Central Government funding reductions. Lead Finance Officer summary paper May Background

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1 Central Government funding reductions Lead Finance Officer summary paper May 2015 Background Council acknowledges the significant budget challenges being faced by Central Government as a result of the reduction in the Block Grant allocation and has expected some level of funding reductions as a result. The extent of these reductions has however been much greater than anticipated and come at a time when Council is expected to generate significant efficiencies following Local Government Reform. This Council relies heavily on funding from Central Government to maintain parity of service provision with other more wealthy Councils and to make the further revenue and capital investment necessary to stimulate growth. Over the last few months, Members have been provided with various reports in relation to different service areas within the new Council where Central Government funding has been cut or reduced. This report aims to provide Members with an overview and an understanding of the overall cumulative impact of these reductions and cuts in advance of the MLA workshop on 29 th May Department for Social Development (DSD) Transferring Functions DSD Functions are now planned to transfer to Council on 1st April 2016, a delay of 1 year from the initial proposed transfer date of 1st April During 2015, the Shadow Council was advised of a proposed budget transfer of 7.149m plus an additional sum to be agreed (estimated 39k) to cover Finance, ICT, accommodation and other support costs which will become real costs for the new Council following the transfer. During 2013/14, this entire budget was being expended on revenue projects on the ground in the new Council area covering Neighbourhood Renewal, Community Investment Funding, Areas at Risk and SPOD s, Community Support Programme (including advice services), maintenance costs associated with transferring assets and DSD staffing costs in delivery of these programmes. This funding covered 91 projects, 156 full time jobs and 20 part time jobs in addition to the Community Support Programme. Funding has now been reduced to 6.221m following recent correspondence from the DSD Minister. Whilst it is anticipated that these cuts will be implemented by DSD during 2015/16 before handover, this represents a loss in service provision of 967k per annum to this area.

2 Given that the transferring budget is currently being fully expended on revenue projects as identified above, this leaves no funding for capital projects which is extremely concerning. The following amounts have been invested by DSD in capital projects in this area since 2007/08:- Year 07/08 08/09 09/10 10/11 11/12 12/13 13/14 Average 000 2,766 9,014 9, ,539 (#) 1,628 3,753 # Excludes investment in City of Culture of 4.083m. This obviously represents significant investment. It is also important to note that planned investment by DSD in 2014/15 prior to the original proposed transfer date was m. The new Council has obviously been extremely successful in working with DSD to deliver vital capital projects in this area. Capital investment is a key focus for the new Council and Council relies heavily on DSD funding in this regard. In addition to the above expenditure, there have been a further 17 significant capital projects to the value of m scoped by DSD for consideration by the new Council. These include Fort George, Foyle Valley Masterplan and Strabane Town Centre Public Realm. These projects are critical to the economic, social, environmental and physical regeneration of the region and are at significant risk in the absence of recurrent capital funding. Council has highlighted these concerns in a Members delegation with the Minister for Social Development on 20 th April 2015 following which it has been agreed that DSD officials will look into the possibility of bidding to June monitoring rounds to set up a fund for Councils to apply to in order to fund significant capital projects. This fund would however be a non-recurrent fund which would only provide a short term solution. NI Pensions Bill Pension legislation has changed significantly, with the key impact for Local Government arising from an improvement to the State pension scheme. The means of payment for this change is through the ending of the National Insurance contracting-out rebate from April The Local Government Pension Scheme administered through NILGOSC is a contracted out scheme whereby Councils pay employer National Insurance contributions for those staff in the scheme at 10.4% as opposed to 13.8% rate for those staff not in the scheme. This 3.4% rebate will therefore cease in April 2016 with an estimated financial impact of 750k for this Council.

3 Department of the Environment (DOE) Rates support grant A sum of m was provided by DOE to Councils in 2014/15 in respect of Rates Support Grant. This Council would have been entitled to a share of 3.51m from this fund. This grant is designed to enable the less wealthy Councils like Derry City and Strabane District Council to maintain parity of service provision with the more wealthy Councils. Members will be aware from the rates estimates process and delegations with the DOE and DFP Ministers that the Rates Support Grant has been reduced by 15.1% to 15.5m in 2015/16 with this Council s share reduced to 3.081m, a 429k reduction which has resulted average district rates impact of 0.96% for ratepayers in this Council area. Council s concerns in relation to the cuts already applied above have been relayed via Councils response to the recent 2015/16 budget consultation and in delegations with both the DOE and DFP Ministers. Furthermore, there is serious concern that this grant will be reduced further in 2016/17 and subsequent years and potentially removed in entirety. Even with the original m of rates support grant, less wealthy Councils still need to raise higher rates poundages to maintain parity of service provision with the more wealthy Councils and make the further revenue and capital investment necessary to stimulate growth. There is therefore concern that the rates support grant as it was does not adequately reduce the differential. Even with this current level of rates support grant, significant regional disparities still exist, most particularly in the northwest. It is vital therefore that the rates support grant is restored to its original level of m. At an absolute minimum, the remaining rates support grant of 15.5m must be ringfenced and protected from further cuts in future years. Given the urgency of this and the need to ensure discussion with Central Government well in advance of the 2016/17 budget process, Council has agreed to request a joint delegation with the other affected Councils well in advance of the 2016/17 budget process and this is currently being arranged. Transferred Functions- Planning Whilst the extensive due diligence work carried out suggests that Council is generally content with the budget transferring from DOE to fund the Planning function, 2 key risks remain:-

4 - No budget has been transferred for the potential costs of judicial reviews and Discontinuance Case compensation on the basis that councils will become responsible for any financial implications of decisions taken by them after they have assumed their statutory planning responsibilities. This is a financial risk which is very difficult to quantify at this stage. - Development Plans- A recurrent sum of 25,600 per annum has been provided as part of the transferring functions grant in respect of the publishing costs and consultants fees associated with development plans. Over the 15 year life cycle of the plan, this will amount to a total of 384k. Due diligence work has been carried out which estimates these costs to be in excess of 500k. Against this, DOE have argued that significant additional dedicated staff resources in excess of current DOE levels have been provided to Councils to support development plan activities. In addition, based on a review of the recent Belfast Metropolitan Area Plan, significant savings in publishing costs have been identified as a result of internet and technological advances. It is however likely that costs are likely to be incurred towards the front end of the 15 year life cycle meaning that Council will have to find additional non-recurrent funds in earlier years to progress. A fully costed plan has not yet been developed and officers are currently looking at alternative mechanisms for funding these costs. In the interim, this remains a financial risk. Other grants and requirements During the rates estimates process, Members were made aware of a number of additional obligations and costs imposed on Council. Northern Ireland Audit Office costs will increase by an estimated 55k as a result of increased audit requirements in respect of performance management. There is a new requirement for Councils to fund ombudsman fees relating to the investigation of potential complaints against Elected Members at an annual cost of 42k. In addition, whilst DOE was able to secure an additional 2m to offset potential reductions in emergency planning grants, local air quality grants, construction product grants, grants to support waste recycling and community waste fund grants, the level of financial support provided in these areas will be at a reduced level to that provided in previous years. To date, Council has been advised of a cessation in biodiversity funding of 15k and a reduction in local air quality grant of 35k per annum. In relation to emergency planning, Council has sought clarity as to the level of financial intervention that will be required by Councils, and in particular what support will be available in the event of a major incident.

5 Office of the First Minister and Deputy First Minister (OFMDFM) Community relations funding In 2014/15, the 2 Councils received combined funding of 472,200. Council has just been notified by OFMDFM of a reduction of 127,600 to this funding. Whilst staff costs will continue to be funded, pending consideration by Council, this will result in a significantly reduced programme budget. Department for Regional Development (DRD) Off-street Car parking The transfer of off-street car parking functions clearly does not represent a rates neutral transfer to this Council from both an income and a cost perspective. These concerns have been continually highlighted to the Department without progress. 30 car parks have transferred to Council on 1 st April 2015 of which 16 are free. The income generated from the remaining 14 car parks as compared to Council s target is summarized in the table below:- Year 2011/ / / /15 forecast Target 2015/16 Income ( 000) (#) 894 # 1 for 5 hours pilot was in operation from 1 st May 2014 to 31 st March 2015 It is important to note that 2012/13 and in particular 2013/14 income levels will have been positively influenced by City of Culture events. In addition, income will be obtained by Council from Penalty Charge Notices. The forecast outturn by DRD for 2014/15 was 225k. Council has again been set an increased target of 244k. As income figures have been deducted from the Transferring Functions Grant, failure to achieve these targets will result in a budget shortfall. Even if 2013/14 income levels are maintained (which is an optimistic assumption given City of Culture), this will result in a shortfall to Council of 94k. In relation to costs, detailed due diligence work has been carried out by Council which has highlighted the following shortfalls in the transferring budget:-

6 Details Car park resurfacing and line painting- A 15 year resurfacing cycle and 10 year line painting cycle would require 78k per annum. Increasing the resurfacing cycles to 25 years would reduce this to 48k per annum. A budget of 11k is being provided by DRD. Projected Shortfall 37k- 67k depending on resurfacing cycle Gritting costs- No budget has been transferred 33k as car parks are currently not gritted by DRD. This presents a serious health & safety risk for Council and increased claims likelihood. To purchase the necessary machinery, grit and labour would cost 33k per annum. Litter picking, bin emptying and sweeping 19k Services are currently provided by Council with DRD contributing 39k per annum (the costs to Council are actually greater than this). The transferring functions grant has reduced this sum to 20k. Total 89k to 119k In terms of maintenance, Council s due diligence has also highlighted initial urgent works to the value of 85k ( 58k for resurfacing, 7.5k for line painting, 14.5k for works to boundaries/ walling and 5k for planting/ landscaping works). Details and photographs of these required works have been forwarded to DRD officials for consideration although no action has yet been taken. Furthermore, a number of further costs have been identified in the draft technical services agreement of approximately 10k for which no budget has been provided on the basis that they are as a result of the transfer and were not previously incurred by DRD (e.g. parkfolio, parkmobile, cash processing, purchase of safes etc.). Finally, of particular and significant concern to Council is the transfer of Queens Quay car park and public realm. Unlike the other car parks transferred, this asset is situated on an eroding structure as opposed to solid ground and at some stage will require significant expenditure. Following initial concerns identified in Council s due diligence report and a number of requests to DRD officials, Council is now in receipt of a feasibility report on Queens Quay which quantifies this expenditure at 6.401m. A letter has been sent to the Minister advising Council s concerns which DRD are currently considering. This is a significant liability which Council does not have the financial resources to fund.

7 Grass-cutting and shrub maintenance along arterial routes Council has been advised by DRD Roads Service (Transport NI) that they will no longer be contracting Councils to undertake grass cutting and shrub maintenance along arterial routes throughout the Council area. DRD will focus their resources on more essential works relating to carriageway maintenance. This service has been in place since 1999 and these contracts are valued at 114,000. Even though these lands are not in Council ownership, given the significant negative effect on the presentation of the area (and potential implications for investment, tourism, health and safety etc.), Council has been left with no alternative but to provide a reduced level of maintenance on an interim basis to target higher profile areas as a budget pressure at an annual cost of 75,600. Verge cutting and weed spraying In addition, Council has just been informed that Roads Service will no longer be carrying out the following activities:- - Verge cutting along rural roads other than where sightline splays need to be maintained for health and safety reasons. The estimated cost of this service is 70k per annum. - Weed spraying along footpaths and walkways. The estimated cost of this service is 80k per annum. Again, following officer consideration, Members will be provided with a report to consider the level of response required by Council.

8 Summary of overall financial implications The financial implications of the issues identified above have been summarized in the table below. Some of the costs which have been included as service impacts have the potential to become recurrent budget pressures following consideration by Council:- Details Recurrent Budget impact ( 000) Recurrent Service impact ( 000) Total ( 000) One- off costs ( 000) DSD- revenue funding DSD- Capital projects 3,753 3,753 DSD- NI Pensions Bill- End of NIC Contracted 750 estimated 750 estimated Out rebate DOE- Rates support Grant DOE- Other grants and requirements OFMDFM- Community Relations DRD- Off street car 94 minimum 94 minimum Parking income DRD- Maintenance costs estimated estimated95 etc. DRD- Grass cutting and shrub maintenance along arterial routes DRD- Verge cutting and Weed spraying TOTAL 1,585-1,615 5,045 6,630-6, The above table does not include the following potential risks:- - Potential expenditure on Queens Quay Car park pending a satisfactory resolution to this issue with DRD. This would result in a one-off capital cost of 6.401m. - DOE Planning potential financial risks in relation to judicial review costs and development plans. - Rates support grant - potential for Council s remaining allocation of 3.081m to be reduced further and potentially eliminated in 2016/17 and subsequent budgets.