Contact: Jon Pittam, ext 7400

1 Summary

1.1 The accompanying report sets out for approval the proposed capital programme for 2002/03 to 2005/06, based on the guidelines approved on 17 December 2001 and the support for capital schemes announced by the Government. It proposes additions to the guideline capital programme from resources left unallocated in December 2001, from a discretionary allocation of borrowing approval by the Government and from additional capital receipts. The proposals take account of the impact on the capital financing position, the County Council's debt outstanding and the consequences for the revenue budget.

1.2 The following decisions are sought, based on the recommendations of the Leader and Cabinet to the County Council for the capital programme for 2002/03 to 2005/06:

1 That any capital or revenue costs of the South Hampshire Rapid Transit (SHRT) not covered by Government support or external contributions shall be met from resources already available to the Environment service, as set out in paragraphs 4.13 to 4.14 of the accompanying report.

2 That the executive member for Environment shall report to the Cabinet before the SHRT scheme is committed on how the capital and revenue costs of the scheme will be funded within the conditions set out in recommendation 1 (paragraph 4.15).

3 That the Cabinet determine the allocation between services of the discretionary borrowing approval of £2.2m, as set out in paragraphs 5.5 and 5.6.

4 That the allocation between services of the unallocated local resources of £0.7m per annum, as set out in paragraph 7.2, be approved.

5 That the capital programme for Policy and Resources be increased by £500,000 per annum from 2001/02 for fees incurred in the disposal of sites, as set out in paragraph 8.2.

6 That allocation from this provision for fees incurred in the disposal of sites be subject to the executive member for Policy and Resources approving reports for each site recommending disposal and identifying the estimated cost of disposal fees (paragraph 8.2).

7 That provision of £2m is added to the capital programmes for both 2003/04 and 2004/05, with the allocation to specific schemes to be recommended by the Leader and determined by Cabinet at a later meeting (paragraph 8.4).

8 That the amendments to the conditions attached to the approval of the capital programme set out in paragraph 11 of the accompanying report, and included in Annex 1, be approved.

9 That it be a recommendation to Council that:

i) the capital programme for 2002/03 be approved as set out in Appendix 3 of the accompanying report and subject to the conditions set out in Annex 1 of this report.

ii) the capital programmes for 2003/04 to 2005/06 be approved as set out in Appendix 3 for the purpose of undertaking design work (including the preparation of feasibility and design project appraisals).

iii) expenditure on preliminary design and planning work for major transport schemes be permitted when they have achieved a place in the County Council's Local Transport Plan, subject to the cost being met within existing credit approvals.

iv) authority be given to incur expenditure on land purchases as follows:

(a) up to the sum specified in respect of sites still required for the schemes included in the capital programme for the period 2002/03 to 2005/06 provided that the relevant scheme has been the subject of a feasibility or design project appraisal approved by the relevant executive member;

(b) up to the amount included in the 2002/03 programme in respect of advance and advantageous land purchases.

v) the carrying out of feasibility studies for potential "in/out" schemes be approved, the cost to be met from within approved revenue budgets.

vi) the executive member for Policy and Resources be authorised to approve requests from executive members to undertake any design work associated with potential "in/out" schemes, provided that such costs as may fall on the County Council are met from within the relevant executive member's capital programme limits.

2 Reason

2.1 The full County Council must agree the capital programme for 2002/03 to 2005/06 at its meeting on 21 February 2002. The Leader will present his budget speech and recommendations at that meeting, including proposals for the capital programme. This report provides the background to the capital programme and presents the recommendation from the Leader and Cabinet to the County Council.

3 Other options considered and rejected

3.1 Other options are not available as far as process and timetable are concerned, but the leaders of the opposition parties may wish to present their own recommendations on the capital programme to the County Council as amendments to these proposals.

4 Conflicts of interest declared by the decision maker or a member or officer consulted

4.1 Not applicable.

5 Dispensation granted by the Standards Committee

5.1 Not applicable.

6 Reason for the matter being dealt with if urgent

6.1 Not applicable.

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

Councillor T K Thornber

i:\ . . . . \ian\docs\cap-cab-11feb2002cover.doc 09 May 2002

Annex 1

Capital Programme 2002/03 to 2005/06

Conditions attaching to recommendation 7 to the County Council for the approval of the 2002/03 capital programme:

1 a project appraisal shall be approved for all schemes by the appropriate executive member before expenditure is committed, except for schemes under £50,000 for which the authority to commit expenditure is delegated to appropriate chief officers;

2 project appraisals of schemes estimated to cost more than £500,000 shall also be approved by the executive member for Policy and Resources;

3 schemes shall not be committed unless:

(i) all necessary approvals from Government departments have been received;

(ii) tenders or quotations are within any Government cost limits and tolerances;

(iii) tenders or quotations are within the County Council's cost limits and tolerances, as set out in paragraphs 4 to 7 below

4 for the purpose of accepting tenders, a tolerance on the figures included in the capital programme for construction work and fees (but not furniture and equipment) shall be allowed of:

(i) up to 10% for individual schemes or block votes, plus;

(ii) in respect of inflation, the agreed Department for Transport, Local Government and the Regions (DTLR) index rate of increases until the contract is let and, in the case of fluctuating price contracts, thereafter;

5 any part of the tender tolerance used and the DTLR index increase to tender date for individual schemes and block votes shall be charged against the cash limit;

6 where the cost of a scheme exceeds the approved capital programme cost and the appropriate approvals have been obtained to the revised increased cost, then the tolerance referred to in paragraph 4 above shall be applied to that revised figure;

7 executive members shall be authorised to agree increases in costs for schemes in their programmes beyond the maximum tolerances set out in paragraph 4 above, provided that the cash limit for the executive member's capital programme is not exceeded;

8 for each executive member's programme, all named schemes of up to £250,000 and lump sum provisions shall be aggregated to form a minor schemes limit. Executive members may substitute alternative minor schemes without further reference to the executive member for Policy and Resources or the Council, provided that

(i) the individual schemes do not exceed £250,000;

(ii) the minor schemes limit (plus tolerances) is not exceeded; and

(iii) no new principle or policy is involved;

9 all variations in cost (other than inflation) in schemes starting in earlier years not already charged against a starts programme shall be counted against the cash limit for the relevant executive member's capital programme;

10 the provision in the capital programme for schemes supported by supplementary credit approvals (SCAs) and capital grant shall be increased, subject to the approval of the executive member for Policy and Resources, or decreased to the level of expenditure for which support is issued or such lesser sum should expenditure incurred be less than that for which support is issued and the overall programme limits be varied accordingly;

11 the executive member for Policy and Resources shall be authorised to approve additions to the capital programme for new schemes for which SCA or capital grant is issued or external contributions are obtained, subject to paragraph 12 below;

12 in the case of coast protection schemes, the executive member for Environment shall be authorised to add schemes to the capital programme provided the cost is supported in full by SCA;

13 any additions to the programme limits approved by the executive member for Policy and Resources in accordance with paragraphs 10 and 11 shall be reported to the County Council;

14 that in addition to variations arising from differences in SCAs, the executive member for Policy and Resources shall be authorised to agree requests from executive members for additions to and deletions or deferments of major schemes from the current year's capital programme, provided that:

(i) the cash limit for any executive member's capital programme is not exceeded; and

(ii) any additional scheme represents an advancement of a scheme from a later year of the approved programme;

15 any deferment or deletion of a named scheme in excess of £250,000 for any reason shall be reported to the County Council;

16 all other changes to the capital programme not covered by the above conditions require the approval of the appropriate executive member, the executive member for Policy and Resources and County Council.

Contact: Jon Pittam, ext 7400

7 Summary

7.1 The Cabinet, at its meeting on 17 December 2001, asked executive members:

· to prepare proposals for a locally resourced four-year capital programme within the current programme limits

· in addition, to submit capital schemes supported by Government grants and scheme-specific borrowing approvals for 2002/03 and those expected to be supported in 2003/04, 2004/05 and 2005/06.

7.2 This report explains the background to the proposed capital programme. It collates the submissions of executive members and confirms that further resources of £2.5m are still needed to meet a shortfall currently forecast for 2003/04, although no immediate action is required. Indeed, higher estimates of capital receipts will allow the addition of £2m per annum to the programmes for 2003/04 and 2004/05, with the allocation to individual schemes to be determined in detail at a later meeting.

7.3 The other main points of the report are:

· the starts programmes proposed are in line with the guidelines, together with schemes supported by Government grant and specific borrowing approvals

· in total, the programme over the four-year period is almost £500m

· the County Council has been awarded the maximum discretionary amount of £2.2m from the Government's single capital pot for 2002/03 - proposals are made to allocate this £2.2m

· proposals are also made to allocate the local resources of £0.7m per annum released when the Cabinet set guidelines for the capital programme in December 2001.

8 Background to the guidelines for the capital programme

8.1 The existing capital programme, agreed by County Council in February 2001, was set at a level that could be supported by the capital resources then estimated to be available, subject to a further £4.2m of resources being found in 2002/03 and 2003/04.

8.2 When the Cabinet considered guidelines in December 2001 for the future starts programme, the final position on Government borrowing approvals for 2002/03 and other financing resources was still emerging. As a result, executive members were asked to prepare programmes for locally resourced schemes within the existing capital programme limits, uplifted for inflation. Locally resourced schemes are those not met by Government grant or specific borrowing approvals and are financed, instead, from capital receipts and contributions from revenue and other County Council funds. The uplift for inflation included an additional amount to cover the impact on capital costs of the aggregates levy to be introduced by the Government from April 2002.

8.3 Some minor changes have been made to the guidelines agreed at the Cabinet's meeting in December 2001 to reflect proposals by executive members for transfers between capital and revenue. The adjusted guidelines for each service are shown in Table 1.

Table 1 - Guidelines for locally resourced capital programmes
2002/03 to 2005/06
	2002/03	2003/04	2004/05	2005/06
	£000	£000	£000	£000
Education	-	-	-	-
Environment	12,379	12,379	12,379	12,379
Policy and Resources	15,964	15,186	15,186	15,186
Recreation and Heritage	457	457	457	457
Social Services	705	705	705	705
	---------	---------	---------	---------
Total	29,505	28,727	28,727	28,727
	---------	---------	---------	---------

8.4 The Policy and Resources guideline includes £0.8m per annum for advance and advantageous land purchases and the last year of the one-off investment programme in older persons' homes (£1.3m in 2002/03). This investment programme was originally funded in part by transfers of £1.2m per annum from elsewhere within the Policy and Resources programme, including £0.5m from capital repairs. The £0.5m has been reinstated to the capital repairs provision from 2003/04. Proposals are included in paragraph 7 for the allocation of the remaining £0.7m per annum.

8.5 As requested by the Cabinet, executive members have also prepared programmes for schemes supported by Government grant and specific borrowing approvals. These programmes total £373.3m over the four years. This includes the County Council's share of the capital element of the cost of the South Hampshire Rapid Transit scheme at £112.0m after developers' contributions, which is programmed to start in 2003/04.

9 The programmes submitted

9.1 The total starts value of the four-year programme submitted by executive members is £498.5m, as shown in Table 2.

Table 2 - Starts programmes submitted 2002/03 to 2005/06
	Land	Works, Fees, Furniture and Equipment			Total
		Locally resourced programmes	Schemes supported by Government approvals	Total
	£000	£000	£000	£000	£000
2002/03	908	30,445	73,266	103,711	104,619
2003/04	908	31,084	208,264	239,348	240,256
2004/05	908	31,019	40,205	71,224	72,132
2005/06	908	29,019	51,576	80,595	81,503
	--------	-----------	-----------	-----------	-----------
	3,632	121,567	373,311	494,878	498,510
	--------	-----------	-----------	-----------	-----------

9.2 The proposed programmes are in line with the guidelines set in December 2001. A reconciliation between the guidelines and the total proposed programme is included in Appendix 1.

9.3 The payments flowing from these programmes and from the works currently in progress are summarised in Appendix 2, together with the resources available to finance those payments. The programmes themselves are set out in detail in the yellow pages in Appendix 3.

10 Issues arising from executive members' programmes

Education

10.1 The proposed programme for Education of £79.2m over the next four years is supported solely by Government allocations, as Table 3 shows.

Table 3 - Education capital programme
	2002/03	2003/04	2004/05	2005/06	Total
	£000	£000	£000	£000	£000
Resources carried forward from 2001/02	3,990	-	-	-	3,990
Government's general borrowing approvals	9,604	8,000	7,000	7,000	31,604
Government's supplementary borrowing approvals for New Deal for Schools Modernisation fund	6,807	11,746	-	-	18,553
Government grants for:
- devolved capital
allocations direct to
schools	7,568	12,670	-	-	20,238
- Seed Challenge to
match private funding
raised by schools	1,267	1,266	-	-	2,533
- LEA liabilities on
voluntary aided projects	152	281	-	-	433
- Neighbourhood
Nurseries Initiative	330	61	-	-	391
- Nursery Education in
Disadvantaged Areas	424	424	-	-	848
- School Security	231	-	-	-	231
Land for the programme	100	100	100	100	400
	----------	----------	-----------	-----------	----------
Total	30,473	34,548	7,100	7,100	79,221
	----------	----------	-----------	-----------	----------

10.2 The programme reduces substantially in the last two years because the Government has not yet announced allocations beyond the period covered by its current spending review period which ends in 2003/04. Further allocations for the last two years of the programme are expected after the Government publishes the next spending review during the summer.

10.3 The Government's formula-based support for capital spending on education has increased by 62% in 2002/03, rising from £23.6m in the current year to £38.3m in 2002/03, as Table 4 shows. By 2003/04, it will have more than doubled compared with 2001/02, reaching £49.6m. This assumes that the general borrowing approval for education for 2003/04 is £8m. The actual allocation will not be announced until December 2002.

Table 4 - Government support for capital spending on education
	2001/02	2002/03	2003/04
	£000	£000	£000
General borrowing approvals	8,772	9,604	8,000
New Deal for Schools Modernisation	-	6,807	11,746
Devolved capital allocations	6,177	7,568	12,670
Seed Challenge	688	1,267	1,266
LEA liabilities for voluntary aided	-	152	281
Neighbourhood Nurseries Initiative	177	153	61
Nursery Education in Disadvantaged Areas	-	424	424
School security	-	231	-
New Deal for Schools Condition	7,825	12,111	15,146
	---------	---------	---------
Total	23,639	38,317	49,594
	---------	---------	---------

10.4 The grants shown in Table 4 for the New Deal for Schools (NDS) Condition programme are to improve the condition of school buildings. This funding will be used largely for capital repairs and so provision has been made in the Policy and Resources capital programme. As Table 4 shows, the Government has increased the amounts significantly in 2002/03 and 2003/04.

10.5 In addition to the support outlined above, the Government is expected to announce the results of bids for its Targeted Capital Fund for schools in March 2002. If the County Council has been successful, the additional schemes will be added to the capital programme in April 2002.

10.6 The Education capital programme has been under severe pressure because of:

· continuing high levels of inflation in building costs

· the level of basic need projects (to provide for increasing pupil numbers) requiring significant furniture and equipment allocations, for which specific provision is not made in Government allocations.

10.7 These pressures have been accommodated in the proposed programme only in the context of a funding shortfall for 2003/04, by deferring schemes from 2002/03 to 2003/04, and by applying part of the NDS Modernisation funding. The whole of the 2003/04 programme, based on a forecast general borrowing approval of £8m, has had to be used for deferred existing schemes. These are temporary solutions until measures, that have now been identified, come on stream over the next two to three years. It is estimated that these measures will raise £7m, as follows:

· capital receipts from sites currently in the process of being sold, £2.5m

· use of the in/out arrangements to apply a higher proportion of these receipts to support the Education capital programme, £0.5m

· use of NDS Modernisation funding to support basic need schemes that include an improvement element, £1.0m

· fast-tracking land sales at schools with significant excess site area with development potential, £2.5m

· other measures, including a review of the funding of furniture and equipment, £0.5m.

10.8 Further progress in these areas could be made in subsequent years to close the remaining funding gap.

Environment

10.9 The Government's local transport capital settlement for 2002/03 included an allocation of borrowing approvals of £23.728m for the County Council. This is in line with the indicative figures published by the Government last year, with the addition of £240,000 for the CIVITAS project in Winchester and a further general supplementary allocation of £300,000. The starts programme in Appendix 3 has been set at the overall level of the allocation for 2002/03 plus the Government's indicative figures for 2003/04, 2004/05 and 2005/06. The starts programmes for individual years have been front-loaded to 2002/03 by £3m to make sure that payments in the early years are sufficient to make the maximum use of the Government's allocations, whilst still remaining within the overall total of the approvals.

10.10 A scheme-specific borrowing approval of £750,000 has also been allocated by the Government for the preparation costs in 2002/03 of the South Hampshire Rapid Transit (SHRT) scheme.

10.11 The Fareham-Gosport-Portsmouth section of the SHRT scheme has been included in the proposed programme for 2003/04. The total capital cost is estimated to be £190m at 2002/03 prices. After allowing for Portsmouth City Council's 30% share, the County Council's proportion of the capital cost is £133m. The Government has indicated that it will support 75% of the public sector cost of the scheme. The precise details of how the scheme will be financed will depend on the outcome of the procurement process, though it is likely to involve a significant private finance initiative (PFI) element. The issues that will be clarified then include:

· how the Government's 75% support will be paid

· how the remaining 25% will be financed

· the extent of the ongoing revenue consequences of the scheme for the public sector.

10.12 The Government's 75% support for the construction costs is likely to take the form of borrowing approvals and capital grant. In addition, the Government is expected to provide support as part of a PFI scheme for the annual `availability' payments. These payments will be made by the local authority partners to the operator in return for making the transit system available to users to standards set by the partners. The exact combination of borrowing approvals, capital grant and `PFI credits' will not be known until the procurement has been completed.

10.13 The remaining 25% not funded by the Government will include the capital costs of land acquisition and procurement fees and the revenue costs of monitoring the operator and that part of the `availability' payments not covered by the PFI credits. Land and procurement costs will have to be met from external contributions by the operator or from contributions by developers benefiting from the SHRT scheme or, if there is a shortfall of external contributions, by Hampshire County Council and Portsmouth City Council as promoters of the scheme. It is recommended that the County Council's share of any shortfall should be met from the capital resources already available within the Environment programme. These include the borrowing approvals already issued by the Government for the local transport programme and which would have to be diverted from the proposed schemes set out in Appendix 3. This will also apply to any costs incurred before the procurement process is completed.

10.14 The revenue consequences of the scheme not covered by Government support should also be met from within the resources already allocated to the Environment service. These revenue costs may include a share of the ongoing `availability' payments to the operator, which could be more than £1m per annum.

10.15 The funding position for the scheme will become more clear as the procurement is finalised. It is recommended that the executive member for Environment should report to Cabinet before the scheme is committed on how the capital and revenue costs of the scheme will be funded within the conditions set out in paragraphs 4.12 to 4.14.

10.16 The programme for 2003/04 onwards includes four other major schemes, including three stages of the A3 Corridor Bus Priority scheme, as shown in Table 5.

Table 5 - Major transport schemes
	£000
2003/04
Chickenhall Lane Link, Eastleigh	16,000
A3 Corridor Bus Priority Stage 3	6,860
A3 Corridor Bus Purchase	5,000
2004/05
A3 Corridor Bus Priority Stage 4	6,050
Strategic Park & Ride, Southampton Area	6,000
2005/06
A3 Corridor Bus Priority Stage 5	6,420
Botley Bypass	18,000

10.17 These schemes have not yet been accepted for Government support and the funding for any design and other preparatory work will be found from within the overall transport allocation.

10.18 The locally resourced programme has been supplemented by Environment's 25% share of its capital receipts obtained in 2000/01. This £298,000 has been left unallocated within the 2002/03 programme at this stage.

Policy and Resources

10.19 The Policy and Resources capital programme in Appendix 3 includes in 2002/03 the final year of the £7.1m programme to refurbish older persons' homes. The £0.5m reduction in capital repairs to fund that programme has been restored from 2003/04. No other major changes to the balance of the existing guideline programme have been made, although additions to the 2002/03 and 2003/04 programmes have been included for investment by the County Council's business units for printing, transport management, catering and supplies. These schemes will be financed from the business units' reserves and, in some cases, will supersede schemes not yet started in the 2001/02 programme.

10.20 As outlined in paragraph 4.4, the grant-backed provision from the Government under the New Deal for Schools Condition programme of £12.1m in 2002/03 and £15.1m in 2003/04 to improve the condition of school buildings will be used largely for capital repairs and so they have been added to the Policy and Resources capital programme.

10.21 The Government has allocated capital grants of £0.2m in 2002/03 to each local authority to support proposals for implementing electronic government, with a further £0.2m to follow in 2003/04 subject to good progress. These allocations have been included in the Policy and Resources programme.

10.22 The programme also includes an annual provision of £0.8m for advance and advantageous purchases of land.

Recreation and Heritage and Social Services

10.23 The capital programmes for Recreation and Heritage and Social Services in Appendix 3 are in line with the guidelines set in December 2001, with the addition to the Social Services programme for 2002/03 of two schemes supported by Government grant. These are £366,000 to improve information management and £136,000 for IT for looked after children.

11 The Government's single capital pot

11.1 This is the first year of the Government's `single capital pot', in which it brings together some of its borrowing approvals in support of councils' capital programmes in a single pot to be allocated as general, rather than scheme-specific, borrowing approvals. The concept was presented by the Government as a way of increasing council's financial freedom, enabling them to decide how to allocate their capital resources. In practice, very little has changed with only the borrowing approvals for local transport being added to the previous allocation of general borrowing approvals.

11.2 The Government has top-sliced 5% of the resources in the single capital pot to create a discretionary pool. This has been allocated to councils at the discretion of ministers, based on civil servants' assessments of councils' capital strategies, corporate asset management plans (AMPs) and service plans for education, local transport and social services.

11.3 All the County Council's plans scored sufficiently highly for the County Council to be awarded the maximum amount of borrowing approval from the discretionary pool, £2.168m, as Table 6 shows.

11.4 As the Government top-sliced its support for councils to create the 5% discretionary pool, the County Council needed to be successful in the assessment process just to stand still and so the £2.168m is not really additional funding.

11.5 About 70% of the national discretionary pool was top-sliced from the local transport allocations. Most of the remainder was taken from education (27%), with 2.5% from social services. The Cabinet may wish to allocate the £2.168m between Environment and Education along similar lines which would give Environment £1.6m and Education £0.6m. Alternatively, the major part played by the local transport plan in achieving such a high allocation for the County Council could be recognised by awarding £1.8m to Environment and £0.4m to Education. These additions to the capital programme would be for schemes starting in 2002/03 only, as there is no guarantee that the County Council will continue to be successful in the Government's assessment process in future years.

11.6 Resources have been found in the revenue budget and from capital repairs to fund £1.4m of the estimated cost of £2.1m for the permanent work at St Bede Primary School, Winchester following last year's floods. It was anticipated that Education would bear the remaining £0.7m towards the improvement element in the building work but no specific provision has yet been made.

12 Feedback on the County Council's capital strategy and corporate AMP

12.1 The Government Office for the South East (GOSE) has provided some comments as feedback on the County Council's capital strategy and corporate AMP which were submitted to GOSE in July 2001 following approval by Policy and Resources Committee. Most of the comments were positive, in line with the high rating given to the documents in the assessment process. The following areas were highlighted for further work.

Capital strategy

12.2 Performance measurement

· GOSE's comment: "There was reference to national Performance Indicators being adopted but no examples of benchmarking exercises taking place."

Benchmarking will be developed where appropriate and meaningful comparisons can be obtained.

Corporate AMP

12.3 Property data requirements

· GOSE's comment: "The AMP met most of these requirements but we were unsure whether the Corporate Property Officer had undertaken a full survey of future data requirements for the property portfolio. It would be helpful to see a timescale for implementing improvements."

This will be clarified in the next version of the Corporate AMP.

12.4 Option appraisal and prioritisation

· GOSE's comment: "It was not clear whether the Council had reviewed projects already being developed against objectives and priorities,"

This will also be clarified in the next version.

12.5 Capital programme

· GOSE's comment: "The guidelines suggest that Members are informed at least quarterly of progress and performance of capital programmes. We are unsure whether this was happening although we noted that there were annual reviews and there were other opportunities to inform members as appropriate."

Reports are made regularly to individual executive members on the progress of the capital programmes for which they are responsible. Reports will be made to Cabinet in future on a quarterly basis covering progress on the capital programme.

13 Unallocated local resources

13.1 As indicated in paragraph 2.4, part of the local resources which was diverted in recent years to fund the programme of improvements for older persons' homes has not yet been allocated. The improvement programme ends in 2002/03 and so £0.736m per annum will be available from 2003/04 onwards, although a phased reintroduction from 2002/03 could be accommodated.

13.2 The issues identified that could be met from these resources include the relocation and improvement of recycling centres, the improvement of rights of way including byways open to all traffic (BOATs) and capital repairs of buildings other than schools. It is suggested that the additions in Table 7 should be made to the capital programme. As the investment in the recycling centres and BOATs is needed urgently, it is proposed that these allocations are included from 2002/03, as shown.

Table 7 - Additional programmes from local resources
	2002/03	2003/04	2004/05	2005/06
	£000	£000	£000	£000
Environment
Waste recycling centres	300	300	300	300
Recreation and Heritage
Rights of way improvements	100	100	100	100
Policy and Resources
Capital repairs other than schools	-	200	200	200
	----------	----------	----------	----------
	400	600	600	600
	----------	----------	----------	----------

13.3 This addition of £2.2m over the four years is the equivalent of the unallocated resources of £0.736m per annum from 2003/04.

14 Additional capital receipts

14.1 The estimates for capital receipts have been reviewed during the preparation of the proposed capital programme. This review shows that an additional £4m of resources will be available compared with the assumptions that underpin existing programme levels. This can be used to increase the existing locally resourced capital programme by £2m in both 2003/04 and 2004/05.

14.2 The cost of preparing sites for disposal has become increasingly expensive in order to comply with the requirements of local planning authorities. This includes preparing transportation and environmental assessments and other advanced feasibility, design and analysis work necessary to secure planning approvals prior to marketing sites. Much of this work has to be undertaken by external specialist consultants. It is recommended that provision of £500,000 per annum is added to the Policy and Resources capital programme for these fees, including the 2001/02 programme. Half of this amount will cover work on disposals in support of the general capital programme, with the remainder for possible in/out schemes. Allocation from this provision will be subject to consideration by the executive member for Policy and Resources of reports recommending the disposal of each site which will also identify the estimated cost of disposal fees.

14.3 Allowance has been made for these increased fees in calculating the additional resources of £4m that are available to supplement the capital programme.

14.4 It is suggested that priorities for investment should be reviewed in the light of the County Council's capital strategy so that the Leader can recommend to the Cabinet at a later meeting how £2m increases in the programmes for 2003/04 and 2004/05 should be allocated.

15 Local public sector agreement

15.1 Under the local public sector agreement (PSA) reported to the last meeting of the Cabinet, the Government will make available additional borrowing approvals totalling £2.25m. These borrowing approvals will be "unsupported" by the Government in that revenue grant will not be available towards the financing costs of the loans raised (principal repayment and interest costs). The County Council will have to fund these financing costs from its own resources. Detailed proposals for using the £2.25m will be brought before executive members at later meetings and the schemes added to the capital programme at that stage.

16 Payments and resources

16.1 Table 8 on the next page shows that the capital payments flowing from the proposed capital programme including the additions outlined earlier in this report, compared with the financing resources available. Resources in 2001/02 and 2002/03 will match the forecast level of capital payments in those years with the use of the balance available in the capital reserve. By 2003/04, however, there is a shortfall of resources of £2.5m. In subsequent years, resources marginally exceed payments.

Table 8 - Capital payments and resources
	2001/02	2002/03	2003/04	2004/05	2005/06
	£000	£000	£000	£000	£000
Payments	107,540	149,305	122,394	133,003	136,391
Resources	107,540	135,771	114,287	132,492	138,020
To be met from the capital
reserve	-	13,534	5,608	535	-
	----------	----------	-----------	-----------	----------
Resources to be identified	-	-	2,499	-24	-1,629
	----------	----------	-----------	-----------	----------

16.2 This financing gap is lower than forecast a year ago when resources totalling £4.2m were required over the period from 2002/03 to 2003/04. This shortfall of £4.2m reflected the additional resources that needed to be identified to meet the full cost of the Enterprise Project to replace the County Council's financial and business related systems. The District Auditor in his latest management letter has recommended that the County Council should plan to eliminate this financing gap.

16.3 The report on the revenue budget recommends that the forecast underspending in the revised budget for 2001/02 of £1.6m should be transferred to the Invest to Save reserve. This £1.6m will then be available to fund part of the remaining costs of the Enterprise Project. The resources in Table 8 reflect this use of the £1.6m and this is the main reason why the shortfall in resources for the capital programme has been reduced to £2.5m.

16.4 It will still be necessary to identify extra resources, but no immediate action need be taken now to eliminate the shortfall. Slippage in payments may help to smooth away the shortfall. The position can be reviewed when the accounts for 2001/02 are closed in July 2002 and again when the capital programme is considered next year. Progress on eliminating the shortfall can be taken into account when Cabinet considers proposals for allocating the £2m additions to the programmes for 2002/03 and 2003/04 referred to in paragraph 8.4.

16.5 Payments and resources will continue to be closely monitored during the remainder of 2001/02 and in 2002/03. Regular reports on the progress of the capital programme will be brought to the Cabinet and these will indicate if any action is required to restrain payments to the level of resources estimated to be available in 2002/03.

16.6 Appendix 2 also includes details of the longer term implications of the proposed programmes for the revenue budget from increased running costs and capital charges. Details of the impact on the County Council's debt outstanding are also included.

17 Capital programme approvals

17.1 With the introduction of the County Council's new constitution, it has been necessary to update financial regulations and other financial procedures. A number of approvals and limits concerning the capital programme are agreed each year in February when the County Council approves the new starts programme. There is now an opportunity to review some of these `conditions' attached to the approval of the capital programme to bring them into line with the new constitution and financial regulations.

17.2 The conditions include a number of limits that determine the extent of the appraisal that is applied to capital schemes before they are committed. At the lower level, chief officers are presently authorised to commit expenditure on capital schemes costing up to £10,000. This limit has remained unchanged for many years and it is would be sensible to increase it to £50,000.

17.3 Schemes above £50,000 should continue to be the subject of a project appraisal approved by the appropriate executive member. Project appraisals for major schemes - those costing more than £500,000 - also require the approval of the executive member for Policy and Resources.

17.4 Lump sum provisions and named schemes of £200,000 and under are aggregated to form a minor schemes limit. Executive members may substitute alternative minor schemes provided that the individual schemes do not exceed £200,000 and the minor schemes limit is not exceeded. There must be no new principle or policy involved. If these conditions are not met, the approval of Cabinet and County Council is required. This limit was increased from £100,000 to £200,000 by the County Council relatively recently, in May 2000. It is suggested that a further small uplift should be made now, from £200,000 to £250,000.

17.5 The limit on schemes that can be deferred or deleted by executive members without reporting the change to County Council was also increased to £200,000 in May 2000. This should also be amended now to £250,000.

17.6 These changes have been incorporated in the conditions for the approval of the capital programme set out in Annex 1 to the Recommendations. The conditions will apply to successive capital programmes and are not affected by the particular circumstances of each year's programme. Once approved, they can be incorporated in the County Council's financial procedures. This will simplify the approval of the capital programme in future years as the Cabinet and County Council will not be required to reaffirm the same conditions every year.

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.

Letters from Government departments on the single capital pot and other capital allocations.

Appendix 1

Capital Programmes 2002/03 to 2005/06 Proposed by Executive Members

1 Summary of the proposed programmes

1.1 The proposed four year programme of £498.5m complies with the guidelines set by the Cabinet in December 2001, as the table below shows:

1.2 The starts value of schemes supported by Government grant and borrowing approvals, £255.1m, represents 66% of the four year programme excluding the South Hampshire Rapid Transit (SHRT) Phase 1. This compares with a percentage of 58% for the existing capital programme. It illustrates the extent to which the Government is able to influence priorities, as well as the increased resources it has provided in 2002/03.

1.3 There is also a large programme of highways schemes funded by developers, totalling £20.5m over the four years, excluding SHRT. The individual schemes are identified in the Environment capital programme in Appendix 3.

Appendix 2

Capital Programme 2002/03 to 2005/06

Capital Payments and Financing Resources

1 Capital payments

1.1 The level of capital payments is one of the factors the County Council takes into account in determining the size of its capital starts programme, together with forecasts of financing resources.

1.2 Payments in 2001/02 and the following four years will result from works in progress (schemes started in 2001/02 and earlier years) plus those arising from the proposed programme for 2002/03 to 2005/06, as the table below shows.

1.3 The increase in payments from 2002/03 onwards reflects the higher levels of Government allocations, particularly for Education and the impact of the South Hampshire Rapid Transit scheme from 2004/05. The precise nature of the funding for this scheme has yet to be decided. It is included in these forecasts on the basis that it will be met from a combination of Government support and external contributions. Payments on the programme as a whole reach a peak in 2002/03 because of the impact of the Government's allocations and major schemes such as the redevelopment of the John Hanson Community School and the visitor facilities at the Sir Harold Hillier Gardens and Arboretum.

1.4 In practice, payments in the last three years will probably be even higher than suggested by the table, as more approvals are received from the Government especially after the next spending review is announced in summer 2002. Further developer contributions and lottery grants are also likely to be received in the future which will result in additional payments.

1 Resources available for capital financing

1.1 The sources of finance to support the capital programme are:

· Government borrowing approvals, either `basic credit approvals' for general use or `supplementary credit approvals' that are scheme or programme specific

· Government grant

· contributions from developers and other bodies, including the national lottery

· capital receipts from the sale of land, buildings and other assets

· contributions from the revenue budget.

1.2 The following table shows the latest estimate of the resources available to finance capital payments.

1.3 Within its single capital pot, the Government issues annual capital guidelines (ACGs) in four blocks: for education, local transport, social services and other services (known as environmental, protective and cultural services or EPCS). It calculates the basic credit approval (BCA) from the ACGs. The BCA allows the County Council to borrow to finance its capital spending up to the limit of the BCA.

1.4 The education ACG for 2002/03 of £8.9m is 15.9% less than the 2001/02 figure of £10.6m. However, the Government has allocated grant and other borrowing approvals totalling £38.3m in 2002/03 for capital expenditure on the County Council's schools, as the table in paragraph 4.3 of the main report shows. This is 62% more than the equivalent allocation for 2001/02 and will increase to £49.6m in 2003/04.

1.5 The local transport ACG for 2002/03 of £23.7m is 1.5% more than the equivalent figure for 2001/02 of £23.4m, which was allocated by the Government as a supplementary credit approval or SCA. In addition, the Government has awarded an SCA of £0.75m for the preparation costs in 2002/03 of the South Hampshire Rapid Transit Scheme.

1.6 The social services ACG for 2002/03 is £1.102m. This is 2.7% less than the ACG for 2001/02 of £1.132m.

1.7 The EPCS ACG for 2002/03 is again unchanged at £0.215m. This is supposed to cover all the capital needs of the County Council's services other than education, social services and transport.

1.8 In total, the Government's support for the 2002/03 starts programme announced so far in the form of borrowing approvals and grant will be £66.0m. This is 11.4% more than the equivalent figure for 2001/02 of £59.3m.

1.9 The general capital receipts available for funding the capital programme are estimated to be £11.3m in 2001/02 and £8.8m in 2002/03. The planning assumptions for future years are based on £6m in 2003/04, £4m in 2004/05 and £6m in 2005/06.

1.10 Revenue contributions to capital will be £26.5m in 2002/03 in support of capital repairs (£12.6m), highway structural maintenance (£11.1m) and other capital schemes (£2.8m).

1.11 Overall, the resources available to the County Council are expected to be sufficient to meet the payments in 2001/02 and 2002/03. Further resources will be required in 2003/04 to meet a shortfall of £2.5m, as outlined in section 10 of the main report.

1.12 The table on the following page summarises the balance on the capital reserve.

2 Revenue Implications

2.1 The revenue implications of the new starts programme are shown in the following table.

2.2 The capital charges represent a 6% return on capital employed with, for most schemes, depreciation over the estimated life of the asset. They do not affect the County Council's overall expenditure as the charges to committees will be counter-balanced by a corresponding credit to the centrally managed asset account.

2.3 However, the actual expenditure of the County Council will be increased by the capital financing costs on the loans raised to finance the programme. The full year revenue impact of the additional borrowing over the four year programme will be £15.9m. Under the existing revenue grant system, these costs are reflected in the County Council's standard spending assessment for revenue expenditure and attract revenue support grant from the Government broadly equivalent to the costs.

3 Debt outstanding

3.1 The following table shows the debt to be financed by the County Council, including the new borrowings necessary to finance the proposed four year programme.

3.2 The upward trend in debt outstanding reflects the County Council's policy of using in full all the borrowing approvals made available by the Government. Since the requirement to use part of all capital receipts to repay debt was abolished by the Government in September 1998, the only repayments of debt are those from the revenue account at the statutory minimum of 4% of the debt outstanding, together with repayment over seven years of debt relating to local government reorganisation transitional costs. However, as explained in paragraph 3.3 of this Appendix, new capital financing charges should attract revenue support grant from the Government broadly equivalent to the costs. The impact on the council tax should be neutral as a result. So even though the County Council's debt will increase by 49% over the period, borrowing at these levels should fall within the limits of the Government's proposed "prudential" regime for local authority borrowing.

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