Agenda item

The Committee received the six monthly report on Treasury Management activities. Following presentation of the report, Members were given the opportunity to ask questions.

A Member asked for clarification about the Authority retaining professional status.  It was explained that there is a change in financial regulations which has resulted in the re-categorisation of institutions as either Professional or Retail investor status. 

The institutions that provide advice have a different standard they are required to meet depending on the investment status being Professional or Retail. The Authority does not use many of the products and instruments a Professional investor is entitled to use, as its strategy is simpler and investments are shorter term.  Therefore, it may be most cost effective to retain Retail status as opposed to the cost of acting up to Professional status which would reduce the consequent administrative costs.

It was explained that may be better for a local authority to have Professional status but not use the full extent of that capability as opposed to be re-categorised as Retail as this allows access to a lot more institutions.  It was noted that a £10million minimum investment is required to act up to Professional status; it is not a preferred position to borrow money to retain this status and the position is being considered currently.  A decision is required by the beginning of January 2018.

A Member questioned the £105m loans held and asked if they were drawn down or if the authority was using “churn” to fund them.  It was explained that the amount of loans for the capital financing requirement (if using loans) is £135m.  The £105m is actual loans incurred and the Council uses internal borrowing from cash flow for the remainder.

It was further queried if there was any internal rate of return, and if so, could this create a cash flow internally.  It was explained that this ‘internal borrowing’ would not necessarily create new money but is a method of utilising available resources to reduce interest rates on borrowing overall.

In response to questions, it was confirmed, regarding the sustainability of decisions, that the treasury training following the meeting would clarify the information available to officers regarding any loans required for the capital programme.

It was noted that treasury management includes the management of cash flows and that the ‘higher than normal expenditure’ incurred for 21^st C Schools is due to expenditure not occurring in the period the cash flows are available for funding.  It was added that ideally, capital receipts will be used instead of borrowing.  If insufficient funds are available, temporary borrowing is utilised to compensate and is included in the revenue monitoring report as a potential cost.  It was explained that for 21^st C Schools, often Welsh Government provides payments on account that won’t have yet been spent.

A Councillor asked why we were not able to build more solar farms to increase income, and the answer given was that the initial investment was underpinned by government support, but the level of support available was now being reduced. Further, it was explained that the saving against the budget for the Solar Farm was for one year as it was still an asset under construction and MRP will only start being charged in the year after establishment.  The level of capital receipts at the end of 2016/17 had not been sufficient to repay or reduce the capital financing requirement as budgeted creating an overspend of £250,000.

It was questioned, therefore if it was prudent to build Solar Farms for profit and responded that this is the case.  There is a one year treasury consequence but also a revenue stream over 20 years monitored through the revenue account, which currently indicates £100,000 annual surplus due to the Solar Farm’s activity.

The Cabinet Member explained that the delays on “J” and “E” Block should be considered alongside the Solar Farm.  He added that, regarding 21^st C Schools, permission was granted to use the Welsh Government funding first (£40m) allowing the Council to delay making provision to fund some of the expenditure.

A Member added that Solar Farms are completely underpinned by subsidy from the government and these have been significantly reduced making a less attractive prospect.

As per the report recommendations, the report was reviewed.