John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Before we begin, I remind members and witnesses to turn off their mobile telephones as they interfere with the transmission of the meeting.

I wish to advise witnesses that they are protected by absolute privilege in respect of the evidence they are to give this committee. If they are directed by the committee to cease giving evidence in relation to 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 are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise nor make charges against a Member of either House, a person outside the House, nor an official, by name or in such a way as to make him or her identifiable.

Members are reminded of the provisions within Standing Order 163 that the committee shall also refrain from inquiring into the merits of a policy or policies of the Government or a Minister of the Government or the merits of the objectives of such policies.

I welcome Mr. John O'Sullivan, commissioner of valuation at the Valuation Office and congratulate him on his appointment and wish him well in his work. I invite him now to introduce his officials.

Mr. John O'Sullivan:

Thank you. I am accompanied by Mr. Declan Lavelle, head of valuation services in the office, and Ms Mary Smyth, head of HR and finance in the office.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I also invite Ms McLaughlin, from the Department of Public Expenditure and Reform, to introduce her official.

Ms Marie McLaughlin:

I am a principal officer in the Department of Public Expenditure and Reform and I am accompanied by Mr. Nelius Lynch.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I ask the Comptroller and Auditor General to introduce the Vote. The full text can be found in the annual report of the Comptroller and Auditor General or on the website of the Comptroller and Auditor General at www.audgen.gov.ie.

Mr. Seamus McCarthy:

The Valuation Office is responsible for the valuation of industrial and commercial property in the State. These valuations are used as the base for the levying of rates by local authorities. The appropriation account indicates that, in 2011, the Valuation Office cost €9.6 million to run. The expenditure includes around €650,000 in respect of the work of the valuation tribunal, which handles appeals against valuation determinations by the Valuation Office.

The Valuation Office has two major streams of work. First, it carries out revisions of rateable valuations, based on the existing valuation norms for a specific geographic area. This is required where there are new developments or alterations to existing rated properties. Second, the Valuation Office has been engaged since 2001 in a phased national revaluation programme, designed to bring the valuation of all properties into line with recent rental values. Previous work by my office, reported on in November 2007, outlined these Valuation Office programmes in detail and drew attention in particular to the slow pace of the revaluation programme, due to certain operational inflexibilities. I understand that faster progress is now being made in relation to that work. The Accounting Officer will be in a position to update the committee on developments in that regard.

Mr. John O'Sullivan:

I thank the Chairman for the opportunity to make these opening remarks. On the last occasion the Valuation Office appeared before the committee, in October 2011, two particular areas of concern were discussed. These areas were, various shortcomings in the financial controls and governance arrangements in the Valuation Office in 2010 and the pace at which the office was conducting the national revaluation programme.

In regard to the financial control issues, significant progress has been made in implementing the necessary measures to address the shortcomings. A number of these are set out in the progress report provided to the committee in January 2012 and in the updating document we have now provided.

The committee is aware that conducting a national revaluation programme has been Government policy since the enactment of the Valuation Act 2001. After a very slow start, the Valuation Office has achieved considerable momentum in the programme over the past two years. The current position is that the programmes for three authorities in Dublin are complete. Revaluation of the three Waterford rating authorities and Dublin City Council will be concluded by December 2013. This landmark will increase the amount of the revalued commercial valuation base in monetary terms, to over 50%. Work in regard to the two Limerick authorities is well under way and we have also initiated the statutory consultation process from which orders for the revaluation of an additional five authorities can be expected imminently.

The case for conducting a national revaluation programme is compelling. The rental values of individual properties and categories of property change over time as a result of differential shifts between categories and locations. Apart from the rating authorities that have been revalued to date, commercial rates in all other areas are, at present, based on valuations which reflect market conditions and relativities prevailing in 1988. The only comprehensive way to address this is through a revaluation programme from which some ratepayers will obtain a reduction, while, inevitably, others will experience an increase.

The committee will already be aware of the efforts which have been under way to accelerate the national revaluation programme. This requires a multifaceted approach from the staff and management of the Valuation Office. We have concentrated on bringing about improvements in how we organise and carry out our work, using a wider range of data sources to inform or validate our valuations, and developing innovative approaches to valuation, including proposals which require legislation.

The proposals set out in the Valuation (Amendment) (No. 2) Bill 2012 will, when implemented, provide an important set of additional measures to expedite the programme. The Bill provides the legislative basis for carrying out revaluations using self-assessment by ratepayers and for the delivery of elements of the valuation process by external contractors. We have already developed our plans so that we can pilot these approaches, following enactment of the legislation. The Bill also provides for streamlining of the current legislation, including the appeals process, and for the wider application of statistical information, as is the case in other countries.

The Government has decided to proceed with the merger of the Property Registration Authority, the Valuation Office and Ordinance Survey Ireland. A project board, comprising senior officials from the three parent Departments and the chief executive officers of the three organisations directly affected by the merger, has been established recently to oversee the process. This development is likely to have an important impact on how the Valuation Office conducts its business in the future. In summary, the past two years have been very significant for the Valuation Office, and we can point to substantial progress on several fronts. However, much remains to be done and there are many challenges ahead.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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May we publish your statement?

Mr. John O'Sullivan:

Yes.

John Deasy (Waterford, Fine Gael)
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I welcome Mr. O'Sullivan and his officials. I would like to thank him and Mr. Declan Lavelle for meeting me in Waterford recently. It was very informative. I am interested in this issue because of the revaluation process that is ongoing in Waterford and the impact it will potentially have on businesses there. Over the last two months, I have been trying to ascertain whether different Departments are up to speed with the revaluation process in which the Valuation Office is engaged, which is a technical exercise and analysis, as Mr. O'Sullivan pointed out. I did not find a lack of understanding, but a lack of cohesion in respect of the implications of the revaluation process throughout the Government, which I think is improving. Due to the statutory independence of the Valuation Office, there is perhaps a lack of appreciation in some Departments of the implications for businesses of the results of the valuation process, but I think that is changing.

Where are we now? I had a very positive meeting with officials from the Department of Public Expenditure and Reform this week. At this stage it is fair to say there is an acknowledgment within the Government that there is a problem and that something needs to be done about it. I would describe the process in which the Valuation Office is engaged as a system that was outdated and needed reform - it goes back to 1998, and there is acceptance of that - mirrored with a disastrous business environment, especially as it affects small businesses outside Dublin. What does the Government do to cushion the blow of a revaluation process that has resulted in some cases in a sharp upward adjustment for small businesses that do not have the ability to pay? That is where my interest comes from. I know these businesses. I know the profiles of the individuals involved and I have a serious concern that they will be put out of business. This will certainly assist them in going out of business.

The larger issue is that this is self-defeating. Our rates base has shrunk and it is unsustainable in many cases to increase rates. I have examples from my home town of Dungarvan which were given to me by the chamber of commerce. Rates for a clothes shop are potentially going from €800 to €9,000. There is an appeals process and a potential tribunal process that goes with that and the office works with the individuals involved, but that is unsustainable. I know the individuals involved in many of these businesses and it will lead to unemployment and non-hiring of people in future. There is an issue for the State in that respect as well.

Following the meeting with officials from the Department of Public Expenditure and Reform, I can say the problem is being acknowledged. There is legislation in the pipeline. Over the next two months, departmental officials will take a look at that legislation, potentially amending it in respect of issues such as spreading out payments over time. That leads to an issue of funding with regard to any deficits at local authority level. That is what will be examined over the next couple of months.

I understand that the Valuation Office is given a role that is underpinned by legislation, and officials at the office go about their work based on that legislation. There are policy issues here that obviously they cannot address and I accept that. A comment was made to me by a number of local authority officials as I was educating myself in this process. They were critical of the fact that there was not more interaction between their offices and the Valuation Office. They understand the statutorily independent role that the Valuation Office has, but they believe their local knowledge and local experience with particular small businesses is being ignored. When they tried to communicate that to the Valuation Office, however, they were told frankly that they should not call the office. I can understand why political interference would be guarded against by the Valuation Office at all times, but I heard this comment so many times I have to take it seriously. Local authority officials say that there should be a role for local authorities to have more input into the process than is currently the case.

Mr. John O'Sullivan:

I thank the Deputy for his comments, and particularly his opening remarks about our meeting. I understand the point that he is making. It is a very important point. Everybody in the Valuation Office is very aware of how difficult the current environment is out there for business survival and for trading. However, as the Deputy said, the functions of the Valuation Office are limited by the legislation under which we operate. Our primary remit is to conduct the revaluation in accordance with the Act. The outcome of the revaluation and measures to address or ameliorate its impact are issues of policy, as the Deputy acknowledges, which go beyond the remit of the Valuation Office. We have no remit whatsoever in the legislation in respect of any of those issues. Our job is to estimate the net annual value, which in real terms means the rental value. The proposition is to figure out what the rent for a particular property would command on the statutory date if it was vacant, on the basis that the tenant would pay the rates, look after the repairs and look after the insurance.

I am very interested in the comments made to the Deputy by the local authority officials, because I like to know about particular difficulties to see if we can address them. As the process currently stands, there is a consultation period before the Commissioner of Valuation ever signs a valuation order. There are two parties to be consulted as required by the legislation. The first party is the Minister for the Environment, Community and Local Government, presumably on the basis of having a policy input into whether the order should go ahead. The second party is the local authority in question. There is a consultation process that takes place at the very beginning.

We would have had several meetings, as far as I am aware, with senior officials in the local authority. We would also have interacted with them while we were on the ground, but to a limited extent - I acknowledge what the Deputy says - because we do not see that they have an actual input into setting the valuation levels. I do not think that is what the Deputy is suggesting. If there are local factors at play we are looking at and analysing rental values. There has always been a separation of process and function in respect of the rating system in Ireland. The valuation is intended to be an objective exercise conducted independently by a statutory office acting on foot of the evidence that is proceeding from ratepayers or from any of the other sources.

John Deasy (Waterford, Fine Gael)
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That is where the problem lies. There is no argument there. As Mr. O’Sullivan said, it is a technical exercise and analysis. The difficulty is that we are living in extraordinary economic times and these businesses cannot pay. I know that. When there is a 1025% increase for a clothes shop that has seen its footfall decrease by 50% there is a problem. There is a problem for Government generally. When I raised this before in committee I said we should look at the rates arrears in this country, the amounts that have been written off. When I asked the Secretary General of the Department of the Environment, Community and Local Government how it works from one local authority to another, there was not much of a response. It seems to be an arbitrary, subjective issue within local authorities as to who writes off, or how they write off, particular arrears in different rateable local authorities. There are very significant issues there.

At the meeting of the Oireachtas Joint Committee on Finance, Public Expenditure and Reform an undertaking was given to work with the Department of the Environment, Community and Local Government to examine the legislation to see if some facilitation can be made for businesses that are in trouble and cannot sustain the kinds of increase that will result from the revaluation process. I do not want to say too much more than that because the specifics of this have not been nailed down. None of us can ignore the reality on the ground when it comes to the businesses about which we are speaking.

The technical exercise of analysis is flawed because it does not take into account ability to pay and in many cases there is no ability to pay for some of these businesses, even though we are looking at a system that has been updated from 1988. When an assembled group of businesses and retailers in Dungarvan recently asked one of Mr. O’Sullivan’s employees why they were going to be asked to pay these increases his response was, “Because you are the ones that are left.” It was an unfortunate comment. I understand why someone would say that because in many cases these are the businesses that have survived, they have cut their cloth and let employees go but they feel victimised by Government. They think what is happening is unreal considering what has happened to their businesses and the potential down the road.

A motion was sent through the Fine Gael Parliamentary Party to the Department of Public Expenditure and Reform on impact assessments and I received a very good response in which the Department indicated that it will conduct an impact analysis in Waterford, which is great news. It mentioned that post-revaluation impact analyses have been carried out in South Dublin, Fingal and Dún Laoghaire-Rathdown. Dublin is a different economy from Waterford, as we all know. Is the Valuation Office involved in that post-revaluation impact analysis?

Mr. John O'Sullivan:

I would like to respond to some of Deputy Deasy’s earlier points and I will certainly answer his question as well. In respect of some of the examples he quoted, we have a process whereby representations can be made. There is an appeals process. There is a full opportunity to work out any particular difficulties or errors that might remain.

I also did a quick analysis of some of the extreme increases that are in situ. They are still a work in progress. I found one of the increases was down to an amalgamation of several units that had previously been rated separately but were now all lumped into one. There was a case of change of use from what was previously a store room to retail. I would expect to see a significant increase in that case. There were examples of major extensions and improvements having been carried out. One would have to ask whether it is really fair that there would not be an increase in such circumstances. There are sometimes explanations in the background. I take no issue with the Deputy on that case because I do not know its circumstances.

John Deasy (Waterford, Fine Gael)
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That is fair enough. Mr. O’Sullivan is picking out particular examples to make his case. What people want to know is, considering where retail is right now, why is it the case that manufacturing and industrial ratepayers have seen a very substantial decrease while in many cases it is the retail sector that will see an increase when it is on its knees?

Mr. John O'Sullivan:

This goes to the heart of the valuation system and what it is all about. The current set of relativities goes back to 1988 and when we do a revaluation across the board in the three rating authorities in Waterford and Dublin city we bring that forward to the situation in this particular case, October 2011. The short answer is that it is because our analysis of the evidence put before us leads us to believe that the rental levels for retail have gone ahead of the rental levels for industrial units in relative terms. It is that simple. Everybody would accept that there has been a big falling-off in rents from the height of the boom down to modern levels but not all have fallen at the same rate. We are asking what was the situation in October 2011 vis-à-vis 1988. It is normal and natural to expect that some sectors will have moved at a different pace from others. That is the simple explanation but even within that there would be many examples where the opposite would be true. One will find examples of retail that has come down in particular areas of Waterford city, I could give the Deputy examples of that, and the industrial sector has gone up.

John Deasy (Waterford, Fine Gael)
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One of the issues about which we spoke with the Department of Public Expenditure and Reform was the 2011 date. There is a problem with that. The problem is that rental values have changed in the past two years and that is not taken into consideration in the new revaluations. That was accepted and the Department will examine that. It is a big issue.

Mr. John O'Sullivan:

The Deputy is correct.

John Deasy (Waterford, Fine Gael)
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Mr. O’Sullivan used examples. I will give him an example. One lady dropped her rents 30% in January and she made the point that the revaluation is based on October 2011 levels. I have been coming across these people over the past two years. Retailers in my home town - I know many of them - have told me that this year is the worst since this crisis hit, and the first three or four months of this year have been the worst. The figures bear this out. When Mr. O’Sullivan makes the point about 2011 figures I make the point that they are out of date. I did not have to make this point because the Department made it for me, it is coming around to the opinion that it is out of date.

Mr. John O'Sullivan:

I thank the Deputy for the question. I will make two points in response. First, 2011 is a statutory date. There has to be a date set in the order-----

John Deasy (Waterford, Fine Gael)
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I understand that.

Mr. John O'Sullivan:

-----and everything has to be appraised by reference to that date. It takes time to run a revaluation. It is a very thorough and extensive process. Time has to be made available for due process in terms of the representation and all the other stages.

In respect of 2011, a couple of aspects arise. First, all volumes will be down. Values would be down right across the market in 2013 compared with 2011.

John Deasy (Waterford, Fine Gael)
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Not necessarily all. That is not true. Some subsets of the economy would not be, as opposed to others. Retail has gone down far more than any other.

Mr. John O'Sullivan:

I am mentioning rental levels in particular.

We would also have looked at rental levels post-2011 and factored those into the equation. Whereas I understand the point, I am not sure I entirely agree with it. The countervailing argument is that if we do not do a revaluation by reference to 2011, we are stuck with 1988 levels and relativities.

John Deasy (Waterford, Fine Gael)
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I would make the case that it might be better not to do this valuation right now because of the damage it will do to a rate base which has shrunk too much as it is. The damage this will do to the economy across the board is not worth it. Mr. O'Sullivan made the point about the reason for doing this but I ask why legislation is being introduced. A vehicle was introduced in the Seanad which allows for a system of self-assessment. This is not a panacea and some people may presume self-assessment will mean an automatic reduction in the rates but I know that is not the case. Why was this legislation introduced? The reasons have been given but I ask how will it improve the situation. The question for people who are being rated now is whether under the new legislation they will be given the opportunity to use self-assessment in Waterford and other places after the Valuation Office valuation has been completed and the new legislation has been adopted and enacted.

Mr. John O'Sullivan:

I am conscious that I did not answer one of the Deputy's earlier questions about our participation in the impact analysis which the Department of Public Expenditure and Reform will be conducting. We will certainly be supplying information, data and statistics to the Department and provide any assistance that is required but we would have to acknowledge that the Department has a policy role while ours is very much a specific statutory role. We will, of course, provide any information and that would always be the case. We would abstract information from our database, analyse it and provide the figures to the Department.

John Deasy (Waterford, Fine Gael)
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I presume there will be no impediment against the Department of Public Expenditure and Reform examining the information held by local authorities with regard to the impact of this revaluation process on small businesses. How has the Valuation Office carried out the impact assessment or analysis thus far?

Mr. Nelius Lynch:

The analysis carried out to date has been an examination of the impact in terms of winners and losers and the sectors that have won and lost. We have not asked anyone else about that. As the commissioner said, there is a compelling argument in favour of revaluation and even though the theory stands up to examination, that theory must be constantly tested to see that what happens in practice follows through. To date, we have looked to see whether the results are within the expected range as to the winners and losers and to what degree they have won or lost. A range of plus or minus 20% might be acceptable. We examine how many are in the extreme position. As the commissioner pointed out, we examine the extreme positions in more detail and review them. There is an explanation in some cases. One cannot simply look at the percentages and sometimes one must look at the absolute increase as well. Some of them can be explained and then one is left with a small number. One then makes a judgment based on that number and the process of representations and appeals, the time gap between the 1988 valuation and the new valuation date. It is a case of judging whether the results brought about by the revaluation are within the expected anticipated range and if the revaluation process is working. On this occasion we would have no objection to going further if that can add to the analysis.

John Deasy (Waterford, Fine Gael)
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That is fair enough. I presume Mr. Lynch understands my point that things have changed and are changing rapidly with regard to small businesses in this country. There is also a difference between Dublin and the rest of the country as regards the size of the economy. I refer to the implications of this revaluation on businesses that are barely hanging on. My concern is that this needs to be done in depth and in a timely manner in order to gauge the kind of impact it will have on those small businesses. That policy decision will need to be fed into the entire process and the legislation being considered by the Oireachtas. If that means staggering payments, then there will be a funding issue for local authorities and the resultant deficits. The situation is moving quickly and this needs to be taken into consideration.

The damage that this revaluation process will do to businesses in Waterford city and the county is very considerable. Dungarvan has an ARV which is lower than the county rate. As a result of amalgamation and the abolition of town councils, it is expected that there will be a harmonisation - a wonderful word which means an increase - in the ARV to the county rate, potentially. In that case, Dungarvan will move to the Waterford County Council rate. This is a double whammy in that businesses will have to face that and then have to suffer a revaluation and an increase. The Valuation Office impact analysis needs to take that into consideration. In my opinion, nobody in Government has thought about that up until the meeting I had last Tuesday with the Department of Public Expenditure and Reform. Those are really serious issues which are causing upset to businesses. They do not believe that the Government is taking a holistic view of the issue and the impact this may have on their businesses.

Ms Marie McLaughlin:

If I may add to what Mr. Lynch said and make the important distinction between the rating process and the valuation process. The legislation to speed up the process is designed to update the valuation base. Therefore, things have to be taken step by step. We have committed to looking at the outcome of the revaluation within Dungarvan. As the commissioner has said, this is a work in progress and the draft searches that have issued at this point will be subject to consultation with the ratepayers and with reference to the appeals that are coming through. We will have to take into account the outcomes of this appeal process because they will ultimately impact on the next step which is rating. We have to keep the distinctions.

John Deasy (Waterford, Fine Gael)
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They are all separate processes which are all related. Ultimately, they amount to a payment-----

Ms Marie McLaughlin:

They are related but each has its place.

John Deasy (Waterford, Fine Gael)
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We understand the different processes and the different changes that are occurring because of legislation which is being introduced and future legislation which may be enacted. All these processes are related. Up until this week I discovered that everyone in government is saying it is nothing to do with them and that it is the job of the Valuation Office. The Department of the Environment, Community and Local Government will levy and collect these rates but it does not regard itself as being involved in the revaluation process. Unfortunately, I found that with regard to government there is a lack of cohesion and communication and linkage to the end result which is that businesses will pay a lot more in rates and who may go out of business as a result. This revaluation process was begun for a very good reason. The system dated from 1988 and it needed to be updated but the implications and the results of this process has not been thought out with regard to the effects on the small business environment. I refer to Mr. Lynch's analysis and my point is that things are moving very quickly and all the factors I mentioned need to be brought into play before we cause too much damage, frankly, to a rate base that has shrunk massively. In my home town and county, half the shops such as clothes shops and small retailers are gone. The footfall and the spending power is no longer there.

Mr. O'Sullivan referred to pilot studies for the new legislation. Where will the pilot projects be located?

Mr. John O'Sullivan:

First, I need to pick up on some of the earlier points as I have not replied to one of the Deputy's earlier questions about self-assessment. I will begin with the Deputy's relaying of the comment about the shrinking base and his contention that the burden is falling on fewer businesses.

I might stand to be corrected on this, but my understanding is that the comment in question came from the audience at that particular meeting when one of our officials was explaining the linkage between annual rate on valuation, ARV, and net annual value, NAV.

John Deasy (Waterford, Fine Gael)
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That is not my understanding of it.

Mr. John O'Sullivan:

In any case, I take the point the Deputy is making. In regard to ARVs and amalgamations, that is a matter for the Department of the Environment, Community and Local Government, not the Valuation Office.

The Deputy asked about the central thrust behind the Valuation (Amendment) (No. 2) Bill 2012. It is essentially a series of measures to accelerate the revaluation programme and thus allow us to complete it more quickly across the country. An important aspect of the 2001 legislation is its provision that once a first valuation is completed, a rolling process then kicks in whereby it must be redone not less than five years and not more than ten years thereafter. The difficulty at the moment is that after such a long period of time, a range of anomalies is emerging in the first revaluation. The principle under the new legislation is that once the first assessment is done and the more modern valuations are in situ, the revaluation exercise will be conducted on a repetitive basis far more quickly thereafter and we will be able to pick up on economic movements that have happened and so on. That is the thrust of the 2012 Bill.

John Deasy (Waterford, Fine Gael)
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Once the new Bill is enacted, will those businesses which are being revalued at the moment be able to reassess?

Mr. John O'Sullivan:

To clarify, I can only explain the provisions as they are set out in the Bill as it stands. It is matter for the Oireachtas to decide what is ultimately enacted and what ultimately transpires.

John Deasy (Waterford, Fine Gael)
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Yes, but is it envisaged that such businesses will be in a position to reassess? This is a point I have raised before in regard to the legislation. I am concerned that we might have a situation where one set of businesses in a particular local authority area is assessed under one system but, once the law is passed, another set of businesses is assessed under a different system.

Mr. John O'Sullivan:

It might be helpful to clarify what is expected to happen under self-assessment, which is provided for in the 2012 Bill by way of the insertion of a new Part 5A into the 2001 Act. It is important to note that self-assessment will be introduced on a pilot basis, which we have decided to do in the Galway City Council rating authority area. My intention would be to sign an order very quickly once the legislation is in place to commence that programme.

There are always two elements to conducting a revaluation. The first involves the measurement and assessment of the physical dimensions of the property, and the second is the application of valuation levels in order to determine the rental rate per square metre. The plan is to request ratepayers to undertake the measurement of the premises and convey their assessment to us. We intend to provide considerable support in this regard. We will have a presence in Galway City Council rating authority area, for instance, and we plan to produce a series of explanatory videos to assist ratepayers with the process. A good deal of support is needed and will be provided. In the meantime, we will conduct our market analysis of the rental situation, which we will provide to ratepayers. The latter can then put the two together and provide us with a self-assessment. To be absolutely clear, it cannot and will not be a case of write your own valuation. Nobody wants that.

John Deasy (Waterford, Fine Gael)
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That is all fine. However, the question I asked is whether businesses that are being revalued under the existing legislation will be allowed to self-assess under the new system that comes into force when the new Bill is enacted, which could be as soon as early next year.

Mr. John O'Sullivan:

I do not envisage that scenario arising. Five years is the minimum point at which the cyclical revaluation will occur. I can come back to the Deputy on that point if he wishes.

John Deasy (Waterford, Fine Gael)
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It is a very important point. Mr. O'Sullivan has indicated that he does not envisage businesses in that situation moving over to the new system. In that case, we will have certain groups of businesses in Dublin, Waterford, Limerick and so on being valued under an entirely different system from other groups of businesses and having to wait five years to come under the new system.

Mr. John O'Sullivan:

It is important to clarify that it is actually the same system. The self-assessment element is simply a means of inputting an additional piece of information.

John Deasy (Waterford, Fine Gael)
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If that were true, why bother with the legislation? Of course, it is not in fact the case. A different system is being brought in and there is good reason to introduce it.

Mr. John O'Sullivan:

There is very good reason to introduce it. What we must bear in mind, however, is that regardless of whether the valuation is done by self-assessment or by direct assessment, the commissioner will ultimately have to stand over the quality of the valuations set out in the published list. That list must be robust and correct in so far as it possibly can be and must thereby provide a solid basis for the whole valuation system.

John Deasy (Waterford, Fine Gael)
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I would expect Mr. O'Sullivan to say that, and it is fair enough in so far as it goes. I maintain, however, that we are facing into a major problem in places like Limerick, Waterford and Dublin. I understand the appeals rate in Dublin is some 40%. The bottom lines is that we are bringing in a new system, on grounds that have been well argued. Mr. O'Sullivan referred to streamlining appeals, but streamlining actually means reducing the number of criteria under which an appeal may be submitted. It is, in short, a different system; let us be clear about that. It is limiting the grounds on which an appeal can be made. The major concern is that we will have large numbers of business throughout the country which remain valuated under a system that is being completely reworked. If there were no significant reworking involved, we would not bother to legislate.

Mr. John O'Sullivan:

I do not agree with the scenario the Deputy outlined. The basis for carrying out a revaluation will be the same under the new legislation in that it is all about assessing or estimating the net annual value of the property.

John Deasy (Waterford, Fine Gael)
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When Mr. O'Sullivan talks about moving to self-assessment, he is talking about moving to a different system. It has been spelled out why this is happening.

Mr. John O'Sullivan:

It might be a different approach, but the outcome should be exactly the same or very close.

John Deasy (Waterford, Fine Gael)
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Why then should we make the change in the first place?

Mr. John O'Sullivan:

We are doing so because it will speed up the whole process. At is stands, quite a lot of the delay is to do with having physically to inspect properties and do these types of calculations. If the ratepayer can help us with that element of work, we should be able to get to a stage where we can publish lists much more quickly than heretofore. It will allow us to address the criticism the Deputy made earlier that it is taking two years to get from the beginning to the end of the process. The intention is to get the recycles into much tighter time lines. At the end of the day, the basis of the valuation, as set out in the legislation, is not changing. It is still about estimating the net annual value on a valuation date. The Bill provides that the commissioner will be allowed to make regulations as to how the mechanics of all of this will actually work. As we see it, there are several important points to consider. We will, for example, have to conduct very stringent audits. We cannot simply accept at face value the measurements and so we get back. In fact, we must have power under the legislation to override what the ratepayer is proposing. Ultimately, the published valuation levels will reflect assessments that have been determined by the Valuation Office and over which we can stand. The self-assessment element is about speeding up the information-gathering process and facilitating us to analyse the correct net annual values for the rating authority area.

The Deputy referred to limiting appeals and streamlining the appeal process. The proposal in the Bill is that one of the current steps in the appeal process, namely, the appeal to the commissioner, will be removed entirely. There is a history to this in that prior to the introduction of the 2001 Act, there was no concept of representations as they currently operate. Representations are a relatively informal and straightforward way for the ratepayer to interact with the Valuation Office and help us to get the list right before we publish it. After publication, as things stand, there is a right of appeal to the commissioner, which is sometimes called the first appeal. It is essentially an internal appeal within the Valuation Office, after which the ratepayer can proceed to the tribunal if he or she remains dissatisfied with the outcome. The proposal under the Bill is not only to retain the representations facility but to bolster it by allowing greater time for the ratepayer to interact with the Valuation Office. The right of formal appeal to the tribunal thereafter is also retained. It is a question of streamlining the process to address the types of time delay the Deputy mentioned.

It is in all our interests to have a valuation done as quickly as possible. There should be the shortest time possible between the date on which the order is made and date on which the valuations are published.

John Deasy (Waterford, Fine Gael)
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I do not accept the rental value argument when it comes to retail properties versus manufacturing and industrial properties because of what I know about what is happening not only in the retail sector but also in small businesses and pubs. The way manufacturing and industrial properties can see a sizeable reduction in rates compared to small businesses in small towns which are seeing increases of 40% to 50% does not add up. I seriously question this. Thought has not been given to the effect this has on small businesses.

A new word is being used in terms of the Government in that people now like to talk about group-think, but it is being used for a different purpose. The problem is that there is no group-think when it comes to the Government and rates. There has been a lack of connectivity, communication and linkages with regard to different Departments that have a stake in this issue. That is a problem, notwithstanding the work Mr. O'Sullivan does and the efficient way in which he does it. It is not a criticism of his office as I have said to him previously, but this has implications for the Government and a sector of society that funds local government and which is finding it far more difficult to stay in existence. This has implications for the Government and the funding of local government. I do not think these issues have been taken into consideration.

Mr. John O'Sullivan:

We have discussed the matter previously. I thank the Deputy for his remarks on the office.

John Deasy (Waterford, Fine Gael)
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Mr. O'Sullivan might let me finish the point. There is new legislation and a new system. Mr. O'Sullivan's interpretation differs from mine in terms of what is and what is not new and we should wait in that respect. We should all examine issues such as arrears and the reason it is the case that arrears are being written off in some local authorities and not in others. As I said to Mr. O'Sullivan, it is an arbitrary and subjective decision by officials in many cases. It is being done piecemeal. I cannot believe that in some cases the Department does not have an answer to the question of whether there is a manual or there are rules and regulations with regard to writing something off.

Mr. John O'Sullivan:

I believe the Deputy is aware of my position that the separation of functions is very clear in the legislation and my role is to implement the Act as it stands. I acknowledge the role of others in policymaking and will be very happy to implement any policy that comes through in legislation.

John Deasy (Waterford, Fine Gael)
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Yes, fair enough, but the role of the Government is to interact with Mr. O'Sullivan to find out what is going on and what he has found. Perhaps it is a different question.

Mr. John O'Sullivan:

I am happy to provide information for the Department.

John Deasy (Waterford, Fine Gael)
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I will finish on this note. It is welcome that I had a meeting with the Department of Public Expenditure and Reform this week. In the next few months my understanding is that the Department will get together with the Department of the Environment, Heritage and Local Government and examine the issues surrounding everything about which we have spoken today, the legislation that has been introduced and ultimately the viability of small businesses based on the revaluation process. I look forward to this and thank the Chairman for bearing with me.

Kieran O'Donnell (Limerick City, Fine Gael)
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I have not been here for all of the meeting. Therefore, I may be going over ground already covered, but when Mr. O'Sullivan says in his presentation that this landmark - he was referring to Waterford and Dublin - will increase the commercial revaluations in monetary terms to over 50%, does he mean that the overall valuation of the properties involved will increase in monetary terms by 50%?

Mr. John O'Sullivan:

Maybe I should clarify that aspect.

Kieran O'Donnell (Limerick City, Fine Gael)
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Has Mr. O'Sullivan already clarified it?

Mr. John O'Sullivan:

No. It is a good question. What I mean by that is that if we add all of the values of commercial properties across the State, by the end of this year we will have revalued half of them in value terms. In percentage terms, it will be less than that because we have started with the larger urban centres which have more commercial properties and properties that tend to have a higher commercial value and, therefore, a higher valuation level.

Kieran O'Donnell (Limerick City, Fine Gael)
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To follow up on a variation of Deputy Deasy's point, how many of the properties the office has revalued to date have increased in value? If I understood him correctly, Deputy Deasy said there appeared to be a differential between the revaluation of industrial properties as distinct from the revaluation of retail properties; that in some cases the valuation of industrial properties had decreased, while the valuation of retail properties had increased. Mr. O'Sullivan might outline the position at a macro level and then drill down into the respective areas.

Mr. John O'Sullivan:

We will be happy to do that. With the Chairman's permission, I will ask Mr. Lavelle to provide the details in that regard for the Deputy.

Mr. Declan Lavelle:

Generally, the existing valuation lists are expressed in what one would describe as notional Victorian terms, but they reflect 1988 valuation levels. If we look at the prevailing valuation levels in 1988 for industrial properties - I am talking about a typical factory unit, a typical warehouse and a typical workshop facility - and the levels we would have applied, we are applying similar levels today because that is what we see in the marketplace. There is very little demand for industrial property throughout the State and the situation in Dublin versus places such as Waterford is very similar. There has been little or no change since 1988.

Kieran O'Donnell (Limerick City, Fine Gael)
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Is Mr. Lavelle basing that on valuations or on market values in 1988 versus market values today?

Mr. Declan Lavelle:

Yes.

Kieran O'Donnell (Limerick City, Fine Gael)
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They are virtually identical.

Mr. Declan Lavelle:

Pretty much so. I am talking in general terms. One will always have unique situations or pockets where it is different, but, generally, that is what we are seeing. Throughout the revaluations completed to date, since 1988 rental growth on industrial properties has occurred at much slower rate than in the case of retail or office properties. Whether we are talking about south Dublin, Fingal, Dún Laoghaoire-Rathdown, Dublin city, Waterford or Dungarvan, retail rents are increasing, while industrial rents are pretty much static by reference to 1988 levels. That is only one factor that affects-----

Kieran O'Donnell (Limerick City, Fine Gael)
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Will Mr. Lavelle focus on retail properties?

Mr. Declan Lavelle:

If we were to look at levels for some of the prime properties - I could talk about Dublin or parts of Waterford - based on today's levels - I am not talking about Celtic tiger levels but 1988 values - rents on the stronger properties and those in the better locations are about double the rental levels in 1988.

Kieran O'Donnell (Limerick City, Fine Gael)
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In the case of some businesses, particularly small businesses - obviously, I want to ask Mr. Lavelle about the position in Limerick because I am interested in what is happening there - rates as a percentage of their overall costs are higher than rents because of the way things have progressed. Rents have dropped, but rates are the key factor for many of them in making a business decision. The danger is that businesses, particularly those on the high street - I see this happening in Limerick city - will be pushed over the edge in being revalued purely on a market value basis. The new Valuation (Amendment) (No. 2) Bill 2012 provides for self-assessment. Mr. Lavelle might guide me through that process. Will there not be an appeals process? There is the possibility that if we revalue based on market value alone for the retail sector, it will force many businesses to shut down.

Many of them are already in arrears. They are under enormous pressure. I see it in Limerick city. I know the city well and I know the business sector reasonably well. Many of them are barely surviving. There are three elements to that, which Deputy Deasy mentioned. There is the valuation, which the Valuation Office does, the rate struck by the local authority, and the collection system in terms of the individual local authorities. What is Mr. Lavelle's thinking on the retail side? From what he is telling me the industrial side is relatively self-explanatory but what he is actually saying is that, in the main, people in industrial units will not see any significant change, whereas the retail side could see a change.

Mr. Declan Lavelle:

On the contrary, generally speaking, retail will see a reduction in their rates liability.

Kieran O'Donnell (Limerick City, Fine Gael)
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Retail or industrial?

Mr. Declan Lavelle:

Sorry, industrial will see a reduction in the rates-----

Kieran O'Donnell (Limerick City, Fine Gael)
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The point I am making is that they will not see any increase. They will more than likely see a decrease.

Mr. Declan Lavelle:

Yes.

Kieran O'Donnell (Limerick City, Fine Gael)
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Moving on to the retail sector, which is under enormous pressure, particularly in city centres, where businesses are hanging in, so to speak, we want those in the sector to stay in business because if we want people to walk down the high street there has to be something on offer. If there is nothing on offer people will not come into the city centres. Mr. Lavelle might tell me the constraints affecting his organisation in terms of the office's valuations, and the new legislation under which it operates. Will he outline the environment in which the office operates, its constraints and the timeframe with regard to Limerick? I have no doubt that what is happening in Waterford will more than likely be mirrored in Limerick.

I want to deal with the retail aspect. Mr. Lavelle might give me a guided tour through his world.

Mr. Declan Lavelle:

If we were to look at Limerick-----

Kieran O'Donnell (Limerick City, Fine Gael)
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How far advanced is the office in that regard?

Mr. Declan Lavelle:

Very early stages.

Kieran O'Donnell (Limerick City, Fine Gael)
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Can Mr. Lavelle give me a timeframe?

Mr. Declan Lavelle:

We will have it completed and published by the end of 2014. We are looking at a valuation date of March 2012, and our valuers are analysing market transactions in or around that date.

Kieran O'Donnell (Limerick City, Fine Gael)
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Will the office do the industrial side concurrently with the retail side?

Mr. Declan Lavelle:

Yes.

Kieran O'Donnell (Limerick City, Fine Gael)
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Is it doing all the industrial bodies first and then moving on to retail for valuations?

Mr. Declan Lavelle:

No. We do them all together. They are all valued by reference to the same valuation rate.

Kieran O'Donnell (Limerick City, Fine Gael)
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Mr. Lavelle expects to have it fully concluded by December of 2014.

Mr. Declan Lavelle:

We expect that in March of next year we will issue proposed valuation certificates to all ratepayers in Limerick.

Kieran O'Donnell (Limerick City, Fine Gael)
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Proposed certificates will be issued in March 2014.

Mr. John O'Sullivan:

There or thereabouts.

Mr. Declan Lavelle:

That would give ratepayers and their agents an opportunity to engage with us in terms of the valuation levels we apply to those properties.

Kieran O'Donnell (Limerick City, Fine Gael)
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Can they appeal at that time?

Mr. Declan Lavelle:

Yes. We do not technically-----

Kieran O'Donnell (Limerick City, Fine Gael)
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It is a discussion.

Mr. Declan Lavelle:

We call it representation. It is a statutory process but it is not a formal appeal.

Kieran O'Donnell (Limerick City, Fine Gael)
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Is that an existing statutory process and not one under the new Act?

Mr. Declan Lavelle:

Yes, and that is being strengthened in the proposals, as the commissioner outlined earlier.

Kieran O'Donnell (Limerick City, Fine Gael)
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What are the constraints under which the office operates in terms of valuing and retail? I ask Mr. Lavelle to consider the person on O'Connell Street, William Street, Patrick Street or Roche's Street; if I omit some streets I will be killed. Mr. Lavelle is nodding his head; I have no doubt he is familiar with Limerick city. I am talking about the spine of the city, which runs from O'Connell Avenue down to Patrick Street, and all the streets off that. I mentioned William Street, but there are also Roche's Street, Thomas Street and Patrick Street, which are all the areas that are vital to the heart of the city. The retail sector is under phenomenal pressure. I do not believe people realise the pressure it is under. I want the people in that sector to stay in business. I want to know if there is something we can do within the constraints that curtail Mr. Lavelle's office in terms of valuing the retail sector. Obviously, the industrial side is more straightforward, but Mr. Lavelle might elaborate on that.

Mr. Declan Lavelle:

Regardless of whether we are talking about retail, industrial, office or some of the other more specialist categories of property, what our valuers are required to do, and what we are required to do, is to estimate the net annual value or the rental value of that property at our valuation date, which is March 2012 for Limerick. We must do that for every property. The idea is that we produce a valuation list at the end of the day, that all the valuations are set by reference to the same date, and that there is a certain degree of equity and uniformity across the list. That is what is required from us.

Operationally, from a valuer's point of view, it is all about information. It is all about getting in as much market information as we can. We are very much at an early stage in Limerick. Limerick is very different from the other rating authorities from the point of view that it will be amalgamated before the valuation list is published, but talking in general macro-urban economic terms-----

Kieran O'Donnell (Limerick City, Fine Gael)
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When Mr. Lavelle talks about Limerick he is referring to Limerick city and county.

Mr. Declan Lavelle:

Yes. Limerick is classic in terms of what one might call the doughnut effect. What we have seen in Limerick - there are many reasons for this, but one of the reasons put forward from time to time has to do with the rates regime in the city-----

Kieran O'Donnell (Limerick City, Fine Gael)
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The differential in the rate.

Mr. Declan Lavelle:

Yes, but the commercial activity has moved to the county proper. It is almost impossible at this stage to predict what will happen.

Kieran O'Donnell (Limerick City, Fine Gael)
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Does Mr. Lavelle have it within his scope to allow some leeway for people who have continued, through difficult times, to remain in the heart of the city? Many businesses have closed. Does he have any scope in that way to-----

Mr. Declan Lavelle:

Not on the valuation front.

Kieran O'Donnell (Limerick City, Fine Gael)
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Why not?

Mr. Declan Lavelle:

Because what is required from us under the 2001 Act is to arrive at an estimate of the rental value of that property. As I said earlier, we arrive at that through evidence. We analyse the evidence and we look at a particular street, see what the prevailing rent is on that street, and apply that to each individual property.

Kieran O'Donnell (Limerick City, Fine Gael)
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In that particular case there may be someone on a street who signed an upward-only rent review.

Mr. Declan Lavelle:

Yes.

Kieran O'Donnell (Limerick City, Fine Gael)
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Two buildings may be located side by side and one of them may come up for rent today, but the rental values have fallen even in the past 12 months. Does Mr. Lavelle understand the point I am making?

Mr. Declan Lavelle:

I do, yes. The market is much more sophisticated now than it was during the Celtic tiger period. The Deputy talks about looking at a particular rent. If we look at a particular rent and if there is an upward-only rent review clause we will make whatever adjustment we need to reflect what one would call an open market transaction at our valuation date.

Kieran O'Donnell (Limerick City, Fine Gael)
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For instance, properties are now being let in the heart of the city where people are renting for six months of the year.

Mr. Declan Lavelle:

Yes.

Kieran O'Donnell (Limerick City, Fine Gael)
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Does Mr. Lavelle regard that as open market value? The rents are lower than would typically have applied under the old upward-only rent agreements.

Mr. Declan Lavelle:

We feed all that into the system. It is a question of the volume of evidence we have and the weighting we give to each piece of evidence. As I said, the market is quite sophisticated and we have developed our own in-house analysis systems so we can factor in those various elements, whether it is an upward-only rent review clause, a break clause, tenant's improvements, a fit-out contribution or an up-front premium. There are various inducements that landlords give to tenants. Tenants have all sorts of difficulties in terms of holding over under existing leases. We also have regard to abatements of rent. We try to get as complete and comprehensive-----

Kieran O'Donnell (Limerick City, Fine Gael)
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In terms of the process under way, can people who are in retail properties, or any property, engage with the office?

Mr. Declan Lavelle:

Yes. During 2012 we issued what we call reval information forms. Every ratepayer in Limerick got one. It requested general information about details of occupation etc., but if an occupier was paying rent we asked him or her to let us know what that rent was. In many instances we went out and engaged with those occupiers face to face, inspected their properties and established details about the transactions while we analysed them.

Obviously, our valuer engages face-to-face in each case with the ratepayer in those instances and a relationship develops there.

Kieran O'Donnell (Limerick City, Fine Gael)
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There is an ongoing dialogue.

Mr. Declan Lavelle:

Yes.

Kieran O'Donnell (Limerick City, Fine Gael)
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Okay.

Mr. Declan Lavelle:

Then we get to a later stage, where the valuer has looked at that particular street and the various basket of rents, has drawn conclusions therefrom and applied those valuations. At that stage, we issue what we call the proposed valuation certificates.

Kieran O'Donnell (Limerick City, Fine Gael)
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That will be in March 2014.

Mr. Declan Lavelle:

Yes.

Kieran O'Donnell (Limerick City, Fine Gael)
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Will they come out simultaneously or piecemeal?

Mr. John O'Sullivan:

There always is an operational issue there. We-----

Kieran O'Donnell (Limerick City, Fine Gael)
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What will be the earliest time they will issue?

Mr. John O'Sullivan:

March will be the earliest time.

Mr. Declan Lavelle:

Probably late March.

Kieran O'Donnell (Limerick City, Fine Gael)
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Of next year.

Mr. John O'Sullivan:

Yes.

Kieran O'Donnell (Limerick City, Fine Gael)
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March 2014.

Mr. Declan Lavelle:

Yes, 2014.

Mr. John O'Sullivan:

If I may add something to what Mr. Lavelle has stated-----

Kieran O'Donnell (Limerick City, Fine Gael)
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Do the witnesses understand my point? I am trying to ascertain whether there are measures such as changes in legislation, procedures or whatever that would give the Valuation Office latitude to factor in the point that these businesses-----

Mr. John O'Sullivan:

It is a very good question. We always form the view that the measures the Deputy has mentioned towards ameliorating some of the circumstances do not really belong properly in valuation legislation. They belong elsewhere because they pertain to policy and to having scope to change that policy from time to time, whereas by its very nature, valuation law should be independent of all those economic circumstances. However, as Mr. Lavelle noted in terms of how we do the job, it is all based on evidence and the first and most important source of evidence is the ratepayers themselves with regard to the quality of information they give back to us. However, we also have access to other sources of information. For example, we have access to the Revenue Commissioners e-Stamping database. In addition, when it becomes available shortly, we will have access to the Property Services Regulatory Authority's new commercial leases database. Both databases should be extremely informative and we should be able to cross-validate what we are getting on the ground versus what is coming through those transactions.

Kieran O'Donnell (Limerick City, Fine Gael)
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If the Valuation Office gets details about a property being sold from, for example, the Revenue website, what typically is the rental return factored in by the office? Is it 8%? Obviously, it will take into account a number of factors to come up with what is a rental value but typically, what does the office regard as being the return? From my recollection, the traditional, historical return was approximately 8%. What does the Valuation Office now typically take as a rental return?

Mr. Declan Lavelle:

We tend to avoid that approach. In other words, we look primarily at rental information. It really would be a last resort for one to start to look at a capital transaction and make an attempt to annualise that because yields are quite variable at present.

Kieran O'Donnell (Limerick City, Fine Gael)
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Okay.

Mr. John O'Sullivan:

In practice, we rarely if ever need to look at that sort of thing. Usually, there is more than sufficient additional information available that is primary evidence in this regard.

Kieran O'Donnell (Limerick City, Fine Gael)
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Okay. As it stands at present, the Valuation Office has no latitude to take into account non-valuation factors in the valuation.

Mr. Declan Lavelle:

Exactly.

Mr. John O'Sullivan:

Correct.

Kieran O'Donnell (Limerick City, Fine Gael)
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Effectively, the Valuation Office is constrained by legislation.

Mr. John O'Sullivan:

Yes, but we should probably reflect the fact that there are many advantages to that system because it allows the Commissioner of Valuation and his staff to go forward and conduct the thing in a structured way.

Kieran O'Donnell (Limerick City, Fine Gael)
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I am looking at this issue purely as a representative-----

Mr. John O'Sullivan:

Absolutely.

Kieran O'Donnell (Limerick City, Fine Gael)
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-----with businesses under enormous pressure. I do not think Mr. O'Sullivan can even imagine it. I refer to family businesses which have been in operation for years through various generations that have stuck with the heart of the city. We must find some way to facilitate them. I take on board the point that it really is about engagement with the Valuation Office.

Mr. John O'Sullivan:

Information, evidence and interacting with us in the process. I should also note that prior to us engaging in any publication of valuation certificates, I can promise a major outreach programme with everyone in respect of the representative bodies, chambers of commerce and so on. No one will not have had an opportunity to engage with us and to understand how the process operates.

Kieran O'Donnell (Limerick City, Fine Gael)
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Has the Valuation Office engaged with Limerick Chamber?

Mr. John O'Sullivan:

Yes, absolutely. We engage with a wide variety of stakeholders in this regard, including professional agents and people who are operating on the ground. We work very closely with the Society of Chartered Surveyors.

Kieran O'Donnell (Limerick City, Fine Gael)
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My worry in respect of the process is one will find that small businesses will decide they have had enough. They could be employing two or three people-----

Mr. John O'Sullivan:

It is an issue, absolutely.

Kieran O'Donnell (Limerick City, Fine Gael)
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-----and therefore, I think it is about engagement.

On a final technical point, I note the Valuation (Amendment) (No. 2) Bill 2012 will introduce self-assessment like the tax system and I wish to understand that system. How often will people be obliged to send in a return? Will it apply every five years? The witnesses should walk me through the process. As the appeal system will be gone, what then will be open to people? The appeal system was a major feature of the valuation system heretofore.

Mr. John O'Sullivan:

No, the appeal system will not be gone. The proposal in the Bill, which is completely separate, is that one of the current stages at which an appeal can be raised will be removed but that the remaining stage, namely, the representation stage, which is much more informal, will be bolstered. This is what we have just been discussing here. Consequently, the fairness of procedures will be absolutely retained and there will be a full opportunity-----

Kieran O'Donnell (Limerick City, Fine Gael)
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The witnesses should provide an example of how this would operate in practice.

Mr. John O'Sullivan:

Does the Deputy mean the self-assessment?

Kieran O'Donnell (Limerick City, Fine Gael)
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Yes.

Mr. John O'Sullivan:

Okay. There are two elements to arriving at a valuation. First, there is the sourcing of the information regarding the physical aspects of the property. The intention is that the Valuation Office will engage with the ratepayers or certain categories of ratepayers-----

Kieran O'Donnell (Limerick City, Fine Gael)
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From what year will this be effective?

Mr. John O'Sullivan:

We must first run a pilot in this regard. We have not done this yet and my understanding is that self-assessment for commercial and industrial properties has not been tried elsewhere. I was in touch with the International Property Tax Institute during the week seeking other examples worldwide but I am afraid it was unable to come up with one. As we potentially are breaking new ground in this regard, therefore, we must go very carefully. We must run a pilot-----

Kieran O'Donnell (Limerick City, Fine Gael)
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Has the Valuation Office decided on a location for the pilot?

Mr. John O'Sullivan:

Yes, Galway City Council. We already have undertaken the consultation process with the Minister for the Environment, Community and Local Government.

Kieran O'Donnell (Limerick City, Fine Gael)
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From what year will that be effective?

Mr. John O'Sullivan:

It depends on when the legislation comes in. I intend to sign an order very quickly once the legislation is in situ because I also am required to introduce regulations to deal with how it will operate.

Kieran O'Donnell (Limerick City, Fine Gael)
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Mr. O'Sullivan should give me a brief example.

Mr. John O'Sullivan:

As an example of how it might work in practice, again subject to the legislation coming through in its current form, probably the best way to describe it is that the Valuation Office will be obliged to provide a great deal of support on the ground for the ratepayers and help them to help us to come up with the valuation.

Kieran O'Donnell (Limerick City, Fine Gael)
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It is a case of "Help me to help you".

Mr. John O'Sullivan:

Yes. The point behind this is to allow the Valuation Office to get the information more quickly than is the case at present, in order that it can come up with valuation levels more quickly and to close the gap it currently is taking to-----

Kieran O'Donnell (Limerick City, Fine Gael)
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The ratepayers will not provide their own value.

Mr. John O'Sullivan:

No, absolutely not. That cannot be the case and would not be fair.

Kieran O'Donnell (Limerick City, Fine Gael)
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Okay. Therefore, it is not strictly self-assessment.

Mr. John O'Sullivan:

It is not strictly self-assessment in that sense. It is self-assessment perhaps of the measurement details of the property. If one takes a shop as an example, we will ask those concerned to give us an amount of information based on what they currently provide and in addition, to measure and give us the dimensions and what we call the zones, because we look at the front-----

Kieran O'Donnell (Limerick City, Fine Gael)
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Effectively, it is assisting the Valuation Office in doing its work.

Mr. John O'Sullivan:

Yes. As I mentioned to Deputy Deasy earlier, I would not describe it as a new system. It is a new approach to coming up with the current levels.

Kieran O'Donnell (Limerick City, Fine Gael)
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It means the Valuation Office's valuer is not obliged to physically put a tape on the building. The office may be obliged to carry out audits and so forth.

Mr. John O'Sullivan:

We certainly will be obliged to carry out audits. We certainly must get to a point at which we are to cross-check the correctness of the information we are getting. Mr. Lavelle may wish to add something in this regard.

Kieran O'Donnell (Limerick City, Fine Gael)
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The witnesses should provide an explanation about the appeal system going, as this has been quite a prominent feature of the entire subject of rates.

Mr. John O'Sullivan:

Perhaps I should explain that before 2001, there was no stage called "representations" in the valuation process, which is the stage we discussed earlier. The situation obtained in which the Valuation Office came up with a valuation and there was an appeal at that stage. Prior to 1988, one could then go on and appeal to the Circuit Court from the Valuation Office. In 1988, the valuation tribunal, which is an independent separate body, was established and that took over the role of the court. However, there still is provision for an appeal on a specific point of law to the High Court and on afterwards to the Supreme Court, if necessary.

Under the current system, post-2001, there are three possibilities of interaction. There is the representation stage, before the certificates are made final, which is where we are at in Dublin city and Waterford. The certificates are finalised and the list is published. Before the Bill becomes law, there is an appeal to the Commissioner of Valuation, that is, a formal process conducted internally within the Valuation Office. Thereafter, one may go to the tribunal and on to the High Court and the Supreme Court on a point of law. The proposal in the Bill is that the second stage, the appeal to the commissioner, would be removed on the basis that what was introduced in 2001 and what it is proposed to enlarge in the 2012 Bill provides adequate safeguards and the supports the ratepayer needs to be able to challenge the process and get his or her point of view and information across.

Kieran O'Donnell (Limerick City, Fine Gael)
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Therefore, the internal appeal will probably be the first step. If someone receives a valuation from the Valuation Office and is not happy with it, can he or she appeal it to the appeals commissioner?

Mr. John O'Sullivan:

That was his or her first and only route prior to 2001.

Kieran O'Donnell (Limerick City, Fine Gael)
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That route is still there.

Mr. John O'Sullivan:

There is a route called representations, which has been there since 2001 and is now being widened and bolstered. It is being done in the belief that the representation stage is probably more useful to the ratepayer and, possibly, also the Valuation Office, because it allows us to get to the heart of the matter more quickly.

Kieran O'Donnell (Limerick City, Fine Gael)
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Is it within the Valuation Office's wherewithal to factor in the issues of turnover, profitability and how many people a business employs?

Mr. John O'Sullivan:

I will ask Mr. Lavelle to deal with that issue.

Mr. Declan Lavelle:

Not directly. If one is the hypothetical tenant and going to rent a shop on the main street, obviously, all these factors feed into the decision one will make in terms of the rental bid. That is, essentially, what our valuers are trying to do - to get down to the details of the rental bid, strip away all of the incentives, inducements, advantages and disadvantages inherent in a traditional lease and say, "What would the rent be today on the open market where the tenant pays the rent, insures and maintains the building and pays rates?"

Kieran O'Donnell (Limerick City, Fine Gael)
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Typically, could the valuation of two similar buildings on a street differ depending on internal structures or whatever else?

Mr. Declan Lavelle:

Perhaps, but, generally, what we will find is that the market is not perfect. One can have two identical buildings side by side and because of the various negotiating strengths of a tenant, the rent levels might be slightly different. From a valuation perspective, we tend to look at both and balance it out such that we actually have a standard level and a degree of equity inherent in the rating system on that street in order that one ratepayer does not have an advantage over another, or face a disadvantage.

Kieran O'Donnell (Limerick City, Fine Gael)
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In the case of Limerick, one is looking at a date of March 2014 when the proposed certificates will issue. Ratepayers will then be able to engage with the Valuation Office and the Valuation Office will be talking about publishing a final list.

Mr. Declan Lavelle:

We should say at this stage that when we issue a proposed valuation certificate, we have a facility whereby a ratepayer can go online to see how our valuer has calculated the valuation and he or she can then make representations, also online.

Kieran O'Donnell (Limerick City, Fine Gael)
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Is there no appeals system between the issuing of the proposed valuation certificate and the end of the process? Is it a representation rather than an appeals process?

Mr. John O'Sullivan:

It is not strictly an appeal because, legally, there is no decision made. One can only appeal if there is a decision.

Kieran O'Donnell (Limerick City, Fine Gael)
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If a decision is made, for instance, in December 2014, can a person then go through an appeals process if he or she wishes?

Mr. John O'Sullivan:

He or she can. The appeals process has two stages to it, but the proposal in the Bill is to reduce it to one stage. The appeal would be to the tribunal and then to the court.

Kieran O'Donnell (Limerick City, Fine Gael)
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I thank the officials.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I will ask Mr. O'Sullivan about the Valuation Tribunal. In 2011 expenditure was €650,000. How was the tribunal made up and how was the money spent?

Mr. John O'Sullivan:

There are two aspects. The subhead for the tribunal has actually to do with the workings of the tribunal which is made up of a number of members who are appointed by the Minister. There would typically be 20 persons on a panel for the tribunal - something of that order. It would have to do with the expenses of running the tribunal over the course of the year. There is a fee for the sitting of the tribunal.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Is there a particular qualification members must have?

Mr. John O'Sullivan:

They are appointed by the Minister, but many of them would have either a legal or surveying or similar background. The commissioner has no role whatsoever in the choice of who is appointed. The tribunal is totally independent. Our role is to account for its budget, but the members are appointed by the Minister because it is an independent body.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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If there are 20 on the panel, what happens when the tribunal sits? How many sit on each tribunal?

Mr. John O'Sullivan:

Typically, three.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Are they paid per sitting?

Mr. John O'Sullivan:

We are really looking at the operating costs. There is a daily sitting fee for the tribunal member.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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What is it?

Mr. John O'Sullivan:

For the chairperson, it is €555. There is a fee of €450 for the vice chairperson and €359 for an ordinary member. There is also a-----

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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The fee for the chairman is €550.

Mr. John O'Sullivan:

It is €555.48.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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What is the vice-chairperson's fee?

Mr. John O'Sullivan:

It is €450.90.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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And the fee for a member?

Mr. John O'Sullivan:

For an ordinary member, it is €359.64.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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When are they paid? How are they paid? Is it one case on one day?

Mr. John O'Sullivan:

It is a daily sitting fee. The particular sum is paid if the member is present for the full hearing of the tribunal. There is a second rate called a "conference rate", where the member has to attend a division meeting, in other words, if he or she has to come back a second or a third day. Strictly speaking, it is probably not correct to say it is a daily fee; it is the fee for the first day of a hearing.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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On the first day of a tribunal, there are three members and there must be a chairman. The fee is €555-odd for the chairman for the day.

Mr. John O'Sullivan:

Yes.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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There are two members.

Mr. John O'Sullivan:

Yes.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Is one of them classed as a vice chairman?

Mr. John O'Sullivan:

No.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Typically, there are two members, at €359 a day.

Mr. John O'Sullivan:

Yes.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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If they have to come back a second day, what happens?

Mr. John O'Sullivan:

There is what is known as the "conference rate" which for the chairperson is €154.36; for the vice chairperson, €133.87-----

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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The first figure is €150.

Mr. John O'Sullivan:

It is €154.36.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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What is the next one?

Mr. John O'Sullivan:

The next one is the figure for the vice chairperson, which is €133.87. The final figure is for an ordinary member, which is €107.42.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Where the chairman sits with two others, it is merely the chairman and two ordinary members.

Mr. John O'Sullivan:

Typically, yes, or there might be a division where one of the vice chairpersons sits with two ordinary members.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Is it the case, where there are three members sitting, that one receives €555, another €450 and the other €359?

Mr. John O'Sullivan:

No, I do not think that is the case.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Would that be the regular position?

Mr. John O'Sullivan:

No. It would hardly ever occur that there would be a chairperson, a vice chairperson and an ordinary member sitting in a division. That would not be the case. What I should say is that the most important point is that it would be set out in the tribunal's own rules. It has its own rules of operation in that regard.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Who sets the rates?

Mr. John O'Sullivan:

They are set by the Department of Public Expenditure and Reform. The members are appointed by the Minister for Public Expenditure and Reform.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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How often would the tribunal sit?

Mr. John O'Sullivan:

It depends on the volume of cases going through.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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For how long did it sit, say, in 2011, the last year for which there are accounts?

Mr. John O'Sullivan:

I do not have the figures. Ms Smyth might have them.

Ms Mary Smyth:

During 2011 there was quite a lot of activity in the tribunal owing to the appeals arising from the revaluations in Dún Laoghaire-Rathdown. There was a heavy schedule of sittings up to about October last year. The tribunal would have been sitting almost on a daily basis up until then.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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That will probably recur because there will be other appeals from other areas as the Valuation Office deals with them. The volume of work of the tribunal will be fairly consistent in that regard.

Does the Department of Public Expenditure and Reform consider the payments of €555, €450 and €359, respectively, for a day's work reasonable or to be over the top?

Ms Marie McLaughlin:

I think the rates have been in place for a number of years and subject to review, with all of the other rates payable for a member sitting on a board. They are in line with existing levels.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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When were they last reviewed?

Ms Marie McLaughlin:

The 8% reduction applied to members of boards was applied to the tribunal's fees. I do not actually have to hand the date on which the rates were last reviewed, but, as far as I know, because they were subject to the 8% reduction that applied across the board to members sitting on boards of semi-State bodies, the same level of reduction would have applied to the tribunal's fees.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Typically, for how many days would each of the 20 members on the panel sit in a year?

Ms Marie McLaughlin:

I am not sure whether the Valuation Office has that figure. Under the legislation, the tribunal is required to have three members. There will have to be a chairperson or a deputy who heads the tribunal and two other members. The Valuation (Amendment) Bill 2012 is intended to provide that there will be more flexibility for sittings of the tribunal in order that it could sit with fewer than three members, or hold hearings by written submission only without necessarily having to sit, thus giving it the potential to be more efficient in its operation.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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There are two figures in which I am interested. For how many days did each of the 20 members on the panel sit on a tribunal in the course of 2011, for example? How many of the sittings lasted for a number of days? The answers will allow us to know how much each member costs and how many cases lasted for a number of days. I ask for as reasonable a breakdown as can be obtained without any great hassle.

Mr. John O'Sullivan:

I will endeavour to get what we can.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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On the questions raised by Deputies Deasy and O'Donnell, I do not want to go over old ground. As a ratepayer, I notice that businesses generally throughout the country, particularly small businesses, are in serious difficulty. The delegation has stated the person holding the lease or the person renting the property pays the insurance and the rates. My experience of dealing with the SME sector and its information on leases suggests leases are not worth the paper they are written on and are generally just being held together in terms of the relationship with the landlord. The landlord is now probably paying the rates and the insurance and this is affecting the level of rent, which is becoming increasingly lower. This is a feature of the marketplace that the delegates must have discovered in their interaction with the sector, regardless of the county. Will the witnesses comment on this?

The office has stated the make-up of the rent, leases, etc., on a street is identified. What about the streets in every city and county on which there are but a few shops open and quite a number of premises on which no rent or rates are being paid? How is this factored in to the office's evaluation of the businesses on such a street?

With regard to the subsequent occupier clause, whereby a new tenant becomes responsible for the previous tenant's unpaid rates, it is causing a problem throughout the country because it is making properties more difficult to rent. The issue of previous tenants' rates not having been paid is beginning to emerge and becoming a problem in every county.

Will the witnesses address these three issues?

Mr. Declan Lavelle:

Consider my comment on the tenant paying the rent and insurance and for repairs and the maintenance of the building. It has more to do with the fact that our definition of net annual value, as defined in the Valuation Act, assumes that the rent is the amount left after the tenant pays these outgoings. If I am told the rent payer is paying €100 per week and that, in addition, the landlord is paying the insurance and rates and maintaining the building, we would say that, under our definition of value, the €100 per week is not the rent. It is a figure less than this and we have to adjust it to reflect these outgoings.

I agree with the Chairman on the reality of the marketplace; however, in terms of our deciding what a value is, it is not gross value that the landlord gets but essentially the net rent. That is our definition of value. Therefore, when we publish our new valuations in places such as Waterford, for example, and Limerick next year, we will actually be publishing the net annual value or net rental value. That is the rental value we are putting on the property.

Vacant properties on streets present a valuation challenge, about which there is no doubt. Sometimes there is an extreme where there is so much vacant property on a street that it actually affects all values on that street. Generally, thus far our experience is that we do obtain rental information and it is a question of analysing it when we get it and making the judgment call.

On the third point to which the Chairman referred which concerns the subsequent occupier, sometimes the clause will lead to a property being vacant. If one examines a number of properties on a street and asks why they are vacant, it may be a factor. We receive additional information from the stamp duty people, etc., but it is much more challenging for valuers in a recession to value property because many market incentives and other factors must be accounted for by the valuers. During the Celtic tiger period leases were much more standard, as were letting agreements. Now we find they are bespoke. However, that is a challenge to our valuers. Ultimately, they must stand back and decide what property would be let for on the market, assuming it is vacant to let and the tenant is paying rent knowing that he or she must insure and maintain the building and pay the rates. That is the statutory definition of value.

John Deasy (Waterford, Fine Gael)
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On the third point, I do not believe Mr. Lavelle answered the question. I will try to answer it for him and tell him what is happening: when tenants inherit a rates bill on renting a vacant property, the procedure is arbitrary from local authority to local authority. Some local authorities are writing off the arrears in order that the town and county will not lose the business, while in other cases they are not. It is completely piecemeal and there is no rhyme or reason to it whatsoever. It is entirely subjective in respect of the local authority officials in a given authority. They are taking it on themselves to write off arrears for fear of losing business. That is what I have found.

Mr. Declan Lavelle:

It is very much a rating matter. I was asked only-----

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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The questions I am putting to the witnesses are the ones that are relevant to how the office approaches the valuations technically. Mr. Lavelle is telling me in response to the questions I have asked him that the office takes all he has described into consideration outside of the subsequent occupier clause and that is somehow reflected in the valuation of the property.

Mr. Declan Lavelle:

Yes.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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I want to move on to the subsequent occupier clause and question the officials from the Department of Public Expenditure and Reform. When applying the "rate in the pound", as it was known by the councillors, or the county manager in bringing forward his or her rate every year, there is unevenness across the country.

Some counties have increased it continually over those years, while others, for competitive purposes, did not increase it or kept the level lower than what might even be the national norm. Therefore, there is a very uneven playing field which might create competitive tension between, for example, my neighbouring county of Waterford and Kilkenny, or Carlow in the other direction.

How does Ms McLaughlin plan to even out that field after the valuation is done? How will she go about reducing the rate in the pound that was applied over the years to give a reasonable, even rate across the country? That is where part of the problem lies.

My second point is that while one has the local government valuation authority discussing this, one should also have the Department of Jobs, Enterprise and Innovation discussing it. After one squeezes the situation in business and reduces one's costs, the only cost one cannot adjust is that of rates. That cost is closing businesses down whether they are on an industrial estate or on the high street. Rates constitute the biggest challenge that businesses face in keeping their doors open. We are not taking rates seriously enough and are not reacting quickly enough to give businesses that lifeline to stay in business.

Ms McLaughlin heard from Deputy O'Donnell about Limerick and from Deputy Deasy about Waterford. I presume that because of the abolition of the borough of Kilkenny we will be faced with the same problem concerning the rateable valuation in what is now a new city and county structure. I would like Ms McLaughlin to answer those questions please.

Ms Marie McLaughlin:

There is not an awful lot I can say in that responsibility for rates, as the Chairman knows, is a devolved function of local authorities. The establishment of the ARV is a matter for them and rating legislation is a matter for the Minister for the Environment, Community and Local Government. It is certainly true to say that the Government is very conscious of the impact of rates. Various efforts have been made by the Minister for the Environment, Community and Local Government to exhort local authorities to maintain the ARV at or below the level of the previous year, and most local authorities have done that. However, it is not a matter for the Minister for Public Expenditure and Reform to dictate to local authorities what the ARVs will be.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Therein lies the problem. It is part of the issue that Deputy Deasy raised. I understand the policy element of this, as well as the valuations and what local authorities do. A solution to this for the country, including the SME sector, will not be established unless all the participants talk to one another. There is a role for local government, the Valuation Office and the Department of Jobs, Enterprise and Innovation. If we ignore that by saying that it is a devolved function for members, we must examine that in terms of policy. I know this is not a policy-making committee but the matter is affecting people and is part of the debate that was raised this morning by Deputy Deasy and Deputy O'Donnell. We will have to find some way of delivering that message.

John Deasy (Waterford, Fine Gael)
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I think the Chairman is spot on - that is the issue. Obviously, Ms McLaughlin was not at the meeting I attended at the Department during the week. It was acknowledged then that no one is spearheading this in the Department of the Environment, Community and Local Government, the Department of Social Protection, the Department of Finance, the Department of Public Expenditure and Reform, and the Department of Jobs, Enterprise and Innovation. Taking those five Departments, it was felt that someone needed to spearhead this matter. There was an acknowledgement that it needed to happen right now and that it would happen.

The two critical Departments are the Department of Public Expenditure and Reform, and the Department of the Environment, Community and Local Government. I have some faith that the Government has now acknowledged that there was a dearth of leadership when it came to the issue internally in Government. The interconnectivity between Departments was very poor when it came to thinking about issues that everybody had a stake in but no one was specifically tasked with. The line Ministry was the Department of Public Expenditure and Reform but that has changed in the last year. There has been an indication that this is going to improve.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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With the approval of members, we will send a transcript of this morning's meeting to the various Departments, and that will resolve it.

John Deasy (Waterford, Fine Gael)
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Yes.

John McGuinness (Carlow-Kilkenny, Fianna Fail)
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Are there any other questions on this matter before we move on to the Department of Social Protection? If not, we will dispose of Vote 15. I wish to thank the witnesses for attending the committee.