Paul Woods on Accelerated Development Zones, borrowing rates and property

Paul Woods is director of finance and resources for Newcastle City Council as well as treasurer of Tyne and Wear Integrated Transport Authority, a role he has held for ten years. He won Cipfa’s financial director of the year award in 2010.

Room 151: Can you tell us about the Tax Incremental Financing that you’re going to do as part of Newcastle’s Accelerated Development Zones?

Paul Woods: It’s part of our City Deals submission to the government. Cities have been submitting their proposals and one of ours is that we’re going to do these developments. The proposition involves city centre sites in Newcastle and Gateshead and the most significant bit of it is the TIF part, which has been referred to by the Deputy Prime Minister as one of the most interesting that he has seen so far.

It’s about £115m-worth of infrastructure investment which is aimed at kick-starting developments in Gateshead and Newcastle all funded from retained business rates from the future – the two councils will take the risk on the delivery of those rates. It’s not an Enterprise Zone, it doesn’t receive a government grant from the discounted business rates or the capital allowance, we’re not getting cash but retaining the ability to keep growth in business rates over 25 years – we hope.

R151: What sort of development are you looking to fund?

PW: There are five sites within a fairly tight urban area. One of them in particular is our central site where we are in partnership with the University of Newcastle to spin out research-based businesses. It’s a 20 acre site where they used to make Brown Ale. Another site is around the railway station improving the accessibility with a development behind. In Gateshead we have a building that will be turned into a conference facility – we’re the best region in the country when it comes to trade, we do more exporting than we do importing, so hopefully we can raise the visibility of our manufacturing with that and boost the economy there.

We have a compact city centre with a lot of listed buildings so the redevelopment of brownfield sites is tricky, it needs extra investment in relocating, changing highway networks, relocating bus routes and stations, getting new parking to enable sites which are derelict to be brought back into use. All this is cost which wouldn’t otherwise be refundable under things like Section 106 agreements.

We’re also looking at energy improvements to the areas; we’ve drilled a 1.8km borehole in through one of the areas to tap into geothermal heat. We are looking at creating an Energy Services Company with the University and a private sector partner but the next thing is proving the heat source and making sure we have something to market and put into production.

R151: You have stated that you keep a below average cash reserve. What do you do with it?

PW: We’re trying to reduce our borrowings. If you reduce your borrowing by using your investments it makes better net interest. The interest we are earning on investments is relatively low but the cost of borrowing is much higher so we are trying to avoid borrowing by using our cash flow there.

R151: Do you borrow from other Local Authorities?

PW: We’re using other Local Authorities as short term borrowing. It’s a useful opportunity and we are doing quite a lot of short term – daily, weekly – stuff. The rates change from week to week and month to month to be honest. We’re doing better than the DMO so it’s better than the very basic rate where we put our money. For 364 day money we managed to get 3% investing with some of the bigger financial institutions. That’s quite unusual.

We are one of the authorities with a large amount of money to pay from the HRA refinancing, just over £300m, so we’re waiting to get that done at the end of March before any more borrowing takes place. So we’re not doing anything with the PWLB for a while, but once the debt is repaid on March 28th we’ll then be looking to the PWLB for the future. Our overall borrowing rate we expect next year to fall below 4% for the first time, that has come down quite a lot over the last four or five years.

R151: Are you engaging in a property rationalisation programme to release cash?

PW: We are saving just over £1m in the current year’s budget from asset rationalisation. We’re looking to move people into our city centre building to make sure every inch of space is used.

Where we have accommodation outside the city centre we have been looking to terminate leases and dispose of some of the assets there. We’re not necessarily selling land – it’s the wrong time in the North Eastern property market to be getting a lot of cash from sales – but we are actually turning it into land for housing. We have a big issue about getting land for brownfield sites away in our area.

R151: What advice would you give to other treasury units?

PW: We monitor stuff every day. It’s about looking out for opportunities for places where you can place money safely. Reduce your loan portfolio by using funds internally if you can. Having a mix of loans can reduce your rate because the short term rate is particularly cheap at the moment.

We have got external advisers but I have been a treasurer for many years with my in house team, and at the end of the day the buck stops with me.

I am also and have been for many years treasurer for Tyne and Wear Integrated Transport Authority. Working with larger authorities close to you is the sort of thing that LAs might be prepared to look at but there are issues with liability so they are a little cautious, but certainly there are linked organisations you can work with for investments and so forth.

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