Cabinet Member for Finance and Performance

The Chairman drew attention to the confidential appendices set out later in the agenda, and reminded Members that they would need to exclude the press and public should they wish to discuss the content of those papers.

Cabinet considered the report of the Head of Finance and the above Cabinet Member which set out a business case for borrowing up to £28m (of the £30m approved) and sought agreement to the funding of some specific works associated with Sittingbourne Town Centre redevelopment.  In introducing the report, the Cabinet Member emphasised the importance of the scheme for the financial future of the Council, referring to the need for the Council to generate income to become self-sufficient, and the decision taken by the Council in March to give authorisation to borrow up to £30m.  The Cabinet Member referred to the reduction in government grant since 2010 from £12m to £2m, and that this would be zero in 2020; acknowledging that there would be business rates generated of £6.5m but these were subject to appeal; and said that whilst the Council had built up reserves, the interest rate return was now 0.63%.  He referred to schemes by other local authorities to invest in property in the local area, such as Canterbury and Spelthorne Councils, for financial return.

In proposing the recommendations, the Cabinet Member emphasised that the proposal was for financial return, so that income was generated from the tenants and not by the Council Tax payer; and that there was clear viability for the scheme referring to economic conditions nationally and market conditions in Sittingbourne.  In the Autumn, the Spirit of Sittingbourne had made progress on lettings and the Interim Director of Regeneration had held discussions as to whether the Council could become a funder.  The proposal was a good financial investment and external financial advice had been sought.  Even with prudent assumptions, the investment would generate an average of £2.8m per annum over the lifetime of the project, a return of 7.8% which was much better than the current level of interest on the Council’s investment.  The Cabinet Member considered this was an excellent opportunity to use the returns to help safeguard public services.  The Leader seconded the recommendations.

A Member spoke against the proposal, saying that the Council had no mandate to invest, and suggested that there should be full public consultation with the people of Swale to ask if they supported the level of borrowing, and whether what to spend it on reflected their priorities, suggesting that this could be better spent on the Lower Road, Isle of Sheppey.  He suggested that if the Council was looking at investing, it should invest in housing which had the potential to make a profit, and could be used for some council housing.  He did not consider that the investments being made by Canterbury and others were comparable, and expressed caution that the expected return would only be if all units were rented out.

Another Member spoke against the proposal; whilst understanding the need to generate income, he considered that this was a risky investment, and that it was a last ditch attempt to avoid the reputational risk of admitting it was a flawed scheme, referring in particular to the difficulties regarding attracting a cinema operator.  He did not consider that the scheme was commercially viable, and suggested that a more secure investment would be in housing.  The Council had never been willing to invest in the local community before, and gave the example of play areas.  He advised that he would be seeking to refer this item to the Scrutiny Committee as the proposal was inadequate, and asked to see the notes of the officer meeting that had discussed this proposal.

Other Members gave their views on the proposals.  Those in support of the scheme spoke of: the need to generate income in order to maintain council services without increasing the council tax, referring to examples of investments being made by other authorities; that in addition to generating income, it would also support the Council’s regeneration strategy; that the income was guaranteed for a number of years; and that it was an opportunity to improve investment opportunity in the Borough and create jobs and wealth.

Other Members spoke against the proposal, referring to issues with securitisation; the lack of capability to manage such a project; that the income was not secure as tenants could go bust; that the examples given of Canterbury and Spelthorne Councils investing were less risky; there was no risk analysis within the report; there were other ways that the Council could invest, such as in units in the High Street.  Questions were asked regarding car parking in Sittingbourne and whether the proposal impacted upon the funding of the multi-story car park; why couldn’t the Council invest in housing which would assist with homelessness and those in temporary accommodation?  Further concerns were raised regarding the risks; whether there were costs that were not reflected within the report; and that the Council would still owe £28m after 50 years.  Members acknowledged that there was a need to generate income to be able to continue to deliver public services.

The Head of Finance advised that the proposal was not without risk, but the aim was to generate an investment return without burden on the local council tax payer.  The burden of the debt costs would be wholly on the occupiers of the buildings; there were already long leases in place for the cinema, hotel and restaurants, although 35% of the restaurant income was not yet signed and would continue to be marketed.  The investment return would be over and above that obtained by treasury management, and the Council did not have any plans to pay for housing. 

In respect of borrowing costs, the Head of Finance advised that the recommendation was for up to £28m and the financial appraisal assumed that the Council borrowed from day 1.  However, the Council would try to avoid borrowing at the start of the project, using reserves instead to get underway, and only borrow long term when there was rental income being received.  He explained that there were two ways to repay the principal, either by setting aside a minimal revenue provision of 2% on the balance sheet, which was included in the plans; and by allocating some of the additional income in future years.  Meanwhile, the Council would have more than sufficient funds to repay borrowing, using the income from tenants.

In respect of technical issues, the Head of Finance acknowledged that there was a need to get the property management right and funding had been built in for use of a specialist external manager.  He also confirmed that the option to finance did not exist until September 2016.  In response to a question, the Head of Finance also confirmed that no account had been taken in the appraisal of additional business rates, council tax or new homes bonus.

The Chief Executive advised that it was important to be clear that this report and decision was not about the wider Spirit of Sittingbourne Scheme, and that housing was not part of the issues being considered, and that the Council should only borrow to invest in areas which generated an income stream.

In summing up, the Leader expressed disappointment that not all Group Leaders had chosen to attend the briefings offered by Officers on the topic, and advised that a separate report would be coming forward in due course regarding housing.  He acknowledged the role of opposition Members and the Scrutiny Committee to ask questions and scrutinise.

The Cabinet Member thanked Members for their comments and questions, and reiterated his confidence in the proposed investment, as he looked after the Council’s money as if it was his own.  He looked forward to the debate at the Scrutiny Committee. 

The Chairman thanked members of the public for attending the meeting.

Resolved:

(1) That approval be given to funding and acquiring of the leisure and big box retail development in Sittingbourne.

(2) That borrowing of up to £28m be approved, in line with the Council decision on 16 March 2016.

(3) That investment of up to £2.2m in highways-related infrastructure for Sittingbourne Town Centre be approved.

(4) That funding of up to £500,000 to underwrite unconditional pre-works demolition costs, which will be funded from South East Local Enterprise Partnership (SELEP) funding, be approved.  If the development agreement does not go unconditional, the Council will be required to repay this funding to SELEP.

(5) That delegation be given to the Head of Finance, in consultation with the Leader and Cabinet Member for Finance and Performance, the final decisions on the amount of borrowing within the limit set, other financing and release of the funds for highway works and demolition costs.

(6) That delegation be given to the Head of Finance, in consultation with the Leader and Cabinet Member for Finance and Performance, to agree the final Terms of the Agreement.