For discussion PWSC(95-96)86
on 7 February 1996

ITEM FOR PUBLIC WORKS SUBCOMMITTEE
OF FINANCE COMMITTEE

CAPITAL WORKS RESERVE FUND
HEAD 701 - LAND ACQUISITION
Block allocations

Members are invited to recommend to the Finance Committee to approve the allocation of $2,787.501 million for block allocations under Head 701 for 1996-97, together with the creation of a new block allocation Subhead 1100CA and to delegate to the Financial Secretary the power to authorise expenditure from this new block allocation.

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PROBLEM
PROPOSAL
JUSTIFICATION
FINANCIAL IMPLICATIONS
BACKGROUND
Block allocations under Head 701 Key expenditure items in 1996-97
Ambits of the current block allocations for 1995-96

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PROBLEM

Various block allocations under Head 701 need funding in 1996-97 for existing and new projects to proceed on schedule. The present system of block allocations is administratively cumbersome and leads to underspending.

PROPOSAL

2. We propose a total allocation of $2,787.501 million for the block allocations for 1996-97 under Head 701, including the creation of a new block allocation subhead 1100CA, made up as follows -

Enclosure 1 sets out the original allocation for each existing block allocation in 1995-96 as compared to the amounts proposed under the block allocations in 1996-97. As with other block allocations under the Capital Works Reserve Fund (CWRF), we also propose that the Finance Committee delegate to the Financial Secretary the power to authorise expenditure under the above subheads¹.

JUSTIFICATION

3. The Finance Committee approves expenditure under the block allocations under Head 701 on the basis of total expenditure that we forecast we will incur in the next financial year, not the total costs of compensation and ex-gratia allowances to be paid in any individual clearance or resumption case, the final settlement of which can extend beyond the financial year in question. It is necessary for the Finance Committee to approve funds under each of the block allocations for 1996-97 in order to enable the Government to undertake land acquisition in the next financial year, including meeting payments carried forward from the present (1995-96) and earlier financial years².

4. The proposed total allocation for the Head 701 block allocations for 1996-97 is only about half of the original allocation for 1995-96. We have drawn up the allocations proposed for 1996-97 on the basis of expenditure patterns, existing commitments and projects expected to be undertaken in the coming financial year. Enclosure 2 sets out the key expenditure items in 1996-97.

5. We have, however, taken the decision to be much more conservative than in previous years in forecasting total expenditure for 1996-97. As shown in the table below, over the last several years actual expenditure has consistently fallen well short of the original estimate. While it is possible to produce reasonably accurate estimates of total land acquisition costs, estimating the rate at which we will make actual payments is far more difficult. It depends upon a large number of factors, over many of which the Director of Lands has no control. The number of objections that we receive in respect of land clearance for a project and their resolution, the number of absentee landowners, the number of cases referred to the Lands Tribunal and the time taken by the latter to resolve such cases, are typical examples of the kinds of factors that influence the actual rate of expenditure. The reduced forecast of expenditure in 1996-97 thus does not represent any real reduction of the extent of land acquisition but is a more realistic assessment of the actual expenditure we forecast that we will incur over the financial year.

Total expenditure on Head 701 block allocations

# Forecast outturn for 1995-96

6. We have also taken the opportunity in this year's block allocation exercise to reduce the number of block allocations under Head 701. The creation of new block allocations has usually taken place on an ad hoc basis in response to a particular need at the time. Another reason for underspending is because the procedures governing expenditure under the Capital Works Reserve Fund (CWRF) prevent us from automatically transferring readily available funds under one block allocation to another block allocation where additional funds are urgently required and then, if necessary, subsequently seeking additional funds from the Finance Committee via PWSC should total expenditure for the financial year in respect of all block allocations look likely to be exceeded.

7. We usually find ourselves only being able to apply to the Finance Committee via the PWSC to increase the permitted level of expenditure under the block allocation requiring the additional funds, leaving the amounts available under other block allocations unchanged. This is particularly true in the early part of the financial year when we are still uncertain of the likely total year expenditure under each block allocation. By combining several closely related block allocations into one block allocation, we can overcome these problems.

8. We propose to combine the ten existing subheads (1010CA to 1018CA and 1020CA) dealing with land acquisition for the Public Works Programme into a single block allocation (1100CA). Currently the block allocations deal with land acquisition for public works projects in new towns and urban development areas or Port and Airport Development Strategy related projects. By combining the block allocations into one to deal with all public works projects regardless of where they are located, we can readily transfer funds set aside for land acquisition for projects in one area which are delayed to other projects elsewhere which are moving ahead better than originally forecast. In so doing we can reduce underspending on land acquisition and also help to prevent underspending on the Public Works Programme as a whole in the circumstances where works projects would have been otherwise held up because of a shortage of funds to carry out land acquisition in a particular area.

FINANCIAL IMPLICATIONS

9. The total proposed allocation for the new block allocations for 1996-97 under Head 701 is $2,787.501 million. There are no additional annually recurrent implications arising from this proposal.

BACKGROUND

10. The CWRF finances eleven different heads of expenditure covering the Public Works Programme, the acquisition of land, capital subventions and major systems and equipment, and computerisation. The block allocations under Head 701 provide for expenditure on land acquisition and land-related allowances required as a consequence of capital works. The ambits of the current block allocations for 1995-96 are set out in Enclosure 3. We allow for a certain level of over-commitment on the sums approved by the Finance Committee in order to cater for expenditure on items which can only take place towards the end of the financial year and part of the expenditure must carry forward to the next financial year or for items where we forecast the full amount of expenditure to be spread over several financial years³.

1 -- As provided for under the Resolution establishing the CWRF, the Financial Secretary may delegate his power of administration to other officers.
2 -- Land acquisition is a complex and often time consuming process, particularly in establishing ownership and agreeing acceptable levels of compensation. Settlement of claims can often take several years to complete, particularly when reference to the courts is involved.
3 -- We often find difficulties in tracing the current ownership of land and we must continue to keep the relevant expDecision : recommended.enditure items open until all claimants have come forward and received compensation.

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Enclosure 1 to PWSC(95-96)86

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Enclosure 2 to PWSC(95-96)86

Block allocations under Head 701 Key expenditure items in 1996-97

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Enclosure 3 to PWSC(95-96)86

Ambits of the current block allocations for 1995-96

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