Agenda item

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 basis, on a five year rolling basis as a part of medium term planning on a property by property basis and a long term basis for modelling and risk management.

As part of the current review, Officers are looking to evolve the Council’s long term financial modelling and want to assess various options including developing further the Council’s own models or using external models and once this evaluation is carried out, Council will be presented with their feedback in January 2024.

In the meantime, the current robust processes that have delivered just under £34m of cash back reserves and brought the property portfolio through the worst economic downturn in 300 years will continue to support the risk management and decision making process at the Council.”

The Committee resolved that this item be deferred until the meeting of the Corporate Policy & Resources Committee on 16 January 2023 so that members of the Committee can feedback to the Chief Accountant on how they would like the Policy enhanced.