Estonia in ditch with official cars

Photo: Tairo Lutter / SL Õhtuleht

Public sector possesses poor overview of its vehicle fleet; procurements to buy official cars are performed one at a time; the autos are used in a manner ineffective. Yearly, related direct costs could be cut by 28.3 percent i.e. €19.3m – would we be willing to amend the law and seek economies of scale.

This is the conclusion arrived at by Tauno Tuisk who defended his Master’s yesterday at Tallinn University of Technology, ambitiously headlined: «Options to Cut Costs of Estonia’s Official Vehicles». The man earns his daily bread at Police and Border Guard Board (PPA) as director-general’s deputy for assets. Not limited to cuts alone, his is a multi-step model on how to save money on basic costs without doing any damage to public services.

For his calculations, Mr Tuisk sent his inquiries to 40 Estonian public departments and local governments with major vehicle fleets to get an idea how many cars these have and how these are being used. The findings were... not the nicest.

Semi-new autos

The 3,000 cars surfacing showed a prevailing absence of IT-applications to measure costs and mileage, and that the travel-diaries are often kept sloppily. Thus, the agencies and Road Administration often differ even in the numbers of how many vehicles the state actually possesses.

The main problem, however, lurks elsewhere. As basically prohibited by State Budget Act to assume cars by financial lease, the only option left is operational leasing. In the case of the latter, a public agency usually pays the high monthly rent during the five-year lease period, will have to repair the car after the deadline falls, return it, and again proclaim a procurement to get a new one. As a result of that, cars totally fit for use are to be exchanged – with no apparent reason to do so.

As proven by Mr Tuisk, this has strongly cut the average age of public fleet: while as late as in 2011 the official cars averaged 5.8 years, last year the officials were driving around in cars averaging 3.2 years.

«My idea and call is that a car five years old and odometer at less than 100,000 kilometres is semi-new and still largely unused. Regarding the Estonian average, it’s 12–13 years old. Why then do the public agencies have to have three years?» asks Mr Tuisk.

Well we might be okay with that, if it wasn’t for the vehicles often underused and their numbers overly vast. Mr Tuisk found out that the average yearly travels of the cars were small, at about 20,000 kilometres per vehicle. Police vehicles excluded, the travel is shorter still: mere 16,424 kilometres.

«Historically, the Estonian tradition is that vehicles are attached to specific officials. There is not internal rotation so as to have the vehicle in continual use. For more effective use of state assets, the attitude needs to change,» he suggested.

Financial lease still banned

Mr Tuisk says the change should begin with changing the law, allowing financial lease. According to his model, the financial lease might last ten years or until odometer clocks 250,000.

For every official car, 25,000 kilometres of yearly travel might be made mandatory; the cars coming below that could be cut. Thus, the vehicles would be put to prudent use and, as compared to operational leasing, in ten years the state would save one car’s price worth of lease payments from each car.

At the moment, financial lease is forbidden for state agencies as it would be reflected in budget as loan and thus take it out of balance. «With this I agree a hundred percent; but we might ask ourselves that if a loan product helps to cut basic costs why then don’t we do it? As we alter the financing system, the share of the loan in GDP indeed increases but the total public spending comes down,» described Mr Tuisk.

Options to economise are not limited to this. For instance, under leadership of finance ministry, the state might start organising joint procurements to acquire vehicles, offering significant economies of scale.

Standard classes with minimal requirements might be established for official cars – thus, only vehicles fit for specific jobs would be purchased. Thus way, the costly «occupational accidents» would be avoided like the local government which, in absence of something better, bought its school an administrative vehicle with leather interior and xenon lights.

As vehicles are purchased with financial lease, Mr Tuisk said they might also consider joint procurements for Kasko (casco i.e. own damage) insurance or forgoing insurance altogether. For that, there would be basis enough as official cars are extremely rare to be involved in accidents.

«Even if this happens, repair costs would go up indeed but not to the degree as is currently paid as total Kasko premiums,» he reckoned.

Official cars ought to have GPS-devices installed as advised by Road Administration, to be connected into central administrative system. Thus, the whole use would become transparent and misuse of official cars would shrink.

Minister level meeting

If all said measures are taken, Mr Tuisk calculates that €19.3m of taxpayer money might be saved from the €68.1m spent last year, and so in every year to come.

This spring, Estonian Taxpayers Association (EML) discovered that in five years Estonia’s public fleet had swollen by about a third: by the end of 2014, the public sector observed had 2,907 cars – 731 more than in 2009.

To this, interior ministry assets vice-chancellor Riho Kuppart agrees. He says the ministry has been wrestling with said problem for quite a while.

«Today’s system is not sustainable – this is exceedingly obvious. The agencies need to switch to long-term planning; there can be no one-year decisions regarding transport assets. Somehow, this needs to end,» admonished the official who is also eager to convince the other ministries.

Mr Kuppart said that initial calculations by finance ministry revealed that, cheaper yet that financial lease, the official cars might be purchased straight away.

«My plan is that we meet at ministers’ level in August and talk about it. A lot depends on how much negotiation space there is in state budget, considering the coalition agreements,» he said.

If the state takes the decisions, it’s probably Police and Border Guard Board that will be the first to do the new type of procurement – for them, the vehicles costs problem is currently the sharpest.