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Milton Keynes HRA Self-Financing Implementation and
Business Plan
Simon Smith
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Why Reform the HRA?
• Housing Subsidy pools rents and redistributes on the basis of assessed need– Based on three allowances: management, maintenance, major repairs
– And interest on historic debt
Key problems• Difficulty in making the right assumptions about resources• Majority in negative subsidy: overall surplus (c£100m in 2009/10)• Unpopular: a system with ‘no winners’• Volatility, increasing complexity and lack of transparency• Massive future surplus: who gets to spend rental surpluses ?• Milton Keynes contributes £12.6m just this year
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What is the ‘Deal’ Now1. Dismantle the current HRA subsidy system
2. One off adjustment of housing debt
– Effectively a commutation of 30 years worth of future HRA subsidy into one go
– With an assumption of increased expenditure
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The Basis of Your Settlement
• The Council is allocated a debt based on a 30 – year cashflow forecast
• It uses existing subsidy allowances for management, maintenance and Major Repairs Allowance BUT uplifted
• Rents will match existing forecasts (convergence April 2015 plus 0.5% increases above RPI)
• Assumed cost of borrowing is 6.5%
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Your Debt Allocation (Now)
SETTLEMENT
DebtAllocation
£249.646m
Subsidy CFR (Debt) £88.882m
Debt Adjustment £160.764m
Debt Cap £249.646m
Debt per Unit £19,954
ACTUAL EFFECT
Actual Debt (HRA CFR)March 2012
£83.623m
Debt Adjustment £160.764m
April 2012 Actual Debt
£244.387m
Debt Cap £249.646m
Headroom to Borrow
£5.259m
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The Timetable
– August 2011 Data for self-financing provided to DCLG – August 2011 onwards Data verified to November– CIPFA Consultation on Debt Pooling and Depreciation
Issued– September – Questionnaire re funding the deal issued – 11th November – Draft determination published– 27th Jan 2012 Final self-financing determinations published
Local authorities asked to tell Public Works Loan Board how much they wish to borrow
– 28th March 2012 Series of transactions between DCLG and local authorities enable the start of self-financing
– March 2013 Cut-off for final payments to end the subsidy system
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Treasury Management
New HRA BP: we need something for all of these…
Service standards
VISION &MISSION
Repairs policies
FINANCIAL PLAN
Debt and financing
ASSET MANAGE-MENT
Regeneration redevelopment
Rents policy: > flexibility
Refurb/green standards
Governance & Risk
Tenant Empowerment
Value for Money strategy
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The Initial Financial Plan
• Based on 2011.12 Budgets (Incl Capital)• Debt take on (as per current settlement)• Current Forecast Stock Investment
Requirements• Future Interest Charge of 5.25% • Inflation 2.5% throughout (except Yr 2 rents)• Minimum HRA Balance of £2m• Rents Converge and Increase RPI + 0.5%• All un-pooled Right to Buy Receipts to the HRA
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Stock Investment Requirements
Excludes:
Inflation, Procurement Fees
Assumes:
£40,465 Spend per property over 30 Years
80% Recovery of Potential Leaseholder Liabilities
Backlog spread over 5 years
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Capital – Initial Ability to Fund £’000
Includes:
Inflation, Procurement Fees, Borrowing to Debt Cap, Shortfall spread over 5 Years
Outcome:
Consolidated Shortfall of £76.1m in 2016.17 – Met by 2025.26
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Viability of the Initial Plan £’000
• The plan demonstrates that the debt could be repaid within 23 years of self-financing.• Very dependant on interest rates and the repayment profile of existing loans• Borrowing Restricted by Debt Cap – based on Current Proposals• Assumes No Additional Investment or Service Improvements
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Next steps 1
• Asset Management Strategy– Need to review backlog and identify key
works for phasing against available resources– Need to review forecast works again against
available resources for re-phasing– Asset analysis for properties with negative
(NPV) contribution to the HRA and consider options
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Next steps 2
• Treasury Management Strategy– Decide where funding may be sourced
• PWLB, Market, Bonds– Policy towards debt management and refinancing– Scenario planning– Repay or maintain debt– Borrowing policies – use of headroom– Use of receipts
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Next steps 3
1. How should we go about prioritising using the resources we will have in the business plan in the future?
2. What processes are needed with tenants? And with the council?
3. Are there governance and scrutiny implications – what are the options?
4. What approaches could be taken towards future rent flexibilities?
5. What remaining challenging stock issues are there and how might they be addressed? When is the right time to bring forward a comprehensive asset management strategy?
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Questions ?