Minutes:
(See Minute no. 273 for reference)
Sport England’s grant conditions, which the Council must meet for the next 21 years, set out a number of commitments in the future that the Council was expected to meet or otherwise be subject to clawback grant. The 21 year period was a standard condition for all similar Sports England funded projects.
Sport England required a guarantee that the Council would pick up any deficit the Highfields Youth and Community Centre incurred and that this commitment must not be at the expense of the “stated sport development objectives.”
The agreed sports development objectives were:
1. To promote the use of the facilities by existing and new community sports clubs and groups;
2. To develop sports programmes to attract hitherto, non-participating members of the local community;
3. To provide sports facilities to people who had previously been denied access due to their low income, gender, ethnicity, special needs or age; and
4. To establish a partnership approach to community sports development programmes in this locality and provide the opportunity for individual talent and development.
It was noted that if the objectives were breached the Council could be liable for full repayment of the Sports England grant of £2m. However, it was the view of Officers that these objectives were sufficiently broadly framed to allow the services provided to be developed and amended to cater for changing patterns of need and demand.
As the project was now to be constructed and run as a City Council project, the condition to require a guarantee that the deficits of the Centre will be underwritten by the Council was effectively irrelevant as the Council had to do this in any case by virtue of it being one of its services.
A business plan for the whole project detailing outcomes for usage for sports facilities and the adult community learning had been prepared. This had been based around conservative estimates of income. The key risk to the viability of the project was that the Local Authority’s grant from the Learning Skills Council (LSC) was reduced and provision had to be removed from the Highfields Youth and Community Centre. The view of this risk was that, for the foreseeable future Highfields was a high priority area for adult and community learning for the Local Education Authority and the Learning and Skills Council. The LEA needed good quality accessible provision for day time community learning in Highfields. The Highfields Youth and Community Centre would provide this facility for the local authority and, failing that, other providers funded by the LSC. It was drawn to Cabinet’s attention that the Learning and Skills Council was considering supporting the capital costs and the associated revenue implications of a £1m investment.
A further requirement of Sport England’s grant condition was that the Council could not dispose of it’s interest in the property or change the use of the facility without prior written approval of Sport England. If the Council did sell or change the use of the facility within 21 years:
(a) It had to sell at full market value;
(b) An appropriate proportion of the proceeds, as determined by Sports England “by reference to the proportion of the original cost met by grant and taking account of the period of use”, was payable to Sports England unless they agreed otherwise; and
(c) In the case of a change of use, such payment to Sport England would be based on a market valuation rather than on sale proceeds, but otherwise the conditions remain the same.
Whilst the conditions implied that any payment of proceeds would be tapered according to the period of prior use of the facility, Sport England did not have any pre-determined agreement on the precise provisions of tapering. It was likely that any tapering would be based on the open market value and length of use of the asset at the point of sale, but this could not be guaranteed.
Whilst unlikely, it was not impossible, in certain circumstances, for clawback to exceed the £2m grant allocated to the Council. This was because the payment was based on the sale proceeds or value of the property not the grant payment.
There was a further claw-back provision whereby grant was repayable to Sport England if there was failure to comply with any grant conditions in the period of 21 years.
As previously reported to Cabinet it was noted that in order to reduce the risk of the Council exceeding its partial exemption VAT limit, the Council would opt to tax for VAT purposes in order to reduce the amount of input VAT incurred on the construction costs. This would reduce the proportion of VAT exempt activity and therefore the amount of exempt attributable VAT incurred by the Council on the construction of the facility.
It was noted that it was the opinion of the Chief Financial Officer that although the project would substantially add to the total exempt attributable input VAT, with the anticipated programme/cash flow being over two years the Authority would still remain comfortably below its 5% de-minimis limit. The position for 2003/04 was less clear cut until such time as details of the capital programme for that year were finalised.
It was also noted that this project would fall within definitions of a major project under the Council’s “Project Management Standards for Major Projects”. As such, it would be subject to the management and reporting arrangements set out in the standard.
In summary it was noted there were a number of financial risks associated with this major project. These risks were common to such major projects and mainly reflected the standard grant conditions issued by Sport England. A number of steps had been taken in order to minimise the exposure to risk that the Council faces. These included:
(i) Building a business plan around conservative income estimates;
(ii) Choosing to increase fees for VAT liable activities to deal with the consequences of opting to tax;
(iii) Securing the appointment of sports development workers to promote the use of the Centre;
(iv) Securing additional Learning and Skills Council income to deliver adult and community learning;
(v) Carrying out a management review to ensure the enlarged and modernised facility has appropriate structure management and service delivery; and
(vi) The adoption of formal standards of project management.
However, clearly the Council would be exposing itself to risk if it undertakes this scheme. The Council had taken all reasonable steps at this point to minimise the potential for risk. However, it was noted that this could never be eliminated fully, especially over a period of 21 years.