Carmarthenshire Councils £122 Million Reserves Explained…

CLLR Jeff Edmunds, Executive Board Member for resources, has explained the purpose of reserves following speculation about their use.

Over the last week, it has been publicised that the council has £122million in reserves, with demands to use some of that money to fund services. The figure quoted was the balance held at March 31, 2014, not the forecasted balance at the end of March this year, which is £96million.

However, the majority of the money should not be used to fund general council services, as it is designated for a particular use – for example, an insurance fund, housing improvements, schools, and other capital projects.

As at 31 March, 2014, £73.5million was being held in ‘earmarked reserves’ – funding that the authority is holding for the delivery of specific projects or to protect the authority against future liabilities. This is forecasted to reduce to £62m by the end of March 2015

This leaves some £8.7million in ‘general reserves’ – just 2.2% of net council expenditure during 2015/16. This is 0.8% below the ‘prudent’ level of general reserves that was recommended.

“We appreciate why people were questioning why we are keeping £122million in reserves, which is forecasted to be £96m by the end of March, and then cutting our services,” said Cllr Edmunds. “But we cannot simply dip into these reserves, the vast majority of which is ring-fenced for a specific use.

“Put simply – to compare with an average household – reserves are like our savings account which we use if we need to make home improvements, fix the car etc, and our revenue budget which funds services, are like our current account which pays our bills. If we raid our piggy bank because we can’t afford to pay our bills it will be depleted and when we need money for anything there will be none there. Reserves are for one-off expenditure or projects, it is unsustainable and would be a reckless use of funds to take money from them for day to day living.

“Our general reserves – the money we could choose to use – stood at £8.7million at March 31, 2014, below the ideal prudent level that the authority has always worked to, and auditors have supported.

Chris Moore, the council’s Head of Financial Services, added: “Reserves are set aside to meet future potential liabilities, and any use of the reserves for any purpose other than what it is earmarked for, should be considered with extreme caution.

“Use of reserves provides a one-off funding stream, which is not ongoing in the council’s future financial plan. It has always been advised that reserves should be used for one-off items of expenditure, such as capital projects.”

In setting the budget, and the level of money to be held in reserves, councillors have had to consider a number of significant risks.

For example, the council has identified that £42million of savings need to be made over the next three years. The ability of departments to make those savings is a risk.

The level of funding from Welsh Government which makes up 80 per cent of our budget, is unknown and likely to reduce significantly for future years.

A number of grants which the council is usually able to draw down, may also be withdrawn by funding bodies no longer able to offer them.

Plus, the council needs to be able to match-fund certain grants, for example European Convergence funding, and without having money readily available it is at risk of being ineligible to draw down grants.

Leader of the council, Cllr Kevin Madge, said: “We want to be very clear about our use of reserves. We are planning for a sustainable future. Raiding our ‘piggy bank’ to see us through this financial year simply stores up problems for the future. It would be irresponsible to put ourselves at such risk.”

Total held in reserves at March, 31, 2014 – £122million
The only reserve that can be used is ‘general reserves’ – £8.7million
Earmarked reserves (£73.5m) are held to protect the authority against future risks and liabilities, for example self insurance liabilities. If this money is not available, the council’s insurance premiums would increase
Housing Revenue Account (£15m) is money held for the council’s housing stock. It is ring-fenced, and can only be spent on the housing stock, to support the Carmarthenshire Homes Standard Plus home improvement programme
Unapplied grants (£1.3m) – money received to be applied to the five year capital programme, and can’t be used for any other reason
Capital receipts (£19.3m) – can only be used in support of the five year capital programme
Schools have delegated control of their own finances – £4.2m is held on their behalf