24 Oct 2008

Scrutiny: Interchange, budget, Hunts Grove, Icelandic banks, Ebley Mill and more

A week of scrutiny stuff - Monday night training on Budget's, Wednesday 3.30 to 8pm more training on Scrutiny in Gloucester with other Gloucestershire Councils then last night 6pm to 10.20 for the Performance and Audit Overview Scrutiny meeting....

Photos; badge from training session and below last weekend in Standish woods

Now if you are still with me and not fallen asleep at the very thought of all that I can assure you that I am not going into all the details here - indeed you can watch the meeting when it is uploaded onto SDC's webcast but here are a few highlights....

The Interchange is under consideration - nothing is moving - and to be fair on SDC it is largely due to other parties - although I would love to see them make more public noise about this - the current arrangements are wholly unacceptable if we are about promoting alternatives to the car - we will seriously regret the lack of leadership on this issue in the future when oil prices start to make cars less and less affordable for people - when I was first elected and the Chief Executive came out to the ward I raised the Interchange with him then and was assured things were still moving on it - now it seem SDC may not continue to allocate £70,000 in each budget for the Interchange - in some ways this makes sense as transferring money over each year and not using it is a waste when that money could be put to good use - however my fear is that without that money then there is even less incentive to get things moving on this project. Anyhow I made an amendment last night which was supported by the POSC Scrutiny panel to recommend to Cabinet that if they do shift the money then it should go to cycling.

Section 106 Monitoring Officer and the latest twist re Hunts Grove - Section 106 agreements allow a local planning authority to enter into a legally-binding agreement or planning obligation, with a land developer over a related issue. For example the local authority will restrict the development of an area of land, or permit only specified operations to be carried out on it in the future, for example, amenity use or perhaps make the developer plant a specified number of trees and maintain them for a number of years or make a certain number of homes being developed 'affordable'. Anyhow about £3m of these come into Stroud - and like many other authorities they have not monitored them fully in the past - much of the money may not come to the District Council but rather to County for say schools or roads or perhaps for a community building. Some agreements are complicated - some come into being when say the 28th house is built....

...the Hunts Grove Development which has been in the press so much was crucial re this as monies from that were to provide funding for a Monitoring Officer - now I learn that Crest Nicholson who were to develop Hunts Grove are owned by the dire HBOS - couple that with the Credit Crunch that all house-builders will be effected by and it seems v unlikely this development will go ahead soon - this is not good news for SDC as other monies would also come from that. Anyway to cut a long story short SDC have been doing some work re 106 agreements but the person has now left and I am not confident that this work will contine as thoroughly as it needs to - chasing up such agreements will be all the more important for the local economy that is being squeezed - I therefore made another amendment which was passed last night recommending that Cabinet look to appoint a 106 Monitoring Officer.

Ebley Mill paid off!! Yes Monday night the last payment was made for the building - it is now owned by SDC - and similarly the London Road Brunel Mall carpark - it is no secret that I consider the move out of Stroud town centre a mistake - the loss of all those people working in the town centre was a v significant blow to the local economy - many of them shopped in town and used local businesses - now instead many use the out of town supermarkets.

Budgets - paying off Ebley Mill is clearly good news but reading the latest SDC budget makes clear there are many problems ahead - I think we will need £450,000 to be saved each year to keep pace with inflation - but most worryingly the current budget leaves virtually no room for manoeuvre - I have noted before Goldman Sachs prediction that oil could reach $200 a barrel next year - oil certainly looks set to rise even if now it is a little cheaper again - plus economic turmoil, increased bad debts, less income etc etc. It is an impossible task to forecast so I wondered at the meeting last night if a report could be prepared with how we would manage as a Council with a more gloomier forecast. This wasn't accepted as they said they made the most accurate forecasts they could - now while I accept that I am still concerned that we do not have a proper contingency plan that councillors can discuss with more time. I do not want to have stuff sprung on us like at the last Council meeting re the waste contract. Surely it is better to be prepared? Now I am sure they will say they are - but then why can't we look at that....?

Icelandic banks latest - my previous post, here, discussed what we knew then and Stroud's £3m tied up in them - Molly's letter there is perhaps a little unfair in that the Council has played by the rules set out by Government - but then again it was the Tories along with this current right-wing Government who set up the rules that allowed this to happen.....However she is spot on re the failure of the Council to accept the Green party amendment to invest in ethical investment - it is interesting that so far no ethical banks have suffered the fate of the others - indeed the Coop is by all accounts in a v strong situation - now there are various difficulties about why it is difficult for Councils to invest in ethical banks - to get the A or triple A ratings banks have to pay lots so smaller ones just don't - so if SDC invested in an unrated bank how would tax payers feel if that money was lost - by following the herd and investing unethically in the likes of arms industries, tobacco etc they can be seen to be doing the right thing.

The good news is that Cllr Sarah Lunnon, leader of the Green group last night got assurances from the Cabinet member Cllr Wride that he will be looking into ethical investment and reporting back in January - indeed it seems he set the inquiry up himself - good stuff indeed - let us hope it is able to find a way forward that is more ethical and sustainable than currently....anyhow let me finish with the lGAs Q&A on councils’ credit ratings and Icelandic banks:

Who are the credit agencies?
There are two main credit ratings agencies that most councils use when looking at the credit worthiness of banks and building societies:
• Fitch Ratings
• Moody’s Investors Service
These are amongst the leading credit agencies in the world.

How do credit ratings work?
Each agency provides its own rating scale for both short-term and long-term ratings. These are not easily comparable. As per the guidance from the Office of the Deputy Prime Minister on 12 March 2004, councils only deal with institutions that receive the highest ratings.

What happened with the credit ratings for Icelandic banks?
Both Fitch’s and Moody’s reviewed Icelandic banks in the early part of this year, and Moody’s reduced their long-term rating for Landsbanki at the end of February – although it was classified as A2 (the middle of ‘good’). In May 2008 Fitch reduced their long-term and short-term ratings for Glitnir and Kaupthing to A minues and F2 respectively. Both agencies’ ratings then remained steady over the summer before a more significant downgrade by Fitch’s on the afternoon of 30 September. There was no warning to councils from the agencies by way of reduced ratings over the summer.

How did the credit ratings change over 2008?
The agencies continued to review Icelandic banks over the course of the year, but were still offering good quality ratings up to the afternoon of September 30. There was a further general downgrade by the rating agencies on October 8.

Did councils invest after the credit rating had gone down?
It is our understanding that only a tiny number of councils invested after 30 September 2008. We are conducting research with our member authorities to establish an exact figure. If a council did invest after 30 September, the LGA would urge it to conduct an internal inquiry.

What should happen now?
The LGA is today calling for a government inquiry – led by the Financial Services Authority – into how credit ratings agencies continued to give Icelandic banks high credit ratings right up until a few days before they went into administration or receivership.

How many councils are involved and how much was invested?
Information has been received from 236 authorities about whether they had investments in Icelandic banks. Most of these authorities have, where relevant, provided details of the amount and maturity of each investment. Of these 236 authorities, 120 have confirmed that they do not hold investments with Icelandic banks (or UK subsidiaries of Icelandic banks). The 116 authorities who do have investments with Icelandic banks have total deposits of £858.3m. These figures include information from Welsh local authorities and Police Authorities where details were not fully known when we reported the figure of just under £800m last Thursday.

What is happening with the administrators, Ernst & Young?
The Local Government Association held talks with Alan Bloom, Joint Administrator of Heritable Bank Plc (“Heritable”) and Patrick Brazzill, Joint Administrator of Kaupthing Singer & Friedlander Limited (“KSF”) on 13 October. In broad terms, the Administrators considered that the value of the book value of the assets of each business appeared to be of the same order of magnitude as the liabilities but that the recoveries for the local authorities would be dependent on the final level of actual realisations. The Administrators confirmed that they were seeking to maximize value from both companies, for the benefit of creditors. The LGA said that local authorities were looking to the Administrators to do their utmost to recover monies deposited, and would expect vigorous action from the Administrators to that end. The Administrators said that they could not currently give an estimate of the level of funds expected to be recoverable, nor when any payout could be expected. However, they agreed to provide estimated outcomes which local authorities could use (if they see fit), in planning their budgets, by mid-November.

What other discussions are taking place?
The LGA will work with the Government and individual councils on a case by case basis to ensure that satisfactory financial packages can be agreed for all councils that are affected. A meeting is scheduled for later this week. Although we are not aware of a single council with imminent serious liquidity problems, one option could be for councils to defer payment of business rates to the Government. This could raise up to £1m a year for an average size authority. The LGA is also seeking a meeting with the Icelandic Ambassador.

What will be the impact on councils?
We are not aware of any councils with serious imminent liquidity problems that would affect frontline services or mean that staff could not be paid. Authorities typically spread their deposits widely and have flexibility to manage their day to day cash position.

Councils also hold significant reserves. They saved money while the economy was strong and can make use of reserves now that times are not as good.

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