Council supplementing Commercial Investment Fund

Rochdale Council approved the proposal to bring forward the 2018/19 Capital Programme allocation to the Commercial Investment Fund of £20m into 2017/18 to supplement the existing approved allocation for 2017/18.

It was also approved that the Council authorises carrying forward into 2018/19 any unspent proportion of the £30m allocation.

At the Budget Fixing Council on 1 March, councillors approved the capital programme for 2017/18 – 2019/20, which included funding for the Commercial Investment Fund of £30m total, being £10m in 2017/18 and £20m in 2018/19.

The recommendations, as set out in the report, are as follows:

• The residue of the 2017/18 allocation (£1.4m) is unlikely to be sufficient for a further purchase using the Council’s criteria for the use of the Commercial Investment Fund.
• The sooner that further acquisitions can be completed the sooner the Council can achieve revenue savings and the greater those savings will be.
• The use of the fund to date suggests that there are many opportunities in the market for the Council’s investment.
• If the budget is unavailable the Council may miss out on a significant investment opportunity due to lack of funds.

The Chief Finance Officer commented in the report: “The Commercial Investment Fund was approved on an invest to save basis, and so it is expected that the additional cost of bringing the £20m allocation forward from 2018/19 to 2017/18 will be covered by the additional income generated from acquisitions.

“As with any commercial investment, there are inherent risks due to changes in market conditions, and should the Fund not achieve the returns expected, this would create a revenue budget pressure for the Council.”

Risks outlined include:

• Acquisition activity by local authorities is regulated through legislation. There is therefore a risk that the Council may act ultra vires if it acts without appropriate circumspection.
• Property ownership carries risks of expenditure on liabilities, health and safety/statutory responsibilities.
• Changes in the property market or poorly selected property acquisitions could put the Council’s invested capital at risk. The risks of property investments are reflected in the financial return, or yield, received from the invested capital. The risk can be mitigated by applying the principles of the use of the fund approved by Cabinet on 23 March 2017. Departure from these principles would increase the risk, but also the reward of a higher return.