Report To Cabinet Portfolio Holder Presenting: Leader and Deputy Leader

26 September 2006

Subject:Asset Management Plan and Capital Strategy 2006

Status: Policy Matter for Decision

Report Ref:

Ward(s): All

Key Decision:

Key Decision Ref: 460 / LD

Report of: Head of Property Services

Contact:Helen Harbour ext 2654

Mike Bovis ext 2360

Appendices:

Appendix 1 – Operational Property values as at 31/03/06Appendix 2 – Non-Operational Property values at 31/03/06Appendix 3 – Feedback received

Papers relied on to produce this report

Draft Asset Management Plan and Capital Strategy 2006

SUMMARY

1 This Report

1.1 The Council’s Asset Management Plan and Capital Strategy 2002 is in need of updating. The Constitution requires the Leader and Cabinet to propose a new Plan to Full Council for approval.

1.2 The purpose of this report is to set out a summary of the proposed new Asset Management Plan and Capital Strategy 2006, (the “AMP”), and its key recommendations and policies, for consideration by Cabinet prior to onward submission to Full Council on 12th October. Feedback from the Economic and Community Development Overview Committee meeting, also considering the proposed new Plan, is attached to this report for consideration within the Cabinet meeting.

1.3 A draft of the new AMP has been made available in the Group Rooms from 4th

September for Member consideration.

1.4 This report outlines the property portfolio managed by the Council and recommends specific actions for both the Operational Portfolio (properties used to directly deliver services) and the Non-operational Portfolio (properties held for other purposes including investment).

1 of 16

1.5 Resource implications are referred to in the AMP and there is a direct linkage between resource availability and the delivery of the AMP proposals. This aspect will be considered as part of the 2007/8 budget strategy.

1.6 Consequently the AMP does not include any implementation proposals, but instead sets out the principles of what should be done. Once a final decision on resources has been made, Property Services will prepare a detailed implementation programme, for the AMP, on the basis of resources available, setting out how and when the Plan will be implemented.

2 Recommendation

It is recommended that:

2.1 The contents of this report be noted, particularly including:

The revised Property Policy (section 4)

The actions identified in respect of the Operational portfolio (section 5)

The actions identified in respect of the Non-operational portfolio (section 6)

The actions required to achieve implementation of the corporate Information System (section 7)

The revised Capital Strategy (section 8)

2.2 Full Council be recommended to adopt the Asset Management Plan and Capital Strategy 2006

2.3 It be noted that, once a final decision on resources has been made, Property Services will prepare a detailed implementation programme for the AMP proposals

2 of 16

PRIORITIES, IMPACTS AND RISKS

Contribution To Council Priorities

This report accords with the Council’s Budget and Policy Framework

Council Plan Ref 06-09: The Asset Management Plan and Capital Strategy 2006 translates the Council Plan into property portfolio strategy and so relates to the whole Council Plan. It is to be the new Service Plan for Property Services

Service Plan Ref 06-09:

Other References:

Contribution To Community Strategy

Community Strategy Ref 06-09: The Asset Management Plan and Capital Strategy 2006 was developed in line with the whole Community Strategy

Impacts

TypeNo

significant impacts

Some impacts

Significant impacts

Impacts for BDBC

Financial

Mentioned through out

the Plan / this report

Personnel

Mentioned through out

the Plan / this report

Legal

Mentioned through out

the Plan / this report

Impacts on Wellbeing

Equality and Diversity x

Crime and Disorder x

Health x

Environment

Mentioned through out

the Plan / this report

Economic

Mentioned through out the Plan / this report

Involving Others

Communication/Consultation

Referred to the Economic

and Community

Development Overview

Committee

on 12/09/06

Partners x

3 of 16

Risk Assessment

Number of risks identified:11, largely relating to day to day

estate management

Number of risks considered HIGH or Medium:1, Rental income fails to meet 2%

target

Strategic: Already identified on Corporate Risk Register?Yes

No

Operational: Already identified in Service Plans?Yes

No

4 of 16

DETAIL/MAIN CONSIDERATIONS

3 Background

3.1 The last Asset Management Plan and Capital Strategy was written in 2002. Since that time there has been an increasing Government focus on the efficient use of assets, particularly property assets, emphasising that a more strategic approach should be taken.

3.2 The Lyons report in December 2004 identified Local Authorities as the largest holder of public assets. In a report for the Office of Government Commerce asset management planning was defined as - “A structured and holistic approach to aligning and managing the performance of physical built assets as an organisational resource to meet business objectives and drivers. It is a top down policy drive and bottom- up needs verified approach.”

3.3 In 2004 the Royal Institution of Chartered Surveyors produced, following a commission by the then ODPM, a set of best practice guidelines for asset management specifically for Local Authorities. CIPFA has guidelines too which reinforce the RICS approach.

3.4 Key themes include the fact that property is expensive to hold, occupy and maintain; it needs to be managed effectively over its whole life to ensure best value is obtained; property performance should be monitored and stakeholders engaged in the process; and it takes time to determine property needs, and then procure and provide them.

3.5 The latest Audit Commission Corporate Performance Assessment (CPA) proposals include specific measurements for, and the assessment of, a Council’s Use of Resources, including its asset base. They require an authority to demonstrate that it manages its asset base effectively, in a value for money context. An Authority is expected to have an up to date Asset Management Plan and Capital Strategy. It is also expected to have a plan of action to improve its corporate asset use, maintain its assets properly, and for there to be Member Portfolio responsibility. In addition Authorities should only make asset investment and disposal decisions based on option appraisals and whole life costings, and should utilise performance measures and benchmarking.

3.6 Basingstoke and Deane BC is a major land owner in Basingstoke, dating back to the Town Development Agreement between the Greater London Council, Hampshire County Council and the Borough. This led to the Council acquiring substantial areas of land in the 1960s to facilitate the expansion of the town. Unlike a New Town, there was no Development Corporation.

3.7 The Council currently owns:

558 Hectares (1,380 acres) of parks and open spaces

170 Hectares (421 acres) of industrial and commercial land

7 Hectares (16 acres) of Town Centre retail

833 Hectares (2,058 acres) of agricultural land

5 of 16

3.8 As at 31/03/06, the “Operational Portfolio” (land held for the direct delivery of services such as Council offices, community facilities etc) was valued at c.£30m and the “Non-operational portfolio” (the rest of the land holdings, and in particular that used to generate income) at c.£210m. (See appendices 1 and 2 for more detail).

3.9 In the light of the above a new Asset Management Plan and Capital Strategy 2006 (the “AMP”) has been prepared.

3.10 The AMP covers the following aspects:

The rationale for proper asset management planning and details of the best practice guidelines

An overview of the Borough in terms of history, geography, population, economy, prosperity and deprivation, education, leisure recreation and shopping, and housing

An introduction to local planning policies, community and corporate policies, and a description of the Council as an organisation

Guidance on the legal powers under which land can be held, and current Constitutional arrangements in respect of property

Property Services, as a Business Unit – how its work aligns with corporate objectives, Unit functions, and resourcing matters

An overview of the Councils property portfolio as a whole; a demonstration of how the non operational portfolio contributes to Council finances; and an introduction to current issues, opportunities and constraints arising from the portfolio

The Council’s Capital Strategy

A Property Plan for the Operational Portfolio

A Property Plan for the Non - Operational Portfolio

Property data management – current systems and proposed system improvements

3.11 The Constitution requires Cabinet to propose the AMP for approval to Full Council. The remaining sections of this report summarise the policy proposals within the AMP to which specific approval is being sought, and provides background to those proposals.

3.12 Two Officer Groups have been involved in the preparation of this Plan and are referred to in the Actions below –

the Asset Management Group, comprising the Head of Property Services, Chief Accountant, Head of Regeneration and Design, Head of Leisure Services, Head of Customer Services and Administration (who has responsibility for Facilities Management), and the Property Strategy Manager (within Property Services)

6 of 16

The Strategic Property Group, comprising the Corporate Director and Deputy Chief Executive, S151 Officer (Corporate Director), and Heads of Property Services, Regeneration and Design, Legal and Democratic Services, Planning and Transport, Communications and Financial Services

3.13 Presentations have also been given to SMT and SMB.

3.14 A draft of the new AMP was made available in the Group Rooms from 4th September for Member consideration. It was considered by the Economic and Community Development Overview Committee on September 12th, and also reviewed partially by the Audit Governance and Accounts Committee on September 11th with a particular focus on data management. Comments received have been collated and appear in Appendix 3 to this report. Specific changes requested by Cabinet Members to actual policy wording to be specifically approved have been incorporated in the body of this report, but not in the draft AMP that has been circulated for review. These are also included in Appendix 3.

4 Property Policy

4.1 To reflect the changing emphasis on property assets, the strategic guidelines for the acquisition, retention and disposal of property, which appear in the AMP, have been revised to read as follows:

4.2 The Borough Council will endeavour to acquire an appropriate interest in property:

where it is required for the functional needs of the Council, or

where Council ownership is needed to achieve an identifiable proper planning or economic development purpose, or

where Council ownership will safeguard property from risk of inappropriate development or loss of potential economic development, or

where it will contribute towards the promotion or improvement of the social, .economic, or environmental well-being of the area, or

for the protection of strategic property holdings

4.3 The Borough Council will endeavour to retain an interest in property:

where the Property Acquisition Guidelines continue to be met, or

where disposal would not achieve the best consideration reasonably obtainable, or

where the property asset continues to generate an acceptable economic return, thereby enhancing the Council’s financial position.

7 of 16

Pro

pert

y A

cqu

isiti

on

Gui

delin

esP

rope

rty

Re

tent

ion

Gui

delin

es

4.4 The Borough Council will continually review the portfolio to ensure that use of property assets is maximised and that disposal or other opportunities are taken where consistent with the Council’s community, planning and economic policies. The Council will hold and manage property assets on a commercial basis, seeking to maintain and enhance the income return and capital value of the property asset wherever possible.

4.5 The Borough Council will be prepared to dispose of an interest in property:

where the Property Retention Guidelines above do not apply, or

where disposal will achieve an identifiable proper planning or economic development purpose which could not be achieved by the Council as owner, subject to the Council receiving the best consideration reasonably obtainable or obtaining an appropriate disposal consent

There is no presumption to retain freehold interests. The Council will consider the disposal of freeholds where there is an appropriate financial benefit compared to retention and/or a benefit in terms of the social, economic or environmental well-being of the area.

5 Operational Property

3.15 The proposed Plan for managing the Operational Portfolio (defined in Section 3.8 above) is summarised below.

3.16 The RICS best practice recommends that all operational property is subject to review with stakeholders to ensure that the property is:

Fit for purpose both currently and for the future

Compliant with statutory requirements

The most cost effective/efficient solution to providing the service(s) housed within it, reflecting whole life costings, and considering alternative ways of providing that service(s), including with partners

Environmentally sustainable

Of an appropriate size

3.17 The Plan states that Property Services will carry out a rolling review of operational property, engaging with stakeholders.

3.18 To facilitate this review process a corporate review methodology has to be developed. In addition Property Services will work with Financial Services to develop an appropriate options appraisal methodology.

3.19 To further closer working relationships between Property Services and property occupying Business Units, including Facilities Management, which does not “sit within” Property Services, the Plan also states that Service Level Agreements will be developed with key parts of the Council.

8 of 16

Pro

pert

y D

ispo

sal

Gui

delin

es

3.20 A key part of operational property management is maintenance. This Council does not have the back log maintenance issues suffered by many of its peers. One of the key requirements for the CPA assessment is a planned maintenance programme and this is already in place. However, the Plan includes proposals to establish a new maintenance policy, following on from the 2003 condition surveys and work done to date, and it also proposes a review of the current procurement practices for maintenance works.

3.21 To comply with best practice asset management performance measures and benchmarking should be utilised. A set of new Property Performance Indicators has recently been approved by ODPM. The Plan states that Property Services will develop appropriate benchmarking in the future, however this is subject to the introduction of new systems to make available the required data.

3.22 The actions identified for the Operational Property Portfolio, in the AMP 2006, are set out below

Policies and methodologies

Approach to a rolling programme of planned maintenance condition surveys – nature, frequency of survey and resourcing

Develop a review methodology for operational and community assets

Property Services to work with Finance to develop a standardised Options Appraisal methodology appropriate for assessing property options in both strategy reviews and the review process for operational and community assets

Actions Recommend new performance indicators to be adopted, based on availability of Management Information

Identify benchmarking options with other Local Authorities

Establish Service Level Agreements with key stakeholders for planned and reactive maintenance and property management

Carry out strategic reviews identified and prioritised by the Asset Management Group

Produce prioritised list of all operational and community assets for review

Action reviews on operational and community assets Develop call-off and framework agreements for low

value repeat property maintenance works Establish life cycle capital maintenance requirements of

this portfolio

9 of 16

4 Non-operational Property

4.1 The Council holds a major non operational portfolio (defined in Section 3.8 above), which, according to CIPFA is, in value terms, the third largest non operational portfolio of any Local Authority in England.

4.2 The Council collects rent of c.£15m per annum from its commercial and industrial tenants (of which £1.36m pa is passed to St Modwen in respect of The Malls). This income amounts to c29% of the Council’s income (excluding Housing Benefit and Capital Charges):

Breakdown on 2006/7 Income (excl Housing Benefit and Capital Charges)

29%

12%9%16%

21%

13%

Industrial &Commercial rentsFees & Charges

Other income &Grants (6)Interest

Government RSG

Council Tax Payers

4.3 The proposed Plan for managing the Non Operational Portfolio is summarised below.

4.4 The current budget assumption is that rental income will continue to rise at a rate of 2% per annum. However, given the “flat” market, and the forthcoming rental review opportunities within the portfolio, this is looking optimistic.

4.5 Much of the land has been let on long ground leases, but the Council also has a number of properties that are directly managed. Some of these, such as the smaller industrial units, provide the double benefit of an investment income and the provision of “starter” type units for smaller business, which encourages economic growth in Basingstoke.

4.6 However, most of the land was acquired and developed in the 1960/70s and as a result many properties are reaching obsolescence at the same time. The market for 1960/70s industrial units or offices is fairly limited and hence rents are relatively static and low.

4.7 In order to protect, let alone grow, the rental income, a proactive approach is required to estate management. This not only means generating and responding to opportunities under current leases, but also the development of a clear “spend to grow” policy. The Medium Term Budget Strategy Report will be considering the options to establish a “spend to grow” reserve including appropriate financing options. A “spend to grow” reserve would enable up front financing of appropriate capital schemes that delivered an enhanced revenue payback. Any such reserve would have clear criteria including an

10 of 16

agreed rate of return and minimum payback period, a rigorous options appraisal methodology to measure expected financial and non financial returns, and clear risk parameters. These issues will be covered further in the Budget Strategy report.

4.8 An initial “Creative Use of Property” list has been drawn up to identify, from current knowledge of the portfolio, under-performing assets that could be sold, usually for development, the capital produced thereby providing additional revenue income from investment in the money market. Indeed Property Services is already mid way through a programme to generate £16.7m of capital receipts as the current medium term budget strategy is based on investing this amount to support the base revenue budget. These projects have the potential to deliver non financial benefits too, such as environmental enhancements or affordable housing.

4.9 This Creative List is extensive and appears in the draft Plan. In order to programme delivery, irrespective of resources, it has been prioritised in a manner which reflects the contribution of any potential project/disposal to the Council’s four key priorities, eg due regard has been had, using a weighted scoring system, to anticipated financial returns, contribution to affordable housing provision, environmental impact, and contributions to learning/businesses/the community. The programme for progressing the projects, in the prioritised order, will be established as part of the implementation planning that will be carried out once the future resources for Property Services have been established.

4.10 As with the Operational Portfolio, best practice requires a rolling review of the Non-operational portfolio, to ensure that an appropriate return is being received from it, and to continue the “creative” approach, with any identified new opportunities being added to the aforementioned list

4.11 If the return is not acceptable, options would include disposal or, where justified, investment to secure an improved return. The “return” may be in terms of community or economic benefits as well as straight forward financial terms. To facilitate this a review methodology, an appropriate options appraisal methodology, and a “spend to grow” policy must all be developed. These are all proposed within the AMP, with the “spend to grow” policy being considered as part of the Medium Term Budget Strategy Report.

4.12 As part of the preparation of the AMP Property Services has reviewed the Property Management Strategy prepared by Langley-Taylor, Chartered Surveyors, as part of their Strategic Review of the Portfolio concluded in 1998. It is felt that this is still appropriate and should remain the management strategy for the non-operational portfolio. This strategy is set out in the Plan and key themes include:

Improving the balance of the portfolio by varying unit size, and adopting flexibility in rent gearing

Moving towards a rolling programme of rent reviews/renewal to avoid peaks and troughs

Establishing and maintaining a positive management regime

11 of 16

Maintaining and improving stock to reduce obsolescence

Boosting the Development Properties Reserve (now Asset and Infrastructure Reserve) to enable expenditure to be made when required without having to fund via a specific disposal

Disposing of non-income producing properties

4.13 As freeholder of a sizeable proportion of the industrial, commercial and retail land in the town the Council has some influence over the building stock that is available to local businesses, both existing and those who could be attracted to the Town, albeit this influence is limited by the existing ground lease arrangements in many cases. To enhance the economic prosperity of the Borough Property Services could widen its current non operational property management remit to work more proactively with the business community, as occupiers of property on Council land, in future.

4.14 The actions identified in the AMP 2006 for the Non-operational portfolio are set out below

Policies and methodologies

Property projects to be prioritised in accordance with the Council Plan priorities and responsibility for prioritisation to rest with the Asset Management Group, subject to overview by the Strategic Property Group (see 3.12)

Develop review methodology, including an options appraisal approach, for non-operational properties and a clear set of required return (financial and non financial) indicators

Subject to the outcome of the budget strategy process, work with Finance to develop an appropriate methodology, for the operation of any “Spend to Grow” policy/reserve

Submit a disposal and tendering policy for surplus land and buildings

Working protocols need to be established between the Strategic Property Group and Asset Management Group to facilitate clarity of function

Property Services, in association with Enterprise Skills and Learning, to produce a paper on how the Council could get more involved with the local business community, through its property holdings

Actions Agree revenue and capital income targets with Financial Services to support delivery of the Medium Term Budget Strategy. To include reporting approach

Action reviews on non-operational properties Identify opportunities to deliver on wider Council

objectives as well as pure financial ones Subject to the outcome of the budget strategy process,

12 of 16

identify opportunities that meet "spend to grow" criteria

Identify further opportunities for disposal to generate capital receipts and of land for promotion through the Local Development Framework process

As resources allow deliver opportunities identified for maximising the returns to the portfolio

Establish life cycle capital maintenance requirements of this portfolio, including the expenditure element that is recoverable from tenants

Manage the portfolio in accordance with the Langley Taylor recommendations of 1998

5 Data management

5.1 Guidance on Best Practice asset management emphasises the importance of data quality and management, and indeed this is required for the benchmarking proposals identified in the Actions above.

5.2 Property data is currently stored within a large number of different systems, managed by both Property Services and Financial Services, in different formats, and within systems that do not “talk to each other”. The existing, largely manual, systems have served to date for “reactive” estate management purposes, but there is not, currently, any integrated Management Information system in place.

13 of 16

5.3 The following issues exist with the current paper/manual/electronic systems:

– Inefficiency (individuals do not have desktop access to geographical information or lease data)

– There is no integration of data on the portfolio into one system and therefore limited interrogation, forecasting and analytical capability

– There is no link of property information with the invoicing and other financial management systems

– There are inherent risks with the current manual reliance on identifying key lease dates; business continuity issues; and a heavy reliance on an individual’s own knowledge

– There is variable data quality, especially with the duplication that exists across the current different systems

– They do not easily enable, if at all in some cases, the production of the information/data required for the new ODPM approved performance measures

5.4 Property Services is thus pursuing a systems improvement programme.

5.5 Details from land ownership plans have been transferred to a computerised system and a dedicated resource is currently verifying this data so that it can be properly utilised.

5.6 Just under half of the Council’s legal titles to land ownership are not currently registered with the Land Registry. With Property Services, Legal and Democratic Services are proposing to enter into a voluntary scheme with the Land Registry to register all of these titles, over a period of time.

5.7 The Estates Module of the corporate computer system (CAPS Uniform) has been purchased. Although not “ideal” for commercial property management, being a system mainly designed for managing Local Authority operational assets, it does include an interface with the geographical system, is part of our corporate suite, and other Local Authorities do use the same system for managing their own commercial portfolios.

5.8 A task plan is thus in place to implement a computerised system and Property Services is working with the Information and Communications Technology Unit to establish a programme of works to develop the system to meet our requirements. Financial Services are closely involved too.

5.9 There will have to be a major piece of work to populate the computer system and verify inputs, all of which will have to be done manually as it is a very prescriptive system. This is a resource hungry exercise. It will be hard to get significant process efficiency improvements within Property Services until the computer system is properly implemented. The new system will then require ongoing maintenance and a dedicated resource based on the experience of other Local Authorities.

14 of 16

5.10 The action list for implementing the computer system is set out in the AMP and repeated below:

Actions Complete verification exercise of geographical information captured on computer

Maintain existing systems both manual and electronic Compile and complete a programme to register the

Council’s unregistered land titles Computerise the property records through

implementing CAPS Uniform estates module. Implementation plan to be developed once resource availability is clarified. Implementation plan to include a checkpoint regarding the suitability of the system for the BDBC portfolio

Working with Finance develop improved rent forecasting model – it is currently assumed this will be based on CAPS Uniform for standing data

Investigate linkage of CAPS Uniform and rent invoicing – not an early task

Develop Management Information systems to interface with CAPS Uniform

Work with ICT to establish a programme of required works to develop information systems within Property Services

Investigate recording of asset values on CAPS, once core data in place

Investigate CAPS based valuation module for asset valuations

Linked with improvements in data handling and management information, Property Services will seek efficiency gains from process re-engineering

6 Capital Strategy

6.1 The Capital Strategy element of the new AMP details the Council’s approach to capital investment over the medium term. The Council has a rolling 3 year capital programme which supports the delivery of the Council Plan and an asset management capital programme which ensures existing facilities are maintained to a good standard.

6.2 The Capital Strategy links to the Council Plan and Priorities and shows how the capital programme is funded, managed and monitored, along with the current capital programme spending plans

6.3 The proposed Capital Strategy can be summarised as the Council continuing to prioritise its capital expenditure to support delivery of its Council Plan priorities. Partnership working is to remain an important element of the Council’s approach particularly as its own resources become scarcer. There will need to be an increasing focus on new and creative ways of producing additional capital resource, along with a robust analysis of existing property holdings to identify suitable surplus sites for future disposal.

15 of 16

6.4 The main aims of the Council’s updated Capital Strategy, for which specific approval is required, are:

Maintaining existing operational assets to a good standard. This includes significant property enhancements and the continued provision of appropriate ICT infrastructure and vehicles and plant.

Maintaining the Council’s investment portfolio to the standard necessary to protect the significant revenue rent stream produced.

Delivering regeneration and new and enhanced facilities in support of the Council Plan priorities.

Supporting the delivery of Council priorities through partner organisations via a program of capital grants and contributions.

Development of a “spend to grow” programme supported by earmarked capital resources.

To set a target for future capital receipts generation.

To maximise the opportunities to attract external grant and partnership funding to support the capital programme.

Maintaining the current policy of no borrowing to finance capital expenditure.

7 Property Services

7.1 Currently Property Services is not adequately resourced to continue managing the “business as usual” estate management of the operational and non-operational property portfolios, and deliver the identified actions in the AMP 2006, which would deliver best practice asset management planning and maximise the potential of the portfolio, and contribute to the Borough in the wider strategic context in accordance with corporate aspirations.

7.2 This resource issue is being considered as part of the 2007/8 budget strategy process.

7.3 Once resource availability is agreed, Property Services will prepare a detailed implementation plan for the AMP 2006, on the basis of resources available, which will include proposals for monitoring the AMP.

16 of 16