New fees, development guiding budget plans

The full-year spending plan for the Cayman Islands government’s 2013/14 budget will contain one new category of fees – largely aimed at the financial services industry – and will depend heavily on the establishment of several public-private sector development projects, Premier Alden McLaughlin said.

The budget is expected to be produced during this Friday’s meeting of the Legislative Assembly. The government has until Oct. 31 to green-light spending approval before its temporary budget expires.

“The next 12 months will be especially critical,” Mr. McLaughlin told an audience of hundreds at the Chamber of Commerce’s annual legislative luncheon. “We do not have a lot of fiscal space in which to operate.”

The Cayman Islands civil service said it reduced personnel costs by some $12 million during the recently-ended 2012/13 budget year. However, those cost reductions were largely eaten up by spending on other items such as health care, legal fees and other extraordinary budget items. Premier McLaughlin said a similar reduction in personnel costs was anticipated for the upcoming 2013/14 budget.

The spending plan would contain one new revenue measure, which the premier described as the “introduction of directors’ fees.” Following his address to the chamber, Mr. McLaughlin said the fees were similar to those the former United Democratic Party government attempted to implement during last year’s budget, but this time, the government had consulted with the private sector prior to announcing the change.

The fees are proposed to be levied against hedge fund directors who will be registered through the Cayman Islands Monetary Authority, according to the government’s plan. The specific fee amounts were not known at press time.

Meanwhile, the premier said government would continue the “no borrowing” stance imposed on the Cayman Islands by the United Kingdom since 2011/12. “We will not take on any new debt and will continue to pay down existing debt and make a substantial contribution to government’s past service pension liability,” he said. “Investments in capital projects will be responsible. We are projecting a substantial [operating] surplus at year end.”

The government ended the 2012/13 budget year with approximately $63 million in surplus. However, that figure does not take into account the amounts government paid to settle principal debt amounts and for certain capital [construction] projects.

The leftover surplus was largely used to get the Cayman Islands through the leaner earning months of the fiscal year – typically July through November – and an overall $46 million in temporary borrowing, known locally as an overdraft facility, also helped bridge the gap.

Although details of the plan have not been released, Mr. McLaughlin said the government’s four-year budget plan was approved on first submission to the United Kingdom. The premier said the four-year plan would be released with the budget documents this week.

“[The plan] has provided the certainty that investors require and returned stability to the management of our economic affairs,” he said.

Economic growth will still largely be driven by the private sector, according to government’s plan over the next four years. However, government will have some hand in most of the development projects, which will be handled as public-private partnerships.

Mr. McLaughlin said the outline business case for cruise berthing development in downtown George Town and a strategic outline of the Owen Roberts International Airport expansion would be presented to Cabinet in mid-October.

Other private sector projects will be coming on line over the next few years. The first phase of the Dr. Devi Shetty’s Health City Cayman Islands project is set to open by late February in East End. Meanwhile, Dart Realty Cayman, Ltd. has received planning approval for its Kimpton hotel and condo project on Grand Cayman’s Seven Mile Beach, although the company’s latest plan does not envision that hotel opening until 2016.

The overall future of Dart’s partnership with government in the ForCayman Investment Alliance was still unclear, particularly since the new administration has said it would not accept earlier plans to seal up the George Town landfill and open a new waste management facility in Midland Acres. When questioned about it by an audience member Thursday, Mr. McLaughlin essentially admitted that government had no firm solution yet for the landfill issue.

“The minister of infrastructure is continuing negotiations with Dart to rebalance some aspects of the ForCayman Investment Alliance agreement it reached with the previous government,” he said.

The government is also discussing the construction of a five-star Conrad Hilton hotel in the Beach Bay area, as well as a hotel close to the Health City site in East End. A proposed $360 million “golfing community,” including a residential area, is planned off Frank Sound Road in North Side.

“Growth will therefore be private sector led with government playing the role of facilitator,” the premier said.

Privatization

Mr. McLaughlin conceded that privatization initiatives would be considered going forward, as government continues looking to cut costs.

“We are fast reaching the point that, unless government is prepared to take hard decisions to divest itself of certain services, that we are not going to be able to drive down costs,” he said in response to a question from the audience.

He said the government had engaged in “cost containment” measures in recent years that were not sustainable long term. Those included deferral of hiring key personnel or purchasing certain supplies “which you can only do for so long.”

The premier said government would look at “hiving off” some of the services it provides, but had not clearly determined quite what those services might be.

“As far as true privatization, the only [government entities] people express an interest in buying are the profitable ones,” Mr. McLaughlin said. “So, if there’s anyone out there who wants to invest in the Turtle Farm, see you right after [the meeting].”

He also said the Progressives government wished to avoid a private sector “monopoly situation” with regard to key services.

“It is something of a complex exercise that has to be undertaken when you talk about things like selling the Water Authority,” he said.

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