9 December 2013
How do local authorities fund their facilities management requirements? Rob Cunliffe looks at the many different finance streams available.
Local authority (LA) funding is diverse, with money received from many different streams. How many buildings they have, or what the FM requirement is, does not dictate the funding - yet 6 per cent of total LA expenditure is premises-related (£9.24 billion). So how do LAs fund their FM requirement?
An LA's property estate can range from large corporate offices to libraries, cafes in parks, high street shops, schools and nurseries. LAs have the same FM requirements as other organisations: they provide day-to-day activities like cleaning, security services, pest control and building maintenance, all of which is funded through the 'revenue budget'.
They also undertake capital projects for life cycle replacement of building fabric and M&E plant (as it reaches the end of its life), for new schools or extensions, and for new buildings, and this is funded through a separate 'capital budget'. Such is the age of public property that the capital programme requirement for a local authority can be many tens of millions of pounds at any one point in time. Funding for FM comes from a variety of sources, as detailed below:
Council tax (15%), Central Government Revenue Support Grant (6%), National Non Domestic Rates (11%)
LAs do not specifically allocate money from these sources to fund FM activities; these sources fund all types of general expenditure, including FM, to local services, excluding education and housing.
Central government uses a number of social factors to calculate the Revenue Support Grant, the main ones being population demographics, deprivation indices and physical geographies.
Historically, all National Non Domestic Rates (NNDR) were passed to central government and re-allocated as part of the formula grant. Central government has implemented an initiative this year where LAs can keep a proportion of NNDR to encourage local economic growth.
Fees and charges (7%)
Councils can charge customers set amounts for some services. These include parking, business fees (trading, licences), hiring of property for functions, leisure centre facilities and cemetery and crematorium.
Funding FM activities may come from these fees and charges. For example, the fee to hire a hall for a function will include the energy costs and the cleaning afterwards. The Cemetery and Crematorium is almost in its entirety funded by the fees and charges it receives.
Therefore, usually the FM costs of the administrative buildings (chapel, crematoria) will come from the fees and charges levied.
Specific grants and other sources (16%)
There are more than 50 grants for specific initiatives handed down by central government. Included in these are PFI credits that some LAs have entered into. Contained in this specific grant will be funding for FM activities that are part of the PFI scheme. None of these grants are specifically for maintenance activity; however, there are some grants that may include funding for maintenance activity. For example, a grant to support travellers' sites includes funding to maintain amenity blocks.
A Dedicated Schools Grant funds schools (30%)
Funding for schools is ring-fenced and delegated to each school to manage. Central government pays this on a per pupil basis. Schools will allocate money for the maintenance, cleaning, catering and all other FM services from this grant. Therefore, an FM provider to a LA will have around 100 separate clients.
Social housing is funded by the Housing Revenue Account (HRA) (4%)
LAs fund maintenance activity to social housing through the HRA. This is a ring-fenced fund specifically for housing stock. Rent and a Central Government subsidy fund the HRA. Social housing expenditure for repairs and maintenance is £1.5 billion.
Capital funding (11%)
The main requirements for capital funding in FM is for replacement M&E or building fabric. LAs fund these in the following ways:
- Transfers from the revenue budget - where projects realise a direct revenue saving or increased income, some money from the revenue budget can be allocated to capital. For example, an investment in new cleaning equipment that increases productivity and lowers cost.
- Capital receipts - by selling off property or land or assets to fund investment in other assets.
- Prudential borrowing - LAs can borrow money for specific projects as long as they meet the "prudential code"; ie, they can pay the money back. Investments will need to demonstrate savings or increased revenue. For example, LAs would use this to fund the refurbishment of a children's centre and to collocate an adult learning centre so that there is a reduction in operational costs.
- Specific Capital Grants from central government - there are approximately 50 different dedicated capital funding streams provided by central government to local authorities. Of FM relevance, these include capital maintenance for schools and disabled facilities. Central government does not grant funding on a per project basis, but to a particular targeted outcome.
- Others - councils can bid for other funding pots that are available to other organisations. For example, Salix funding for new energy-efficient boilers to reduce energy usage.
Next issue: How local authorities manage their FM funding.
Rob Cunliffe is senior business development manager, Local Government