To consider the capital and revenue budget and expenditure figures for the third quarter of 2009/10 and any problems identified and other financial matters with a material effect on the medium term financial strategy or the balance sheet.

1.  That the position as detailed in the report of the Head of Finance be noted.

2.  That the reviewing of the use of balances and other available resources to support budget pressures as part of the final outturn report for 2009/10 be agreed.

3.  That the proposals for slippage in the capital programme be agreed.

The constitution delegates the financial responsibility for individual budgets to the relevant director and the overall responsibility to the responsible financial officer.  In consideration of this fact, whilst appreciating the need for Cabinet to remain fully aware of the Council’s financial situation, Cabinet agreed to continue to receive these quarterly reports during 2009/10.

Revenue

Appendix A to the report of the Head of Finance is a variance analysis for the period to the end of December 2009.  The budget used in the report of the Head of Finance is the revised estimate for 2009/10 as detailed in the Budget Strategy report.  Actual expenditure values include all major accruals for goods and services received but not paid for by the end of December 2009.

The details given in Appendix A to the report of the Head of Finance are at a summary level, showing the variance between the profiled budget to December 2009 and actual expenditure to the same date, as a single line for each portfolio.  This shows an adverse variance of £91,451 which is an increased adverse value over the variance reported at the end of the second quarter. However the variance remains close to expectation with the majority of service areas reporting actual values at or near budgeted provision.

Earlier monitoring reports have identified adverse variances in a small number of specific services all of which have been subject to further management action during the year or additional reports to individual cabinet members.  At the end of this quarter the adverse variances previously reported have continued to increase.  At this stage no new service areas are reporting significant variances and a brief explanation of the current situation for each of the services identified in earlier monitoring reports is given below.

a)  Crematorium – the adverse variance reported at the end of September was £103,000. In the current period this variance has increased to £137,000.  The majority of this adverse variance relates to the loss of income from Cremation Fees.  In the region of £30,000 relates to additional costs of security, electricity and consultancy. The Cabinet Member will shortly receive a report on possible actions to mitigate this along with proposals for a fee increase in 2010/11.

b)  Park & Ride – the previously reported predictions for this service is an annual pressure of £200,000 against current budgetary provision. Cabinet has taken action to resolve this issue for future years by funded growth within the budget strategy 2010/11 reported elsewhere on this agenda. To date no management action has been able to reduce the pressure in the current financial year and the expected outturn is an adverse variance of £204,000.

c)  Parking – an adverse variance of £170,000 is currently predicted for this service from a combination of low levels of income from both pay and display parking income and penalty charge notice income. At this stage it is unlikely that the service will be able to recover this shortfall.

d)  Former office accommodation – pre-demolition works are in progress at both sites and claims against the electricity and business rate charges have been made.  The current expectation is that this action will reduce the predicted year end cost to approximately £36,000.

e)  Commercial rents – a number of changes have occurred in relation to the level of void reported in the current period. The management action is considered to be one off and does not resolve the ongoing problem of void levels during 2010/11 however Cabinet has taken action as part of the budget strategy 2010/11.

Tabulated below is a consideration of the full year prediction of these issues, the consequence of management action to reduce these and details of any future year consequences.  This table enabled Cabinet to see succinctly the potential issues arising for this and future years.  It would be prudent to carry the future year liability into Cabinet’s ongoing considerations of the budget strategy for 2010/11.

Favourable variances that existed in earlier budget reports have been included within plans to resolve the budget pressures reported above and £250,000 has been set aside in the Leader's contingency budget to support this matter. Employee variances previously reported have been set off against the expected salary slippage provision in the budget strategy for 2009/10, reducing the provision from £317,000 to £115,000. This means a further £115,000 is required from the vacancy levels across the organisation to cover the balance of this slippage provision. The level of slippage is predicted to be available by year end.

Balances

At the meeting on 15^th January 2010 Cabinet considered a report on the predicted outturn costs for the Council's work on the Kent International Gateway. This report predicted a final cost of work to date of £1.7 million and Cabinet approved a proposal for the funding of this cost from grant and available balances.

Balances as at 1^st April 2009 were £7.2 million as previously reported. Following the decision of Cabinet in January on the funding of the current cost of work on the Kent International Gateway, the medium term financial strategy reported elsewhere on this agenda assumes balances of £3.6 million by 31^st March 2010. Some of this value is allocated to future activity or set aside as working balances and this means that available resources of £170,000 remain in balances into the future.

Any decision to utilise the remaining £170,000 to resource the budget pressure detailed in paragraph 1.4.4 to the report of the Head of Finance, can be taken as part of the outturn report to cabinet in May 2010. The use of this resource will result in unallocated balances of £2.3 million by 31^st March 2011 which is the acceptable level of working balances as set by Cabinet (i.e. 10% of net revenue spend).

Collection Fund

The collection rates achieved for the third quarter, and the targets set, are reported below.  The rate is given as a percentage of the debt due for 2009/10.

  Target %  Actual %

NNDR  87.48  87.51 
Council Tax  89.17  88.92 
In both cases the rate achieved are on target. The minor shortfall in NNDR collected accounts for approximately £0.16 million from target value to be collected by December 2009 of £46 million.

The value of Council Tax to be collected is based upon a calculation of the number of properties in each band at a set date each year.  In February 2009 when the Council set the Council Tax the band D tax base was 59,057.6, at it's meeting on 27^th January 2010 General Purposes group set a band D tax base for 2010/11 of 59,765,2.  This is a 1.2% increase over the calculation made for the estimate. Much of this increase is growth in the tax base that has occurred during 2009/10 and is having a positive impact on the sum collected.

Capital Expenditure

Attached at Appendix B to the Report of the Head of Finance is a summary of the current capital budget for 2009/10, last amended by Cabinet in November 2009.  This includes the initial capital programme plus amounts carried forward from 2008/09.  This is calculated as follows:

The details include the full cost of the original CCTV programme of works, amendments were approved at Cabinet in January 2010 and the estimate is amended through the final column of the table in Appendix B to the Report of the Head of Finance which details the budgeted expenditure no longer required.

The table in Appendix B to the report of the Head of Finance gives the following detail:

During the financial year to date Cabinet has approved slippage from 2009/10 into 2010/11 of £2.5 million. This report identifies a further £257,000 that requires slippage into 2010/11 and £300,000 from the CCTV budget that is no longer required.

Within this minor slippage there are some significant scheme variances:

a)   CCTV – as the revised proposals for the changes to the control room were approved in January 2010, the works will commence this financial year although the major element will be completed in the following year and the required budget is reported as slippage into 2010/11 with the balance identified as no longer required.

b)  Support for Social Housing – there is at present a small amount of slippage in the schemes currently in progress. As the total value of support schemes is the largest individual budget item, the small amount of slippage is significant in relation to other values in the programme.

c)  Recycling – the monitoring report to September 2009 reported a significant overspend on this scheme. Work to reconcile contract costs has reduced the overspend to £28,640 which remains to be identified from other resources within the programme.

d)  Corporate Leasing Provision – the IT Steering Group has approved the replacement of the current servers and the use of this leasing provision has been identified as the most cost effective method of financing.  Resources are available from the asset replacement balances in the general fund.  This will be reimbursed by the IT service budgets over the period of a standard lease.

e)  Software / PC Replacement – additional costs incurred in this budget relate to the Mosaic project which will be funded from Interreg grant.

f)  Office accommodation – final costs are not yet available and third party costs are not fully agreed.  The current projection suggests a maximum spend of £300,000 that will be significantly matched by available resources from revenue.

g)  Regeneration projects – various regeneration projects that are designed to complete initial feasibility and preparatory projects for major infrastructure and regeneration are being slipped into 2010/11.

Capital Financing

Due to slippage in the current years capital programme it is unlikely that the Council will need to resort to prudential borrowing in the current financial year.  The current projection will require the use of all grant received for capital purposes and will utilise the balance of available capital receipts.

To the end of December there have been three minor assets sales, two of which are qualifying right to buy sales by the Maidstone Housing Trust.  The slippage in the programme and these minor asset sales enable the funding of the capital programme for 2009/10 to be secured.  Subject to capital expenditure in the last quarter of the current financial year remaining within the prediction set in Appendix B to the Report of the Head of Finance, the large asset sale predicted during 2009/10 will not be required as a source of finance until 2010/11.

Treasury Management

The level of investment income has been reset in the revised estimate used for this report and the additional resources identified have been utilised as part of the Leader's contingency against the current year’s budget pressures.  Predicted rates for the remainder of the year are expected to average around 1% rather than the 1.75% achieved so far by the council’s recent investments.

The 2009/10 investment income estimate is based on an average level of investment of £22.7m for the year. The average investment to December was £24.6m.

The proposed Treasury Management Strategy for 2010/11 has been considered separately. The strategy estimates lower levels of investment and, due to the type of resources available, a reliance on short term investments.

The budget monitoring process could be left to officers.  The Constitution already requires officers to report budget variances to the relevant Cabinet Member in specific circumstances.  The absence of any such reports would then suggest that no specific items have been identified for consideration.

If such an approach were taken Cabinet Members would have a reduced financial awareness.  This could restrict Cabinet’s ability to meet service requirement and achieve the Council’s corporate objectives.