on 18 September 1998
ITEM FOR FINANCE COMMITTEE
HEAD 190 - UNIVERSITY GRANTS COMMITTEE
Subhead 492 Grants to UGC-funded institutions
New Recurrent Account Subhead Home Financing Scheme
New Recurrent Account Subhead Housing-related expenses other than
Home Financing Scheme
- accept the financial implications of introducing a Home Financing Scheme for eligible staff of the University Grants Committee-funded institutions with effect from 1 October 1998;
- approve the creation of a new Recurrent Account Subhead Home Financing Scheme* under Head 190 University Grants Committee with supplementary provision of $223 million in 1998-99;
- approve the creation of a new Recurrent Account Subhead Housing-related expenses other than Home Financing Scheme* under Head 190 University Grants Committee with supplementary provision of $243 million in 1998-99; and
- delegate authority to the Secretary-General, University Grants Committee to vire funds without limit on a cost-neutral basis from Subhead 492 Grants to UGC-funded institutions to the proposed new subhead Housing-related expenses other than Home Financing Scheme.
The housing benefits currently available to eligible staff of the University Grants Committee (UGC)-funded institutions do not meet the home ownership aspirations of these staff and could be provided in a more cost-effective manner.
2.The Secretary for Education and Manpower (SEM) proposes -
- to introduce a Home Financing Scheme (HFS) for eligible staff of the UGC-funded institutions with effect from 1 October 1998;
- to account for expenditure in relation to HFS and other housing-related expenses under two new Recurrent Account Subheads Home Financing Scheme and Housing-related expenses other than Home Financing Scheme under Head 190 University Grants Committee; and
- delegation to Secretary-General, University Grants Committee (SG, UGC) the authority to vire funds without limit on a cost-neutral basis from Subhead 492 Grants to UGC-funded institutions to the proposed new subhead Housing-related expenses other than Home Financing Scheme.
Existing housing benefits
3.The existing housing benefits available to the eligible staff of the UGC-funded institutions are modelled on the pre-October 1990 housing benefits for the civil service which include non-departmental quarters, departmental operational quarters, Private Tenancy Allowance (PTA) and Home Purchase Scheme. In 1998-99, the institutions estimate that they will be spending $679illion of the UGC recurrent 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 the UGC-funded institutions in 1998-99.The proposed HFS and related arrangements
4.In view of the successful implementation of HFS in the civil service both in terms of promoting home ownership among civil servants and in making the most effective use of the available financial resources, the Administration, in consultation with the UGC and the UGC-funded institutions, has examined and confirmed the feasibility of introducing a similar HFS for eligible staff of the UGC-funded institutions. The proposed HFS is based on the following principles-
- 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;
- meeting the home ownership aspirations of eligible staff of the UGC-funded institutions;
- reducing Government's long-term expenditure on housing benefits;
- putting to optimal use the surplus quarters arising from the introduction of the HFS; and
- 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.
5. SEM proposes to introduce the HFS for eligible staff of the UGC-funded institutions with effect from 1 October 1998. The proposed HFS will closely resemble the civil service HFS, except that Government will not provide any downpayment loan, and that eligible staff may use the allowance granted under the Scheme for rental purpose throughout the ten-year entitlement period. Details of the Scheme are set out at Enclosure 1
. We estimate that the proposal will benefit a total of 4 943 serving eligible staff.
6.Once implemented, HFS will be the only form of housing benefit available to newly appointed eligible staff of the UGC-funded institutions, and an irrevocable option for serving staff. Notwithstanding this, in recognition of the institutions continued need to recruit internationally and the policy to recruit initially on contract terms, we will allow an exceptional arrangement whereby UGC-funded institutions may offer university accommodation (or rent allowance only where such accommodation is not available) to new staff who are recruited from outside Hong Kong and have accommodation needs, during their first contract up to a maximum of three years. The provision of university accommodation will be neither a condition of service nor a part of the HFS, and is to be considered and approved by institutions concerned on a case-by-case basis. Details of this arrangement are at Enclosure 2
Cost and benefit analysis
7.The proposed HFS will bring about long-term savings/benefits in terms of reducing the expenditure on PTA over time and the disposal of surplus quarters. At Enclosure 3
is a cost and benefit analysis of the introduction of HFS, based on the assumed take-up rates of HFS as supplied by institutions and other assumptions on staff profile, inflation and notional rental income, over a period of 15 years. The analysis shows that over a 15-year period, the introduction of the HFS would cost $5.6 billion (in money-of-the-day (MOD) prices) less than the continued provision of the existing housing benefits. However, we would caution that a considerable portion of the benefits could not be readily or immediately realised as cash savings.
8. We recognise that, as in the case of the civil service HFS, long-term savings arising from the introduction of an HFS depend largely on savings/benefits to be realised from surplus quarters. We have therefore devised appropriate arrangements for Government to share the benefits derived from surplus quarters. Details of the arrangements are at Enclosure 4
9. In terms of Government expenditure, based on the proposed arrangements mentioned in paragraph 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 HFS is estimated to reduce Government subvention to the UGC-funded institutions by $2.7 billion (in MOD prices) over a 15-year period. It will, however, require additional cashflow expenditure in the initial years, even after taking into account Government's share of the rental value of vacated publicly-funded quarters being realised. This is estimated at $126illion in 1998-99 (on a six-month basis), $319illion in 1999-2000 and $380illion in 2000-01 in MOD prices. According to the projections at Enclosure 3
, this trend of increased cash spending by Government will only start to reverse from the year 2008-09.
Financial and Accounting Arrangements
10.The proposed HFS will not be subject to any quota as it will be a condition of service for eligible staff of the UGC-funded institutions. Government has to provide the required financial provision for operating the HFS 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 provide supplementary provision to meet the additional expenditure under delegated authority, or seek the Finance Committee's approval, as appropriate.
11.The additional expenditure sought will be partly offset by reduced expenditure on existing housing-related expenses if the higher than anticipated take-up rate is due to more staff receiving PTA switching to HFS during the period. There will be little scope for offsetting the necessary additional expenditure in the Estimates year if the higher take-up rate is due to staff residing in university quarters switching to HFS. In order to allow Government to track the expenditure and savings arising from the implementation of HFS over time, we propose to create two new recurrent account subheads, one for expenditure on HFS and another for expenditure on other forms of housing benefits, under Head 190 University Grants Committee, with the SG, UGC as the Controlling Officer. The provision under both subheads will be distributed to the institutions as special earmarked grants in accordance with the UGC Notes on Procedures.
12.For financial control purposes, we will normally not allow virement of funds from the proposed new subhead Home Financing Scheme to other subheads. However, we propose that authority be delegated to SG, UGC to vire funds, without limit and on a cost-neutral basis, from Subhead 492 Grants to UGC-funded institutions to the proposed new subhead Housing-related expenses other than Home Financing Scheme. This is because expenditure to be accounted for under the latter are currently subsumed under the former, with the UGC having the flexibility to adjust the allocation from time to time to take account of the changing requirements. We consider it desirable to maintain the flexibility for the SG, UGC to vire funds from Subhead 492 to the new subhead to cater for possible variances between the institutions original estimate and actual requirements in respect of housing-related expenses other than HFS. We would not normally allow for virement vice versa, since any savings in existing housing-related expenses should first go towards offsetting HFS expenditure.
13.Unlike the recurrent grants for the UGC-funded institutions which are determined on a triennial basis, the financial provision for implementing the HFS proposal will be calculated on a year-on-year basis. The UGC will require annual reporting by institutions on the implementation of the HFS.
14.Other than the adjustments that need to be made to the total recurrent grants to the UGC-funded institutions to reflect Government's�share of the rental income arising from vacated publicly-funded quarters, we do not expect the introduction of the 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.
15.As mentioned in paragraph 9 above, based on the cost and benefit analysis at Enclosure 3
, the introduction of HFS will require a net additional cashflow expenditure estimated at $126 million in 1998-99. This is made up of an estimated requirement of $223 million for paying HFS allowances and a reduction of PTA and other existing housing-related expenditure estimated at $97 million. Subject to Members approval, the following changes will be made to the 1998-99 Estimates -
- a supplementary provision of $223 million will be included under the proposed new subhead Home Financing Scheme, offset by deleting $97 million from Subhead 492 Grants to UGC-funded institutions (representing the allocation originally earmarked for existing housing benefits which can now be saved upon implementation of the HFS), and $126 million from Head 106 Miscellaneous Services Subhead 251 Additional commitments; and
- a supplementary provision of $243 million will be included under the proposed new subhead Housing-related expenses other than Home Financing Scheme, offset by deleting an equivalent amount from Subhead 492 Grants to UGC-funded institutions (representing the allocation originally earmarked for existing housing benefits which is still required).
16.Introduction of an HFS has the full support of the UGC-funded institutions and their staff. This is also a subject discussed by the Public Accounts Committee in its Report No. 29 where the Committee urged the Administration to accord high priority to expediting an agreement with the institutions on a home financing scheme along the lines of the Home Financing Scheme for the civil service. We have drawn up these proposals in consultation with the UGC-funded institutions. We briefed the Education Panel of the Legislative Council on the details of the proposals at its meeting on 11 September 1998. Members of the Public Service Panel were also invited to the meeting.
Education and Manpower Bureau
Enclosure 1 to FCR(98-99)30
The proposed Home Financing Scheme for
Eligible Staff of UGC-funded Institutions
Employees of the University Grants Committee (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
C. Downpayment Loan
- 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.
- The HFA may be used to reimburse either -
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.
- the actual rental payments; or
- the actual mortgage repayment
- 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 -
- in the case of using HFA for renting accommodation, the actual cost of renting accommodation; or
- in the case of using HFA for reimbursing mortgage repayment, twice the amount of the actual mortgage repayment payable by him; or
- his entitled rate of allowance appropriate to his salary, whichever is the lesser.
- The scale of allowance will be the same as that under the civil service HFS which is adjusted annually on the basis of a formula approved by Finance Committee. The scale of allowance for officers who start receiving HFA on or after 1 April 1998 is as follows -
|Salary point||Monthly 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
- 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.
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
- With effect from an appointed date (hereinafter referred to as the ffective Date*), all newly appointed employee will be offered the HFS as a condition of service and as the only form of housing benefit.
- 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.
|Staff||Option deadline for HFS||Date 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)||Three 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)
||Three years from the Effective Date or six 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.|
- 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).
- 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.
- 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.
- 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.
- 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.
- The allowance received under the HFS is taxable under the Inland Revenue Ordinance.
Enclosure 2 to FCR(98-99)30
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.
Enclosure 3 to FCR(98-99)30
Cost and Benefit Analysis of the introduction of HFS to UGC-funded Institutions over a period of 15 years
(All figures in $million at MOD prices)
year||Cost of providing|
to eligible staff
|Cost of providing housing benefits to eligible staff with HFS
||Net benefit (cost)||Net decrease (increase)
in Government expenditure|
|(a)||HFS cost||Cost on PTA, quarters, HPA and HA
||Full notional rental income from vacated quarters
||Savings from vacated quarters accrued to Government
||Net cost on housing benefits with HFS
||Net Government expenditure on housing benefits with HFS
|1998-99 (6 mths)||340||223||243||0||0||466||466||(126)||(126)
* Due to rounding, the total may not be equal to the sum of its components.
Major assumptions adopted in a 15-year Cost and Benefit Analysis
Assumptions relating to Staff
for the introduction of a Home Financing Scheme for eligible staff
in the UGC-funded institutions
Assumptions relating to Cost
- The staff profile as at December 1997 as supplied by institutions will remain unchanged throughout the 15-year period.
- There will be no wastage of staff over the 15-year period. This is a crucial contributing factor to long term savings as the bulk of savings are realised due to the fact that PTA and quarters are provided to eligible staff until they leave the service, whereas the HFA would be payable for a maximum period of ten years only. Under this assumption, the estimated savings will be on the conservative side if eligible staff on average stay with the institutions (on this occasion, all the eight institutions will be regarded as one entity since an employee's receipt of HFS in one institution will be taken into account in determining his remaining entitlement period when he joins another institution under the prevention of double housing benefits rule) for more than 15 years. Vice versa, we would expect lesser savings if eligible staff on average leave the service soon after they have fully enjoyed the HFS.
- Take-up rates of HFS by eligible staff over the three-year option period are as supplied by institutions on a guess-estimate basis. We have spread those rates evenly over the three years for the purpose of the cost estimate. For example, where one institution estimates that 60% of eligible staff currently receiving PTA will opt to join HFS by the end of the three-year option period, we have assumed that the cumulative participation rates will be 20% for Year 1, 40% for Year 2 and 60% for Year 3. It is further assumed that after the three-year option period, those who have not opted for HFS will continue to receive existing forms of housing benefits throughout the period.
- Taking account of (1) to (3) above, the assumption is there will be no new entrants to HFS after the three-year option period.
- HFA rates will increase by the rate of inflation assumed at 5% per annum in the first three years (the Option Period) for new HFS participants in the respective years, but will remain unchanged for existing HFS participants throughout their entitlement period.
- Annually recurrent expenditure incurred by institutions in providing the existing housing benefits without an HFS is based on $679 million for 1998-99 as reported by institutions and will increase by the rate of inflation assumed at 5% per annum.
- Annually recurrent expenditure on existing types of housing benefits for those who have not opted for HFS and the salary contribution will increase by the rate of inflation, assumed also at 5% per annum.
- The full notional rental income arisen from quarters vacated by those opting for HFS is based on information provided by institutions ranging from $310,635 to $636,119 per annum. It is assumed that these rental values will increase by the rate of inflation assumed also at 5% per annum and the benefit of these will start to accrue 12 months after the quarters have been vacated.
- The savings from vacated quarters to be accrued to Government are based on the proposed formula of nil income for 12 months after the quarters are vacated and 70% of the notional rental income.
Enclosure 4 to FCR(98-99)30
Arrangements for Government and the UGC-funded institutions
to share the benefits derived from surplus university accommodation
Taking account of the institutions concern and in order to encourage the institutions to maximise the use of surplus university accommodation, the following arrangements would be adopted -
- Institutions should continue to manage and maintain their own respective stock of quarters.
- The institutions should be allowed to turn the surplus quarters into rentable premises for university staff, overseas visitors and non-university staff.
- 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 -
- use the quarters' rateable values as assessed by Rating and Valuation Department or where these are not available, the notional rental value as supplied by the institutions as the notional rental income;
- a nil-income period of 12 months after the quarters are vacated; and
- 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.
- For privately-funded quarters where 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 HFS should accrue to the respective institutions, subject to the terms and conditions as laid down in the agreements between the UGC and the institutions governing these projects.
- Regarding vacated quarters which are partly privately-funded and partly government-funded, the benefits should, generally speaking, be shared on a pro-rata basis.
- The portion of the notional rental income of vacated publicly-funded quarters accrued to Government should be used to offset Government's recurrent grant to the UGC-funded institutions. As regards the case where the vacated quarters have been converted to alternative uses with the approval of Government, the assumed rental income should be accounted for on a case-by-case basis subject to agreement between the UGC and Government.
2.Under the above broad parameters, 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 the 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 Government's share of the proceeds from the vacated quarters.