Health debts not to be counted in budget

The Cayman Islands government intends to change its financial management law to avoid the formal acknowledgement of a $1.18 billion projected liability in its public healthcare system that would otherwise appear in the government’s annual “net worth” figure.

Finance Minister Marco Archer said Wednesday that the figure for public healthcare liabilities – what the government expects to have to pay at present value to support current and past employees’ healthcare coverage over 20 to 25 years – is reported in “notes” to the financial statements.

However, if that figure was contained “on the face” of the financial statements, it could place the government in a negative net worth position, meaning the public sector would run afoul of the principles of responsible financial management – potentially putting the U.K. back in direct control of local government finances.

Mr. Archer said the lack of formal acknowledgement of the healthcare liability under internationally accepted accounting rules is one of the reasons government’s financial statements for the 2013/14 budget year were given an “adverse” opinion by auditors.

However, he emphasized again that the figure is contained in notes to government financial statements for all who wish to see.

Financial Secretary Kenneth Jefferson has often said that many other jurisdictions, including the U.S., do not acknowledge projected liabilities for healthcare spending in their annual government budgets.

In an effort to prevent its financial statements from being disclaimed or receiving an adverse opinion in the future, Mr. Archer said government also intends to split up reports for the three pension plans it manages on behalf of public sector employees.

Currently, the financial estimates for the civil servants’ pension plan, the legislators’ pension plan and the judiciary’s pension plan are reported jointly. Auditors have long argued that this is an inaccurate way to report those figures for retirement savings because each plan is in a different financial position.

The judicial pension plan, for instance, is fully funded, while the legislators’ plan is barely funded. The civil servants’ retirement fund has a significant unfunded liability as well.

The healthcare and pension issues were not the only reasons Cayman’s 2013/14 financial statements for its entire public sector received an “adverse” opinion from auditors. Other reasons included lack of updated information on government property values and lack of credible information about government earnings/receivables.

The financial statements for government’s 2013/14 budget year, which were completed and signed off by auditors in September 2015, were tabled (made public) in the Legislative Assembly on Wednesday.

Mr. Archer said he spoke about the details of the financial statements before the House in November, but did not table the financial statements at that time.

Following the November meeting, the Legislative Assembly did not meet again until Wednesday.

In the 2013/14 audit of government’s financial statements, former Auditor General Alastair Swarbrick said 18 of 26 statutory authorities and government companies received the best possible results, an unqualified audit opinion. Government ministries, he said, had struggled with proper financial reporting in the past, but he noted that some of those entities were given “qualified” opinions, meaning some financial reporting deficiencies were noted, but that the records were in better shape than they had been.

“It’s not what you want, ultimately,” Mr. Swarbrick said at the time. “What your expectation should be is that everybody presents financial statements and they should get unqualified opinions. That should be the norm.”

However, he said the situation had improved since 2010, when most government agencies and entities were given disclaimers of opinion or adverse opinions on their financial statements.



  1. I am wondering how possible that the Government can give a breakdown for the public to see , as to how much of this bill has been accumulated by the Native population, and how much has been accumulated by others. The reason I am asking this question is because “Town Talk” has it that a good amount of this bill is owed by foreign workers, and by persons who were granted Cayman Residence/status and leaning on the Government to pay.

  2. $1.12b is the current value of future healthcare costs, for Cayman’s retired civil service only, over the next 20-25 yrs. It has little to do with foreign workers, and will (inevitably) be paid by the Cayman taxpayer.

    The damaging effect, and most likely why governments (not just Cayman) do not want to recognize the liability on their balance sheet, is the crippling effect of compounding.

    $1.12b divided by 25 years equals $45m that we should be setting aside each and every year.

    But worse yet the (healthcare) inflation rate is growing by 7% in the US. That means that the estimated $1.12b cost is also growing by $78m each and every year.

    To stay with business as usual (ie without massive future tax increases) we would need to be setting aside $123m each and every year. Each and every year we do nothing, we add $123m to the remaining years, or another $5m to each and every (remaining) year.

    Cayman, along with other governments, are indeed in a negative net worth position. We have made the $1.12b commitment to pay for retired civil service care after all.

    Because it is not all due today, does not diminish the liability. If you diminish the liability then one has to also say we may or may not pay for those commitments down the road.

    Either way the issues grows by $123m each and every year. I am not convinced that doing nothing, today, is the way to go particularly for the next generation of Caymanians.

    We should recognize the liability, figure out how we are going to pay for it, and be setting aside money now.


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