Open Report

City Council

25 February 2016

Capital Investment Programme 2016/17 – 2020/21

Report of Chief Operating Officer Contact officer(s) Laura Rowley Chief Operating Officer Kerry Cartlidge Strategic Manager – Corporate Finance Paul Boden Team Manager – Corporate Finance Type of Decision Policy Framework Cabinet Member Councillor Abi Brown - Cabinet Member for Finance and Partnerships Wards Affected All Wards

What is the report about? How will it fit with the Council’s priorities? 1.1 To present the Capital Investment Programme for 2016/17 to 2020/21 for approval to the additions made since the capital update report approved by City Council in December 2015. 1.2 The Capital Investment Programme is linked to other reports presented at this meeting: the Revenue Budget and Council Tax Setting 2016/17; the Treasury Management Annual Borrowing and Investment Strategy 2016/17 and Minimum Revenue Provision Policy Statement 2016/17.

1.3 This report incorporates the programmes and projects included in the capital update report approved by City Council in December 2015 that took account of the City Council’s emerging investment priorities, for example improvements to the highways infrastructure.

1.4 In the coming months, detailed work will be undertaken to develop a 10 to 15 year capital plan.

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Recommendations for City Council 2.1 That the amendments and additions to the Capital Investment Programme from that approved by the City Council in December 2015 for 2016/17 to 2020/21 capital programme be approved as outlined in paragraphs 2.2 to 2.6 of this report. 2.2 That City Council approve the increase to the capital programme by £4.650 million for ‘business as usual schemes’ in 2020/21. 2.3 That City Council approve the increase to the capital programme by £7.614 million for grant funded schemes in 2020/21. 2.4 That City Council approve the amendments to funding for previously approved capital schemes by £9.594 million for existing schemes for 2016 – 2021. 2.5 That City Council approve the increase to the capital programme by £166.634 million for new requests for 2016 – 2021. 2.6 That City Council approve the increase to the capital programme by £56.264 million for the HRA for 2016 – 2021.

How much will it cost and how will it be paid for? 3.1 The costs of the proposed programme are summarised in the following table. Further detail can be found in Appendix A.

2015/16 Proposed Proposed Proposed Proposed Proposed Total 2016/17 Est. Carry Budget Budget Budget Budget Budget to 2020/21 Forward Incl. 2016/17 (incl 2017/18 (incl 2018/19 (incl 2019/20 (incl 2020/21 (incl (incl carry in Future Yrs carry forward) carry forward) carry forward) carry forward) carry forward) forward)

Description Total Total Total Total Total Total Total

£'000s £'000s £'000s £'000s £'000s £'000s £'000s Town Centre Development 460 3,861 967 57 - - 4,885 University Station Gateway 110 2,400 2,100 1,273 3,000 - 8,773 Green Technologies - 3,110 8,510 5,510 4,220 - 21,350 City Centre Infrastructure 5 4,212 7,700 9,360 14,594 1,050 36,916 Highways Infrastructure 3,897 14,939 7,571 10,832 29,561 10,163 73,066 New Build Housing 1,333 8,778 13,924 14,675 16,575 17,525 71,477 Parks & Greenspace 315 2,002 61 - - - 2,063 Highways & Fleet 697 8,056 7,000 7,000 2,000 2,000 26,056 Sport & Leisure - 1,009 - - - - 1,009 Museums & Culture - 2,250 - - - - 2,250 Property, Planning & Employment Initiatives 129 11,764 11,639 16,550 19,900 850 60,703 Place Directorate 6,946 62,381 59,472 65,257 89,850 31,588 308,548 Education Service Development - 6,306 3,791 2,091 2,091 2,091 16,370 Adult Social Care 443 2,435 742 742 742 742 5,403 Housing (GF) 827 2,327 2,100 2,200 1,350 1,350 9,327 People Directorate 1,270 11,068 6,633 5,033 4,183 4,183 31,100 Bereavement Care - 190 250 240 - - 680 Public Health 200 650 - - - - 650 Public Health Directorate 200 840 250 240 - - 1,330 Corporate Project 1,879 2,299 3,131 1,000 1,000 1,000 8,430 Resources Directorate 1,879 2,299 3,131 1,000 1,000 1,000 8,430

Total General Fund Capital Programme 10,295 76,588 69,486 71,530 95,033 36,771 349,408

Total HRA Capital Programme - 21,709 25,043 25,937 25,695 25,695 124,079 Total Gross Capital Investment Programme 10,295 98,297 94,529 97,467 120,728 62,466 473,487 3.2 The proposed funding arrangements for the capital programme are summarised in the following table. The programme maximises the use of

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grants, capital receipts and associated resources to finance the investment. The funding for the general fund and housing revenue account (HRA) are shown separately in the table below to reflect the separate funding reserves applicable to both areas.

Est. C/F Proposed Proposed Proposed Proposed Proposed Funding Budget Budget Budget Budget Budget Total Capital Programme Funding 2015/16 2016/17 2017/18 2018/19 2019/20 2020/21 Total Total Total Total Total Total Total £'000s £'000s £'000s £'000s £'000s £'000s £'000s General Fund Borrowing 3,557 20,708 - - - - 20,708 Over-programming 19,818 34,708 35,511 43,536 14,157 147,730 Private Sector Housing Company 2,500 10,000 12,500 15,000 15,000 55,000 General Capital Receipts 2,945 1,230 3,175 - - 7,350 Ringfenced Capital Receipts 438 1,601 798 - - - 2,399 Capital Grants, Reserves and Contributions - 5,092 25,449 20,808 8,143 6,870 - 61,270 Known Capital Grants, Reserves and Contributions - 1,208 3,567 1,942 12,201 29,627 7,614 54,951 Assumed Total General Fund 10,295 76,588 69,486 71,530 95,033 36,771 349,408 Housing Revenue Account Major Repairs Reserve 9,500 12,490 15,122 10,315 10,315 57,742 Earmarked Reserves 10,209 7,805 5,173 8,159 8,159 39,505 Capital Receipts (Incl 1-4-1) 1,300 2,124 2,393 2,320 2,320 10,457 Borrowing 700 2,624 3,249 4,901 4,901 16,375 Total Housing Revenue Account - 21,709 25,043 25,937 25,695 25,695 124,079

Gross Capital Funding 10,295 98,297 94,529 97,467 120,728 62,466 473,487

When are we doing it? 4.1 The proposed capital programme is for the period 2016/17 to 2020/21.

Everything else we need to know? Background 5.1 The 2015 - 2019 Capital Investment Programme was approved by Full Council in February 2015. The programme was subsequently updated to reflect changes during the year and was approved by City Council in December 2015. This budget proposal for 2016/17 to 2020/21 retains a significant number of schemes from the updated programme, moving the programme on by a year and refreshing it to take account of additional schemes and changes to funding, timescales and cost estimates. The proposals also include an estimate of the carry forward from 2015/16 into 2016/17 and future years for current schemes based on the capital outturn position as reported at the end of December 2015 (Quarter 3). 5.2 The Capital Investment Programme has a total planned investment from 2016/17 to 2020/21 of over £473.4 million including schemes already approved by City Council in December 2015 of £218.4 million and £10.3 million estimated carry-forward from 2015/16.

The report adds a further year to the programme to maintain the 5 year capital programme assumption. This addition extends currently approved schemes by a further year in relation to:  Extension to

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‘Business as usual’ schemes £ 4.7 million  Extensions to grant funded schemes £ 7.6 million

This report also seeks approval to add a further £176.2 million consisting of:  Amendments to previously approved schemes £ 9.6 million  Additional new projects £ 166.6 million

Furthermore, the report seeks to approve and amend the Housing Revenue Account (HRA) housing programme by an additional £56.3 million represented by an increase to the approval made in December 2015 by £30.6 million and the addition of a further year (2020/21) of £25.7 million. A summary of the changes is shown in the table below and incorporated in the detailed programme at Appendix A: Changes to the Dec 2015 Dec 2015 Capital Proposed Programme Capital Capital Programme Capital Programme Programme Expansion Programme 2015/16 2016 – 20 2020 - 21 2016 – 21 £’000 £’000 £’000 £’000 Approved Programme Dec 15  General Fund 57,929 150,621 150,621  Carry forward 15/16 (10,295) 10,295 10,295  HRA 15,619 67,815 67,815 Total Approved 63,253 228,731 228,731 Additional ‘Business as - 4,650 4,650 usual’ Extensions to grant - 7,614 7,614 funded schemes Amendments to existing - 7,834 1,760 9,594 projects Increase in HRA - 30,569 25,695 56,264 Programme Revised Approved 63,253 267,134 39,719 306,853 New Requests - 139,509 27,125 166,634 Proposed Programme  General Fund 308,259 41,149 349,408  HRA 98,384 25,695 124,079 Total 63,253 406,643 66,844 473,487

5.3 The proposed Programme has been prioritised to ensure that each scheme will create a stronger city we can all be proud of. Emphasis continues to be given to job creation, economic prosperity and promoting inward investment

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that provides a return to the City to protect services and increase the overall wealth and wellbeing of the City and surrounding areas and help us to continue to support vulnerable people in our communities to live their lives well. 5.4 The programme provides opportunities to foster enterprise and entrepreneurship to support new and existing businesses to expand and train people in new skills to increase the number of people moving back into work. Investments to transport infrastructure are planned in order to reduce congestion, increase visitor numbers and support growth in our city. Increases to the number of new houses, prioritising development on brownfield sites. This positive investment maintains the delivery of sustainable improvement and growth and supporting our ‘Stronger Together’ vision. In support of the City Council’s strategic priorities the capital programme is attached at Appendix B matched to those priorities. 5.5 The council has introduced ‘agile’ working across its workforce. This complements the asset review providing fit for purpose accommodation, in the right location including appropriate customer access points. The exploration of co-location with key city partners to provide economy of scale and better service delivery continues to be discussed. 5.6 The City Council has taken possession of The Smithfield buildings. The occupation of 1 Smithfield by the City Council and other key partners improves customer access and more effective and efficient delivery of services. This will allow a number of small inefficient sites, no longer fit for purpose to be considered for disposal or developed for alternative uses. It is intended for 2 Smithfield to be leased to the private sector, attracting new business to the area. 5.7 A landmark partnership has been launched to deliver the Northern Gateway Development Zone spearheading economic growth by capitalising on the investment potential arising from HS2 infrastructure through the area. The Northern Gateway Partnership is a ground-breaking collaboration of seven local authorities and the Cheshire and Warrington and Stoke-on-Trent and Staffordshire Local Enterprise Partnerships. It aims to unlock major new growth and investment opportunities which could deliver more than 100,000 new homes and 120,000 new jobs by 2040 by creating a new Growth Zone at the connecting gateway to the Northern Powerhouse and the Midlands Engine. This is supported by Government’s decision to approve the Ceramic Valley Enterprise Zone, a chain of six enterprise development locations along the A500 corridor through the city which aims to create over 7,000 new jobs, regenerating over 240 hectares of largely brownfield land, with over £2.5 billion of investment over the next decade. Developments to the proposed Capital Investment Programme: 5.8 During the budget development for 2016/17 to 2020/21, further demands for capital investment were identified. Following prioritisation, schemes that support future investment in the City were incorporated into the proposed programme. In the coming months, with the involvement of Portfolio Holders and Support Members, further detailed work on a capital and financing strategy that considers and develops a 5 to 10 year plan will be undertaken.

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5.9 Amendments to 2015/16 to produce the 2016/17 to 2020/21 programme This budget proposal for 2016/17 to 2020/21 retains the schemes approved as part of the Capital Programme Update approved by City Council in December 2015. The update incorporated a number of new schemes to improve the city including:  £5.0 million of improvements to the highways infrastructure  £3.0 million housing zones remediating brownfield sites*  £1.7 million Spode Artists Village  £900,000 St Joseph’s Academy 6th form extension  £600,000 Drug rehabilitation centre *The housing zones scheme approval was for a total of £4.5 million, this report includes the £1.5m programmed to be spent in 2020/21. 5.10 Schemes Added – New Requests There are a number of new requests totalling £166.6 million that have been added to the capital programme supporting the delivery of budget savings and investment decisions. Summary details of new projects are below:  Private Sector Housing £55.0 million – Investment in new private sector housing to address shortages of high quality private rented dwellings and to deliver income for the council, a total programme over 10 years of £250 million.

 Hanley-Bentilee Link Road £16.0 million – Initial feasibility of £500,000 to develop a business case to support a bid through the LEP for Growth Deal 3 funding. The Link Road is estimated to cost £51 million and assumed to start in 18/19 with an estimated completion in 22/23.

 Super depot £14.0 million – consolidating existing depots into a single facility to achieve efficiency and potentially free up existing site for development.

 Salt Barn £175,000 – Investment in a new facility to provide weathertight and adequate storage capacity to hold essential supplies of salt for winter maintenance.

 Street Lighting PFI: LED Technology Retro Fit £5.5 million – upgrading of the lighting technology in street lighting columns. This will reduce energy consumption and carbon emissions to the council which will generate both environmental benefits and financial savings.

 Backlog Structural Repairs £8.2 million – major structural repairs to;

o Depots - Cromer Road, Federation Road and Tunstall Park o Fenton Manor and Dimensions Leisure Centre o Cemeteries o Enterprise Centres o Parks - Tunstall Boat House

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 Historic Town Halls £3.4 million – major repairs to protect all of the City’s Town Halls, except for Fenton Town Hall which is in private ownership and Burslem Town Hall which is currently leased to Haywood Academy.

 Potteries Museum & Art gallery £500,000 to develop plans for major revamp of the museum facilities to display and celebrate the City’s Heritage.

 Car Park Improvements £1.2 million – significant upgrade of car parks and modernisation of ticket machines to secure business continuity.

 Golden Sculpture Groundworks £75,000 – improving access and landscaping of the site at Chatterley Valley.

 City Gateways £50,000 – A range of minor improvement works are being developed for each of the designated Strategic Gateways.

 Waste Recovery £400,000 – Purchase of equipment to recover good value materials to divert from landfill and revise the infrastructure at Cromer Road.

 City Centre Public Realm £10.0 million - to support regeneration including public realm at:

o Stafford Street o Market Square/Lamb Street o Upper Market Square/Parliament Row o Tontine Square, Fountain Square and Crown Bank

 King’s Hall Renovation £500,000 – refurbishment of the hall to increase the use of this major venue to generate additional income and improve the appearance and use of the venue and facilities offered.

 Leisure & Events development £500,000 – to support the feasibility of a major leisure & events facility in the city. This would also support a review of the wider sport and leisure assets.

 Leisure Facility Improvements £509,000 – investment at various recreational facilities across the city to improve customer facilities and generate additional income in support of the revenue savings proposals.

 Peak Energy Demand Generators £1.0 million – the purchase of four

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largescale diesel generators to enable the City Council to generate electricity for sale to the national grid during peak demand in support of the revenue savings proposals.

 Strategic Acquisitions £350,000 – the procurement of assets to support the development strategy of the City Council.  Local Sustainable Transport Programme £884,000 – grant funding has been received which will contribute towards various transport schemes within the city.

 Legible Stoke £450,000 – a new wayfinding information system for Stoke-on-Trent to promote walking and cycling and improve the physical health and wellbeing of the community, funded by Public Health Grant

 Canal Towpath Improvements, Access and Lighting £1.0 million – The City has an impressive network of canals that present an opportunity for walking and cycling in a traffic free environment. Working with partners we will improve the towpaths and lighting between key strategic points so as to encourage use by walkers and cyclists.

 Burnwood Primary Nursery Classrooms £250,000 – to build new Nursery units on the same site as the Primary School. This will improve the accessibility for parents with children at both nursery and primary schools.

 Longton Market Improvements £75,000 – To provide physical improvements to the retail experience at Longton Market to make it more attractive to traders and shoppers.

 AMRIC £200,000 – Funding options are being explored so that full economic advantage can be taken of the opportunities for future employment and growth that could be generated by the Advanced Materials Research Institute for Ceramics. This funding represents a contribution from the City Council towards this project.

 Historic Park Buildings £250,000 – The City has a number of historic parks some of which have, or will, benefit from substantial investment from external sources such as Heritage Lottery Funding. This allocation would enable renovation and improvement of buildings in parks that have not yet attracted external funding.

 Staffordshire Hoard Display £900,000 – The City Council does not presently have a permanent display space for the Staffordshire Hoard, and this funding will enable a display area to be created before the Hoard returns at the end of 2016.

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 Gladstone Museum £500,000 – This provides for substantial improvement in the public reception area at Gladstone Pottery Museum.

 Hanley Library £12.0 million – This will enable a major refurbishment of Hanley library including a complete mechanical and electrical refit, replacement of windows and lifts, and other measures designed to improve the physical fabric of the building. At the same time, a display space will be created for the Minton Archive.

 Ceramic Valley Enterprise Zone £4.5 million – This allocation will enable the infrastructure works which will open up the development sites within the enterprise zone.

 Flood Protection £3.3 million – This scheme will reduce the risk of flooding within the City, enhancing the land values and making them more attractive to future investors.

 Student Accommodation – Up to a £25.0 million development of student accommodation to support Staffordshire University and provide a return on investment subject to agreeing the scheme and commercial terms.

Details of the new requests is summarised in the table below and the funding assumptions:

New projects 2016/17 2017/18 2018/19 2016-21 Assumed to 20/21 Total Funding £000 £000 £000 £000

Hanley/Bentilee Link 500 15,500 16,000 Council borrowing Super Depot / Salt 4,175 5,000 5,000 14,175 Council Barn borrowing Street Lighting PFI: 3,106 1,577 788 5,471 Council LED Technology borrowing Retro Fit / Reserves £2m Backlog Structural 2,420 2,250 3,575 8,245 Council Repairs borrowing Historic Town Halls 1,400 1,250 750 3,400 Council borrowing AMRIC 200 200 Council borrowing Car Park 1,150 1,150 Council Improvements borrowing Golden Sculpture 75 75 Council Groundworks borrowing

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City Gateways 50 50 Council borrowing Waste Recovery 400 400 Council borrowing City Centre Public 1,000 5,000 4,000 10,000 Council Realm borrowing King’s Hall 150 250 100 500 Council Renovation borrowing Leisure Facility 509 509 Council Improvements borrowing

Peak Energy 250 250 500 1,000 Council Generators borrowing Strategic 350 350 Council Acquisitions borrowing Local Sustainable 634 250 884 External Transport grant Programme secured Legible Stoke 450 450 External grant secured Longton Market 75 75 Council borrowing Private Sector 2,500 10,000 42,500 55,000 TBD Housing Company Historic Parks 250 250 Council Buildings borrowing Staffordshire Hoard 900 900 Council Display borrowing Potteries Museum & 500 500 Council Art Gallery borrowing Gladstone Pottery 500 500 Council Museum borrowing Leisure & Events 500 500 Council Development borrowing Canal Towpaths 1,000 1,000 Council borrowing Hanley Library 1,000 3,000 8,000 12,000 Council borrowing Burnwood Primary 250 250 Council Nursery Classrooms borrowing Ceramic Valley 2,000 2,500 4,500 Council Enterprise Zone borrowing Flood Protection 1,000 1,000 1,300 3,300 Council borrowing

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Student 25,000 25,000 Council Accommodation borrowing Total 27,294 32,327 107,013 166,634

5.11 Schemes Carried Forward A number of schemes have been re-profiled into future years reflecting known and assumed changes to spending profiles and cash flows affected by for example, revised grant notifications. The re-phasing of these schemes is based on the quarter 3 outturn estimates to be reported to 29 March 2016 Cabinet. The carry forward figure estimated currently at £10.3 million is subject to change once the final capital outturn for 2015/16 is known and carry forwards agreed by the end of May 2016. 5.12 Additional funding to existing projects The proposed programme adds a further year amounting to £4.6 million to existing “business as usual” schemes so as to provide for the core minimum programme to deliver existing services as summarised in the table below. Schemes £000 Highways works - to maintain the roads network 1,000 Vehicle replacement - to support services including waste 2,000 Building maintenance – maintaining the council’s premises 500 Statutory Clearance – to take action on unfit housing 150 IT infrastructure – to support the computer infrastructure 1,000 TOTAL 4,650

5.13 In addition, £9.6 million has been added to existing schemes so as to reflect the latest revised cost estimates, including £1.5 million for the housing zones’ scheme scheduled for 2020/21, as detailed below.

Schemes £000 New Build Housing Wellington Road Hub – approval to support the provision of 100 community services. Spode 1,685 Additional funding for further demolition and incubator hub. The Willows Primary School The building of new school block to support primary school 1,000 provision and increased intake. Basic Need S106 contribution to enable works to be carried out at 300 Newstead Primary Public Building Maintenance Demolition works of obsolete water tower at Cromer Road 60 depot for health and safety reasons.

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Burslem Public Realm and School of Art 690 Bringing the former school of art back into use. Housing zones (final year) Adding final year to existing scheme to improve brownfield 1,500 sites. Development Site Demolitions 1,075 Highways Fleet New fleet vehicles required to support the additional £5.0 1,184 million investment in highways infrastructure

Hanley Park Regeneration 15 To align the scheme to the HLF grant provided. City Centre Connectivity 10 To align the scheme to the LEP support provided. Park Hall Visitor Centre 200 To construct a new visitor centre at Park Hall Bereavement Care 500 For flood mitigation measures as Carmountside Cemetery Stoke PSiCA 53 To align the scheme to the English Heritage Grant provided. Adult Social Care Capital grant 50 To align the scheme to the grant provided. Fire Remedial Works 1,250 To ensure that operational buildings are safe and comply with the fire risk assessment and related legislation Birch Terrace (78) (Removal of scheme) TOTAL 9,594

5.14 In addition, £7.6 million of schemes supported by external grants have been added for 2020/21. The programme assumes that the level of funding will continue at the present level; the funding assumptions are reflected in the table below. The programme will be adapted to reflect known positions during the year in order to ensure that the Council does not incur costs higher than the level of grant received. Schemes £000 LTP Transport Block 1,665 LTP Maintenance 1,916 Basic Need / Pupil Places 366 Devolved Formula Capital 416

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School Condition Allocations 1,309 Disabled Facilities Grant 1,200 Adult Social Care Capital Grant 742 TOTAL 7,614

5.15 The Housing capital programme has an additional requirement of £56.3 million to 2020/21 represented by an increase to the approval made in December 2015 by £30.6 million and the addition of a further year (2020/21) estimated at £25.7 million. The increase represents a major investment to the housing stock of the council, a higher specification of void work is to be carried out in the Little Chell, Stanfields and Tunstall areas as a pilot, which once the results are considered will result in a new standard being rolled out to the rest of the city in following years. In the long term it is believed that providing a better offer in terms of accommodation standards will reduce voids levels as turnover should slow. Increasing the up-front investments into our stock should also diminish the need for repairs and maintenance in future years. The additional £10.0 million investment will also provide a better built environment for our estates including a fencing and gate programme. As an example in 16/17 it is intended to increase the delivery of kitchens by 210, bathrooms by 90, external doors by 140 and central heating by 150. There is also a proposed increase in investment across the stock of apartments to bring them to a high standard and quality offer. The proposals also include refurbishment and remodelling scheme for the sheltered housing blocks to the benefit vulnerable tenants. This will total £28.1 million for the five years of the Capital Programme. This expenditure would include such items as fire safety improvements including sprinkler systems, new windows, replacement roofs, upgraded security systems, entrance doors and canopy and external wall insulation. Expansion of the HRA estate to provide some new build dwellings will regenerate sites within the boundaries of the city whilst delivering improvements for existing tenants and providing the offer of new affordable housing and address demand, £18.2 million. These developments would be driven by investment from utilising ‘one for one’ capital receipts and associated match funding. The increase to investment over the course of the capital programme demonstrates the intention to continue to improve and expand the city’s housing stock to continue to provide a safe, secure and quality offer to our tenants. The profiling of the investment is subject to change once the Asset Strategy is complete and approved in mid-2016. The proposed HRA capital programme will be funded via in year contributions, utilisation of reserves, capital receipts and borrowing as shown in paragraph 3.2 and Appendix C. The proposals are within the current headroom available and the HRA would remain under its current borrowing cap. Before any further borrowing is entered into further consideration would

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be carried out to ensure that this presents the most cost effective means of finance available or of any alternative options. 5.16 At 6th October 2015 Cabinet a Draft Housing Development & Regeneration Programme was presented. The report advised that the council is considering its role as a developer of private rented housing to support housing growth and increase revenues in support of council services. One proposal under consideration is to establish a housing company to provide high quality private rented housing within the city to address the demand in that sector of the market. The City Council intends to develop “City Living” in Stoke-on-Trent, in the way that it has been developed in other cities, and the creation of a company provides an opportunity to realise value from publicly owned sites and support the City Council’s housing growth agenda via development of a mix of housing solutions which provides an income stream for future reinvestment and an income return to the council. The financing of the company and building schemes is subject to further consideration but for this report it is assumed that the £55 million proposed capital programme reflects the costs of developing the private rented housing sector. It is assumed that the financing may include access to a loan facility via the city council and/or share purchase, private sector investment, sale proceeds and rental income. Financing of specific schemes is likely to be a mix of different funding options predicated on the nature of scheme. A separate report will be presented in early 2016 that discusses the proposal in more detail.

5.17 Funding Assumptions In developing the capital programme a number of assumptions in relation to external support either through government grants or other external agencies financed 100% by external funding or a mix of council and external support. Assumptions for annual grants are that they will continue at the present level, the capital schemes will be adjusted in due course once the Council is notified of the actual level of grant support, these schemes are shown in the table below.

Secured Unsecured Borrowing Total Scheme External External & General Funding Funding Funding Receipts £'000s £'000s £'000s £'000s Local Transport Plan (LTP) 3,332 4,997 - 8,329 Integrated Transport Block

LTP Maintenance 4,298 5,746 - 10,044

Basic Need / Pupil Places in 1,897 1,098 - 2,995 schools

Devolved Formula Capital 416 1,664 - 2,080

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(Schools Controlled grant)

School Condition Allocations 609 5,236 5,845 -

Adult Social Care Capital Grant 1,693 3,710 - 5,403

Disabled Facilities Grant 442 5,900 100 6,442 (Housing) Total 12,687 28,351 100 41,138

Details of the funding sources and their level of certainty are included in Appendix C.

5.18 Where there is any doubt as to the realisation of the funding the schemes affected will either not be undertaken or subject to a separate report to the Council to consider if the scheme should continue with the financial support of the council. 5.19 Etruria Valley The Etruria Valley Infrastructure Scheme will transform the northern gateway to the city through a major transport infrastructure scheme that simultaneously opens up a key employment site. As a result it is designed to both improve access to the city centre and ease congestion in the city as well as accelerating employment land development. The project is assumed to be funded by a mix of secured and, as yet, unsecured funding and council support. In March 2015, the City Council finalised negotiations on £2.5 million of Regional Growth Fund monies to replace an equal amount of City Council funding, the Capital Programme was amended to reflect the change. This grant was to be spent in 2015/16 and predicated on the delivery of direct job outputs. Due to the delay in commencing the works, it is not possible to spend the grant in the current financial year. A change request has been submitted to the Department for Business, Innovation & Skills (BIS) to potentially draw down a maximum of £1.0 million in 2015/16 and to look to roll the remaining allocation forward as well as reduce the job outputs. A decision on the change control is still outstanding and as such, so as to adopt a prudent position, it is assumed the external funding will not be available and the cost will be covered by the City Council. The current assumptions on funding below reflect the loss of RGF grant. Council Secured Unsecured Total Funding external external funding funding (assumed) £000 £000 £000 £000 Feb 15 6,799 1,132 26,760 34,691 Assumption Feb 16 8,299 2,500 23,892 34,691 Assumption Difference 1,500 1,368 (2,868) 0

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C/f 0 889 2,708 3,597

The primary financial risk to delivering the scheme is that the City Council does not secure all the assumed external funding. Should the City Council be unsuccessful in receiving approval for external funding it has three options. 1. To stop the project. 2. To deliver part(s) of the project with the funding that it has secured, and seek to secure the remaining funding with a view to delivering the rest of the project in the future as part of a future phase of works. 3. To self-fund the full cost of the project and complete the scheme.

To stop the project the City will continue to suffer traffic congestion and will lose job opportunities and may result in loss of future funding opportunities. If the Council chooses option 2 then only a limited element of the scheme could be delivered which is unlikely to bring about many of the benefits that the full scheme is intended to deliver. Option 3 would deliver the road scheme and secure the transport and economic benefits but will require additional City Council funding which will impact on the overall funding of the capital programme.

It is of note that at the recent meeting between the Project Team and the Department for Transport (DfT) the revised strategy to deliver the Council’s element of the works in one single phase, with the resultant benefits in cost and time savings, was positively received by the DfT.

5.20 Responding to demand change The capital programme has been developed over a five year term and as such contains best estimates of costs, funding assumptions and expected delivery. Given the future uncertainty in key areas such as access to and future continuation of external funding, these assumptions and estimates will inevitably alter to reflect and respond to changes in those estimates for example, where future funding is removed or provided. 5.21 In response to this the capital programme will be subject to regular scrutiny and challenge. Schemes put forward for approval as part of this report may be subject to change or removal during the year. Members will be asked to consider those changes including the removal of schemes or their substitution as differing priorities emerge. Minor changes will be managed in compliance with the financial regulations (Virement) procedures. Major scheme changes, in particular those funded by the City Council, will be reported to members and be clear on the financial impact and future liability to the Council in respect of those changes. 5.22 There are also a number of schemes that have been split into phases providing the opportunity for the Council to ensure that funding is available prior to the next phase taking place. This will reduce risk to schemes and provide maximum flexibility of choice and is linked to the successful delivery of preliminary, phase 1, schemes contained within the proposed capital programme. 5.23 Future Capital Schemes There are a number of schemes that are in various stages of development

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and feasibility to address future service pressures and ambitions. These schemes will be refined in the coming months and presented in future capital investment programme reports. These schemes include, but are not limited to:  Youth Zone – considerations for options of providing youth service support to the young people of the city.

 Hanford incinerator – options for incinerator at the end of the contract in 2020.

 Industrial units – meeting the demand for industrial units to support business.

Affordability: 5.24 Any aspirations for increased investment to improve the city have to be balanced with overall affordability in the longer term. Where additional investment has to be met by the Council in the form of borrowing this increases demand on revenue resources (to meet debt and interest payments). Assessment of the economic return to the city and the City Council is of increasing importance to the decision to invest in a capital project. 5.25 The City Council operates in accordance with CIPFA’s Prudential Code for Capital Finance in Local Authorities which requires the preparation of a number of prudential indicators. A revised set of indicators based on the capital programme proposed in this report are reflected in a separate report on this agenda for consideration and approval. 5.26 Capital financing budget The capital financing budget for 2015/16 started at £29.0 million. This was subsequently reduced by £5.8 million to reflect the change to the methodology of calculating the minimum revenue provision (MRP), the reduction was matched by an equivalent fall in MRP resulting in a budget of £23.2 million. The budget is forecast to underspend in 2015/16 by around £9.5 million representing the level of delayed borrowing liability, currently standing at £219 million including the December 2015 capital report. To support the budget savings required as part of the 2016/17 budget setting, there is a proposal to reduce the capital financing budget in 2016/17 by £2.9 million. 5.27 Following the budget consultation the general fund revenue budget to finance capital charges for 2016/17 is expected to be a net £20.3 million and supports the liabilities in respect of the actual commitments for debt repayment, in the form of interest, and the Minimum Revenue Provision (MRP) which accounts for the principal expended and a level of, as yet, borrowing not taken. The general fund capital financing budget is summarised in the table below:

Net Budget Note

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£m Interest on current debt 7.1 1 Minimum Revenue Provision current charge 7.2 2 Minimum Revenue Provision Capital report Dec 15 1.0 2 Interest on balances/other charges (0.6) 3 Borrowing requirement 5.6 4 Total 20.3 Notes. 1. The current actual debt is £326.8 million an interest cost in 2016/17 of £11.0 million, of which £3.9 million is rechargeable to the HRA, a net general fund charge of £7.1 million.

2. MRP is estimated at £8.2 million including £1.0 million of debt costs from the £40.0 million borrowing included in the December 2015 capital report. 3. There is a net £0.6 million credit for interest on investments and other recharges. 4. The remaining budget of £5.6 million is retained to cover the revenue costs of interest for borrowing required to support cash flow and MRP. 5.28 Future Budget Pressures Borrowing required for the capital programme is £366.8 million, represented by an unborrowed liability of £179.0 million from the past capital programmes, a further £61.4 million assumed borrowing and over-programming included in the February 2015 capital report, additional £2.7 million within the December 15 update report plus £123.7 million borrowing pressure in this report including a reduction in capital receipts of £2.8 million, a total of £366.8 million. Unborrowed liability £m  Actual at the end 2014/15 179.0  Planned as result of Feb 2015 programme 61.4  Planned as a result of the December 2015 update 2.7  Planned as a result of this report 123.7 Total 366.8

5.29 To put the borrowing requirement into context, in the event that the Council needed to borrow the full £366.8 million all at once the borrowing would incur an annual revenue cost of £12.9 million. The revenue budget to support interest charges on debt will be required when actual debt is taken out however since the implementation of prudential borrowing in 2007, the City Council has not needed to borrow the maximum amount of funds required to cover actual and planned capital expenditure, instead opting to use cash resources in order to temporarily fund the capital programme and reduce the annual impact of borrowing costs on the revenue budget. This option will continue into the future.

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5.30 The remaining capital financing budget not committed to funding actual debt is £5.6 million. The revenue budget required for the MRP for the over- programming in this report (£147.7 million) is £3.7 million, a total additional annual revenue cost assuming all debt was borrowed at once of £16.6 million against a current remaining revenue budget of £5.6 million, a gap of £11 million. The MRP (£3.7 million) is assumed to be the first call on the remaining £5.6 million budget, this would leave £1.9 million budget remaining, an equivalent to cover £55.0 million of debt pressure.

The table below summarises the budget position.

Budget Borrowing equivalent £m £m Budget Available (see table 5.29) 5.6 Less MRP (3.7) Available budget 1.9 55

Maximum borrowing demand 12.9 367 Borrowing gap 11.0 312

5.31 The City Council continues to explore various options available to finance the programme. These include the securing of external funding to minimise the impact on internal resources and the local tax payer. Given the reduction in the national availability of external funding sources there is a growing pressure for the City Council to use internal resources to deliver these aspirations. This can be in the form of revenue, existing reserves, capital receipts or borrowing. A bid to H.M Treasury via the LEP for a favourable (lower) rate loan of £24.0 million was successful, the loan offer is time bound and should the Council elect to take advantage of this loan option it is likely to taken out at the end of 2015/16. 5.32 In addition to the revenue funding required to support capital financing, revenue resources are also required to support the development of major schemes. Careful evaluation is undertaken of the funding, skills and other resources required in bringing the capital programme to fruition. The revenue impact of the capital programme is provided in the budget presented as part of this agenda. 5.33 As part of the budget development for 2016/17 all projects and funding options will again be revisited and updated, including the assumptions in respect of financing costs, level of potential capital receipts, general resources forecast, external and private sector funding etc. In addition, there will be the opportunity to re-phase and reschedule investment to delay or stop certain projects to deliver the most beneficial package of outcomes to the

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local taxpayer and businesses within the overall level of resources available.

Asset Rationalisation and Capital Receipts:

5.34 An integral part of the financing of the capital programme has been the need to consider the projected level of capital receipts and to take a long term approach to all property assets and interests. The sale proceeds from the disposal of assets provides capital receipts as a funding source to support the overall affordability of the programme and minimises the level of borrowing and the consequential revenue implications. 5.35 As current market conditions remain sluggish and the sale of assets to raise a significant level of capital receipts continues to be a challenge. The City Council has to take a balanced and measured approach in considering all of its property interests and its future service provision, and the consequential need to retain operational and administrative buildings to deliver that service.

5.36 This overall level of capital receipts generation contains some obvious risks given the current economic climate and its impact on the local land and property market. The 2015/16 updated capital report included an estimate of capital receipts for 2015/16 of £8.1 million including slippage from 2014/15. It is forecast that sales in 2015/16 will outturn at £6.7 million a short fall of £1.4 million to carry forward into 2016/17 and later years. However, within the forecast for 2015/16 there are disposal assumptions totalling £2.8 million that have been RAG rated as red. In consideration of the likelihood that not all of these receipts will be realised it has been assumed to use borrowing in lieu of these receipts, this has resulted in an increase in the amount of over- programming in later years. Should these receipts be realised at a later date this will result in a positive reduction to the over-programming. In consultation with property services an estimate of the capital receipts for general fund was estimated at £21.0 million assuming sales of large areas of the estate. However, after a careful assessment of the risks and likelihood of disposals a prudent estimate of achieving these capital receipts has been set at £7.4 million. 2016/17 2017/18 2018/19 2019/20 2020/21 Total £000’s £000’s £000’s £000’s £000’s £000’s General 2.945 1.230 3.175 0 0 7.350 Fund Subtotal 2.945 1.230 3.175 0 0 7.350 Housing 1.000 1.000 1.000 1.000 1.000 5.000 (RTB) HRA 300 1.124 1.393 1.320 1.320 5.457 1-4-1 Total 4.245 3.354 5.568 2.320 2.320 17.807

5.37 The timing of capital receipts has been incorporated into the funding arrangements for the proposed capital programme. Should receipts not be

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realised in line with the assumptions in the table above the programme will be adjusted to reflect those changes. 5.38 The Renew programme has been set at the figure representing the obligation to complete the new build housing programme which is assumed to be funded by earmarked receipts of £2.4 million expected by the end of 2015/16.

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Technical Appendix: The following sources of information were used for this report: Capital Programme Update 201516-201920 City Council December 2015 Draft Housing Development Report Cabinet Oct 6 2015

The following appendices are included as part of this report: Appendix A : Capital Investment Programme for 2016/17 – 2020/21 in Directorate Appendix B : Capital Investment Programme for 2016/17 – 2020/21 in Council Priority Appendix C : Assumed funding of capital programme Appendix D : Risk Register

Implications taken into consideration in this report: Financial: The financial implications are set out in the body of the report. Legal: N/A Public Health, Human Resources and Public Services (Social Value) Act 2012: N/A Equality Impact or Environmental Impact Assessments: Where applicable, projects within the original capital programme were subject to an equality impact assessment. The impacts of any changes to projects as part of this update have been considered to assess whether the original EIA will be affected and where necessary appropriate action has been taken. Existing Council Policies: The Capital Investment Programme is reported as part of the Budget and Policy Framework. Key Risks: A detailed risk register is included in Appendix D. The key risks are as follows:  There is an assumed level of external funding support within the programme which is currently unsecured. Given the current capital financing pressure mitigation is likely to require the cessation or substitution of existing schemes within the programme or the seeking of additional or alternative external funding.  A further reduction in the level or timing of capital receipts due to the vagaries of the market and the management of disposals. This will be kept under constant review and schemes may need to be re-phased to accommodate any changes.

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 Further impacts of Government reducing the level of funding committed to finance the future capital programme. The programme will be maintained within a level of affordability prudent for the City Council’s capability.  Schemes that have started and committed are difficult to curtail. The financing components of any scheme will need to be finalised prior to any major contractual commitment.  The complexity of innovative schemes, which will present specification, evaluation and delivery challenges.  The capacity of the City Council to manage a significant and varied programme of investment.

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