Local governments avoid decisions about property in fear of unpopularity

Toomas Mattson | 10/27/2016 | 11:00 AM

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TALLINN, 27 October 2016 – The National Audit Office found in the overview prepared about the buildings of local governments that they have many disused buildings, but few opportunities and decisiveness to do something with them. The quantity of disused buildings will increase further in the course of the administrative reform, but the local governments engaged in merger negotiations don’t often want to decide which buildings they actually need for the provision of services in the merging local government and which buildings must be given up.

Instead, some local governments are not prepared to discuss the issues related to the shrinkage of services, as it may cause opposition among the population. However, all of the local governments that have merged so far have admitted that some buildings will no longer be used after the merger.

The share of buildings and investment properties among the fixed assets of local governments is almost four times bigger than the state’s, but the expenses related to them exceed the state’s expenses only by a half, not four times. This comparison does not show that local governments are considerably more effective in managing their buildings than the state, but that they do not spend anything on the maintenance of many buildings.

At present, local governments fail to foresee any use for ca 10% of their buildings in the next five years. The quantity of such buildings is the biggest in Harju County, Ida-Viru County and Lääne-Viru County. The National Audit Office is of the opinion that the number of buildings that will be disused and need to be demolished may be bigger, because local governments have been rather optimistic in their assessment of the future of the buildings and admitted that a building has no prospects only after it’s already disused.

Selling disused buildings outside cities is difficult due to the special purpose and location of the buildings. Buildings that can be redesigned as residential or industrial building have sometimes been successfully sold. Usually, there is no interest in disused buildings and even if a building is successfully sold, it is still disused years later. Many buildings of local governments are architectural monuments, which means that finding a use for them is difficult because of their specific room layout and the high renovation expenses, but which cannot be demolished.

90% of the buildings that local governments will still be using in five years’ time in their present opinion need ca 838 million euros for renovation. The National Audit Office is not going to give an opinion on whether this amount is optimal, but points out for comparison that this is similar in size to the amount local governments have been able to invest in property over the previous five years. According to the Ministry of Finance, local governments and their undertakings have invested 1.15 billion euros in all of their fixed assets (not just buildings) from 2011-2015.

In the overview, the National Audit Office notes that when local governments plan their investments in buildings, they often proceed from the buildings for which they can request investment support from the state and use the support to renovate buildings the long-term necessity of which is questionable. The position of the National Audit Office is that the support granted by the state should be an addition to the local government’s own investment money and should primarily be used to renovate the type of buildings the sustainability of which is clear to the grantor of the support.

The National Audit Office is of the opinion that local governments should do the following: in the course of merger negotiations, figure out which buildings they will actually need in the future, which unnecessary buildings can be sold and which should be demolished; use some of the merger support received in the course of the administrative reform for demolishing unnecessary buildings; plan making more investments with their own money in the future, as this will allow them to be more flexible in considering their needs. The state should definitely keep the latter in mind as it reviews the principles of financing local governments in the course of the administrative reform. The support granted by the state should be an addition to the local government’s own investment money, primarily for renovating the type of buildings the sustainability of which can be made clear.

Background
The National Audit Office prepared an overview of the buildings of local government and the problems related to their management by collecting data about all of the 213 local governments as well as the buildings belonging to them. The purpose of the overview was to ascertain how many buildings local governments own, how many of them are disused and what can be done with unnecessary buildings. The overview will be of help to the local governments that are preparing to merge in the course of the administrative reform and to the state in planning post-reform activities.

Local governments or their undertakings owned 5386 buildings as at the end of 2015, 50% of them were in a good or excellent order in the opinion of local governments. A third of the area of local government buildings is comprised by schools, their maintenance requires the most money (ca 29 million euros per year) and their investment needs are also the biggest according to the estimates of local governments.

Some figures about the property of local governments revealed by the survey of local governments:

  • local governments and their undertakings had 5386 buildings recognised among their fixed assets in their possession as at the end of 2015;
  • their closed net area totalled 5.6 million square metres;
  • considering the average expense per square metre, the management expenses of their buildings were approximately 90 million euros in 2015;
  • according to local governments, half of the buildings are in a good or excellent condition, but a little over a tenth in a bad or very bad one;
  • a third of the area of local government buildings is comprised by schools, their maintenance requires the most money (ca 29 million euros per year) and their investment needs are also the biggest according to the estimates of local governments;
  • local governments estimate that they will need 81% of their buildings fully and 8% of them partly also in five years’ time and that renovating them would require 838 million euros in total. For comparison: according to the Ministry of Finance, local governments and their undertakings invested 1.15 billion euros in fixed assets from 2011-2015 (the money invested in buildings cannot be separately highlighted and in addition to them, the amount also covers investments in roads, communications and street lighting, etc.);
  • local governments would like to demolish 18% and the cost of their demolition according to their estimates would be ca 3.5 million euros.

Toomas Mattson
Communication Manager of the National Audit Office
+372 640 0777
+372 513 4900
toomas.mattson@riigikontroll.ee
press@riigikontroll.ee
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  • Posted: 10/27/2016 11:00 AM
  • Last Update: 11/1/2016 12:46 PM
  • Last Review: 11/1/2016 12:46 PM

The average maintenance costs per square metre are the highest in the case of swimming pools – they exceed the costs of the second-most expensive buildings, which are nursing care homes, by a whopping 77%.

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