Agenda item

To submit a report by the Head of Function (Resources)/Section 151 Officer.

The report of the Head of Function (Resources) and Section 151 Officer setting out the proposed capital strategy for 2018/19 was presented for the Executive’s consideration. The report identifies the potential future capital expenditure requirements, assesses the impact on the capital financing element of the revenue account and determines the funding available to finance new capital schemes in 2018/19.

The Portfolio Member for Finance reported that in order for the Council to determine which projects are included in the 2018/19 capital programme, the Executive is asked to provide guidance on the level of funding that will be made available bearing in mind the impact of the capital programme on the capital financing budget element of the Council’s Revenue budget. The capital programme is funded from a number of sources which are listed in the report. In October, 2016, the Executive agreed to a number of principles in respect of the capital strategy and these are outlined in section 3 of the report. The Executive is being asked to reaffirm those principles for the purpose of the 2018/19 capital strategy.

The Council has commenced an ambitious plan to modernise and update its schools through the Twenty-First Century Schools Programme at a total capital cost of around £120m. Band A of the programme is funded by 50% additional funding from the Welsh Government and 50% via unsupported borrowing. It is anticipated subject to confirmation, that the Welsh Government’s contribution to Band B will remain at 50% for the traditional funded schemes but with the introduction also of an element of private sector funding through a mutual investment model. In seeking to reduce revenue expenditure to ensure a balanced budget, it is reasonable to also look to reduce the increase in the capital funding budget by restricting it to a level that can be funded by the annual settlement i.e. the General Capital Grant and supported borrowing which are expected to be around the £1.3m and £2.2m allocated respectively in 2017/18. Capital grants will be available in 2018/19 to fund specific schemes e.g. the completion of the Llangefni Lin k Road, flood alleviation and infrastructure schemes and Phase 2 of Holyhead Market Hall amongst others at a total cost £23.4m. Consideration may also have to be given to funding a number of other potential schemes – these are set out in section 7.3 of the report.

The Head of Function (Resources) and Section 151 Officer confirmed that the funding available to support capital schemes is tight; it does reflect a change of approach by the Welsh Government whereby local government capital schemes are increasingly funded through specific grants whereas the general capital grant and the supported borrowing element of capital funding have largely remained unchanged for the past few years with the upshot that there is less money available for the Council’s general projects. The Officer said that it is important that the Council should continue to invest in its current assets by way of maintenance and upgrading in order to avoid the much larger cumulative costs down the line which failure to do so will entail. The Capital Strategy reflects this objective and having made a commitment to maintaining existing assets there is very little additional funding left to embark on new schemes notwithstanding there is pressure to renew and/or invest in those schemes set out in paragraph 7.3 of the report. However, the funding available is not sufficient to support anything beyond those schemes already earmarked and the maintenance of existing assets which includes highways. The Highways revenue budget has reduced over time and the strategy has been to use capital funding to fund the revenue element. As the Highways revenue budget remains tight it is proposed to continue with this strategy and to use core capital funding to invest £700k in maintaining highways.

The only scope for utilising additional funding is through the capital funding reserve which has been built up from unspent revenue budgets some time ago. The current uncommitted balance stands at £500k and the fund is mainly drawn upon for emergency work or where a small contribution from the Council allows access to grant funding. While maintaining a balance in the fund is therefore necessary, £250k could be released in 2018/19 to fund some of the additional pressures described in section 7.3 of the report e.g. smaller invest to save projects as was the case in 2017/18.

The Executive considered the report and made the following points –

•  The Executive sought to establish whether the Authority is getting the most from its assets before reinvesting in them e.g. the proposed £150k expenditure on vehicles which would cover approximately 50 vehicles on lease at current costs. The Head of Function (Resources) and Section 15 Officer confirmed that the £150k is for the purchase of new vehicles – vehicles on lease are covered by the revenue budget.

•  The Executive considered that it was not in a position at this point to be able to determine how the net additional capital financing costs of Band B 21st Century Schools are to be funded given that the Band B Business Case has not as yet been approved by the Welsh Government. (Recommendation 2 of the report). The Executive was agreed that it should revisit this matter when that approval has been given.

•  The Executive was agreed in believing that £250k should be released in 2018/19 from the capital reserve fund to meet some of the additional pressures identified and that as with last year, this be allocated to invest to save projects on the reasoning that these are designed to deliver ongoing revenue savings for the Council.

It was resolved –

•  To reaffirm the capital strategy principles set out in paragraph 3 of the report.

•  To confirm that the 2018/19 capital programme funding will be limited to the total of the general capital grant and supported borrowing (as determined by Welsh Government) and the estimated value of any capital receipts that will be received.

•  To confirm that the existing project commitments (Table 5 of the report) and the funding for the renewal/upgrade of existing assets for 2018/19 are as set out in Table 6 of the report subject to the addition of £250k to be released during 2018/19 from the capital reserve fund to be allocated to invest to save projects.