Contact: Jon Pittam, ext 7400 and Andrew Smith, ext 7826

1 Summary

1.1 The following decisions are sought:

1 That the Leader and Cabinet recommend to County Council that the additional resources totalling £15m (£2m unallocated in each of 2005/06 and 2006/07 together with capital receipts targeted over the period and other adjustments) be used: to add the Winchester Cultural Centre and Discovery Centres, including Gosport, to the capital programme (£4.8m) and to generate future capital receipts by investment in development infrastructure at Popley and Manydown (£10.2m).

2 That the remainder of the report be noted.

2 Reason

2.1 In approving the capital programme for 2003/04 to 2006/07 in February 2003/04, the County Council agreed that the programme should be reviewed again in May 2003, to include potential private finance initiative schemes, the prospects for capital receipts, and the need for investment in development infrastructure to maintain the flow of capital receipts.

3 Other options considered and rejected:

3.1 Not applicable

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(s) for the matter being dealt with if urgent

6.1 Not applicable.

Approved by: ................................... ... Date: .........................

Councillor T K Thornber

Contact: Jon Pittam, ext 7400 and Andrew Smith, ext 7826

1 Summary

1.1 This report sets out proposals for using unallocated capital resources of £15m to:

· add specific projects to the capital programme (£4.8m)

· earmark £10.2m to maintain the flow of capital receipts in the future, via development sites at Popley and Manydown.

2 Background

2.1 In recommending the capital programme for 2003/04 to 2006/07 to County Council in February 2003, Cabinet proposed that it should review the programme again in May 2003. A number of outstanding issues were identified in February, including:

· the prospects for capital receipts in 2004/05 and subsequent years

· measures to fund the Education capital programme

· more detailed proposals for the use of PFI

· the transfer of any further capital resources to Recreation and Heritage

· the funding of the South Hampshire Rapid Transit scheme

· the funding of the nursing homes scheme

· the need for investment in infrastructure to develop land in Popley to maintain the stream of capital receipts, and the need to meet the Council's obligations to participate in the development of land at Manydown in Basingstoke.

2.2 This report updates the position on these and other issues and sets out the options for changes to the capital programme that can be recommended by the Leader and Cabinet to the County Council.

3 Unallocated resources

3.1 The capital programme approved in February 2003 included provision for additional starts of £2m in both 2005/06 and 2006/07 that had not been allocated to specific schemes. In addition, there remains unallocated £0.8m from the provision originally made in the Policy and Resources capital programme for the reorganisation of library facilities, including those in Winchester.

3.2 The report to Cabinet in February 2003 showed that sufficient resources had been identified to fund all but £0.2m of the payments arising from the four-year capital programme which were estimated to total £564m over the period. This minor shortfall, in 2004/05, will need to be taken into account in decisions on allocating additional capital resources.

3.3 The outturn for capital payments and resources in 2002/03 will be reported to Cabinet in June 2003. Early indications are that there will be no major funding issues arising that will affect the future affordability of the capital programme.

4 Capital receipts

4.1 Forecasting the levels of future capital receipts can be difficult, both in terms of the amount that purchasers may be willing to pay for individual sites and the timing of receipt. Both are subject to the often unpredictable local planning processes. The level of capital receipts assumed when the capital programme was approved in February 2003 has now been reviewed. A number of major disposals are likely to yield higher amounts than previously forecast, reflecting the buoyant housing market over recent months, although this could well change over the period of the capital programme. Caution will be required to make sure that investment matches the capital receipts actually received.

4.2 Table 1 shows that an additional £10.4m is expected, including the additional target of £3m which was agreed by the Executive Member for Policy and Resources last year.

4.3 This increase in the forecast level of capital receipts over the period of £10.4m, together with the unallocated resources already included within the capital programme of £4.8m, provides an additional £15m that can now be earmarked for new schemes, after allowing for the £0.2m shortfall referred to in paragraph 3.2, as shown in Table 2. In terms of cash flow, it could be used to add schemes costing £3.75m to each of the four years of the current capital programme from 2003/04 to 2006/07 to smooth the impact over the programme period.

4.4 The following sections of the report outline the pressures within the capital programme and the new developments that could be met from this £15m.

5 Education capital programme

5.1 Most of the Government's capital allocations for Education for 2003/04 were known when the Council approved the capital programme in February 2003. The exception was the Government's Targeted Capital Fund which is intended to support projects that contribute directly to meeting the Government's educational priorities and which might not otherwise be supported through the Government's other formula-based allocations to local education authorities (LEAs) and schools. LEAs were required to bid for specific projects. The allocations was announced on 31 March 2003 and included £5m for Hampshire's top priority scheme, the reorganisation of special education in East Hampshire. No allocations were made for the second and third priority schemes at the Bridge Education Centre and the Linden Education Centre. All three of the top priority schemes at voluntary aided primary schools received allocations: St Marks, Basingstoke £2.5m, Swanmore £1.3m and Longparish £1.4m.

5.2 The success of the bid for the East Hampshire special schools project has significantly eased Education's funding pressures on its capital programme, which were reported to Cabinet in February 2003. The total estimated cost of the East Hampshire Special Schools Reorganisation is in the order of £7m. The Director of Property, Business and Regulatory Services is currently identifying cost options for the scheme. It is estimated that in addition to the Targeted Capital Fund allocation of £5m, there will be capital receipts from the sale of redundant land and capital repair and maintenance contributions over the life of the project.

5.3 In addition, the schools balances loan scheme has now been agreed by schools and will enable up to 25% of schools' accrued balances to be `borrowed' to fund the Education capital programme. Repayments will be made to the schools' reserve account when capital receipts from proposed sales of school sites are obtained.

5.4 The Secretary of State for Education has also published a consultation paper on proposals to reform the Government's capital investment for schools, called `Building Schools for the Future'. The County Council's response to the consultation is attached as Appendix 1 as agreed by the Executive member for Education after consideration by the Education Policy Review Committee. With secondary schools as a priority, the Government proposes concentrating its capital investment in larger sums so that LEAs and schools can reorganise their school estate, including ICT provision. The Government intends to start with areas that have the poorest standards and greatest needs. The consultation period ends on 31 May 2003 and the Government intends to introduce its new approach in 2005/06.

5.5 In the light of the improved funding position for the Education capital programme and the likelihood of changes to the Government's approach to capital investment in schools in 2005/06, it is suggested that no further allocation of local resources should be made to the Education capital programme now. The position can be reviewed again next year when the outcome of the Government's `Building Schools for the Future' proposals are known. Any additions in the meantime to the Education capital programme for projects not currently included, such as the reconstruction of secondary schools, would have to be accommodated within the resources currently available to Education.

6 Private Finance Initiative (PFI)

6.1 At the request of Cabinet, Executive Members identified a number of potential PFI schemes in February 2003, including:

6.2 PFI had been one of a number of options considered for the East Hampshire special schools project but, with the Government's allocation of Targeted Capital funding for in the form of borrowing approvals, that possibility can now be set aside.

6.3 The Government provides grant support for the PFI projects that it approves to meet the capital element of the cost. Local authorities are required to bid for this support in competition with other authorities. The support is intended by the Government to be the equivalent of the borrowing approvals or capital grant with which it funds schemes procured by traditional methods. If the Government's PFI support is not won, the full cost of a PFI scheme would fall on the County Council's own local resources. It is essential, therefore, that Government approval is obtained for any proposed PFI projects. If it is not, the service would have to meet the full cost of servicing the PFI contract over its lifetime from their existing budgets.

Street lighting

6.4 The Government has invited bids for PFI approvals for schemes to replace and maintain street lighting columns with a deadline of the end of July 2003. A full appraisal of the benefits of bidding for PFI support for street lighting is being prepared for consideration by the Cabinet. If no bid is submitted or it is unsuccessful, the ongoing cost of the replacement programme will be met instead from resources available to the Executive Member from the Local Transport Plan (LTP) funding from the Government.

Household waste recycling centres (HWRC)

6.5 A report to the last meeting of the Cabinet outlined proposals for the future development of the HWRC network and noted that further significant capital investment will be required to realise the emerging strategy. It proposed that the Director of Environment reports back to Cabinet on the available funding options, which include using PFI and the £0.3m per annum already added to the Environment capital programme from local resources, probably in late 2004.

South Hampshire Rapid Transit (SHRT)

6.6 There was also a separate report at the last meeting dealing with progress on tendering for the SHRT project which is likely to be a hybrid of a PFI and traditional procurement scheme. The bids received require higher levels of public sector funding than had been expected and exceed the affordability limits set by the Government for its 75% support.

6.7 Work is continuing to close the gap. The County Council's share of the remaining 25% (after deducting the proportion met by Portsmouth City Council) will be met from resources available to the Environment service, such as the LTP funding, as agreed by Cabinet on 11 February 2002. The Government's support for local transport capital schemes via the LTP has increased significantly in recent years, from £9.8m in 2000/01 to £27.5m in 2003/04 and 2004/05, with an indicative figure of £21.4m for 2005/06. As any additional County Council contribution is likely to fall outside the current capital programme period, it might also be possible to consider some use of unsupported borrowing once the Government's new prudential control framework has been established, subject to the financing costs being met from the Environment cash limit. The anticipated extra cost is around £1.8m per annum, at the very earliest from 2007/08.

Winchester Cultural Centre (Carfax site redevelopment)

6.8 Appraisal work is currently in progress to assess the feasibility of providing a Winchester Cultural Centre adjacent to the Records Office on the Carfax site. The cost of the scheme is being developed on the basis of the capital receipts from the sale of the existing Winchester Lending Library in Jewry Street and the Reference Library in North Walls, together with the unallocated £0.8m currently available in the Policy and Resources capital programme, as identified in paragraph 3.1. In addition, it is suggested (see below) that if this scheme is developed as one phase covering lending, reference, cultural, museums and performing arts then, in addition to the financing mentioned above, a proportion of the additional allocation proposed below for Recreation and Heritage over the four years of the capital programme should be set aside for this project.

Social services projects

6.9 Work is continuing to appraise possible PFI projects for specialist residential accommodation for children and the development of joint service centres. The outcome will be reported to Cabinet.

7 Other priorities

7.1 There are a number of other possible calls on the additional resources of £15m identified in paragraph 4.3, including

· the development of the Discovery Centre concept, starting in Gosport

· the redevelopment of the Ashburton Court site, Winchester

· the nursing care accommodation scheme previously considered by Cabinet

· the provision of advance infrastructure to maximise the County Council's return from the next Major Development Area at North Popley, Basingstoke, including the relocation of John Hunt of Everest Community School

· the need to meet the County Council's obligations to participate in the development of land at Manydown in Basingstoke.

· New Forest District Council has approached the County Council with the offer, at no cost to the County Council, of a site for a replacement Day Centre for the Elderly, serving the Hythe and Dibden area. The existing facility run by Age Concern is at the end of its life. The Director of Property, Business and Regulatory Services will have further discussions with New Forest District Council about how this option could be developed.

Gosport Discovery Centre

7.2 The early estimate of the cost of developing a Discovery Centre in Gosport is about £2m, over two years. Gosport would be the first of a network of centres throughout the County Council. It is suggested that an addition of £1m per annum could be made to the Recreation and Heritage capital programme for four years from 2003/04 to help establish the network, starting in Gosport. Any other costs, revenue or capital, would be met from the existing resources available to Recreation and Heritage.

Redevelopment of Ashburton Court

7.3 Further work is necessary to assess the options for the future of the Ashburton Court site in Winchester, setting the scale of the maintenance work likely to be necessary in the next few years, estimated to be some £10m over the next five years or so, against the cost to the County Council of any redevelopment. Possible sources of funding could be capital receipts from the disposal of part of the site through development gain from a developer and savings in future maintenance budgets from removing the maintenance liability. PFI would be an option to be considered, although it is unlikely to be a priority project for the Government, along with other innovative procurement methods to secure the County Council's needs. At this stage, none of the additional resources currently available need be earmarked for this project. The Director of Property, Business and Regulatory Services has recently commissioned detailed feasibility and viability options and a specialist developer will be involved in assessing the next stage of the project. The Director of Property, Business and Regulatory Services and the County Treasurer will report later in the year on the financing options that could exist.

Nursing care accommodation

7.4 The Government has not made a positive response to the County Council's application for a grant-supported borrowing approval to fund the Council's £20m share of the cost of the £60m project to provide 500 additional nursing care places in conjunction with the Hampshire and Isle of Wight Strategic Health Authority. It now seems unlikely that borrowing approval will be allocated to the project by the Government and it will be necessary to look at the development of a funding package from a combination of:

· a PFI option, subject to the Government awarding PFI grant support

· using the County Council's land to facilitate the provision of the accommodation and provide the capital

· other options involving external finance, potentially from one of the preferred developers from the first phase of the work.

7.5 In each of the above options, it may be necessary for the County Council to consider meeting a proportion of the refurbishment costs from its existing programme. In the event that none of these options should exist, the County Council could consider at a later date the use of unsupported borrowing under the Government's proposed prudential control framework, subject to the additional revenue costs of up to £1.8m per annum being met from the Social Services cash limit.

7.6 On the basis of the above, it is recommended that the programme for the development of 500 beds proceed as planned subject to formal legal ratification of the £40m capital contribution from the Strategic Health Authority and the Department of Health. Planning applications for all the relevant sites are now being made.

Popley and Manydown development areas

7.7 The major development area at North Popley, Basingstoke will provide the County Council's main stream of capital receipt opportunities between 2005/06 and the end of the decade, possibly totalling £30m. Experience from previous development areas at Segensworth, Chineham and elsewhere has shown that returns are maximised if the County Council invests in advance in infrastructure for the sites.

7.8 The early release of the land at North Popley for development is dependent on the relocation of the John Hunt of Everest Community School from its current site in Popley Way to the County Council's land at North Popley. This is a critical component of the Action Plan for North Basingstoke and the associated regeneration. The replacement school would be funded in part from the sale of the existing school site and contributions from Basingstoke and Deane Borough Council towards community and leisure facilities. The developer of neighbouring land in North Popley would also contribute to the cost but there is likely to be a shortfall that would need to be funded in advance of the flow of capital receipts from the development of the land at North Popley.

7.9 The next major source of capital receipts after Popley could be land at Manydown, to the west of Basingstoke, which was jointly acquired by the County Council and Basingstoke and Deane Borough Council in 1996. The area has been recognised in the Local Plan as the preferred choice for strategic development in Basingstoke post 2011. Under the terms of the acquisition agreement with the Borough Council, the County Council chose not to pay its 50% share of the acquisition cost at the time. To be able to participate fully in the development of the land, the County Council will need to make a payment at some stage for its 50% share, amounting to approximately £5m. There is always uncertainty about the availability and timing of capital resources and now that the County Council has the prospect of obtaining additional capital receipts in the next two or three years from a property market that may become increasingly vulnerable, it is probably sensible to plan to use those resources now to `lock in' the County Council's ability to benefit fully from the development of Manydown. This will go a long way to securing future streams of capital receipts and the long-term prospects for continued reinvestment in the County Council's services.

7.10 It is suggested that the balance of the unallocated £15m after providing for the Winchester Cultural Centre and the Discovery Centres should be earmarked for the relocation of John Hunt of Everest Community School, the development works at Popley and the payment of £5m to Basingstoke and Deane Borough Council for Manydown.

8 Summary of the allocation of resources

8.1 Options that the Cabinet may wish to consider for allocating the additional resources of £15m are summarised in Table 3. The Cabinet's recommendations for changes to the capital programme will be reported to the County Council on 24 July 2003.

8.2 It is proposed that the allocation of resources to Recreation and Heritage for the funding of Discovery Centres should be subject to the outcome of the project appraisal for the Winchester Cultural Centre, with any additional resources required to fund the Winchester Centre being a first call on the £4m allocation. The payment for Manydown will be timed to coordinate with local planning decisions.

9 Capital Strategy and Corporate Asset Management Plan

9.1 The options for changes to the capital programme outlined in Table 3 are consistent with the priorities established in the Council's capital strategy approved in July 2002. Both the capital strategy and the corporate asset management plan (AMP) had to be submitted to the Government Office for the South East as part of the Government's arrangements for allocating its support for local authorities' capital investment through the Single Capital Pot.

9.2 As part of its initiatives to reduce the burdens on councils, the Government has decided that `excellent' authorities such as Hampshire will no longer have to submit their full capital strategy and corporate AMP documents to their local Government Offices in July 2003. They will still be expected to review and revise both documents each year as the Government sees them as key parts of councils' financial and property management arrangements, so any reduction in `burden' is more likely to accrue to the Government Offices who will no longer have to assess the documents. Excellent councils will still have to submit a short `context' summary from their capital strategy and the results of their property performance indicators by 31 July 2003.

9.3 The Government's decision not to require all authorities to submit their capital strategies and corporate AMPs each year means that it has had to abandon its discretionary allocation of part of its borrowing approvals based on Ministerial and civil servants' assessments of the documents. The top-slice of borrowing approvals used for the discretionary allocations will be added back to the Government's main pool of borrowing approvals which is allocated between authorities, at least in part, on the basis of need. In principle, this is a welcome change although the County Council has benefited from the maximum possible share of the discretionary allocation over the last two years.

9.4 The capital strategy and corporate AMP will be revised for Cabinet to approve in July 2003, including the context page and property performance indicators required by the Government. The capital strategy can then be used as background to consultations on the budget and capital programme during the autumn. Both documents will be revised if necessary when the budget for 2004/05 and the new four-year capital programme are agreed in February 2004.

10 Recommendations

10.1 The recommendations are contained in the decision sheet summary which precedes this main report.

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.

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