Preparing for self financing
John Bibby
Director of Housing & Community Services
City of Lincoln Council
&
Secretary
Association of Retained Council Housing (ARCH)
My brief
 Self financing from ARCH point of view
 The view from Lincoln as an example:
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Sustainability on current figures
Preparations we are making
Risks/opportunities
Key issues from Lincoln’s perspective
The ARCH perspective
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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 perspective
 Comparisons between 2010 “prospectus” & February “settlement”
 No real surprises/some concerns:
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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 Lincoln
Lincoln: facts & figures
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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)
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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:
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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)
 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)
 Analyse the settlement:
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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)
 Identify asset management challenges & opportunities:
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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 (Capital programme v
resources)
Lincoln in self financing (HRA cashflow/balances)
£200,000
In-Year Cashflow
£150,000
HRA Balance
£100,000
£50,000
-£50,000
35
33
31
29
27
25
23
21
19
17
15
13
11
9
7
5
3
1
£0
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)
 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 issues
 Review of phasing of investment needs
 Confirmation of intention & timing of property disposals/demolitions/remodelling
 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”