Infrastructure Investment in Parish of Trinity: Phase One Building Project

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A decision made on 23 July 2012:

Decision Reference: MD-TR-2012-0060
Decision Summary Title:	Infrastructure Investment in the Parish of Trinity for Phase One Building Project (Field No 578)		Date of Decision Summary:	23rd July 2012
Decision Summary Author:	Treasurer of the States		Decision Summary: Public or Exempt?	Public
Type of Report: Oral or Written?	Written		Person Giving Oral Report:	N/A
Written Report Title:	Infrastructure Investment in the Parish of Trinity for Phase One Building Project (Field No 578)		Date of Written Report:	23rd July 2012
Written Report Author:	Treasurer of the States		Written Report : Public or Exempt?	Public
Subject: States of Jersey Currency Fund Infrastructure Investment in the Parish of Trinity for financing of the phase one building project on Field No 578 to construct 25 first time buyer homes.
Decision(s): The Minister decided to:- approve, in line with the current Investment Strategy for the Currency Fund, up to a £6 million Infrastructure Investment in the Parish of Trinity to provide financing for phase one of a building project on field No 578 for the purpose of building first time buyer homes. This is subject to the terms and conditions set out in the Infrastructure Investment agreement (Appendix A), and review and agree the content of the Infrastructure Investment Agreement and the proposed letter of support (Appendix A & B).
Reason(s) for decision: The Public Finances (Jersey) Law 2005 Article 6 (paragraph 1(a) and 3) relates to the investment of monies of the Currency Fund being carried out in accordance with the Regulations. Under the Public Finances (Transitional Provisions) (No.2) (Jersey) Regulations 2005 Regulation 4, the Minister is responsible for presenting the Investment Strategies and any review of them to the States, as soon as practical, and furthermore that monies may be invested in the extent and manner set out in the last Investment Strategy presented to the States. Therefore the proposal for the Currency Fund’s Infrastructure Investment in the parish of Trinity is made in line with the most recent Investment Strategy presented to the States on 29th March 2012 (R44/2012). The development to be carried out by the Parish of Trinity increases the supply of social and affordable homes, aiding a reduction in the current affordable homes shortage. This is in line with the “House our Community” priority set out in the 2012 Strategic Plan. Further, the provision of monies to the Parish for this project provides further stimulus to the economy. The proposal was circulated to the Council of Ministers of 13th July 2012. The rate offered to the Parish exceeds the current long term cash returns received by the Currency Fund, maximising investment returns for the fund whilst offering diversification of Investment Asset Classes. Further, this investment will produce absolute returns for the Currency Fund and will provide a good mix of investments for the fund within the agreed risk profile.
Resource Implications: This decision will see the transfer of £6 million from the Currency Fund in staged payments which are estimated to be during 2012 to 2014. The investment is estimated to last approximately 18 months. The investment returns positively impact the Currency Fund by exceeding the current level of returns it receives from its long term cash investments.
Action required: Head of Financial Management, Accounting and Reporting to advise the Head of Shareholder Relations that this decision has been approved. Head of Shareholder Relations to arrange for the Treasurer and the Connetable of the Parish of Trinity to sign the Infrastructure Investment Agreement and that it be appropriately witnessed. (Appendix A). Further, to ensure that the promissory letter is signed by the Parish of Trinity and returned before the first stage Infrastructure Investment payment is made (Appendix B).
Signature:		Position: Senator P F C Ozouf, Minister for Treasury and Resources
Date Signed:		Date of Decision:

Infrastructure Investment in Parish of Trinity: Phase One Building Project

Treasury and Resources

Ministerial Decision Report

iNFRASTRUCTURE INVESTMENT IN the PARISH OF TRINITY FOR Phase one BUILDING PROJECT (FIELD no. 578)

Purpose of Report

To enable the Minister to consider the proposed Currency Fund Infrastructure Investment in the Parish of Trinity for the financing of phase one of a building project on Field No. 578 to construct 25 first time buyer homes.

Background

The Public Finances (Jersey) Law 2005 Article 6 (paragraph 1(a) and 3) relates to the investment of monies of the Currency Fund being carried out in accordance with the Regulations. Under the Public Finances (Transitional Provisions) (No.2) (Jersey) Regulations 2005 Regulation 4, the Minister is responsible for presenting the Investment Strategies and any review of them to the States, as soon as practical, and furthermore that monies may be invested in the extent and manner set out in the last Investment Strategy presented to the States. Therefore the proposal for the Currency Fund’s Infrastructure Investment in the parish of Trinity is made in line with the most recent Investment Strategy presented to the States on 29th March 2012 (R44/2012).

In December 2011, the first infrastructure investment in JT for Gigabit Jersey was approved for £10m (MD-TR-2011-0139).

The current investment proposal has arisen as a result of discussions between the Parish of Trinity and the Minister of Treasury and Resources.

Proposal for the offer of an Infrastructure Investment to the Parish of Trinity

Details of Parish of Trinity’s Building Project

The Parish have received planning approval for Field 578 (Application reference P/2011/0618) and the construction of these 43 new homes will happen in phases. Phase one of the project is to construct 25 homes for bona fide first time buyers, on a shared equity basis (up to one third owned by the Parish). It is estimated that building will commence in October 2012 and the project will last for a duration of approximately 18 months. The Parish intends to negotiate contracts in advance of commencing building with their main contractors. Further, it plans to sell the homes in advance of commencing building at fixed prices and buyers will be asked to provide an upfront deposit to secure their chosen plot. Adopting this project methodology reduces pricing, market and inflationary risks for the Parish and makes it an overall low risk investment for the Currency Fund.

The Parish has asked the Minister for Treasury and Resources if the Currency Fund could provide an Infrastructure investment up to the sum of £6million for the duration of the project. It is envisaged that monies will be drawn down as and when required and will be repaid upon receipt of monies for the completion of sales of the first time buyer homes. Prices for the new homes will be set at a later date, prior to commencing building, based upon slightly discounted independent valuations sought by the Parish.

Whilst the twelve Parishes of Jersey are separate entities and independent in their own right, their Connétables and Deputies form part of the Constitution of the States. Due to these and other existing relationships (e.g. Island Wide Rates) within the Machinery of Government, this is perceived as a low risk Infrastructure Investment for the Currency Fund.

Details of the Proposed Infrastructure Investment

The following approach is proposed:-

The Currency Fund is deemed to be the most appropriate vehicle for providing funds in line with its Investment Strategy.
It is recommended that an Infrastructure Investment Agreement be drawn up offering an investment under the following conditions:-
- The Investment would be offered to the Parish of Trinity solely for the purpose of building phase 1 of the proposed 25 First time buyer homes on field 578. No stipulation will be made around the cash-flow timings for the draw-down of monies, as at this stage as it is difficult for the Parish to forecast until contracts have been signed with the their main contractors.
- The Investment rate would be based on the following formulae:-
  - Part A + Part B = Total Investment rate
  - Part A = (current base rate + 1.75%) per annum, calculated on the amount outstanding on a daily basis.
  - Part B = (any annualized increase in the Jersey House Price Index for the period of the Investment) per annum, calculate on the amount outstanding on a daily basis. The period of investment would be from the date of the first draw down of monies to the last redemption date of the principal investment. We propose that any increase in the Jersey House Price Index be capped at a maximum rate of 1.75% and be no less than a minimum rate of 1.25% per annum. The relevant Jersey House price index would be the most recently available data in the public domain on the relevant dates.
- Part A would be payable twice a year in July and December (pro-rated as appropriate) and Part B would be paid at the time when the Parish makes the final redemption of the last principal investment back to the Fund.
- The agreement would be capable of being terminated by either party giving two months written notice. The redeemability is important for the Currency Fund in order to maintain liquidity; however there is an appreciation that these monies would not ordinarily be required to be recalled in the short term (known as the “Investable balance”). Should the States need to redeem the Investment, the Parish of Trinity would need to source alternative funding from the market.
- It is requested that the Parish sign the proposed Promissory letter (Appendix B) by way of security. As the Parish is deemed low risk, this gives reassurance that the Investment will only be used for this specific project and the Parish will not raise any charges on the properties on the site without advanced discussions and agreement from Treasury. Finally this gives the Treasury the ability to register a charge at a later date if it is deemed necessary.

Benefits of providing this Infrastructure Investment

There would be an initial stimulus to the economy from delivering £6million over approximately 18 months against the backdrop of a difficult economic climate.
This is in line with the 2012 Strategic Plan priority – “House our Community.” The development to be carried out by the Parish of Trinity increases the supply of social homes, helping to reduce demand for first time buyer homes and with the intention of offering housing at affordable prices.
The infrastructure investment is for a short duration. It is intended that this money can then be offered by way of infrastructure investment for other housing projects in the Island, further providing financial support in this difficult economic climate.

The Investment rate offered to the Parish based on current base rates is between 3.5% and 4% per annum. This exceeds the current long term cash returns received by the Currency Fund (1.63%), maximising Investment returns for the fund whilst offering diversification of Investment Asset Classes. Further, this investment will produce absolute returns for the Currency Fund and will provide a good mix of investments for the fund within the agreed risk profile. In line with the Investment Strategy, it is mindful that there should be a balance between risk and return for the Fund; absolute returns are an important factor as the Fund should not carry much risk as it backs the Jersey currency. Higher rates of return than the 4.0% can be achieved for the Currency Fund from its allocations to equities.

Conditions for Financial Support

The following conditions are recommended to form part of the Infrastructure Investments Agreement with the Parish of Trinity, when providing financial support:-

The agreement would be capable of being terminated by either party giving two months written notice.
The Parish to notify Treasury by the 20th of each month, prior to drawing down monies for the following month, from the £6 million allocated Infrastructure Investment.
It is requested that the Parish sign the proposed Promissory letter (Appendix B) by way of security. Further, that a copy of the Parish Assembly meeting minute be attached providing evidence that the Parish Assembly voted in favour of this Investment Agreement.
The Parish is asked not to raise any charges against the properties on the site, without advanced discussion and agreement from Treasury.

Advice has been sought from the Law Officers’ Department over the Currency Fund’s ability to issue Infrastructure Investment and the issue of the Infrastructure Investment Agreement and Promissory letter and the advice supports the actions proposed.

Recommendation

The Minister is recommended to approve the proposed Currency Fund Infrastructure Investment of up to £6 million in the Parish of Trinity for the financing of phase one of a building project on Field No. 578 to construct 25 first time buyer homes.

Reason for Decision

The Parish of Trinity has approached the Minister to agree to the Infrastructure Investment (£6 million) to enable them to finance the building of phase one on Field 578, to construct 25 first time buyer homes.

This is a project which is acknowledged would provide an initial stimulus to the economy at a time of economic downturn. Further, this project is in line with the 2012 Strategic Plan priority – “House our Community;” the development to be carried out by the Parish of Trinity increases the supply of social homes, helping to reduce demand and with the intention of offering housing at affordable prices.

Resource Implications

This decision will see the transfer of £6 million from the Currency Fund in staged payments which are estimated to be during 2012 to 2014. The investment is estimated to last approximately 18 months. The investment returns positively impact the Currency Fund by exceeding the current level of returns it receives from its long term cash investments.

Report author : Head of Shareholder Relations	Document date : 28th June 2012
Quality Assurance / Review : Head of Financial Management, Accounting and Reporting	File name and path: L:\Treasury\Sections\Corporate Finance\Ministerial Decisions\DSs, WRs and SDs\2012-0060 - Infrastructure Investment in Parish of Trinity - DTS\WR Infrastructure Investment in Parish of Trinity - DTS.doc
MD sponsor : Treasurer of the States