Council needs to borrow £88 million to push forward projects, but fail to explain from where the money will come

According to data released by the Department for Levelling Up, Housing and Communities [DLHC]  the amount of borrowing by Folkestone & Hythe District Council had been falling between 2013/14 and 2018/19. Then from 2019/20 to Sept 2021, it has yoyoed, as is clear from the graph below.

The borrowing from other local authorities allowed the Council to purchase Folkestone Racecourse, bought from the Reuben Brothers company, Cozumel Estates Limited, based in the British Virgin Islands, for £25million.

At the end of 2020/21 the Council’s exact borrowings were, according to the DHCL,

£53,455,000 from the Public Works Loan Board

£5,500,000 in Short Term Loans from other Local Authorities

£20,000,000 in Longer Term Loans from other Local Authorities

By Sept 2021, the Council had borrowed another £5 million in Short Term Loans from other Local Authorities, bring the total back to £83,955,000.

Tonight at an extraordinary meeting of the Cabinet (6pm) and Council  (7pm) they will discuss the Update to the General Fund Medium Term Capital Programme (MTCP) and its appendix, which covers the next five years, so up to 31 March 2027. The latest projection for the total cost and funding of the General Fund capital programme from 2021/22 to 2026/27 is £149,784,000. Compared to the latest approved budget of £132,586,000 this represents an increase of £17,198,000.

The appendix to the report makes clear that at present the latest approved MTCP budget for Otterpool Park is £74,785,000 and that spending for Otterpool Park between now and  31/03/2027 is as follows

2021/22 – £9,055,000

2022/23 – £9,372,000

2023/24 – £28,750,000

2024/25 – £22,407,000

2025/26 – £5,201,000

2026/27 – £0

Where the money will come from to pay for Otterpool Park is explained simply as borrowing. What the Council do explain, is the borrowing will pay for further land and property assembly, master planning costs and funding of the Otterpool LLP to deliver the infrastructure for the scheme. This is broken down as follows:

i)  £8,682,000 – Property acquisition costs
ii) £2,263,000 – Master planning
iii) £63,750,000 – Delivery – funding of Otterpool Park LLP
iv) £90,000 – Other consultancy costs

Total £74,785,000

The Council is able to capitalise its borrowing cost for expenditure on the land assembly for the site until the land is ready for its intended use.  In simple language this means, they’ll account for any interest on the borrowings, via the balance sheet. As the land is sold the Council can then look to repay the remaining balance of the borrowing. However it is not made clear whether the borrowing of £88m by the Council will be interest only repayments, or capital + interest payments.

They go onto say: The borrowing cost to the Council for the planned loan and equity investment in Otterpool Park LLP, the delivery vehicle for the project, will be covered by the accrued interest to be charged on the loan in the first instance.

This is all well and dandy, but if the Council borrow at 2% from the PWLB, for example, then they must charge the LLP at commercial rates, of approx 5 – 7%, meaning the LLP has to bring in enough revenue to pay the difference between interest charged to the Council and the interest charged to the LLP. If it fails to do this it’ll be an accounting scam, which is exactly what is happening in Cambridgeshire with This Land Ltd and what happened with Brick by Brick at Croydon Council, and Slough Borough Council due to its mishandling of commercial investments.

Moving on the latest approved projected budget for spending on Princes Parade is £28,468, over the next four financial years.

2021/22 – £2,804

2022/23 – 14,699

2023/24 – £21,394

2024/25 – £5,906

2025/26 – £0

2026/27 – £0

This will bring the projected total spend on Princes Parade to £44,803,000, a projected variance adding £16,335,000 of unforeseen costs. £6.6 million will have to be borrowed but from where and what interest rate, we are not informed.

The delay in the Princes Parade project, due to the Judicial Review, brought by the Save Princes Parade Group, resulted in the loss of the Homes England Accelerated Construction Programme Grant of £2m that was awarded in 2019.

It would be right and proper for the council to inform us all where the money is anticipated to come from in the short term. And also explain what type of borrowing they are using – interest only repayments, or capital + interest repayments.

From who will the Council be borrowing from?

The PWLB,

Banks,

Other local authorities,

The Council knows they’ll need to borrow £88 million to move forward the following schemes:

The construction and engineering sector is expected to see inflation peak around 5% to 6% in 2022 due, in part, to a rise in the cost of materials. However, the Bank of England expect inflation to rise to over 7% in spring 2022. Then they expect it to fall back during the rest of this year and next.

The Council have though been prudent as construction related capital schemes in the General Fund capital programme typically have a 5% contingency sum included within their budgeted cost. That said, will the extra 2% have an impact on these contingencies? Only time will tell as economics is the dismal science.

The profiling of the capital programme budget for Otterpool Park Garden Town and Princes Parade is likely to be subject to further change over the medium term, so costs and borrowing will no doubt rise again.

The magic money tree isn’t going to be paying for this.

The Shepway Vox Team

Journalism for the People NOT the Powerful

 

About shepwayvox (1575 Articles)
Our sole motive is to inform the residents of Shepway - and beyond -as to that which is done in their name. email: shepwayvox@riseup.net

1 Comment on Council needs to borrow £88 million to push forward projects, but fail to explain from where the money will come

  1. No stranger to Bankruptcy, Mr Monk appears to be leading our district council in that direction. Interest rates are rising.
    Time for the councillors to put into place damage limitation.

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