Contact: Ejner Knudsen, ext 7403

1 Introduction

1.1 This report presents the first budget monitoring review for 2003/04 for the Environment services. It reflects the outcome of the first comprehensive budget monitoring exercise for the year, which was carried out in consultation with Environment department budget holders during the summer.

1.2 The report provides an update of the revenue budget cash limit for the year, taking into account recent budget changes, and gives an assessment of actual expenditure to date against each of the main budget headings. It also provides a detailed summary of the highways maintenance budget. The report then goes on to highlight significant issues within each of the individual service headings that will affect the management of the budget during the course of the year.

1 2002/03 overspending of £256,000

1.1 During 2002/03 there was an overspending of £256,000 on the service's cash limited budgets, being mainly due to excess expenditure on the waste contract related budgets, reflecting the shortfall in Government support for the storage and disposal of refrigeration equipment. The likelihood of excess expenditure in connection with this activity, beyond the level of Government support, had been identified in budget monitoring reports during the year, with the expectation that the Cabinet would consider the implications of any funding shortfall against the additional balances set aside in the 2002/03 budget for this and other pressures.

1.2 In approving the final accounts for 2002/03, it was agreed that the service's overspending of £256,000 be referred to the Cabinet so that they could consider whether or not to meet this excess from central balances. The Cabinet subsequently considered the County Council's 2002/03 final accounts on 28 July 2003 and accepted that this service's overspending of £256,000 could be written off in conjunction with allowing other services to carry forward only 50% of their underspendings. No adjustments to the 2003/04 Environment service's cash limit are therefore required to absorb the 2002/03 overspending against the current year's cash limit.

2 Cash limit changes

2.1 The cash limit for the Environment services, set in the 2003/04 original budget in February, was £81.616 million. The following adjustments to the cash limit have been made:

· the County Council has now formally taken over responsibility for part of the A339, from its junction with the A30 to the West Berkshire boundary, following the de-trunking of this highway. During 2003/04, the County Council will receive special grant of £374,000, which has been added to the highways maintenance revenue budget cash limit, to cover expenditure on routine maintenance activities on this highway

· an increase of £485,000 for the estimated call on the central waste management contingency, to reflect additional expenditure arising from the operation of the waste management contract during the first quarter of the year.

2.2 The adjusted cash limit is £82.475 million, taking into account the above variations. Appendix 1 provides an analysis of this over the main service headings, together with details of assessed expenditure to 31 July 2003 and the forecast outturn for each division of service.

3 Budget monitoring review

3.1 As in previous reviews, this process has involved meetings between finance section staff and those departmental officers with budget management responsibilities. The outcome of this process was reported to departmental management during July.

3.2 The main area for concern at the present time is the budget for management and support services where pressures due to the cost of staff increments, turnover savings' requirements and new posts exist. In addition, following original budget funding issues it is necessary to redeploy existing management and support service budgets to help fund specific studies (Minerals and Waste Local Plan, Planning studies and Land Management Plans) within the department. It will be necessary to achieve these efficiencies during the year to contain expenditure to the cash limit. Further details of the main issues arising from the budget monitoring review are discussed in the following paragraphs.

Highways maintenance

3.3 The 2003/04 cash limit for routine highways maintenance, being funded from the revenue budget, is £19.515 million. This takes into account the additional Government de-trunking grant of £374,000 paid in respect of routine maintenance on the A339, as detailed in paragraph 3.1 above. Works allocation to date total £19.026 million, leaving reserves of £489,000 to meet additional demands later in the year.

3.4 Appendix 2 sets out in detail the 2003/04 highways maintenance programme, showing the original programme approved in April, together with the latest amended plan. This summary also includes details of the works being undertaken from the capital budget, totalling £27.274 million, for the structural maintenance of roads and bridges.

Management and support services

3.5 The 2003/04 adjusted cash limit for the overall management and support services is £20.454 million, after allowing for budgeted external income and recharges to capital and other accounts. This budget mainly represents the running costs of the new Environment Department, following the re-organisation of the former County Surveyor's and County Planning Departments last year. For presentational purposes, the management and support services' cash limited budget has been allocated between highways and transportation and planning services in the appendices, in line with the requirements of the CIPFA Best Value Accounting Code of Practice. However, in effect, this expenditure is now being managed and controlled as one combined departmental budget.

3.6 As in previous years, this cash limit assumes that turnover savings from staff vacancies, together with other housekeeping efficiencies, will be achieved during the year in order that overall departmental expenditure can be contained within the cash limit.

3.7 In 2003/04, the savings target for the Environment Department has been set at £603,000, equivalent to 2.9% of the budget. This savings target is at a higher level than in previous years, reflecting the higher than usual cost of increments, additional posts, turnover savings budget requirement, and the need to redeploy management and support service budgets to fund specific studies within the department.

3.8 The initial budget monitoring review for 2003/04, covering the first quarter of the financial year, has identified actual savings from staff vacancies of £196,000, which is broadly in line with the assumed savings included in the budget. However, it should be noted that due to difficulties in recruiting specialised staff in some sections within the department, it has been necessary to employ consultants to ensure essential work is undertaken increasing budgetary pressures. Clearly the achievement of the full savings of £603,000 for the whole year, will need to be monitored closely.

3.9 Other variations on this budget heading include the need for additional expenditure of £205,000 for additional agency staff in the highways units, to help design and supervise the implementation of the higher capital structural maintenance programme and for additional highways inspections. It is planned that this expenditure will be covered by the additional fee allowance arising from the higher maintenance programme or, if necessary, from highways maintenance reserves. The impact of the transfer of Highways responsibilities from District Councils under the new Highways Agency Blueprint arrangement has only fully come into effect from April 2003, when the last office was opened at Farnborough. The current level of administrative support is initially felt to be adequate to maintain a high level of service, but will be reviewed throughout the year, and further resources may be required.

School crossing patrols

3.10 Substantial progress was made during 2002/03 in implementing the approved improvement plan for the school crossing patrol service throughout the first year following the transfer of this service to Environment from the Education department.

3.11 During 2003/04 it is planned to fully utilise the available budget allocation to further develop and improve this service. However, it is already clear that the recruitment and retention of suitable staff as School Crossing Patrol Officers will again present a difficult challenge. As in 2002/03, plans are already being made to redirect savings from staff vacancies towards a further programme of infrastructure improvements and maintenance at school crossing sites at the busiest and most needy locations.

Public transport

3.12 The 2003/04 budget for public transport support is £5.407 million, including the additional sum of £500,000 approved by the Cabinet in February, to cover the full year effect of increased costs of bus subsidies during 2002/03, together with an allowance to cover further anticipated variations during 2003/04.

3.13 Since the beginning of the year, bus service contracts have been re-tendered in the Eastleigh and Blackwater Valley areas of the County, at an estimated additional cost of £87,000 in 2003/04, and allowance has also been made against the budget for the re-pricing of other continuing contracts. At the end of the first quarter of 2003/04, the level of commitment against the bus subsidies budget stood at £5.208 million, leaving just £70,000 unallocated within the budget to meet any further cost increases arising from contract re-tendering or de-registration of commercial services during the remainder of the year.

Waste management

3.14 The waste management revenue budget is divided into two separate categories for budget monitoring purposes:

· the waste contract related budgets, including trade waste income and recycling credits

· the other non-contract related waste management services covering facility maintenance, administration, promotions and developments, disposal of abandoned vehicles and provision for household waste recycling centre (HWRC) management.

Waste contract related budgets

3.15 The 2003/04 budget for the waste contract related budgets was based on expenditure commitments at the time it was prepared in November 2002. No allowance was included for growth in waste volumes beyond predicted 2002/03 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, there is very little scope within the management of the budget to vary expenditure. These pressures are therefore covered by an annual amount set aside within the County Council's central provision for inflation and other contingencies.

3.16 In 2003/04, the County Council's budget includes a sum of £3.700 million, to cover these inescapable service pressures. Periodic allocations are made from this contingency to the waste management cash limit, based on a quarterly assessment of cost increases on the contract and related budgets. The first quarter's call on the contingency has been estimated at £485,000, increasing the cash limit for the waste contract related services to £31.582 million, leaving just over £3.2 million available to meet cost pressures during the rest of the year.

3.17 It is still too early in the year to predict with any certainty whether or not expenditure on the waste contract related budgets will be contained within the overall contract related budget provision, including the contingency sum. Already there are number of issues, both positive and negative, which could have a material impact on the final outturn position:

· during the first three months of the year household waste volumes (ie total collected by districts) were lower by 2.8% than in the comparable period of 2002/03, although it is too early to say whether this trend will continue throughout the year

· the overall levels of recycled material for the year to date has increased substantially by 10.5%, with a resulting reduction in material being landfilled

· the estimated cost of storage and disposal of refrigeration equipment during 2003/04 is £1.050 million, assuming monthly average numbers remain at the current level. This would result in a budget pressure of approximately £300,000 compared to the allowance for this activity within the central contingency

· the commencement of the new HWRC contracts in January 2003 brought a change to the way in which soil and rubble is handled. This material has now reverted back to the responsibility of the County Council and thus the cost implications of the associated disposal arrangements are to be met from this area of the budget. A contract is currently being negotiated with an external contractor to deal with the servicing and processing of this material. This contract should be in place by September, but the budget assumed an earlier commencement date and cost pressures will result from the delay.

Other waste management budgets

3.18 The main concern within this area over the past few years has been the increasing cost of disposing of abandoned vehicles. However, it is pleasing to note that the effect of previous year's audit investigations, together with a more favourable metals market position, has slowed down the rate of cost increases. The introduction of the End of Life Vehicle (ELV) directive will add pressure to the budget, as this classifies abandoned vehicles as hazardous waste requiring stricter dismantling and de-manufacturing, culminating in higher handling costs and likely increases in the number of vehicles being abandoned. Government support of £394,000, to cover the estimated cost of these proposals, has been included in the 2003/04 budget.

4 Conclusion

4.1 The 2002/03 overspending on cash limited budgets has been written off by the Cabinet, so this issue will not affect the management of the 2003/04 budget.

4.2 Cash limit increases have been made to reflect additional Government grant of £374,000 following the de-trunking of the A339, and for £485,000 being the estimated first quarter's call on the waste contract contingency.

4.3 Savings of £196,000 from staff turnover and other efficiencies have been made against the departmental budget for management and support. This is broadly in line with the required full year turnover savings of £603,000, although the achievement of this will need to be monitored closely throughout the rest of the year.

4.4 No other significant issues have arisen on other service headings at this stage of the year.

Recommendation

1 That the report be noted.

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:

Published works.

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

TITLE FILE

Environment Department Management Board : 29 July 2003 - Revenue Budget Monitoring 2003/04

Appendix 2