Contact: Jon Pittam, (01962) 847400, e-mail: [email protected]

1 Summary

1.1 The Cabinet at its meeting on 17 December 2007 confirmed the basis for the guidelines for the capital programme previously agreed in October 2007. Executive members were asked to submit proposals for:

· a locally resourced capital programme for the three-year period from 2008/09 to 2010/11 within the guidelines of the current programme, adjusted for inflation

· a programme of schemes supported by Government grants and scheme- or programme-specific borrowing allocations for the three years consistent with limiting the increase in the capital financing requirement to 2.5% per annum, and to highlight the implications of not taking up Government borrowing allocations in full.

1.2 This report explains the background to the proposed capital programme. It collates the service programmes prepared by executive members and shows that, by 2011/12, the programme will be fully funded if the forecast levels of resources are obtained. It will be necessary to borrow temporarily in 2009/10 and 2010/11 to smooth out the timing of those resources.

1.3 The proposed programme complies with the requirements of the Prudential Code for Capital Finance in Local Authorities. The prudential indicators are included in Appendix 8 of the report on this Agenda on the Revenue Budget and Precept 2008/09 and Provisional Budgets for 2009/10 and 2010/11.

1.4 The other main points of the report are:

· the proposed capital programmes are in line with the guidelines set by Cabinet, together with schemes supported by Government grant and borrowing allocations

· prudential borrowing will be required to finance school building schemes in advance of capital receipts and developers contributions, in addition to the temporary borrowing necessary to balance the cashflow of capital expenditure and resources.

· the Executive Member for Environment has proposed using prudential borrowing of £4.0m in 2008/09 and £3.1m in 2009/10 to maintain the level of capital spending on highway and bridge maintenance following Cabinet's decision to restrict the take-up of Government borrowing allocations, with the capital financing charges met from Environment's revenue budget

· a decision is required on whether to add the proposed Basingstoke Discovery Centre to the capital programme for 2008/09 at a cost of £3m, to be financed by prudential borrowing in advance of capital receipts, sponsorship and contributions

· for the County Council in total, loans outstanding for prudential borrowing will peak at £67m in 2008/09. The bridging loans included in this total are forecast to be fully repaid by 2012/13

· capital receipts continue to be a major source of finance for the capital programme. In particular, the financing plan depends on over £64m being obtained in 2007/08, £47m in 2008/09 and £44m in 2009/10, based on disposals already reported to the Executive Member for Policy and Resources, to finance expenditure in the year and to repay prudential borrowing

· the total value of the programme over the three-year period is £428m.

2 Expenditure and resources cashflow - summary

2.1 Table 1 shows the annual capital expenditure flows from the proposed capital programme, compared with the financing resources available.

2.2 Table 1 shows that capital expenditure will be broadly matched by resources in 2007/08 and 2008/09 but that there will be shortfalls of resources in 2009/10 of £4.8m and 2010/11 of £0.7m. It is proposed that, if these shortfalls are still forecast when the capital programme and its expenditure and resource flows are reviewed over the next two years, they should be met by temporary borrowing or from the creation of a capital fund as recommended in the report on the Revenue Budget. Current forecasts show that this temporary borrowing would be repaid in 2011/12 when resources are expected to exceed expenditure.

2.3 This financing position over the period to 2014/15 is consistent with that reported in February 2007, allowing for updated information on the timing of expenditure and resources flows.

2.4 The proposed use of temporary borrowing to smooth out the cashflow profiles at this level is compliant with the Prudential Code for Capital Finance under the Local Government Act 2003. No action is necessary to reduce or delay the proposed capital programmes for 2007/08 to 2010/11. However, repayment of the temporary borrowing in the timescales indicated is dependent on capital receipts being obtained at the level currently forecast, including over £64m in 2007/08 and more than £40m in each of 2008/09 and 2009/10. The impact of the recent downturn in the property market will need to be closely monitored. The invest-to-save funding of £310,000 per annum, originally for a two-year period, has been retained in the Property Services revenue budget on an ongoing basis, in recognition of the substantial disposal programme. This supplemented the additional £190,000 per annum previously allocated for this purpose in 2000/01. In the Revenue Budget report for 2008/09, the Chief Executive has proposed an additional increase of £300,000 to enable an increase in the targets for future capital receipts, subject to review.

2.5 Progress on all capital payments and resources will be closely monitored and reported to the Leader and Cabinet during 2008/09. Executive members will also review progress on their capital programmes at regular intervals during the year.

2.6 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.

3 Prudential borrowing

3.1 In November 2003, Cabinet agreed a framework for the use of prudential borrowing under the Prudential Code for Capital Finance introduced by the Local Government Act 2003. `Prudential borrowing' does not attract Government revenue grants towards the loan charges. Instead, the loan repayments and interest charges have to be financed by the County Council from its own resources. The framework, as updated by Cabinet in February 2006, included:

· borrowing for which loan charges are financed by virement from the executive member's revenue budget, including invest-to-save schemes that will generate revenue savings or additional revenue income

· `bridging' finance that will be repaid by eventual capital receipts, capital grants or contributions, provided that the cost of interest and the statutory minimum revenue provision is met by services in the years that such costs are incurred

· capital investment by business units

· limited borrowing for corporate priorities.

3.2 Subject to approval by Cabinet of specific proposals by the executive members for Children's Services, Environment and Policy and Resources for further prudential borrowing for the 2008/09 to 2010/11 programmes of up to £33.8m (details in paragraphs 7.17, 8.2 and 9.7), the amount of prudential borrowing will be as summarised in Table 2, before any repayments.

3.3 The schemes funded by these advances are listed in Appendix 3. Most of the prudential borrowing is `bridging loans' in advance of capital receipts or developers' contributions. All these bridging loans are expected to be fully repaid by 2012/13. The sources of repayment are summarised in Appendix 4. For bridging loans raised since the beginning of 2006/07, services have been required to meet the annual cost of interest and principal repayment from their revenue budgets or existing capital programmes or by setting aside part of their shares of other capital receipts. This eliminates the strain on the County Council's annual revenue budget which would otherwise have to be met by savings elsewhere or be charged to the council tax.

3.4 In deciding whether the level of prudential borrowing set out in Table 2 is appropriate, Cabinet should consider whether the overall level of prudential and Government-supported borrowing complies with the requirements of the Prudential Code for Capital Finance in Local Authorities. The prudential indicators used as part of the process of assessing compliance are included in Appendix 8 of the report on this Agenda on the Revenue Budget and Precept 2008/09 and Provisional Budgets for 2009/10 and 2010/11.

4 Background to the guidelines for the capital programme

4.1 The guidelines for the locally resourced programme were confirmed by Cabinet in December 2007. They are based on the existing programme limits, plus an allowance for inflation. Adjustments were made for the re-profiling of the provision for capital repairs recommended by the Buildings, Land and Procurement Panel and agreed by the Executive Member for Policy and Resources in March and October 2007, together with a number of minor virements. The guidelines for Adult Services for 2008/09 and 2009/10 include the final years of the additions to the programme agreed by Cabinet in July 2006.

4.2 `Locally resourced' schemes are those financed from the County Council's own resources such as capital receipts, contributions from the revenue budget, reserves and other funds. They do not include schemes supported by capital grant or borrowing allocations from the Government.

4.3 The guidelines for each service are shown in Table 3.

4.4 The basis for the guidelines for the capital programme supported by Government borrowing allocations were also confirmed by Cabinet in December 2007. These guidelines limit the take-up of borrowing allocations following the Government's decision not to provide full revenue grant support towards the loans raised by the County Council on the basis of the so-called `supported' borrowing allocations. Continued lobbying on this issue has not persuaded the Government to recognise the cost of new borrowing allocations in its calculation of the revenue grant floor or, alternatively, provide its support in the form of capital grants.

4.5 The guidelines for programmes supported by Government borrowing allocations are summarised in Table 4.

4.6 The proposed reduction in take-up of borrowing allocations of £46m over the three-year period is £15m higher than the previous estimate of £31m because the Government has increased its borrowing allocations at the expense of capital grants. The £46m represents 32% of the Government's allocations.

5 The programmes submitted

5.1 The total starts value of the three-year programme submitted by executive members is £428m, as shown in Table 5. It includes £315m of schemes supported by Government allocations.

5.2 The proposed programmes are in line with the guidelines set in December 2007. A reconciliation between the guidelines and the proposed programme is included in Appendix 1.

5.3 The capital expenditure flows from these programmes and from the works currently in progress are summarised in Appendix 2, together with the resources available to finance those expenditure flows. The programmes themselves are set out in detail in the yellow pages in Appendix 5.

5.4 The following sections summarise the programmes prepared by executive members and highlight the issues arising.

6 Adult Services

6.1 The proposed programme for Adult Services in Appendix 5 is in line with the guidelines for the locally resourced programme, which were increased by Cabinet in July 2006 for 2008/09 and 2009/10 after a review of the Service's capital expenditure needs and the resources available.

6.2 The proposed programme also includes provision to use capital grants from the Government of just under £0.3m per annum for capital expenditure under the Mental Health national service framework.

7 Children's Services

7.1 The proposed programme for Children's Services of £205.2m over the next three years is supported primarily by the Government with capital grant and borrowing allocations, as Table 6 shows.

7.2 The proposed programme includes schemes costing £13.0m which the Executive Member for Children's Services wishes to defer from the 2007/08 starts programme to 2008/09, together with matching resources. The schemes are listed in Table 7.

New Deal for Schools

7.3 As in previous years, the Government's New Deal for Schools (NDS) allocations have been divided between modernisation works (included in the Children's Services capital programme) and condition works (included in the Policy and Resources capital programme) using the 46% : 54% split agreed by the executive members in July 2003.

7.4 In 2007/08, the Government made available an advance of grant funding of £11.8m for the NDS programme, to be recovered by equal deductions from the allocations for the three years from 2008/09 to 2010/11. This advance and the recoupments have also been divided between modernisation and condition works using the 46% : 54% ratio.

7.5 The amounts for NDS are shown in Table 8.

7.6 The borrowing allocations in Table 8 are subject to the County Council's decision not to take up in full the Government's borrowing allocations.

7.7 After stripping out the amounts advanced to 2007/08 and the subsequent recoupments, the Government's NDS allocations for 2010/11 (£16.0m) are 32% lower than in 2007/08 (£23.7m). The DCSF has changed its allocation methodology to one based on the proportion of each authority's schools which it considers to be modernised, defined as 80% or more of the floor area improved to modern standards. The County Council has pursued a rigorous policy of modernisation in recent years, funded in part from local resources including the re-investment of capital receipts. As a result, a significant number of schools fall into the modernised category, with a consequential negative effect on the level of the County Council's NDS allocations.

Building Schools for the Future

7.8 The Government's Building Schools for the Future (BSF) programme started in 2005/06, with the intention of replacing or substantially refurbishing all secondary schools in England over a ten to fifteen year period. The Department for Children, Schools and Families (DCSF) has previously confirmed that the earliest that Hampshire secondary schools could be included in the BSF programme is 2011. Experience from projects in other authorities to date show that preparation and strong pre-project planning is key to a successful programme, and that some have struggled to keep to the programme and timetables. It is possible that Hampshire County Council will have the opportunity to be involved in the programme earlier than anticipated. Children's Services' revenue budget includes a proposal to establish a small project team to start planning and preparation work. At this stage it will need to be funded from Children's Services' revenue budget. Opportunities to capitalise or to charge to the Schools Budget and the Dedicated Schools Grant are being explored with the aim of building up a total resource of £0.5m per annum by 2010/11.

Primary Capital Programme

7.9 This Government programme is intended to improve a substantial proportion of the primary and primary age special school stock over a fifteen year period. The County Council is a pathfinder authority with an allocation of £6.5m in 2008/09. New funding has now been made available by the DCSF in 2009/10 (£9.5m) and 2010/11 (£11.8m) to support this programme. Authorities have recently been invited by the DCSF to submit Strategies for Change to access this funding and a report will be submitted to the Executive Member for Children's Services during the first half of 2008.

7.10 The Government has not decided whether this funding over the three years will in the form of PFI credits, borrowing allocations or capital grant. If the allocations are not in the form of capital grant, the County Council will need to consider the extent to which the allocations are taken up. A further report will be made to Cabinet once the Government has announced its decision.

Other Government allocations

7.11 Additional capital allocations by the Government following the CSR 2007 announcement are listed below. The amounts are shown in Table 6. Further guidance from the Government is awaited on how some of these allocations can be used. They include:

· Sure Start grant, including children's centres phase 3 and allocations to improve the quality of accommodation in early years and childcare settings, mainly those operated by private providers

· extended schools grant

· Youth Capital Fund, continuing the previous allocations to develop youth premises

· Targeted Capital Fund grant, allocated to authorities on a flat rate basis with the Government's priority likely to be given to special education and 14-19 programmes

· disabled children grant, to improve opportunities for families with disabled children to enjoy short breaks.

7.12 The Sure Start grant includes additional amounts for building maintenance of the children's centres which has been added to the Policy and Resources capital programme

The Government's total capital support for the Children's services

7.13 The Government has provided £74.5m in support for capital investment in Children's Services in Hampshire for 2008/09, in the form of capital grant and borrowing allocations, as Table 9 shows. This is lower than the £85.0m allocated by the Government for 2007/08, primarily because of the advanced allocation in 2007/08 of capital grant for NDS modernisation and condition of £11.8m which is being recouped by reductions in the allocations for the three years 2008/09 to 2010/11.

7.14 As explained in paragraph 4.4, Cabinet agreed in December 2007 to set guidelines for the capital programme that restricts the take-up of Government borrowing allocations. The impact on the Children's Services, is summarised in Table 10 below.

7.15 After adjusting for the recoupment of the advanced grant for the NDS programme in 2008/09 and 2009/10, the Department for Children, Schools and Families (DCSF) has decided to provide all its support for the NDS programme in those two years as borrowing allocations. This ignores the lobbying by the County Council and others on the issue of the so called `supported' borrowing allocations. The DCSF has, however, switched 90% of its funding for the NDS programme in 2010/11 from borrowing allocations to capital grant. No changes have been made to the borrowing allocations for other parts of the DCSF's support. It is difficult to understand the logic behind these decisions and whilst the switch for NDS in 2010/11 is welcome, it can be seen as a case of too little, too late. There is also concern about how the Government will provide its capital support for potential new academies.

County Council prudential borrowing for the Children's Services capital programme

7.16 The Children's Services capital programme for 2008/09 to 2010/11 will be partly funded from capital receipts and developers' contributions but, for a number of schemes, the works are required in advance of the receipts and contributions. Such schemes include school amalgamations, for which investment in new buildings is required before existing sites can be sold, and new school places for housing developments for which expenditure will be incurred in advance of the receipt of contributions from developers. This approach of providing the school places in advance of the receipt of funding makes sure that they are available at the appropriate time and in the right location to meet demand from new housing, minimising the pressure on other schools and the need for pupils to travel.

7.17 The Executive Member for Children's Services proposes using prudential borrowing to fund the schemes listed in Table 11, including new proposals totalling £25.7m.

7.18 All the borrowing listed in Table 11 will be repaid by no later than 2012/13. In accordance with the County Council's policy on using prudential borrowing for `bridging loans', the Executive Member for Children's Services has set aside part of the capital programme for each year to fund the annual loan charges arising from the borrowing so that no costs will fall to be met by the council tax during the bridging period.

7.19 Excluding the proposals in Table 11, Cabinet has so far approved prudential borrowing for Children's Services schemes which is expected to total £39.6m, to be repaid from capital receipts and developers' contributions. In addition, the School Balances Loan Scheme has been used to borrow a further £4.2m from school balances. Up to 31 March 2007, £4.2m has been repaid from capital receipts, with the remainder expected to be repaid by the end of 2012/13.

7.20 Proposals will be brought forward to use the School Balances Loan Scheme in preference to prudential borrowing once the repayments to the Scheme have been made.

7.21 It is suggested that the Children's Services capital programme is approved for submission to County Council on the basis that the new schemes involving prudential borrowing are subject to the normal arrangements for specific approval of the borrowing by the Executive Member for Policy and Resources on a case-by-case basis.

Pressures on the Children's Services capital programme

7.22 The Executive Member for Children's Services reports that there are sufficient resources to fund all schemes which need to be started in 2008/09. The position for 2009/10 and following years, however, is difficult because of the combination of:

· the Cabinet decision not to take up in full the Government's borrowing allocations. This has removed £13.7m from the resources available for the Children's Services capital programme over the three-year period

· the recoupment by the DCSF over the three years of the advance payment of NDS grant made in 2007/08 (£5.4m for Children's Services' NDS Modernisation and £6.4m for Policy and Resources' NDS condition work)

· the need to fund the cost of new primary schools to serve major housing developments.

7.23 A significant amount of expenditure on projects to provide new pupil places is anticipated in 2008/09, 2009/10 and 2010/11, which will generate funding pressures. These are projects to provide new schools in major development areas and other areas of significant new housing. Table 12 gives an overview of the location of new primary schools and major extensions where starts on site are expected to be required in the period from 2008/09 to 2010/11. The actual timing of these projects will depend upon the timing of planning consents for the residential development and the forecast rate of housing completions and Table 12 shows the best currently available information.

Table 12 - New primary schools required for major housing developments
Project	Expected start on site (subject to revision)
East Anton, Andover	2008/09
Picket Twenty, Andover	2009/10
West of Waterlooville Major Development Area	2009/10
Aldershot Urban Extension	2010/11
Park Prewett, Basingstoke	2010/11

7.24 The estimated average cost of a new one-form entry primary school is about £5.7m and of a one-form extension to an existing primary school about £3m. In broad terms, the estimated costs of the new primary school places where starts on site are likely to be required in 2008/09 to 2010/11 are about £40m, of which about 60% is expected to be available from developers' contributions. The remaining cost will need to be met from the Government's New Pupil Places allocations, which total about £19m, but will in practice be reduced under the County Council's current policy because they are borrowing allocations. As these allocations are likely to be fully used for such projects, there will be no leeway for other demands for new places and a reduction in the amount of overall flexibility in the programme. The amount of new housing planned currently and that likely to proceed after 2011 suggests that significant pressure on New Pupil Places funding will continue for several years.

8 Environment

8.1 The resources available to fund the Environment capital programme are summarised in Table 13.

8.2 As Table 13 shows, Cabinet's decision not to take-up in full the Government's borrowing allocations has reduced the resources available for the Environment capital programme by £25.8m over the three-year period. As a result, the Executive Member for Environment has proposed using prudential borrowing to maintain the level of the highway maintenance and bridge programme at the current level, offsetting the impact of Cabinet's decision to limit the take-up of the Government's borrowing allocations. The prudential borrowing required is £4.0m in 2008/09 and £3.1m in 2009/10. If approved, the borrowing would be financed by reductions in Environment's revenue budget of £0.7m per annum to meet the loan charges. The savings would arise from a combination of efficiencies arising from the new highways term maintenance contract and a reduction of the locally resourced capital programmes for environmental improvements and household waste recycling centres.

8.3 The Executive Member for Environment also proposes adjusting the starts programmes for the three years to make sure that the resultant expenditure flows make full use of the resources available. The proposed programmes are summarised in Table 14 and listed in full in Appendix 5.

8.4 The proposed programme also includes schemes wholly or partly funded by developers' or other contributions totalling £22.8m are included in the proposed three-year programme, including £7.4m in 2008/09. Schemes have only been named where there is reasonable confidence in the security of funding and programme dates.

Further use of prudential borrowing

8.5 In addition to proposing prudential borrowing for highway maintenance financed from the Environment's own resources, the Executive Member has also asked Cabinet to consider using additional prudential borrowing of £14.0m over the three years to mitigate the impact on the integrated transport programme. Integrated transport includes capacity improvements, safety schemes, traffic management measures, cycle schemes, footway improvements, etc. The borrowing would be phased:

8.6 If this additional prudential borrowing is approved, the resultant loan charges of £1.4m in a full year would not be a priority to be met within the Environment revenue budget. The cost would, instead, require an addition to the revenue budget guidelines as set out in the Revenue Budget report. In addition, the revenue running cost of the schemes is estimated to be £0.2m per annum which would be expected to be met by Environment within existing cash limits, rather than being allowed for in the base budget as is the practice for schemes within approved programme limits.

8.7 If additional funding is not agreed, the following Environment schemes would be deferred.

8.8 This issue is considered in the report on the Revenue Budget 2008/09 because of the capital financing costs. The proposal is to support £10m of extra borrowing for the three-year budget period, split equally between the integrated transport programme and schools.

Major transport schemes

8.9 A number of major schemes are being prepared for possible bids for Government funding, including Chickenhall Lane Link Road, Eastleigh and Access to Gosport.

8.10 The A3 Bus Priority Corridor scheme, which was accepted as a major scheme by the Government on 28 October 2003, will be substantially complete by the end of 2007/08. A bid for funding to cover residual costs of the scheme in 2008/09 has been submitted, the result of which is still awaited.

8.11 It is proposed to transfer £0.3m in 2008/09 and 2009/10 and £0.4m in 2010/11 to the revenue budget from the locally resourced capital programme to support feasibility and early design work for future major schemes, which if successful would be capitalised.

Household waste recycling centres (HWRC)

8.12 The previously agreed provision of £1m per annum has been included in the proposed three-year capital programme to improve the County's household waste recycling centres, in line with the proposals agreed by Cabinet in July 2004. The programme will be funded by Environment's share of capital receipts and by using the capital grants from the Government, including the Waste Infrastructure Capital Fund.

8.13 During 2008, a new HWRC will be constructed at Andover to replace the smaller existing facility and work will continue on feasibility studies for improving HWRCs across the network, particularly redevelopment proposals for Casbrook, Gosport and Hartley Wintney, pending the level of resources finally allocated in 2008/09, which may need to be reduced to fund the financing costs for highways maintenance prudential borrowing.

9 Policy and Resources

9.1 The allocation between schemes of the proposed Policy and Resources capital programme for 2007/08 to 2010/11 is broadly similar to the existing programme. The main corporate priority continues to be the maintenance of the core buildings in the County Council's built estate, through the capital repairs programme. Phasing of the capital repairs provision between years reflects decisions by the Buildings, Land and Procurement Panel earlier in the year.

New Deal for Schools allocations

9.2 The Policy and Resources capital programme includes part of the Government's New Deal for Schools (NDS) allocations, in respect of `condition' or capital repairs work. The Government's allocations for 2008/09 to 2010/11 are lower than previously anticipated. This is due to a revised allocation procedure introduced by the Department for Children, Schools and Families, based on the proportion of schools considered to be modernised as a result of capital investment over recent years, rather than demonstrated need for investment.

9.3 The reduction in the Government's allocations and the County Council's policy of restricting the take-up of borrowing allocations will affect the Council's ability to fund strategic investment in projects such as SCOLA re-cladding, re-roofing and other major maintenance programmes. This will also affect improvement projects such as new science laboratories, temporary classroom replacements and new school halls. The limited resources that are available will be allocated to the key priorities identified in the Corporate Risk Assessment.

9.4 As a result of the reduction in Government funding for NDS, it is proposed to re-profile £5m of the 2007/08 NDS borrowing allocation equally across 2008/09 and 2009/10, in order to smooth the transition to the lower programme levels.

9.5 The proposed capital programme also includes the capital repairs element of the Sure Start allocations from the Government, referred to in paragraph 7.12. This allocation over the three years of £0.3m in 2008/09, £0.5m in 2009/10 and £0.5m in 2010/11 will be used for repairs and improvements to the quality of accommodation in early years and childcare settings.

Business units

9.6 An addition has been made to the programme for 2008/09 for investment by HC3S (Hampshire County Council Catering Services) in business development with secondary schools. The cost of £50,000 will be financed from the business unit's reserves.

9.7 Similarly, IT Services have identified a requirement for hardware replacement and investment to facilitate the migration of the data centre to Ashburton Court, improvements to the Hantsnet infrastructure and to provide additional data storage capacity. The total provision required in 2008/09 will be £1 million. It is proposed that this amount should be funded by prudential borrowing, to be repaid through the IT Services trading account within five years.

Other provisions

9.8 Also included in the proposed capital programme is the annual provision of £0.9m for advance and advantageous purchases of land.

10 Recreation and Heritage

10.1 The Executive Member for Recreation and Heritage has proposed a number of additions to the locally resourced guideline of £0.6m for the programme for 2008/09. These additions total £2.2m, as listed in Table 17.

10.2 The full capital programme is included in Appendix 5.

Basingstoke Discovery Centre

10.3 The Buildings, Land and Procurement Panel considered a report on 15 January 2008 on the possibility of extending the Discovery Centre concept to Basingstoke. Discussions are underway with Basingstoke and Deane Borough Council to establish whether a new build scheme could be viable as an alternative to refurbishing the existing library at Festival Place in Basingstoke. In particular, the Borough Council are advising on the availability of land for this purpose.

10.4 Following the completion of a feasibility study, the cost of the project is estimated to be £3m. The funding of £2m could be provided by Recreation and Heritage from the sale of assets and sponsorship including a contribution from the Borough Council, leaving £1m subject to the availability of additional corporate resources. It is likely that expenditure on the scheme would be incurred in advance of the capital receipts, requiring the use of prudential borrowing to provide bridging finance. Recreation and Heritage would be responsible for the repayment of up to £2m of the borrowing.

10.5 Cabinet may wish to consider whether to add the Basingstoke Discovery Centre scheme to the Policy and Resources capital programme for 2008/09 at a cost of £3m, to be released to Recreation and Heritage once a detailed project appraisal, business case and funding package has been agreed by the executive members for Policy and Resources and Recreation and Heritage.

11 Private finance initiative (PFI)

11.1 The business case for the PFI support for the replacement of street lighting columns has been assessed and evaluated by the Department for Transport and HM Treasury. The Government's Project Review Group has given verbal approval and the next stage of the procurement process is about to start. In anticipation of this approval, the County Council already has a number of pre-qualified bidders and tender documentation has been prepared.

11.2 No other specific PFI schemes have been identified by executive members at this stage for inclusion in the 2008/09 to 2010/11 capital programme.

12 Further review

12.1 In recent years, the capital programme has been the subject of a mid-year review, sometimes in conjunction with the annual review of the County Council's overall capital strategy in July or when feasibility work on significant major projects has reached completion. Regular reports will be made on the implementation of the programme, including the progress of major projects, the level of capital expenditure and resources in 2008/09, including the progress on meeting the challenging targets for capital receipts.

12.2 In addition, the Chief Executive and Business and County Treasurer plan to bring forward reports on:

· the Strategic Property Review - the capital implications are intended to be self-funding but may generate a requirement for temporary borrowing in advance of capital receipts

· capital receipts targets in the longer term

· Building Schools for the Future - an any advance schemes which could be supported by Government commitment to capital grant or private finance initiative credits.

Section 100D Local Government Act 1972 - background documents

The following documents discuss facts or matters on which this report, or an important part of it, is based and have 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.

None

Appendix 1

Capital Programmes 2008/09 to 2010/11 Proposed by Executive Members

1 Summary of the proposed programmes

1.1 The proposed three-year programme of £428m can be reconciled with the guidelines set by the Cabinet in December 2007, as the Table 18 shows.

1.2 The starts value of schemes supported by Government grant and borrowing allocations, £298m, represents 70% of the three-year programme. This is similar to the proportion (68%) supported by the Government in the existing capital programme approved in February 2007. The Government's contribution of 70% illustrates the extent of its support for investment by local authorities but it also highlights the scope for the Government to influence the County Council's priorities and the potential impact if its borrowing allocations are not fully backed up with revenue grants to meet loan charges.

1.3 The Environment capital programme also includes a number of local transport schemes supported wholly or in part by developers, totalling £22.8m over the three years. The individual schemes are identified in the Environment capital programme in Appendix 5. Contributions from developers will directly fund £0.4m of the Children's Services programme for 2008/09 and a further £22.0m of contributions will be used to repay part of the proposed prudential borrowing.

Appendix 2

Capital Expenditure Flows and Financing Resources 2007/08 to 2010/11

1 Capital expenditure flows

1.1 The level of capital expenditure flows is one of the factors taken into account in determining the size of the capital starts programme, together with forecasts of financing resources.

1.2 Expenditure flows in 2007/08 and the following three years will result from works in progress (schemes started in 2007/08 and earlier years) plus those arising from the proposed programme for 2008/09 to 2010/11, as the Table 19 below shows.

1.3 In practice, expenditure flows in the years after 2007/08 may be higher than suggested by the table if further developer and other external contributions become available to fund additional capital schemes.

1 Resources available for capital financing

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

· Government support for borrowing, known as `Supported Capital Expenditure (Revenue)' or SCE(R), can be either:

- un-ringfenced SCE(R), which is allocated by the Government within its single capital pot and which can be used for any capital purpose, or

- ringfenced SCE(R), which has to be used for specified schemes or programmes.

Since the introduction of the Prudential Capital Code in April 2004, the allocations are no longer permissions to borrow. Instead they are notifications that the Government will provide revenue support grant (RSG) to meet the principal repayment and interest charges on loans that the County Council raises, up to the value of the allocations. However, as outlined in the main report, the County Council will not in practice receive any additional grant as its revenue support grant is determined by the grant floor criteria rather than the formula.

· prudential borrowing - loans that the County Council may decide to raise in the knowledge that it will have to meet the principal repayment and interest charges from its own resources without any additional support from the Government. The County Council would need to consider the impact of such loans on the prudential indicators referred to in paragraph 3.4 of this report and on the revenue budget

· Government capital grants, now known by the Government as Supported Capital Expenditure (Capital) or SCE(C)

· contributions from other bodies, which can include developers, the health service, other local authorities and 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 expenditure.

1.3 In total, the Government's support for the 2008/09 starts programme in the form of borrowing allocations and capital grants is £107m. This is 13.6% lower than the level reached in 2007/08 (£124m), mainly because of the reduced allocations for Children's Services listed in paragraph 7.13 of the report.

1.4 Total capital receipts are expected to reach £64.5m in 2007/08, £46.6m in 2008/09 and £44.2m in 2009/10, including receipts to be used for in/out schemes and to repay prudential borrowing and amounts borrowed under the School Balances Loan Scheme.

1.5 Contributions from the revenue budget to fund capital payments will be £30.7m in 2007/08 and £27.5m in 2008/09. These contributions provide support towards the capital repairs of buildings (£20.1m in 2008/09, including £11.2m for school capital repairs funded by the revenue dedicated schools grant) and highway structural maintenance (£12.5m).

1.6 Revenue contributions over the period from 2004/05 to 2009/10 have been supplemented by the redeployment of the savings of £9.1m achieved from SAP Benefit Realisation, repaying the capital resources used to fund the investment in SAP.

Capital reserve

1.7 The following table summaries the changes in the balance in the capital reserve over the period of the proposed capital programme.

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 depreciation over the estimated life of the asset for most schemes. The capital charges do not affect the County Council's overall expenditure as the charges to services will be counter-balanced by a corresponding credit to the centrally managed asset account. Trading units' capital schemes also include a 3.5% return on capital employed.

2.3 Although the capital charges in Table 22 do not affect the County Council's overall expenditure, it 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 three-year programme will be £10.6m. Apart from the use of prudential borrowing, these costs should be reflected in the County Council's `relative needs formula' for revenue expenditure and will attract revenue support grant from the Government broadly equivalent to the costs. However, as explained in the main report, this is not currently the case for authorities such as the County Council, that are subject to floor damping of general grant.

3 Debt outstanding

3.1 Table 23 below shows the estimated debt to be financed by the County Council including the new borrowings necessary to finance the proposed three-year programme.

3.2 As the table shows, the amount of debt outstanding at the end of the next few years will fluctuate as the `bridging loans' of prudential borrowing are repaid by capital receipts and developers' contributions.

Appendix 3

Appendix 4

Prudential borrowing - sources of repayment for `bridging' loans