Issue - decisions

Year

Forecast short – term deficit on SCIC business plan

Additional ‘ring fenced’ Support for Arts Organisations

TIC Rent

Total

2008-09 (Part Year)

£35,600

£5,000

£600

£41,200

2009-10

£52,200

£17,500

£2,300

£72,000

2010-11

£19,200

£9,100

£2,600

£30,900

£107,000

£31,600

£5,500

£144,100

Option

Advantages

Disadvantages

Risks /Mitigation

Option 1

Abandon project – complete capital works then sell building.

No need for Cabinet decision on the potential for future support to SCIC

A requirement for clawback of funding by ACE, NWDA and ERDF, amounting to £3.5 million.

Uncertainty of position and costs of TIC in a private building under a commercial owner/investor. Risk to capital receipt from existing premises.

Uncertainty of position of arts organisations in returning to the building under a commercial owner/investor.

Reputational cost of abandoning the project. Adverse effect on regional /national funders’ views on the Council’s ability to deliver complex projects.

No potential for added value development of Creative Industries cluster and contribution to a national and regional economic development agenda.

Uncertainty of position during building marketing period.

Effect on regional /national funders’ views on the Council’s ability to deliver complex projects.

Clawback of all grant associated with the project (£3.5m) for non delivery.  This would need to be funded initially from Unsupported Borrowing (average of £266,900 pa over the first 3 years, with reducing annual sums over the lifetime of the building).

Clawback could be mitigated by building sale. But, outside of a formal valuation, there is no indication of what a sale of the building (under covenant and with no commercial sitting tenants), could achieve.  It is unlikely that receipts from sale would match the level of clawback.  Council may still be required to return funds. 

Adverse effect on regional /national funders’ views on the Council’s ability to deliver on wider ‘Vision’ agenda which could involve relationship development with third party organisations and similar risk/reward considerations.  

Risk to current bid for additional resources to complete ‘mothballed’ areas of the scheme.

Option

Advantages

Disadvantages

Risks /Mitigation

Option 2

Complete capital scheme offering no revenue support to SCIC (neither current agreed nor any additional ‘safety net’) or additional ‘ring fenced’ support for Storey Gallery/LitFest. 

Note: it is assumed SCIC could not take on the lease under these conditions (under insolvency risk) and the project reverts to the Council to deliver.

Council operates directly, potentially on similar lines to other operations (e.g. CityLab), as workspace with more control on cost side.  Council could use minimal staffing (e.g. caretaker/receptionist) or a staffing complement sufficient to achieve some creative industries objectives in the short-term. 

A chance of successful delivery of some  economic, business and cultural outcomes being achieved. although likelihood of achievement is at ‘medium to high risk’

May be able to avoid clawback on majority of capital costs if it is run as workspace and provides the cultural offer to some degree.

The Council would have the option to negotiate arts organisation rental.  

Council could potentially generate  operational surplus in the medium to long term.

Certainty of place of TIC in building.

Invalidates the use of the value of the building as an ‘in-kind’ contribution in the capital scheme.

Likely short term revenue shortfall when clawback, arts organisation rentals and market situation are considered even under minimal staffing.

Development of revenue side of the building requires extensive internal staff commitment to marketing, businesses and facility management.

Loss of time, commitment, energy and expertise of the SCIC Board and loss of flexibility/added value of an independent partner champion for the creative industries.

Fails to achieve full economic/cultural  benefit of the project as a Creative Industries Centre. Council will not be able to access finance opportunities that a third party could.

Loss of innovation, potential economic/cultural reward and regional exemplar project.  Attractiveness of ‘creative hub’ could be diminished for potential occupiers.

Costs and risk are definitely internalised and officer workload increases.

The Council has some resources, skills and flexibility to operate the centre successfully to funders’ expectations.  But it has not planned to absorb such costs/workload.

Due to loss of ‘in-kind’ match funding at least £450k clawback would need be financed by additional Unsupported Borrowing - over first three years this would be £34,300 pa. Also clawback risk (£67k) on ACE intervention rate if ERDF match is lost.  The clawback costs would be in addition to short term deficit faced (potentially to a proportion of the level anticipated by SCIC).  Losses may be mitigated in medium-long term but officers would need to ‘drive’ the building offer.

Funders’ primary concern may be to ensure that the building was continuing in the use for which grant was given (creative industries workspace) and could be supportive of this option.  Clawback of the majority of capital grant may be avoided – but ACE requires a broader cultural offer. There is still medium risk of clawback on all grant if Council cannot meet overall scheme objectives or convince funders’ to their satisfaction.

Loss of innovation and potential longer term rewards – delivery mechanism is not tested. 

Option

Advantages

Disadvantages

Risks /Mitigation

Option 3

Complete capital scheme offering SCIC only current agreed ‘safety net’ £50k no additional ‘safety net’ and no additional ‘ring fenced’ support to arts organisations (Storey Gallery/LitFest). 

Note 1: while it is assumed SCIC could take on the lease under these conditions viability in the short-term is unlikely.

Note 2: it is assumed revenue support is delivered up front in the relevant periods to aid cashflow.

A small chance of successful delivery of the project and full range of economic, business and cultural outcomes being achieved. although likelihood of achievement is at ‘medium to high risk’

SCIC challenged to be more flexible in their business planning and approach to cost side of the business plan.

Avoids any risk of clawback if operated successfully.

Certainty of position TIC in building.

In the event of SCIC short term business failure the premises would have been ‘up and running’ for a period and have some commercial activity in situ. 

Uncertainty and high risk for all stakeholder organisations moving forward.

Possibility that one or both of the arts organisations are unable to return to the building and/or have operational and programming difficulties.

High possibility of unsustainable short-term deficit in SCIC business plan and risk of potential business failure. 

SCIC business failure within ERDF lifetime could still invalidate the use of the value of the building as an in-kind contribution in the capital scheme.

Development of revenue side of the building requires major commitment to marketing, businesses and facility management.  SCIC forced cost cutting may mean they could not deliver to funders’ expectations leading to longer term clawback risk for Council.

Low but present risk that SCIC may refuse to take on the lease and leave the Council facing the situation outlined in Option 2 in full.

Costs and risk could become   internalised and officer workload may increase.

High risk that SCIC will run into financial deficit and fail in the short term.

If SCIC business fails Council could step in and run the building facing broadly the same operational situation and internal costs and revenue cost risk as outlined in Option 2 - albeit with some base commercial activity in situ.

ERDF ‘in kind’ match clawback may be avoided as transfer of building would have been made. If the building is returned to the portfolio, the Council ‘regains’ the sunk value (less the value of the term income ‘lost’ while the building was under lease to SCIC.  £450k clawback must still therefore be allowed to be financed as noted in Option 2 (with associated risk to element of ACE funding).

As in Option 2 clawback of the majority of capital grant may be avoided – there is still medium risk of clawback on all grant if Council cannot meet overall scheme objectives or convince funders’ to their satisfaction.

Potential loss of innovation and potential longer term rewards if business fails but delivery mechanism would have been fully tested. 

Option

Advantages

Disadvantages

Risks /Mitigation

Option 4

Complete capital scheme offering SCIC current agreed ‘safety net’ £50k,  but approve only additional growth in revenue support for arts organisations up to maximum level outlined in report.   

Note: it is assumed revenue support is delivered up front in relevant periods to aid cashflow.

A chance of successful delivery of the project and full range of economic, business and cultural outcomes being achieved. although achievement is considered to be at ‘medium risk’

SCIC challenged to be more flexible in their business planning and approach to cost side of the business plan, though to a lesser degree than Option 3.

Low real risk that SCIC Board refuse to take on the lease of the building.

Avoids any risk of clawback if operated successfully.

Certainty of position TIC in building.

A small chance SCIC may not require all ‘safety net’ allowed if business overachieves in short-term – although this will be difficult in the current climate.

In the event of SCIC short term business failure the premises would have been ‘up and running’ for a period and have some commercial activity in situ. 

Additional short-term Council revenue costs over and above current £50k ‘safety net’ agreed.

Possible lack of incentive ‘drive’ for Arts Organisations to deliver on business model improvements. But mitigated by payment of support to SCIC rather than direct to arts organisations.

Possibility of unsustainable short-term deficit in SCIC business plan and risk of potential business failure. 

Medium risk for SCIC business in short term.

SCIC business failure within ERDF lifetime could still invalidate the use of the value of the building as an in-kind contribution in the capital scheme.

Development of revenue side of the building requires major commitment to marketing, businesses and facility management.  SCIC cost cutting may mean they could not deliver to funders’ expectations leading to longer term clawback risk for the Council.

Risk that arts organisations fail to develop longer term sustainable business plans without dependence on future support requests to funding partners. 

Medium risk that SCIC fails to achieve its short term business plan targets and building reverts back to the Council to run with similar implications to Options 2 and 3

If SCIC business fails Council could step in and run the building facing broadly the same operational situation, clawback issues and internal cost and revenue cost risk as outlined in Option 3 - albeit with further commercial activity in situ.

As in Option 2 clawback of the majority of capital grant may be avoided – there is still medium risk of clawback on all grant if Council cannot meet overall scheme objectives or convince funders’ to their satisfaction.

Costs and risk could still become   internalised and officer workload may increase.

Option

Advantages

Disadvantages

Risks /Mitigation

Option 5

Complete capital scheme offering SCIC current agreed ‘safety net’ £50K and approve only growth for additional ‘safety net’ (subject to ongoing review of business plan targets and market conditions). No additional ‘ring fenced’ support for arts organisations (Storey Gallery/LitFest). 

Note: it is assumed revenue support is delivered up front in relevant periods to aid cashflow.

A chance of successful delivery of the project and full range of economic and business outcomes being achieved. although achievement is considered to be at ‘medium risk’ due to impact on partner arts organisations.

SCIC challenged to be more flexible in their business planning and approach to cost side of the business plan, though to a lesser degree than Option 3.

Low real risk that SCIC Board refuse to take on the lease of the building.

Avoids any risk of clawback if operated successfully.

Certainty of position TIC in building.

A small chance SCIC may not require all ‘safety net’ allowed if business overachieves in short-term – although this will be difficult in the current climate.

In the event of SCIC business failure the premises would have been ‘up and running’ for a period and have commercial activity in situ. 

Additional short-term Council revenue costs over and above current £50k ‘safety net’ agreed.

Uncertainty for arts organisations moving forward.

Possibility that one or both of the arts organisations are unable to return to the building and/or have operational and programming difficulties.

Likely reduction in cultural offer and ‘knock-on’ effect on SCIC footfall

Possibility of unsustainable short-term deficit in SCIC business plan and risk of potential business failure.  Medium risk for SCIC business in short term if arts organisations do not take up space.

SCIC business failure within ERDF lifetime could still invalidate the use of the value of the building as an in-kind contribution in the capital scheme.

Development of revenue side of the building requires major commitment to marketing, businesses and facility management.  SCIC cost cutting may mean they could not deliver to funders’ expectations leading to longer term clawback risk for the Council.

Arts organisations fail to integrate into the centre with revenue, events programme  and cultural impacts for SCIC and the Council.

Medium risk that SCIC fails to achieve its short term business plan targets and building reverts back to the Council to run with similar implications to Options 2, 3  and 4 – with commercial activity but without arts organisations in situ.

As in Option 2 clawback of the majority of capital grant may be avoided – there is still medium risk of clawback on all grant if Council cannot meet overall scheme objectives or convince funders’ to their satisfaction.  Loss of a major part of the cultural offer may prove a disadvantage in discussions.

Costs and risk could still become   internalised and officer workload may increase.

Costs and risk could still become   internalised and officer workload may increase.

Option

Advantages

Disadvantages

Risks /Mitigation

Option 6

Complete capital scheme offering SCIC current agreed ‘safety net’ £50K and approve growth for  additional ‘safety net’ for SCIC (subject to ongoing review of business plan targets and market conditions) and ‘ring fenced’ support for arts organisations for incorporation into MTFS.

Note: it is assumed revenue support is delivered up front in relevant periods to aid cashflow.

This is the Preferred Option

Highest chance of successful delivery of the project and the full range of economic and cultural outcomes being achieved.

SCIC has full confidence in their business plan and approach to managing costs/objectives. The company is still challenged to be flexible in their business planning due to market circumstances.

No risk that SCIC Board refuse to take on the lease of the building. Avoids any risk of clawback if operated successfully.

SCIC may not require all additional ‘headroom’ allowed.

Both of the arts organisations are able to return to the building and avoid short term  operation and programming difficulties.

Tapered incentive (via SCIC market discount) for arts organisations to deliver on business model improvements.

Certainty of position TIC in building.

SCIC may not require all additional ‘headroom’ allowed if business overachieves in short-term.

In the event of SCIC business failure the premises would have been ‘up and running’ for a period and have commercial activity in situ. 

Additional short-term Council revenue costs over and above current £50k ‘safety net’ agreed.

Lowest possibility of short-term deficit in SCIC business plan, lowest risk of potential business failure. 

Possible lack of incentive ‘drive’ for Arts Organisations to deliver on business model improvements. But mitigated by payment of support to SCIC rather than direct to arts organisations.

Possibility of unsustainable short-term deficit in SCIC business plan and risk of potential business failure. 

Medium risk for SCIC business in short term.

SCIC business failure within ERDF lifetime could still invalidate the use of the value of the building as an in-kind contribution in the capital scheme.

Development of revenue side of the building requires major commitment to marketing, businesses and facility management.  SCIC cost cutting may mean they could not deliver to funders’ expectations leading to longer term clawback risk for the Council.

Risk that arts organisations fail to develop longer term sustainable business plans without dependence on future support requests to funding partners. However, SCIC may  be in a position to assist if the wider project is successful.

Lowest risk that SCIC fails to achieve its short term business plan targets with implications for Council under previous Options.

SCIC business could still fail but  Council could step in and run the building facing broadly the same operational situation, clawback issues and internal cost and revenue cost risk as outlined in Options 2, 3 and 4 - albeit with more commercial activity in situ.

Costs and risk could still become   internalised and officer workload may increase.

Lowest risk that SCIC fails to achieve its short term business plan.  Lowest chance of business failure and the building reverting back to the Council to run with similar implications to Options 2, 3 and 4.