Constructing finances for regeneration

Coventry City Council’s regeneration of the city centre is well under way. Lisa Commane walks through the financial model forming the foundations to the project.

Arriving in Coventry by train, one of the fastest growing railway stations in the country, the gateway to the city is now unrecognisable.

Radical changes have been made to the landmark ring road, funded by £12.7m Regional Growth Fund, to create a green bridge deck linking the station and the emerging Friargate business district to the city centre.

The Council is acting as anchor to the Friargate scheme – the new council owned headquarters will be the first 11 storey office on the site which will start to be built at the back end of 2015.

It has already been the catalyst for multi-million pound private sector and grant investment in infrastructure and provided confidence for part speculative development of the second building in the scheme.

The scheme, which will include high quality office accommodation, retail, hotel, leisure and residential property, will generate 13,400 permanent jobs and 7,800 temporary construction jobs, growing the local economy by £1.1 billion per annum when fully developed.

The business case for the council’s involvement in the scheme was developed in house and is based on delivering 3 outcomes:

• Transforming the City – in physical and economic terms as part of our Top 10 City plans.
• Transforming the Council through new ways of working including making best use of new technology to improve our customer experience and to provide the tools for staff to work more effectively.
• Delivering savings from a much smaller office estate and income through growth in business rates.

The business case was developed by a small, focussed, multi-disciplinary project team. Finance major projects expertise worked alongside property, development, legal, ICT and HR to co-create options for the project and the preferred option.

We also benefitted from peer support from another local authority which have recently undergone a similar

transformation.

One of the most critical aspects of the project – from business case and now as we implement the changes – is the expertise and value that the extended team brought.

We lived and breathed the project and were able to foster the type of working relationship, energy and tenacity that is so crucial to making a sound case for investment and to get any big project get off the ground and keep running with it.

The business case model – now the foundations for our programme and a key part of our medium term financial strategy – was predicated on ceasing to invest in, and selling most of. the council’s existing office estate, much of which is old and in need of investment.

This means a rationalisation from 27 to eight buildings including the new building at Friargate. We are also investing in our Council House which will retain civic and democratic activities, a new Customer Service Centre and investment in ICT to enable reshaping of council services and ways of working including electronic document management, a customer portal and agile working.

Prudential
The Council is using its prudential borrowing powers to finance the capital costs of the project. The capital costs included in the business case for the project are £59m including the new building at Friargate, investment in the Council House and Customer Service Centre, land, fit out, lifecycle costs, ICT, decommissioning costs and programme delivery.

We are making use of £31m of preferential borrowing rates offered by HM Treasury through the Coventry and Warwickshire Local Enterprise Partnership, further improving the affordability position for the Council.

The council will make significant savings on day to day property and other running costs which will be used to finance borrowing and deliver net overall savings. This means the project overall will save the Council money and is affordable. Over the project life we will achieve £24m savings after the costs of borrowing – £0.5m net savings a year.

Model
The affordability model was developed using some core pieces of information, modelled in cashflow terms over 44 years – the useful life of the new building plus the implementation period.

We gathered information on the capital costs to deliver the programme including lifecycle costs net of capital receipts based on informed technical estimates.

This was converted into a borrowing requirement and an annual prudential borrowing cost (interest plus principal) assuming we borrowed over 40 years at the PWLB rate at business case date.

We included detailed modelling of the revenue costs of the new and retained buildings including facilities management, planned and reactive maintenance and utilities – again advised and challenged through technical colleagues.

Included were some assumed savings around printing, business support services and facilities services based on our new models for delivery within the new estate and some modest assumptions around income generation opportunities.

We also gathered and ringfenced existing budgets associated with the current in scope estate and offset these against the costs we would incur under the preferred option. This delivered an affordable scheme. We also ran sensitivities on a range of assumptions including borrowing rates and capital costs to inform the Member decision and conducted quality assurance on the model itself.

To be prudent, the affordability modelling does not include the additional positive impacts of business rate growth from the Friargate scheme which are significant and £11m per annum over a 10 to 15 year period.

Benefits
There are also lots of other positive benefits on the city’s economy including jobs and spend by new workers in the city centre. We also completed a HM Treasury Green Book analysis to compare the value for money of investing in new buildings alongside retaining and refurbishing existing buildings.

Using public assets to drive growth and regeneration is a key part of public services transformation and the finance profession have a significant part to play in this type of work.

There is also now a real deadline and focus for our transformation as a council. Over the last 12 months I have led a digital transformation programme that has achieved a new council website, a customer portal to drive self-service which has grown by 20% saving £0.5m and consolidated 100 customer facing staff into customer services. Our Customer Service Centre opens in October.

So that business case was only just the start…

 

Lisa Commane, CPFA, is assistant director ICT transformation and customer services at Coventry City Council.

Photos: Coventry City Council, Flickr.