The fact that Shetland Islands Council (SIC) has closed a deal with the charitable trust to purchase SLAP should come as welcome news to council tax payers in the islands (SIC buys SLAP portfolio in ‘landmark deal’; SN, 23/10/2018).
While SLAP began life as a council-owned entity, it was transferred to the charitable trust as an investment vehicle to generate income. Some of that income was generated from properties such as the council-funded NAFC Marine Centre and Shetland College, with Solarhus and the White House being added to the portfolio later.
When the council considered a report recommending that the social work department be consolidated into one building at the North Ness, it might have been assumed that this would save money; however, the reality was that it would cost more. For that reason, I and a few others couldn’t support it but, as had become expected in that era, we found little support.
The profit required by the SCT owned company meant that the £7.3 million office complex would go on to cost the SIC around half a million pounds a year when it could have been financed by the council itself for a fraction of that cost.
Things might have been much worse for the council though had a similar deal to fund the new Anderson High School that was proposed for the Knab site gone through. That could have cost the council over £6 million a year judging by the White House deal.
The main reason that the council considered the charitable trust as a potential investor in these projects was an irrational and, as it turned out, completely unfounded fear that teens of millions of Notional Loan Support (NLS) might be lost if it resorted to public borrowing. This is the money that it receives on account of being debt free.
Fortunately, a consultant hired by interim chief executive Alistair Buchan was able to dispel this myth before the AHS was built, but too late for the White House which was nearing completion by then.
NLS is due to be paid regardless, according to a pre-arranged formula that will see payments continue but dwindle away until they peter out in the mid-2030s.
After contributions from the Scottish Government, the £56 million new AHS project financed through the Public Works Loan Board will cost the council nearer to one million pounds a year – who says consultants aren’t worth their money?
Accommodation cost too high
Despite having sold off buildings that were vacated when offices were consolidated, the last council recognised that its accommodation costs were a significant drain on the public purse.
The complex ownership of Shetland College coupled with level of deficit funding for the NAFC were also significant issues that needed to be dealt with if these institutions were to be integrated as was proposed.
I wish that I could take credit for the idea to buy out SLAP but it was capital programme executive manager Robert Sinclair who came up with the plan almost three years ago.
Despite the obvious benefit to the council of buying the buildings that it occupied, the idea received a lukewarm reception from councillors and was fortunate not to have been strangled at birth – surviving thanks to a single vote on one occasion.
Some members were concerned that SCT was fundraising for Viking Energy – even though this should not have been a material consideration for the council, while others wanted to cherry pick – worried about what liabilities the council might inherit.
As a charity, SCT must get value for anything that it sells while the council must demonstrate best value, which gives some assurance that SLAP was bought for a fair price.
The wider portfolio will deliver income to the council and the deal also removes one of the biggest obstacles to the successful integration of Shetland’s colleges.
In short, these public buildings should never have been funded in this way, but it is extremely good news that the council has now taken ownership of them.
More must be done if the council’s medium term financial plan is to be delivered but refinancing SLAP’s portfolio should provide a much needed saving in property costs to the council and a welcome income from the commercial properties.
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