Patient: How’s everything looking, Doc?
Doctor: I have your chart right here. You are reasonably fit for a person your age. Your blood pressure and cholesterol are fine, but you could stand to shed a couple of pounds.
Patient: That’s great! Anything else?
Doctor: Hmm … Let’s see. Oh, yes — You have a slow-growing cancer that over time, if we don’t treat it, is likely to kill you.
Sometimes, the bad news simply cannot be relegated to a footnote, but needs to be blared out in all capital letters, right across the top of the front page.
As in the scenario above, a significant piece of negative information can provide vital context to dictate future decisions. The difference in life choices for a “reasonably fit person,” and a “reasonably fit person with cancer,” is the difference between diet and exercise, and chemotherapy and radiation.
Similarly, the Cayman Islands government’s intention to avoid formal acknowledgement of its projected $1.18 billion in public healthcare debts (over the next 20 to 25 years) does nothing to change the grim truth of the situation — namely that our country has a massive liability that must be funded — and it may serve to delude officials into engaging in dangerous and unnecessary levels of spending or borrowing.
While on several occasions we have lauded Finance Minister Marco Archer for diligence and performance, we cannot agree with the decision to amend the government’s financial management law to allow budget officials to move the $1.18 billion liability — well, if not “off the books,” at least to the back of the books to the “notes” section.
Minister Archer said that if the liability (representing money needed to pay for the government’s healthcare promises to retired civil servants, seamen and veterans) is contained “on the face” of the financial statements, then government could be put in a negative net worth position and the U.K. might again assume control of Cayman’s budget — meaning, perhaps, strict spending guidelines and no new borrowing.
Minister Archer said, in the interests of transparency, the healthcare liability would still appear in “notes” to the financial statements.
Who are we trying to fool here? This financial sleight of hand certainly wouldn’t trick an auditor general or a Foreign and Commonwealth Office technocrat. Every first-year business student in Accounting 101 knows that, when reviewing financial statements, to go right to the notes. Particularly when it’s bad, the biggest information often appears in the tiniest type.
What are we trying to accomplish? Is it government’s goal to move the healthcare debts off its balance sheet in order to borrow money that it can’t afford to borrow — because of the $1.18 billion in healthcare debts?
As Compass reader Paul Peene pointed out in a letter we published Tuesday, “Cayman is indeed in a negative net worth position. We have made the $1.18 billion commitment to pay for retired civil service, 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.”
Mr. Peene and his calculator also figured out that, after factoring in an additional annual inflation rate of 7 percent for rising healthcare costs, that Cayman should be setting aside $123 million each and every year in order to pay for the liabilities.
The way we see it, Cayman has three options (actually two):
- Start saving now in order to fund future healthcare costs.
- Cross our fingers and hope our economy grows, providing enough extra revenue to government to pay the healthcare debts.
Option number three would be not to fund the healthcare costs and to default on promises to retired civil servants. But, considering court precedents, potential U.K. intervention and civil servants’ contracts, not paying does not appear to be a viable (or moral) option.
In the case of Cayman’s healthcare liabilities, denial isn’t just unhelpful, it could be harmful.