District Auditor letter to City Council

Dear John

Central Business District

I am writing with regard to the Council's proposed development of the Central Business District (CBD) and the Council's plans to relocate to Hanley to become the "anchor tenant" for the CBD.
The proposed development of the CBD is a subject of significant interest to local residents, and I have received a number of queries with regard to the development. The issues raised with me can be summarised in three main areas:

• the Council's rationale for the CBD, and the future use of the Council's current offices;
• the impact of the CBD, and the move of the Council offices, on the Council's revenue and capital expenditure; and
• the impact of CBD and the move of the Council offices to Hanley on Stoke town centre.

My role is not to question the policy decisions made by the Council. I am required to consider whether the Council has followed its procedures in making policy decisions, and whether it has taken into account all reasonable information when making its decision. I am also required to comment on whether the Council is operated in an efficient, economic and effective way.

I set out below my views on three main areas raised by local electors below.

My review is based on information provided by officers and the review of relevant documents, reports and minutes.

I would be grateful if you could bring this letter to the attention of members, and if the Council could respond to the recommendations I have set out in this letter.

Rationale for the CBD
I am satisfied that there is a clear rationale for the development of the CBD.

The Council's rationale is based on its desire to, and the perceived need to, drive regeneration in both the city centre and the wider conurbation of Stoke on Trent. Regeneration is a legitimate activity for the Council and I am satisfied that the Council has appropriate legal powers to support the regeneration of Stoke on Trent.

Economic comparators provided by the Council indicate that the city is underperforming economically in comparison to similar cities. The economic analysis provides a sound basis for the Council to take action to regenerate the city. The Council has clearly set out its objectives for regenerating the city and has consulted widely on its proposals, most recently through the "Mandate for Change" programme.

The Council's decision to focus on developing a 'city centre' in Hanley is a key element of the its regeneration strategy. Officers have set out in papers to the Council and its committees that the development of a city centre is necessary to generate growth. This is supported by independent research commissioned by the Council and is supported by the experience of other towns and cities.

The CBD proposal is part of a properly formulated plan for Hanley. The CBD proposals do not exist in isolation, this is part of a larger regeneration scheme including retail development in the city which is being progressed by the "City Sentral" shopping centre. This is consistent with the independent research which links retail development and increased footfall from office development to the incentive for businesses to take up office accommodation in a vibrant and developing location.

I note that a significant body of opinion disagrees with the creation of a city centre in Hanley and wish to retain the concept of the "six towns". These views have been discussed and debated in public at Council meetings on 6 September 2012 and 24 January 2013. I am therefore satisfied that the Council has considered these views in setting its policy.

Local residents have also highlighted that the move to the CBD project carries with it a degree of risk, particularly that the Council will not be able to dispose of its current headquarters in Stoke Town and that it will fail to accelerate the wider redevelopment and therefore fail to have the expected impact on Hanley. Local residents have also commented that the expenditure on the CBD could be used for other regeneration projects. Again, these views have been discussed and debated in public meetings on 6 September 2012 and 24 January 2013. I am therefore satisfied that the Council has broadly considered the risks to itself and the community in setting its policy.

On this basis I would not propose to challenge the decision made by the Council. However, I would be grateful if you could bring the following points to the attention of members:

• Local residents have raised concerns that the Council is vacating offices that are 'fit for purpose' and that the expenditure being incurred is unnecessary. A report from the Council's advisors dated 31 May 2011 supports proposals for the relocation of the Council comprising a partial move to the CBD but retaining other "core operational property" including the Town Hall and Civic centre in Stoke. These proposals have subsequently changed to moving all services to the CBD and disposing of the Stoke site. The reasons for this change in the Council's proposals relate primarily to the opportunity to improve customer services through a new localities hub/modern central lending library, and to enhance regeneration value. There is also the potential to generate additional savings by consolidating all staff on one site and from the sale of the civic Centre and town Hall. I have the following concerns in this area:

1. The Council has not yet agreed what other properties will be needed to deliver customer access points (customer hubs), and which can be disposed of. There are clear risks to the revenues savings forecast and the overall revenue and capital financial impact of the scheme if the Council does not vacate the Civic Centre and Town Hall, and other Council properties. However, I note that a 'localities review' has commenced and will report the options to Cabinet in April/May 2013
2. Plans for the future use of the Council's current council offices are unclear. The redevelopment of the site is dependent on the wider regeneration schemes for Stoke Town which I comment on later. At present there is a significant risk that these premises will be vacant for a considerable period

• There may be accessibility issues to the CBD. There is relatively poor road access to the Hanley location, and the railway station is in Stoke. The Council has proposed road developments to improve the approaches and the new Hanley bus station has now been completed. However, the Council will need to deliver the road improvements and improve the connectivity between Hanley and the railway station in Stoke if it is to meet the objectives set
• The success of the CBD and the 'City Sentral ' project both focus on Hanley and the establishment of a city centre. Both projects are more likely to achieve the regeneration sought by the Council if the developments progress in parallel. The Council needs to continue to engage with the developers of 'City Sentral' to facilitate progress. The Council also needs to consider the potential impact of further delay to the "City Sentral" project on the CBD development, for example on the attractiveness of the development to potential occupiers and the timing of future phases of the development. This needs to be built into the risk management process. One potential occupier for the CBD has been identified and the Council needs to focus on attracting other businesses to the development.

On the basis of my review I recommend that:

• the 'localities report' setting out options for the future property requirements of the Council, and future customer access points is presented to Cabinet at the earliest opportunity. The report should clearly set out the future revenue and property costs of the various options
• a report is prepared for members setting out the different options and costs relating to the sale, letting or 'mothballing' of the Town Hall and Civic Centre
• a report is presented to cabinet setting out the actions proposed to improve the accessibility of the CBD and City Sentral
• regular reports are presented to cabinet on the progress in implementing CBD and City Sentral, the other locality changes, and the realisation of the strategic vision for the City.

Impact of the CBD, and the move of the Council offices on the Council's revenue and capital expenditure

I note that minimising the financial cost of the CBD is only one of the objectives considered of the Council, and that the regeneration of the city is the prime objective. I have therefore considered the information reported to the Council, and whether this allows members to understand the full revenue and capital costs of the project. I have set out my comments below.

The most significant part of the cost of the project relates to the borrowing undertaken by the Council. This cost may be reduced significantly by the capital receipts from other properties (as the Council rationalises its estate and moves staff to the CBD). The potential range of capital costs are:

• initial enabling works and initial capital cost of build, range £43.4 million to £47 million
• capital receipts, range £8.9 million to £20.4 million
• net borrowing, range £23.0 million to £38.1 million.

I am satisfied that these costs and the associated revenue costs of the borrowing have been reported to members. Financial projections indicate that the borrowing is affordable.

The above costs include capital costs of designing the interior, completing associated fixtures and fittings, and the associated information technology costs. There are other capital and revenue costs associated with this project. These include costs of archiving and relocation of staff to the CBD. The Council has also made assumptions with regard to capital and revenue savings, for example, from asset rationalisation and from net increases to business rates income from other phases of development. These costs and savings are variable and may significantly impact on the overall cost of the CBD. These costs have been shared separately with Cabinet but have not been consolidated into a report to members detailing the variables impacting on the scheme and the potential cost range. As the plans are now well progressed it would be timely to produce such a report.

I also note the following areas that may impact on the overall cost, and these challenges should be emphasised for members:

• Designs for both buildings have been made public and designs for the first building have secured planning approval. Much has been said about the desire for an "iconic building" and the need for high quality buildings and environment to attract potential tenants. These plans have been discussed in detail with Cabinet. When the procurement stage of the CBD build is complete it is important that the options and relevant costs of the build are reported to members following receipt of tenders (due 28 March 2013).
• Details of the occupancy of the buildings are still to be finalised. As highlighted in the first section, there are a number of questions to be resolved including the number and location of "customer hubs" across the city in addition to a central hub located in CBD.
• The relocation to CBD will involve the vacation of the Town Hall and Civic Centre. The 'one stop shop' and library will remain in Stoke. The Council's plans involve the disposal of the Town Hall and Civic Centre but if this is not achieved quickly there will be additional costs of maintaining and securing the complex.

I note that Cabinet is already aware of the costs of the scheme. However, to support future decision making on the localities and customer hubs, I recommend that a consolidated paper
is presented to members summarising the capital costs and receipts and revenue costs and savings. The report should include best and worst case scenarios for both revenue and capital costs.

The impact of CBD and the move of the Council offices to Hanley on Stoke town centre

The Council has discussed and debated the impact of the CBD on Stoke town in public meetings on 6 September 2012 and 24 January 2013. The Council has acknowledged that the move from Stoke will have a short term impact on the town centre but considers that the move of the Council offices to Hanley offers a significant opportunity to regenerate Stoke town.

From my review of the available documentation I understand that:

• Stoke town was the subject of a master plan approved by cabinet in November 2011.
• The Council acquired the Spode site when the company closed in order to secure control of a key area within the town. The Spode site was identified in the master plan as the basis for regeneration of the town.
• The Council's subsequent decision to relocate all services currently operating from within the Civic complex to the CBD will add to the available site with the inclusion of the Civic Centre, Town Hall, Kings Hall, Gordon House and Kingsway Car Park (the Stoke site). This is in addition to Swift House and the Wharf Place car park adjacent to the University Quarter
• The Council believes that this will strengthen the development potential of the sites.
• The Spode site contains a number of nationally and locally listed historic buildings most of which will need to be retained and this may restrict the interest of potential developers.
• The Council are developing a site marketing strategy and are seeking a development partner in order to progress the future of the site.
• Members have had the opportunity to debate the future of Stoke town centre as part of the CBD assessment.
• Soft market testing of the Spode site has shown potential interest from developers. This includes 29 expressions of interest.
• Legal and technical consultants have been appointed to provide advice on the options for the disposal of the Stoke site
• A report on the disposal of the Stoke site has been drafted and will be reported to members in the near future.

It is clear from my review that the Council has a long term vision for the future development of Stoke town with a clear view of role that the town can play within the whole city. The plans extend beyond the regeneration of the Spode site and town centre to cover the whole Stoke neighbourhood.

I also note that the Council has continued to develop Stoke Town including implementing the Campbell Place Public Realm development. The Council continues to work closely with the private and public sector to bring forward other developments within the masterplan. The private and residential developments in Stoke town include the planned conversion of warehousing on Coronation Court, the recent transfer of some University departments to Stoke, the development of new student accommodation in the former Lomax building, and the planned development of the former Victoria Ground and former council depot for new homes. A building company has also secured approval for an office development at Campbell Road.

Although the Council recognises "the urgent need for action in Stoke Town" there is only limited information about timing. The first proposal with a clear date, the creation of a temporary new square outside Kings Hall, proposed for winter 2011/12, has not been delivered. I also note that the Council has not formally revisited the Stoke Town Masterplan to reflect the move of the administrative centre from Stoke to Hanley. It has, however, reflected how the proposed changes would impact on the Masterplan in the brochure produced for market testing.

While the Council remains positive about the future of Stoke there are no clear plans for either the Town Hall, Kings Hall, Civic Centre or Spode site. If the soft market testing does not prove reliable there remains a risk that the area would not be redeveloped in the near future. It is important that members understand this risk and that plans for regenerating the area are progressed as a matter of urgency.

I recommend that regular reports are provided to members on the Council's progress in developing and implementing its plans for regenerating Stoke Town.

Project Management

The proposals for the regeneration of the city, including CBD, City Sentral, Public realm and Stoke town comprise a series of major projects involving both the public and private sectors. The Council now has an appropriate governance structure in place to oversee this transition via the People, Place and Transformational Change Boards.

Recognising how critical the success of these plans is to the future of the city I suggest the Council reviews its project management arrangements to ensure it has sufficient capacity to maximise the prospects of successful delivery.

I recommend that the Council:

• reviews its CBD transition management plan covering the logistics of the transition, customer access and service hub plans and the full requirement for buildings. This plan should be shared with members; and
• reassess its overall project management arrangements and ensures that it has sufficient resources to oversee the projects.

Conclusion

The Council's plans for the regeneration of the city are aimed at addressing many years of decline. Such a programme will always carry some degree of risk and will deliver results over an extended timescale.

I am satisfied that the Council has followed its procedures in making the decisions to develop the CBD, and move its offices to Hanley. I am also satisfied that sufficient information has been presented to members to allow them to make their decision. However, this should be enhanced further by greater consolidation of financial reporting.

Yours sincerely


cc Peter Bates