HOUSING EUROPE 1

Regulating and financing Social Housing in the EU

State Aids to Social Housing

Training Workshop

Laurent Ghekiere

Head of EU office of Union sociale pour l’Habitat

23rd May 2008 – Housing Europe Centre

Brussels

HOUSING EUROPE 2

SH – development of EU trade – community interest

« Development of trade within the Union

Social housing is fully in line with the basic objectives of the EC-Treaty. It isa legitimate element of public policy and as it is limited to what is necessaryit is in the interest of the Community that social housing is supported. »

Mario MontiMember of the European CommissionSG (2001) D/289528 of 03.07.01

HOUSING EUROPE 3

Contents of the guidelines - 2

Financing SH : chose the way to reach legal certainty

Option 1 : SH as a non-economic activity – purely social nature Option 2 : SH as a economic activity – DG COMP statement Option 2.1 : SH as a normal commercial activity > art.87 Option 2.2 : SH as a SGEIs> art.86.2 Option 2.2 : Scope of SGEIs for SH Option 2.2.1 : Altmark ruling criterias Option 2.2.2 : Altmark package criterias – Decision on SH Option 2.2.3 : Notification procedure Concreet cases (IRL, NL, S)

HOUSING EUROPE 4

I : Why the EU Law applies to SH ?

The EU law of competition applies to UNDERTAKINGS,

UNDERTAKINGS = any entity engaged in an ECONOMIC ACTIVITY,

ECONOMIC ACTIVITY = activity provided in a given market.

The EU law of internal market applies to SERVICES, (art.50)

SERVICES = activity provided with an economic conterpart

The EU law of Public procurement applies to PUBLIC AUTORITHIES or any PUBLIC BODIES

SH can be seen as services, SH Landlords as Undertakings orProviders, as well as public bodies. EU law can apply in :

Financing SH > State Aid EU control (art.87, 88, 86§2 if SGEIs) Regulating SH > Exclusive and Special Rights (art.86§1) Organization of SH > Public tendering (services – concessions)

SH must also apply the GENERAL PRINCIPLE of the Treaty such as :

Transparency – equality of treatment – non discrimination - proportionnality

HOUSING EUROPE 5

State aids rules > legal base of art. 87 and 88

Article 87

§1. (…) any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favouring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the common market.

Article 88

§1. The Commission shall, in cooperation with Member States, keep under constant review all systems of aid existing in those States. It shall propose to the latter any appropriate measures required by the progressive development or by the functioning of the common market.

§2. If, after giving notice to the parties concerned to submit their comments, the Commission finds that aid granted by a State or through State resources is not compatible with the common market having regard to Article 87, or that such aid is being misused, it shall decide that the State concerned shall abolish or alter such aid within a period of time to be determined by the Commission.

HOUSING EUROPE 6

Exclusives and special rights > legal base of art. 86§1

Article 86

§1. In the case of public undertakings and undertakings to which Member States grant special or exclusive rights, Member States shall neither enact nor maintain in force any measure contrary to the rules contained in this Treaty, in particular to those rules provided for in Article 12 and Articles 81 to 89.

HOUSING EUROPE 7

SGEI primacy of missions > art.86§2, art.16

Article 86

§2. Undertakings entrusted with the operation of services of general economic interest (SGEI) (…) shall be subject to the rules contained in this Treaty, in particular to the rules on competition, in so far as the application of such rules does not obstruct the performance, in law or in fact, of the particular tasks assigned to them. The development of trade must not be affected to such an extent as would be contrary to the interests of the Community.

Article 16

Without prejudice to Articles 73, 86 and 87, and given the place occupied by services of general economic interest (SGEI) in the shared values of the Union as well as their role in promoting social and territorial cohesion, the Community and the Member States, each within their respective powers and within the scope of application of this Treaty, shall take care that such services operate on the basis of principles and conditions which enable them to fulfil their missions.

HOUSING EUROPE 8

Why the new Lisbon Treaty change rules for SGEI ?

New legal basis to secure by regulations between the European Parliament and the Council the performance of the missions of general interest (art.16), in particular on economic and financial conditions;

New Protocol on SGI set clear and explicit governance principles following the dispute on the manifest error on SH as a SGEI between the Dutch Government and the European Commission;

New legal base for the Charter of Fundamental Rights and for its art.36 on access to SGEI and art.34 on access to housing assistance.

HOUSING EUROPE 9

Why the new Lisbon Treaty change rules for SGEI ?

New legal basis to secure the performance of the missions of general Interest (art.16)

« The European Parliament and the Council, acting by means of regulations in accordance with the ordinary legislative procedure, shall establish these principles and set these conditions without prejudice to the competence of Member States, in compliance with the Treaties, to provide, to commission and to fund such services. »

These principles and conditions refer to the article 16 : « Principles and conditions, particularly economic and financial conditions, which enable them to fulfil their missions »

HOUSING EUROPE 10

EU SGEI governance > New SGI Protocol

THE HIGH CONTRACTING PARTIES, WISHING to emphasise the importance ofservices of general interest, HAVE AGREED UPON the following interpretativeprovisions, which shall be annexed to the Treaty on European Union and to theTreaty on the Functioning of the European Union:

Article 1

The shared values of the Union in respect of services of general economic interest within the meaning of Article 16 of the Treaty on the Functioning of the European Union include in particular:

the essential role and the wide discretion of national, regional and local authorities in providing, commissioning and organising services of general economic interest as closely as possible to the needs of the users;

the diversity between various services of general economic interest and the differences in the needs and preferences of users that may result from different geographical, social or cultural situations;

a high level of quality, safety and affordability, equal treatment and the promotion of universal access and of user rights.

Article 2

The provisions of the Treaties do not affect in any way the competence of Member States to provide, commission and organise non-economic services of general interest (NESGI).

HOUSING EUROPE 11

New legal base for the Charter of fundamental Rights

Same legal value as the Treaty

Art.36 : Access to services of general economic interest. The Union recognises and respects access to services of general economic interest as provided for in national laws and practices, in accordance with the Treaty establishing the European Community, in order to promote the social and territorial cohesion of the Union.

Art. 34.3 : In order to combat social exclusion and poverty, the Union recognises and respects the right to social and housing assistance so as to ensure a decent existence for all those who lack sufficient resources, in accordance with the rules laid down by Community law and national laws and practices.

HOUSING EUROPE 12

II : Financing SH : chose the way to reach legal certainty

Social Housing

Non economicactivity

Economicactivity

Art.87

Altmark ruling criteria

Non SGEIs

SGEIs

otherpurely social

NESGIs

No > State aid

Yes > no State aid

No EU Matter

State aid

Altmark packagecriteria

Yes > compatible State aid

No > State aid

OK

Notification

HOUSING EUROPE 13

Option 1 : SH as a non-economic activity ?

Purely social nature activity can be considered as non economic activity such as :

Compulsory insurance schemes functionning under the principle of solidarity, offering insurance benefits independently of contributions

Public education financed as general rule by the public budgetand carrying out a State task in the social, cultural and educationnal fields towards the population.

ECR criterias to be met as purely social nature :

No market at all Contribution of users independant from the real cost – Free of charge or low

contribution Principle of solidarity – cost fully paid by the State Ex « Public Health service » in UK, social security, primary education

HOUSING EUROPE 14

Option 1 : current statement of the Commission on SH

SH is an economic activity in competition Law

SH Landlords are Undertakings (SHU) regardless of the legal status of the entity of the way in which their are financed

SH as an economic activity concerned for example :

Provision of funds for SH; Provision of general mortgage funds to SH; Provision of affordable housing schemes aiming at providing low-cost

housing; Provision of rental subsidy schmes and grant schemes for elderly and

disabled persons; Provision of affordable housing for socially disadvantaged households; Provision of infrastructure ancillary to social dewelling such as roads, shops,

playgrounds, place of recreation parks, allotments, open spaces, sites for places of worship, factories, schools, offices and others buildings or land and such other works and services which is needed to ensure a good environment for social housing.

SH is a service in the internal market Law

SH Landlords are Providers (SHP) in the internal market Law

HOUSING EUROPE 15

Option 2 : SH as an economic activity

Option 2-1 : SH as a normal commercial activity

Competition rules as state aids rules fully apply to SHU without any derogation as any commercial economic activity (art.87 and 88)

Notification of SH schemes to DG COMP to check the compatibility (art.88.3) Example : Swedish scheme for « SH for elderly » (see slide N°X)

Option 2-2 : SH as a SGEIs activity

Competition rules as state aids rules doesn’t apply if it is necessary for the performance of the tasks assigned to SHU (art.86.2)

SHU must be entrusted with an operation of SGEIs by an official Act, whereby a public authority confers responsability to SHU for the execution of task of general interest ie public services obligations

SH Schemes are compatible with the Treaty and rules of competition under conditions to be met

SH Schemes could be not qualify as state aids or could be qualified as compatible state aids

No notification of SH schemes to DG COMP

HOUSING EUROPE 16

Option 21 : SH as a normal commercial activity

Example of the swedish « SH for elderly »

Non SGEIs activity in swedish law but a « normal economic one »

Notification of the swedish Gvt to DG COMP : SH for elderly scheme of 5 years program (270 millions euros)

Decision of DG COMP : compatible with art.87 because :

Time limited scheme Current failure of the Housing Market for elderly needs Scheme opened to all Landlords (no discrimination, no exclusive SHU) Low level of the subsidies (10% of the building cost) Local based activity controled by local Authorities

But, following a complain of private investors, others state aids to Municipal Housing Companies (MHCs) could be considered as incompatible because of the lack of notification of the swedish government and the lack of any SGEI entrustment of MHCs in swedish law (cf. swedish cases in slide X).

HOUSING EUROPE 17

Option 22 : SH as a SGEI activity : Options

Option 221 - Altmark ruling criteria are met > SH schemes are not State aids > no EU control

Option 222 - Altmark ruling criteria are not met > SH schemes are State aids > but SH schemes can be qualified as compatible State aids if criteria of the Altmark Package are met > no EU control

Option 223 - Altmark ruling criteria are not met > SH schemes are State aids but they don’t met the criteria of the Altmark Package > SH schemes must be notified to DG COMP for EU control

HOUSING EUROPE 18

Option 22 : SH as a SGEI : scope ?

The question of the scope of SH as a SGEI is on current disputebetween the European Commission and the Dutch Government.

EU control of manifest error of the qualification of SGEI

For the European Commission, as the SGEI is « social », it must be defined exclusively in relation with needed persons

Members State are free to define SH as SGEI by the Treaty but the European Commission is entrusted by the Treaty to control the manifest error of such a qualification of SGEI.

For the Dutch government, SH as a SGEI must be allocated in priority to needed persons, but also available for others to preserve social mix.

New SGI Protocole of the Lisbon Treaty

In reaction to this dispute, the Dutch Prime Minister introduce a new SGI Protocole in the Treaty of Lisbon to reinforce its competence to define SH as SGEI in relation with cultural and local based collective expression of housing needs and social mix. (see slide n°X)

HOUSING EUROPE 19

Option 221 Altmark ruling criteria are met > No State Aid

4 cumulative criteria to be met :

SHU must have public service obligations to discharge;

Parameters of compensation must be set in advance in an objective and transparent manner;

Compensation cannot exceed what is necessary to cover the costs incurred in the discharge of the public service obligations;

If SHU is not chosen pursuant to a public procurement procedure, the level of compensation needed must be determined on a basis of the costs which a typical SHU, well run and adequately provided would have incurred.

If those 4 cumulative criteria are met, compensations of public serviceobligations are not State aid > No EU control

If they are not met, compensations are State aids but could bequalified as compatible State aids (option 222) or as incompatibleState aids to be notified for an EU control (option 223)

HOUSING EUROPE 20

Option 222 : SH as a SGEIs activity : compatibility

State Aids to SHU are compatible, no notification is needed, if thefollowing conditions are met : ENTRUSTMENT : SHU must be entrusted of the responsability for

operation of the SGEIs by way of one or more OFFICIAL ACT which specify :

The nature and the duration of the public service obligations The SHU and territory concerned The nature of any exclusive or special rights assigned to the SHU The parameters for calculating, controlling and reviewing the compensation The arrangements for avoiding and repaying any overcompensation

COMPENSATION : SH Scheme must be defined as a fair compensation of costs of SH

Not exceed what is necessary to cover all the costs of SH Take into account the relevant receipts (net costs of SH) Take into account a reasonable profit on any own capital invested Overcompensation must be controled and paid back For SH, an overcompensation of 20% can be accepted and may be carried

forward to the next period

HOUSING EUROPE 21

Option 223 : Altmark Package criterias are not met

If Altmark Package criteria are not met :

Compensations cannot benefit from the decision of compatibility of the Altmark Package

Compensations fall under the art.87 of incompatible State Aids

Compensations must be notified to DG COMP for an EU control (art.88)

The EU control can qualify compensation as compatible State Aids or as incompatible. In that case, SH schemes must be abolished and redefined in order to meet EU criteria of compatibility

HOUSING EUROPE 22

Option 2.2 : SH as a SGEIs activity : concreet cases

Irish Case

Swedish cases

Dutch cases

HOUSING EUROPE 23

III : How to chose to provide SH ?

Public authorities at the national, regional and local level are free to organise SH and to chose :

To deliver SH directly (as Council Housing) or through an « in-house » entity (option 31)

To deliver SH by discharging public service obligations to external entity or entities such as SHU or private investors (option 32) by :

Granting them an exclusive or special rights (SHU registration or autorisation schemes for exemple) (option 321)

A contract of services concession (option 322) A contract of public services procurement (option 323)

All those options can coexist

HOUSING EUROPE 24

Option 1 : Direct provision of SH

2 options :

Option 1 : Direct provision of SH by the public authority > Full discretion of the public authority, public procurement rules do not apply in the decision.

Option 2 : Provision of SH through an internal provider, ie a legally independant entity considered as internal to the public authority or « in house ». Public procurement do not apply in the choice when 2 conditions are met :

Public authorities must exercice over the internal provider a control which is similar to that which it exercices over its own departments;

Internal provider must carry out the essential part of its activities with the controlling public authority.

HOUSING EUROPE 25

Option 2 : External provision of SH

3 options :

Granting SHU an exclusive or special rights (SHU registration or autorisation schemes for exemple) (option 21)

A contract of services concession to SHU or others undertakings (option 22)

A contract of public services procurement to SHU or others undertakings (option 23)

HOUSING EUROPE 26

Option 21 : Exclusive and special rights to SHU

Exclusive and special rights for SH undertakings > art.86§1

Those exclusive of special rights must be necessary for the performance of the mission of general interest and proportionnal to the objective.

Grant of exclusive and special rights to SHU must respect the general principle of the Treaty as transparency, non discrimination and equal treatment.

Then, grant of exclusive and special rights to SHU must be made through a adequat publicity procedure.

Special rights as a form of autorisation scheme of SH providers are not cover by the services directive under conditions (see slide X).

HOUSING EUROPE 27

Option 21 : Special rights (autorisation schemes)

Special rights as a form of autorisation schemes for SHU are excludedunder conditions from the EU screening of the services directive :

« Social services relating to social housing » are excluded from the scope of the services directive and from the EU control on the contents of the autorisation schemes.

To be excluded from the scope of the directive, SHU must be qualified as « providers mandated by the State » (or any public authorities) or be recognised as charities.

As « providers mandated by the State », DG MARKT considers in a handbook that SHU « must be under an obligation to provide » SH to be excluded from the scope of the services directive.

SHU which are not under « an obligation to provide SH » remain in the scope of the services directive and of the EU screening of SH registration schemes.

HOUSING EUROPE 28

Option 22 : services concession to SHU

Entrustment through a services concession :

Service concession : SHU must assume the operating risk of the exploitation of the SH and charge users with a price set in the contract of concession (for ex. rent)

Contract of services concession are excluded from the scope of public procurement directive

Contract of services concession must respect the general principle of the Treaty as transparency, non discrimination and equal treatment.

Then, contract of services concession to SH undertakings must be made through a adequat publicity of the public authority’s intention to conclude such a contract.

HOUSING EUROPE 29

Option 23 : Public service contract to SHU

Untrustment of a SHU through a public service contract :

The public authority pays SHU to provide a service but SHU do not assume the operating risk of the exploitation of the service.

Public service contracts are under public procurement directives.

HOUSING EUROPE 30

Special rights for financing SH > French case - art 86§1

The french case of special rights of the SGEI of financing SH

Following a complaint of banks, decision of the Commission :

Special rights of the SGEI of financing SH are obstacles to the freedom of establisment and are not justified by an « overriding reasons relating to the public interest »

Special rights are not necessary to the perfomance of the mission of general interest of financing SH. Derogation of art. 86§2 cannot be applied to that case.

Then special rights must be abolished (art.86§1) because they are considered as unjustified obstacles to the freedom of establisment in the EU.

France decides to go to the Court against this decision

HOUSING EUROPE 31

Conclusions – Key issue of the entrustment of SHU

Entrustment of SHU : a passport for a legal certainty in transparency

A core criteria for the Altmark Package decision to be applied >

Member States report on SHU entrustments to DG COMP before 19 december 2008

Evaluation of the decision by december 2009

A condition to be excluded from the scope of the services directives

Transposition in national law by end 2009

A core criteria to justify special rights granted to SHU

As a tool to discharge long term public service obligations to SHU (continuity of the services)

As SGEIs, official act or acts of entrustment must specify :

1. The mission and the duration of specific obligations of SH

2. The exclusive or special rights granted to SHU

3. The territory of activity of SHU

4. The criterias of calculation of the compensations for SH

5. The controle of overcompensations and the conditions of reimbursment

HOUSING EUROPE 32

Conclusions – Lisbon Treaty : using the potential

SGI Protocol = wide discretion of MS to define, organise, and finance SH as a SGEIs.

SGI Protocol = definition of SH as a SGEIs based on disparity and diversity principle relating to local needs and collective choices such as social and urban mix.

SGI Protocol = a new tool to implement the principle of universal access to SH as a SGEI in coherence of the EU fundamental Right of access to SGEI (art.36 of the Charter).

SGI Protocol = a new tool for MS to fight against the residual conception of SH as a social SGEI of the Commission (see the Dutch case based on IRL case in slide X).

New article 14 : A new legal basis to develop new regulations to secure best economic and financial conditions for SH as SGEIs.

HOUSING EUROPE 33

Legal reference / SH regulation and finance schemes

Altmark ruling > C 280/00 of 24.07.03

Altmark package - SH > Decision C (2005) 2673 of 28.11.05

Services concession rules > C 324/1998 of 7.12.00

Irish cases > Housing Finance Agency schemes

Case N 209/2001 of 03.07.2001 SG (2001) D/289528 Case N 89/2004 OJ C 131 of 28.05.05 Case N 395/2005 OJ C 77 of 05.04.07

Dutch case > Case E 2/2005 (ex NN 93/02) of 14.07.05

Swedish cases > European Property Federation complain / MHCs CP 115/02 of 30.05.05

French case / financing SH > Decision C (2007) 2110 of 10.03.07

French HLMs tenders ruling > C 237/99 of 01.02.01

SH as a social SGI (SSGI) >

COM (2006) 177 final of 26.04.06 COM (2007) 620 final of 17.10.07 COM (2007) 725 final of 20.11.07