Capital Strategy
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Capital Strategy Document Transcript

  • 1. APPENDIX 1 LIVERPOOL CITY COUNCIL Capital Strategy 2009/10 – 2011/12 (CT/07/09) Report of the City Treasurer (Robert Corbett) Robert Corbett (City Treasurer) Tel: 225 2347 robert.corbett@liverpool.gov.uk Tim Povall (Head of Finance) Tel: 233 5381 tim.povall@liverpool.gov.uk Appendix 1 to MTFP CT0409 1
  • 2. Appendix 1 to MTFP CT0409 2
  • 3. CAPITAL STRATEGY 2009/10 – 2011/12 CONTENTS PAGE Introduction 3 Context 4 Corporate Framework 4 Resourcing Strategy 7 Resources 11 Management of the Capital Programme 12 Links with Other Strategies 14 Summary 15 Abbreviations: BSF - Building Schools for the Future CERA - Capital Expenditure charged to Revenue Accounts CRG - Corporate Regeneration Group DCLG - Department of Communities & Local Government EMT - Executive Management Team ERDF - European Regional Development Fund ESF - European Social Fund GDP - Gross Domestic Product GVA - Gross Value Added HMRI - Housing Market Renewal Initiative ICT - Internal Communications & Technology MTFP - Medium Term Financial Plan NWDA - North West Development Agency PFI - Private Finance Initiative SAMG - Strategic Asset Management Group SEN - Special Education Needs Appendix 1 to MTFP CT0409 3
  • 4. LIVERPOOL CITY COUNCIL CAPITAL STRATEGY 2009/10 – 2011/12 INTRODUCTION 1. The Capital Strategy represents an essential element within the Council’s overall Corporate Planning Framework. It relates to the Council’s over- riding Vision and Aims to the planning and generation of capital financing resources in the medium term in order to optimise the Council’s ability to achieve its priorities and objectives. The strategy sets out the Council’s approach to capital investment over the next three years and provides a framework through which the Council’s resources, and those matched with key partners, are allocated to help meet strategic priorities. 2. The Strategy is concerned with, and sets the framework for, all aspects of the Council’s capital expenditure – its planning, prioritisation, management and funding. It is closely related to, and informed by, the Council’s Asset Management Plan and is an integral aspect of the Council’s medium term service and financial planning process as reflected in the Medium Term Financial Plan (MTFP). 3. The key aims of the Capital Strategy are to: • provide a clear context within which proposals for new capital expenditure are evaluated to ensure that all capital investment is targeted at meeting the Council’s Vision, Aims and Priorities; • set out how the Council identifies, programmes and prioritises capital requirements and proposals arising from business plans, the Asset Management Plan (AMP) and other related strategies; • consider options available for funding capital expenditure and how resources may be maximised to generate investment in the area and to determine an affordable and sustainable funding policy framework; • in conjunction with the AMP, identify the resources available for capital investment over the MTFP planning period; and, • establish effective arrangements for the management of capital expenditure including the assessment of project outcomes and the achievement of Value for Money. 4. The Council’s capital investment falls within, and needs to comply with, the “Prudential Code for Capital Finance in Local Authorities” (The Code). Appendix 1 to MTFP CT0409 4
  • 5. Under the Code local authorities have greater discretion over the funding of capital expenditure especially with the freedom to determine, within the regulatory framework of the Code, the level of borrowing they wish to undertake to deliver their capital plans and programmes. 5. The Council in its medium term financial planning and Capital Strategy takes the requirements of the Code fully into account through: • medium term plans (Corporate and Business Plans, MTFP and Revenue and Capital budgets); • arrangements to achieve sound capital investment (Capital Strategy, Project Appraisal, and Asset Management Plans); • complying with the Treasury Management Strategy; and • managing effectively within the indicators for affordability and prudence required by the Code. CONTEXT 6. Liverpool is the sixth largest City in the country, covering an area of 11,114 hectares with a population of 436,800. It accounts for 40% of the City-region’s employment base and 42% of its GDP. 7. Since the mid 1990’s there has been a noticeable sea change in the City, with substantial investment and regeneration continuing to take place, particularly in the city centre, providing a platform for long term sustainable growth and employment prosperity. The successful designation as European Capital of Culture for 2008 has strengthened the renaissance of the City. 8. Despite these changes the City faces a major challenge in addressing the decline in many of its neighbourhoods and city centre areas which continue to suffer from high unemployment, poor quality housing, low educational attainment and a failing infrastructure. The Capital Strategy is aimed at ensuring resources are maximised and appropriately deployed to help address the challenges these present. CORPORATE FRAMEWORK 9. The Council’s Vision is to be “committed to working in partnership from a basis of sound financial and strategic planning to achieve a thriving Appendix 1 to MTFP CT0409 5
  • 6. international city that can compete on a world stage as a place to live, work and visit”. This Vision is expressed in three long-term aims underpinned by ten priority themes reflecting the ambition, challenge and complexity of Liverpool. These aims and priorities, set out as follows, are embodied in the Council’s Corporate Plan and are aligned with the Liverpool Area Agreement and the Sustainable Community Strategy, illustrating the Council’s strong commitment to work with partners. 10. The Council’s long-term aims and priorities are: Grow the city's economy • Make Liverpool a first choice for investment and growth by working with the private, not for profit and public sectors quickly and effectively with an emphasis on quality of infrastructure. • Promote enterprise, attract investment through developing the city's co-ordination and offer across the city region to provide scale, connectivity and sustainability of its economy. • Increase business density and gross value added (GVA) beyond national levels for city regions to deliver an environment which provides opportunity, employment and well-being for our citizens, business and investors. • Exploit the city's wider cultural advantage to attract and retain visitors, workers and residents. Empower our residents • Ensure safeguarding and inclusion of the most needy and excluded groups in the city providing equality and real opportunity for improvement and enhanced quality of life. • Confront barriers to employment and training through lack of access, deprivation, discrimination and poor health to ensure provision of a highly skilled workforce. • Developing first rate education and training from early years and further position Liverpool as a prime destination for postgraduate retention. Develop our communities • Increase peoples' sense of influence in decisions affecting their lives and communities through an open, fair and accountable neighbourhood-driven processes. Appendix 1 to MTFP CT0409 6
  • 7. • Challenge crime and antisocial behaviour safeguarding young people from becoming perpetrators or victims. • Provide sustainable communities through access to decent homes and best practice in environment management including, recycling, street cleansing and environmental enforcement against dereliction and environmental detractors. 11. The Council has various mechanisms in place which seek to ensure that there is an integrated approach to addressing cross-cutting issues and developing and improving service delivery through its capital investment in pursuance of the Council’s over-arching aims. These include: • Democratic decision-making and scrutiny processes which provide overall political direction and ensure accountability for the investment in the capital programme. These processes include: - The Council which is ultimately responsible for approving investment and the Capital Programme; - The Executive Board which is responsible for setting the corporate framework and political priorities to be reflected in the Capital Programme; - The Corporate Services Select Committee which is responsible for scrutiny of the overall financial management of the Council’s affairs and while not a decision making body can scrutinise proposals and make recommendations to Executive Board and full Council. • Officer Groups which bring together a range of service interests and professional expertise. These include: - The Executive Management Team (EMT) which has overall responsibility for the strategic development, management and monitoring of the capital programme; - The Corporate Regeneration Group (CRG) provides a corporate overview of all capital investment proposals and considers projects at the Gateway stages before schemes progress to EMT and Executive Board for final approval; - The Strategic Asset Management Group (SAMG) - a cross-service working group responsible for the development and delivery of the Council’s Asset Management Plan, whilst promoting good Appendix 1 to MTFP CT0409 7
  • 8. stewardship of the Council’s assets and ensuring the property portfolio is fit for purpose; - Management groups are also created to oversee significant capital development projects as required for example Building Schools for the Future (BSF). • An integrated service and financial planning process, incorporating the corporate performance management framework. Within this framework, all proposals for capital investment are required to demonstrate how they contribute to the achievement of the Council’s aims and priorities. This includes a Gateway evaluation process for investment proposals which ensures cross-cutting appraisal of projects which are aligned to the Council’s key aims and priorities and deliver on the efficiency and value for money agendas. RESOURCING STRATEGY 12. In general terms, the major source of capital funding available to the Council for investment in the city is represented by grants and supported borrowing credit approvals allocated by central government to specific projects or programmes. However, in addition to this, there is a range of other potential funding sources which may be generated locally either by the Council itself or in partnership with others. 13. The strategy, the outcomes of which inform the Medium Term Financial Plan, is intended to consider all potential funding options open to the Council and to maximise the financial resources available for investment in service provision and improvement within the framework of the MTFP. 14. The main sources of capital funding and the strategic consideration of the Council are summarised below: Central government • Grants and Supported borrowing – these represents specific grants or borrowing by the Council exercising Government Credit Approvals. In relation to the supported borrowing, the associated loan charges are partially reimbursed by government through the revenue grant system. Grants and credit approvals are allocated in relation to specific programmes or projects and the Council would seek to maximise such allocations, developing appropriate projects and programmes which reflect government-led initiatives and agendas but address priority needs in the City. Appendix 1 to MTFP CT0409 8
  • 9. • The majority of capital expenditure is currently funded by this means to support Transport, Housing, HMRI and Children’s Services. Minor allocations are received in relation to Community Safety and Waste Minimisation. Major programmes in the coming years are supported by specific grants such as Partnership for Schools for BSF and Department for Transport grants for major Highways schemes. Third Party funding • Capital grants – these represent project specific funding for capital projects, in addition to that from central government, which is more usually received from quasi-government sources or other national organisations. In developing capital proposals the Council will always seek to maximise such external contributions, subject to any related grant conditions not being inconsistent with the Council’s policy aims and targeted outcomes. Frequently such funding, which enhances the Council’s investment capacity, will also be linked to match funding arrangements. • The authority has seen significant contributions to its capital programme funding from the European Commission and the North West Regional Development Agency which it has matched to existing resources to fund major projects in the City. Public Private Partnerships and PFI • Where a sound business case has been made the Authority has used PFIs and other funding partnerships to create significant capital investment in property assets. • PFI has been used for a schools construction project and work is currently being evaluated in relation to the development of the Central Library. Private Contributions • Developer contributions – these represent contributions from developers towards the provision of public assets or facilities. Sometimes these are to mitigate the impact of their development on communities and often referred to as Section 106 contributions. These contributions are usually earmarked for specific purposes in planning agreements and often related to infrastructure projects. The Council would seek to maximise such contributions to investment in the City. Developers may also contribute to Highways Infrastructure through section 38 and 278 agreements to facilitate their development. • Working with partners / matched funding – the Council is committed to working with partners in the development of the City and its services. Appendix 1 to MTFP CT0409 9
  • 10. Various mechanisms provide opportunities to enhance the Council’s investment potential with support and contributions from other third party and local strategic partners. These may range from commissioning / facilitating others to develop services in the City; funding for regeneration projects; and through match funding, joint funding of developments. • The City Council has worked with the Local Health Authorities and other public agencies to create a number of “Shared District Centres” providing shared facilities to the mutual benefit of all parties. Locally generated funding • Prudential “unsupported” borrowing – under the Prudential Code the Council has discretion to undertake borrowing to fund capital projects with the full cost of that borrowing being funded from within Council resources as identified in the MTFP and annual budgets. This discretion is subject to complying with the Code’s regulatory framework which essentially requires any such borrowing to be prudent, affordable and sustainable. Prudential borrowing does provide an option for funding additional capital development but one which has to be funded each year from within the revenue budget. • Given the pressure on the City’s revenue budget in recent years, prudent use has been made of this discretion in cases where there was a clear financial benefit, such as “invest to save” or major regeneration schemes which did not increase expenditure levels in the longer term. The Council will continue to consider on a cautious and prudent basis the extent to which prudential borrowing may be undertaken to fund new capital investment. • Capital receipts from asset disposal – the Council has a substantial property estate, mainly for operational service requirements. This estate is managed through the Asset Management Plan which identifies property requirements and, where appropriate, properties which are surplus to requirements and which may be disposed. Capital receipts from asset disposal represent a finite funding source and it is important that it is used in a planned and structured manner to support the priorities of the Council. Cash receipts from the disposal of surplus assets may be used to fund new capital investment. • The Council continues to maintain a policy of not ring-fencing the use such capital receipts to fund new investment in specific schemes or service areas, but instead, to allocate resources in accordance with key aims and priorities, subject to the following exceptions: Appendix 1 to MTFP CT0409 10
  • 11. - Sales from the disposal of secondary and SEN schools as a consequence of the BSF programme, where the receipt is to be used to support the wider BSF programme in the City, including replacement open space and highway improvements; - Sales of any residual Housing assets are used to meet the City’s Housing and Regeneration agenda; - Sales from the land or assets developed by previous grant funding where no claw back is requested are reinvested in Regeneration initiatives in the area or in line with the original proposal; - Receipts from Housing Market Renewal schemes, where HMR grant has been used to enhance the value of the land, are, subject to the approval of the DCLG, to be reinvested back into the HMR programme. Where the receipt involves Council land and property, the Authority will continue to receive the value of the land before any grant enhancement, which is to be treated as a free receipt; - All other receipts are then available to be allocated to schemes that deliver outcomes in line with key aims and priorities or, where possible, assist with the overall City Council Revenue position. • Capital receipts have been a significant source of finance in previous financial years. Forecasts of receipts estimated for future years in the MTFP have been reduced reflecting the current economic climate and the range of assets currently held by the Council. Additionally, in order to maximise land values a number of key potential disposals are being land banked until market conditions improve. • Lease Finance - where alternative funding is not available for vehicles or minor equipment and the revenue budget does not allow for a full capital repayment and there is a robust business case then the option of leasing may be considered. The financing of expenditure by lease needs to take into account - Value of expenditure - Residual value - Life span of equipment matches the funding proposed - The equipment to be replaced is part of a rolling programme that covers the whole service area or by type of equipment. Appendix 1 to MTFP CT0409 11
  • 12. • With the majority of front line maintenance now delivered by external partnership arrangements the levels of leasing have significantly reduced across the authority. The City Council utilises operational lease where possible for purchase of minor equipment, IT and vehicles but under present changing financial circumstances it would probably be more appropriate to consider prudential borrowing rather than formal leasing arrangements to fund appropriate schemes. • Revenue – Capital expenditure may be funded directly from revenue (CERA – capital expenditure charged to revenue account). In addition to specific revenue funds previously set aside, such as repairs and renewal funds, capital expenditure may be funded by specific revenue budget provision. However, the general pressures on the Council’s revenue budget and Council Tax levels limit the extent to which this may be exercised as a source of capital funding. RESOURCES 15. The following table sets out the estimated level of resources available for capital investment through the MTFP over the next three years. Capital Resources 2009/10-2011/12 2008/09 2009/10 20010/11 2011/12 Forecast Forecast Estimate Estimate £’000s £’000s £’000s £’000s Capital grants from central government 115,612 202,523 168,747 172,400 Supported Borrowing 7,859 12,187 9,304 9,300 Third Party Contributions 63,430 29,214 9,143 3,000 Private Contributions 17,205 6,690 3,950 0 Unsupported Borrowing 52,029 7,757 4,256 10,700 Use of capital receipts 18,028 4,548 3,000 3,000 Revenue financing 2,325 881 0 0 Total 276,488 263,800 198,400 198,400 • The table reflects decisions taken by the City Council and the most recent forecasts of expenditure. Future years estimates include the Appendix 1 to MTFP CT0409 12
  • 13. best forecast of resources likely to be received based on Government announcements or three year funding letters. • Specific items to note in the estimates moving forward: - Capital grants reflect the contributions made for the BSF programme. 2009/10 includes a significant element of wave 2, 2010/11 includes the remainder of Wave 2 and 2011/12 the initial contributions to Wave 6; - Supported borrowing in 2009/10 reflects the additional contribution to the ICT infrastructure associated with the BSF Wave 2 schools; - Third party contributions in the past have been significant through the use of ERDF, ESF, NWDA and English Partnerships resources. As these programmes are completed and new works are commissioned through the private sector the amount controlled by the City Council will diminish; - Private Contributions reflect current financing of current Highways infrastructure projects which will be completed during 2010/11; - Unsupported borrowing in 2008/09 reflects a one off contribution in relation to Equal Pay costs of £35m. 2011/12 includes a £7m annual contribution towards BSF Wave 6; - Capital Receipts reflect the current estimated level of resources that could be achieved in the current economic conditions. 2008/09 utilises the majority of the receipts brought forward from previous years. • Individual reports on each major programme area will be presented to the Executive Board in early 2009 when annual capital grant funds have been confirmed by the relevant Government Office. Reports will also consider, where relevant, the total resources required to complete specific projects based on the most accurate forecasts available. MANAGEMENT OF THE CAPITAL PROGRAMME 16. The Council reviews its capital requirements and determines its Capital Programme within the framework of the MTFP and as part of the annual budget process. Resource constraints mean that the Council continually needs to prioritise expenditure in the light of its aims and priorities and consider alternative solutions. To ensure that available resources are allocated optimally, capital programme planning is determined in parallel Appendix 1 to MTFP CT0409 13
  • 14. with the service and revenue budget planning process within the framework of the MTFP. 17. The procedures for approval and subsequent management of the Capital Programme are overseen by the Corporate Regeneration Group on behalf of the Executive Management Team and Executive Board. The procedures, which are set out in the “Capital programme Entry Guidance” are summarised as follows: • Business Case Development All proposals for capital expenditure must be initiated through a robust business case which identifies the main business drivers which underpin the requirement to invest, indicates how the project aligns with the Council’s aims and priorities, the outcomes to be achieved, and the performance measures that will be used to evaluate outcomes. The business case should also incorporate a risk assessment in relation to those outcomes. • Investment and Options Appraisal Business cases should also set out the options appraisal undertaken to determine that the proposal represents the best method of producing the anticipated outcomes; it should also include a full financial appraisal, based on Whole Life Costing, of the costs of the project and funding requirements. • Approval Process Business cases are considered corporately by the Corporate Regeneration Group who forward agreed projects through to the Executive Management Team and Executive Board for approval. Final approval to commence projects will then follow formal inclusion within the Capital Programme and the identification of full funding. • Project Management The Council has adopted a standard Project Management methodology for the management of all projects and has in place a Corporate Project Management framework to support this methodology which is available to all managers on the Council’s intranet. • Capital Programme Monitoring Capital projects and programmes are monitored in the first instance within Business Units. Within the overall responsibility of Heads of Business Units for the capital programmes allocated to them, each scheme is allocated to a project officer whose responsibility is to ensure that the project is delivered on time, within budget and achieves the desired outcomes. Appendix 1 to MTFP CT0409 14
  • 15. In conjunction with reports on financial progress, monitoring reports on projects/programmes are produced quarterly for consideration by the Corporate Regeneration Group and the Executive Board and overall financial performance on the Capital Programme as a whole is also reported to the Executive Board quarterly indicating any issues relating to resource realisation or variation from planned spending and actions proposed to mitigate their impact. • Key Performance Measures The Council’s performance management framework for the capital programme has been developed as follows: - Reporting process gives greater emphasis on achievements and outcomes against objectives; - Development of the corporate Asset Management Plan and now separate asset plans for the newly created Business Units; - Full condition survey carried out to facilitate effective planned maintenance programmes and inform investment decisions through the AMP; - A property review process which assesses the fitness for purpose of properties, rationalises property requirements and identifies properties for potential alternative uses and/or disposal; - Quarterly monitoring reports cover physical progress as well as financial details. LINKS WITH OTHER STRATEGIES 18. The Capital Strategy does not exist in isolation. It is one element in the Council’s Corporate Planning Framework and is driven by the Council’s Vision, Aims and Priorities as set out in the Corporate Plan. Similarly the medium term financial plans of the Council are both driven by, and drive, the Capital Strategy. The capital and revenue planning and budget processes are therefore harmonised to allow for the most effective allocation of resources 19. In the same way, the Capital Strategy is closely linked to other strategies and plans such as: • Treasury Management Strategy Appendix 1 to MTFP CT0409 15
  • 16. • ICT Strategy • Workforce Strategy • Asset Management Plan SUMMARY 20. Forecasts of resources indicate that there will be continuing pressure on the availability of locally generated resources to fund the investment and development the Council would wish to see. Capital planning needs therefore to be seen in the context of a medium term strategy which includes revenue considerations. 21. Priorities for investment will be assessed on the basis of the Gateway evaluation procedure and subjected to a comprehensive options appraisal process incorporating whole life costing. All investment decisions will need to demonstrate value for money and contribute to increased efficiency in the use of public resources. 22. The Council will continue to work with partners and this Capital Strategy will be used to ensure that resources are maximised on an affordable, sustainable and prudent basis and their use focussed on the Council’s key aims and priorities. Appendix 1 to MTFP CT0409 16