Evaluation of the Scottish Land Fund 2012-2016

What additional challenges might the move of the SLF 2016-20 into urban areas present?

SLF 2016-20 opened for applications on 1 April 2016. SLF 2016-20 is a significant expansion in both size and scope for the fund, with a number of alterations to how the fund is disbursed across the asset acquisition process. The changes to the SLF in 2016-20 are:

• A commitment to extend the SLF to 2020 with an initial contribution of £10 million for the first year.
• An extension of the fund to cover the whole of Scotland, not just rural areas
• The move to a two-stage application process, with delegation of stage 1 grant decision making (pre-acquisition) to a management group staffed by Highlands and Islands Enterprise and Big Lottery Fund.
• The inclusion of stage 1 funding (pre-acquisition) in the form of development grants of between £10,000 and £30,000
• An extension of the maximum revenue funding award to £100,000 (including the stage 1 development grant) over 3 years post-acquisition
• The extension of the maximum single award value from £750,000 to £1 million

The introduction of dedicated pre-acquisition support with a ceiling of £30,000 has the potential to significantly tackle the observed inequalities between HIE and rest of Scotland areas in SLF 2012-16. The reliance of rest of Scotland communities solely on Big Lottery Fund's Investing in Ideas fund for pre-acquisition support was time-consuming, it depleted funds available to non- SLF Investing in Ideas applicants, and was capped at £10,000 regardless of need. The move to disbursing pre-acquisition funding will enable pre-acquisition support to fit cases on their own characteristics, recognising that complex projects are likely to meet higher technical costs.

However, given that throughout the course of the SLF 2012-16 communities within HIE areas drew upon £320,000 from HIE in pre-acquisition support, it is possible that the additional pre-acquisition support in SLF 2016-20 will largely substitute for HIE's internal resources. If significant competition for the fund is achieved, it should be considered to set aside revenue funding specifically for rest of Scotland communities who do not have access to additional financial support in the pre-acquisition stage.

Recommendation 3. Consider reserving larger development grants for more complex projects for communities unable to access HIE's internal resources, if competition for funding becomes significant

The extension of post-acquisition support to 3 years in exceptional circumstances is also appropriate. Many of the more complex projects, particularly estate buyouts, woodland or housing projects, are necessarily multi-year projects which often require dedicated specialist professional support. SLF beneficiaries interviewed from the larger and more complex projects (Beneficiaries B, C, D, F and G) all stressed how important sustained revenue support for dedicated staff is for the continuity of large and complex projects . One interviewee whose funding ran out and was unable to renew the post (Beneficiary C) spoke of all the energy and momentum being 'sucked out' of their developments and put into trying to secure further funding for their development worker.

The major omission in post-acquisition funding arrangements in the SLF 2016-20 is the continued requirement to spend all revenue funding within the fund's four-year cycle. This means that the full three year's revenue funding will be available only until April 2017. Only applicants who are particularly quick off the mark will be able to gain access to the full three years of funding, which are likely to include many of the pipeline projects which remain from SLF 2012-16. This does not give enough time for communities to make use of new provisions in the Community Empowerment (Scotland) Act 2015, including the extended Community Right to Buy, to progress to ownership of assets. A key aim of SLF 2016-20 is to extend availability to the whole of Scotland, following the extension of the Community Right to Buy. The restriction of revenue funding in this manner risks undermining such an ambition.

Owing to the potential to generate inequalities in the distribution of SLF funding, it is recommended that communities have access to three years revenue funding regardless of at what stage they apply. This is to ensure a more equal access to SLF monies, and to not disadvantage communities taking advantage of new legislative powers under the Community Empowerment (Scotland) Act 2015, and the Land Reform (Scotland) Bill. Such an arrangement could be made through the provision of further resource to the SLF by Ministers, or alternatively arrangements could be made with delivery partners to spread the existing resource base across three years following the completion of SLF 2016-20, perhaps in concert with Big Lottery Fund's existing three-year grant monitoring commitment.

Recommendation 4. Ensure that SLF 2016-20 applicants can access the full amount of revenue funding regardless of when they apply. Financial arrangements will need to be in place by year two (2017-18) to ensure later applicants are not unfairly disadvantaged.

Based on the findings in the first two parts of this evaluation, with some exceptions already noted, the modifications to the design on of SLF 2016-20 are improvements to the SLF 2012-16. However, the expansion of the SLF into urban areas means that SLF 2016-20 must also be equipped to face the challenges of its extended remit, not just remedy its past deficiencies.

Demand for the SLF 2016-20

SLF 2012-16 faced a relatively stable demand profile which did not exceed the available budget over its four years of operation. The relative lack of competition enabled very diverse projects to be funded alongside one another without significant competition between them; concomitantly, an increase in demand may surface differences in which projects should be prioritised. The expansion of the SLF 2016-20 to cover the whole of Scotland is likely to significantly alter the demand profile, however it is very difficult to predict exactly how.

There are currently 56 projects in the pipeline for SLF 2016-20 at the close of SLF 2012-16, coming to total value of £7,727,195. Delivery partners estimate that less than half of this will clear within one year, however this still indicates that a third of the budget for the first year of SLF 2016-20 may be taken up by SLF 2012-16 applicants. It is also possible that the promotional work for the SLF 2016-20 carried out by Big Lottery Fund and HIE, and media coverage surrounding its launch, may increase the appetite for funding, resulting in more applications coming through when the new fund opens.

Some insight into future demand for SLF 2016-20 can be gained from the experience of the first round of GCA (2006-2010) , which superseded Big Lottery Fund's Scottish Land Fund (2001-2006). Similarly to SLF 2016-20, GCA extended support previously reserved for rural areas to the whole of Scotland. The evaluation for GCA found that the first year was dominated by applicants from rural areas who were quicker to respond to the opening of the SLF, but that urban projects eventually increased to become a sizable minority of projects in GCA's funding profile ^[7] . There is thus some reason to believe that demand in the first year of SLF 2016-20 will be similar in profile to the final year of SLF 2012-16.

It cannot be said for certain that SLF 2016-20 will follow the same pattern of demand as the first GCA, however. Legislation is now far more amicable to the transfer of assets to urban communities than it was in 2006 when GCA was introduced, and awareness of the possibilities and benefits offered by ownership is now more commonplace. Notably, the Community Empowerment (Scotland) Act 2015 has extended the Community Right to Buy powers to urban areas, while most of the 32 Community Planning Partnerships now have a functioning asset transfer policy, with some better developed than others. There are also likely to be some high-capacity urban communities waiting to apply to the SLF 2016-20 when it first opens. Given that legislative powers are not currently fully functional and will take time to gain traction, and the SLF is likely to be less known amongst urban communities, it seems reasonable to assume that urban applications will be few in number until at least 2017, whereupon urban communities will begin to take notice of the SLF and take advantage of new statutory and non-statutory opportunities to acquire community assets. There may also be a greater number of high value housing projects due to changes in the Rural Housing Fund better linking ownership and development.

Urban projects are likely to feature more strongly in SLF 2016-20 from its second year onwards. Owing to higher land prices, urban asset ownership projects are known to carry comparatively higher values than rural equivalents, and therefore the gross value of demand will likely eventually be much higher than in the SLF 2012-16. A best guess would predict that the SLF 2016-2020 is likely to face a non-linear demand curve, with steady demand in the first year, rising sharply once an larger number of high-value urban applications come in after 2017. For this reason, demand in 2016-17 should not be taken to be indicative of later years, which likely will bring a greater number of higher value projects.

Demand also has implications for the cohesiveness of the SLF. The SLF 2012-16 funded a very diverse array of projects, from small amenity-based initiatives all the way through to very large and complex projects. So far, the SLF has been able to fund all such projects through a combination of flexibility in the way the fund is administered, and a lack of competition between applicants. An increased level of competition between applicants could surface some tensions amongst SLF delivery partners and the Committee as to which applicants better fit the SLF's ambitions. Some interviewees in the Committee and community land representatives felt that the fund should ensure it is in a position to fund rural estate buyouts as a priority, and were cautious that high value urban applications had the potential to squeeze out other applications. There were also fears amongst some interviewees that the SLF 2016-20 would be dominated by high-value applications coming both from rural communities in HIE's area and urban communities in the central belt, neglecting smaller settlements in the rest of Scotland.

Some SLF 2012-16 Committee members felt that in going forward, clearer guidelines would be necessary to adjudicate fairly between different types of urban and rural applications, which have different merits and implications for value for money. While urban projects are likely to benefit more people, they are also likely to have much higher capital costs in comparison to rural projects, and diminish the total allocation of funding much more rapidly. If competition amongst applicants increases, the criteria by which a very diverse array of projects may be judged alongside one another will need to be clarified, as per Recommendation 2.

Additional difficulties which the SLF 2016-20 may encounter

Based on the experience of both the first and second GCA, and of community asset ownership more generally, ^[8] urban applications are more likely to be based on buildings rather than land, and are likely to be far higher value owing to higher land prices in urban Scotland. There were perceptions amongst some delivery partners and community land representatives that urban communities have less of a tradition of asset-ownership, and fewer models of good practice to learn from, which may lead to longer development times and more need for support. Urban areas were also felt to present a number of additional difficulties which might impact on their capacity to deliver SLF outcomes. Some delivery partner interviewees anticipated that defining communities would be difficult in urban areas owing to the larger size of communities and less clear-cut boundaries between communities. There were also assertions that social capital may be weaker, and that demonstrating community support might be more difficult for urban communities.

This view is however disputed by other delivery partner interviewees with direct experience of working with both urban and rural communities, who argued consistently that there are no significant differences between the two groups, and that in practice many difficulties are easily avoided. The experience of GCA has shown that in practice urban communities are able to self-define their boundaries without issue. By setting different standards for a demonstration of community support ( e.g. setting a target number of the community in support, rather than a percentage), this issue also need not cause issue. The SLF housing policy will need to be revisited to ensure its relevance to urban areas. For instance, there is currently a restriction that no two housing projects should be funded within ten miles of each other; this restriction no longer makes sense given the population density of urban areas.

Some delivery partners also hold the belief that urban applications are likely to face higher risks than rural applications. As urban asset ownership has tended to be building-based rather than land-based, some delivery partner interviewees anticipated that such buildings would be in need of very substantial development and refurbishing costs - which would be ineligible for SLF 2016-20 funding. This would mean that communities are acquiring liabilities, rather than assets, until appropriate developmental funding could be attained. This was felt by one delivery partner to increase the risk of community bodies folding, running debt or the assets they hold depreciating in value. To mitigate against this issue, one potential solution would be for projects, urban or rural, to go straight to Community Assets (the successor to GCA) which, like GCA, can fund both acquisition and redevelopment.

A better long-term solution is to consider how the acquisition and revenue funding provided by the SLF can be better integrated with developmental funding provided by other relevant funds. There is still considerable lead-in time between the SLF and GCA (though Big Lottery Fund could push applications through to reach stage 2 of the GCA funding process), LEADER, and the Rural Housing Fund (often over one year), as communities have to wait until they have acquired assets to begin the application process for development funding. With often no communication between the acquisition and development funding process at present, many of the beneficiaries interviewed experienced asset acquisition and development as a sequential, rather than integrated, process. Having Big Lottery Fund administer both GCA and the SLF did allow significant integration between GCA and the SLF which allowed communities to progress through the GCA funding process before completion of the acquisition through the SLF, however some beneficiaries interviewed still remarked upon the gap between acquisition and development. It is recommended to explore ways to better integrate the SLF with key sources of development funding, particularly in cases seeking large grants and those which have concrete and well-planned development ambitions following acquisition.

Recommendation 5. Seek greater integration between the major funding streams for community ownership ( e.g. LEADER, GCA and the Rural Housing Fund) to reduce lead-in times between acquisition and development.

Communities outwith the HIE area also face increased risk in the long run when compared to HIE-supported communities. HIE is able to provide technical and financial assistance to communities who run into trouble after acquisition, and can use these powers to advise or steady communities who run into difficulties following asset acquisition. There is no such agency available to rest of Scotland communities with a comparable level of expertise or readiness of financial support. This leaves open a problematic element of long-term risk to rest of Scotland community asset owners which may eventually lead to poorer long-term outcomes.

There is also a danger of local authorities seeing the SLF as a means to realise better value from their own asset transfer activities. Local authorities have been encouraged to use their powers to release assets at less than market value but have often been unwilling to do so. Going through the SLF process may thus be seen as a potential route of both community group and local authority avoiding any significant loss. GCA currently requires that communities ascertain a discount from market value from public bodies before considering making an offer; the SLF 2016-20 should consider doing the same if needed.

Recommendation 6. Monitor applications coming into the SLF to make sure local authorities are not using the SLF to avoid disposing of assets at less than market value. Consider enforcing a set discount if this becomes an issue.

A final danger is that State Aid may resurface in relation to urban areas. Although a shared interpretation of State Aid was reached amongst delivery partners in 2014, urban communities present an increased likelihood of private sector displacement. The lack of a cohesive interpretation of State Aid in SLF 2012-16 was a major problem and a source of frustration to some applicants. To avoid further negative outcomes and disaffection with the SLF, delivery partners should ensure that a shared interpretation of State Aid is reached which does not impede access of urban communities to SLF grants. It is important that this issue is resolved before 2017 when an increase in demand from urban communities is likely to be observed.

Recommendation 7. Ensure that a shared position is agreed on State Aid amongst SLF delivery partners which allows urban applicants equal access to SLF funding. Endeavour to have this in place and understood by delivery partners before 2017.

Section summary

The changes set out for SLF 2016-20 improve upon many aspects of SLF 2012-16. However, the extension of the fund into urban areas is a considerable leap into the unknown which may have significant implications for the cohesiveness of the SLF. If competition for the fund increases, Committee members will need to be clear on how to decide how funding is allocated between an increased diversity of projects with different implications for value for money. One way to broach this is to produce clear guidelines - perhaps in collaboration with the new Committee - against which all projects are to be judged, and ensure these form the basis of decision making in Committee meetings.

There was some disagreement evident amongst delivery partners regarding the different support needs of urban communities, the complications over what defines a community in an urban area, and the different criteria needed for demonstration of community support. The experience of GCA, which has encountered all of these issues, and the views of most interviewees, suggest that all of these difficulties can be overcome.

The extension of the SLF into urban communities also presents three additional dangers in moving forward. Firstly, the lack of a comparable supportive agency such as HIE for the rest of Scotland may have implications for long-term risk management in rest of Scotland communities who lack access to quick, integrated financial support and expertise, and perhaps particularly in urban areas where assets coming into acquisition may be higher in value and in poor condition. Secondly, it is possible that differences in the understanding of State Aid amongst delivery partners, which brought some applications to a standstill in 2014, will surface once again in relation to urban applications. There are also displacement issues that are likely to be more prevalent in urban areas. Thirdly, there are some suggestions that SLF funding may be used by local authorities as a means to avoid making discounts to market value in transferring assets to communities.

It is emphasised however that while some of these issues can be mitigated by a pro-active response, most remain unknowns at this stage. It is not possible at present to predict what competition will be seen amongst SLF 2016-20 applicants, the level of urban demand, or the response of local authorities in making discounts on asset transfers. Considerable attention will need to be paid to these issues, particularly the response of the SLF to the emerging demand profile in the first and second years, and a review is recommended to be conducted at the end of year two into the fit of the SLF for a portfolio of increased diversity.

Recommendation 8: Consider conducting a mid-term review of SLF 2016-20 which looks critically at the effectiveness of the SLF as it responds to increased diversity in its demand profile.