to rush into it…What she has got to do, of course, is to continually throw red meat to her supporters and, in many ways, calling for independence is a diversion”
http:// www.theguardian.com/politics/2016/sep/06/nicola-sturgeon-shelves-quick-second-scottish-independence-referendumhttps://en.-wikipediabill .org/wiki/Scottish_independence https://www.poundsterlinglive.com/economics/5365-scotland-budget-deficit-eu-membership http://www.tnsglobal.co.uk/press-release/kantar-tns-poll-no-sign-support-growing-scottish-independence-despite-brexit http://www.ft.com/cms/s/0/2df2e768-69e3-11e6-ae5b-a7cc5dd5a28c.html https://d25d2506sfb94s.cloudfront.net/cumulus_uploads/document/ihg707zgux/ScottishTrackers_25-Jul-2016_Indy_W.pdf http:// www.ft.com/cms/s/0/b2ee7448-6a0e-11e6-a0b1-d87a9fea034f.html http://www.bbc.co.uk/news/uk-scotland-scotland-politics-37261580 https://d25d2506sfb94s.cloudfront.net/cumulus_uploads/document/eva2tvwhn2/TimesScotland_160831_Results_website.pdf http:// www.bbc.co.uk/news/uk-scotland-scotland-politics-37250448 http://stv.tv/news/politics/1367060-poll-ruth-davidson-more-popular-with-scots-than-sturgeon/ Aberdeen City Council http://www.bbc.co.uk/news/uk-scotland-scotland-politics-36630142 https://www.thecourier.co.uk/fp/news/politics/scottish-politics/215653/poll-shows-support-independence-since-brexit-vote/ http://www.bbc.co.uk/news/uk-scotland-scotland-politics-37256329 http://www.dailymail.co.uk/wires/reuters/article-3661245/Scots-against-second-independence-referendum-despite-Brexit-vote-poll.htm http://www.bbc.co.uk/news/uk-scotland-scotland-politics-36656980 http://www.irishnews.com/news/uknews/2016/09/19/news/-snp-in-no-hurry-for-second-scottish-independence-referendum---alistair-12darling -700977/l
Scotland: Background to Referendum Factual evidence from recent media coverage indicates low level of enthusiasm for a referendum and independence
• What does the economic case for Independent Scotland currently look like versus at the time of 2014 referendum? – Economic case for Scottish independence in 2014 which was partly based on being able to retain benefits of the O&G revenues has now weakened - notional share of oil revenues has decreased from £9.6bn (2011-12) to £60m (2015-16) (£7.9bn projected in 2014 referendum) – Deficit at £15bn/ 9.5% of GDP (2x UK deficit and above the 3% level that EU urges its member states to maintain) implies it is likely that severe austerity measures would be required in an independent Scotland, raising questions on SNP’s ability to deliver its flagship projects and reforms – Scotland has benefited from pooling of resources with UK in protecting Scottish living standards - per capita spending in 2015-16 in Scotland was £12,800 (£1,200 over UK as the whole), but revenues per person were £10,000 (£400 less than the UK) – 64% of Scottish exports go to rest of UK, 15% to rest of the EU. Rather than renegotiating trade agreements with both UK and EU afresh, interests are better likely to be protected by being part of UK following Brexit and benefiting from existing UK-Scotland and new UK-EU agreements • “Preserving status in EU” vs “Reapplying” – Practical considerations – As Scotland is not an EU member state and it was UK on the whole that voted for Brexit, it is understood that it would not be possible for Scotland to “preserve its status” by negotiating with EU separately – Separate deal for continued Scottish membership before UK completes its withdrawal process depends on unanimous EU member state support, which is not forthcoming. French PM (“EU would make no advance deal with Scotland”) and Spanish PM (“if the UK leaves, Scotland leaves”) • Legality of a second referendum - – Any further independence referendum following Brexit likely to require agreement and co-operation of UK, including making of an order pursuant to section 30 of the Scotland Act 1998 to devolve a specific power to the Scottish Parliament to pass legislation to hold a referendum • Political direction – – Slow softening in stance is seen from SNP leadership, from referendum being “highly likely” in next two years to a “plan to issue a consultation on a draft referendum bill” – the latter now having been announced and will involve an extensive canvassing exercise of the Scottish voters on their attitudes to independence – There is increased pressure from opposition parties to focus on improvement of local economy and utilisation of new tax powers productively instead of another referendum – There are talks of fatigue in Scottish electorate given multiple voting exercises in last 2 years, the ongoing “listening exercise” plus expected LA elections in 2017, fuelling expectations of a reduced turnout, further impacting SNP’s confidence in ability to ensure a successful referendum
Aberdeen City Council RESTRICTED 13 Detailed Sections
Aberdeen City Council RESTRICTED 14 Section 1: Aberdeen – An Overview
Aberdeen City Council RESTRICTED 15 Aberdeen City Council – At a Glance
Aberdeen City Council is one of the most important of the 32 Scottish Councils and one of the most prosperous areas of the UK
• Population of 229,000 (accounting for 4.3% of Scotland’s total population), covering 186 square kilometres. The population of Aberdeen City and Aberdeenshire increased by 11% between 2004 and 2014, from 442,510 to 489,490, largely due to migration both internationally and from within the UK; • Net daily commuting into the City is in excess of 51,000 people; • 25% higher workplace based full-time weekly employee earnings compared to Scottish average (£759 vs £607), with GVA per head of £37,460 being the second highest in the UK after Inner London (65% higher GVA per head compared to average for Scotland); • Employment rate is 79%, which is above the Scottish average of 73%; • Ranks 2nd out of 63 UK cities in terms of number of patents per 100,000 of the population, evidencing the region’s propensity for research and innovation; • Largely due to the revenues from the oil and gas industry, the region remains a significant contributor to the UK Exchequer – Aberdeen ranks eighth in the “tax take per worker” (2014) in the UK, ranking higher than all other Scottish regions; • Aberdeen receives the lowest Total Revenue Allocations per head of population from the Scottish Government amongst all 32 Scottish Councils; • ACC collects one of the highest amounts of Non-Domestic Rates of any Council (fourth highest in Scotland)
Aberdeen City Council RESTRICTED 16 Political Representation
Strategic infrastructure and planning decisions achieved in recent years demonstrate the political working relationships Financial decision making within the Council is delegated to the Finance, Policy and Resources Committee
City Council • Aberdeen City Council comprises forty-three councillors, who represent the City’s 13 wards, and is headed by the Lord Provost, Councillor George Adam. Since the May 2012 election, the Council has been controlled by a Labour-Conservative-Independent coalition • ACC governance is overseen by 43 elected members who are elected every 5 years by the citizens of Aberdeen. Current composition is as mentioned below, with the next local government elections taking place in May 2017 • The Leader of the Council is Councillor Jenny Laing of the Scottish Labour Party Councillor Jenny Laing Councillor Willie Young Scottish Parliament Leader of the Council Finance Convenor • The City has 3 SNP Constituency MSPs:- Mark McDonald (Aberdeen Donside); Kevin Stewart (Aberdeen Central); Maureen Watt (Aberdeen South and Kincardine) • With 7 Regional List MSPs:- 4 Conservative (Peter Chapman; Alex Johnstone; Liam Kerr; and Ross Thomson), 2 Labour (Lewis Macdonald and Jenny Marra) and 1 Liberal Democrat (Mike Rumbles) UK Parliament SNP • Aberdeen is represented by 3 SNP Members of Parliament: Callum McCaig (Aberdeen 16 17 South); Kirsty Blackman (Aberdeen North); Alex Salmond (Gordon) Labour Conservative European Parliament Independent • Aberdeen forms part of the Electoral Region of Scotland constituency which elects 6 Lib Dem members to the European Parliament. In 2014, they were as follows: Coalition – Ian Hudghton (SNP); David Martin (Labour); Ian Duncan (Conservative); Alyn Smith Administration (SNP); Catherine Stihler (Labour); and David Coburn (UKIP) 5 2 3
Aberdeen City Council RESTRICTED 17 5 Year Business Plan “Aberdeen - The Smarter City” (2013-18)
The strategic goals of the Council are to develop an economy based on knowledge and innovation, encourage more efficient use of greener resource which generates a competitive economy, use technology and data to enable informed decisions, enable citizens to interact in a city where there is a sense of place, and encourage governance which engages its citizens
The Council’s strategic priorities are set out within our 5 Year Business Plan – “Aberdeen; the Smarter City” (2013-18) • The Plan makes commitments to build on ACC’s current performance and make further improvements across the City in key areas including: – Digital infrastructure – Educational attainment – Jobs and economic development – Affordability and quality of social housing – Recycling, carbon management and sustainable transport – The strength and safety of our local communities • These commitments are supported by plans and strategies for effective management of the organisation which focus on bringing both strong governance and modern and innovative solutions, aimed towards improving use of resources, staff experience, and ultimately the service to customers
• The full Business Plan is available at: http://www.aberdeencity.gov.uk/nextfiveyears/nfy_home.asp. • This was refreshed in 2016 to include restated and updated objectives, and is available at: http://committees.aberdeencity.gov.uk/documents/s54401/Refresh%20of%20Strategic %20Business%20Plan%20Final.pdf
Aberdeen City Council RESTRICTED 18 Section 2: Organisational Structure, Management & Governance
Aberdeen City Council RESTRICTED 19 Scottish Local Authorities Institutional Framework
. Total Revenue Support - The total level of revenue support is determined by Scottish Ministers in discussion with COSLA as part of the spending review process which should normally take place every 2 years but the timing of spending reviews is linked to the similar process carried out by the UK Government . Total revenue support is made up of 3 components: Specific ring-fenced Grants, Non-Domestic Rate Income (NDRI) and General Revenue Grant (GRG) • Local Authority Self-Financed Expenditure - In reaching their decision about total revenue grant, Ministers must have regard to the impact on council tax levels. Total revenue grants fund around 85% of Scottish local authority net revenue expenditure with the remaining 15% funded largely from the council tax. The proportion of local authority expenditure funded from the council tax is known as Local Authority Self-Financed Expenditure (LASFE) and counts Creditors towards total public expenditure at a GB level, but is not part of the Assigned Bondholders Budget. It is for each local authority to set its council tax level, based on its own spending decisions and following consultation with its local electors but following the signing of the Concordat the Scottish Government has provided additional funding to allow local authorities to freeze their council tax levels at 2007-08 levels. NDR is set nationally by the Scottish Government . The Local Government in Scotland Act 2003 - The 2003 Act abolished the previous limits on local authority capital expenditure known as section 94 consents. Instead the 2003 Act places a duty on local authorities to determine and keep under review the maximum amount they can afford to allocate to capital expenditure. This allows local authorities the freedom to make their own decisions about capital investment. In doing so regulations require authorities to have regard to a Code of Practice developed under the auspices of CIPFA, called the Prudential Code for Capital Finance in Local Authorities. This requires local authorities to ensure that their plans are prudent, affordable and sustainable. Together the different elements of this framework are known as the Prudential Regime
Source: http://www.gov.scot/Topics/Government/local-government/17999
Aberdeen City Council RESTRICTED 20 Council Committee Structure
The Council’s Committee structure uses a proportionate membership model, with 43 elected members . The Council has a traditional committee structure which comprises core and regulatory committees . The Council and its various committees make decisions which are not delegated to officers. Orders of Reference for these committees are available on the Council website . The core committees deal with matters under their specific Orders of Reference, for example – budgets, policy, property, human resources, audit, risk management, education, children’s services, culture, housing, roads and environment . The regulatory committees deal with matters under their specific Orders of Reference, for example – employee appeals, administration of the pension fund, planning applications and licensing applications.
Other Committees, Boards and Bodies with Council Committee Structure and Core Committees Powers or Statutory Obligations
Council All Members • Community Planning Aberdeen Board* 17 Labour • Aberdeen City Region Deal 16 SNP Joint Committee 5 Lib Dem • Integration Joint Board (Aberdeen City 3 Independent Health and Social Care Partnership)** 2 Conservative • Licensing Committee • Licensing Board • Planning Development Management Committee • Pension Committee and Pension Board Communities, Housing Education & Children’s Finance, Policy & Audit, Risk & Scrutiny • Petitions Committee & Infrastructure Services Committee Resources Committee Committee Committee • Urgent Business Committee
Notes: * The Council has a statutory responsibility for Community Planning and is therefore a lead partner. ** The statutory responsibility for the decisions the IJB takes remains with the Council.
Aberdeen City Council RESTRICTED 21 Council Executive Structure
The Council executive structure is based on four directorates in addition to the Office of Chief Executive: • Education and Children's Services • Communities, Housing and Infrastructure • Corporate Governance • Aberdeen City Health and Social Care Partnership
Officers have delegated authority to make decisions as specified within the Council’s Scheme of Delegated Powers
Aberdeen City Council RESTRICTED 22 Aberdeen City Council Profile Key Functions and Responsibilities
Local Government in Scotland has a unitary structure, thereby all Council services are provided by one local authority in any given area Working with a range of partners, Aberdeen City Council has very broad powers and responsibilities covering the City’s people, economy and environment. The “map” of local authority functions in Scotland is complex, with a number of functions being delivered in partnership
Main Council Functions Partners How arrangements with Partners works (e.g. frameworks, funding)
Pre -school, Schools, Multi-agency (Police Scotland, NHS, voluntary Partnership based on statutory roles Education & Learning sector, neighbouring authorities)
Child and Adult Multi-agency (Police Scotland, NHS, voluntary Partnership based on statutory roles Safeguarding sector, neighbouring authorities)
An independent Board with equal ACC and NHS members gives strategic and budgetary directions for the delivery of Integrated Health & Adult Social Care Partnership Adult Health & Social Care services by the Council and NHS NHS Grampian, Bon Accord Care.* ALEO.*
Planning & Building Aberdeen City and Shire Strategic Development Plan sets the framework for new developments, and planning over the Neighbouring authority Standards next 25 years. Its vision is to create an even more exciting, modern and sustainable European city region
Scottish Enterprise, Skills Development Scotland, Regional collaboration on strategic economic development. National support & investment is given through Scottish Economic Development & neighbouring authorities, private sector (including Enterprise. ONE is a private sector led body which is investing in and accelerating the delivery of major economic Employability “Opportunity North East” ONE) development projects (established with a co-investment fund of up to £25million) Aberdeen Exhibition and Conference Centre.* ALEO.*
Council Housing + a role in Registered Social Landlords; Places for People ACC has established a joint venture with PFPG to build affordable homes Social & Private Group (PFPG)
Revenues & Benefits Department of Works and Pensions DWP provide funding for benefits administered by the Council
Environmental & Waste Scottish Environmental Protection Agency SEPA has a national policy and regulatory role Management
NHS Grampian, Police Scotland, Scottish Fire & Community Planning & Rescue, voluntary sector, higher & further The Council has a statutory role to lead collaborative community planning and jointly deliver improved outcomes Development education, business sector
Transportation and Roads Nestrans; Transport Scotland Regional/national collaboration & project funding
Sports, Culture, Libraries Sport Scotland; Museums Galleries Scotland; National strategy and project funding & Leisure Sport Aberdeen*; Aberdeen Sports Village.* ALEOs.*
Licensing Licensing & Taxi trades Consultation with Licensing & Taxi trades
Notes: * Arms-Length External Organisation (ALEO) set up wholly or in part to deliver Council services, and which remain subject to the Council’s control or influence Aberdeen City Council Councils in Scotland are not responsibleRESTRICTED for: Primary Health care , Utilities, Welfare Benefits, Blue light services and Criminal Justice 23 Section 3: Local Economy & Demographics
Aberdeen City Council RESTRICTED 24 The Evidence Wealthy Region with a Very Strong Business Base
• Output, as measured by GVA, at £18bn in 2014 – 25% growth since 2008, more than twice the Scottish and UK rates • Productivity (GVA per worker) of £37k in 2014, compared to £23k and £25k for Scotland & the UK respectively • Prosperity evidenced by an annual wage of £33k, compared to £27k in both Scotland & the UK • High participation, as measured by employment rates – – 285k in jobs in 2014, participation rate c79%, compared to 73% at Scottish level – Always been a tight labour market, although there has been a dip in employment demand in the short term • Business base is very strong - – 12k businesses in the City; 16k in Aberdeenshire, with 20% growth since 2008 - twice the rate of Scotland & UK – High rate of new business births in the region – 2,500 in 2014. 57% growth since 2008 and better 1-5 year survival rates
Regional GVA per Head (2014) 60,000 £52,447 50,000 £42,666 40,000 £37,460 £33,254 £ £30,495 30,000 £17,278 £18,796
20,000
10,000
- Aberdeen City & Cornwall & Isles of Greater London Guildford (West Kensington & Chelsea Lancashire Warrington Aberdeenshire Scilly Surrey)
GVA per head England Average - £25,367 Scotland Average - £23,102 UK Average - £24,958
Aberdeen City Council RESTRICTED 25 The Evidence Diversified Economy with Range of High Value Sectors
• Oil & gas remains the primary driver of employment in the Aberdeen and North East economy through direct and indirect employment as well as induced jobs created by sector’s spending in the wider economy • Overall economy shows material diversification with a range of other high value sectors in the city and region including energy (renewables), tourism, food, drink and agriculture, life sciences and the creative sector • Diversification also evidenced by over 40% of enterprises providing professional, scientific and technical activities, as of 2015
1 Percentage Employment by Industry Sector (2014) VAT registered enterprises by local authority and by industry sector, 2015 18% Local authorities Aberdeen City Aberdeenshire Scotland
16% Aberdeen City and Shire Scotland A,B,D,E 240 3,175 18,615 Primary industries 14% Manufacturing 495 730 8785 12% Construction 650 1,400 18,560 10% Wholesale, retail and repair 1,165 1,385 24,735 8% Transport and storage 285 370 5,165 6% Accommodation and foodservice 540 585 13,265 4% Information and communication 455 395 9,200 2% Financial and insurance activities 110 65 2,075 0%
Real estate activities 310 245 5,295 Retail
Health Professional, scientific and technical 4,050 4,100 31,900 Property
Education activities
Wholesale
Motor Motor trades Construction
Manufacturing Administrative and support services 880 955 11,575
Education, human health and social 475 465 8,600 TransportStorage and
FinancialInsurance and work activities
Businessadministration and… Mining,quarrying utilities and
Agriculture,forestry fishing & Arts, entertainment and recreation 125 180 4,005
Arts, recreation, Arts, entertainment…
Informationcommunication and Accommodation& services food
Publicadministration defence and Other service activities 410 430 8,565 Professional,scientific technical and Source: Business Register and Employment Survey (BRES) 2014 Total Enterprises 10,190 14,480 170,340
Note: The top 10 counties/local authorities in terms of population have been considered in the table for showing the Aberdeen City Council comparison with Aberdeen City. Source: “Businesses in Scotland”, The ScottishRESTRICTED Gov, accessed 17 June 2016 26
The Evidence Largest Contributor to the UK Exchequer and Scottish Finances
• The wider economy of Aberdeen contributed £4.8bn to the Exchequer in 2013/14, with the ‘economy’ tax contribution generated per worker at £17k per year 2013/14 for the Aberdeen City Region - the 8th in UK and highest in Scotland
Difference in economy taxes generated in cities, 2004/05 and 2014/15 Difference in economy taxes per job, 2004/05 and 2014/15
Source: “10 years of tax, How cities contribute to the national exchequer”, July 2016. CentreforCities Aberdeen City Council http://www.centreforcities.org/wp-content/uploads/2016/07/16-07-05-10-Years-of-Tax-1.pdf RESTRICTED 27 The Aberdeen City Region Deal Securing Future Growth
Clear policy framework to secure the economic development of the city
Securing the Future of the North East Economy – A 20 Year Vision for Wellbeing of the Place and Our People
• Infrastructure, Innovation, Inclusive Economic Growth & Internationalisation
• The City Region Deal is a key mechanism • But also: – Smarter Aberdeen objectives – City Centre Masterplan – Council’s Strategic Infrastructure Plan
The Aberdeen City Region Deal
• In January 2016, Aberdeen City and Aberdeenshire secured City Region Deal from the UK and Scottish Governments, which recognises the national importance of the region, and signals a step change in engagement from the two Governments • The two Governments have jointly committed to investing £250m over the next 10 years in support of improving the region’s connectivity (transport and digital), boosting innovation, developing a better functioning housing market and expanding the harbour
Aberdeen City Council RESTRICTED 28 City Region Deal recognises the importance of Aberdeen to the UK economy and will contribute to further diversify the regional economy
City Region Deal - goals Strategic Infrastructure Plan
not about ACC, but the UK and Scotland… . Developed after a rigorous process to identify the key strengths and needs of the city Build on the successes of the United Kingdom Continental Shelf, 1 and its contribution of £32bn to the economy, through development . Prioritises infrastructure projects to support the delivery of ACC’s and export of energy expertise strategic priorities
Deliver a new economic development model focused on internationalisation, skills and innovation and based on meaningful 2 collaboration between industry, academia and all three layers of government
Deliver a programme of essential and competitive infrastructure to improve our connectivity and enhance effectiveness of our transport 3 networks to help retain the energy sector in a globally competitive area and allow them to maximise recovery from UK territorial waters
Deliver a programme of affordable and key worker housing as the 4 city faces similar housing pressures as those experienced in London
Support the energy sector to retain, anchor and manage talent and 5 expertise in the North-East, ensuring that the region is a good place to live and work for that talent
Realise the wider potential of our people and our businesses in key 6 sectors such as renewable energy, food and drink and tourism
Actively promote our offer and the transition to a low carbon 7 http://committees.aberdeencity.gov.uk/documents/s33119/Strategic%20Infra economy structure%20Plan.pdf http://www.aberdeencity.gov.uk/nmsruntime/save asdialog.asp?lID=63430&sID=26262 Aberdeen City Council RESTRICTED 29 The City Centre Masterplan
• £1bn investment in the city centre • 1,400,000 ft2 of new office space, supporting over 5,000 new jobs, many of which will be focussed on the energy sector • 180,000 ft2 of new innovation space supporting over 500 new jobs • Over 3,000 new residents living in the city centre, 2,200 of working age • Additional local spend of £17m per year from new local residents • £2.8bn additional GVA within the Aberdeen City Region economy
Aberdeen City Council RESTRICTED 30 The City Centre Masterplan (2017)
Marischal Square Development Union Square Expansion Aberdeen Art Gallery Gallery renovation, new Commercial Office, Leisure, retail, food & upper floor for temporary Retail and Hotel Description beverage and hotel exhibitions & learning space Description Development Description Improving the culture and creating 1,200 city leisure offer in the centre jobs Site Size 10,000 sqm city centre
Site Size 9,000 sqm Investment £200m Site Size 3,000 sqm
Investment £107m Investment £30m Planning Status Application Planning Status Full Permission Planning Status Full Permission Completion Date Dec 2017 Completion Date July 2017 Completion Date July 2017
Aberdeen City Council RESTRICTED 31 The City Centre Masterplan (2019)
New Arena & Conference Centre
Exhibition Centre, Commercial & Mixed Use/Hotel Securing the future of international business and leisure events Description Elevates Aberdeen into the top 5 of global energy cities for conferences/expos 2.1m additional visitors in Years 1-5
Site Size 150 acres
Investment £383m
Planning Status Granted
Completion Date Spring 2019
Aberdeen Harbour Expansion
Light Leisure Development Type Harbour/Quay side Industrial
Diversification opportunity & Competitiveness Cruise vessels Description Existing oil services & now decommissioning; £47bn to 2050 Aberdeen globally competitive in plugging wells (c40% of value)
Site Size 9,000 sqm
Investment £440m
Planning Status National Planning Framework
Completion Date July 2019
Aberdeen City Council RESTRICTED 32 Positive Demographic Profile Current Status
A young and increasingly diversified population, with age group 16-29 years comprising 24.9% of total population
Population by Age Group and Gender, 2015, Most Populous Scottish Cities, 2014, Ethnic Population in Aberdeen (2011) (in thousands) (in thousands)
70 Males Females Male Female % 20% African Asian
60 700 12.0% Black or Caribbean Mixed/multiple
15% 50 600 10.0% Other 28.8 500 40 23.9 8.0% 400 10% 30 21.5 6.0% 16.6 Population 300 15.3 20 200 4.0% population % 5% 28.6 26.1 21.6 9.9 2.0%
10 population total % 17.2 14.6 100 0% 0 6.2 0 0.0% 2001 2011 0-15 16-29 30-44 45-59 60-74 75 and above
• In 2015, the population for Aberdeen City was • Aberdeen City is the third-largest city in Scotland • The population of Aberdeen is predominantly white 230k, comprising 4.3% of the total population of after Glasgow and Edinburgh (c. 92%, as of 2011) Scotland • There are 7 city council areas in Scotland, which • From 2001-11, there has been a c.5% increase in • The structurally young population supports the collectively contain c. 36% of the national the proportion of the population represented by economic activity population. The rest of the population is located in people of other ethnic groups • People over 75 years comprise of only 7% of the towns across the country total population • In 2015, percentage of females is more than half the city’s population (50.3%) across all age groups Note: The latest available population data is till 30 June 2015 (mid year 2015), (2) Time period is considered from 1 July 2010 to 30 June 2015 (I.e. for example 2011 means time period from 1 July 2010 to 30 June 2011),(3) Other changes include changes in the number of prisoners, armed forces stationed in Scotland Source: The latest ‘Mid-2015 population estimates Scotland and corrected population estimates for mid-2012, mid-2013 and mid-2014’, NRS, accessed 15 June 2016, ‘Mid-2011 Population Estimates Scotland’, NRS, accessed 15 June 2016
Source: National Records of Scotland (NRS), April 2016 Aberdeen City Council RESTRICTED 33 Positive Demographic Profile Continued Evolution in Foreseeable Future
The population of Aberdeen is forecast to increase, for all ages including those of working age (16-64) based on: 1) projected increase at the Scottish level; 2) migration within Scotland to Aberdeen; and 3) life expectancy
Aberdeen City: population projections by age segment (2012-37) Population projections: CAGR (2012-37) by age segment
350,000 2.50%
300,000 2.00%
250,000 1.50% 200,000 1.00% 150,000 0.50% 100,000 0.00% 50,000
0 -0.50% 2012 2017 2022 2027 2032 2037 0-15 16-29 30-49 50-64 65-74 75+
0-15 16-29 30-49 50-64 65-74 75+ Aberdeen Dundee Edinburgh Glasgow
• The population of Aberdeen City has risen in each of the ten years since 2004, when the estimated population was 205,710. Total population of Aberdeen City is projected to increase over the next few years reaching 288,788 by 2037 • While the population in the 16-29, 30-49 and 50-64 age groups are projected to rise, the main population change will be in the age groups of 0-15 years and 65+ years; these age groups will grow by 44.8% and 55.4% respectively in the period to 2037 • ACC recognises and reflects in its long term plans that the changes in the city’s age structure will affect the demand for children services, growing demand for housing for older people and demand for social care services, and will have a positive impact on the level of grant funding the Council receives
Aberdeen City Council RESTRICTED 34 Strong Housing Market Supported by Positive Demographics
• Strong housing market, with house price inflation in Aberdeen having increased by RPI over the last 7 years, ahead of the Scottish average
• Average asking prices have risen across all tenure types by almost 30% since October 2007, with larger properties having experienced larger percentage increases in asking prices
House price indices for Aberdeen City and suburbs, Scotland, UK, and Retail Average Asking Prices by number of Bedrooms in Aberdeen (£‘000s) Price Index from 2009 Q1 to 2016 Q1 (2009 Q1=100)
University of Aberdeen/Aberdeen Solicitors Property Centre, Aberdeen Housing Market Report, Q1 2016 5+ Bedrooms 4 Bedrooms 3 Bedrooms 2 Bedrooms 1 Bedrooms All
Note: The house prices for Aberdeen were calculated by sampling over all properties for sale in the Home.co.uk property search within 5 miles of the centre of Aberdeen. Source: Property Asking Price Report for Aberdeen – October 2007 to June 2016, www.home.co.uk, accessed 16 June 2016. Aberdeen City Council RESTRICTED 35 Strong Employment Story Higher Employment Rates and Workplace Earning Levels
• Both Aberdeen City and Aberdeenshire have earnings that are significantly higher than the UK and Scottish averages as measured by residency and workplace earnings • Workplace-based median gross weekly pay for full time employees in Aberdeen City at £620.20 in 2015 – versus the Scottish average of £527.00 in 2015 • The resident-based median gross weekly pay for full time employees in Aberdeen City and Aberdeenshire at £562.40 and £574.90 in 2015 respectively – versus an average of £527 and £527.70 in Scotland and UK respectively • Employment rates consistently higher than the Scottish and UK averages despite a small correction recently
Median Gross Weekly Workplace Based Earnings Annual Employment Rate (%) £700 84%
£600 82%
£500 80%
78% £400 76% £300 74% £200 72% £100 70%
£0 68% 2013 2014 2015 Aberdeen City Aberdeenshire
Scotland United Kingdom
Jul2011-Jun 2012 Jul2012-Jun 2013 Jul2013-Jun 2014 Jul2014-Jun 2015
Apr2011-Mar 2012 Apr2012-Mar 2013 Apr2013-Mar 2014 Apr2014-Mar 2015
Oct2011-Sep 2012 Oct2012-Sep 2013 Oct2013-Sep 2014 Oct2014-Sep 2015
Jan2011-Dec 2011 Jan2012-Dec 2012 Jan2013-Dec 2013 Jan2014-Dec 2014 Jan2015-Dec 2015
Aberdeen City Aberdeenshire Scotland United Kingdom
Aberdeen City Council RESTRICTED 36 Section 4: Financial Information
Aberdeen City Council RESTRICTED 37 General Fund Revenue
Aberdeen City Council RESTRICTED 38 General Fund Revenue Income and Spending 2015/16
The Council has a statutory obligation to set a balanced budget annually In setting the Budget the Council has six primary income streams spent amongst five service areas
The charts below show the split of the Council’s income and the expenditure in 2015/16
General Fund: Income (FY 2015/16) – £m General Fund: Expenditure (FY 2015/16) - £m
Total General Fund Income for 2015/16 was £689m Total General Fund Expenditure for 2015/16 was £683.7m.
Trading Gross Trading Corporate Income £34.7 Services £46.3 5% £142.7 7% 21% Non-Domestic Communities, Other Income Housing and £95.8 Rates Infrastructure 14% £210.0 30% £163.0 24%
Other Grants and Contributions £100.1 15% Education and Council Tax Adult Social Children's £106.2 Care Services General 15% £124.0 £219.4 Revenue 18% 32% Grant £130.6 19%
Aberdeen City Council RESTRICTED 39 Fiscal impact of decline in O&G prices on ACC finances (Revenue Funding)
General Fund Revenue Correlation with oil prices or regional economy Account (% 2016/17e) . The Council Tax freeze will be lifted from April 2017 to allow Councils to increase Council Tax up to a maximum of 3% . Council tax is a property tax, therefore linked to the value of the property. The current Council tax bands are based on 1991 property values, and a material change in the value is required to modify the applicable band (note that these changes are not linked to O&G sector): . Banding could decrease in case of a material reduction in value from factors such as demolition, change in physical state of its locality etc Council Tax . A reduction in value caused, for a example, by a downturn in the housing market, does not count for Council Tax purposes modifiable (16%) . Banding could increase in case of a material increase in value from building or engineering works, but effective only on market sale . While an increase in the level of unemployment may lead to an increase in the number of people eligible for the Council Tax Reduction Scheme (CTRS), funding is received from Scottish govt through the GRG for the CTRS to offset the impact . A slowdown in economic activity may lead to an increase in empty properties, this will however not exempt the owners from paying the tax. Whilst they may be eligible for a relief if the property is empty for a short period of time, the full amount is payable where properties remain empty in the long term . The Local Government Finance (Scotland) Order sets the amount of NDR that is to be distributed by the SG based on their estimate of NDR collectable. Any shortfall in this amount is made up by the SG whilst anything in excess of targets set by SG is shared 50:50 between SG and ACC . ACC is therefore guaranteed at least this level of funding irrespective of the developments in the oil and gas sector in any given year . NDR collectable estimate for ACC is based on poundage rate and the rateable value of the property – the latter, while based on market rental values, is also Non-Domestic Rates influenced by other factors such as construction costs, receipts and income for certain properties, local and national property trends analysis, so while there not modifiable (32%) is a localised element in estimation of this value, there is an element of smoothing as well . In any case, if the NDR amount ACC was able to contribute to SG reduced for any reason, the overall NDR Distributable Amount for Scotland would decrease. Whilst the amount ACC would receive back as NDR would decrease, the GRG would increase to compensate such that the impact of the reduction would be spread across all councils rather than just ACC (as an illustration, a £10m reduction in NDR contributed by ACC is expected to result in only a £0.3m decrease in total funding)
. The pool of GRG available for SG to allocate across councils depends on overall public sector funding available (which in turn is received from UKG General Revenue Grants primarily based on Barnett formula which is largely population based) and therefore is not directly linked to O&G sector performance within Aberdeen (GRG) . The method of allocating funding by the SG to individual councils takes account of local factors such as total population and the demographics of the not modifiable (17%) population (e.g. children, elderly), roads, amenities and deprivation levels relative to the overall country. Hence, there is no direct or immediate correlation between the allocation of GRG specifically to ACC as a result of the O&G sector/local economic performance
Other Grants and Contributions . The main income source within this category is recharges between council accounts which are not directly impacted by external factors in the local economy not modifiable (26%) . DWP grants received in relation to housing benefit would be impacted by the economy, as the level of housing benefits payments made by the council o/w recharges (11%) increases, funding from the DWP would also increase to offset this, leaving minimal impact to the council. o/w DWP grants (7%) Fees and Charges modifiable (6%) . Demand for some council services may be indirectly impacted which may affect the level of fees and charges generated. Services have flexed with the o/w social care charges growth and reduction in demands from the oil industry over the past 40 years and service delivery would be adjusted to meet the revised needs (2%) Aberdeen City Council RESTRICTED 40 What Do We Spend Our Money On?
Total expenditure in FY2015/16 was £683.7 million Our largest area of expenditure is staffing, while debt servicing accounts for only 4%
2015/16 Expenditure Analysis – £’000 2015/16 Expenditure Analysis – £m
300,000 Capital Admin £263.7m Financing £10.3 Costs 1% 250,000 £27.8 Transfer 4% 200,000 Payments £99.5 Staff £263.7 15% 39% 150,000
£’000 £125.6m £99.7m £99.5m 100,000
50,000 £47.1m £27.8m Third Party £10.1m £10.3m Payments £125.6 0
18% Staff
Admin Transport
Supplies Costs Premises £10.1 Premises Supplies 1% £47.1 £99.7
Transport Costs Transport 7% 15%
Transfer Payments Transfer
Third Party Payments Party Third Capital Financing Costs Financing Capital
Aberdeen City Council RESTRICTED 41 Fiscal impact of decline in O&G prices on ACC finances (Expenditure)
Staffing is the main cost of the Council and is not directly impacted by the oil and gas sector ACC has demonstrated its ability to successfully tackle funding and cost pressures via 5-year Priority Based Budgets
Operating expenses Correlation with oil prices or regional economy (% 2016/17e) . Staff costs are not directly impacted by the oil and gas sector. The staffing establishment is based on the resource needs for council services linked to the strategic and operational plans and workforce plans. Staff cost drivers are based on terms and conditions for public sector workers and the costs of national insurance and pension contributions . There is an indirect impact due to wage rates in Aberdeen being impacted by the economic cycle and impacting ease of recruitment. Staff cost In the last year the council has seen a rise in applicants for posts. An example of this would be recruiting teachers from the oil adjustable (40%) industry . Demand for council services may be indirectly impacted by the oil and gas industry, however the majority of council services (education, housing, culture, environmental, roads, planning and social care) are minimally impacted and have flexed with the growth and reduction in demands from the oil industry over the past 40 years. Were there to be a significant impact on deprivation or migration, this would be reflected in General Government Grant and service delivery would be adjusted to meet the revised needs Third Party Payments . Third party payments are payments to other local authorities, voluntary organisations and major contractors. There would be a adjustable (20%) negligible impact from the economic cycle. These will usually be long term contracts
Supplies . Supplies costs are not directly impacted by the oil and gas sector. Supplies and services are purchased from a range of suppliers adjustable (14%) across the North East, Scotland and the UK
Transfer Payments . Transfer payments include £50.7m of housing benefits, these are impacted by the economic cycle. These are 98% recovered by adjustable (11%) housing benefit grant and therefore there is a negligible impact on the council’s overall finances
Premises . Premises costs relate to the cost of operational buildings including rents and energy costs and therefore would be impacted by the adjustable (9%) economic cycle and reduce in the event of a downturn
Interest costs . The main sources of investment funding going forward will be the bond issued and the PWLB, both have sensitivities to interest rates not adjustable (5%) and inflation, but not the oil and gas sector
Other . Other costs relate to transport and administration costs. With the exception of fuel price, there is a negligible impact of the oil and adjustable (3%) gas sector
Aberdeen City Council RESTRICTED 42 Budgetary Monitoring
Monthly Management Reporting to Corporate Management Team and Quarterly reporting to Finance, Policy and Resources Committee. Reporting addresses underlying cost pressures and opportunities for improving net surplus for the year The Council has maintained spend within budgeted levels consistently for the last 5 years, generating a net surplus is annually (improving level of reserves)
• The General Fund continues to show strong financial management of public funds and repeatedly demonstrates the ability to deliver services within the budgeted assessment of financial needs • The Council has a prudent financial strategy which includes a Risk Fund to mitigate any in year pressure which again has not been utilised – further demonstrating the financial prudence and planning in place. The Risk Fund (£8.378m) is unique to the Council – this was set up to mitigate against any in year cost pressure and to provide investment which will deliver future cost reductions/income generation where this cannot be made in year • The Council continues to manage their debt portfolio to relatively low levels in comparison with other local government organisations and this has allowed them to make bold strategic capital investment decisions. During the year the Council invested over £137 million but only saw a 2% increase in its debt portfolio which represents 24% of its gross assets. Over the past five years, Capital Investment has grown while borrowings have remained stable • The graph below also shows the Council’s ability to accurately forecast expected financial outturn position throughout the year, demonstrating the robust financial governance during the year
Capital Investment compared to Borrowing Levels General Fund Expenditure Budget Performance
700,000 £3.9m/ £5.7m/ £7.9m/ £7.5m/ £5.3m/ 800,000 0.6% 0.9% 1.3% 1.2% 0.8% 0.0% 600,000
700,000 (0.2%)
)
500,000 600,000
(0.4%)
Variance
000 ’
400,000 (£’000 500,000 £ (0.6%) 300,000 400,000 (0.8%) 300,000 (£’000 200,000 (1.0%)
200,000
Expenditure Expenditure )
100,000 100,000 (1.2%) 0 0 (1.4%) 2011/12 2012/13 2013/14 2014/15 2015/16 2011/12 2012/13 2013/14 2014/15 2015/16 Capital Investment Budget Actual Total - £30.3m/ %age General Fund Surplus
Aberdeen City Council RESTRICTED 43 Council Tax
The Council currently collects approximately £106 million per annum The high Band D equivalent reflects the high number of properties that are in higher bands (14% of properties fall into top 2 bands)
• There are plans to lift the council tax freeze, enacted since 2007, from 2017. Under the plans, charges for the four highest bands of council tax will increase from £2- £10 a week, raising c. £100m across Scotland to support education (which equates to approximately £4m for ACC). The Councils will also be able to raise council tax by up to 3% p.a • Prior to the freeze, the average band D council tax in Aberdeen tracked closely to the UK (see below). Council tax in Aberdeen grew at a CAGR of 3.9% between 2002-2008, amongst the highest growth rates in council tax in Scotland. Aberdeen currently has the highest council tax in Scotland (see below)
Aberdeen vs. UK (1993-2016) Aberdeen vs. Scotland (2014-15) 1,700 1,240 £1,230
1,220 £1,211 £1,213
1,500 1,200 1,300 1,180 £1,169
1,100 1,160 £1,137 1,140
900 Band D council tax (£) tax councilD Band
Band D council tax (£) tax councilD Band 1,120 700 1,100
500 1,080 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 Aberdeen Dundee City Edinburgh, Glasgow Scotland City City of City (average) UK average Band D council tax Aberdeen Band D council tax
Sources: gov.co.uk; the Scottish government.
Aberdeen City Council RESTRICTED 44 Non-Domestic Rates
• NDR poundage rates are set by the Scottish Government annually and current Government policy is that Scotland rate matches England rate • NDR level is guaranteed by the Scottish Government (i.e. if the Council collects less the Scottish Government provides additional funding to cover any shortfall)
• National Non Domestic Rates (NNDR) income is collected by local authorities and remitted to the Scottish Government, where it is pooled nationally, and re-distributed back to local authorities along with the Revenue Support Grant • Occupiers of non-domestic property continue to pay rates based on the valuation of the property as compiled by the Grampian Valuation Joint Board. The non domestic rate (NDR) poundage for 2015/16, which is set annually by the Scottish Ministers, is 48 pence • There is also a small supplement on the poundage rate of 1.3 pence for subjects with a rateable value greater than £35,000 to cover the additional costs of the Small Business Bonus Scheme
NDR Income 250,000 £210.5m 200,000 £193.8m £177.0m £167.3m
£161.7m
000 150,000
’ £
100,000
50,000
0 2011/12 2012/13 2013/14 2014/15 2015/16
Sources: ACC Accounts
Aberdeen City Council RESTRICTED 45 General Revenue Grant
General Revenue Grant is the additional funding on top of the NDR paid to Councils. Expectations are that this will continue to fall slightly in the medium term with a marginal impact on the overall financial position of the Council
• Conditions have been attached to the GRG by the Scottish Government for a number of years, specifically in relation to the delivery of a freeze on council tax levels (for 9 consecutive years) and more recently in relation to the maintenance of a national pupil teacher ratio and probationer teacher commitments
GRG Income 200,000 £180.0m £177.3m 180,000 160,000 £141.7m £137.0m
140,000 £130.6m 000
’ 120,000 £ 100,000 80,000 60,000 40,000 20,000 0 2011/12 2012/13 2013/14 2014/15 2015/16
Sources: ACC Accounts
Aberdeen City Council RESTRICTED 46 Other Income
Other Income streams are well established and relatively static
Grants and Contributions Income (FY 2015/16) – £m
Other Grants Other Income & DWP Grants Contributions £55.8 £11.0 300,000 Other Local Authorities 250,000 Recharges to contributions other ACC £13.6 services & £62.7m £73.0m £67.6m funds 200,000 £57.4m NHS £79.4 £53.6m Grampian contributions 150,000
£’000 £19.7 £164.3m £153.5m £162.2m £177.4m £179.6m 100,000 Fees and Charges Income (FY 2015/16) – £m
50,000 Other fees and charges Car Parking Waste £12.4 £8.5 0 Collection 2011/12 2012/13 2013/14 2014/15 2015/16 £1.4 Investment Bar/Catering Properties Grants & Contributions Fees and Charges Rent Sales £7.4 Increases £1.4 £1.4 Planning Fees Burial & £3.6 Cremation Social care Fees charges Other Sources: ACC Accounts £2.0 £9.4 School's charges to catering sales private £2.2 Rents parties £10.3 £2.5
Aberdeen City Council RESTRICTED 47 2016 - 2021 Projections
The Council is currently projecting a funding gap for future years The Councils cost base will increase to meet future obligations (pay awards, contractual uplifts, demographic pressures etc.) and a savings programme has already been implemented to address the projected deficit. The Council has a strong track record of delivering against financial challenges
• The graph below shows Gross Income and Expenditure and the forecast deficit that the Council proposes to offset with a Savings Programme as described on the following slide
General Fund: Income and Expenditure Forecasts
1,100,000 10,000
1,000,000 5,000
900,000 0
800,000 (5,000) 700,000
(10,000) £ ’ 600,000 000(Surplus/Deficit) (15,000) 500,000 (20,000) 400,000 (25,000)
000 (Income/Expenditure) 000 300,000
’ £
200,000 (30,000)
100,000 (35,000)
0 (40,000) 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21
Gross income Gross expenditure Surplus/deficit (before savings)
Aberdeen City Council RESTRICTED 48 2016 - 2021 Savings Programme
5-year Priority Based Budgets (PBB) have permitted ACC to identify and deliver a long-term strategy towards savings
• ACC has undergone significant organisational change over the past 10 years. In 2009 the Council moved to a 5 Directorate model of service delivery and this was refined in 2015 to the current structural model. The overall size of the workforce shows a reduction through the pursuit of organisational efficiencies • ACC develops 5-year Priority Based Budgets, clearly identifying potential areas for savings. This exemplar exercise replaced the traditional short-term focused budget setting, still followed by a number of local authorities across the country, enabling officers to think radically about how to deliver services with a reduced cost base • In the period between 2011/12 - 2015/16 ACC achieved over £65m in savings via a number of initiatives including the redesign of communities services (£2.4m); savings in procurement (£2.2m) and electronic monitoring for home care services (£0.5m) • The graph below also shows where the bulk of cost reductions will be found over the medium term and the Council is already developing and implementing these to minimise any impact on front line service delivery
PBB Savings 2011/12 - 2015/16 Forecast Cost Savings v. Deficit
60,000 60,000 50,000 50,000
40,000
40,000
000 ’
000 30,000 ’
£ 30,000 £
20,000 20,000
10,000 10,000
0 0 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 Statutory Balanced Budget Requirement Corporate Governance Councilwide Additional Income Council Tax Base Increase Education, Culture & Sports Enterprise, Planning & Inrastructure Demographic Cost Control Housing & Environment CEO Office Service Transformation Procurement Efficiencies Administration Transformation Deficit (before savings)
Aberdeen City Council RESTRICTED 49 General Fund Capital
Aberdeen City Council RESTRICTED 50 General Fund Capital Spending
The Council has invested in excess of £250m in capital projects over the last five years, whilst holding debt relatively flat
• Capital expenditure in 2015/16 for the General Fund amounted to £102 million, out of which two thirds was incurred through the Communities Housing and Infrastructure service. This included the Council's rolling programmes of capital investment in Property, Roads and Fleet assets • Roughly a third of the capital expenditure was funded by Capital Receipts/Capital Fund, a fifth funded by Capital Grants, a fifth funded through borrowing and the remainder through revenue contributions and other grants
General Fund: Capital Funding (FY 2015/16) – £m General Fund: Capital Expenditure (FY 2015/16) – £m
Total Capital Funding for FY2015/16 was £102m Total Capital Expenditure for FY2015/16 was £102m City Centre Corporate Regeneration £1.2 Revenue £0.1 Borrowing 1% Contribution £26.4 0% £13.5 26% Education and 13% Children's Services £32.3 32%
Capital Receipts / Capital Fund £32.2 General 32% Capital Grant Adult Social Communities, £24.8 Care Housing and 24% £0.7 Infrastructure Specific and 1% £67.7 Other Capital 66% Grants £5.2 5%
Aberdeen City Council RESTRICTED 51 Major Capital Projects Overview
The total level of capital investment over the next five years will be in excess of £850m, and will deliver the following major capital projects
. A project to provide a new Aberdeen Exhibition and Conference Centre (AECC), which will support and enhance Aberdeen’s place culturally and in the global oil and gas industry, is at an advanced stage with planning permission in place for a hotel, conference centre, energy centre and anaerobic digestive plant. Planning applications AECC for further hotel developments will be submitted in the coming months. Land and pre-contract works already completed. (£383m) . The Council is currently assessing the funding mechanism for the development and anticipates this being finalised and in place by late summer 2016. While the income levels will vary, especially in the early years, in overall terms the cost to the Council is expected to be cost neutral compared to the current financial structure that is in operation for the existing site.
. The Aberdeen Western Peripheral Route / Balmedie to Tipperty (AWPR/B-T) project is a new 58km trunk road whose delivery is funded by the Scottish Government, Aberdeen City Council and Aberdeenshire Council . The project consists of four sections: Balmedie to Tipperty: 12km from Blackdog to Tipperty, Northern Leg: 16.1km from North Kingswells to Blackdog, Southern Leg: 18.7km from Charleston to North Kingswells, Fastlink: 11.5km from Stonehaven to Cleanhill WPR/B-T . The contract to construct, maintain, finance and operate the new roads, which is the largest contract to be awarded as part of the Scottish Government’s Non-Profit Distributing (NPD) model, has officially been awarded to Aberdeen Roads limited. The overall estimated scheme costs remain at £745 million, and the contract value is (£26m) around £550 million in net present value terms. Contract award was 12 December 2014 . A funding agreement has been reached for the project capping payments from the Councils. The funding agreement, sees the Scottish Government paying an 81% share of the AWPR Northern and Southern Legs with Aberdeen City Council and Aberdeenshire Council contributing 9.5% each. The Scottish Government shall pay 100% for the construction of the Fastlink and Balmedie to Tipperty Legs along with a 30 year maintenance period for all four sections. The construction is well on the way to completion with a further £26 million of expenditure for the Council remaining.
Academy . The Council has committed to building a new academy to the south of the city in conjunction with Hub North Scotland Ltd through the Scottish Futures Trust (SFT) funding model whereby the capital cost is largely met by SFT, with the Council committing to ongoing revenue costs for a 25 year period. Progress is well advanced with financial (£48m) close, which will confirm the final capital and revenue costs, expected in the coming months.
. The Council has procured a private sector partner for the delivery of new housing through a 50:50 partnership vehicle with the Council and is currently progressing with the Housing legal structure around this. The aim of the project is ultimately to deliver 1,000 affordable homes which are vital to addressing housing shortages across the City. This method of delivery will bring in private sector experience and expertise in the delivery of affordable and private housing, using a standardised product where appropriate to (£2m) assist in the speed of delivery. Whilst the Council will contribute land to the project, the private sector partner will provide increased ability to lever in finance to fund development. Both parties will share in the development risk and profit of the scheme.
. The Energy from Waste (EfW) project is a joint project with Aberdeenshire Council and The Moray Council to construct a new facility at East Tullos Industrial Estate in Energy from Aberdeen which will accept residual municipal waste from the three Councils. In 2015 the Councils committed to an Inter Authority Agreement to develop the structure of the procurement exercise for the new plant Waste (£61m) . The plant will provide the Councils with a waste disposal solution which will comply with the Scottish Government's directive of no waste to landfill after 2021. The project is also expected to be an enabler for generating a new Heat Network in the Torry area of Aberdeen, and assist in alleviating fuel poverty
Other . The Council also has plans for a number of other projects that are either started or near completion of procurement and include Art Gallery Redvelopment (£23m), Dualling Projects interior roads (£19m), City Centre Regeneration (£28m), new/upgrades to school estate (£83m), Other Property Upgrades (£43m), Waste Facilities (£24m) and other (£335m) works/projects totalling £115m.
Aberdeen City Council RESTRICTED 52 General Fund Capital Expenditure Programme
Over the next five years, ACC will finance its capital programme by a number of sources, including raising bonds as well as PWLB, thereby providing a diversified debt portfolio
• Forecast expenditure for 2016/17 and 2017/18 reflects planned completion of the first round of projects progressed under the Council's Strategic Infrastructure Plan • Budgets for 2018/19 and beyond reflect the long lead in times required for the following round of projects
General Fund: Forecast Sources of Capital General Fund: Forecast Capital Expenditure
600,000 600,000 £517.9m 500,000 500,000
400,000 400,000
£273.5m
300,000 000
000 300,000
’
’ £ £ £222.8m £183.2m 200,000 200,000 £141.2m £109.8m 100,000 £66.2m £68.5m 100,000 £65.5m £61.1m
0 0 2016/17 2017/18 2018/19 2019/20 2020/21 2016/17 2017/18 2018/19 2019/20 2020/21 Borrowing Education and Children's Services Government Grant Adult Social Care Revenue Financing Communities, Housing and Infrastructure External Grants/Funding City Centre Regeneration Capital Receipts Corporate
Aberdeen City Council RESTRICTED 53 Housing Revenue Account
Aberdeen City Council RESTRICTED 54 HRA Budget Framework and Overview
HRA is set up as defined by statute (Housing Scotland Act 1987). The Council has approximately 22,000 Council Houses of various types
• The Council has a 30 year HRA business plan • The rent strategy is an annual uplift of CPR plus 1% annually • Tenants are consulted on future rent increases • The HRA cannot subsidise the General Fund or vice-versa • Any asset transfers between the accounts must be done at full market value unless the consent of the Scottish Government is given • The HRA would sit outside the Bond issue and is therefore provided here for information purposes only
The Housing Revenue Account is a ring-fenced account which is funded primarily through housing rents Rent Collection (FY 2015/16) The Council’s housing stock meets the Scottish housing 100% quality standard as defined by the Scottish Government 90% 80% • Properties are located across the City and due to a shortage in housing demand virtually no properties fall into the “right to buy” category which is a 70% government scheme whereby tenants have the right to purchase the 60% property often at discounted values. 50% 40% 30% 20% 10% 0% 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16
Rents collected Void losses Bad debts
Aberdeen City Council RESTRICTED 55 HRA Expenditure Analysis
The largest area of spend is on repairs and maintenance (30%) and capital financing costs which represent 16% of spend
2015/16 HRA Expenditure Analysis 2015/16 HRA Expenditure Analysis
30,000 Capital £25.3m financing costs Repairs and 25,000 £22.0m 16% Maintenance 30%
20,000
15,000 £13.6m Maintenance £’000 £9.4m of Amentiy 10,000 Ground 4% £4.0m 5,000 £3.1m £3.7m £3.0m £0.8m 0 Capital from revenue 26% Staff Costs
1%
Staff Costs Staff Other Costs Other Other Costs Communal 4% Light/Heating
Management costs Management 4%
Capital from revenue from Capital
Bad debts/loss of rent of debts/loss Bad Capital financing costs financing Capital
Repairs and Maintenance and Repairs Bad debts/loss Communal Lighting/Heating Communal of rent Management
5% costs Maintenance of Amentiy Ground of Amentiy Maintenance 11%
Aberdeen City Council RESTRICTED 56 Balance Sheet
Aberdeen City Council RESTRICTED 57 Reserves and Balances
Reserves and Balances will reduce over the medium term to reflect usage of the Capital Fund and Investment Strategy Reserve
• The Council has taken the strategic decision to maintain reserves other than the Capital Fund and the Investment Strategy Reserve
Reserves and Balances (Historical) Reserves and Balances (Forecast)
140,000 140,000
120,000 120,000
100,000 100,000
80,000 80,000
£'000 £’000
60,000 60,000
40,000 40,000
20,000 20,000
0 0 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21
General Fund Reserves Other Earmarked Reserves General Fund Reserves Other Earmarked Reserves
Risk Fund HRA Risk Fund HRA
Statutory Funds Capital Reserves Statutory Funds Capital Reserves
Aberdeen City Council RESTRICTED 58 Section 5: Treasury & Debt Management
Aberdeen City Council RESTRICTED 59 Treasury Management Policy & Strategy
Prudent strategy aiming at minimising the credit, market and liquidity risk
• Effective management of the organisation’s investments, cash flows, its banking, money market and capital market transactions, with an Council objectives aim to minimise overall net cost of borrowing • Effective control of the risks associated with those activities and the pursuit of optimum performance consistent with those risks
• Level of borrowing that a Scottish Council can undertake now devolved from Scottish Government to individual Councils. However, any additional borrowing needs to ensure – – The capital investment is “affordable, sustainable and prudent” Borrowing – Main test of affordability is ability to accommodate capital financing costs within the revenue budgets (the Council has a statutory guidelines obligation to set annually a balanced budget) • Treasury Management Policy Statement and the Borrowing and Investment Strategy subject to annual review • Capita Asset Services (Capita) appointed as Council’s Treasury Advisors to provide expertise in areas such as debt rescheduling, interest rate forecasts, market conditions, new types of financing instruments and counterparty lists
• The Council looks to secure a diversified portfolio of funding sources Upper Limit Lower Limit • Borrowing decisions made with consideration to the Council's debt maturity profile <12 months 20% 0% • Debt rescheduling opportunities are considered if they reduce Council’s borrowing cost 12 - 24 months 20% 0% Borrowing Strategy • No borrowing can be undertaken purely in order to profit off the sums borrowed 24 months – 5 years 50% 0% • Upper and lower limits for maturity structure of fixed rate borrowing as alongside 5 - 10 years 75% 0% 10 years + 90% 25%
• Prudent investment strategy with priorities being (a) security of capital and (b) liquidity of investments • Approved counterparty list with highest rated entities maintained and adhered to - Investment – Power to add new investment instruments to list of permitted investments delegated to Head of Finance Strategy • No restriction on investments under 1 year tenor, longer tenor investment decisions taken on case by case basis • Investment strategy adapted to prevailing interest rate environment
Aberdeen City Council RESTRICTED 60 Sources of Funding
Bond issuance will help to reduce the cost of funding and diversify the funding profile
Debt Breakdown by instrument as at 31 March 2016 (pre proposed bond Debt Breakdown by interest type as at 31 March 2016 (pre proposed bond issuance) £m issuance) £m Market Debt - PWLB Market Fixed Rate £383.5 Debt £93.9 70% £93.9 17% Temporary 17% Loans - Variable Rate £18.6 PWLB - Fixed 4% Rate Temporary Temporary Loans £383.5 70% Loans - Fixed £67.6 Rate 13% £49.0 9%
The graphs below provide an analysis of the Council’s debt at 31 March 2016 adjusted only for the proposed bond issue proceeds of up to £350m (other new borrowings are not included). Debt Breakdown by instrument immediately post proposed bond issuance Debt Breakdown by interest type immediately post proposed bond issuance £m Market Debt - Temporary Fixed Rate Loans PWLB Proposed £93.9 £67.6 £383.5 Bond Proceeds 11% Temporary 8% 43% £350.0 Loans - Market Debt 39% £93.9 Variable Rate £18.6 10% 2%
Proposed PWLB - Fixed Temporary Bond Rate Proceeds Loans - Fixed £383.5 Rate £350.0 43% 39% £49.0 5%
Market Debt: Borrowings from Banks and other Financial Institutions Temporary: Borrowings from other Councils and investments on behalf of other Councils, Pensions Fund, ALEOs and Trust Additional sources of funding include £1.5m backup bank facilities from Clydesdale Bank Aberdeen City Council
RESTRICTED 61 Debt Maturity Profile
Smooth maturity profile, including amortisation of the proposed bond issuance
Maturity Profile with Proposed Bond Issue Source Outstanding Average rate (£’000)
PWLB £383,465 4.93% Market £93,893 4.59% Temporary borrowing £67,624 0.46% Total External Debt £544,981 Bond proceeds £350,000 Adjusted TOTAL £894,981
Note: The graph shows the principal repayments, in the case of the index linked bond, these include capital indexation. Outstanding amounts in the table are as at 31 March 2016, plus the Proposed Bond
Aberdeen City Council RESTRICTED 62 Investment Portfolio Overview
Short-dated, fixed, highly rated and readily available investments
• 54% of the investment exposure is AAA rated. Only counterparties with the highest credit ratings are used within the maximum limits set • 92% of surplus cash is invested in either Bank deposits or Money Market Funds (MMF)
Investment Portfolio by Institution type Investment Portfolio by Rating Investment Portfolio by Geography
Rating exposure
BBB+ BBB 0% £8.5m AA- 0% Banks 14% MMF £23.5m £32.8m 38% AA+ 54% £5m UK 8% £28.5m AAA MMF 46% £32.8m £32.8m 54% 54%
A £15m Gov’t 24% £5m 8%
• The Council is not exposed to exchange rate risk • The Council has a bank account denominated in Euros, which is used to transact in European funded projects. All transactions are denominated in Euros • The Council has developed a new Counterparty list in conjunction with its Treasury Advisors. This substantially increases limits of the higher rated Counterparties, and also adds additional high rated institutions •
Aberdeen City Council RESTRICTED 63 Section 6: Indirect Obligations
Aberdeen City Council RESTRICTED 64 Indirect obligations Overview
ACC actively manages the risks associated with indirect liabilities
• Other liabilities of ACC considered in this section include: PPPs, pensions, contingent liabilities, guarantees, provisions and operating leases • We always seek to proactively secure the long term affordability of any project or liability/investment during financial planning and budget process and hence Overview have taken all the necessary steps to manage these liabilities and mitigate their potential financial impact • Indirect obligations consolidated represent approximately 93% of total direct debt as of 2015/16
On balance Value % direct Line item Total annual payment obligation (£’000) Comments sheet? (£’000) debt
£8.8 million (approximately 50% indexed to RPI) supported by approximately £5 million annual funding from Aberdeen Schools Yes 106,062 24% Scottish Government Tripartite partnership project with Aberdeenshire Council and the Scottish Government. The ACC contribution Aberdeen West Yes 48,801 11% is through their capital programme. The Council has a capped contribution of £75 million. Spend to date is Construction underway Peripheral Route ~£34 million with the remaining balance expected to be spent in the next 24 months. South of the City The total annual payment obligation is split between the Scottish Government and the Council, roughly on a No - - Construction underway (secondary school) 70:30 split. Financial Close was reached on 30/6/16. Assumed £nil liability This is a strip lease agreement for £5m per year, with a potential income stream to the Council of £7 million Marischal Square Yes - - given the comfort on per year demand projections Pensions Yes 251,118 58% The Council makes an annual budgetary provision for liabilities that fall due each year No payments are expected: • Landfill sites: the Council is responsible under environmental legislation for ongoing monitoring of closed sites with all work required to date having been carried out. There remains a low risk that monitoring will highlight issues which require to be addressed in future Contingent liabilities • Landfill allowance scheme: whilst the Scottish Government is expected to formally repeal the scheme, until No - - this happens there remains a low risk of a potential liability • Waste disposal: it is expected that liabilities arising will be contained within the contract, however there remains a low risk that unknown liabilities may arise • Pension guarantees: there is a low risk of these guarantees being called on, with any liability arising potentially affecting payments to the pension fund in future years Guarantees No 7,870 2% No payment is expected Provisions Yes 5,119 1% Approximately £4m is expected to be paid during 2016/17 ACC has entered into operating leases for a number of land and buildings, and has current contracts in place Operating leases No 13,948 3% for social care residential services for which there are implied operating lease arrangements Total (2015/16) 432,918 99%
Aberdeen City Council RESTRICTED 65 Pensions
ACC continues to work towards closing the actuarial unfunded pension deficit
• The North East Scotland Pension Fund (NESPF) is administered by ACC and was established under the Superannuation Fund Act 1972 • The Fund’s investments are externally managed as required by the Local Government Pension Scheme regulations Description • The Fund is currently valued at approximately £3.2 billion. A funding level of 94% as at 31st March 2014 has been certified by the Scheme Actuary • The Fund has approximately 60,000 members, with Active members comprising 40%, and the balance split between Pensioners and Deferred members
• It is intended that the funding deficit referred to above will be made good by improved investment returns, flexibility around deficit recovery period and actuarial assumptions including potential increases in contributions over the remaining working life of employees (i.e. before payments fall due), as assessed by the NESPF’s actuary, over the next 19 years Mitigations • Finance is only required to be raised to cover specific discretionary or contingent benefits when the pensions are actually paid • In 2015/16 the Fund has continued to implement a long-term (de-risking) investment strategy, which will protect the value of the Fund, providing stability while continuing to deliver the required level of investment returns.
De-risking strategy continues to help to reduce net pension liabilities Additional information
ACC net pension liabilities (historical) . Historical movements in the pension deficit show that, whilst there remains an unfunded pension liability of c. 20% of the present value of the total defined
500 30% benefit obligations, this proportion has been declining in recent years through
the appropriate asset management of the plan
400 defined
. As of 2015/16, ACC has long-term pension liabilities of c. £251m, c. 43% of
20% total direct debt (2015/16), including c. £41m of discretionary PV of
300 benefit arrangements
obligations)) (% . Of the direct post-employment pension plans that ACC participates in, c. 20%
200 of the present value of obligations remain unfunded benefit benefit
Net liability Net liability (£m) 10%
Net liability Net liability . As of 2015/16, ACC incurred c. £9m in net finance costs, c. 25% of interest 100 payable on direct debt (2015/16), in respect of its pensions
0 0% 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16
Aberdeen City Council RESTRICTED 66 Section 7: Arm’s Length External Organisations (ALEOs)
Aberdeen City Council RESTRICTED 67 ALEOs Introduction
ACC has shareholdings in a number of entities and subsidiaries to support it in the delivery of its strategic objectives
ACC has established a number of Arm’s Length External Organisations (ALEOs) to provide services on its behalf Whilst a number require direct funding from ACC in order to remain whole, these entities are considerably smaller in size than ACC (each with Overview turnover of typically c. 1-3% of ACC gross revenue) Limited impact on the financial performance or position of ACC, which has retained the majority of its activities within its own operating company
The principal ALEOs are: Aberdeen Exhibition and Conference Centre (AECC) - wholly owned subsidiary Bon Accord Support Services and Bon Accord Care - wholly owned subsidiary Holdings Sport Aberdeen - not owned, but service agreement to ensure its principal activities are aligned with ACC’s strategic priorities Aberdeen Sports Village - Joint Venture with the University of Aberdeen The subsidiaries listed are fully consolidated within the group accounts for ACC. Joint ventures are accounted for under the gross equity method ACC also has other immaterial subsidiaries like Common Good and Trust Funds and associates like Grampian Valuation Joint Board
Whilst the ALEO takes on responsibility for service delivery, ACC oversees the adequate use of the public funds it provides to the ALEO and the provisions of best value services to the community. ACC is accountable for the actions of its ALEO’s in the delivery of its functions as a matter of Commercial public law relationship In each case, the ALEO has entered into a Service Level Agreement with ACC to deliver services ACC regularly reviews its relationships with organisations to ensure that they are monitored and accounted for appropriately, taking into consideration the level of funding provided and the underlying risks to ACC
All ALEOs are financed by ACC, so their funding and savings plans are considered in the Council’s medium term financial plan Future Since all ALEOs remain commercially viable and sustainable the Council will continue to ensure that adequate funding is available projections As the Council looks at future financial projections of its funding levels, where appropriate, it will engage with ALEOs to determine future service provision within the context of the Council’s strategic objectives
Aberdeen City Council RESTRICTED 68 ALEOs Aligned with ACC’s strategic priorities
Aberdeen Exhibition and Conference Centre Limited (AECC) Bon Accord Support Services and Bon Accord Care
Aberdeen Sports Village - Joint Venture Sport Aberdeen
Aberdeen City Council RESTRICTED 69 Section 8: Biographies
Aberdeen City Council RESTRICTED 70 Biographies
Angela Scott Richard Ellis Steve Whyte Chief Executive Deputy Chief Executive Head of Finance Angela Scott graduated from Abertay University, Dundee in Richard graduated from Loughborough University of Steven graduated from the University of Aberdeen in 1991 1993 with an honours degree in commerce and trained as an Technology in 1983 with a BSc (Hons) in Physical Education & with an honours degree in Economics and trained as an accountant with Tayside Regional Council. Following local Sports Science. accountant with Grampian Regional Council. After a short government reorganisation in 1996, Angela moved to Perth spell with Moray Council he moved to Aberdeen City Council He subsequently spent 20 years in the retail leisure sector in a in 1996 and prior to taking the role as Head of Finance and Kinross Council as the Council’s capital accountant and range of commercial and marketing roles, the last six years was involved in a number of large scale capital schemes. (referred to as the section 95 Officer) he was responsible for operating at director level. After then establishing and running helping to develop the Prudential Code and led the Following a year as a financial analyst in a pharmaceutical his own management consultancy business for three years, he introduction of Priority Based Budgeting for which the Council company, Angela moved to the Chartered Institute of Public broke into Local Government. won awards and was held up as a budgeting methodology Finance and having been promoted through various roles He now has over 10 years’ director level experience in local that aligned spend with the Council’s priorities. within the organisation, became the Lead of CIPFA in government, and has overseen major turnarounds in In 2014 Steven also took on the temporary dual role as Scotland, Ireland and Wales. performance, led significant organisational transformation section 95 Officer for Shetland Islands Council and helped the Whilst employed by CIPFA, Angela held the position of expert programmes, and generated £multi-millions in efficiency Council to recruit a permanent Officer and advised Shetland advisor for the Finance Committee of both the Scottish savings in response to reducing funding from central on their budget strategy to reduce their external reliance to Parliament and the Welsh Assembly. government. funding from their reserves. Currently Steven is leading on the issuing of a Bond and advising the Council in relation to a Since 2008, she has also been a non-executive director with Further senior appointments in Health and the BPO sector number of large, complex capital projects and is a member of NHS Tayside, holding the position of vice-chair of the board as have provided a greater breadth of experience, before joining the Corporate Management Team. well as chairing a number of committees including Finance, Aberdeen City Council in November 2015. Audit and Clinical Governance. As Director of Corporate Governance (Depute Chief Angela is the Chief Executive of Aberdeen City Council. She Executive), Richard heads up most of the corporate functions joined the local authority in November 2013 as Director of and has the brief to review the strategic planning and Corporate Governance and has been in her current role since performance management frameworks for the organisation, as July 2014. well as leading an overall review of the council’s governance arrangements and driving the corporate transformation programme.
Aberdeen City Council RESTRICTED 71 Biographies
Richard Sweetnam Neil Stewart Carlo Grilli Head of Economic Development Treasury Manager Senior Commercial Solicitor Richard Sweetnam joined Aberdeen City Council as Head Neil joined the Council in 1997 and now has 19 Carlo graduated from the University of Aberdeen in of Economic Development in February 2015. His remit years’ experience in local authority treasury 2003 with a BSc (Hons) degree in Law with Options includes inward investment, international trade, business management. Neil manages the Council’s cash in Accountancy and trained as a Scottish Solicitor at support & development, employability and funding & flows and investments, manages and evaluates the Peterkins. After qualifying as a Solicitor he has had partnerships. He is currently supporting the delivery of a associated risks, and pursues optimum spells working with Shepherd and Wedderburn, and number of transformational projects highlighted in “Securing performance/ return consistent with those risks. CMS both in Aberdeen, and Close Brothers in the the Future of the North East Economy”, the Regional Isle of Man and was involved in the sale of the Economic Strategy approved by the Council in 2015. These Neil also manages the Council's debt portfolio and offshore business to Klienwort Benson in 2011. include the new Aberdeen Arena and Conference Centre, debt maturity strategy. Neil also acts as the Aberdeen Harbour Expansion, and the City Centre Council’s primary Banking contact, assisting services with their various banking needs. Masterplan. Carlo joined the Council in 2013 in which time he has Since joining the Council, Richard has had a key role in the Prior to joining the Council, Neil worked for the provided legal advice and support on key capital and developing Aberdeen City Region Deal working with private Clydesdale Bank in a variety of roles for 11 years, infrastructure projects. sector investors, public sector partners, and the UK and including Money Market Desk, CHAPS, Foreign Scottish Governments. He represents the Council on a Exchange and the Local Authority desk. number of local, national and international networks, including the regional Economic Strategy Group, City Centre Masterplan Board, Scottish Cities Alliance and the World Energy Cities Partnership. He previously led development of the Borders Railway Economic Blueprint to secure major investment to the south east of Scotland; and Developing the Young Workforce Programme Board with Scottish Borders Council's Community Planning partners. Richard has worked in economic development for more than 20 years in a range of planning and economic consultancy roles in Brussels, and across the UK.
Aberdeen City Council RESTRICTED 72 Section 9: Financials
Aberdeen City Council RESTRICTED 73 Income Statement - Historical 31/03/2016 Comprehensive income and expenditure statement (historical) 31/03/2014 31/03/2015 31/03/2016 £'000 £'000 £'000 £'000 (unaudited)
Central services to the public (2,403) (2,159) (2,679) (2,679) Cultural and related services (33,846) (34,175) (33,691) (33,594) Education services (172,004) (181,375) (189,973) (187,582) Environmental services (30,148) (30,718) (34,490) (34,490) Housing services (20,875) (27,023) (84,020) (84,017) Planning and development services (8,820) (9,096) (7,912) (7,912) Roads and transport services (18,706) (18,875) (19,283) (19,249) Social work services (134,436) (135,930) (137,799) (135,324) Corporate and democratic core (6,658) (6,042) (6,694) (6,694) Non-distributed costs (8,097) (14,259) (5,996) (5,996) Joint boards (1,463) (1,433) (1,401) (1,401) Cost of services (437,456) (461,085) (523,938) (518,938)
Gains/(losses) on the disposal of non-current assets 2,695 6,932 3,264 3,264 Financing and investment income and expenditure (31,277) (24,583) (28,298) (33,298) Taxation and non-specific grant income 444,174 469,496 478,633 478,633 Surplus/(deficit) on provision of services (21,864) (9,240) (70,339) (70,339)
Surplus/(deficit) on revaluation of property, plant and equipment 17,245 68,892 351,633 374,418 Impairment losses on non-current assets charged to the revaluation reserve - - - - Surplus/(deficit) on revaluation of available-for-sale financial assets (62) (233) (41) 8,459 Actuarial gains/(losses) on pension assets/liabilities 91,880 (33,219) 52,454 52,454 Other gains/(losses) - - (86) (86) Other comprehensive income and expenditure 109,063 35,440 403,960 435,245
Total comprehensive income and expenditure 87,199 26,200 333,621 364,906
Note the Historical Financial Information is drawn from Aberdeen City Council’s financial statements and therefore includes General Fund and HRA.
Aberdeen City Council RESTRICTED 74 Cash Flow Statement – Historical
Cash flow statement (Historical) 31/03/2014 31/03/2015 31/03/2016 31/03/2016 £'000 £'000 £'000 £'000 (unaudited) Net surplus or (deficit) on the provision of services (21,865) (9,240) (70,339) (21,865) (9,240) (70,339) (70,339) Adjustment to surplus or deficit on the provision of services for noncash movements: (70,339) Depreciation 69,335 68,789 69,611 Impairment, downward revaluations & non sale derecognitions 24,603 32,723 82,216 69,611 (lncrease)/Decrease in Stock 147 2 (169) 82,216 (lncrease)/Decrease in Debtors 3,475 (5,367) (3,107) (169) lncrease/(Decrease) in impairment provision for bad debts - - - (11,607) Increase/( Decrease) in Creditors (3,751) 16,859 4,638 - Payments to Pension fund 14,481 11,407 14,417 4,638 Carrying amount of non current assets sold 10,367 20,447 6,161 14,417 Contributions to Other Reserves/Provisions 1,817 (1,720) 3,673 6,161 Assets held for sale movement - - - 12,173 Capital Grants unapplied transactions - - - - Amortisation of Intangible Assets 208 100 49 - Movement in value of investment properties (2,081) (3,069) (864) 49 118,601 140,171 176,625 (864) Adjust for items included in the net surplus or deficit on the provision of services that are investing & financing activities: 176,625 Proceeds from short term and long term investments - - - Receipt of Capital Grants and Contributions (22,763) (35,124) (31,307) - Proceeds from the sale of property, plant & equipment, investment property and intangible assets (12,559) (16,489) -9410 (31,307) (35,322) (51,613) (40,717) -9410 Net cash flows from operating activities 61,414 79,318 65,569 (40,717)
65,569 Purchase of property, plant and equipment, investment property and intangible assets (77,755) (96,999) (136,871) Purchase of short term and long term investments (4,831) (14,731) 621 (136,871) Other payments for investing activities - - - 621 Proceeds from the sale of property, plant and equipment, investment property and intangible assets 12,981 16,985 10,268 - Contribution from the Capital Receipts Reserve towards the administrative costs of non current asset disposals (422) (497) (858) 10,268 Proceeds from short term and long term investments - - - (858) Capital grants and contributions received 22,763 35,124 31,307 - Other receipts from investing activities - - - 31,307 Net cash flows from investing activities (47,264) (60,118) (95,533) - (95,533) Cash receipts of short term and long term borrowing - - other receipts from financing activities (25) (25) (29) - Cash payments for the reduction of the outstanding liabilities relating to finance leases and on balance sheet PPP contracts (2,862) (2,546) (1,773) (29) Repayments of short term and long term borrowing (29,661) 9,503 15,962 (1,773) Other payments for financing activities - - - 15,962 Net cash flows from financing activities (32,548) 6,932 14,160 - 14,160 Note the Historical Financial Information is drawn from Aberdeen City Council’s financial statements and therefore includes General Fund and HRA.
Aberdeen City Council
75 RESTRICTED Balance Sheet – Historical
31/03/2016 Balance sheet (Historical) 31/03/2014 31/03/2015 31/03/2016 £'000 £'000 £'000 £'000 (unaudited) Property, Plant & Equipment 1,790,107 1,816,313 2,139,615 2,162,398 Heritage Assets 151,881 171,370 172,092 172,092 lnvestment Property 84,771 84,870 85,937 85,937 Intangible Assets 180 80 31 31 Long Term lnvestments 10,835 10,602 19,061 19,061 Long Term Debtors 13,870 22,121 19,577 28,077 Long Term Assets 2,051,644 2,105,356 2,436,313 2,467,596
Cash and Cash Equivalents 18,047 44,179 28,375 28,375 Short Term Investments 25,234 40,199 31,119 31,119 Short Term Debt:ors 57,313 54,429 60,080 60,080 lnventories 1,507 1,505 1,674 1,674 Assets Held for Sale 2,206 3,412 3,979 3,979 Current Assets 104,307 143,724 125,227 125,227
Short Term Borrowing (117,608) (92,658) (113,348) (113,348) Short Term Creditors (59,533) (82,378) (87,672) (87,646) Short Term Provisions (5,899) (3,698) (3,870) (3,870) PPP Short Term Liabilities (2,488) (1,773) (2,478) (2,478) Accumulated Absences Account (8,009) (7,170) (5,618) (5,618) Grants Receipts in Advance - Revenue (1,540) (1,120) (521) (546) Grants Receipts in Advance - Capital (4,836) (495) (2,221) (2,221) Current Liabilities (199,913) (189,292) (215,728) (215,727)
Long Term Borrowing (435,168) (469,621) (464,892) (464,892) Long Term Creditors - (451) (223) (223) Long Term Provis ions (3,584) (3,371) (1,248) (1,248) PPP Long Term Liabilities (107,836) (106,063) (103,584) (103,584) Pension Liabilities (244,529) (289,155) (251,118) (251,118) Long Term Liabilities (791,117) (868,661) (821,065) (821,065)
Net Assets 1,164,921 1,191,127 1,524,747 1,556,030
Usable Reserves: General Fund Balance (57,147) (64,828) (58,856) (58,856) Housing Revenue Account (9,394) (10,457) (10,808) (10,808) Statutory and Other Reserves (50,192) (52,644) (30,102) (30,102) Capital Receipts Reserve - - - - Capital Grants Unapplied Account (97) (97) (97) (97) Unusable Reserves (1,048,091) (1,063,101) (1,424,884) (1,456,167) Total Reserves (1,164,921) (1,191,127) (1,524,747) (1,556,030)
Note the Historical Financial Information is drawn from Aberdeen City Council’s financial statements and therefore includes General Fund and HRA.
Aberdeen City Council
RESTRICTED 76 Income Statement - Forecast Year 1 2 3 Start date 01-Apr-16 01-Apr-17 01-Apr-18 Income statement (forecast) - £’000 End date 31-Mar-17 31-Mar-18 31-Mar-19
Revenue 766,598 772,079 783,363 Operating costs (610,533) (609,790) (615,615) Gross income 156,065 162,290 167,749
Lifecycle costs (26,608) (27,192) (27,812) Capital write-off - - - Operating profit 129,457 135,098 139,937 Updated to consolidate Interest receivable on cash deposits 1,040 1,429 712 Financing expenses – long term borrowings (30,444) (36,064) (37,821) into Financing Financing expenses - PPP liabilities (6,630) (6,473) (7,672) Financing expenses - finance leases - (4,975) (6,018) Expenses - Pension service costs (31,242) (31,554) (31,870) Long Term Net profit 62,181 57,461 57,268 Borrowings Retained profit b/f * - 62,181 119,642 Net profit in period 62,181 57,461 57,268 Retained profit c/f 62,181 119,642 176,910
* Retained profits have been forecast incrementally to existing reserves. Note the Forecast Financial Information includes the General Fund and HRA, but excludes capital financing and pension elements
Aberdeen City Council RESTRICTED 77 Cash Flow Statement - Forecast
Year 1 2 3 Start date 01-Apr-16 01-Apr-17 01-Apr-18 Cash flow statement (forecast) - £’000 End date 31-Mar-17 31-Mar-18 31-Mar-19
Revenue received 765,377 771,540 782,490 Operating and lifecycle costs paid (637,141) (636,872) (642,474) Interest earned on cash 1,040 1,429 712 Interest incurred on overdraft - - - Cashflow from operating activities 129,276 136,096 140,728
Capital expenditure - general (187,635) (290,975) (86,172) Capital expenditure - AECC (58,660) (132,355) (123,873) Asset disposal 7,117 13,000 4,000 Updated to Grants and capital contributions 50,427 26,630 25,480 Cashflow from investing activities (188,751) (383,700) (180,565) consolidate
Long term borrowings - additions 530,663 75,002 19,673 into Long Term Long term borrowings - interest paid (26,431) (28,329) (28,196) Borrowings Long term borrowings - repayment (112,514) (19,618) (20,897) Financing fees paid (2,649) (46) (48) PPP liabilities - additions 13,004 33,212 2,001 PPP liabilities - interest paid (6,630) (6,473) (7,672) PPP liabilities - repayments (2,478) (2,611) (4,451) Finance leases - additions - 107,000 - Finance leases - payments - (4,167) (5,000) Pension contributions (38,370) (38,754) (39,142) Cashflow from financing activities 354,594 115,216 (83,732)
Cash b/f 59,494 354,613 222,226 Net cash movement 295,119 (132,387) (123,569) Cash c/f 354,613 222,226 98,657
Note the Forecast Financial Information includes the General Fund and HRA, but excludes capital financing and pension elements
Aberdeen City Council RESTRICTED 78 Balance Sheet - Forecast Year 1 2 3 Start date 01-Apr-16 01-Apr-17 01-Apr-18 Balance sheet (forecast) - £’000 End date 31-Mar-17 31-Mar-18 31-Mar-19 Non-current assets PP&E (incl. WIP) 2,257,351 2,619,879 2,778,608 Heritage assets 172,092 172,092 172,092 Investment property 85,937 85,937 85,937 Intangible assets 31 31 31 Long-term investments 19,061 19,061 19,061 Trade and other receivables 9,031 9,031 9,031 Total non-current assets 2,543,503 2,906,031 3,064,760 Current assets Cash, cash equivalents and short-term investments 354,613 222,226 98,657 Trade and other receivables 70,626 71,166 72,039 Inventory 1,674 1,674 1,674 Assets held for sale 5,429 5,429 5,429 Total current assets 432,342 300,495 177,799 Total assets 2,975,845 3,206,526 3,242,559 Current liabilities Trade and other payables (87,646) (87,755) (88,707) Borrowings - general (38,241) (39,521) (40,929) Provisions (3,870) (3,870) (3,870) PPP liabilities (2,611) (4,451) (4,448) Finance leases - - - Accumulated absences account (5,618) (5,618) (5,618) Grant receipts in advance – revenue and capital (2,000) (2,000) (2,000) Total current liabilities (139,987) (143,215) (145,573) Updated to Non-current liabilities consolidate Trade and other payables (223) (223) (223) Long term borrowings (959,105) (1,019,999) (1,026,026) Long Term Provisions (1,249) (1,249) (1,249) Borrowings PPP liabilities (113,976) (142,736) (140,289) Finance leases - (107,808) (108,827) Pension liabilities (243,990) (236,790) (229,518) Total non-current liabilities (1,318,543) (1,508,806) (1,506,132) Total liabilities (1,458,529) (1,652,022) (1,651,705) Net assets 1,517,315 1,554,504 1,590,854 Reserves and retained profits General Fund and Housing Revenue Account 69,664 69,664 69,664 Statutory and other reserves 30,102 30,102 30,102 Capital grants unapplied account 97 97 97 Retained profits 62,181 119,642 176,910 Unusable reserves 1,355,271 1,334,999 1,314,081 Total reserves and retained profits 1,517,315 1,554,504 1,590,854
Note the Forecast Financial Information includes the General Fund and HRA, but excludes capital financing and pension elements
Aberdeen City Council
79 RESTRICTED