Derby, like all cities, needs to spend considerable amounts of money each year on maintaining, and developing schools, roads, housing, and completing significant new infrastructure projects. These are long term programmes, which require careful planning and prudent consideration over the best funding options. The wrong decision and the Council’s finances could be burdened for decades.
A bit of background…
In 2015/16 the Council spent £77m, 2016/17 it spent £52m.
In the current year (2017/18), it will be around £73m. In February 2017, the plan for the coming year ( 2018/19) was £91m ( adjusting for the slip of the Sinfin Incinerator project – £25m)
In the budget agreed by the Council on 24th January 2018, the figure for 2018/19 had increased to £134m ( nearly a 50% increase) in one year! The year after, 2019/20, has increased from £42m to £124m – a 3 fold increase!
Aspirational investment or election year fizz?
Some of this increase is on schools, flood defences, and housing which is funded by central government. About 50% will be funded from external sources – in 2015/16 this was 80%+ – so the Council is now relying on more self-financing and unsupported borrowing. In fact the strategy, over the next 3 years, is to deplete the Cash/short term investments asset, which normally runs at around £70m, down to £35m.
Whilst this is on the basis that interest rates are low for investing ( and high for borrowing), it does have the consequential effect of making the Council less liquid and would mean that it couldn’t cover it’s short term liabilities ( based on March 2017 numbers). This can be mitigated by tactical borrowing, but this would be unnecessarily expensive.
Funding from Capital receipts
Funding for this growth in capital projects is also coming from the sale of Council assets – this has been a major shift in the way Capital projects are being funded.
- In the 2015/16 budget and for the subsequent 2 years capital receipts were planned at ZERO;
- by 2017/18 ( and the subsequent 2 years) this had risen to £9.6m,
- and for 2018/19 + 1 year had risen further to £15m….a major sell-off programme!
This is a perfectly sensible approach if those assets are surplus, if they are not discounted due to the need for a quick sale, and if valuable services are not lost due to this strategy.
What are the major new projects?
The numbers are large, and the money can only be spent on buildings / improvements / infrastructure – not salaries or running services.
- Total planned cost in 2017/18 budget (for 2018/19 and 2019/20) £19.2m ; increased to £31.2m in the 2018/19 budget
- ZERO was planned in the 2017/18 budget; increased in the 2018/19 budget to £43.3m ( £2.8m being spent in the next 2 years)
- ZERO was planned in the 2017/18 budget for 2018/19; increased in the 2018/19 budget to £14.2m
Market Hall roof replacement
- £2.1m planned in the 2017/18 budget; increased to £10m in 2018/19
Bus station improvements
- ZERO was planned in the 2017/18 budget; increased in the 2018/19 budget to £3.6m
The Council’s property and asset base is £1.3 billion; spending around £70m , or 5% of that, each year on developing/upgrading is reasonable. Nottingham City Council spend considerably more. The funding of it is complex, and is not that transparent for public scrutiny.
The capital plan results in a £3.5m cost to the annual revenue budget – a figure that dwarfs all of the contentious cuts that the Council has made over the last few years.
The 2 decisions that have been taken, which were controversial, were avoidable, will cost nearly £80m, and will burden the tax payer for years to come, are:
- The closure of Moorways, on revenue cost saving grounds (£343k pa), was subject to much protest by the public who wanted it to stay open. The Council Cabinet’s view changed from it being a revenue issue into it being in the wrong place.
From the Cabinet papers 15 Feb 2017, in response to a public comment:
“A new swimming pool would be great and as successful as the Velodrome but Moorways is the wrong place. It should be in the city centre where it will be more accessible, more profitable and will bring other trade into the city. Basically it needs to be near the Velodrome. No one benefits if it is out on a limb at Moorways and you will have to subsidise it forever.”
- The new pool will be on the old Moorways site! It is budgetted as being a burden to the Council Tax by £400k pa, notwithstanding the funding costs for £33m of capital outlay. The views on what makes a good pool for Derby have changed substantially in 12 months.
- As the Council made the decision to close it, and have now bulldozed the building in order to deliver one of their Pledges, the people of Derby, now, have no options.
- It is well understood and is common knowledge that the fire on the top of the Assembly Rooms car park had little effect on the performance venue itself. The use of the insurance money, and a modest amount of capital expenditure ~ £5m could have brought it back into use in 2015.
- The Council chose to dither. In the 2017/18 budget ( published Feb 2017) there was no planned capital expenditure at all. 1 year on, the only option is to spend £43m! ( currently, the plan is that the majority of this is funded by Derby City residents)
Arguably, these projects were discretionary – some would say that the Performance Venue still is.
There will need to be a significant up-kick in the sale of Council properties ( one to be watched) over the next 2 years. Without this income the plan will fail. It assumes no further borrowing for 2 years, and that the Council’s cash flow can support the expenditure – it will make the Council more illiquid.
In the spirit of the Big Conversation, perhaps the Council should have asked the public, for example, do you want a new Performance Venue, or do you want to keep the libraries open…. £43m would help run the 10, at risk, libraries for 86 years!