Leadership innovation transformation Milton Keynes HRA Self-Financing Implementation and Business Plan Simon Smith

leadership innovation transformation

Milton Keynes HRA Self-Financing Implementation and

Business Plan

Simon Smith


Why Reform the HRA?

• Housing Subsidy pools rents and redistributes on the basis of assessed need– Based on three allowances: management, maintenance, major repairs

– And interest on historic debt

Key problems• Difficulty in making the right assumptions about resources• Majority in negative subsidy: overall surplus (c£100m in 2009/10)• Unpopular: a system with ‘no winners’• Volatility, increasing complexity and lack of transparency• Massive future surplus: who gets to spend rental surpluses ?• Milton Keynes contributes £12.6m just this year


What is the ‘Deal’ Now1. Dismantle the current HRA subsidy system

2. One off adjustment of housing debt

– Effectively a commutation of 30 years worth of future HRA subsidy into one go

– With an assumption of increased expenditure


The Basis of Your Settlement

• The Council is allocated a debt based on a 30 – year cashflow forecast

• It uses existing subsidy allowances for management, maintenance and Major Repairs Allowance BUT uplifted

• Rents will match existing forecasts (convergence April 2015 plus 0.5% increases above RPI)

• Assumed cost of borrowing is 6.5%


Your Debt Allocation (Now)

SETTLEMENT

DebtAllocation

£249.646m

Subsidy CFR (Debt) £88.882m

Debt Adjustment £160.764m

Debt Cap £249.646m

Debt per Unit £19,954

ACTUAL EFFECT

Actual Debt (HRA CFR)March 2012

£83.623m

Debt Adjustment £160.764m

April 2012 Actual Debt

£244.387m

Debt Cap £249.646m

Headroom to Borrow

£5.259m


The Timetable

– August 2011 Data for self-financing provided to DCLG – August 2011 onwards Data verified to November– CIPFA Consultation on Debt Pooling and Depreciation

Issued– September – Questionnaire re funding the deal issued – 11th November – Draft determination published– 27th Jan 2012 Final self-financing determinations published

Local authorities asked to tell Public Works Loan Board how much they wish to borrow

– 28th March 2012 Series of transactions between DCLG and local authorities enable the start of self-financing

– March 2013 Cut-off for final payments to end the subsidy system


Treasury Management

New HRA BP: we need something for all of these…

Service standards

VISION &MISSION

Repairs policies

FINANCIAL PLAN

Debt and financing

ASSET MANAGE-MENT

Regeneration redevelopment

Rents policy: > flexibility

Refurb/green standards

Governance & Risk

Tenant Empowerment

Value for Money strategy


The Initial Financial Plan

• Based on 2011.12 Budgets (Incl Capital)• Debt take on (as per current settlement)• Current Forecast Stock Investment

Requirements• Future Interest Charge of 5.25% • Inflation 2.5% throughout (except Yr 2 rents)• Minimum HRA Balance of £2m• Rents Converge and Increase RPI + 0.5%• All un-pooled Right to Buy Receipts to the HRA


Stock Investment Requirements

Excludes:

Inflation, Procurement Fees

Assumes:

£40,465 Spend per property over 30 Years

80% Recovery of Potential Leaseholder Liabilities

Backlog spread over 5 years


Capital – Initial Ability to Fund £’000

Includes:

Inflation, Procurement Fees, Borrowing to Debt Cap, Shortfall spread over 5 Years

Outcome:

Consolidated Shortfall of £76.1m in 2016.17 – Met by 2025.26


Viability of the Initial Plan £’000

• The plan demonstrates that the debt could be repaid within 23 years of self-financing.• Very dependant on interest rates and the repayment profile of existing loans• Borrowing Restricted by Debt Cap – based on Current Proposals• Assumes No Additional Investment or Service Improvements


Next steps 1

• Asset Management Strategy– Need to review backlog and identify key

works for phasing against available resources– Need to review forecast works again against

available resources for re-phasing– Asset analysis for properties with negative

(NPV) contribution to the HRA and consider options


Next steps 2

• Treasury Management Strategy– Decide where funding may be sourced

• PWLB, Market, Bonds– Policy towards debt management and refinancing– Scenario planning– Repay or maintain debt– Borrowing policies – use of headroom– Use of receipts


Next steps 3

1. How should we go about prioritising using the resources we will have in the business plan in the future?

2. What processes are needed with tenants? And with the council?

3. Are there governance and scrutiny implications – what are the options?

4. What approaches could be taken towards future rent flexibilities?

5. What remaining challenging stock issues are there and how might they be addressed? When is the right time to bring forward a comprehensive asset management strategy?


Questions ?

Documents

Leadership innovation transformation Milton Keynes HRA Self-Financing Implementation and Business Plan Simon Smith