HAMPSHIRE COUNTY COUNCIL

Decision Report :

With the concurrence of the Chairman under Section 100B (4)(b) of the Local Government Act 1972, this matter has been included on the agenda to ensure that the most up-to-date information is presented.

EXECUTIVE SUMMARY

1) Summary of Decision Area:

1.1. This report sets out for approval the proposed capital programme for 2009/10 to 2011/12, based on the guidelines agreed by Cabinet on 22 December 2008 including support for capital schemes from the Government. The proposals take account of the County Council's capital strategy and the Prudential Code for Capital Finance in Local Authorities including the capital financing position, the level of debt outstanding and the consequences for the revenue budget and council tax.

2) Issues Covered in the Report:

2.1. The report explains the background to the proposed capital programme. It collates the service programmes prepared by executive members and shows that the significant reduction in the forecast level of capital receipts has required an increase in temporary prudential borrowing.

2.2. 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 2009/10 and Provisional Budgets for 2010/11 and 2011/12.

2.3. 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

· whilst prudential borrowing will increase to meet the shortfall caused by the reduction in capital receipts, services have not proposed any further prudential borrowing to finance new schemes in advance of capital receipts and developers contributions

· for the County Council in total, loans outstanding for prudential borrowing will peak at £131m in 2009/10. The repayment of the bridging loans included in this total will depend on the recovery of the property market. The current assumptions are that they will be fully repaid by 2013/14

· the total value of the programme over the three-year period is £427m.

3) Recommendations:

3.1. The following decisions are sought, based on the recommendations of the Leader and Cabinet to the County Council, for the capital programme for 2008/09 to 2011/12:

1 That the architectural enhancement pass-through costs at the Chineham, Marchwood and Portsmouth Energy Recovery Facilities be added to the Environment capital programme for 2008/09 at £19.330m, to be financed by £3.257m from the revenue budget for the waste management contract and £16.073m of prudential borrowing to be repaid from that revenue budget (paragraph 9.1)

2 That Children's Services capital resources totalling £11.047m be deferred from the 2008/09 capital programme to 2009/10 and 2010/11 (paragraph 8.2)

3 That it be a recommendation to Council that:

a) the capital programme for 2009/10 and the provisional programmes for 2010/11 and 2011/12 be approved as set out in Appendix 3 of the accompanying report and subject to the conditions set out in section B.3 of the County Council's Financial Procedures on the responsibilities for managing the capital programme and, where appropriate, to the approval of the Executive Member for Policy and Resources to proposals by executive members to retain more than a 25% share of capital receipts

b) 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 Government allocations

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

(1) up to the sum specified in respect of sites still required for the schemes included in the capital programme for the period 2009/10 to 2011/12 provided that the relevant scheme has been the subject of a feasibility or design project appraisal approved by the relevant executive member

(2) up to the amount included in the programmes for 2009/10 to 2011/12 in respect of advance and advantageous land purchases.

MAIN REPORT

1) Purpose of the report:

1.1. The purpose of this report is to bring together the proposals by the Executive Members for the capital programme for 2009/10 to 2011/12 for each service area, for Cabinet's consideration.

2) Contextual information:

2.1. At its meeting on 22 December 2008, Cabinet confirmed the provisional guidelines for the new capital programme previously agreed in the Medium Term Financial Strategy in October 2008. Executive members were asked to submit proposals for:

· a locally resourced capital programme for the three-year period from 2009/10 to 2011/12 within guidelines that spread the existing programme for 2009/10 and 2010/11 over three years

· a programme of schemes supported by Government grants or supported borrowing allocations in 2009/10 and 2010/11 and those expected to be supported in 2011/12, subject to limits restricting the take-up of Government supported borrowing allocations.

2.2. This report explains the background to the proposed capital programme and collates the service programmes prepared by executive members. It shows that a reduction in the forecast level of capital receipts, because of the downturn in the property market, will require the use of temporary prudential borrowing of £17.304m in 2009/10 and £5.525m in 2010/11. On current assumptions about the recovery of the property market and the flow of capital receipts, this temporary prudential borrowing will begin to be repaid in 2011/12 and will be fully over the next ten years. [This funding position is before incorporating additional revenue contributions of £1.5m in 2008/09 and £3m in 2009/10 which are recommended in the report on the Revenue Budget and Precept 2009/10 and Provisional Budgets for 2010/11 and 2011/12].

2.3. The need for temporary prudential borrowing is lower than would have been necessary if Cabinet had not agreed in December 2008 to spread the existing guidelines for the locally resourced capital programmes for 2009/10 and 2010/11 over the three-year period from 2009/10 to 2011/12, effectively a deferral of one-third or £25m.

2.4. 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 2009/10 and Provisional Budgets for 2010/11 and 2011/12.

2.5. 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

· previously approved prudential borrowing to finance school building and other schemes in advance of capital receipts and developers contributions will be outstanding for longer periods than had originally been planned because of the downturn in the housing market

· for the County Council in total, loans outstanding for prudential borrowing will peak at £120m in 2009/10. The bridging loans included in this total are forecast to be fully repaid by 2013/14

· the total value of the proposed programme over the three-year period from 2009/10 is £427m.

3) Expenditure and resources cashflow - summary

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

Table 1 - Capital expenditure and resources
	2008/09	2009/10	2010/11	2011/12
	£000	£000	£000	£000
Expenditure	215,022	158,667	162,684	151,000
Resources	202,835	134,676	157,159	154,159
	-----------	-----------	-----------	----------
Shortfall (+) / Surplus (-)	12,187	23,991	5,525	-3,159
To be met from the capital reserve	-12,187	-6,687	-	-
Use of the surplus to repay
temporary borrowing	-	-	-	3,159
Shortfall to be financed by	-----------	-----------	-----------	----------
temporary borrowing	-	17,304	5,525	-
	-----------	-----------	-----------	----------
Cumulative shortfall of resources	-	-17,304	-22,829	-19,670
Capital reserve balance at the end
of the year	6,687	-	-	-

Table 1 /continued - Capital expenditure and resources 2012/13 onwds
	2012/13	2013/14	2014/15	2015/16
	£000	£000	£000	£000
Expenditure	103,085	74,797	69,116	68,763
Resources	110,735	77,304	71,045	70,645
	----------	----------	----------	----------
Shortfall (+) / Surplus (-)	-7,650	-2,507	-1,929	-1,882
To be met from the capital reserve	-	-	-	-
Use of the surplus to repay
temporary borrowing	7,650	2,507	1,929	1,882
Shortfall to be financed by	----------	----------	----------	----------
temporary borrowing	-	-	-	-
	----------	----------	----------	----------
Cumulative shortfall of resources	-12,020	-9,513	-7,584	-5,702
Capital reserve balance at the end
of the year	-	-	-	-

3.2. Additional resources of £5.006m had been added to the Capital Reserve when the current capital programme was agreed in February 2008. At that stage, based on estimates at February 2008, this addition would have almost eliminated the need to use temporary prudential borrowing based on forecasts of expenditure and payments.

3.3. The worsening of the funding position is attributable to the reduction and delay in capital receipts as a result of the downturn in the property market. Cabinet's action in reducing the guidelines for the locally resourced capital programme for 2009/10 to 2011/12 by one-third or £25m has helped to reduce the shortfall of resources but it will still be necessary to use temporary prudential borrowing.

3.4. This proposed use of temporary borrowing to smooth out the cashflow profiles is compliant with the Prudential Code for Capital Finance under the Local Government Act 2003. Subject to the recommendations in the report on the revenue budget for additional revenue contributions, no further action is necessary to reduce or delay the proposed capital programmes for 2008/09 to 2011/12.

3.5. Progress on all capital payments and resources will be closely monitored and reported to the Leader and Cabinet during 2009/10. Executive members will also review progress on their capital programmes at regular intervals during the year.

3.6. Appendix 2 includes details of the longer term implications of the proposed programmes for the revenue budget from increased running costs and capital charges.

4) Prudential borrowing

4.1. 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, includes:

· 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

· temporary borrowing to accommodate shortfalls in general capital resources.

4.2. The overall level of proposed prudential borrowing is summarised in the following table.

Table 2 - Prudential borrowing
	Specific projects	Repaid	Temporary shortfall	Repaid	Total
	£000	£000	£000	£000	£000
2004/05 actuals	20,372	-	-	-	20,372
2005/06 actuals	12,893	-	1,861	-	14,754
2006/07 actuals	22,864	-3,855	-	-1,861	17,148
2007/08 actuals	21,687	-14,939	-	-	6,748
2008/09 estimate	48,228	-5,655	-	-	42,573
2009/10 estimate	11,402	-4,109	16,954	-	24,247
2010/11 estimate	180	-9,551	5,525	-	-3,846
2011/12 estimate	-	-33,443	-	-3,159	-36,602
2012/13 estimate	-	-7,879	-	-7,650	-15,529
2013/14 estimate	-	-3,461	-	-2,507	-5,968

4.3. The schemes funded by these advances are summarised in Table 3.

Table 3 - Summary of outstanding and planned prudential
borrowing advances
		£000
Financed from savings in the revenue budget		48,885
`Bridging' loans on specific projects to be
repaid from capital receipts and developer
contributions		65,610
Trading units' capital investment to be
financed from future charges		4,337
Temporary borrowing to meet short-term
capital resources shortfalls		24,690
		-----------
Total		143,522
		-----------

4.4. 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 2013/14. In addition to these lump sum repayments, £51m of the prudential borrowing in Table 2 will be repaid from savings in the revenue budget.

4.5. 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.

4.6. In deciding whether the level of prudential borrowing set out in Table 2 is appropriate, it is necessary to 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 2009/10 and Provisional Budgets for 2010/11 and 2011/12.

5) Background to the guidelines for the capital programme

5.1. The guidelines for the locally resourced programme were confirmed by Cabinet in December 2008 as set out in the Medium Term Financial Strategy agreed in October 2008. They are based on the existing programme limits, plus an allowance for inflation, but with the guidelines for 2009/10 and 2010/11 spread over the three years from 2009/10 to 2011/12. This has been necessary to reflect lower forecasts for capital receipts to support the capital programme over the next few years as a result of the sharp decline in the demand for development land. In total, £25m has been removed from the guidelines over the three-year period.

5.2. `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.

5.3. The guidelines set by Cabinet for each service are shown in Table 4.

Table 4 - Guidelines for locally resourced capital programmes
2009/10 to 2011/12
	2009/10	2010/11	2011/12
	£000	£000	£000
Adult Services	700	470	585
Children's Services	88	88	88
Environment	9,821	9,376	9,534
Policy and Resources	6,380	6,351	6,366
Recreation and Heritage	438	379	408
	---------	---------	---------
Total	17,427	16,664	16,981
	---------	---------	---------

5.4. Subsequent virements to revenue and other adjustments are listed below in the sections on each service's proposed capital programme.

5.5. The basis for the guidelines for the capital programme supported by Government borrowing allocations were also confirmed by Cabinet in December 2008. 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.

5.6. The Government has announced its support up to 2010/11, only, in the its most recent Spending Review CSR2007. Executive members were asked to include schemes in their proposed programmes for 2011/12 based on their expectation of Government support in that year, assuming that the current level of reduced take-up of borrowing allocations would continue.

5.7. The guidelines for programmes supported by Government borrowing allocations are summarised in Table 5.

Table 5 - Guidelines for the capital programmes supported by
Government borrowing allocations 2009/10 to 2011/12
	2009/10	2010/11	2011/12	Total
	£000	£000	£000	£000
Adult Services	-	-	-	-
Children's Services allocation	15,030	9,202	9,202	33,434
less reduction in take-up	-5,332	-1,760	-1,760	-8,852
additional take-up February 2008	1,500	-	-	1,500
	----------	----------	----------	----------
Children's Services guideline	11,198	7,442	7,442	26,082
Environment allocation	27,547	30,296	30,296	88,139
less reduction in take-up	-9,772	-5,795	-5,795	-21,362
additional take-up February 2008	6,807	-	-	6,807
	----------	----------	----------	----------
Environment guideline	24,582	24,501	24,501	73,584
Policy & Resources allocation	7,457	616	616	8,689
less reduction in take-up	-2,645	-117	-117	-2,879
additional take-up February 2008	700	-	-	700
Re-profiling NDS allocations from
2007/08	2,500	-	-	2,500
	----------	----------	----------	----------
Policy & Resources guideline	8,012	499	499	9,010
Recreation & Heritage	-	-	-	-
Total allocations	50,034	40,114	40,114	130,262
less reduction in take-up	-8,742	-7,672	-7,672	-24,086
Re-profiling NDS allocations from
2007/08	2,500	-	-	2,500
	----------	----------	----------	----------
Total guideline	43,792	32,442	32,442	108,676
	----------	----------	----------	----------

5.8. The proposed reduction in take-up of borrowing allocations of £24m over the three-year period is in addition to the £33m not taken up in 2007/08 and 2008/09. The total of £57m represents 25% of the estimated Government borrowing allocations available over the five years from 2007/08 to 2011/12 of £227m.

6) The programmes submitted

6.1. The total starts value of the three-year programme submitted by executive members is £427m, as shown in Table 6. It includes £365m of schemes supported by Government allocations.

Table 6 - Starts programmes submitted 2008/09 to 2010/11
	Land	Works, Fees, Furniture and Equipment			Total
		Locally resourced programmes	Schemes supported by Government allocations	Total Works, Fees etc	programme including Land
	£000	£000	£000	£000	£000
2009/10	536	17,748	158,729	176,477	177,013
2010/11	732	29,030	117,791	146,821	147,553
2011/12	733	13,225	88,244	101,469	102,202
	--------	-----------	-----------	-----------	-----------
Total	2,001	60,003	364,764	424,767	426,768
	--------	-----------	-----------	-----------	-----------

6.2. The proposed programmes are in line with the guidelines set in December 2008. A reconciliation between the guidelines and the proposed programme is included in Appendix 1.

6.3. 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 3.

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

7) Adult Services

7.1. The proposed programme for Adult Services in Appendix 3 is in line with the guidelines for the locally resourced programme. The programme for 2009/10 includes the final year of the additions agreed by Cabinet in July 2006 after a review of the Service's capital expenditure needs and the resources available.

7.2. Following Cabinet's decision to spread the existing 2009/10 to 2010/11 locally resourced capital programme over the three years 2009/10, 2010/11 and 2011/12 (effectively a one-third reduction in each year's programme), Adult Services have generally scaled back the previously proposed allocations to schemes on a pro rata basis.

7.3. The proposed programme also includes schemes to use a number of capital grants from the Government, as listed in Table 7.

Table 7 - Adult Services - Government capital grants
	2009/10	2010/11	2011/12	Total
	£000	£000	£000	£000
Mental Health grant	291	290	-	581
Social Care Infrastructure grant	301	322	-	623
Extra Care Housing grant	1,592	-	-	1,592
	---------	----------	----------	---------
Total Adult Services capital grants	2,184	612	-	2,796
	---------	----------	----------	---------

8) Children's Services

8.1. The proposed programme for Children's Services of £189m over the next three years is supported primarily by the Government with capital grant and borrowing allocations, as Table 8 shows.

Table 8 - Children's Services capital programme - resources available
	2009/10	2010/11	2011/12	Total
	£000	£000	£000	£000
Resources carried forward
- from 2008/09	9,060	1,987	-	11,047
- from 2009/10	-1,289	1,289	-	0
Government's borrowing allocations
- new pupil places	6,231	6,231	6,231	18,693
- Schools Access Initiative schemes	2,447	2,447	2,447	7,341
- New Deal for Schools Modernisation	6,352	524	524	7,400
- less reduced take-up of allocations	-3,832	-1,760	-1,760	-7,352
Government's capital grants:
- New Deal for Schools Modernisation	1,815	6,851	6,851	15,517
- recovery of advance NDS allocations	-1,815	-1,815	-1,815	-5,445
- schools' devolved capital	21,049	21,049	21,049	63,147
- primary capital programme	9,447	11,825	-	21,272
- Sure Start	10,123	7,787	-	17,910
- extended schools	2,030	1,049	-	3,079
- Youth Capital Fund	514	514	-	1,028
- Targeted Capital Fund	2,254	6,300	6,000	14,554
- disabled children	681	1,588	-	2,269
- food technology	600	-	-	600
- adult safeguarded learning	900	-	-	900
Local resources:
- guideline	88	88	88	264
- developer funded schemes	-	16,121	-	16,121
- land for schemes in the programme	100	100	100	300
	----------	----------	----------	-----------
Total	66,755	82,175	39,715	188,645
	----------	----------	----------	-----------

8.2. The Executive Member for Children's Services proposes carrying forward capital resources of £11.047m from the 2008/09 programme to 2009/10 and 2009/10. The schemes are listed in Table 9.

Table 9 - Children's Services schemes to be deferred from 2008/09
to 2009/10 and 2010/11
	£000
Uncommitted resources - carry forward agreed
in July 2008	4,211
Andover's Children's Centre	600
Bentley Primary School	300
East Anton Primary School, Andover	1,987
Roman Way Primary School, Andover	340
Stanmore Primary School, Winchester	450
Robert Mays Secondary School, Odiham	170
Hook Junior School	110
Wyvern Technology College, Fair Oak	125
Management of falling rolls	150
Staff workforce	218
Schools Access Initiative	1,089
Health & Safety Swimming Pools	563
Developers' contributions	290
Asset Management Plan data provision	100
Targeted Capital Fund	344
	----------
Total to be carried forward	11,047
	----------

New Deal for Schools

8.3. 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.

8.4. 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. Even though the recoupments were completed in 2010/11, it has been assumed that the Government's grant support for the NDS programme will continue in 2011/12 at the lower net level.

8.5. The amounts for NDS are shown in Table 10.

Table 10 - New Deal for Schools - modernisation and condition
	2009/10	2010/11	2011/12
	£000	£000	£000
Children's Services - modernisation
- funded by borrowing allocation	6,352	524	524
- funded by grant	1,815	6,851	5,036
- less recoupment of grant advanced in 2007/08	-1,815	-1,815	-
	---------	---------	---------
Total - modernisation	6,352	5,560	5,560
Policy and Resources - condition
- funded by borrowing allocation	7,457	616	616
- funded by grant	2,131	8,043	5,912
- less recoupment of grant advanced in 2007/08	-2,131	-2,131	-
	---------	---------	---------
Total - condition	7,457	6,528	6,528
	---------	---------	---------
Total	13,809	12,088	12,088
	---------	---------	---------

8.6. The borrowing allocations in Table 10 are subject to the County Council's decision not to take up in full the Government's borrowing allocations.

8.7. Following an invitation by the Department for Children, Schools and Families, a request has been made for £2.939m of NDS grant funding to be advanced by the Government from 2010/11 to 2009/10, including £2.484m for NDS condition. A response is awaited.

Primary Capital Programme

8.8. The County Council is a pathfinder authority for the Government's new grant-funded Primary Capital Programme which is intended to make far-reaching improvements to primary schools over a period of up to fifteen years.

8.9. Primary Capital Programme grants are available of £9.447m in 2009/10 and £11.825m in 2010/11. This will be allocated to a number of projects in the Havant and Gosport areas, along with the East New Forest Special school project (approved by the Cabinet on 21 May 2007), in accordance with the County Council's submission to the DCSF in June 2008. Recommendations for specific projects will be brought back to the Executive Lead Member for Children's Services (Education) in the early part of 2009. It is anticipated that the 2011/12 allocation will be about £6.000m.

Other Government allocations

8.10. Brief details of the other capital allocations from the Government in Table 7 are provided below:

· 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

· food technology grant, to provide food technology spaces in secondary schools that currently lack such facilities

· adult safeguarded learning grant, to replace adult learning spaces currently in temporary classrooms at Brookfield Community School and Language College in Sarisbury Green and Hurst Community College in Baughurst.

8.11. 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

8.12. The Government has provided £83.1m in support for capital investment in Children's Services in Hampshire for 2009/10, in the form of capital grant and borrowing allocations, as Table 11 shows. This is higher than the £74.5m allocated by the Government for 2008/09, mainly because of the increased grant allocations for Sure Start, Primary Capital Programme and new grants for Targeted Capital, Disabled Children, Food Technology and Adult Safeguarded Learning.

Table 11 - Government support for capital spending on Children's
Services
	2008/09	2009/10	2010/11	2011/12
	£000	£000	£000	£000
Children's social care	145	145	144	144
Basic need	6,231	6,231	6,231	6,231
Schools access initiative	2,447	2,447	2,447	2,447
Schools' devolved capital	21,099	21,049	21,049	21,049
NDS - modernisation	7,986	6,352	5,560	5,560
NDS - condition	9,375	7,457	6,528	6,528
DSG funded capital repairs	11,181	11,461	11,748	11,748
DSG funded smart meters	-	1,000	-
Sure Start grant	6,869	10,123	7,787	-
Sure Start grant - condition	262	453	477	477
Youth capital fund grant	514	514	514	-
Primary capital programme	6,500	9,447	11,825	6,000
Extended schools grant	1,916	2,030	1,049	-
Targeted capital fund	-	2,254	6,300	-
Disabled children grant	-	681	1,588	-
Food technology grant	-	600	-	-
Adult safeguarded learning grant	-	900	-	-
	----------	----------	----------	----------
Total Government support	74,525	83,144	83,247	60,184
	----------	----------	----------	----------

8.13. As explained in paragraph 5.5, Cabinet agreed in December 2008 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 12 below.

Table 12 - Take-up of Government support for capital spending on Children's
Services
	2008/09	2009/10	2010/11	2011/12
	£000	£000	£000	£000
Capital grants	48,341	60,512	73,285	50,222
Borrowing allocations	26,184	22,632	9,962	9,962
	----------	----------	----------	----------
Total - as Table 11	74,525	83,144	83,247	60,184
Reduction in take-up of borrowing
allocations
- Children's Services	-5,063	-3,832	-1,760	-1,760
- Policy & Resources (for NDS condition)	-2,992	-1,945	-117	-117
	----------	----------	----------	----------
Net total	66,470	77,367	81,370	58,307
	----------	----------	----------	----------

Prudential borrowing for the Children's Services capital programme

8.14. Given the current uncertainty in the market for development land, the Children's Services capital programme for 2009/10 does not include any new proposals to use prudential borrowing to fund schemes in the advance of capital receipts or developers' contributions.

8.15. Three new primary schools are included in the programme for 2010/11 which will be partly funded from developers' contributions. These are the primary schools at East Anton and Picket Twenty in Andover and West of Waterlooville. They are required to meet the growth in pupil numbers arising from localised development pressures. The capital programme has been prepared on the basis that the developers' contributions for these three schemes will be received in time to fund the capital expenditure on the schools directly without recourse to borrowing but the position will need to be kept under review nearer the time.

Impact of the reductions in the guidelines for the locally resourced capital programme

8.16. Cabinet's decision to spread the existing 2009/10 to 2010/11 locally resourced capital programme over the three years 2009/10, 2010/11 and 2011/12 (effectively a one-third reduction in each year's programme) has little impact on Children's Services as the guideline is only £88,000 per annum.

Pressures on the Children's Services capital programme

8.17. The Executive Member for Children's Services reports that there are sufficient resources to fund all schemes which need to be started in 2009/10. The position for 2010/11 and following years continues to be difficult because of the combination of:

· the Cabinet decision not to take up in full the Government's borrowing allocations. This has removed £7.4m from the resources available for the Children's Services capital programme over the three-year period from 2009/10 to 2011/12

· the need to fund the cost not met by developers' contributions of the three new primary schools in 2010/11 to serve major housing developments in Andover and West of Waterlooville.

8.18. The actual timing of these new primary school projects will depend on when planning consents are granted to developers for the residential development and the forecast rate of housing completions. In addition to the three new primary schools programmed to start in 2010/11, a further new primary school is likely to be required for the development at Aldershot Urban Extension in 2012/13. With developers' contributions meeting only about 65% of the cost of a new school, the pressure on the programme is likely to continue.

Building Schools for the Future

8.19. 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. No provision has been included in the proposed capital programme for 2009/10 to 2011/12. A response is expected shortly from the Government to the County Council's application for inclusion in a forthcoming wave of the BSF programme.

9) Environment

Capital programme for 2008/09

9.1. It is proposed that £19.330m should be added to Environment's capital programme for 2008/09 for the cost of the architectural enhancement pass-through costs at the Chineham, Marchwood and Portsmouth Energy Recovery Facilities. The County Council is liable under the terms of the long-term waste disposal contract with Veolia Environmental Services Hampshire for the cost of architectural standards above a basic design. A lump sum payment has been agreed with Veolia instead of an addition to the annual payments for the period of the contract.

9.2. The Executive Member for Policy and Resources agreed in principle in October 2008 that prudential borrowing should be used to finance the lump sum payment and he approved the final settlement for the Marchwood facility in December 2008.

9.3. The County Council's share of the cost after deducting the contractual contributions by Portsmouth and Southampton City Councils is £19.330m. Provision of £3.257m has been made in previous years in Environment's revenue account for annual payments pending the final settlement of this issue. This is now available to fund part of the lump sum, leaving £16.073m to be financed by prudential borrowing. Repayments will be made from the waste management revenue budget over the remaining life of the contract. The saving to the revenue budget from making a lump sum payment to Veolia, financed by prudential borrowing, will be £0.8m a year.

Capital programme for 2009/10 to 2011/12

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

Table 13 - Environment capital programme - resources available
	2009/10	2010/11	2011/12	Total
	£000	£000	£000	£000
Government support:
Local transport plan
Borrowing allocation	27,547	30,296	30,296	88,139
Capital grant	4,473	4,452	4,452	13,377
	----------	----------	----------	-----------
Total LTP	32,020	34,748	34,748	101,516
less reduced take-up of borrowing	-2,965	-5,795	-5,795	-14,555
	----------	----------	----------	-----------
	29,055	28,953	28,953	86,961
Road safety grant	1,159	1,077	1,084	3,320
Planning delivery grant	101	101	101	303
Waste infrastructure grant	4,860	840	-	5,700
Bus Rapid Transit Phase 1	20,000	-	-	20,000
M27 Junction 5 improvements	8,325	-	-	8,325
	----------	----------	----------	-----------
Total Government support	63,500	30,971	30,138	124,609
Local resources:
Guideline	9,821	9,376	9,534	28,731
less virement to/from revenue:
- highway maintenance	-2,140	-2,140	-2,140	-6,420
- winter maintenance	70	70	70	210
- feasibility studies	-300	-300	-300	-900
- environmental improvements	-101	-101	-101	-303
less waste management guideline	-753	-753	-753	-2,259
Prudential borrowing agreed in
February 2008	3,064	-	-	3,064
	----------	----------	----------	-----------
Total local resources	9,661	6,152	6,310	22,123
	----------	----------	----------	-----------
Total resources	73,161	37,123	36,448	146,732
	----------	----------	----------	-----------

9.5. 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 £14.6m over the three-year period from 2009/10 to 2011/12.

9.6. The Executive Member for Environment proposes adjusting the starts programmes for the three years to make sure that the resultant expenditure flows make full use of the resources available. These adjustments are summarised in Table 14 and the proposed programmes listed in full in Appendix 3.

Table 14 - Environment's proposed capital programme
	2009/10	2010/11	2011/12	Total
	£000	£000	£000	£000
Resources available (as Table 13)	73,161	37,123	36,448	146,732
Phasing of the starts programmes
to match the funding available	1,333	1,385	44	2,762
	----------	----------	----------	-----------
Proposed programme	74,494	38,508	36,492	149,494
	----------	----------	----------	-----------

9.7. The proposed three-year programme also includes schemes wholly or partly funded by developers' or other contributions totalling £15.0m, including £4.8m in 2009/10. Schemes have only been named where there is reasonable confidence in the security of funding and programme dates.

Major transport schemes

9.8. Work is under way in the Environment Department to develop evidence bases to support potential bids for major schemes. Where these schemes occur in South Hampshire, a partnership approach is used through Transport for South Hampshire (TfSH) which also attracts additional resources.

9.9. Transport for South Hampshire receives some funding for transport infrastructure through the Partnership for Urban South Hampshire (PUSH) which in turn receives capital and revenue funding from Government through `New Growth Point Funding'. These funds are allocated to specific projects by PUSH/TfSH and are paid over to lead local authorities who deliver the schemes.

9.10. The proposed Environment capital programme for 2009/10 includes a scheme to improve the M27 junction 5 at Southampton Airport at a cost of £8.325m. Whilst there may be some developer contributions, this scheme is dependent on funding from PUSH. If sufficient PUSH resources are made available, it may be possible to start on site in 2009/10 with the works undertaken in phases as funding permits. The scheme would provide immediate benefits in terms of reducing congestion and allowing more control of traffic flows at the junction and improve access to the airport and its rail station, It is also seen as the first stage in providing access to the major employment area proposed in Eastleigh River Side along Chickenhall Lane.

9.11. Following approval by Cabinet in October 2008, a bid has been submitted to the Community Infrastructure Fund for £20m for phase I of South East Hampshire Bus Rapid Transit between Fareham and Gosport. The scheme has been included in the proposed capital programme for 2009/10, for completion in 2011 if the bid is successful.

Household waste recycling centres

9.12. Cabinet agreed in July 2004 to increase the provision for improving the County's household waste recycling centres (HWRC) to £1m per annum. Following the Government's announcement of its waste infrastructure grant allocations for Hampshire, the HWRC programme can be funded from Environment's share of capital receipts and the waste infrastructure grant without the need for the additional local resources. Allocations funded from the waste infrastructure grant of £4.860m and £0.840m have been added to the Environment capital programme for 2009/10 and 2010/11 respectively. Work will continue to develop proposals to use these allocations.

Impact of the reductions in the guidelines for the locally resourced capital programme

9.13. Following Cabinet's decision to reduce the annual guideline for the locally resourced capital programme by one third, the Executive Member for Environment has sought to maintain capital spending on highways and bridge maintenance in real terms by making deferrals from other programmes, as follows:

· the existing environmental improvements programmes for 2009/10 and 2010/11 have been deferred, except for £377,000 in 2009/10 to meet existing commitments

· the existing planned integrated transport programmes for 2009/10 to 2010/11 funded from Government supported borrowing and grant has been reduced to release resources to cover the balance required to maintain capital spending on highways and bridge maintenance. Schemes have been deferred to reduce overall expenditure by £3.722m in 2009/10 and 2010/11.

10) Policy and Resources

10.1. The allocation between schemes of the proposed Policy and Resources capital programme for 2009/10 to 2011/12 is largely based on the priorities in the existing programme. Allocations have been scaled back on a pro rata basis as a result of the one-third reduction in the guidelines set by Cabinet for the locally resourced capital programme.

10.2. 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. Considerable progress has been made in the schools estate with the Government's New Deal for Schools funding programme. However, significant liabilities remain in the non-schools estate, such as Adult Services residential homes. The reduced programme for locally resourced capital repairs will require a reassessment of risk and will slow progress on improving the Council's built estate.

10.3. A number of changes are proposed within the programme:

· capital repairs - a further £1m will be carried forward from 2008/09 to 2009/10, in addition to the £2m already agreed, to smooth the reduction in the capital repairs programme as a result of the lower guidelines

· Hampshire Workstyle - £0.249m will be vired to revenue in 2009/10 from capital repairs to support the project team developing the business case for the Hampshire Workstyle initiative. A report on the business case for the first phase of Hampshire Workstyle will be submitted to an early meeting of Cabinet. This is expected to demonstrate the case for investment in office accommodation to improve efficiency and the quality of services. Prudential borrowing will be needed to finance part of the cost of the investment, to be met from future capital receipts and revenue savings. No provision has been made in the Policy and Resources capital programme at this stage

· Carbon Management - £0.187m will be vired to revenue in 2009/10 from capital repairs to develop the County Council's proposals to meet the requirements of the Government's Carbon Reduction Commitment scheme

· Smart meters - £1.0m has been allocated in 2009/10 by the Schools Forum for smart meters as part of the carbon reduction commitment, funded from the Dedicated Schools Grant

· fee income - £0.2m will be vired to revenue in 2009/10 from capital repairs to smooth the impact on the revenue account of lower fee income

· Building Schools for the Future (BSF) - £0.3m of the Government's New Deal for Schools funding in 2009/10 will be used to supplement the existing provision for Advance Fees to support Children's Services bid for early entry to the Government's BSF programme. A further £0.2m will be vired for feasibility work from the provision for advance and advantageous land in 2009/10

· Merton Rise infrastructure - £1.037m has been added to the programme for 2009/10 to fund section 106 payments to Basingstoke and Deane Borough Council for the Merton Rise development. It had been expected that the purchasers of the development sites at Merton Rise would have been responsible for these payments. The downturn in the housing market and the resultant delay in disposing of the sites has left the County Council as land owner to make the payments. The sale proceeds when the sites are eventually sold will be correspondingly higher than they would have been if the developers had been responsible for the payments.

Advance and advantageous land

10.4. The proposed provision for advance and advantageous purchases of land is £0.432m in 2009/10 (after the transfer of £0.2m referred to in the previous paragraph) and just over £0.6m per annum in 2010/11 and 2011/12.

11) Recreation and Heritage

11.1. The capital programme for Recreation and Heritage for 2009/10 has been scaled back to reflect Cabinet's one-third reduction in the locally resourced guidelines on a pro rata basis except for previously agreed match-funding allocations to external partners. The programmes for 2010/11 and 2011/12 will be allocated at a later date in line with resources and priorities at the time.

11.2. Provision of £0.422m per annum has been included in the programmes for 2009/10 and 2010/11 for the final two years of the Government funded Playbuilder programme to develop 20 to 25 play areas over three years which started in 2008/09.

11.3. The programme for 2009/10 also includes a £1.313m project to provide education and visitor facilities for the Basing House History Park. The project will be financed by the Heritage Lottery Fund, the Museums HUB and the sale proceeds from Grange Farm at Basing.

12) Private finance initiative

12.1. No specific public finance initiative (PFI) schemes have been identified by executive members at this stage for inclusion in the 2009/10 to 2011/12 capital programme.

12.2. Work on the proposal to replace street lighting columns continues following the comprehensive tender process, with the intention of awarding a PFI contract in the second quarter of 2009. Work to replace street lighting infrastructure would then start in late 2009.  

13) Conclusions

13.1. 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 2009/10, including the progress on meeting the challenging targets for capital receipts.

13.2. 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. As part of this process, the officers plan to bring forward reports on:

· capital receipts targets in the longer term

· Building Schools for the Future (BSF) - any advance schemes which could be supported by Government commitment to capital grant or private finance initiative credits, and the financing required for any funding gap between estimated costs and the BSF support from the Government.

14) Recommendations:

14.1. Please see the Executive Summary for the recommendations.

i:\ . . . . \ian\docs\cap-cab-6feb2009a.doc 03 February 2009

CORPORATE OR LEGAL INFORMATION:

IMPACT ASSESSMENTS:

1. Equalities Impact Assessment:

a) Equality objectives are not considered to be adversely affected by the proposals of this report.

2. Impact on Crime and Disorder:

a) The proposals in this report are not considered to have any direct impact on the prevention of crime.

3. Climate Change:

a) How does what is being proposed impact on our carbon footprint / energy consumption?

· No specific changes.

b) How does what is being proposed consider the need to adapt to climate change, and be resilient to its longer term impacts?

· Services will consider these issues when developing capital schemes.

Appendix 1

Capital Programmes 2009/10 to 2011/12 Proposed by Executive Members

1 Summary of the proposed programmes

1.1 The proposed three-year programme of £427m can be reconciled with the guidelines set by the Cabinet in December 2008, as the Table 15 shows.

1.2 The starts value of schemes supported by Government grant and borrowing allocations, £361m, represents 85% of the total three-year programme of £425m. The equivalent percentage for the existing capital programme approved in February 2008 was 70%. This increase in the Government's contribution to 85% reflects the reduction in capital receipts available to support the locally resourced programme and the increases in individual Government allocations highlighted in the main report. It gives the Government significant scope to influence the County Council's priorities.

1.3 The Environment capital programme also includes a number of local transport schemes supported wholly or in part by developers, totalling £15m over the three years. The individual schemes are identified in the Environment capital programme in Appendix 3.

Appendix 2

Capital Expenditure Flows and Financing Resources 2008/09 to 2012/13

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 2008/09 and the following three years will result from works in progress (schemes started in 2008/09 and earlier years) plus those arising from the proposed programme for 2009/10 to 2011/12, as the Table 16 below shows.

1.3 In practice, expenditure flows in the years after 2008/09 may be higher than suggested by the table if further developer and other external contributions become available to fund additional capital schemes.

2 Resources available for capital financing

2.1 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 revenue budget and the prudential indicators referred to in paragraph 4.6 of this report

· 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.

2.2 The following table shows the latest estimate of the resources available to finance capital expenditure.

2.3 In total, the Government's support for the 2009/10 starts programme in the form of borrowing allocations and capital grants is £152m. This is 41.4% higher than the level reached in 2008/09 (£107m), but it assumes that Government support for the two major highway schemes, M27 Junction 5 improvements (£8.325m) and the Bus Rapid Transit Phase 1 (£20m), is confirmed as outlined in paragraphs 9.8 to 9.11 of the report. Other significant increases are the Waste Infrastructure grant (£4.860m in 2009/10) and the Extra Care Housing grant (£1.592m).

2.4 The prudential borrowing in 2008/09 of £48.3m includes £16.1m for the architectural enhancement costs at the waste management Energy Recovery Facilities (paragraphs 9.1 to 9.3 of the report), £8.3m for a number of school building rationalisation projects in advance of capital receipts and developers' contributions and £4.0m for structural maintenance of highways agreed by Cabinet in February 2008.

2.5 Total capital receipts are expected to be much lower than previously forecast as a result of the downturn in the property market. The estimate for 2008/09, excluding the final staged payment for the former John Hunt of Everest school site, is £3.2m, followed by £4.7m in 2009/10, £13.2m in 2010/11 and, assuming that the market begins to recover, £37.9m in 2011/12. These estimates including receipts earmarked to be used to fund in/out schemes and to repay prudential borrowing and amounts borrowed under the School Balances Loan Scheme. With the present uncertainty about the duration of the recession, the estimates for capital receipts will be kept under close review.

2.6 Contributions from the revenue budget to fund capital payments will be £40.0m in 2008/09 and £27.3m in 2009/10. These revenue contributions provide support towards the capital repairs of buildings (£18.9m in 2009/10, including £12.5m for school capital repairs and smart meters funded by the revenue Dedicated Schools Grant) and highway structural maintenance (£16.9m).

2.7 The revenue contributions for 2008/09 are higher than in later years at £40m because of the agreed use of revenue underspendings in 2007/08 to fund capital expenditure on Adult Services, Environment and capital repairs. It also includes the use of provision made in the Environment's revenue account to fund £3.3m of the architectural enhancement costs at the waste management Energy Recovery Facilities (paragraphs 9.1 to 9.3).

2.8 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

2.9 The balance in the Capital Reserve brought forward on the closure of the accounts for 2007/08 of £13.9m has been supplemented by the planned transfer in 2008/09 of a further £5.0m agreed when the budget for 2008/09 was finalised in February 2008. The resulting balance of £18.9m will be used to meet the shortfall of capital resources in 2008/09 and part of the shortfall in 2009/10. Table 18 summaries the position.

3 Revenue implications

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

3.2 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.

3.3 Although the capital charges in Table 19 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 £8.3m. 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.

4 Debt outstanding

4.1 Table 20 below shows the estimated debt to be financed by the County Council including the new borrowings necessary to finance the proposed three-year programme.

Table 20 - Debt outstanding
	2008/09	2009/10	2010/11	2011/12
	£m	£m	£m	£m
Debt outstanding at the
beginning of the year	543.7	608.0	653.4	660.4
New borrowings	90.8	71.5	42.6	34.7
Repayments from:
- the revenue account	-21.8	-24.3	-26.1	-26.4
- capital receipts and
developers' contributions	-4.7	-1.8	-9.5	-36.6
	----------	----------	----------	----------
Debt outstanding at the	608.0	653.4	660.4	632.1
end of the year	----------	----------	----------	----------

4.2 As the table shows, the amount of debt outstanding towards the end of the period will reduce as the `bridging loans' of prudential borrowing are repaid by capital receipts and developers' contributions.