Cost ‘drivers’ include employment, health care, crime
The Cayman Islands government figures to end its budget year next June with a CI$100.3 million operating surplus, managing to achieve that by adding only one new tax and without “major cuts to essential programs and services,” said Finance Minister Marco Archer.
According to budget numbers presented by Mr. Archer on Monday, government’s operating revenues will top CI$644 million, while expenditures will fall just below $518 million for the year through 30 June, 2014.
Compared to what government earned during the 2012/13 budget, revenues are estimated at about 4 percent higher in 2013/14 while expenditures are expected to be about $8 million lower than they were during 2012/13. So the Progressives-led government expects to spend less and earn more than did the previous United Democratic party government, according to the budget plan.
When subtracting $31.4 million the government will have to pay to meet interest costs on its substantial debts and adding a projected $5 million surplus earned from the operation of government-owned companies and statutory authorities, the government projects an operating surplus of $100.3 million, Mr. Archer said.
Core government debts were expected to fall just below CI$549 million by 30 June, 2014, including a $26.3 million principle debt payment made over the course of the budget.
The one new tax measure proposed during the 2013/14 is the implementation of a licensing and registration fee for hedge fund directors whose investment funds are registered in the Cayman Islands. Mr. Archer said that revenue stream was delayed during the last government budget to allow “for proper consultation with the financial services industry.”
Premier Alden McLaughlin said the regulatory measures aimed at hedge fund directors had been envisioned for some time as part of Cayman’s efforts to comply with international standards for transparency within the financial services industry; an industry that currently accounts for more than half of all local government revenues, he said.
“Cayman cannot stand alone against this global tide,” Mr. McLaughlin said, adding that participation in international reporting initiatives would “come at a cost.”
“But this is necessary and indeed inevitable as the alternative would surely have brought us ruin.”
The new finance minister said there were six large “drivers” of government spending for the 2013/14 budget plan, including educational and workplace training initiatives; monies spent on the “unemployment issue;” rising health care costs; rising costs of combating crime; increased social services cost; and the cost of addressing certain requirements within the Cayman Islands 2009 Constitution Order.
Mr. Archer said the government spending plan did not envision spectacular growth in the immediate future, but that he believed it would set the stage for longer-term success of the Cayman Islands.
“We have the opportunity to reshape government,” Mr. Archer said. “We must learn to do more with less.”
Cutbacks and increases
The 2013/14 budget plan, which accounts for all expenditures by government since July 1, 2013, calls for a reduction in overall civil service personnel costs by CI$1.2 million to $237.6 million for the year when compared to the last budget. That number also includes a $11.4 million payment into the government’s past service pension liabilities, due to keep the current retiree payment system solvent.
The supplies budget for the year increased slightly to nearly $91 million to account for costs such as $3.4 million to operate Clifton Hunter High School for a full year, as well as additions to several local primary schools. Also, an upgrade to the government’s IRIS computer management system was expected to cost around $700,000.
An additional CI$25.2 million will go to non-government entity costs. For example, some $14 million was budgeted for cost of health care at overseas institutions (last year, government spent more than $18 million), another $2.5 million in legal aid payments, $1.6 million for the costs of rental assistance in social service programs, $1.5 million toward the Cayman Islands Private School Association and $1.4 million going toward the Pines Retirement Home.
About $33 million is being spent in “transfer payments,” again an increase of $1.5 million over last year. This budget area will cover costs of items like $13.6 million for scholarship programs, $7.6 million for poor relief payments and $6.7 million in benefits paid to seamen and veterans.
Nearly CI$52 million is budgeted for capital [construction] costs including road improvements, land purchases, building repairs and government vehicle purchases.
Authorities and companies
One area where government plans to cut costs is in statutory authorities and government-owned companies. These entities operate under appointed boards and, to some degree, are independent of the central government.
In the last budget year, government spent $110.8 million in subsidies for these authorities, which include the Cayman Turtle Farm, Cayman Airways, the port authority and the airports authority.
This year, Mr. Archer said government expected to spend $100.7 million on this subsidies “by introducing a number of innovative measures.”
For instance, one area the new government noticed when it took over following the May 2013 general elections was that some statutory authorities were collecting money in U.S. dollars and having to transfer it to Cayman Islands dollars, while others were collecting revenue in Cayman Islands dollars and then purchasing U.S. dollars to do business. By simply getting those entities with U.S. dollars to sell those at a favorable rate to those other entities who were in need, government shaved of $350,000 in foreign currency exchange costs for one entity.
Also, using surplus cash from statutory authorities to help short-term finance central government entities saved the core government about $89,000 in interest expenses.
“Across all the statutory authorities and government companies, this will amount to a few million dollars in just a few years,” Mr. Archer said.
The government has also stopped the practice of some of its entities charging rent to others, like the airports authority, which charges rent to customs and immigration officers who use office space in their buildings. The government also exempted its entities from paying import duties.
Other cost saving measures the government was trying included moving more public entities into the now-35 percent vacant government administration building on Elgin Avenue in George Town. The government aims to increase occupancy in the office building to 85 percent within the year.
The civil service has embarked recently on a “voluntary separation” plan for Caymanian and permanent resident employees who have open-ended contracts, which largely boils down to an effort to encourage older employees to retire early.
‘A good name’
While leaving specific details of the budget to Mr. Archer, Premier McLaughlin said that the spending plan, and accompanying four-year budget outline approved by the U.K. government, would help restore “the good name” of the Cayman Islands, which had been besmirched by attacks from without and “all manner of unsavory practices and behavior” from within.
However, Mr. McLaughlin, like Minister Archer, was cautious about raising expectations for what this single year’s budget mi
“There will be no silver bullets or one-size-fits-all cures,” he said.
Premier McLaughlin said there were “no plans” to further increase the cost of living for ordinary residents and that ensuring the population has a better quality of life was a main goal for his administration.
Other members of the government, opposition and independent members of the Legislative Assembly agreed to hold their debates on the budget until the assembly resumes Thursday morning.
Governor Helen Kilpatrick gave her first annual Throne Speech to start off the budget process, as is customary.
Ms Kilpatrick said one of the most important initiatives of the local government was the use of technology to fund cost-saving initiatives and also give the public more access to government.
One example the governor provided was an improved website for the local judiciary, which will publish rulings in cases previously not available to the general public. She also said government would look for ways to fund a new courthouse to relieve the crowds in the downtown George Town building. An initiative to construct a new courts building was scuttled under the previous Progressives administration between 2005 and 2009 due to lack of funding.
New legislation the government intends to pursue with alacrity included well-publicized amendments to the Immigration Law, as well as an updated Data Protection Bill, which was proposed toward the end of the previous United Democratic Party administration and eventually reworked.
A new bill seeking to give the local Commission on Standards for Public Life has now been made public and is expected to be taken up by legislators later this year. Similarly, the National Conservation Bill will appear before lawmakers later in the year, Premier McLaughlin said.