The Assistant Head of Finance/Deputy Section 151 Officer presented the report on prospective reserve usage. Audit Committee Members were reminded that, for financial planning, there is a distinction between the Council Fund Balance and earmarked reserves.  A Council Fund Balance to cover contingencies of 4-6% of net expenditure is recommended in any one year.  It is 5% this year. It is predicted that school budget balances will fall into deficit, and in these circumstances, the reserve will fall to 4.5% of net expenditure.

It was explained that the forecasting of school budgets may be at fault.  To improve the quality of forecasting, the scheme of delegation has been changed to require schools projecting a deficit to complete a recovery plan immediately. 

It is planned to use any surpluses at the end of the financial year to replenish earmarked reserves and to consider invest to redesign and redundancy reserves but there will be limited opportunity to re-engineer services.

A Member questioned the resource implications of holding reserves of 4-6% of net expenditure before financing.  It was responded that the net expenditure includes e.g. Police precept which is not council expenditure so a revised net expenditure is used to set a reserve for the council’s contingencies.  It was queried if this is before financing costs.  It was responded that the annual budget is effectively zero and all costs have to be made by financing and reflect gross expenditure levels in the County.

Considering schools’ balances, it was noted that the deficits mainly relate to secondary schools.  A Member advised that, encouragingly, productive meetings have been held with King Henry VIII and Monmouth Comprehensive Schools.  Chepstow School is being monitored, having moved from a surplus to a deficit situation.

A Member commented that the outturn schools balance is in the region of £650,000 deficit.  It was questioned if this will have to be managed to nil by the schools that contributed to the deficit. It was responded that, if financial planning is on track, that will be the balance at the end of the year. The importance of recovery plans was emphasised whilst acknowledging the difficulties such as outstanding education grants are often not published until Month 12.  It was confirmed that the Children and Young People Directorate holds £300,000 to assist in the management of redundancies.  Work is in hand to provide governing bodies with better quality information.

 It was emphasised that, due to the size of deficits, recovery plans have been extended over a 5 year period to allow steady and meaningful progress.

A Member observed that if school budgets are flat-lined, there will be a bigger problem.  It was responded that this is not planned and added that the pay award has been funded and teachers’ pensions are increasing.  The authority has made some provision for pensions and the increased business rates for Monmouth Comprehensive and Caldicot Schools, and is engaging with Welsh Government and the Welsh Local Government Association about funding the rise in teachers’ pensions.

The report was noted.  Feedback was provided that the report is useful.