Hampshire County Council

Executive Member - Environment

Item 1

13 November 2001

Revenue Budget Monitoring 2001/02

Report of the County Treasurer, County Surveyor and County Planning Officer

Contact: Ejner Knudsen, ext 7403

1 Summary

1.1 The following decision is sought:

2 Reason

2.1 Financial Regulations require revenue budgets of services to be regularly monitored and for corrective action to be taken to control expenditure within approved cash limits.

3 Other options considered and rejected

3.1 An alternative approach to offset the projected overspending of £126,000 on public transport would be to re-distribute part of the savings of £133,000 arising from lower inflation on highways maintenance. However, this solution has been rejected in order to ensure that the available 2001/02 cash limit for highways maintenance is fully allocated in support of network management activities.

4 Conflicts of interest declared by the decision maker or a member or officer consulted - not applicable

5 Dispensation granted by the Standards Committee - not applicable

6 Reason(s) for the matter being dealt with if urgent - not applicable

Approved by: (signature) Date: (date of decision)

Councillor K B Estlin

7 Introduction

7.1 This report considers the latest budget monitoring position for the Environment Services for the 2001/02 financial year, covering the revenue budgets for highways and transportation, planning and waste management.

7.2 The construction of the revised cash limit for the Environment Services is explained, including details of a number of changes that have been made since the 2001/02 original budget was approved in February. The report then goes on to review the outcome of a detailed monitoring exercise which has recently been carried out by budget holders within the County Surveyor's and County Planning departments.

8 Changes to the 2001/02 budget

8.1 The 2001/02 original budget cash limit for the Environment Services, approved by the County Council in February, was £70.120 million. This figure included an initial allowance of £1.276 million to cover inflation during 2001/02, based on the original corporate assumption of 3% for pay increases and 2.5% for other costs.

8.2 The County Council's overall budget also reflected an allowance to meet anticipated higher pay and staff recruitment and retention costs. This was set aside within the County Council's central provision for inflation and other contingencies, to be allocated to services during the year if required. This central provision also included the annual waste management contingency sum, £2.8 million in 2001/02, to be allocated quarterly to cover variations in prices, volumes and taxes on the waste management contract related services (ie the long term waste disposal contact, recycling credits and commercial waste income).

8.3 An allocation of £145,000 has now been made from this central provision, to cover the cost in 2001/02 of agreed pay awards beyond the 3% allowance in the original budget. In addition, a call of £625,000 has been made to cover estimated cost increases on the waste management contract related services during the first quarter of the year. Cash limits for the individual services' budgets have been correspondingly increased.

8.4 When the Policy and Resources Committee approved the County Council budget in February it was agreed that, in anticipation of the Transport Works Order and funding approval for SHRT 1, preparation costs could be charged to the capital programme and funded from supplementary credit approval (SCA). The decision to capitalise SHRT 1 preparation costs released the 2001/02 revenue budget provision of £412,000 for SHRT 1, which Policy and Resources Committee agreed could be used to meet other budget pressures. They agreed that:

8.5 Cash limit adjustments have now been made to reflect the transfers of £200,000 to the public transport budget and £50,000 to the planning services capital programme. No firm decisions have so far been taken regarding the use of the remaining one-off sum of £162,000 which is available to meet other transportation pressures this year.

8.6 On 19 February 2001, the Government announced an increase in the funding for rural bus services aimed at improving services and encouraging greater bus use. It also announced a change in the rules governing the use of Rural Bus Subsidy Grant during 2001/02, which now allows local authorities to use up to 20 per cent of the grant to retain existing rural bus services, rather than just being available to support new services.

8.7 For Hampshire County Council, the amount of Rural Bus Subsidy Grant allocated for 2001/02 is £1,142,000, an increase of £248,000 (+27.7%) over the sum distributed during 2000/01. It also announced indicative allocations of £1,307,000 for 2002/03 and £1,335,000 for 2003/04.

8.8 The 2001/02 revenue budget cash limit has now been increased by £248,000 to reflect the additional grant being allocated this year. Under the revised rules, up to £228,000 of the grant can be used during this year in support of existing rural bus services.

8.9 During 2000/01 an overspending of £257,000 arose on the Environment Committee's revenue budget, mainly because additional highways maintenance expenditure was incurred in responding to weather emergencies and making an early start in repairing flood damage to highways.

8.10 The County Council's revenue budget rules require 100% of overspendings to be carried forward and met from the following year's budget. It has already been agreed that the carried forward overspending be met by adjusting the 2001/02 programme for capital structural maintenance. This is in line with the agreed policy that the additional structural maintenance provision in 2001/02 should pay for the remedial works required as a result of the flood damage to the highway.

8.11 The net 2000/01 overspending of £257,000 for the Environment Committee included an underspending of £2,000 on the planning services. A compensating transfer has now been made between the highways and transportation services and planning services in constructing the 2001/02 cash limits.

8.12 On waste management, an underspending of £9,000 was carried forward from 2000/01 and has been allocated to increase the budget for the disposal of abandoned vehicles, which continues to be under pressure this year. The waste management service was formerly under the control of the Policy and Resources Committee during 2000/01.

8.13 At its meeting on 12 March 2001, the former Planning and Transportation Resources Sub Committee approved a virement of £120,000 from the highways budget to the planning services Conservation and Environmental Improvements fund to enable the County Council to contribute towards an environmental improvement scheme in Fawley. In effect, this virement repaid the planning services for a previous transfer of £120,000 to the highways capital programme provision for minor works which was made in constructing the 2000/01 budget.

8.14 A corresponding reduction of £120,000 has now been made to the 2001/02 highways capital provision for minor works to implement this virement to the planning services budget. Of this sum £80,000 has been transferred to the capital programme provision for country towns initiatives, to cover contributions to the Fawley scheme, and the balance of £40,000 has been allocated in support of the planning services revenue budget.

8.15 A further cash limit adjustment within the budget headings for the highways services has been made to bring together the funding for the development of a number of network management IT support systems, which is now being accounted for within the highways maintenance division of service. Provision of £140,000 in support of the UK Pavement Management System (UKPMS) and New Roads and Street Works Act (NRSWA) street works register, has been transferred to highways maintenance from the management and support services budget heading.

8.16 The overall effect of the changes set out in the above paragraph has been to increase the Environment Services cash limit for 2001/02 by £1.017 million to £71.137 million.

9 Budget monitoring review

9.1 The first stage in preparing a revised budget for 2001/02, details of which will be presented to members in January alongside the budget proposals for 2002/03, have recently been completed by staff within the County Surveyor's and County Planning departments. As part of this process, a detailed monitoring review, covering the whole range of Environment Services budgets, has been carried out by departmental budget holders. Trends in expenditure and income have been examined and likely variations from the approved budget identified.

9.2 The overall monitoring position on the Environment Services revenue budget shows a projected overspending of £126,000 on public transport which can be offset by allocating an equivalent sum from the residual 2001/02 budget provision of £162,000 for SHRT 1, which is available to meet one-off transportation pressures this year. A further pressure of £83,000 has arisen on the waste management budget because additional unavoidable expenditure is being incurred on the disposal of abandoned vehicles.

9.3 Appendix 1 provides a summary of the cash limits for each division of service together with details of expenditure to date and projected variations. Appendix 2 provides details of the cash limit calculation for the individual services headings. The more significant issues that have emerged from the budget monitoring review are discussed in the following paragraphs.

10 Highways and Transportation services

10.1 The main budget headings within the highways and transportation services are highways maintenance, public transport and the management and support services. The current budget monitoring position for each of these main areas is discussed below.

10.2 The original 2001/02 cash limit for revenue highways maintenance was £18.009 million, including an allocation of £620,000 to cover inflation during the year. Up to now, no allocations from this inflation sum have been made to budget holders pending a detailed assessment of price variations during this budget monitoring review. The latest approved programme of allocated revenue highways maintenance works issued in September totalled £17.318 million, with £71,000 being held as a general reserve to meet any unforeseen demands.

10.3 The overall inflation allowance of £620,000, which includes a specific additional allowance of £185,000 to cover the cost of the climate change levy on street lighting energy, was sufficient to cover overall inflation of 3.6% on the highways maintenance budget. The latest assessment of actual price rises affecting highways maintenance during 2001/02 indicates that a total of £487,000, equivalent to 2.8%, will be required to compensate for the effects of inflation. Corresponding adjustments are now being made to the individual works allocations to reflect this increase. A saving of £133,000 is therefore available from lower inflation on highways maintenance during 2001/02.

10.4 In addition, savings of £172,000 have become available following the favourable settlement of the district councils' highways agency claims for 2000/01 and last year's street lighting energy account with Northern Electric. Extra income of £60,000 will also be received this year from the term maintenance contractor's use of the department's radio telecommunication system.

10.5 Paragraph 8.15 refers to a cash limit adjustment transferring £140,000 to highways maintenance, to ensure a consistent approach to the recording of expenditure in connection with the development of network management IT support systems. This, together with the other variations outlined above, has increased the reserve sum available for release to budget holders to £576,000. Proposals for the phased distribution of this remaining sum, which would fully allocate the highways maintenance cash limit, are currently being considered.

10.6 As mentioned above, earlier in the year it was agreed that an additional £200,000 be allocated to the public transport budget from the former revenue budget provision for SHRT 1, following the decision to capitalise preparation costs for this project. £100,000 of this sum has been added to the bus subsidies budget, to help meet increases in bus contract costs, and £100,000 has been set aside in the community transport budget to provide match funding towards the rural transport partnership forums. An increase of £248,000 has also been made to the public transport budget to reflect the allocation of additional Rural Bus Subsidy Grant by the Government, which includes changes in the rules governing the use of the grant. This now allows local authorities to redirect 20% of their overall grant (£228,000 for the County Council in 2001/02) to support existing bus subsidy contracts which serve rural locations.

10.7 However, despite the increase of £100,000 in the bus subsidies budget arising from the transfer from the former revenue budget provision for SHRT 1, and the potential use of £228,000 of the 2001/02 allocation of Rural Bus Subsidy Grant to meet the cost of existing bus services, the budget for bus subsidies remains under considerable pressure. There have already been significant cost increases beyond the allowance for inflation in the budget in the Basingstoke, Blackwater Valley and Test Valley contract areas. Further increases are likely during the remainder of the year in these and other parts of the county.

10.8 The latest budget monitoring forecasts an overspending of £126,000 this year on the public transport budget. This projection takes into account an agreed contribution of £65,000 from Basingstoke and Deane Borough Council towards the cost of subsidised bus services in their area and the achievement of savings of £30,000 which will be sought from parts of the public transport budget other than bus subsidies. It is recommended that this overspending be offset during 2001/02 by transferring an equivalent sum from the residual budget provision for SHRT 1, which is available to meet one-off transportation pressures this year.

10.9 This budget heading mainly covers the running costs of the County Surveyor's department together with payments to district councils to cover their administration costs under the highways agency arrangements. The 2001/02 cash limit is £14.192 million.

10.10 When the original budget was prepared, it was estimated that additional savings of £128,000 would need to be made to absorb a number of additional pressures during 2001/02, including higher costs of staff salary increments, legal work on highways claims and a budget transfer to help meet the ongoing full year cost of corporate communication. These savings would be in addition to the normal assumption, built into the salaries base budget, that savings of £200,000 would arise as a matter of course each year from incidental staff vacancies and turnover.

10.11 The recent budget monitoring review carried out by budget holders within the County Surveyor's department has confirmed the achievement of a number of savings from staff vacancies, additional external income and higher fee recharges to other accounts, mainly as a result of the increase in the capital programme during 2001/02. At this stage it is expected that the planned savings built into the original budget will be met in full and that actual expenditure for this division of service will be contained within the approved cash limit.

11 Planning services

11.1 The 2001/02 cash limited budget for the planning services is £4.370 million. This sum includes the planned underspendings of £202,000, which were carried forward from 2000/01, and £137,000 being the centrally assessed inflation allowance for the year. The budget limit also allows for the increase of £40,000 from the approved virement of £120,000 from highways referred to earlier in the report, the balance of which has been used to enhance the locally resourced capital programme provision for country towns' initiatives.

11.2 Although, at this stage, the budget monitoring position shown in this report suggests that expenditure in 2001/02 will be equivalent to the cash limit, recent budget monitoring exercises have pointed to potential savings being realised in the current year. A further detailed budget monitoring exercise will therefore be conducted during November in order that planned savings can be properly quantified and reported to the Executive Member meeting in January.

11.3 Early indications for 2002/03 suggest a difficult year ahead in budget management terms. A number of pressures are already emerging for which there is no existing budget provision including the continuing costs of the Dibden Bay inquiry, LIFE 3 project management, responding to new statutory obligations in respect of areas of outstanding natural beauty and proposed National Parks, as well as further work required in relation to the review of the Structure Plan.

11.4 In addition, pressures on the legal budget are likely due to the increasing number of appeals and challenges to local planning decisions, and additional resources will almost certainly be needed so that work related to the Minerals and Waste local plan can be progressed. Given the myriad of budget management issues referred to above, the identification and subsequent carry forward of planned savings will enable the impact of these pressures to be minimised.

12 Waste Management

12.1 The waste management revenue budget is sub-divided into two separate categories for budget monitoring purposes:

12.2 The original 2001/02 budget for the waste contract related budgets was based on expenditure commitments when it was prepared in November 2000. No allowance was included for growth in waste volumes beyond 2000/01 levels, future price increases, increases in landfill tax or other contract cost pressures. As these factors are principally demand led and subject to long term contractual obligations, providing little scope within the overall management of the budget to vary expenditure, they are covered by an amount set aside within the County Council's central provision for inflation and other contingencies.

12.3 The 2001/02 County Council budget includes a sum of £2.8 million to cover these inescapable service pressures. Periodic allocations are to be made from this contingency to the waste management cash limit, based on quarterly assessment of cost increases on the contract and related budgets. The current cash limit for this heading is £26.282 million.

12.4 The budget for the other non-contract related waste management services is however subject to the normal County Council management arrangements which require services' expenditure to be controlled within cash limits set at the beginning of the year. The 2001/02 cash limit is £1.859 million and includes the sum of £9,000 brought forward from the underspending during 2000/01.

12.5 In summary, the position on the waste management contract and related budgets is broadly as expected at this stage of the year. Waste volume growth during the first five months of the year was marginally below 3% and was within the budgeted tonnage allowance for the period. Collected household waste volumes increased more slowly than expected at less than 2% when compared with last year. However this welcome outcome was offset by amenity waste growth of almost 6% which included a 30% rise in residual waste, as operational difficulties meant some 12,500 tonnes of green garden waste had to be landfilled.

12.6 Although volumes during the first five months of the year were below the budgeted tonnage allowance for 2001/02, the lower disposal costs have merely enabled higher recycling credit expenditure, reduced trade waste income and the landfilled green waste, referred to above, to be accommodated.

12.7 The green waste processing difficulties resulted from the temporary closure of the Down End composting facility, due to odour problems, made worse by the foot and mouth outbreak which meant that farm composting sites could not be used either. Some 12,500 tonnes of green garden waste were landfilled during the summer, at an additional cost of £279,000, and were largely responsible for a 30% increase in residual amenity waste during the first five months of the year. Operations have now resumed at Down End, which should ensure that all green waste for the remainder of the year is composted.

12.8 The overall call on the £2.8 million central contingency for the first quarter was £625,000 leaving £2.2 million to cover higher waste management costs over the remainder of the year. It is expected that this sum should be sufficient although the outcome for the year will depend both upon volume levels and the results of claims negotiations given that a number of six figure claims remain unresolved.

12.9 Successful claims settlements will allow the County Council's full share of the Marchwood ERI off-site highways improvements to be fully funded and might also allow early cost pressures from new EU legislation relating to the safe disposal of fridges to be accommodated as well. It is too early to say with any certainty what the part year cost of storing fridges will be. Site searches are currently being carried out.

12.10 The call on the contingency for the second quarter will be assessed once tonnage information for September has been received and evaluated. A verbal update will be provided at the Executive Member meeting.

12.11 The main concern within this area of the waste management budget is the likely level of expenditure on the disposal of abandoned vehicles. Estimates for expenditure being incurred by district councils on behalf of the County Council on this activity suggest that the budget for 2001/02 is likely to be exceeded by at least £120,000, reflecting increases in the number of cars being abandoned, the continued depression of the market for scrap metal and higher standards of regulation. The outlook for this budget, which has experienced cost increases of almost 500% since 1998/99, is not good given that abandoned vehicles are to be classified as hazardous waste from April 2002.

12.12 It has been possible to partially offset the above cost pressure by identifying savings of £37,000, from the administration budget, from staff turnover and more efficient use of resources, and from the HWRC management budget, as a result of the recent contract extension negotiations. These savings help to reduce the projected overspending to £83,000.

12.13 However, the generation of additional savings beyond this level will be extremely difficult to achieve and would have a serious negative impact on service delivery. For example, the facilities maintenance programme could be limited to essential works only, but many projects included in this year's plan already fall into this category or reflect works previously deferred from last year. Alternatively, promotions and developments could be reduced, but again much of this budget is already committed, and reductions in expenditure would need to be weighed against the likely negative impact on waste volumes or reduced recycling.

13 Conclusion

13.1 This report brings the Executive Member up to date with all of the changes that have been made to the Environment Services revenue budget cash limit since the beginning of the year. It also summarises the outcome of the most recent budget monitoring review carried out by budget holders within the County Surveyor's and County Planning departments.

13.2 On the highways and transportation services, the public transport bus subsidies budget remains under considerable pressure following significant cost increases in several contract areas. Although some offsetting savings are available, an overspending of £126,000 on the public transport budget is currently projected. It is recommended that this be offset by re-distributing an equivalent sum from the residual 2001/02 provision for SHRT 1, which is available to meet one-off budget pressures this year.

13.3 The waste management budget for non-contract related services is also under pressure because of significant higher expenditure on the disposal of abandoned vehicles. Given the limited scope to fully absorb the projected overspending of £83,000 within this element of the waste management cash limit, it is suggested that alternative savings be sought from within other parts of the Environment Services revenue budget. Options could be considered during the next budget monitoring review which is scheduled to take place before Christmas and proposals to balance the budget could then be brought forward at the Executive Member's meeting in January.

Section 100 D - Local Government Act 1972 - background papers

The following documents disclose facts or matters on which this report, or an important part of it, is based and has been relied upon to a material extent in the preparation of this report.

NB the list excludes:

1. Published works.

2. Documents which disclose exempt or confidential information as defined in the Act.

County Surveyor's Departmental Management Board - 23 October 2001

County Planning Department Management Meeting - 19 October 2001

2001/02

Cash Limit

Assessed expenditure to 31 Oct 2001

2001/02 Forecast Outturn

2001/02 Forecast Variation

£'000

£'000

£'000

£'000

Highways and Transportation

Highways Maintenance

18,149

10,593

18,149

-

Road Safety Education

213

83

213

-

Traffic surveys

147

50

147

-

Parking services

-81

-81

-81

-

Public Transport Support and

Co-ordination

4,680

2,662

4,806

126

Rural Bus Subsidy Grant

1,142

478

1,142

-

South Hampshire Rapid Transit

162

-

36

-126

Management and Support Services

14,192

6,265

14,192

-

38,604

20,060

38,604

-

Planning Services

4,370

2,364

4,370

-

Waste Management

Contract and Related Services

26,282

15,265

26,282

-

Other waste management services

1,859

722

1,942

83

28,141

15,987

28,224

83

Other Services

Reservoirs Act 1975

22

14

22

-

Total

71,137

38,415

71,220

83