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Capital Reserve and Inflation Treatment for Capital Projects.

A formal published “Ministerial Decision” is required as a record of the decision of a Minister (or an Assistant Minister where they have delegated authority) as they exercise their responsibilities and powers.

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A decision made (24/11/2008) regarding: Capital Reserve and Inflation Treatment for Capital Projects.

Decision Reference: MD-TR-2008-0126

Decision Summary Title:

WINDING UP OF CAPITAL RESERVE INFLATION ELEMENT

Date of Decision Summary:

13 November 2008

Decision Summary Author:

Ray Foster

Assistant Director Finance and Strategy

Decision Summary:

Public or Exempt?

Public

Type of Report:

Oral or Written?

Written

Person Giving

Oral Report:

n/a

Written Report

Title:

WINDING UP OF CAPITAL RESERVE INFLATION ELEMENT

Date of Written Report:

13 November 2008

Written Report Author:

Ray Foster

Assistant Director Finance and Strategy

Written Report :

Public or Exempt?

Public

Subject:  Capital Reserve and Inflation Treatment for Capital projects

Decision(s):

The Minister:

  1. approved the winding up of the Capital Reserve (inflation element)
  2. approved budget transfers to specific capital projects as detailed in Appendix A to the attached report.
  3. approved the transfer of the residual budget balance of £4.03 million to the Risk Reserve.

Reason(s) for Decision:

  1. Maintaining a Capital Reserve (inflation element) is not compatible with Resource Budgeting.
  2. The budget allocations are required to complete the projects within the approved budget sums plus agreed inflation.
  3. It would be prudent to increase the level of funding in the risk reserve.

Resource Implications:

As set out in the report.                

Action required:  

Officers of the Treasury action the budget transfers as set out in Appendix A to the report.

Signature: 
 

Position: Senator T A Le Sueur, Minister for Treasury and Resources

Date Signed:

24 November 2008

Date of Decision:

24 November 2008

Capital Reserve and Inflation Treatment for Capital Projects.

TREASURY AND RESOURCES MINISTER  

winding up of capital reserve Inflation element  

  1. Purpose of Report
  2. The Minister is asked to approve the winding up of the Capital Reserve (inflation element) and approve various budget transfers in respect of capital projects where additional inflation sums have been agreed.

 

  1. Background
  2. The Capital Reserve (inflation element) was established in 1999 to provide a means of capturing the inflation element of a capital project budget and retain it under the control of the Finance and Economics Committee and subsequently the Minister for Treasury and Resources until such time as the actual inflation sum required was known.
  3. This arrangement is not compatible with the proposed move to Resource Budgeting, where the full project budget would be allocated to a Head of Expenditure in the budget holding department.
  4. It is proposed that the Capital Reserve (inflation element) be wound up and the funds transferred to ongoing capital projects, with the balance transferred to the Risk Reserve.

 

  1. Comments
  1. The following sums held in the Capital Reserve (inflation element) are required to meet the agreed outturn budgets of the respective projects:

Table 1 - Proposed Budget Transfers

Project

Dept

Original Inflation Budget

£

Required Funding 

£

 
 
Notes

Tube System Upgrade - Balance

HSS

7,000

7,000

Balance after transfer of funds to A&E/Radiology Ph 2

Central Laundry Batch Washer

HSS

36,000

36,000

Project yet to commence

Police Relocation (Phase 1)

T&R(PH)

930,000

930,000

Project yet to commence

Prison Redevelopment (Ph 2)

HAF

186,000

186,000

Awaiting final account

Prison Redevelopment (Ph 3)

T&R(PH)

490,152

490,152

Project in course of construction

Grainville (ph3)

T&R(PH)

338,000

(270,329)

Very low tender - uninflated budget greater than required. Project budget to reimburse Capital Reserve.

Police Relocation (Ph 2)

T&R(PH)

768,000

768,000

Project yet to commence

Sewage Treatment Works

TTS

524,000

524,000

Project yet to commence

In Vessel Composting

TTS

337,000

337,000

Project yet to commence

Sludge Thickener

TTS

0

345,000

Additional inflation due to restructuring of T&TS capital budgets - Project yet to commence

Sludge Treatment Ph2: Dryer

TTS

239,000

239,000

Project yet to commence

Fuel Farm Fire Fighting Equipment

TTS

343,000

343,000

Project out to tender

Details of the JD Edwards account codes are included in Appendix A.

 

  1. On completion of the above transfers, the Capital Reserve (inflation element) will have an unallocated balance of £4.03 million of the £25.2 million earmarked in the reserve.
  2. This is due to projects either being withdrawn from the capital programme (such as the proposed New Town Primary School and Belle Vue Residential Home and Daycare Centre) or projects being delivered a lower cost than forecast (such as Le Squez Ph1 and Grainville Ph 3).
  3. It is proposed that the balance of funding be transferred to the Risk Reserve to provide for risks materialising in future projects that cannot be contained within the specific project contingency sums. The Risk Reserve has a current balance of only £19,000.

 

  1. Recommendations

That the Minister:

  1. approves the winding up of the Capital Reserve (inflation element)
  2. approves budget transfers to specific capital projects as set out in Table 1 above and detailed in Appendix A.
  3. agrees that the residual balance of £4.03 million be transferred to the Risk Reserve.

 

  1. Reasons for Decision
  2. Maintaining a Capital Reserve (inflation element) is not compatible with Resource Budgeting.
  3. The budget allocations are required to complete the projects within the approved budget sums plus agreed inflation.
  4. It would be prudent to increase the level of funding in the risk reserve.

 

Property Holdings 

24 November, 2008 for Meeting 24/11/2008 

 

APPENDIX A

JD Edwards Budget Transfer details

Budget Transfers from Capital Reserve (inflation element) FXN105.121010 

To: 

 
Project

Dept

Budget

Transfer

Required

£

 
Business

Unit

 
Object

Account

Tube System Upgrade - Balance

HSS

7,000

JZ0079

120400

Central Laundry Batch Washer

HSS

36,000

JZ0080

120400

Police Relocation (Phase 1)

T&R(PH)

930,000

FXA026

121010

Prison Redevelopment (Ph 2& 3)

T&R(PH)

676,152

FXA024

121010

Grainville (ph3)

T&R(PH)

(270,329)

FXA018

120410

Police Relocation (Ph 2)

T&R(PH)

768,000

FXA026

121010

Sewage Treatment Works

TTS

524,000

QZL013

121010

In Vessel Composting

TTS

337,000

QZW030

121010

Sludge Thickener

TTS

345,000

QZS020

121010

Sludge Treatment Ph2: Dryer

TTS

239,000

QZS050

121010

Fuel Farm Fire Fighting Equipment

TTS

343,000

QZF100

121010

 

 

 

 

 

Risk Reserve

T&R

4,029,958

FXN105

122050

l:\finance\corporate capital\ministries\treasury and resources\capital reserve vote\mr windup transfers 081117 rf.doc printed on 24/11/08 at 04:33 PM

 

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