Issue - meetings

To consider the Sinking Fund Policy Report and to note the recommendations outlined in the report.

The Committee considered the Sinking Fund Policy as at February 2023.

The Committee were advised that this was a strategic policy document, not an operational policy. As such, whilst the policy set out the principles of the Sinking Fund it would need to be led by Councillors. The report outlined the purpose of the Sinking Fund as:

a)    To minimise risk and protect the Council’s Revenue Budget and Council taxpayers from exposure to unplanned short terms dips in income,

b)    To ensure that the Council build sufficient cash backed reserves to provide future options at each property, including:

i)             Refurbishments (net of dilapidations)

ii)            Development of a Council owned site

iii)           Repayment of PWLB Loans in the event of a tenant default

It was suggested by the Committee that any future risks should be identified in order to ensure that the correct amount of funds were held within the Council’s Sinking Fund.

The Committee agreed that under 1.5 of the report ‘Payment from the Sinking Fund, for unplanned items that occur, could include’, a third category should be added that would incorporate provision for Major Works on Council owned investment assets.

The Committee asked that the operational milestones, as outlined in 1.8 of the report be included within the final recommendations.

The Committee resolved to note:

1)    The Sinking Fund Policy, which will be reviewed every five years or earlier in the event of a material emergency, as defined in 1.3 of the report,

2)    The Sinking Fund is to cover unplanned short-term issues, to minimise risk, protect the Council’s Revenue Budget and Council Taxpayers from exposure to short term dips in rental income and build sufficient cash backed reserves to provide the Council with future options, which may include funding refurbishments (net of dilapidations) development and or sale of any of the current property portfolio.; and

3)    As a benchmark, Officers would suggest to the Committee the following operational milestones, until the Committee confirms its strategic objectives, having ensure that each year, the Council receives £10.8m net towards funding frontline services, affordable housing and regeneration programme:

a)    The first milestone should be to accumulate Sinking Fund balances of at least £37m to ensure that the Council would be able to repay the loans in light of a major catastrophe,

b)    In fourteen years’ time, the Sinking Fund balance could be in the order of approximately £60m, to be available for further investment into our existing investments assets; and

c)      Put an average net payment of £3.5m per annum into the Sinking Fund reserve.

Report to follow

The Committee considered a report from the Chief Accountant on the Sinking Fund Policy 2022/23 to 2071/72.

Two questions had been received from a member of the public in relation to this item.

Question 1 from Kath Sanders:

“Given the value of some of the individual properties, and given that various financial tools are available to allocate funds and costs to individual properties within the portfolio and aggregate them and break them down, is it not vital to keep a view of the property-by-property risks, certainly for those which individually could pose a significant risk to any sinking fund model?”

Response from Cllr Boughtflower, Chair of Corporate & Policy Committee

“The individual properties will continued to be monitored on a property by property basis, with regular updates to councillors on emerging issues at either the Assets Portfolio Working Group or Development Sub-Committee, however, the Sinking Fund reserves are exactly like an insurance ‘fund’ for all our properties and need to fulfil two key criteria:

1. To deal with short term unplanned operational issues, such as, lease breaks/ or non-renewal of leases resulting in voids, and then additional rent frees etc. The sinking funds exist to insulate the Revenue Budget and council taxpayers from the impacts of any unplanned dips in rental income.

2. To build sufficient cash backed reserves to provide the Council with future options, including refurbishments (net of dilapidations) development and or sale of the site when the lease comes to an end.

Therefore the focus will be on the ‘fund’ delivering its key objectives of supporting the council’s service delivery, affordable housing and regeneration programme, as well as, delivering £230m plus to develop the properties during and after each tenancy has come to an end, without having to borrow further funds for the purpose or impacting on council taxpayers. It should be borne in mind that whilst performance on some individual assets may be challenging at the same time on other assets (for example BP) the level of income being generated is more than originally anticipated, so across the portfolio there are always likely to be pluses and minuses, a portfolio wide approach reflects this.”

Question 2 from Kath Sanders:

“If we are to wait until January 2024 for a new "updated 50 year sinking fund model and risk analysis bench testing", what is being used in the meantime for monitoring and control purposes and where is the current risk model?”

Response from Cllr Boughtflower, Chair of Corporate & Policy Committee

“The strategy has been to build up the sinking funds over the last 7 years, and is the prime reason why the Council has the highest ratio of earmarked reserves to net revenue budget of any district or borough council in England (source LG Improve). The sinking funds have been monitored for the last 7 years on an annual basis as part of the budget setting process, with fortnightly 10 year forward projections on both a worst case and estimate case basis, on both a worst case  ...  view the full minutes text for item 135