Public liabilities: Health, pensions, Election Day

The first step to addressing a problem is admitting the problem exists.

According to that standard, the Cayman Islands government has a serious problem. Over the next 20-25 years, the government will owe $1.4 billion in pension and healthcare payments to retiring civil servants — an ominous figure that nevertheless remains unacknowledged in government’s budget plans.

That’s $1.4 billion … with a capital “B.” (Written out numerically, that’s 1,400,000,000 dollars.)

In purely financial terms, the $1.4 billion in government’s pension and healthcare liabilities is equivalent to Cayman’s entire economic output for a six-month period.

To place that figure into physical perspective, a stack of 1.4 billion one-dollar bills would reach into the sky some 95 miles high. If you were to lay 1.4 billion one-dollar bills, end-to-end, in a straight line, it would measure 135,660 miles — long enough to circle the Earth nearly five-and-a-half times.

In other words, it’s a tremendous amount of money.

The solution to Cayman’s looming liabilities won’t be achieved merely by deducting those 10 digits from the government’s bottom line. Acknowledging the upcoming expenditure is simply Step One. The difficulty is in paying for it — as municipalities such as Detroit and countries such as Greece have learned through hard experience.

“People’s healthcare when they retire, pension obligations down the road, you have to be able to fund it,” Acting Auditor General Garnet Harrison said.

Some might surmise that government officials are engaging in “willful disbelief” by not including future liabilities in their fiscal calculations. In other words, “We don’t have to pay the bill because we haven’t seen the tab yet.”

We suspect, rather, that officials are operating according to different motivations. Our leaders cannot possibly be ignorant of the financial ramifications of civil servants’ pensions and healthcare plans. However, they also must be acutely aware of the political consequences of any attempts to wean the civil service from their accustomed flow of government benefits.

The government offers its current and former employees free healthcare — with no pesky co-pays, deductibles or monthly premiums. Civil servants, active or retired, who require treatment overseas also receive free accommodations and airfare. (When we use the word “free,” what we mean is that it’s at “no charge” to the civil servants. These benefits and services aren’t actually “free” at all … They, of course, are being paid for by the taxpaying populace.)

The political calculus is simpler, and more immediate in terms of time, than the actuarial arithmetic. The entire public sector (including central government, statutory authorities and government-owned companies) employs more than 5,800 people. Of those civil servants, about 4,400 are Caymanian.

At last count, there were about 18,300 registered voters in Cayman, and perhaps more than 24,000 eligible voters in all.

Assuming all the Caymanians employed in the public sector are eligible and registered to vote, civil servants would account for 24 percent of registered voters, and 18 percent of all eligible voters. If they cast their ballots en bloc, that’s more than enough to influence significantly the outcome of any political campaign. Multiply those numbers to account for spouses, dependents and close relatives, and there’s your election, right there.

This spring, Finance Minister Marco Archer announced that officials would postpone any changes to the government’s health plan offerings until after the May 2017 general election. If the timing of that practical decision was influenced at all by the timing of the political season, it is, at best, a cynical performance.

Whatever the motivation, the delay means the current iteration of Cayman’s elected government will be able to avoid the consequences of reining in runaway public sector healthcare spending. That, of course, will be of small comfort to everyone else when the day of fiscal reckoning arrives.

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  1. Well to fund these liabilities and the dock and the Airport and anything else, they soon going have to do income tax and property tax to keep this machine going. The system needs more money for it to continue. The revenue streams that are being used now are not sufficient anymore for the size population and caymans population is growing monthly.

  2. Rod is correct. For better or worse Cayman is turning into a welfare state. While not necessarily a bad thing in isolation (most welfare states are quite nice places to live) they do require taxes to fund. Eventually duty, tourism taxes and work permit fees aren’t going to cut it. The bad thing is no matter what, you wind up risking killing the golden goose – raise duty or tourism taxes and it becomes an even more expensive destination and more importantly place to live for the middle class and poor, raise work permit fees and less businesses will be inclined to open or will cut staff, create an income tax and poof your offshore tax haven status is gone. The island is going the way of so many cities and states in the U.S. which promised more than they could afford to civil servants and others and now the piper is calling.

  3. It seems simple to me get unemployed people working and stop paying for nothing in return. There is a lot of seaweed that could be cleaned up. Hire people that would probably be around a thousand people or so. Take that money and start putting it back to pay bills. If everyone pulls their weight it could be done. Only emergency cases or old people should get money to live, they deserve it. Get civil servants to pay 20% of their bill ( health, dental, eye care). We just can”t afford it.