Preparing for self financingPreparing for self financing

John BibbyDirector of Housing & Community Services

City of Lincoln Council&

Secretary Association of Retained Council Housing (ARCH)

My briefMy brief

Self financing from ARCH point of view The view from Lincoln as an example:

Sustainability on current figures Preparations we are making Risks/opportunities Key issues from Lincoln’s perspective

The ARCH perspectiveThe ARCH perspective

Argued for reform of HRA finance system Welcome proposals for self-financing Final settlement may not be as good as original prospectus But compared to staying with current system over a long term represents

a good deal for majority of stock retained authorities Some authorities will face real challenges in short term Real opportunity to provide sustainable long term future for Council

housing

The ARCH perspectiveThe ARCH perspective

Comparisons between 2010 “prospectus” & February “settlement” No real surprises/some concerns:

– RTB receipts remain pooled– Inclusion of allocation for aids & adaptations– Acknowledgement of impact of planned demolitions– Uplift in M&M allowances broadly similar– Withdrawal of HRA PFI from deal– Potential to re-open settlement (is this good or bad?)– Net exchequer receipt of £6.5m compared to £4.8m

Arguments about basis of settlement are over Begin planning implementation & financing the settlement

The view from LincolnThe view from Lincoln

Lincoln: facts & figuresLincoln: facts & figures 7,940 council properties Self-financing valuation £60.3m Indicative borrowing limit £60.3m Subsidy Capital Financing Requirement £41.1m Self financing settlement £19.2m Actual opening debt below subsidy settlement by c£8m giving some headroom from

outset Average rent £59.80 compared to Formula rent £61.00 (11/12) Rental income £24,718m (11/12) Decent Homes met by December 2010 with ongoing potential non-decent homes

arising in future years

Lincoln: Our approach (1)Lincoln: Our approach (1) Accept shape of final deal is clear (but final figures may change) No choice about entering self financing Start reviewing and updating our Business Plan Housing Business Plan must be a “real” plan Looking at self-financing to provide opportunities for “real” long term

business planning:– Future pro-active asset management of property & land– Opportunities for estate regeneration & redevelopment– Asset disposal and acquisitions– New build?– Shape of capital programme & “local offer” on Home Standard & Service Standards

Lincoln: Our approach (2)Lincoln: Our approach (2)

Develop/refine Asset Management Strategy, Treasury Management Strategy & Risk Management Strategy

Set up Self-financing Implementation Team (S-fit):– Multi-disciplinary finance, housing, property, maintenance– Identify any capacity issues& support requirements taking into account general fund

cuts in back-office support– External support

Develop financial modeling & key assumptions/risks

Lincoln: Our approach (3)Lincoln: Our approach (3) Analyse the settlement:

– Test debt settlement for sustainability– Update expenditure assumptions– Update income assumptions– Model impact of RTB sales/receipts– Confirm planned demolitions/remodelling

Consider treasury management approach:– Review technical & accounting arrangements and impact of CIPFA guidance– Model impact on HRA & General Fund– Consider impact on debt pooling arrangements, depreciation & introduction of

memorandum balance sheet– Identify key financial decisions on run-up to implementation– Borrowing strategy, use of reserves & any “headroom” between SCFR & actual

debt

Lincoln: Our approach (4)Lincoln: Our approach (4) Identify asset management challenges & opportunities:

– Revisit stock condition data and investment requirements over next 30 yrs– Update costs of maintenance of minimum Decent Homes Standard– Cost out affordability of any “Local Offers” over and above Decent Homes Standard– Update cost of health & safety and other works:

• Asbestos management/fire prevention works• HHSRS/Energy efficiency

Revisit R&M procurement strategy– Longer term financial planning & assurance over rental income stream may give

opportunities for procurement savings

Explore opportunities for collaboration with Registered Providers, private developers for regeneration/remodelling of estates

Lincoln in self financing (Debt profile)Lincoln in self financing (Debt profile)

Lincoln in self financing (Capital programme v Lincoln in self financing (Capital programme v resources)resources)

Lincoln in self financing (HRA cashflow/balances)Lincoln in self financing (HRA cashflow/balances)

-£50,000

£0

£50,000

£100,000

£150,000

£200,0001 3 5 7 9 11

13

15

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19

21

23

25

27

29

31

33

35

In-Year Cashflow

HRA Balance

Lincoln: Summary outputs (1)Lincoln: Summary outputs (1) Total capital need of £294m over 30 years but review of phasing of

investment need underway. Initial 5 year capital programme potential of £52.4m (£9.9m pa compared

to £8.5m) Debt able to be paid down by year 20 (but case for maintaining debt at

managed level with commitment of rental surpluses to expanded programme)

Delivery of capital and debt planning would leave HRA revenue reserve in substantial surplus in year 30

Actual opening debt below SCFR giving some further headroom in plan from outset

Lincoln: Summary outputs (2)Lincoln: Summary outputs (2) Although settlement numbers will no doubt change members and

tenants need to begin to make decisions about use of headroom & priorities in the Business Plan between:– Further investment in stock (revised local offer on Home Standard over & above

Decent Homes)– Further investment in services (re-instating some of management services cut in

2006 to make DRF contribution to support stock retention)– Potential small new build programme– Combination of all 3

Key financial outputs can be worked up– Preparing for transaction (PWLB/Private market/mix)– Debt charges (de-pooling HRA)– Depreciation (approach/CIPFA guidance)

Lincoln: Key issuesLincoln: Key issues Review of phasing of investment needs Confirmation of intention & timing of property disposals/demolitions/re-

modelling Splitting of debt into separate HRA pool Financing the transaction (indicative £19.2m) Tenant & member attitude to the settlement

“Preparing for self-financing – not long left”