Chris Marshall: Council hunts for cash in the attic to bridge trams funding gap

Published on Thursday 7 July 2011 11:49

As the council looks to bridge a £170m funding gap for the trams, Chris Marshall sizes up the prime assets at its disposal

THE choice was a simple one, complete the tram line as far as the city centre or call time on the whole sorry saga. But in choosing to build the project as far as St Andrew Square, councillors have left their officials with a far from straightforward problem over how to raise an additional 170 million.

For a project initially estimated to cost 545m for a 11.5-mile route between Edinburgh Airport and Newhaven, the trams are beginning to look considerably more expensive.

A truncated tram line to the city centre will cost an estimated 770m, with fears it will need to be subsidised to the tune of several millions a year once it is up and running. And there's no guarantee that figure won't also rise.

Council officials will spend the summer meeting with the Scottish Government as they desperately attempt to raise the necessary funds.

They have already secured 600m so must now bridge a gap of around 170m.

The focus is expected to be on borrowing mechanisms, such as the Tax Increment Financing (TIF) scheme already approved for development of the waterfront. But money could also be raised from selling off council assets, although the politically sensitive nature of this makes it a less likely option.

Sources suggest that as much as 200m could be raised from the sell off of Lothian Buses, although the move would be deeply unpopular. The bus company is one of the council's prized assets and is expected to run the tram project once it is up and running.

It is also expected to cross subsidise the tram, which many expect to make a loss in the first years of operation. One source said there was likely to be a great deal of interest in the bus firm should the council ever consider selling.

He said: "Lothian Buses has got a great record and the likes of First Group, Stagecoach, National Express and some of the foreign operators would all be extremely interested in it."

The likes of the Commonwealth Pool, the Edinburgh International Conference Centre and Meadowbank are all among the council's 1 billion property portfolio that could be sold to raise emergency funds.

Stewart Taylor, a director in the Edinburgh office of property firm CB Richard Ellis, said office space alone at the EICC could raise as much as 90m.

"If it was let or a lease was in place for a period of 50 years, you could be looking in the region of 90m."

But he said the city council did not have the sort of property portfolio which some people thought it did. "Relative to other regional cities, there are few major blue-chip buildings. The council has a lot of property, but a lot of it is very small or occupied. "

It is unclear what value could be put on Meadowbank or the Commonwealth Pool, however. In 2009 it was hoped the council could raise as much as 17m by demolishing Meadowbank stadium and selling off a third of the land for housing. But the value of the property is likely to have fallen significantly since then.

The Commonwealth Pool is currently undergoing a 37m refit and council bosses would want to see a considerable return on their investment.

Councillor Gordon Mackenzie, the city's transport convener, said he still hoped there would be extra money from the Scottish Government.

Edinburgh is set to benefit from a change to local government funding, which will see the Capital receive around an extra 20m a year from Holyrood.

The introduction of a "funding floor" from financial year 2012/13 means no council would receive less than 85 per cent of the average funding for Scottish councils. The cost would be met by central government.

Figures show Edinburgh currently receives 82 per cent of the average – or 1661 per head, compared with 2369 per head in Glasgow and the all-Scotland figure of 2008.

The cash would not be ring-fenced for any specified use and so could in theory help pay for the trams.

Cllr Mackenzie said he also hoped the council would be allowed to keep all the money raised through business rates without it going into a central pot.

He said: "The value of Lothian Buses is irrelevant because it's not for sale. We've got discussions going on with the Scottish Government about funding mechanisms and we'll see what comes out of that. I would not be looking to dispose of assets like the Commonwealth Pool. Suggestions like that are purely speculative as far I'm concerned.

"The new settlement from the Scottish Government should more than cover additional borrowing to St Andrew Square. Currently, the only asset being looked at for sale are the surplus tram vehicles."

With just weeks to find nearly 200m, the council is up against it. There is optimism among some in the City Chambers that the Scottish Government will yet ride to the rescue, whether that's by providing extra cash or sanctioning further borrowing.

But regardless of how the money is found, it's clear that the city – and its taxpayers – will be paying for the trams for years to come.

Where there's a will

Tax Increment Financing (TIF) Where the council can borrow against any future growth in business rates income that could be generated by building the tram or against profits from the project itself.

Selling off assets Likely to be the least popular option among the public at large, the sale of prize assets such as Lothian Buses could bring in up to 200m.

More Scottish Government cash The council hopes to persuade ministers to allow it to keep a greater share of the business rates generated in Edinburgh. It is also hoped that Edinburgh is set to benefit from a change to local government funding, which will see the Capital receive around an extra 20m a year from Holyrood.

Lothian buses

200m

MEADOWBANK

UP TO 17m

EICC

90m