PM must overhaul NHT

Robert Wynter, Contributor


There is a popular Jamaican saying that when a fish comes from 'river bottom' and says a shark is there, he must be believed. It is against this background that we must treat with great concern recent statements by Housing, Environment, Water and Local Government Minister Horace Chang.

In an article by Gary Spaulding in The Sunday Gleaner of October 30, titled 'Chang washes hands of NHT', the goodly minister is reported to have said, "The NHT (National Housing Trust) had picked up characteristics over the years that had nothing to do with its original mandate." He further stated: "If you try to change that you are going to run into problems that I don't think the minister wants at this time", and that "instead of getting entangled with other issues in which the NHT has got itself enmeshed, his ministry was intent on pursuing its mandate to provide affordable housing for low-income earners. So rather than getting into an argument with the NHT; that, in my view, is more acceptable."

It is no secret that the NHT is awash with cash; much more than it can absorb. The latest annual report available (2008-2009) indicates that during the year, NHT pulled in $7.5b from employees' (refundable) contribution and paid out $2.8b; netting $4.7b. The NHT also pulled in $8.7b from employers' (non-refundable) contribution; resulting in a total haul from taxpayers of roughly $13.5b. The income statement shows net revenue (from mortgage, development and investment) of $7.5b and operating expenditure of $4.8b, resulting in a surplus before taxation of $2.7b. Please note that the $13.5b is NOT included in the income statement.

I understand that the employees' contribution must be treated as a liability (a loan from contributors). However, I cannot fathom why the non-refundable employers' contribution is not included in revenue, as is done at HEART Trust. Not being a trained accountant, I have put this paradox to several chartered accountants and no one seems to be able to clarify the matter.

Without a reasonable explanation, I can only assume, and I stand corrected if proven wrong, that NHT has been understating its revenue and surpluses for a long time. In 2008-09, instead of paying taxes on a surplus of $2.7b, NHT ought to have reported a surplus of $11.4b and paid the appropriate taxes. If proven correct, Minister Shaw has a lot of back taxes to collect! In fact, when NHT reported losses in 2006 ($1.9b) and in 2008 ($0.32b), they were not really losses at all. The $3.9b employers' contribution in 2006 would translate into a $2.0b surplus, and the $5.5b employers' contribution in 2008 would translate into a $4.8b surplus. As at March 31, 2009, the NHT had accumulated a whopping $70b in its fund, with the majority being $48b from the non-refundable employers' contribution and $16b from 'surplus on income statement'.

It is well-known that a private-sector firm's performance is related to the level of profits (or surplus) it generates, as that is the mandate of the firm. A public-sector organisation like the NHT is different, as the greater the level of surplus, the worse the performance. NHT's huge surplus is, therefore, really a measure of its underperformance, being unable to adequately satisfy the housing needs of the Jamaican people, particularly those in the lower-income bracket.

It is extremely mind-boggling to hear that NHT has built and has been unable to sell $35-million units while underserving a large section of the populace who contribute to the fund. What is amazing is that, unlike other public-sector organisations, NHT CANNOT use inadequate resources as an excuse for underperformance.

There are several initiatives under way that can significantly improve NHT's effectiveness and efficiency. First, as I can now remit all payroll deductions to Inland Revenue, I believe the collection and compliance functions of NHT, NIS, HEART and Inland Revenue can be merged and should be located at Inland Revenue.

merger

Second, NHT's joint-venture mortgage solutions with the building societies and other mortgage providers can now allow NHT to become a true wholesaler of mortgages.

Finally, with the Housing Agency of Jamaica (HAJ) apparently much more proficient at delivering affordable shelter solutions, a merger between the two should now shift from contemplation to action.

This excess cash presents several negative implications. First is the imbalance in Government's fiscal demand-supply dynamics, where NHT generates interest income from excess cash, while the education and other sectors starve for well-needed funds.

Second is the temptation to dip into the fund by all and sundry. Gary Spaulding reported that P.J. Patterson took out $5 billion to finance the education transformation initiative (although it was noised abroad that it had covered money already spent for normal Ministry of Education operations rather than any transformation initiative). Mr Spaulding also reported that Mrs Simpson Miller and Bruce Golding both dipped into the fund, while chastising each other for their respective dipping.

To be clear, I do believe the dipping by our prime ministers has been used for purposes aligned to government responsibility. However, what I am concerned about is the ability of a minister, board or management to determine the use of funds which should be managed through the normal fiscal channels with proper legislative oversight.

Third is the fact that during every annual Budget Debate, the sitting prime minister uses the NHT fund to satisfy an expectant populace listening for goodies to counter the usual bad news from the respective finance minister.

Fourth is the inclination to overstaff and to pay huge levels of compensation, including very concessionary rates on loans, not because of any value creation or performance superior to those of the rest of the public sector, but rather because the NHT is awash with cash. In other words, why should an NHT executive that presides over the distribution of scarce benefits (housing) receive up to four times the compensation of a school principal that presides over the shaping of young minds? Education, not housing, is so very crucial for Jamaica's socio-economic development and the vehicle out of poverty as articulated by Prime Minister Andrew Holness?

suggestions

While Dr Chang wants to shy away from the NHT, Prime Minister Holness must address the issues immediately. I am, therefore, suggesting the following to our prime minister:

1. Shift the NHT from the Office of the Prime Minister to the Ministry of Housing, Environment, Water and Local Government where it properly belongs; and allow the NHT to return to its original mandate and devolve those functions which make Dr Chang uncomfortable.

2. Use the two per cent refundable employee contribution to finance NHT's shelter-management operations. This, along with the $70b in the fund, ought to make NHT more than adequately capitalised for sustainability.

3. Send the three per cent non-refundable employer contribution to a special fund managed by the Ministry of Finance with parliamentary oversight. This fund can be used for major development projects such as education transformation but must be kept separate from the central Treasury.

4. Merge NHT and HAJ to develop more affordable shelter solutions.

5. Merge the collection and compliance functions of NHT, HEART, NIS into Inland Revenue for greater public-sector efficiency and ease of use by taxpayers.

6. Gradually move the NHT away from being a retail mortgage organisation to becoming a wholesaler of mortgages, ensuring contributors who borrow from the retailers are no worse off than before. The NHT may need to sell the existing portfolio at a discount.

7. Charge the NHT board and management to achieve a level of performance aligned to Vision 2030 and to its own mission (Improving the quality of life of Jamaicans by facilitating home ownership and community development, particularly among low-income persons). NHT is then to report to Parliament annually on the extent of achievement of that performance.
8. Relook at NHT's structure, size and compensation required to achieving the above performance in light of the recommendations outlined above.

I believe the above will allow the NHT to provide a greater level of service to its constituents. Change will be difficult, as those who benefit will not want to rock the boat. This includes both political parties, the board and management. In order for real transformation to happen, civil society must lobby for these changes and must hold the PM accountable in doing so.

Robert Wynter is the managing director of Strategic Alignment Limited, which facilitates organisational realignment and leadership development. Email feedback to columns@gleanerjm.com and rob.wyn@hotmail.com.