Hard Times / Money in the Bank? Now’s Not the Time

The need to repair the Bank of Israel building is not new. It’s been on the bank’s agenda since 2008

Nehemia Shtrasler
Nehemia Shtrasler
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Nehemia Shtrasler
Nehemia Shtrasler

The Bank of Israel can’t spend NIS 177 million on renovations while demanding everyone else cuts back

“Repairs at the Bank of Israel could wait no longer. Elevators were about to collapse, plunging down with people inside,” explained the central bank’s director general, Hezi Kalo.

Heavens to Betsy! Nobody wants people to plunge to a bloody death in a metal cage. It is a shattering way to explain why the central bank feels it needs to spend NIS 177 million on renovations, although fixing or replacing an elevator would be rather cheaper.

At this very time, the central bank published a grave report listing the fiscal fiasco of Prime Minister Benjamin Netanyahu and his finance minister, Yuval Steinitz. The document stresses the imperative to slash spending, including savaging salaries and benefits in the public sector, reducing defense spending and infrastructure investment, and cutting back everywhere. How does this square with a grandiose renovation of the central bank? Is this how to set a personal example?

Rising price tag

The need to repair the Bank of Israel building is not new. It’s been on the bank’s agenda since 2008. Governor Stanley Fischer and Kalo supported the project, which was initially slated to cost a modest NIS 70 million. But as time wore on the vision developed, inflating the estimate to NIS 130 million. There was even a costlier proposal for NIS 250 million, which involved moving all 800 central bank employees to another location for three to four years, the expected duration of the renovations. That would certainly have done nothing good for the bank’s functioning.

Interestingly, the need for a massive makeover never arose during the tenure of the previous governor, David Klein, who would have rejected the proposal out of hand anyway. Modest repairs would have started in 2009, but the central bank was worried about the public backlash.

No question about it, some renovations are warranted at the Bank of Israel building. Its air-conditioning and fire-extinguishing systems need repair, as do its elevators and safety features. Installing a sprinkler system and fireproof doors, as well as strengthening parts of the structure, is essential. However, this is a far cry from the planned grandiose NIS 177 million project.

It remains to be seen what the final costs will actually come to. Clearly the cost will exceed the approved budget, including one item stemming from the moving of all employees to a different location for at least three years. A “small” additional item in the renovation budget covers compensation for the employees for agreeing to move to temporary quarters.

I would propose that Kalo visit the editorial offices of Haaretz to see how modest renovations can be accomplished while staying on the job, without moving out. But private companies that depend on revenues and must keep costs down and cannot afford to squander money.

That NIS 177 million budget includes caring for employee comforts. This will entail restructuring of public spaces, conference rooms, hallways, bathrooms, a library and a restaurant. According to Kalo, “we are not talking of luxury, only of essential changes.”That remains to be seen.

In any case, somebody has to intervene and make this project grind to a halt. It is wrong for the Bank of Israel’s management approve such spending without external public oversight. The state comptroller and the Finance Ministry’s Budget Division must take responsibility for these decisions. It is wrong to call on the public to tighten its belt while the central bank goes on a spending spree.

Search your soul

Meanwhile, the Bank of Israel put out its usual budget summary for the year, called “execution of the 2012 state budget” ‏(which ministries underspent their budgets, which overspent and so on‏). The central bank notes that the government deficit exceeded its target in 2012, and says that current planned expenditure for 2013 is NIS 13 billion higher than budgeted. Without sharp reductions in expenses and tax hikes ‏(or elimination of tax breaks‏), says the paper, the ratio between the national debt to GDP will not drop as it should. If that ratio remains unchanged, or heaven forbid increases, it poses a real danger to Israel’s economic stability. But the central bank is wrong in its analysis of the government’s fiscal failures, since it played a part in the mismanagement.

The Bank of Israel report ignores new rules that enabled spending to shoot skyward, while filing to make contingency plans for unexpected crises or a political inability to raise taxes. Governor Fischer himself and his deputy Karnit Flug supported these ill-guided measures − which is probably why the report ignores them.

The report also ignores the fact that the Bank of Israel stood behind the groundless revenue estimates for 2012 that were presented by the Finance Ministry’s budget division. These erroneous estimates were a large part of the reason why the budget became so unbalanced.

Nor does the central bank report mention that the heads of the bank did not criticize the excessive expenses in real time, namely in 2011 and early 2012. If they did so, their weak voices were shut out by the partying government.

Shutting the barn doors after the horses escape is of little use. The central bank should write a new report that includes some honest soul searching.

Bank of Israel building. Credit: Emil Salman