Local Government (Rates) Bill 2018: Department of Housing, Planning and Local Government

Apologies have been received from Deputies Darragh O'Brien and Fergus O'Dowd. Deputy Shane Cassells will be substituting for Deputy O'Brien.

This meeting has been convened for the purpose of consideration by this committee of the Local Government (Rates) Bill 2018, which will be preceded by a briefing from officials from the Department of Housing, Planning and Local Government.

At the request of broadcasting and recording services, members and visitors in the Public Gallery are requested that for the duration of the meeting, mobile phones be turned off completely or switched to airplane safe or flight mode, depending on their device. It is not sufficient to put phones on silent mode, as it maintains a level of interference with the broadcasting system.

Item 1 on the agenda is a briefing on the Local Government (Rates) Bill 2018. On behalf of the committee, I welcome to the meeting, from the Department of Housing, Planning and Local Government, Mr. Barry Quinlan, Ms Lorraine O'Donoghue, Ms Sinéad O'Gorman, Ms Sheila McMahon, Mr. Paul Hogan and Ms. Patricia Curran.

Before we begin, I wish to draw the attention of witnesses to the fact that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by the committee to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable.

Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the House or an official either by name or in such a way as to make him or her identifiable.

I call on Mr. Barry Quinlan to make his opening statement.

Mr. Barry Quinlan

I am pleased to be here this morning to assist the committee in its consideration of the Local Government (Rates) Bill 2018, in particular, to discuss proposed Report Stage amendments. This is a very important piece of legislation and I thank committee members for their time and consideration.

I am joined by a number of colleagues: Ms Lorraine O’Donoghue and Sinead O’Gorman, who have been working hard on the rates Bill, from the local government finance section in the Department; Ms Sheila McMahon, who is here to cover the Residential Tenancies (Amendment) Act amendments; and Ms Patricia Curran and Mr. Paul Hogan, who are here to cover the planning amendments. As requested, we have provided advance briefing on these Report Stage amendments to the committee.

Commercial rates are a critical source of funding for local authorities, accounting for €1.51 billion, or 32%, of the €4.67 billion expenditure budgeted in the sector in 2018. The overall aim of this rates Bill is to modernise and improve the rates regime. In this regard, the drafting process is complex and of necessity, requires significant ongoing consultation with key stakeholders, particularly local authorities and the valuation office.

I might just mention that in terms of important provisions not subject to amendment, the Bill provides for the introduction of rates alleviation - waiver - schemes by local authorities, subject to ministerial approval, which can support important policy objectives contained in local, economic, community and land use plans.

The Bill also includes important provisions for collection and enforcement by local authorities.

The Bill was passed on Second Stage in the Dáil on 30 January, at which time a number of amendments were signalled for introduction on Committee Stage. Report Stage is provisionally scheduled for 3 July. Committee Stage consideration will take place immediately after this briefing session. The Minister of State, Deputy Phelan, will be in attendance and it will present an opportunity to discuss important amendments such as those related to the Valuation Acts. The changes are required to ensure the ongoing national revaluation programme will remain revenue neutral for the local authorities, taking account of the revaluation of utilities on a global basis and the impact of successful appeals to the Valuation Tribunal. In that context, an amendment to allow the Commissioner of Valuation share the preliminary valuation of Irish Water with the local authorities is time critical to facilitate the calculations for 2020 budgets in local authorities.

A small number of important but mainly technical amendments were not ready for tabling on Committee Stage, but it is intended to introduce them on Report Stage. There will be a number of further amendments relevant to the Bill. Furthermore, amendments to the Planning and Development Acts, the Residential Tenancies Act 2004 and the Residential Tenancies (Amendment) Act 2019 are proposed. Amendments to the rates regime are proposed to enhance notification procedures and provision for additions and amendments to the valuation list to be immediately effective for rating purposes, given that there is currently a delay. A possible further amendment remains subject to drafting.

An amendment to the Residential Tenancies (Amendment) Act 2019 is required to overcome a risk that might allow the definition of an "owner of student accommodation" to be construed in a manner that could circumvent the intention of the Act. The amendment is required prior to the imminent planned commencement of the student accommodation provisions. Technical amendments related to the timing of the commencement of the student accommodation provisions will also be required. An amendment to the Residential Tenancies Act 2004 will be required to provide an alternative route for protected structures to qualify, further to substantial refurbishment works, for exemption from rent increase restrictions in rent pressure zones, RPZs, because they would be unlikely to qualify under the provisions recently enacted in the 2019 Act. The objective is to eliminate any potential negative impact on the planned refurbishment of protected structures in the rental sector.

An amendment will be required to the Planning and Development Act 2000 to address transitional issues following the establishment of the Office of the Planning Regulator. It is a time-critical amendment in the context of the ongoing development of regional spatial and economic strategies, RSESs, by regional assemblies. A further minor technical amendment will be proposed to underpin the special provisions for Cork city and county councils to extend the period for review of their development plans to incorporate RSESs into their plans. A possible amendment to the Local Government Act 1998 to reinsert a provision inadvertently deleted which empowers the Exchequer to pay into the Local Government Fund is no longer deemed to be required following further legal advice on the matter.

I thank the committee. We look forward to the discussion. We have provided some more detail in the briefing note on the proposed amendments.

I thank Mr. Quinlan and our other guests for their attendance. While I do not mean to criticise anyone, there is a certain degree of dissatisfaction among committee members. Yet again, we have been notified of Report Stage amendments that we will not have a chance to scrutinise in committee. I appreciate that the idea in Mr. Quinlan appearing before the committee is to fill in at least part of the gap, for which we are grateful, but the Minister of State, Deputy Phelan, should hear loud and clear the view of the committee that it would have been much better if the amendments had been brought through the full and proper process of Committee and Report Stages. Nevertheless, we have always been flexible as a committee and do not wish to stand in the way of important amendments.

I have concerns about two of the proposed Report Stage amendments and would like to hear more about them. While the amendments related to student accommodation and rates seem to bebroadly sensible, my concern is with the protected structures and RPZs. If I understand the problem correctly, it is that the building energy rating, BER, requirements included in the new definition of "substantial refurbishment" cause a difficulty in the case of pre-1963 properties because they are exempt from BER upgrades. Would it not have made more sense to simply remove the provision of a new definition of "substantial refurbishment" from the criteria for pre-1963 properties to be eligible for substantial refurbishment? Was this considered, or have I misunderstood the position? Why is the solution to the problem a requirement to have been outside the rental market for 12 months rather than 24?

I also have a concern about the RSESs. We will again give a significant power to the Minister. Although I do not want to return to the debate, the purpose in creating a planning regulator was to shift the overconcentration of power from the hands of the Minister and the Department, to which the Mahon tribunal had rightly pointed. In the case of the current RSES processes, however, the amendment would allow the Minister to issue a direction to the regional assemblies to take such specified measures as he or she might require for the plan. That seems to be another significant shift in power towards the Minister and an undermining of the regional and local authorities. What is Mr. Quinlan's response? I am open to supporting both amendments on Report Stage, but I struggle with these two questions.

On global revaluations, the Valuation Office is carrying out the valuation of Irish Water and there have been some indications of how the valuation will be broken down for each local authority. I have heard that population size might be used in calculating the figure. I have also heard indications that, by coincidence, the valuation may end up being the same as the current total valuation of Irish Water. That will be interesting if it turns out to be the case. If the figure is divided by population, counties such as Wicklow will lose out significantly. In fairness, Wicklow County Council rated all of its water infrastructure in its books, whereas I understand a number of councils did not rate any of their water infrastructure. Is there a question mark over the current valuation of Irish Water, given that some councils did not carry out a valuation? When the Valuation Office gives its valuation of Irish Water, who will decide how to apportion it and how will it be done? If it is apportioned according to population size, what will happen to the likes of County Wicklow which will probably lose approximately €1.6 million in commercial rates? What involvement will we or the Government have in the process, or who else will decide how it is to be apportioned after the Valuation Office provides the valuation?

I am glad to participate in something that is very important for so many businesses throughout the country. As Mr. Quinlan noted, €1.5 billion is raised in commercial rates. It is the most significant contributor in the running of local councils throughout the country. I echo what Deputy Ó Broin said. I appreciate that everything is time sensitive, but what is happening with the Bill before us is similar to what happened in the case of the Cork city Bill, when an amendment was proposed on Report Stage to provide for municipal councils across boundaries. However, it failed because it was such a late addition and there was not a proper debate on it.

I thank Mr. Quinlan for the briefing. He raised issues with the Planning Act and RSESs and I would appreciate it if he fleshed them out.

In time regional assemblies will have more clout than councils, which will have a significant impact on the hierarchy of plans ranging from the national development plan to regional strategies and those of councils. As we are discussing a Bill on rates, I would like to flesh out what the impact will be.

Mr. Barry Quinlan

Ms McMahon will reply to the question on protected structures.

Ms Sheila McMahon

The issue is that the description of substantial works relating to the improvement in the building energy rating or BER inserted in section 19 of the 2019 amendment Act were not capable of being applicable to protected structures. They apply to pre-1963 structures but it is just the protected structures within that and this has to do with a technical issue. The BER system emanates from an EU directive and the regulations were made under the 1972 Act. That means the regulations can only be applied as a requirement as opposed to an optional facility. They cannot be used like that. It turned out that the only way protected structures could qualify for the exemption would be either more than 25% of the property was refurbished or they met all three of the exemptions relating to adaptation for disabled people, an increase in the layout and an increase in the number of rooms. Effectively, that would have meant it would have been very difficult for protected structures to quality under the grounds of the change in the substantial refurbishment works. To provide an alternative way in which this subset of buildings in the rental sector could qualify, so that there would not be a deterrent effect on doing needed refurbishment work, this amendment is being introduced whereby if it is a case that there has not been a tenancy in the building for 12 months prior to the new tenancy that commences after the works, there will be an exemption from the application of the 4% rent increase restriction in the rent pressure zones, RPZs. This is an alternative. It will still be two years for every other building.

Does the amendment only deal with protected structures rather than the generality of the pre-1963 structures?

Ms Sheila McMahon

Yes. Protected or proposed protected.

Does that mean the requirements under the recent amendment to legislation will not apply at all but the 12-month rule will apply?

Ms Sheila McMahon

They will apply but what is not capable of being satisfied by a protected structure is the one related to seven point improvement in BER. Even if they do improve it by seven points, legally they will not be deemed to have done so. The four and five, which is either the two or three point improvement, along with two other, either permanent changes to the internal layout, an increase in the number of rooms or having disability access, the two relating to BER improvements of either two or three point ratings, in association with two out of those other three, is not capable of being-----

If the property has not been let for the previous 12 months, what are the other requirements?

Ms Sheila McMahon

That on its own can qualify. Just as a non-protected structure, if it has not been let for the previous two years, that on its own can qualify.

I get that. So none of the other stipulations of substantial refurbishment would apply to such a property. The only criterion would be if it had not been let for the previous 12 months, it would then be exempt.

Ms Sheila McMahon

Yes.

Is that because it is not just that the BER is a legal requirement but there are issues relating to the disabled access and floor space because of the protected nature of the structures? Is that the rationale for doing so?

Ms Sheila McMahon

We understand that it is very difficult and virtually impossible for the owner of a protected structure to carry out the type of works that would qualify under the other routes because of the strong controls over the changes one can make to those buildings. The objective is still, though, that those buildings that are not in good condition would be improved to make them more comfortable for tenants.

There is no statutory definition of what a substantial refurbishment is for those properties.

Ms Sheila McMahon

Sorry, it would not be correct to say it like that. For any dwelling, the exemption is available if there has been no tenancy in the preceding two years to the one that is commenced just in terms of the initial rent setting but after that the restrictions will apply.

Ms Sheila McMahon

It is just in the case of protected structures that that will be one year as opposed for two years and, again, only for the initial rent setting if this amendment is passed and then the 4% restriction will apply to subsequent rent reviews.

I thank Ms McMahon.

Mr. Barry Quinlan

I ask Mr. Hogan to address the questions on planning and the RSESs posed by Deputies Ó Broin and Cassells.

Mr. Paul Hogan

The provision seeks to address an interim situation that arises. Up until 3 April of this year what is envisaged is a power that the Minister has always had. Up until now the Department, on behalf of the Minister, has been fully engaged in all three regional spatial strategy processes. All three processes are well advanced. In fact, the east and midlands regional strategy is due to be published on Friday. The process is that well advanced and is almost complete.

The problem is that the legislation that we now have has made the involvement of the Minister in the process at this stage subject to the involvement of the Office of the Planning Regulator, OPR, from the outset in the process, which can never be achieved because we cannot turn the clock back. This arises because this legislation was published in 2016 and enacted last year. It was always envisaged that the OPR would be in place before the RSESs kicked off but the office was not in place and it did not happen like that. They have travelled down the road and the regulator has come in pretty much three quarters of the way through all of the processes. As I said, the legislation envisages the regulator being given notice, making submissions and being very clear about what the issues are and what his or her office wants to see done all the way through and then, on foot of that either happening or not happening, making a recommendation to the Minister at the very end for the Minister to act. The Department, on behalf of the Minister, has been involved to date in line with legislation that was there until 3 April. This amendment simply seeks to put a once-off interim arrangement in place for the current round of RSESs, all of which are at a slightly different stage, and simply enable the process, as it was prior to 3 April, to be concluded as it would have been. However, there is one new addition, which enables the Minister to invite the regulator to issue an advisory report to him or her. That is seen as something that would enable at least the advice of the regulator's office to be brought in to the current process. It is a new provision but it gets us over the problem of the regulator not having been involved all of the way through and having things on the record that he said. There is an issue about legal consistency where one cannot have someone coming in at the 11th hour raising new issues or whatever. The ability to involve the regulator is the only new element, otherwise it is just putting the clock back to prior to 3 April. The regulator's office is only recruiting staff now so the reality is there will not be a significant capacity there to undertake what was envisaged even if we could set the clock back.

Why do it in the first place? Why place this on such a footing if, as Mr. Hogan said, the regulator's office does not have the capacity and the east and midlands regional strategy will be published on Friday?

Mr. Paul Hogan

It has been through a process. It is concluded.

Mr. Paul Hogan

There are three regional strategies. With all three, as it stands, there is a legal gap where there is no provision for anyone to oversee the conclusion of the process as envisaged in the legislation. The only remedy is judicial review, which would be a far more difficult and complex remedy.

For the Minister?

Mr. Paul Hogan

For any party.

Obviously, the reason one wants to do this is in anticipation or in case of something in one of those spatial plans that the Minister or the Department feels is not consistent with the national planning framework, NPF, or other Government strategies.

Mr. Paul Hogan

Yes.

If one does not do this, is Mr. Hogan saying that if one of the spatial strategies is not consistent in the view of the Minister or the Department the only recourse for the Minister would be a judicial review?

Mr. Paul Hogan

Exactly.

Does Mr. Hogan anticipate any such gaps between what he expects to be in the plan and the NPF and existing Government strategies?

Mr. Paul Hogan

It is quite possible, yes. The way it works is once the strategy is published, the Minister has a period of time in which to form a view as to whether or not the strategy complies with national planning policy and guidelines, etc. I do not want to prejudge the ability of the Minister to make that decision but there are issues in respect of some elements of the soon-to-be adopted plan in the east and midlands. There are also issues ongoing in the north and west, and the south, that may not be resolved by the end of the process but we cannot anticipate how that will go.

At this stage, I am slightly confused. The purpose of this is to allow the planning regulator to make a report.

Mr. Paul Hogan

It is simply a timing issue to ensure that someone has the responsibility to oversee this process. As it stands, the way the legislation is, the regulator cannot get involved in the process and the Minister's involvement has effectively been curtailed since 3 April. No one is responsible at present. Basically, that is for the lack of a transitional arrangement. This is a transitional arrangement given that we are well advanced on the three and that was not envisaged when the legislation was drafted.

It is more than a timing issue. It is quite a significant provision. Clearly, it is a provision that was intended in the original legislation that was published in 2016. So that we are clear, if the Minister or the Department is concerned that the content of one of these plans is a problem, this gives the Minister an avenue to resolve that problem in line with the national planning framework and Government strategies.

Mr. Paul Hogan

Yes.

The Minister would then request the planning regulator to go in, produce a report and make recommendations to the Minister as per the legislation, and the Minister would then be legally entitled to act to say to the regional authorities to amend their draft plan in line with Government policy. Am I wrong in that?

Mr. Paul Hogan

It is not subject to the regulator. It is an advisory role because the regulator has no history with the processes to date.

My point is, because the Minister is only able to - I will use the word "intervene" but Mr. Hogan might have a more polite word - intervene in this process through the office of the planning regulator, this is the mechanism through which the Minister and the Department is allowed to intervene if the Minister or the Department feels there is a problem with one of those spatial strategies.

Mr. Paul Hogan

Yes. Legally and legislatively, it is easier to revert to the situation as it was for a whole variety of reasons. That was the advice we got but we were keen also to ensure there was some role for the regulator given that was what the legislation envisaged.

On that point from Deputy Ó Broin, does the Minister - this is the key point - invite the regulator to conduct that report? Is that on the basis of the Minister and the Department not being happy with what is positively published?

Mr. Paul Hogan

No. It would be prudent to seek the advice-----

Mr. Paul Hogan

-----irrespective. The Minister has to form a view and there could be issues that may or may not be noticed or picked up. These are complex documents.

What weight does the report conducted by the new office of the planning regulator carry? Is it simply an advisory document?

Mr. Paul Hogan

It is advisory in the transitional arrangement. Ultimately, the legislation, as enacted, for all future regional strategies will remain. In the future scenario, it will be a much more binding set of advice because it is based on involvement from the very beginning of the process that is followed through, and if not taken, needs to be reported on to the Oireachtas.

In the planning regulating legislation, it is not binding. It is only that if the Minister chooses not to accept that advice, he or she has to lay on the record of the Dáil the reasons.

Mr. Paul Hogan

Yes.

In no sense is it binding. It is only that the Minister must explain why he or she is not accepting it.

Mr. Paul Hogan

Pretty much, yes.

Are there any further questions?

By when must the full adoption of the regional strategies happen?

Mr. Paul Hogan

At a meeting on 3 May, the Eastern and Midland Regional Assembly agreed that its strategy would come into effect on 28 June. I think the Minister has a period of six weeks to form a view. Prior to 3 April, it was four weeks. The six weeks is to allow for the input of the regulator should it be sought.

Must it be adopted within six weeks of Friday next?

Mr. Paul Hogan

No.

Apologies. The Minister has the opportunity to-----

Mr. Paul Hogan

The Minister may issue a direction if he so requires.

Okay. At the end of that six weeks, if the Minister states he is reverting to the office for a view, does that extend it even further?

Mr. Paul Hogan

No.

The Minister must get the view within the six-week period.

Mr. Paul Hogan

That is it. It was four weeks when there was no regulator. The period of six weeks is to allow for that additional reporting.

Deputy Casey?

I do not know whether or not I am okay with it. If everything was in sync and there was not the timing issue - picking the Eastern and Midland Regional Assembly strategy as it is the one that has been adopted - and if everything was correct, what would have happened that at this stage? Would it have gone to the planning regulator who would have made a report to the Minister? Would Mr. Hogan take me back through the sequence that would have happened if the timing of the legislation was correct, and what is the difference?

Mr. Paul Hogan

Instead of the Department making the submissions from the outset, the regulator's office would have been making the submissions and there would have been back and forth with the regulator. They would have been keeping the Department informed, but the primary point of contact and assessment is the regulator's office. Let us say we had got to this stage and the regulator had been involved from the beginning. From Friday, the regulator would be in a position where he would then report back to the Minister based on whether or not his recommendations have been taken on board and whether or not he considers the strategy has complied with national and other guidance, and would likewise report to the Minister in the four-week period, and the Minister then would have six weeks from the beginning of the process to act, that is, another two weeks on top of the four weeks.

Basically, all we are doing is adding an extra two weeks to allow the regulator to overview the regional strategy that it conforms to all national strategies.

Mr. Paul Hogan

Yes.

Realistically, that is all this legislation does.

Mr. Paul Hogan

That is the whole effect of it if we are starting now but the legal reality is that the regulator has not been involved all the way to date.

If the regulator has an issue with the plan, what happens then?

Mr. Paul Hogan

The Minister may form a view. If the Minister agrees with the regulator, the Minister is then empowered to issue a draft direction to the regional assembly in the first instance. The regional assembly then has a period of time to consider the draft direction and make a response. Then there is a further process where, as before, the Minister considers the report of the director of the regional assembly and decides on foot of that either to make the direction or to invite an independent report to be done. Then there is a period of time for an independent report, if need be. Finally, on foot of that, the Minister makes a final decision.

The Minister is basically acting on the planning regulator's advice to give direction to the regional assembly. It is similar to a county development plan-----

Mr. Paul Hogan

It is exactly the same.

-----where there is a ministerial direction and it goes through a process. It is the same process taking place.

Mr. Paul Hogan

Yes, it is the same process.

On the student accommodation provisions, which I support, is the issue that the definition of an "owner" in the Bill we passed may allow the likes of a shell company, for example, to get some kind of permission and then restructure itself so that the terms of the original Act would not apply? Can the Department give us a little more information about the kind of loopholes that are available? I think I understand it but I want to make sure I understand it properly.

Ms Sheila McMahon

It concerns the use of lessors to issue the licences to occupy to the students as opposed to the owners. The definition was overlooked in the sense that when it went into the draft provision, the drafter explained to me that he was using a temporary definition and that he had intended to go back and consider further whether it was certain there were no ways of circumventing it. However, other work intervened and he did not get around to it.

Can Ms McMahon explain in the most simple terms possible how that loophole could work?

Ms Sheila McMahon

For example, the owner of the accommodation could set up a separate company and give it a lease. If that lease was for a term of less than five years, that would mean it would not fall within the definition in the legislation and therefore the provisions would not apply.

Could the same loophole apply in other relevant legislation such as with co-living or to other recent innovations with leased properties? Has anybody checked whether the potential loophole that has been identified in the drafting also exists elsewhere?

Ms Sheila McMahon

This provision is in isolation because it is dealing with licensed student accommodation and the Residential Tenancies Acts specifically do not apply to licensed accommodation. This is the only type of licensed accommodation that would be encompassed by it and it is very specific to student accommodation.

Is Ms McMahon certain that type of loophole could not apply in a co-living development, for example, as opposed to student-specific accommodation?

Ms Sheila McMahon

To the best of my knowledge, they would not come within the legislation in any event because there is no exclusive occupation. The Residential Tenancies Acts only apply to tenancies and this is the first exception to that by the application to the student-specific accommodation occupied under licence as well as occupied under tenancy.

The Residential Tenancies Board stated in this committee that there would be certain circumstances, even before this legislation was introduced, where certain kinds of licences would have entitled a licensee to claim exclusive occupation and, therefore, would have fallen under some of the provisions of the Residential Tenancies Acts. That has been its view for some time.

Ms Sheila McMahon

If it is in fact a tenancy, although it is claimed by one of the parties to be a licence, it will look beyond what it is and then if it was a tenancy, the legislation would apply. Sometimes the claim will be made that something is a licence when in fact it is a tenancy but if it is a genuine licence, the legislation will not apply.

Mr. Barry Quinlan

If that covers everything on the planning and the Residential Tenancies Acts, I will address rates and Irish Water valuation. The first valuation of Irish Water is under way. Other valuations of the ESB and EirGrid will also be undertaken this year. On the Irish Water evaluation, the Commissioner of Valuation is independent and that process is ongoing. We have engaged with the commissioner and local authorities to ensure the greatest possible understanding but the figures are not yet available. The preliminary valuation will be on 18 July and the Minister will be notified of it. Local authorities would not normally be notified but that is addressed in one of the amendments. These are Committee Stage amendments so there will be an opportunity to discuss them with the Minister. The other two amendments are very important, particularly for local authorities that are being revalued at the same time as a global valuation. There is also a mechanism for appeals.

The revaluation will deliver a figure for each of the relevant local authorities. What that means for local authority finances is a separate process. We are engaging with the local authorities on funding and perhaps in the Estimates process later this year. Both of those processes are operating in parallel, although the valuation is taking place in an information vacuum until the final figure is produced.

The apportionment under the Act is done by the commissioner. I understand that the previous apportionments have been done by population. Perhaps my colleagues would like to add to that.

Ms Lorraine O'Donoghue

I will add to that because I was around the last time it happened. For clarification, that apportionment is set out in section 53 of the Valuation Act 2001 and it is done by order. As Mr. Quinlan said, it is done in consultation with the commissioner but the Minister is empowered under the legislation to make the order. To date, all global utilities have been apportioned on a population basis. As Mr. Quinlan said, two other global utilities, the ESB and EirGrid, are being revalued next year. Previously, they would have been apportioned under that order on the basis of population data in the census. It has been done that way to date because it is independently verifiable, treats every local authority the same way and the data are transparent and robust. Those are the only reasons that approach has been taken. It is a decision for the Minister to make later this year but I expect the same apportionment mechanism to apply to the three utilities this year.

Of the €46 million generated by Irish Water, two counties receive zero compensation. Some counties will lose out significantly on this apportionment if it is done on a population basis because until now, the valuations have been done on the basis of the assets in each county. What will happen if there is a gap between the revenues in the counties?

Before the Minister comes in, I want the witnesses to help me get my head around half of the letters of the alphabet in amendment No. 15. I assume these are related to global valuations and national valuations that happen in the same year. For the life of me, I still cannot work it out. The Department has used 11 letters of the alphabet to come up with a formula that is mind-boggling, to say the least. I presume the purpose is to protect counties which have a global revaluation and a national revaluation in the same year. If nothing is done, they would lose out on the global revaluation but I do not know why we need a formula with 11 characters in it to try to calculate it. The simple approach would be to take the complete valuation out of the equation along with its revenue, deal with what is left over and then add it all back together in order that the county would get the benefit. I have not tried to work out the figures A to K because I lost the will to live and I do not want the land the Minister in it when he comes in.

I have concerns about Irish Water and about what exactly is happening here because I honestly lost the will to continue. I got as far as F before deciding I had enough. I just could not work it out. Will the officials explain exactly how the formula should be worked out using A to K and what steps are taken?

Mr. Barry Quinlan

There are two pieces to this. The legislation will address the revaluation. Then there is the matter of the impact of the valuation of Irish Water, the apportionment and the impact that has on local authorities.

That will have implications, either in its redistribution and how it operates or just the impact of the valuation on the funding that was available previously. I have signalled that this is complex legislation-----

Before Ms O'Donoghue goes into that matter, will the committee have an involvement in that Irish Water process or will it be down to the commission and the Minister to decide at the end of the day how it should be apportioned? Will we have sight of it?

Mr. Barry Quinlan

I think the process, as laid out in the current Act, is that the commissioner makes recommendations and the Minister then makes an order. I am acutely aware of the potential impact on local authorities, a number of which have written to us directly, but it is based on estimates of what they know. We will work out the impact on each local authority and what the valuation will be. Our understanding is it will have a significant impact on some local authorities. Others will benefit from it, but it is only when one has the table that one can see that there will be a process. I have said to the local authorities that we will have to engage on that issue. We are working with them and the Valuation Office to bring them together to try to understand the process. It would be good if the local authorities received the information at the same time as the Minister on the preliminary work. At least, we could then all work out the figures and work off the same numbers. Under statute, the commissioner makes a recommendation and the Minister then decides and makes an order.

Ms Lorraine O'Donoghue

I have a lot of sympathy for the comments made by Deputy Casey. The formula is complex and hard to explain and understand. I might get ready to bat it to a colleague. The aim of the provision is to separate the standard national revaluation, the global revaluation, and the ongoing impact of Irish Water. We have crunched the numbers in the Department. It is safe to say we made a similar assumption to the Deputy that a much simpler process was possible and to add it back in at the end, but we could not get the numbers to work. We made an actuarial assessment, but it was not working out. We reviewed the formula in consultation with the Valuation Office. The draft members have related to the Committee Stage amendment is not straightforward, but it is what is being proposed. We are as confident as we can be that it is what will work. Ms O'Gorman might address more technical matters.

Ms Sinéad O'Gorman

One of the reasons we did not separate it altogether was that if we did, it would make the process of determining the annual rate on valuation, ARV, in the annual budget very difficult. If we had pulled out the global income and worked out the rate limitation order with reference to non-global income, it would have made the ARV process very complex. Two elements of the formula were changed from what we are proposing. The portion G is to take account in the formula of possible leakage on appeal. Following a revaluation, relevant properties can appeal to the Valuation Tribunal and the valuation may be revised downwards.

Mr. Barry Quinlan

Or upwards.

Ms Sinéad O'Gorman

The original valuation has been factored in in the local authority budget and the rate limitation order amount. The amendment we are proposing is that element G in the formula account for the average percentage loss of income on appeal and that it be advised to the Minister by the Commissioner of Valuation when making the order. The Commissioner of Valuation is independent in carrying out their functions and the only party who would able to provide the data accurately. That is the first proposed amendment. The second concerns the second portion of the formula in the second set of brackets. At present, if a global valuation is revised upwards or a new global valuation such as Irish Water this year is added, it cannot be factored in in the formula. As it is, the local authority cannot get the value of it. The second portion of the formula is to allow for that buoyancy to be accounted for. If we raise the upper limit in the rate limitation order for the local authorities concerned, it means that they will be able to get the benefit of a new valuation, or if the figure for the ESB or EirGrid was to go up, it would also apply.

Is that okay with Deputy Casey?

Probably not, but-----

Mr. Barry Quinlan

There is significant consultation. Some rate practitioners from local authorities came to the Department to work on the issue. It is a complicated system.

Ms Sinéad O'Gorman

We went through all of the options.

Mr. Barry Quinlan

We worked with the Valuation Office. We are confident that amending the formula is the best way to do it. We want to tweak it to take account of appeals, the leakage that can come from them and the effect it can have on equity in the payment of rates overall. This matter is critical because of the potential inequity in revaluing in counties at the same time as there is a global change. It is an anomaly in the formula. The best way to try to fix it is to fix the formula. We have taken the advice of the people who are expert in the matter.

I will not get into the nitty-gritty of it, but will the delegate send me a practical example? For the purposes of this discussion, we will allow it to go through, but I would like to examine it by the time the Bill reaches Report Stage next week. With regard to appeals, there would be leakage in the determination of an ARV. Why is it a factor in this instance? I ask the question not having studied the matter fully.

Ms Sinéad O'Gorman

A local authority which is not undergoing a revaluation process is not subject to a rate limitation order. Therefore, it can adjust its ARV upwards or downwards as it sees fit to earn a certain income from rates. The local authorities which are subject to a rate limitation order because there was a revaluation in the previous year have no flexibility and there will inevitably be a loss. They will be limited by the value in the rate limitation order and the ARV will have to be set in accordance with it. This will give them a little more flexibility. The amount in the rate limitation order will take account of a percentage for leakage and will be a little higher. It is the upper limit to which they can raise rates, but it will give them the flexibility to do so which they currently lack.

Is it normally only applied after the results of appeals are known?

Ms Sinéad O'Gorman

No. Unfortunately, it can take a long time to work through appeals.

Ms Lorraine O'Donoghue

It can take a long time for appeals to work their way through the Valuation Tribunal. Sometimes the tribunal might make a ruling on the valuation of a business which might have retrospective effect. Some local authorities might find themselves having to provide refunds, assuming rates have been collected if there is an appeal. The leakage on appeal provision proposed for insertion into the formula is simply to ensure the revaluation will remains revenue neutral. The evidence suggests that when an appeal works it way through the system and the impact is fully known - this can take a number of years because of the volume of appeals - a revaluation is not revenue-neutral and that in some instances it is a considerable cost to individual local authorities. This will allow the formula to be adjusted on the basis of the expertise of the commissioner and their advice and to be factored in immediately, rather than having to deal with the consequences a couple of years later.

I will tell the ratepayers in County Wicklow who have appealed not to get their hopes up that it will be done by the end of the year. It was indicated that it would be done by September.

Mr. Barry Quinlan

We are reviewing the appeals tribunal. In terms of the volume, etc. of appeals that came to us, that increased with our Reval work. A little piece of work will do that. It would be better to reduce that time so that the piece is more known. In a way we have the flexibility. If the risk of leakage on appeals is reduced because appeals are quicker then that can be taken into account and that would be a low element of the extra ceiling that is needed. In the interim it could be a significant loss to a local authority. That is not the way the system was designed to be because the rate limitation order has been based on a figure that in actual fact may not materialise because of these appeals.

I have one more question and I will leave my questions for today if the officials are willing to forward me the information I have requested.

Mr. Barry Quinlan

Yes.

The potential for buoyancy in global revaluation of both the ESB and Eir network has been mentioned. Is there a chance that the Minister or the commission could use the buoyancy in local authorities to balance the potential deficit of Irish Water?

Mr. Barry Quinlan

For that a couple of things must happen. The valuation and notification must happen. Separately, the Department, in consultation with local authorities, must work out the table of effect on a local authority by local authority basis. There are a number of levers available to the Minister and the Government but first we need the figures. I am speaking about the future but it will be known very quickly. In terms of my own agenda in here, the interaction with local authorities is very high.

Is there potential for the Minister to leverage a revaluation of both the ESB and Eir to balance out a potential shortfall in Irish Water's funding of local authorities?

Ms Lorraine O'Donoghue

Each utility is valued independently of every other by the commissioner and completely independently of the Department. As Mr. Quinlan has said, the table is done and we understand the impacts on the sector as a whole and on individual local authorities. Our role then, as the Department, is to consider that in the context of the Estimates process.

The officials have not said "Yes" or "No".

Ms Lorraine O'Donoghue

We would consider all of those things in the round. We would take into account other decisions that may or may not have an implication on the overall local authority funding piece.

Mr. Barry Quinlan

We have that responsibility in terms of local government financing on an annual basis. It is a very independent process. The only information that we would have from the commission is an explanation of some of the processes, etc. The notification will happen in July and it is only at that stage one can start to put these figures on it but that is something we will have to work out and we will advise the Minister of his options.

Is that one of them potentially? Potentially. It would be helpful if the witnesses could forward the full calculation to us.

Ms Lorraine O'Donoghue

Yes, that would be no problem.

The information will help us to get our heads around A to K before 3 July.

Ms Lorraine O'Donoghue

We will certainly do that.

What is the average waiting time for the appeals process? In County Westmeath the revaluation happened last year or the year before. Is that county cleared now in terms of the appeals process? What is the average waiting time?

Mr. Barry Quinlan

I only have the aggregate figures. When one peruses the amount of appeals that came in one will see that the number of appeals really increased from the low hundreds in 2014 to over 1,000 since then. There were very good efforts to clear appeals. As at the end of 2018 there were more than 1,000 appeals left so there is a backlog in the appeals tribunal.

Is that countrywide?

Mr. Barry Quinlan

Yes.

The backlog nationwide is an issue. We will do a major piece of work to increase the capacity of the Valuation Tribunal. There is a review of that tribunal that includes local authorities and other stakeholders. The review is under way and I hope to close it off fairly quickly.

What is the cumulative figure for the 1,000 appeals? How much income would they generate in rates?

Mr. Barry Quinlan

I am not sure if it is contained in what I have here with me. If I do not have it then I might be able to get an estimate. There are figures. In terms of the local authorities, we are working with the Valuation Office on the revisions. I have seen figures on those and I think the number has decreased. I will check to see if I can add a figure. I am not sure if the figure has been included as I did not notice it when I read this document.

Is it the same with the tax appeals commission? Are the figures or rates on ice while the appeals process takes place?

Ms Lorraine O'Donoghue

There is what we call the payment pending appeal provision in the legislation. There is a statutory obligation on ratepayers who have appealed their valuation to pay some or all of the rate as originally levied. The adherence to that or its enforceability, we do understand that ratepayers who have an appeal pending before the Valuation Tribunal can sometimes be reluctant pending the outcome of the appeal. I presume people do not want to prejudice a potential appeal result if they pay the full amount as levied. It can be a challenge for local authorities to collect rates in that circumstance if there is an appeal pending but it is the statutory position that payment pending appeals should proceed.

Does it come down to a case-by-case scenario for finance sections in local authorities as to how they handle the situation?

Ms Lorraine O'Donoghue

Yes. As the Deputy will know, local authorities and rate collectors generally have a very good relationship. They know the local situation better than the Department does in terms of engagement with individuals.

It would be helpful if the officials forwarded to us the figure for the cumulative net worth.

Mr. Barry Quinlan

Yes.

This is a wider question. We had the Valuation Office next door where we discussed the slow pace of work of the Reval nationwide and the impact of same. I would appreciate if the officials forwarded the figure for the cumulative net worth to us.

Mr. Barry Quinlan

Yes. There are a couple of other things separate to the Bill. I would see this as an important building block. In terms of the overall valuation process, revisions, etc., the Valuation Office signed a contract this week to bring in extra resources specifically to do the revisions in the next group of Revals. The Valuation Office has gone through a lot of them themselves. The other piece is how the Valuation Tribunal operates. That definitely needs to be modernised and made more efficient. We are looking at those. They do not all necessarily need to be done in legislation. Between ourselves, the Department, the Valuation Office and local authorities, we are really trying to work on all of the other pieces that we can do, procedurally.

It would be useful if we could get a note on the average waiting times because that is an important part of this process as well.

Mr. Barry Quinlan

Yes.

Are we finished the briefing session? Yes. I propose that we briefly suspend the meeting to allow the Minster of State at the Department of Housing, Planning and Local Government to take his seat and then we will start our discussion of the Bill. Is that agreed? Agreed.

Sitting suspended at 10.40 a.m. and resumed at 10.55 a.m.