Legislative Council Panel on Education

HOME FINANCING SCHEME FOR ELIGIBLE STAFF OF UNIVERSITY GRANTS COMMITTEE-FUNDED INSTITUTIONS

For Discussion at the 11 September 1998 Meeting
INTRODUCTION

At the meeting of the Executive Council on 1 September 1998, the Council ADVISED and the Chief Executive ORDERED that subject to the approval of funds by the Finance Committee of the Legislative Council:

  1. a Home Financing Scheme (HFS) as set out in Annex A should be introduced with effect from 1 October 1998 (the Effective Date) for the following staff in the institutions funded by the University Grants Committee (UGC) to replace the existing housing benefits of Quarters, Private Tenancy Allowance (PTA), Home Purchase Scheme (HPS) and House Allowance (HA)-

    1. as a condition of service and the only housing benefit for newly recruited staff remunerated on Master Pay Scale (MPS) 34 or above (or equivalent) on or after the Effective Date; and

    2. as an option for serving staff remunerated on MPS 34 or above (or equivalent) who are eligible for Quarters/PTA.

  2. the proposed arrangements to achieve reduction in Government's long-term expenditure as set out in paragraphs 7 and 8 below should be adopted;

  3. the proposed strategy to dispose of and utilise surplus quarters as described in paragraphs 9 and 10 below should be adopted;

  4. as a temporary and exceptional arrangement, but not as an entitlement and not as part of the proposed HFS, the UGC-funded institutions should be allowed to offer university accommodation (or rent allowance, only when such accommodation is not available) to staff recruited from outside Hong Kong with accommodation needs during their first contract up to three years (paragraph 11 and Annex B);

  5. pending further discussion with the UGC and the UGC-funded institutions on detailed arrangements, the proposed HFS should not be extended to Heads of Institutions for the time being (paragraph 13); and

  6. authority should be delegated to the Director of Lands to approve, at nil premium or fee, applications from the UGC-funded institutions to let out surplus quarters for purposes not permitted under the land leases governing the sites on which the university quarters are located (paragraph 20).

BACKGROUND AND ARGUMENT
Present Housing Benefits for Staff of the UGC-funded Institutions

2. The existing housing benefits available to the eligible staff of UGC-funded institutions are modelled on the pre-October 1990 housing benefits for the Civil Service which include non-departmental quarters, departmental operational quarters, PTA and HPS.

Proposed HFS

(A) General Principles

3. The Administration, in consultation with the UGC and UGC-funded institutions, have examined the feasibility of introducing an HFS for eligible UGC staff along the lines of the Civil Service HFS based on the following principles:

  1. ensuring that the terms and conditions of staff of the UGC-funded institutions are broadly comparable to, but no better than, those of comparable ranks in the Civil Service;

  2. meeting the home ownership aspirations of eligible staff of the UGC-funded institutions;

  3. reducing the Government's long-term expenditure on housing benefits;

  4. putting to optimum use the surplus quarters arising from the introduction of the HFS; and

  5. recognising the unique and essential operational needs of the institutions such as the continued requirement to recruit internationally and the policy to recruit initially on contract terms.

4. On the basis of the above parameters, we propose to introduce an HFS for eligible staff of the UGC-funded institutions along the lines of the Civil Service HFS with effect from 1 October 1998, subject to approval of funds by Finance Committee of the Legislative Council. Details of the proposed HFS are set out in Annex A.

(B) Comparability with the Civil Service HFS

5. The terms of the proposed HFS are basically the same as the Civil Service HFS except for the following:

  1. Government will not provide any downpayment loan, but will have no objection to institutions making their own arrangements using private funds or eligible staff's entitled superannuation; and

  2. to take account of the institutions' policy to recruit on contract terms, we propose to allow the use of the entire Home Finance Allowance (HFA) for rental purpose throughout the ten-year entitlement period, instead of confining to the initial two years in the case of the Civil Service HFS. Staff using HFA for rental may switch to home ownership at any time during the period, but not vice versa. These staff may also be given the choice of contributing the HFA for an option to reside in on-campus university accommodation, if the institutions see fit.

(C) Meeting the staff's aspirations for home ownership

6. The proposal will benefit a total of 4 943 1eligible staff, including 2 233 staff currently claiming PTA, 1 560 staff residing in quarters, 502 recipients of Home Purchase Allowance who may switch to the proposed HFS for the remainder of their 120-month entitlement period, 37 staff currently receiving House Allowance and some of the 611 staff who have not claimed any housing benefits. The scheme will also meet the home ownership aspirations of new appointees and those existing staff who will become eligible in due course.

(D) Reducing Government's long-term expenditure on housing benefits

7. An HFS will bring about long-term savings/benefits in terms of reducing the expenditure on PTA over time and the disposal of surplus quarters. The latter may take the form of deleasing in the case of leased quarters, disposing of purchased quarters or built quarters or disposing of the entire site for redevelopment. As in the case of experience with the Civil Service HFS, long-term savings arising from the introduction of an HFS are significantly dependent upon savings/benefits to be realised from surplus quarters. Since the majority of university quarters are self-owned quarters, there is a need to devise appropriate arrangements for Government to share the benefits derived from surplus quarters.

8. Taking account of the institutions' concern and in order to encourage the institutions to maximise the use of surplus university accommodation and subject to the strategy to dispose of and utilise surplus quarters as described in paragraphs 9 and 10 below, the following arrangements would be adopted:

  1. The institutions should continue to manage and maintain their own respective stock of quarters.

  2. As set out in more detail in paragraph 20 below, the institutions should be allowed to turn the surplus quarters into rentable premises for university staff, for overseas visitors and for non-university staff.

  3. Government will receive a share of the rental proceeds from all vacated publicly-funded quarters, irrespective of whether the quarters are actually vacant, rented or sold, calculated on the following basis -

    1. use the quarters' rateable values as assessed by Rating & Valuation Department or where these are not available, the notional rental value as supplied by the institutions as the notional rental income ;

    2. a nil-income period of 12 months after the quarters are vacated; and

    3. apply a split of the notional rental income of 70% to Government and 30% to institutions. The share of the rental proceeds to institutions is intended to cover Rates and Government Rent which are no longer eligible for reimbursement from Government, management and maintenance, and to provide incentives for the institutions to put the quarters to optimal use.

  4. For privately-funded quarters where the Government has neither incurred any additional expenditure nor assumed any liability in those purchase/construction projects, the benefits of such vacated quarters arising from the introduction of the HFS should accrue to the respective institutions, subject to the terms and conditions as laid down in the agreement between the UGC and the institutions governing those projects.

  5. Regarding vacated quarters which are partly privately-funded and partly government-funded, the benefits should, generally speaking, be shared on a pro-rata basis.

  6. Tentatively, we suggest that the portion of the notional rental income of vacated publicly-funded quarters accrued to the Government be used to offset Government's recurrent grant to UGC-funded institutions. As regards the case where the vacated quarters have been converted to alternative uses with the approval of Government, we suggest that the assumed rental income be accounted for on a case-by-case basis subject to agreement between UGC and the Government.

(E) Putting to optimal use the surplus quarters from the introduction of the HFS

9. Excluding operational quarters and quarters for junior staff, there are 1 922 senior staff quarters. Based on the institutions' assumed take-up rates, 760 of these quarters will be vacated by the end of the three-year option period. More quarters will become surplus to requirement as new recruits are no longer eligible for quarters as a form of housing benefit. From the land administration point of view, land acquired from Government under concessionary terms by institutions for the provision of staff quarters and/or official visitors' accommodation should be surrendered to Government at no cost for disposal when the land is no longer required for such purposes. This should be reflected in some form of understanding or agreement between Government and the institutions. However, to fully realise the benefits of these surplus quarters, it is more appropriate for these quarters to be managed by the institutions. It is also to the mutual benefit of both the Government and the institutions to devise an appropriate and flexible disposal/utilisation strategy.

10. Under the proposals in paragraphs 7 and 8 above, the Government will receive a pre-determined share of income from those vacated quarters regardless of how individual institutions intend to make use of them. Under this broad parameter, the Government is prepared to work jointly and positively with individual institutions on proposals which would yield the greatest public benefit. A Task Force chaired by the UGC Secretariat and comprising the Administration and institutions would be set up to consider and advise on proposals from institutions on disposal plans or alternative uses of the quarters and their consequential implications on the Government's share of the proceeds from the vacated quarters. Any future deliberations on the subject by the Task Force would be based on the following understanding -

    the institutions will :

  1. other than new quarter projects which are at an advanced stage, stop increasing the stock of quarters after the introduction of HFS.

  2. draw up plans to delease quarters rented from the private market and reprovision occupants to owned quarters, if possible, after a reasonable notification period;

  3. as and when surplus quarters are available, give consideration to requiring recipients of PTA who are eligible for quarters to move into quarters as far as practicable; and

  4. respond positively to Government's proposal to take back sites for disposal or redevelopment, particularly where the sites in question are under-utilised and the quarters are aged or where the sites are no longer required for the provision of staff quarters and/or official visitors' accommodation;

the Administration will :

  1. consider positively proposals for alternative usage of surplus quarters or quarter sites such as for student hostels. Any public funding required for these would be sought in the usual manner and where the proposals are supported by Government, the Government's share of the notional rental income from those quarters would be deemed to have been fulfilled;

  2. assist in facilitating the optimal use of all vacated quarters, including those self-built surplus quarters on Government land granted under concessionary terms; and

  3. consider taking over or renting some surplus university quarters to replenish the civil service stock especially to meet its reprovisioning requirements in time to come.

(F) Meeting the unique and essential operational needs of the institutions

11. In recognition of the unique and essential operational needs of the institutions such as the continued requirement to recruit internationally and the policy to recruit initially on contract terms, the UGC-funded institutions would be allowed to offer university accommodation (or rent allowance only, where such accommodation is not available) to staff recruited from outside Hong Kong with accommodation needs during their first contract up to a maximum of three years. This, however, can only be a temporary and exceptional arrangement, not an entitlement and not part of the HFS, to be considered and provided by the institutions on a case-by-case basis. Details are set out at .

Financial Control and Accounting Arrangements

12. As the proposed HFS for staff of the UGC-funded institutions will Annex Boperate on the basis of eligibility and hence without a quota, Government has to provide the required financial provision reflecting the actual take-up rates. That is to say, if the approved provision for any given year in the Estimates is inadequate because of a higher than anticipated take-up rate, we will seek additional supplementary provision from Finance Committee of the Legislative Council. For financial monitoring and control purposes, we will have to put in place arrangements to ensure that additional expenditure for HFS in the year is appropriately offset by reduced expenditure incurred by institutions on other forms of housing benefits. Specifically, we will provide ready identification on expenditure on HFS and other forms of housing benefits in the Estimates which will meet the requirements of transparency and accountability.

Heads of Institutions' Eligibility to Join the HFS

13. The terms and conditions of service of heads of institutions (HoIs) are different from those of other staff of the UGC-funded institutions. Pending further discussion with the UGC and UGC-funded institutions on the HoI's eligibility to join the HFS, the proposed HFS should not be extended to the HoIs for the time being.

FINANCIAL AND STAFFING IMPLICATIONS
Financial Implications

14. In 1998-99, it is estimated that the institutions are spending $679 million of UGC grants on providing housing benefits to eligible staff. This amount, which is net of salary contribution from staff, represents about 5.5% of the total recurrent grants to UGC-funded institutions in 1998-99.

15. At Annex C is a cost and benefit analysis of the introduction of HFS, based on the assumed take-up rates of HFS supplied by institutions and other assumptions on staff profile, inflation and notional rental income, over a period of 15 years. The analysis shows that in a 15-year period, the introduction of the HFS would cost $5.6 billion less (in Money-of-the-day (MOD) prices) than the continued provision of the existing housing benefits. In terms of expenditure to Government, based on the proposed arrangements in paragraphs 7 and 8 above (i.e. after discounting all vacated privately-funded quarters the benefit of which should accrue to the institutions and reflecting the sharing of proceeds from vacated publicly-funded quarters), the introduction of the HFS will reduce Government subvention to UGC-funded institutions by $2.7 billion (in money-of-the-day prices) over a 15-year period.

16. The introduction of the HFS will require additional cashflow expenditure in the initial years, even after taking into account the Government's share of the rental value of vacated publicly-funded quarters being realised. This is estimated at $126 million in 1998-99 (on a six-month basis), $319 million in the 1999-2000 and $380 million in 2000-01 in MOD prices. According to the projections at MOD prices, this trend of increased cash spending will only start to reverse from the year 2008-09.

Staffing Implications

17. Introduction of HFS to UGC-funded institutions has no staffing implications for the Government.

Implications on Triennium Funding and Student Unit Cost

18. Other than the adjustments that need to be made to the total recurrent grants to UGC-funded institutions to reflect the Government's share of the rental income arising from vacated publicly-funded quarters, we do not expect the introduction of HFS to affect the current basis of triennium funding. As a matter of principle, we do not intend to reflect the initial additional cashflow expenditure in the student unit cost, lest this might lead to unnecessary fluctuations in the unit cost and tuition fees.

ECONOMIC IMPLICATIONS

19. The proposed HFS is likely to attract a significant number of eligible staff in the UGC-funded institutions to buy their own homes and hence create some additional demand in the residential property market. The number of potential beneficiaries is set out in paragraph 6 above. The extent of increase in demand would depend on the participation rate of eligible officers.

LAND AND PLANNING IMPLICATIONS

20. At present, the UGC-funded institutions have 1 922 senior staff quarters, of which 1 047 are on-campus and 875 are off-campus, mostly on government land granted to institutions under concessionary terms. These staff quarters are located in different places. The conditions in the land leases governing the sites on which the quarters are located also vary significantly. They may contain restrictions over the use of the sites to the effect that the sites should be used for the provision of staff quarters and/or official visitors' accommodation. To enable institutions to maximise the long-term savings by adopting the strategy described in paragraph 10 above, it would be necessary for the Director of Lands to be delegated authority to approve applications from the institutions for temporary or permanent variations of the relevant land lease conditions to let out surplus quarters for purposes not permitted under the relevant land lease conditions. Under the current land policy, a waiver fee or a modification premium at full market value together with an administrative fee should be charged. However, in this case, we consider it justified to charge a nil premium or fee because the Government will receive a pre-determined share of income from those publicly-funded vacated quarters regardless of how individual institutions intend to make use of them under the proposals in paragraphs 7 and 8 above.

21. From a town planning point of view, the institutions need to seek planning permission from the Town Planning Board under section 16 of the Town Planning Ordinance for them to let out quarters which stand on sites zoned "Government, Institution and Community" to non-university staff. Some alternative uses in specific cases may also require planning permission from the Town Planning Board. The Administration will assist the institutions as far as possible in this regard.

PUBLIC CONSULTATION

22. We have consulted the UGC and the UGC-funded institutions in the process of drawing up the present proposals and they support them. The proposals are also in line with the recommendations in a recent report of the Public Accounts Committee (PAC) which urges the Administration to launch an HFS for eligible staff of the UGC-funded institutions, given the long-term savings that would accrue to the Government whilst meeting the home ownership aspirations of eligible staff.


Education and Manpower Bureau
September 1998



ANNEX A


FACT SHEET ON THE HOME FINANCING SCHEME FOR ELIGIBLE STAFF OF UGC-FUNDED INSTITUTIONS

A. ELIGIBILITY

Employees of the UGC-funded institutions on Point 34 or above of the Master Pay Scale (MPS) are eligible to join the Home Financing Scheme (HFS).

B. ALLOWANCE

  1. Eligible staff will be given a monthly allowance (hereinafter referred to as "Home Financing Allowance (HFA)" for a maximum period of 120 months, irrespective of whether their service with the UGC-funded institutions is broken.

  2. The HFA may be used to reimburse either

    1. the actual rental payments; or

    2. the actual mortgage repayment.

      on a local residential property in which he lives, for a maximum period of 120 months, or until he leaves the service or upon completion of mortgage, whichever occurs first. The HFA will be 100% accountable if used for reimbursing rental payments and 50% accountable if used for reimbursing actual mortgage repayment. In the case of HFA used for renting accommodation, the accommodation rented must not be one in which the staff or his relatives have a financial interest. HFA recipients may use the allowance to rent university accommodation.

  3. On admission to the HFS, the staff member concerned may receive an HFA up to the rate applicable to his substantive salary point on the scale of allowance prevailing at the time when he starts receiving the HFA. He will remain on this scale throughout his entitlement period under the Scheme. The allowance payable to staff member shall be:

    1. in the case of using HFA for renting accommodation, the actual cost of renting accommodation; or

    2. in the case of using HFA for reimbursing mortgage repayment, twice the amount of the actual mortgage repayment payable by him; or

    3. his entitled rate of allowance appropriate to his salary, whichever is the lesser.

  4. The scale of allowance will be the same as that under the civil service HFS. The scale of allowance for officers who start receiving HFA on or after 1 April 1998 is as follows:

    Salary PointMonthly Allowance
    Directorate Pay Scale (D)6-10$56,310
    D2-5$42,230
    MPS45-D1$37,530
    MPS41-44$26,580
    MPS38-40$23,470
    MPS34-37$20,340

  5. Eligible staff receiving HFA may apply for switching from renting accommodation to purchasing own accommodation at any time during his entitlement period but not vice versa.

C. DOWNPAYMENT LOAN

Government will not provide any downpayment loan, but will have no objection to institutions making their own arrangements using private funds or eligible staff's entitled superannuation. Save for employers�contribution to the staff superannuation scheme, no public funds (including recurrent grants to institutions, tuition fee income from publicly-funded programmes, other assumed income and the interest derived thereon) can be used for this purpose and any loan scheme arranged by the institutions must not create any additional commitment on public funds.

D. HFS AS CONDITION OF SERVICE/OPTION

  1. With effect from an appointed date (hereinafter referred to as the "Effective Date"), all newly appointed employee will be offered the HFS as a condition of service and as the only form of housing benefit.

  2. Eligible staff appointed before the Effective Date will have to opt before the option deadline whether to join the HFS or to retain their eligibility for quarters or Private Tenancy Allowance (PTA). Their option for HFS is irrevocable once it is accepted by the institution.

    Set out in the table below are the option deadlines for different categories of existing staff and the respective dates on which the staff member irrevocably forfeit his eligibility for all other housing benefits.

    StaffOption Deadline for HFSDate from which the Staff Member and Spouse Forfeit Eligibility for other forms of housing benefits
    Eligible appointees who are on or above MPS 34 on the Effective Date
    local and overseas staff (on superannuable or contract terms) 3 years from the Effective Date If the staff submits the Option Form, Initial Application/ Formal Application for HFS during the option period:the date of commencement of receipt of HFA or the day following the expiry date of the option period, whichever is the earlier.

    If the staff submits only the Option Form, during the option period:the day following the expiry date of the option period.

    Eligible appointees who were appointed before the Effective Date and who reach MPS 34 after this date
    local and overseas staff (on superannuable or contract terms) 3 years from the Effective Date orsix months after they have reached MPS 34
    or
    six months after the date of notification of their promotion if the promotion takes retrospective effect, which is the latest.     		the day the staff member submits the Option Form.

  3. An eligible staff who is currently receiving Home Purchase Allowance (HPA) may opt for the HFS from the Effective Date, and his entitlement period under HFS will be the balance of his 120-month entitlement period under the Home Purchase Scheme (HPS).

  4. An eligible staff who has not submitted the Option Form by the option deadline can subsequently apply to join the HFS. Similarly, an eligible staff who has opted to retain his eligibility for quarters or PTA may subsequently apply to join the HFS. The application may be approved subject to an additional condition that the 120-month maximum entitlement period to the HFA will be reduced by the number of calendar days between the day following the expiry date of the option period and the day he commences to receive HFA, irrespective of whether he has received any housing benefits before joining the scheme.

  5. If a staff member fails to relinquish the other housing and related benefits, his entitlement period under the HFS will be reduced by the period from the date on which he is required to relinquish the benefits to the day before he actually relinquishes such benefits.

E. REMARKS

  1. The rules for prevention of double housing benefits will apply. An employee may only receive one housing benefit at any one time, irrespective of whether or not it is provided by the institution. If the staff member is married, he and his spouse must opt for either the officer's housing benefits or those provided under the spouse's employment. If he or his spouse has received any form of housing benefits from the Government or a publicly-funded organisation, his entitlement to housing benefits provided by the institutions will be reduced or otherwise be limited. If he or his spouse has permanently ceased to be eligible for any housing benefits under the terms of employment in the Government or a publicly-funded organisation (for instance, he or his spouse has claimed the full entitlement of any housing benefit or has been disqualified from housing benefit for any reason), he will not be eligible for any housing benefits.

  2. A staff member will forfeit his eligibility for further assistance under HFS if he fails to obtain approval to change property before he disposes of his property, or fails to obtain approval to change property before he completes his mortgage repayment.

  3. The allowance received under the HFS is taxable under the Inland Revenue Ordinance.


Annex B


HOME FINANCING SCHEME FOR ELIGIBLE STAFF OF
UNIVERSITY GRANTS COMMITTEE (UGC)-FUNDED INSTITUTIONS

EXCEPTIONAL ARRANGEMENTS FOR STAFF RECRUITED FROM OUTSIDE HONG KONG WITH ACCOMMODATION NEEDS
Having considered the unique and essential operational needs of the UGC-funded institutions such as the continued requirement to recruit internationally and the policy to recruit initially on contract terms, and the desirability of maximising the use of surplus quarters arising from the introduction of the HFS, the Administration has no objection to the UGC-funded institutions offering university accommodation (or rent allowance only where such accommodation is not available) to staff recruited from outside Hong Kong with accommodation needs during their first contract up to a maximum of three years. This is a temporary and exceptional arrangement, not an entitlement and not part of the HFS, to be considered and approved by institutions on a case-by-case basis.

2. The rent allowance available under the above-mentioned exceptional arrangement must be used for reimbursing the actual rental payment for a local residential property in which the eligible staff lives. The scale of allowances will be the same as that under the HFS for eligible staff of UGC-funded institutions. The allowance payable to the staff shall be the actual cost of renting accommodation or the rate of allowance applicable to the salary point of the staff, whichever is less.

3. Since this offer of university accommodation is based on accommodation needs, situations of double housing benefits rule should not arise That is to say, if the spouse of the staff member recruited from outside Hong Kong is receiving housing benefits in the form of local accommodation from his or her employer during that period, this staff member would not meet the accommodation needs criterion under the exceptional arrangement.

4. Staff who have been given this temporary arrangement during their initial contract of up to three years will be eligible for HFS as the only form of housing benefit either for home ownership or rental upon contract renewal or at the end of the three-year period, whichever is the earlier. They will be eligible for the full ten-year HFS entitlement. However, it should be noted that the initial years of provision of university accommodation under the temporary arrangement may be regarded as a form of housing benefit by other publicly-funded organisations for the purpose of determining the staff's continued eligibility of housing benefits in their respective organisations. For example, if the staff member who has lived in university accommodation for the initial three years subsequently joins the civil service, his or her entitlement period (as well as that of his/her spouse) for the civil service housing benefits may be reduced by three years.



1.The figures are based on information provided by the UGC-funded institutions reflecting the position as in December 1997.