SummaryBy 2022, Cheltenham Borough Council (CBC) will have made significant local investments and is predicting a financial net surplus. This achievement will be the result of long-term fiscal planning, embracing calculated risks with commercial opportunities and boldly encouraging growth in a climate of austerity. With ambitious commercial plans for the future, this surplus is expected to increase over the next ten years. Despite a challenging financial environment, CBC maintain investment in frontline services and public realm – achieved through innovative shared services, safeguarding existing services, investment, skilled treasury management and astute commercial investments with a clear sense of purpose.

BackgroundSince 2010, CBC like other councils has faced unprecedented fiscal challenges with:

• A double-dip recession• Stunted economic growth• Government cuts in funding• Rising demand for services, with increased costs associated with its provision• Welfare reform and stagnant wage growth

CBC has aspirations for the long-term future of Cheltenham, a festival spa town, to deliver and maintain the very best quality of life for its people. Cheltenham was named by the Telegraph as the best place to raise a family in the UK and the New York Times dubbed it as a destination enjoying cultural renaissance. CBC prides itself as being the custodian and provider of local services, enabling the town to continue developing its compelling marketplace offer.

What problems were we trying to solve?The negative experience of CBC’s Icelandic Bank investments and double dip recession meant the financial environment was challenging; core funding was cut by £5.7m,from £8.8m to £3.1m, with further reductions through to 2019/20. In addition, during 2013/14, £11m investments performedat 0.4% return which was poor; the base rate was 0.5%.

Best Commercial Council

”Calculated Risk Taking”

How we changed our approach?

Our finance and assets department initiated an audit of assets, worked with Grant Thornton and treasury advisers to develop a sound roadmap that fostered financial structuring and investment options planning. Options were defined into three categories: continuing as we are, take a commercial approach, or seek greater collaboration to secure the council’s future.

To continue as we were would mean CBC would have had to rely heavily on fees and charges, further streamlining, or significant service cuts, including reducing our staff and skills base. Members and officers were keen to explore alternatives delivering growth, income and revenue streams, together with tangible improvements. A bold shift to collaboration and commercialisation was needed to deliver expectations.

What we have done and the outcomes achieved:

Skilled Treasury ManagementWith investment and interest rates remaining low in the medium-term, CBC demonstrated skilled treasury management and cash-flow performance. Returns from traditional fixed-term cash deposits are minimal, so growth was met through diversification into alternative investment sources, such as pooled property funds, multi-asset funds, including bond and equity markets, which alongside LGPS up-front payments has generated £0.5m in additional revenue.

Debt restructuring and minimum revenue provision reviews have enabled CBC to make significant savings on debt repayments. For example, in 2018 CBC arranged 38 loans, receiving £41.867m from the Public Works Loan Board (PWLB) to finance four commercial property acquisitions. In the business case, the annuity loans rate to borrow funds over 40yrs was 2.81% and on the day the loans were agreed the annuity rate stood at 2.78%. However, a decision was made to take out a basket of maturity loans from 3yrs to 40yrs,resulting in interest savings of £937k against taking out a 40yr annuityloan and achieving an average borrowing rate of 2.57%.

“Rather than have cuts, we want growth. We need to be brave and bold to achieve that.”

Cllr Rowena Hay, member for finance

“Commercial awareness is the ability to view situations from a commercial or business perspective. CBC needs to be able to test the boundaries and stand in the possibility of what could be achieved.” Paul Jones, executive director for finance and assets

Commissioned Services

Almost £1 million High Street investment project funded by CBC, County Council and the European Structural and Investment Fund was completed in October 2018; supported

Innovative Shared Service

Public Realm Investments

by Cheltenham BID and Cheltenham Development Taskforce. Focussed on supporting the revitalisation of the high street, this complemented the flagship concept store opening for John Lewis, which invested £23m in the 115,000 sq ft shop on the high street.

The Cheltenham Trust A charity responsible for Cheltenham’s £60 million iconic cultural and leisure sites, including listed buildings. Established in 2014 by CBC, the trust manages historic and contemporary facilities across the town. Savings from the trust 2013/14 to 2018/19 stand at £832,300.

Ubico CBC co-founded Ubico, a service provider offering a range of integrated environmental services including household and commercial residual waste collections, recycling collections etc. Ubico successfully expanded with five additional councils joining. Savings from Ubico/waste & recycling 2011/12 to 2018/19 are £1,301,800.

Publica Group CBC is one of four founding councils which created Publica borne out of a successful shared services model; this public services provider not only provides cost effective services but has ambitious plans for commercial growth. Publica provides CBC with greater economies of scale and resilience. Savings from GOSS/Publica 2012/13 to 2018/19 are £433,900.

SWAP Provides a professional, cost-effective and high-quality internal audit service throughout the south west and beyond. Savings: £73,400.

One Legal Originally established between CBC and Tewkesbury Borough Council and partnership now expanded with Gloucester City Council joining. One Legal has a diversified client base, in addition to its partner councils. Savings: £113,500

In February 2018, CBC set out to become a more enterprising commercially focused council and financially sustainable by 2021/22, so a new Commercial Strategy was developed to achieve this goal.

This included internally informing and dispelling myths surrounding risk, investigating the potential of land and its use, enhancing and supporting the property department’s skills and experience base to help secure healthy commercial returns.

This approach aligns closely with other key strategies, including place-making, economic growth, digital transformation, people development, investment and asset management, conveying a combined

message, both internally and externally, that CBC had entered a new era of business enterprise, growth and innovation.

The council’s commercial lens focussed closely on local market conditions to consider additional investments in commercial property and regeneration, through both direct and indirect investment, to help boost local economic activity.

The third key milestone was for CBC’s asset team to shift its focus to increasing revenue through a more balanced portfolio, securing a local ‘place making’ element and engaging with the commercial market to drive a step change in financial performance.

New Commercial Strategy

This began with a review of properties which came on the local market, using the Property Options Appraisal. The benchmark sets out that the return must net yields of at least 5%.

CBC’s previous strategy followed boxes 1-3. Risks increase as you move to the right and potential returns increase at the same time, offering the prospect of genuine growth. CBC was clear that boxes 4-6 would aid the place-making agenda, whilst delivering against community outcomes, such as reducing housing waiting lists and promoting regeneration.

Property Options AppraisalThe Options Appraisal considers the relative benefitsand limitations of six investment options as follows:

Existingassets-direct

investment

Existingassets - joint

ventures

PropertyFund

Risk share development

- forward purchase/

funding

Increasing risk and returns

These are assessed against eight criteria:• Financial objective• Revenue delivery• Risk• Control Liquidity

Risk share development- joint venture

Self-develop

1 2 3 4 5 6

• Management oversight• Performance• Diversification

“The Council’s finances are in a good position to withstand the uncertainties that lie ahead.”

– 2018 LGA Peer Review

Local authorities have a key role in facilitating the long term regeneration and economic growth of their local areas. To facilitate this, councils may consider investments. When determining whether to acquire, the council needs to recognise the contribution the asset will make. The contributions could be classified as direct service delivery, place-making, economic growth, business rates growth, responding to market failure or sustainability of certain asset classifications. Financing through a combination of capital receipts, internal and external borrowing resulted in the following local acquisitions:

CBC is in the top 10 local authority property acquisition ratings for 2018 and its net income from its property investment portfolio is £1.7m per annum, projected to rise to £2m by 2022/23.

Property Purchase Price Sq ft Yield

Delta Place - June 2015 £13.75m 57,177 9%

This modern town centre office suite are fully let generating rent of £1.289m per annum.

211 High Street - June 2018 £1.28m 3,720 5.82%

Applying the options appraisal and with a strong covenant (Caffé Nero) in situ, swift finance arrangements were made and purchase was executed within a month.

53-57 Rodney Road - August 2018 £1.775m 7,945 5.71%

The property team spent over a year examining the local market conditions. Members were keen to explore office space purchase, rather than retail, given the market horizon. The team negotiated a

successful acquisition within five months.

Ellenborough House - September 2018 £17m 47,168 5.47%

At time of purchase, there were four tenants (secure covenant) with potential to grow the business in terms of market rent. Due to the significant investment and good covenant, this required close and swift

working with members to secure the purchase as an off-market acquisition.

Sainsbury’s - October 2018 £20.72m 45,000 5%

CBC developed dialogue with a specialised retail agent and landlord for another off-market acquisition where the tenant, Sainsbury’s, had taken a 30 year lease. This particular store is in the top 100 in terms

of performance and generates rental income of £1.1m per annum.

What challenges did we meet and howdid we overcome them?

Challenge How overcomeLack of in-house commercial investment expertise

Recruited private sector additions to asset management team

Portfolio performance Diversified risk-based acquisitions

Risk-averse members Internally informing and dispelling myths surroundingrisk, the possibilities for land and its future use

Public understanding ofinvestment rationale

Media briefingsFocus on good news storiesPublic announcements on commercial acquisitionsand successful project delivery

What next?Our commercial journey continues, with initiatives including:

• Making Cheltenham the ‘Cyber Capital’ of the UK, through the creation of the UK’s first cyber park.

• Building three new industrial units to meet demand with projected net yields of 6%.

• Community Lottery: launching 2019.

• Options review for new depot provision - current site is at saturation point, so it’s key to ensure waste and recycling services continue efficiently into the future. Current site re-development has a potential yield of 5%-6%.

• Working with Professor Paul Courtney from the University of Gloucestershire, to optimise social value from procurement spend.

• A new £8.5m crematorium, provided through borrowing on an ‘invest to save’ basis opening on-time and on-budget in March 2019; investment underpins a long term revenue stream and valued local service.

• Car parking – strategic consultancy review by Ove Arup Ltd completed in 2017, resulting in tariff restructuring to help secure objectives, such as modal travel shift and investment in infrastructure. This has seen CBC off-street parking income rise by £680k (17.7%) to £4.5 million in 2018, whilst bus travel is up by 5,000 journeys per week (4%) against a national average decline of 2%.

• Vacant Municipal Offices space, available for small business lets from August 2019.

• Leading Public Sector commercial consultant, David Elverson providing training, mentoring and coaching for staff, to foster new commercial initiatives to fruition through a ‘bottom up solutions’ approach.

• Working with our ALMO, Cheltenham Borough Homes, implement an approved £100m housing investment plan, creating affordable homes and support wider regeneration. National press coverage - Inside Housing.

• Expansion of ‘Marketing Cheltenham’ in 2019 (established in 2017), a growing service led by CBC, Cheltenham BID and Cheltenham Tourism Partnership to further boost the visitor economy.

Why we feel we deserve to win:CBC ‘punches above its weight’ and has shown what can be achieved with a clear sense of purpose, active member and staff engagement, a culture of learning and not being afraid to bring in new skills to drive change; this puts our goal of financial self-sufficiency within reach.

Our belief is that councils have a rich source of assets, attributes and roles from which we can derive commercial benefit, whilst delivering social value outcomes. Authorities need to be brave, having carefully considered and evaluated the risks of investment with public money, recognising that failure is a possible outcome, but also a learning opportunity.

“Success is not final, failure is not fatal: it is the courage to

continue that counts.”

VisionKnow what difference you wantto achieve and why – assess

the position and look atthe options. Build

the caseIt’s not just aboutmoney, it’s about how to worksmarter together to achieveimproved outcomes – make the case for change.

Lay the foundations,build networks, learnfrom peer knowledge

banks, build confidence– test and learn.

Critical support This is not just about politics.

For successful improvementssharing knowledge is key for

an informed mindset andcollaboration is critical.

EngagementMake achievement attainable

for everyone in the council.Empower people to think

and work differently.

Confidence Commercial awareness comes

from trying, learning, embracing bumps along the way. Celebrate

success with everyone.

BUSINESS CASE

Build it

Setting theScene

Calculated Risk Taking

Cheltenham BoroughCouncil’s Journey

Ellenborough House

56-57 Rodney Road 211 High Street

Sainsbury's (Cllr R Hay

member for finance)

Delta place

Property and PublicRealm Investment

£1million investment funded by Cheltenham Borough Council, Gloucestershire County Counciland European Structural and Investment Funds

Commercial strategy‘At the heart of the CBC mindset’Main Chapel

CBC is in the top 10 local authorityproperty acquisition ratings for 2018

CBC local property investment portfolio

net income£1.7m

Commissionedand shared servicessavings £2,754,900

2011-2019

Ellenborough House September 2018

Purchase Price: £17mSq Ft: 47,168Yield: 5.47%

Delta PlaceJune 2015

Purchase Price: £13.75mSq Ft: 57,177

Yield: 9%

211 High StreetJune 2018

Purchase Price: £1.28mSq Ft: 3,720Yield: 5.82%

53-57 Rodney RoadAugust 2018

Purchase Price: £1.775mSq Ft: 7,945Yield: 5.71%

Sainsbury’sOctober 2018

Purchase Price: £20.72mSq Ft: 45,000

Yield: 5%

£73,400

£832,300

£113,500

£1,301,800

£433,900

Gloucestershire Airport

M5 Junction 10

Cheltenham Town Centre

A world-class campus

Intense and tranquil

A smart ecosystem

Environmentally innovative Healthy Inclusive

Diverseliving options

Connected

A 24/7campus

A collaborative community that brings together leading cyber businesses and innovators alongside academic facilities dedicated to cyber and digital technologies_

A vibrant and thriving community located within a unique landscape setting_

A connected community that is digitally, environmentally and socially intelligent_

An ecologically friendly development that is restorative to its natural surroundings_

A green and biodiverse development that encourages physical and mental

wellbeing_

A transformational development that creates strong communities_

An inclusive community in the region of 3000 homes that

provides varied, affordable and flexible tenancies_

An accessible development that is physically, digitally and cul-

turally integrated_

A dynamic community that integrates a diverse mixture of uses

and people_

Cyber Central Vision

/ A new cyber capital for the UK

/ A catalyst for growth and change in Gloucestershire

/ A pioneering new community for Cheltenham

Gloucestershire Airport

M5 Junction 10

Cheltenham Town Centre

A world-class campus

Intense and tranquil

A smart ecosystem

Environmentally innovative Healthy Inclusive

Diverseliving

options

Connected

A 24/7campus

A collaborative community that brings together leading cyber businesses and innovators alongside academic facilities dedicated to cyber and digital technologies_

A vibrant and thriving community located within a unique landscape setting_

A connected community that is digitally, environmentally and socially intelligent_

An ecologically friendly development that is restorative to its natural surroundings_

A green and biodiverse development that encourages physical and mental

wellbeing_

A transformational development that creates strong communities_

An inclusive community in the region of 3000 homes that

provides varied, affordable and flexible tenancies_

An accessible development that is physically, digitally and cul-

turally integrated_

A dynamic community that integrates a diverse mixture of uses

and people_

Cyber Central Vision

/ A new cyber capital for the UK

/ A catalyst for growth and change in Gloucestershire

/ A pioneering new community for Cheltenham

Cheltenham’s Future