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Municipality-specific risks divided unequally
Effects of real estate property arrangements in health and social services reform to be moderate

Government Communications Department
Publication date 7.12.2016 11.21 | Published in English on 7.12.2016 at 11.45
Press release 533/2016

Real-estate property used in the production of health and social services is to remain in the ownership of their current owners and the counties will lease them. However, a county may not need all current premises. Over the years, approximately one fifth, that is 1.2 million square metres, may be freed for other purposes. Some properties can be put to alternative use but some of the buildings in poor condition pose a risk to municipalities. The risk associated with surplus property is greatest in areas with decreasing population according to the report describing the risks associated with municipal properties affected by the social welfare and health care reform.

In most municipalities, the impact will be small in relation to changes that would take place regardless of the upcoming property arrangements. If unused properties that are in a good condition are encumbered by outstanding debt the financial effects on an individual municipality may be significant.

Annual maintenance costs of property that could be freed from health and social services amount to EUR 7-8 million. In all, around 6.8 million square metres of municipal real property is earmarked for health and social services and their imputed value amounts to approximately EUR 4.2 billion. However, the impact of unused properties on local government finances is not equal to the imputed value as it depends on the amount of acquisition expenditure remaining on the buildings.  This negative effect weakens the financial performance of the municipality in the annual accounts. Depending on whether the municipality's balance shows accrued surplus or deficit, the negative revenue growth may increase the municipality’s deficit.

Properties with the highest risk of becoming redundant are utilities plants and older outpatient service buildings in municipalities with decreasing population. An estimated 35% of plants and 5-15% of outpatient service buildings in the high-risk group may no longer be needed in the next five years. The social welfare and healthcare reform aims to achieve greater efficiency by revamping service structures and the service network. Properties are developed and their usage becomes more effective even regardless of the social welfare and health care reform.  The surface area of properties that will be freed up from health and social services amounts to an estimated 1.2-1.4 million square metres and their imputed value amounts to EUR 700–760 million. Of this surface, around 0.5 million square metres are high-risk properties for which it will probably be hardest to find other usage. The imputed value of these properties amounts to approximately EUR 315 million.

Properties give rise to maintenance costs even if they are not used.  Annual maintenance costs for properties becoming redundant in the social welfare and health care reform amount to EUR 7-8 million. Of this sum, the share of highest risk properties will be approximately EUR 3 million if all properties become redundant the same year. The change will not take place immediately and counties will probably proceed with the service network reform in stages and partly at different times. If the properties were to be demolished it would cost between EUR 190 and 206 million of which high-risk properties amount to approximately EUR 80 million.

However, the effects on the majority of municipalities will be small and the reform will not significantly change municipalities' plans with regard to their real property. The risks will concern a small percentage of municipalities. In case a newly constructed municipal property is not leased by a county, it will cause financial problems to the municipality if a new tenant is not found. The risk is mitigated by the fact that counties will favour new properties that are in a good condition.

The report was part of the government’s analysis, assessment and research themes for 2016 concerning studies in support of the health and social services and regional government reforms. The study was conducted by Nordic Healthcare Group. The project published its mid-term report in summer 2016.

The report (in Finnish)

Further information about the Government’s analysis, assessment and research at tietokayttoon.fi/en

Inquiries: Riikka-Leena Leskelä, Senior Manager, Nordic Healthcare Group Oy, +358 50 4100 737, [email protected] and Helena Tarkka, Director-General, Ministry of Finance, +358 295530141, [email protected]