CABINET 10 th FEBRUARY 2006 JOINT REPORT OF THE CHIEF EXECUTIVE AND ASSISTANT CHIEF EXECUTIVE (FINANCE, IT & RESOURCES) MEDIUM TERM CAPITAL STRATEGY 2006/07 to 2008/09 1. PURPOSE 1.1 This paper • sets out the draft Council’s capital strategy for the next three years • updates the latest projections for 2005/06 • sets out the commitments into 2006/7 and 2007/08 • identifies the effect of funding capital expenditure on the revenue budget • updates the prudential indicators for 2005/06. 2. Background 2.1 It is essential that we are able to evidence a budget process that links revenue and capital. With the advent of changes to the revenue support regime and an increasing internal demand for “prudential borrowing” the process for planning and delivering the revenue and capital budgets needs to be improved. This paper sets out an approach for 2006/07 and beyond. 2.2 In February 2005 a report (EDRS 05020006) was taken to Cabinet detailing the 2005/06 capital programme and suggested new starts. This showed committed expenditure in 2005/06 of £37,928,000 with resources of £46,677,000 leaving £8,749,000 available for new starts. The HRA expenditure and resources stood at £33,853,000. 2.3 Proposals in this report were scrutinised by the Finance and Resources Overview and Scrutiny Commission on the 26 th January 2006 (EDRS 6010087). No recommendations were made by the Commission to Cabinet. 3. Executive Summary/Recommendations 3.1 The main items to note from this report are: • The new draft capital strategy setting out the Councils strategy for planning future capital spend in particular the new policy led scoring mechanism requiring the need for a business case for each scheme which includes taking account of the impact on revenue. • The current projected capital spend is £5.7m above resources in 2005/06 and £1.6m above resources in 2007/08 due to capital receipts of £8.5m being set aside to repay debt in 2004/05. As a result of this and the development of a C:\mgPageScraper\Oldham\Intranet\CABINET\20060210\Minutes\$m2nvamqo.doc Capital Strategy it is proposed that there will be no new capital schemes started in 2006/07 funded from Council resources. • The total capital spend in 2006/07 is estimated at £116m, the detail of schemes is set out at Appendix 3. • As the capital strategy is embedded and future decisions around Council funded capital schemes is policy led there may be new starts occurring in 2006/07 and beyond but all will be based on a business case appraisal and updated to Members via the budget monitoring process. • The effect on the revenue budget of the proposed level of unsupported and prudential borrowing as well as those schemes which have been given a direct revenue contribution have been included in the revenue budget. 4. Capital Strategy 4.1 The Capital Strategy attached at Appendix 1 sets out the overarching framework against which the future capital plans of the Council should be drawn. It puts this strategy into the context of the Golden Thread and Oldham Business Planning Process. The main theme of the strategy is that all expenditure decisions should be assessed against their ability to deliver the Council’s Vision, Themes, and Priorities as set out in Departmental and Service Improvement Plans. This must also take account of the revenue implications of both financing the capital scheme and any additional revenue funding required or savings once the scheme is completed. This will take the onus away from project managers finding funding for schemes until the schemes have been approved as a strategic fit or as having beneficial revenue consequences. Only at this stage does funding for a scheme need to be found unless Members decide they wish to bear the revenue consequences of the scheme. 5. Capital Programme 2005/06 5.1 The budget setting report in February 2005 showed a projected spend in 2005/06 of £78.4 million including HRA This was supported by resources of £80.6 million, due to additional work to meet the 2010 Decent Homes Standard funded from additional government funding for FCHO. The current projection shows spend of £106.4 million supported by resources of £100.6 million. A difference to be funded from a loan of £5.7 million. A comparison of the figures reported in February and current projections can be seen in Appendix B 5.2 For 2005/06 the total forecast spend was £78.4m against available resources of £73.4m. the gap of £5m arises as we took the opportunity to repay debt in year from capital receipts set aside. 5.3 The increase in this additional loan required is largely due to capital receipts being projected at £521,000 lower than originally estimated 5.4 The detailed analysis of the £116m therefore proposed is set out in Appendix 3. C:\mgPageScraper\Oldham\Intranet\CABINET\20060210\Minutes\$m2nvamqo.doc 6. 2006/07 and 2007/08 Capital Programme 6.1 The 2006/07 and 2007/08 current commitments on the capital programme are shown in Appendix 2. The bottom line figures show that before any new starts are considered we already need to utilise a loan of £1.6 million. This leaves no Council funds available for new starts in 2006/07. 6.2 In light of the limited resources available for 2006/07 bids for schemes/funding from departments will be presented to the Capital Strategy Group to be evaluated in light of the new capital strategy. Any bids that have a good strategic fit or beneficial revenue consequences will be asked to draw up a full business case. These schemes will then be reassessed and if successful built into the capital programme in future years. This means that for 2006/07 there will be no new starts at this stage 7. Revenue Implications 7.1 Clearly most schemes will incur revenue costs for the duration of their life. For example, a new build will need to account for utility bills, rates and ongoing repairs. In most cases where a scheme replaces a building these costs will be an adjustment of previous costs. This would hopefully be a saving, for example, reduced energy costs due to better insulations. 7.2 For 2006/07 the capital programme at Appendix 3 includes several schemes that involve a revenue contribution and a depreciation charge for new and existing buildings. For example, Medlock Valley and Blackshaw Lane revenue costs have been included in the Education services and schools base budgets for 2006/07. A review by Central Finance has also confirmed that the Asset Management Revenue Account (AMRA) budget held centrally equals the depreciation charge included in Departmental base budgets. 8. Prudential Indicators 8.1 The Prudential Borrowing powers (which came into effect in April 2005) provide councils with welcome freedom with which to tackle funding issues. 8.2 Authorities must however ensure that they have in place robust procedures which ensure that any proposals is justified by a business case. 8.3 Guidelines for departments are included in the Capital Strategy at Appendix 1. These specify approval thresholds. It is proposed that these will allow:- • Chief Officers delegated powers to approve proposals costing less than £50k • Schemes between £50k and £100k to be approved by the Assistant Chief Executive (Finance, IT & Resources)/Head of Finance • Larger schemes to be subject to Cabinet approval. 8.4 There is a requirement that in order to assess the ability to borrow the Council assesses its prudential indicators. The key indicators are set out at Appendix 4 for scrutiny. C:\mgPageScraper\Oldham\Intranet\CABINET\20060210\Minutes\$m2nvamqo.doc 9 Community Cohesion Comments 9.1 The impact of existing programme starts rolled forward from 2005/06 included in 2006/07 were assessed against all of the Council’s corporate priorities, including community cohesion, as part of last year’s scoring system. 10. Legal Comments Not applicable. 11. IT Implication 11.1 There is limited provision for ICT schemes and the key going forward under the Capital Strategy will be to fund such schemes from prudential borrowing. 12 Property Implication 12.1 As set out in the programme at Appendix 3. 13. Recommendations 13.1 The Cabinet is recommended to : a) Agree the Capital Strategy as a process against which future capital programmes should be set. b) Note the current budget projections, and the impact on the revenue account. c) Note the future years capital programme and assess the initial process by which assessment of bids is to be carried out by the Capital Strategy Group. The following is a list of the background papers on which this report is based in accordance with the requirements of Section 100D(1) of the Local Government Act 1972. It does not include documents which would disclose exempt or confidential information, as defined by that Act. Various files held by Assistant Chief Executive (Finance IT and Resources), Room 442, Civic Centre (Tel: 0161 911 4900). C:\mgPageScraper\Oldham\Intranet\CABINET\20060210\Minutes\$m2nvamqo.doc APPENDIX 1 CAPITAL STRATEGY 2006-09 1.0 BACKGROUND 1.1 Capital investment shapes the future. This strategy is therefore a key element of Oldham MBC’s medium term planning process, drawn together with the contribution of all Directorates and agreed by the Senior Management Team, Capital Strategy Group and Cabinet. The document sets the strategic direction for the Council’s capital programmes and its approach to managing its £772m asset portfolio. It also provides the background against which OMBC will pursue funding opportunities in order to optimise capital investment for Oldham’s needs.