Agenda item

A report of the Strategic Director, Commercial Development, Asset and Leisure regarding the process for acquiring commercial properties, including an explanation of the rationale behind the allocation of increased funding (Commercial Property, Enterprise Zone and Town Deal).

Considered a report of the Strategic Director, Commercial Development, Asset and Leisure regarding the process for acquiring commercial properties, including an explanation of the rationale behind the allocation of increased funding (Commercial Property, Enterprise Zone and Town Deal), Item 8 on the agenda).

Assisting with consideration of report: Lead Member for Finance and Property Services, Strategic Director, Commercial Development, Asset and Leisure, Strategic Director, Environmental and Corporate Services.

It was noted that the Councillor briefing in commercial property acquisition processes had been completed in November prior to this meeting and the information from the briefing had been shared with members.

Summary, key points of discussion:

·         consideration of the financial risks taken by the Borough Council in relation to other councils who had invested significantly larger sums.

·         monitoring of commercial property purchases and income - officer led reporting and analysis of purchases would be performed and that the monitoring of properties purchased would be added to the Audit Committee’s work programme to review the financial returns. This would provide a long-range view over several years. A reserve would be maintained to smooth cash flow, using methods provided by CIPFA. 

·         the relevance of the Panel scrutinising the Capital Plan this year in light of the new development by the Council to acquire commercial property – it was set every other year for three years and was considered by the previous Budget Scrutiny Panel at its meeting in December 2019 when the plan was set for 2019-22.  An updated strategy and programme to align with covid impact, was submitted to the Cabinet in October 2020 and was considered by the Council at its meeting in November 2020.  A Capital Plan Amendment report would be considered by the Cabinet at its meeting on 10th December with minor amendments included. When the new plan was set next year it could be scrutinised by the Budget Scrutiny Panel in detail in 2021-22. 

·         commercial property acquisitions had been allocated budget codes and would therefore be included in the routine quarterly revenue monitoring plan.  The role of the Budget Scrutiny Panel was to scrutinise the draft budget 2021-22.

·         as borrowing from the Public Works Loan Board (PWLB) was no longer an option for purchasing commercial property to generate yield, the increased risk with borrowing internally from the Council’s treasury function was concerning.  Other options to borrow privately were available and competitive although likely to have longer assessment time periods.  The Council’s internal borrowing position was checked by financial advisors and considered robust. The Council could continue to use the PWLB if commercial property acquisition was not part of its capital programme and it was noted that this tranche of investment was almost completed and could be removed from the capital plan at any point.

·         it would be pertinent for the Audit Committee to review the increased risk although the risk was considered minimal and was a short term issue in terms of revenue.

·         with respect to funding Town Deal or Enterprise Zone projects, (para 5, page 27) it was difficult to determine the level of additional funding the Council could be required to provide.  Projects with a regeneration focus or of social value would be considered differently to purely commercial project business cases.  The Council would consider a lower return or breakeven analysis as acceptable in conjunction with balancing the benefits of the project to the Borough.

·         it was important to note that the Council would not fund projects that would have a significant adverse impact on the budget.

The Lead Member for Finance and Property Services stated that all commercial borrowing would be evaluated irrespective of the source of borrowing and would be assessed against the Council’s criteria to ensure the return was sufficient and justified.  It would still be possible to borrow from PWLB as long as the Capital Plan did not include commercial property investment and it was likely to be removed by April 2021.

RESOLVED to note the report.

Reason

The Panel were satisfied with its scrutiny of the matter and responses obtained from officers to queries.