To provide Cabinet with comments on the proposed additional capital investment programme for 2015/16 to 2017/18 inclusive for recommendation to Council on 12 December 2014.

The Chief Financial Officer presented the report, the key points included:

i.        Comments were invited from the committee on the proposed capital programme, for submission to Cabinet and subsequently to Council.

ii.       The current capital programme amounted to £146.7m.  The proposed additions to the scheme would cost £57.5m of which £48.6m would be funded from external sources.

iii.      A summary of the additions was appended to the report and an overview was provided of the principal requirements.

iv.      It was reported that the total outstanding debt was £168m as at 31 March 2014 and was being repaid at £10m per annum.  With additional investment already approved and the proposed additions identified in the report, the debt requirement would be £200m as at 31 March 2018.

v.       The authority had a long-term debt to asset percentage of 26%; this reflected the average position for all unitary authorities.

The principal points of the ensuing debate included:

1.       The Chief Financial Officer advised that the profile of the funding depended upon the details of the scheme involved; overviews were provided in relation to the South Wye Transport Package and Hereford Enterprise Zone.

2.       In response to a question from a member, the Chief Financial Officer explained that purchase of gritters would provide better value for money than leasing and the borrowing cost would be funded by the winter service budget.  The Director for Economy, Communities and Corporate said that a list of all vehicles in the council’s ownership would be provided to the member.

3.       Another member questioned why the savings in terms of vehicle leasing costs were not identified in the report and the Chief Financial Officer advised that the report identified capital programme intentions going forward, subsequent decision reports would set out the value for money and financing considerations in detail.  The member felt that there was an inconsistency in terms of presentation compared to the Hereford Enterprise Zone and the Chief Financial Officer said that he would review the relevant paragraphs before submitting the report to Cabinet. 

4.       The committee was advised that the Marches Local Enterprise Partnership Board was due to make a decision on the distribution of business rates and the identified investment in the Enterprise Zone would not proceed without a suitable arrangement in place.

5.       In response to questions about the Three Elms Trading Estate, the Head of Corporate Asset Management and the Cabinet Member for Contracts and Assets outlined the background to the issue and how the cost of borrowing would be funded from rental income.

6.       It was questioned whether investment in Colwall Primary School was being viewed in terms of the potential impact on schools provision in the wider catchment, especially given plans for the expansion of Ledbury Primary School.  The Chief Financial Officer said that the schools estate strategy was being updated and any investment would need to be made in the context of that strategy.  He added that a separate project was looking at various options for Colwall Primary School.

7.       In response to comments, the Chief Financial Officer said that the wording of the report would be reviewed to ensure that there was clarity about the categorisation of funded and self-financing schemes and about the amounts making up the £8.9m additional corporate investment need.

8.       A member commented that the potential sale of £60m of assets over the next three years, as identified in the Medium Term Financial Strategy (MTFS), would have an impact on the debt to asset percentage.  Another member suggested that it would be helpful if projected figures and percentages to 2018 could be provided as part of the update to the MTFS.

9.       In response to a question, the Chief Financial Officer advised that details about the costs of borrowing were provided in regular budget monitoring reports to Cabinet.

10.     Noting the reference in the report ‘the additional prudential borrowing may impact on other areas where cost savings may have to be made to ensure affordability’, a member felt that some indication should be provided of the potential service areas affected.  The Chief Financial Officer said that, although intended as a strategy paper, he would add further information to the report.

11.     In response to a question, the Director said that the £10.7m figure within the current capital programme for the link road was a best estimate but would depend on concluding land acquisitions.

12.     In response to comments from a member, the Chief Financial Officer acknowledged that: the use of the term ‘asset’ was perhaps different within the public sector compared to the private sector but external auditors used debt to asset percentage as a standard indicator in the appraisal of local authority finances; and the budget was informed by current business rates and potential changes going forward.

13.     The Cabinet Member for Health and Wellbeing said that he would provide a detailed response to a question from a Councillor in attendance about the Disabled Facilities Grant identified in the current capital programme.

14.     In response to a comment about the need for tenants to have certainty about the smallholdings estate, the Chairman re-iterated that a decision had been postponed until the next administration and would be subject to appropriate scrutiny.

15.     A member commented on the agricultural and industrial assets secured for Herefordshire when the former Hereford and Worcester County Council was disbanded.

16.     The Head of Corporate Asset Management gave an overview of the some of the lease dilapidations and other contractual obligations as a consequence of the rationalisation of council accommodation and expiry of leases.  Whilst acknowledging the commercial sensitivity around the sums involved, a committee member suggested that a list of properties and the related timescales would be helpful.  The Chief Financial Officer later advised that there was public access to the leases available through the council’s website.

17.     Another committee member felt that this committee should be provided with specific information not only on the position with potential lease liabilities leases but also in the context of assumptions made about the sale of £60m of assets as identified in the current MTFS.  The Leader responded by advising that Council had approved the current MTFS and it had already been clarified that there would not be any disposal of such assets until the next administration.  Members expressed viewpoints on the information that could be shared, protecting negotiating positions, public accountability, and the timing of decisions.  The Assistant Director Governance commented on the information available through the Land Registry and explained public interest and commercial sensitivity considerations.

18.     Further to paragraph 17 above, a committee member requested that detailed information be provided to the committee, marked exempt if necessary, about the assets that the council holds and proposes to form part of the three tranches of £20m of disposals over the next three years.  The Leader emphasised that, apart from the broad assumptions already identified within the current MTFS, no other decisions had been made about these assets and would not be until the next administration, therefore he was not aware of anything else to disclose.  The Chief Financial Officer re-iterated the purpose of this report was to seek views on the proposed additional capital investment programme and explained the potential financial and other consequences associated with not proceeding with the schemes.  The committee member, re-iterating the point made at paragraph 8 above, noted that debt to asset percentage was given as context to inform the decision on the proposals and was relevant to imminent discussions on the budget.

19.     In response to debate on the issue, the Director suggested that a list of the wide range of council assets could be provided, alongside estimated asset values per acre for different use classes.  The committee was reminded that separate decisions would be required to deliver individual elements of the MTFS.  A committee member and the Leader re-iterated their respective positions on the matters discussed.  The Director said that, to assist members, a briefing note could be provided to explain the assumptions that officers were working to in relation to the MTFS.

RESOLVED: That

(a)     The report to Cabinet and Council be updated to reflect the clarifications sought by the committee; and

(b)     Committee members be provided with details of the range of council assets and a briefing note on the assumptions being used in relation to the Medium Term Financial Strategy.