I welcome the Minister of State, Deputy Cullen. He has another appointment abroad so we will not delay proceedings. A briefing memorandum has been circulated and I ask the Minister to make a short introductory statement, to be followed by statements from the Opposition spokespersons from Fine Gael, Labour and DL, each of whom have ten minutes. We will then have a general question and answer session, aiming to conclude between 10.45 and 11 a.m. Is that agreed? Agreed.
Estimates for Public Services 1998.
Vote 10 - Office of Public Works (Supplementary Estimate).
Thank you Chairman, I am glad to be with the committee. Members should have most of the information in their brief.
The gross excess over the original Estimate for Vote 10 is expected to be £77.38 million, but this will be partially offset by savings of £1.47 million elsewhere on the programme subheads, giving a requirement for a Supplementary Estimate of £75.91 million. By the standards of Vote 10 a substantial Supplementary Estimate is being sought.
The main proposal is for the buy out of the contracts relating to 22 properties currently being paid for by annual instalments, and the possible purchase of certain individual properties and sites. In managing its property portfolio, the office seeks to maintain a balance between owned and leased accommodation. Overall, some 77 per cent of the portfolio is owned by the State and the balance rented. It is generally more economical to own rather than rent property and the Commissioners of Public Works avail of such suitable opportunities as arise to increase the proportion of owned properties. It is right, however, that a significant proportion of the total should be rented as this allows a degree of flexibility, in particular the ability to respond quickly to evolving requirements.
Of the total of £75.91 million being sought today, £67 million is for the purchase of buildings and sites under subhead D and £5.98 million is for increased rental costs. I will comment in detail on both proposals. Under the first heading, Deputies will be aware of Government policies in the 1980s and 1990s to decentralise significant elements of the Civil Service to provincial locations. In total 3,400 civil servants were transferred to some 22 locations within the past ten to 15 years. Advantage was taken in many instances of the decentralisation programme to provide modern, centralised accommodation for the various local offices already located in the centres concerned.
The buildings required for the decentralisation programme were provided on design-build-finance arrangements with developers. This made economic sense in the circumstances of the time as it avoided the need to provide the full capital costs up front. Instead payments were to be staged, normally over ten to 15 year periods.
The committee will know the Government's financial position has improved and it has been decided to look again at the financing arrangements for the decentralisation properties to see if it would be sensible to exercise the option, provided for in the various agreements for the State to exercise its option to buy out the beneficial interest in the properties concerned. Negotiations are currently under way with the financial institutions concerned. The Office of Public Works is being advised by the National Treasury Management Agency - I express my appreciation for its assistance. If the Office of Public Works, the NTMA and the Department of Finance are satisfied, on completion of the current negotiations, that it is in the interest of the State to buy out the beneficial interest in some or all of the properties concerned, this will be done; otherwise we will continue with the present arrangements.
Negotiations are also being conducted at present in relation to a small number of specific office properties and sites, which have been identified as having the potential of adding to the asset value of the stock, reducing dependence on leased property and meeting specific identified needs. Any purchases made would be on the basis of professional advice that value had been obtained, and prices were fair and reasonable.
The second main area for which supplementary funding is being sought is for rent on leased office accommodation. The amount required is £5.893 million. The expected excess is attributable to three factors. The first is rent reviews, which are currently being settled at increases of 45 to 64 per cent over five years, compared to the original 1998 estimate of 20 per cent. The total cost arising from rent reviews in 1998 is expected to be £1.38 million. Second, increased demand from Departments for accommodation has led to an increase in new acquisitions, at an additional £2 million in rental payments in 1998. The third element in the expected excess is attributable to the payment of VAT on the assignment of leases, which was introduced in the Finance Act, 1997. The VAT liability is expected to reach £3.4 million in 1998. Provision was not made for this in the original Estimate by agreement with the Department of Finance, as the liability, which was somewhat unclear, had to be confirmed.
The other main increase being sought is for subhead F1, which funds the building, maintenance and supplies of most Government offices. The principal causes for the expected excess are the acquisition of additional properties in recent years, which is now feeding its way into maintenance costs, and increases in service charges, which will account for £1.5 million of the expected excess; and unanticipated expenditure on a number of specific projects during 1998, at a cost of approximately £1 million.
Lesser increases are also anticipated on subhead F2, relating to the Government Supplies Agency and subhead H3, drainage maintenance.
I commend the Supplementary Estimate to the committee and thank members for attending. I will be glad to respond to any observations or questions.
This is a rather substantial Supplementary Estimate when compared to the original Estimate, but the Minister has outlined where the money is going. Will he explain the process of evaluating these properties, what system is used and how is it decided that the price being sought is reasonable and the taxpayer is getting value for money? Will he list, if possible, the 22 properties and the builders involved?
Will he provide information on how the developments in question were decided on? Was it through a tender system or was it a private arrangement between the Office of Public Works and the builders involved? It is very important to clarify that.
Can he provide an overview of the rental requirement in different instances? Is there is a major variation in rental requirements between office space in Dublin and other large urban areas and rural areas?
I know I have asked before about the maintenance costs of facilities in recent years but I have a personal interest in the matter. There was £1 million in the Estimate for improving access to public buildings, of which there are about 150 under the Minister's control. How much of that £1 million was spent on access this year, or was more than £1 million spent?
Does the Deputy mean access for the disabled?
I am referring to improved access for everyone - wheelchair users, women with prams, the visually and hearing impaired and so on. The Minister pencilled in £1 million for this purpose in the 1998 Estimate. Was all that money spent for that purpose? If more was spent, I would welcome it. I hope some of this Supplementary Estimate will be spent on improving access.
I agree that the State should own its own property. We lost a great deal in the decision to sell the Land Commission buildings opposite Government Buildings. Buildings were sold very cheaply because of the financial restraints at the end of the 1980s and early 1990s. When one considers their value now, one realises the loss to the State. The philosophy of the State owning and building its own property means the State is not subject to rental increases. I realise, however, that if part of a Department is decentralised to a rural area, it might be difficult to get land immediately to build a facility. In those instances, the Office of Public Works would have to acquire property on a rental basis. I am sure we will have another opportunity to return to this.
There is great expertise in the Office of Public Works and in the State Valuation Office in terms of the process of valuation. We often get private sector valuations, if we are dissatisfied. It is clear from the figures that we are doing extremely well, given that we are such a large property stakeholder in the country. We are very conscious of that and of using our knowledge and size in the marketplace.
In terms of rental values, we are below what is paid by the commercial sector, even given the substantial increases. There are clear attempts to drive up prices and we all aware of what is happening in the property market generally, which is posing difficulties for everybody. However, we are in the market as a player and have exercised great prudence in the past 12 months to get deals with which the taxpayer would be satisfied.
I have no difficulty giving the Deputy a list of the builders involved in the 22 properties, which I will have sent to him. They were all decided on through a competitive tendering process. All the design built finance projects were submitted to a completely open and transparent competition. That is the only way we can operate in the marketplace.
Prices vary substantially between Dublin and the rest of the country. However, it clearly depends on the quality of the property we are buying or renting and its location. As a general marker, costs are lower outside Dublin. However, it varies - in some cases prices could be close to those in Dublin and in others there could be a large difference.
It also depends on the role played by local authorities, in terms of using their landbanks to attract decentralised programmes and to get Department employees into their local economies. Many of them have given sites at their own cost to increase the attractiveness of their areas for decentralisation. There are many factors involved, but we all accept that Dublin is generally more expensive than the rest of the country.
I am happy to say we have spent more than £1 million on improving access. I know the Deputy is committed to this issue and I have answered questions from him on the issue in this committee and in the House. However, when we try to alter buildings to ensure they have the sort of access which we, as Members of the Oireachtas, would like to see, we often run into terrible difficulties with the planning authorities and objections from interested bodies which do not want buildings to be changed. That slows down the process, although it is does not stop us ultimately, particularly in terms of making alterations to important historic buildings. All new buildings, particularly the new design built finance buildings, must have complete access, particularly for the disabled.
I welcome what the Deputy said about the State owning property. There is a clear financial benefit in the State ensuring it owns most of its portfolio of properties. We are now in a position to give great benefit to the taxpayer by purchasing outright many of these leases and making substantial savings on our annual commitments, which we would otherwise have had to continue for many years.
I agree with the Deputy in regard to the sale of State property, but hindsight is a wonderful thing. I can think of many buildings we regretwere sold by the State, but they were soldin different times because of different pressures. I regret the sale of some buildings which are very close to Government Buildings, which would be a magnificent facility for all concerned if the State still owned them. We must be conscious of that and maximise our efforts when funds are available to ensure the State owns rather than leases as much of its property portfolio as possible. That will provide us with other opportunities to enhance that portfolio further down the road. The NTMA and the Department of Finance have been extremely helpful in assessing these properties.
I am glad the financial expertise of the NTMA is being used and I hope the agency will be involved in the area of Government expenditure in the years ahead.
In his address, the Minister said :
The Committee will know that the Government's financial position has improved and it has been decided to look again at the financing arrangements for the decentralisation 'properties' to see if it would be sensible to exercise the option, provided for in the various agreements, for the State to exercise its option to buy out the beneficial interest in the properties concerned.
Were these properties throughout the country as well as in Dublin?
They were throughout the country, none was in Dublin.
Is there property which could be acquired in Dublin, although given the price of property in Dublin it might not be wise to purchase there at this time?
There are some properties which we would like to buy but the current state of the property market does not make that feasible.
With regard to subhead F1, you mention anticipated expenditure of £1 million on a number of specific projects. How many projects were involved and what was their nature?
I will give you a flavour of where the money was spent. Extensive refurbishment was carried out on Áras an Uachtaráin after the President took office, which cost approximately £400,000. That was very worthwhile and is working extremely well. The relocation of the planning tribunal and the revenue printing centre was also quite expensive, costing £240,000. We did some works in Leinster House throughout the summer at a cost of £240,000. Expenditure in Dublin Castle on the Tour de France was £85,000 and press facilities for President Clinton's visit cost £35,000.
The estimate for service charges for additional lettings of buildings was in the order of £2.1 million which was exceeded by £1 million. We are happy to identify the areas of expenditure.
A delegation from this committee visited Canada recently to examine the question of ethics. We learned that in Canada, a former Minister may not become involved in business for two years after he has left office. Listening to the Minister today I can see the reason for that practice. As far as I can see, the Minister is an expert in the property market. He has acquired that expertise in the interest of the State but his knowledge of the property market startles me. Did the suggestion to buy out contracts relating to these 22 properties come from the Department or from the owners of the properties? Who first suggested that the State spend this enormous amount on property in one year?
The Minister has told the committee that this purchase represents good value for money. However, the State could spend this money on other more pressing matters. The Minister has explained that these properties are rented by the State on a long-term basis. Why is there a sudden urgency to purchase these properties in this year? The Dáil was recently told that the State did not have funds to meet the needs of people with disabilities. Why must these purchases be made this year? Did the impetus to make these purchases come from the Department or from outside factors? Are some developers in need of funding and is the State obliging them by buying them out?
I thank the Deputy for his comments but I am not as expert as he seems to think. I am responsible for my Department and it is up to me to answer to committees such as this as to how the Office of Public Works is run - other Ministers have responsibilities in other areas. Therefore, it is up to me to see that my Department gets the best possible value when spending money and leasing properties in Dublin and elsewhere. The idea of doing an analysis of available property came from my Department. It did not come from the owners of the properties and our interest in the properties would have come as a great surprise to some owners who have been involved in design-build-finance arrangements. The proposal is concerned with debt management and with managing the portfolio. In the buy-back of those properties we envisage savings in the region of £7 million per year.
Over how many years?
In some cases up to 15 years.
The Minister will save £7 million on a 15 year span. Is that correct?
I will be saving £7 million per year. That is a substantial amount of money. We have done a careful analysis to see if there was real value to the State in buying back a number of the properties, if we should remain as we are or if we should buy back some of the properties and continue to rent others. This is why we involved the NTMA. All the best economic analyses show a clear advantage to the State in the medium and longer term in buying back this portfolio. It is a very sensible decision.
The settlements are all with financial institutions. We will not be handing money to various builders. The primary financial institutions involved are Allied Irish Bank, Bank of Ireland, Ulster Bank, ICC and Irish Intercontinental Bank. In all cases the developers passed over their interest to the banks on completion of the buildings. We have done that analysis, we involved the expertise of the NTMA and of the Department of Finance and there is clearly a substantial advantage to the State in doing what we are doing. We wish to maintain as many as possible of these properties in State ownership and maintain the balance between owned and leased accommodation.
I thank the Minister for his reply. The National Treasury Management Agency is an adviser to the State on financial matters. The Minster has emphasised the way in which his Department has been led by the NTMA.
If you wish to discuss social welfare matters, Deputy, that would be more appropriately done in the Committee on Family, Community and Social Affairs.
I support the concept of buying out the buildings which have been leased and which have been part of the design-build-finance arrangements with developers. If the Minister has taken the advice of the NTMA I am sure the proposal will be of financial benefit to the State. The NTMA is not an adviser to the Government on these matters. They have a legal obligation to manage the national debt and are not just there in an advisory role. It is important we recognise their statutory role in this issue.
I understand why the Government is taking this action now as part of an attempt to repay some of the national debt. When the Government can borrow at a low interest rate it makes good economic sense to buy out contracts. The rent roll over a period of years would be far more expensive than if the Government was to finance it from its own resources.
I welcome the copy of the list dealing with the 22 sights around the country. Are there any plans to include the new midlands prison in this buy-back arrangement? It is one of the biggest projects under way at present. Is it intended to include it next year when it is completed?
I was surprised to hear the Office of Public Works incurred costs in relocating the planning tribunal. I hope it is not subventing the tribunal. The tribunal should make some reimbursements. There should also be a separate budget for the tribunals. Given the high costs of tribunals, I would hate to think the taxpayers are paying hidden subsidies to the them through the Office of Public Works. The tribunals should be billed for these.
I understand that the Croppies Acre grave near Collins Barracks, which was under military control, has now been taken over by the Office of Public Works. The burial ground for the men of 1916 is to the rear of the property. There should be an information board telling the public that they are buried there. Information leaflets should be available to students, tourists and visitors to the site.
That is a long way from social welfare.
With regard to the NTMA, when we undertook our analysis we sensibly gave our information and the basis of the figures we had arrived at to the agency for comment and analysis. It confirmed that we were embarked on the correct course of action. Matters were not led by the NTMA and it would be erroneous to suggest that was the case.
Work on the midlands prison has not been completed. We cannot buy back something until it materialises. With regard to the tribunal costs, last week the Chester Beatty Library moved to the Clock Tower end of the Dublin Castle precincts. EU money was involved in the project so we need to get into the building and begin that very substantial project. We had to move the tribunal out of the building. Although the project is only getting under way, the material in the Chester Beatty Library is fantastic. The point the Deputy made regarding the Croppies Acre is already in hand. Work will continue into next spring and members of the public will have all the information available to them.
The issue of decentralised offices includes locations at Athlone, Ballina, Cavan, Cork, Ennis, Galway, Kilkenny, Killarney, Letterkenny, Limerick, Longford, Nenagh, Portlaoise, Sligo, Tullamore, Waterford and Wexford. These are the specific properties Deputy Deenihan asked about and I have no difficulty with his question.
May I have a copy of that information?
Yes.
This appears to be a very large Supplementary Estimate. What is the total Vote under Vote 10? Is it a current or capital Vote? Will the purchase of the properties be from the current side?
Would it not have been more normal to include this in the 1999 Estimate? Is it not peculiar to introduce such a large amount of money at the end of the year? The policy is ongoing. The Government wishes to buy from the financial institutions a great deal of property in different parts of the country to which civil servants have been decentralised. Yet, it proposes to do this at the end of the year by way of a Supplementary Estimate. Given the major policy considerations involved, the more normal procedure would have been to include it in next year's Estimate so that it may be considered in the normal way. The decision is already made when the Supplementary Estimates are considered. Has the money been spent already or is it contractually committed? Is the Minister of State looking for money to be voted for agreements already made and are we following the event rather than preceding it?
What is the mechanism for the purchase? Is there a buy-out clause in the individual contracts and is the value of the property related to this clause? Was the figure negotiated or is the purchase price pre-determined by the contract?
While the NTMA has much expertise it does not have any in the property business. I never heard of any property experts in the NTMA.
They are expert in financial management.
They are financial experts, not property experts. If the price was not pre-determined and there was a buy-out in the original contracts who determined the purchase price? This is a major policy change, of the kind normally signalled in the annual Estimates, where there would be a significant lead-in time.
I referred to debt management, which is the NTMA's area of expertise. The agency is not expert in the property market but it had comments to make on the basis of the financial arrangements we were making.
Vote 10 totals £124 million. It is a mix of capital and current expenditure. The Deputy referred to the mechanism of a Supplementary Estimate at the end of the year. There has been a significant increase in property costs in 1998 and the market is undergoing significant change. We anticipated certain movements and gave ourselves what I thought was plenty of headroom. It was what the committee suggested last year. For example, when we referred to a 20 per cent increase in rents for 1998 we may have been criticised for allowing such a figure, yet while rents have increased by 64 per cent, the performance is still better than the private sector. The performance of the economy is also a factor.
We took the opportunity to consider what we were doing in the property market generally and undertook an analysis a number of months ago to see if there was a more efficient way of managing the portfolio in terms of the financial commitments in place. The result is where we are at today.
We have not entered into any contractual arrangements - we are engaged in serious negotiations - in advance of the approval of the Supplementary Estimate by the committee. Following the analysis to which I have referred the timing was right to make this move.
There is a financial instrument in all of the contracts, which allows for a buy-out clause and which the figures are based upon. A formula in the financial instrument is used to analyse the cost of the property. It would not necessarily by the full open market value of the property. There is a gain for the State, otherwise we would not be in a position to proceed. On the analysis before us we considered it was time to proceed. We had his opportunity and we made the proposal. When we decided on our internal analysis we had discussions with the Department and the NTMA and we have arrived at this decision.
Will it be treated as capital or current within Vote 10? The Minister of State indicated that it is a mixture of the two but for accounting purposes will it be treated as capital or current?
Capital.
On the financial clause, which is contained in the agreements and is the mechanism under which the price was negotiated, is there a negotiation margin within that clause? If the clause is invoked is the price pre-determined?
Technically there is no margin but we always try to obtain the best deal possible. I am prepared to make the formula available to the Deputy and he will be able to see the basis of financial instrument and make his own analysis.
I thank the Minister of State but I am not concerned about that matter. When he made the decision to take this route was there a negotiating margin in the financial clause or was it merely a question of deciding in principle to buy out, at which point the price was pre-determined? If the latter is the case, what is the role of the NTMA?
Will the Deputy repeat the question?
If the price was pre-determined, what is the role of the NTMA?
In the absolute technical sense - I must differentiate between the two and I believe the Deputy understands why this is necessary - it could be stated that the basis was already in place. However, where possible, we found room to negotiate to our advantage, not to that of others. I do not believe the institutions expected us to make this move and they were somewhat taken aback by it. However, we had room to negotiate. When we negotiated on the basis of the assessment of the net current value, we asked the NTMA to indicate what savings could be made from our point of view, what costs would be involved and what the long-term values would be in terms of the financial debt.
In his statement the Minister of State referred constantly to decentralised properties. Do I take it that this only applies to properties throughout the country and that no properties in Dublin are covered?
The Deputy is correct. The programme was largely based on the design bill finance programme. There are properties we would like to purchase in Dublin but the costs involved are prohibitive. We tabled a bid for a major property, the Pepper Canister, yesterday but we failed miserably. It appears the property market is driving ahead on properties of that kind.
There are obvious advantages in purchasing properties outside Dublin because the Department will no longer be obliged to pay rental income. What obligations does the Department incur as owner of these properties and are there additional costs involved?
There are no additional costs involved. The same obligations apply which would obtain if we were leasing the properties because we are responsible for the cost of maintenance, fitting out, etc. Purchasing the properties gives us more control in terms of putting in place our maintenance and development programmes. It also maintains the desired balance of ownership within the State property portfolio. We are trying to keep that as high as possible and, given the current climate, we are trying to increase it. There will be occasions, however, when we will be obliged to rent accommodation and not purchase it.
When we conclude the detail of this debate, will it be possible to raise questions on other areas of the Minister of State's Vote in respect of which a Supplementary Estimate is not being moved?
The debate is confined to the Supplementary Estimate on Vote 10.
I was disappointed by the Chairman's attitude towards me on the last occasion on which——
Does the Deputy wish to put a question to the Minister of State?
Yes, but I also wish to make a comment and as a member of the committee I am entitled to do so. Is the Minister of State in a position to provide an estimate of the outgoings for 1998 on the 22 properties in question?
Will the Deputy repeat the last part of the question?
Is the Minister of State in a position to provide an estimate of the outgoings for 1998 on the 22 properties in question?
Approximately £6 million to £7 million.
Those figures apply to the purchase of the properties. What would be the costs relating to the 22 properties in a normal year if they were not purchased?
£6 million.
What will be the Department's policy on private-public partnerships - PPSs? Is it intended to continue to pursue these in certain instances or is it intended to purchase and own all properties? Will the policy remain flexible?
That is an important and fundamental question. We will be retaining private-public partnerships as part of our operations. This option must remain on the table because it will be a valuable asset on certain projects in terms of our policy framework for implementing building design and construction and determining the location of those projects. There will be no change in this area, we merely exercised this option for purely financial reasons.
That concludes our consideration of the Supplementary Estimate.