East Ayrshire Council cannot continue to invest in capital works as it has done for the last 15 years, councillors have been warned.
The impact of inflation and other increased costs, coupled with a self-imposed cap on how much it spends on capital projects, means that East Ayrshire Council won’t be able to afford its plans beyond the next four years without additional funds being sought.
In a report to councillors this week, head of facilities Andrew Kennedy will outline the difficulties facing the council and how they will impact some of the area’s biggest projects.
He states: “Over the past three years, challenges with Covid, cost of living, inflation, borrowing costs and market pressures have created an extremely challenging environment for capital investment.
“This has resulted in the existing approach being unsustainable and required an initial review of the capital programme to prioritise investment.
“The current capital programme was agreed with the revenue budget and treasury management plan.
"However, given the substantial level of borrowing, and the very limited scope to increase the overall programme, this will require a detailed review of the council’s capital plans over the coming year.
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“Inflation over the past two years has had a significant impact on project costs, with increases in costs of between 10 to 20 per cent; with material prices alone peaking at 23.8 per cent in 2022.”
Last year, councillors agreed that capital borrowing would be limited to eight per cent of the total revenue budget.
While this was sufficient to meet the borrowing last year, councillors were warned that future years could be more difficult, a situation which has now become a reality.
Mr Kennedy said that borrowing cap for the capital programme would only be affordable until 2026/27, with no scope for funding the final four years of the plan up to 2030/31.
He said that, while the programme could be reduced to remain affordable, councillors could allocate further funds to pay for debt charges.
However, he warned: “Given the conflicting demands on the revenue budget, the scope to allocate further funding is limited.”
Mr Kennedy said that significant strain would be put on the capital budget and recommended a further review of capital projects throughout 2024.
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He added: “There is very limited scope to continue to spend at the scale and pace of previous programmes.
“Indeed, the review should seek to reduce the size of the 2024/25 – 2028/29 programme and with future capital expenditure plans from 2029/30 onwards to consider being limited to the value of the capital grant received from the Scottish Government or external sources.”
Mr Kennedy said that opportunities for external funding would be pursued, but admitted that the financial crisis was impacting external funders as well.
A number of projects have been highlighted in the report, with an emphasis on schools.
It is pointed out that the cost of Doon Valley Community Campus will cost around £20m more than the original £41m budgeted for.
Both the campus and a new build at St Sophia’s Primary in Galston have seen ‘significant additional cost pressures’.
However, the council is required to cover the entire costs for the initial capital costs, with Scottish Government funding covering revenue budget repayments.
While the council has already approved an increase in the budget for St Sophia’s, the additional £20m for the Doon Valley Campus has not been identified.
The failure to secure Scottish Government funding for North West Kilmarnock Schools programme has meant the distribution of some of the £32m allocated to it.
This includes £10m to a new Willowbank School, £5m for refurbishment work at Onthank Primary School, £6.95m for Hillhead Primary School and £3m for Mount Carmel Primary.
A number of schools in the north of the authority were also highlighted, with the increasing population a key factor.
This includes increasing already approved works to Kilmaurs Primary School from £1m to £2.5m,
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A similar increase, from £1.85m to £2.85m has been proposed for Nether Robertland Primary in Stewarton.
However, it has been recommended that the allocation for a new Lainshaw primary will be reduced from £15m to £5.5m with a focus on improving the existing building.
A review of cemeteries requires an addition £500k, specifically for work to extend Mauchline cemetery.
Around £1m will be reallocated from other investments to link the Kilmarnock multi-storey site to the wider active travel and public realm, in part to achieve match funding opportunities.
The £13.85m budget for the Galleon Centre's refurbishment would be kept in place, although ongoing work is likely to include some lower cost options.
The report concludes: “While proposals for 2024/25 through to 2026/27 remain within the cap, expenditure beyond this breaches the cap and is unaffordable.
"Further review of the overall programme will be tasked with reducing the programme and returning it to the 8 per cent of the General Fund Net revenue Stream.”
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