Government has announced plans to spend nearly $1.5 billion dollars over the next two years to support its plans and programmes.
In a special feature today Compass journalists Michael Klein and James Whittaker analyse where that money comes from, where it goes and break down some of the costliest and most influential projects planned for the next two years.
In its latest budget, government once again aims to raise more revenue than it spends on its core operations. At a time when most countries struggle each year to reduce their government deficits, Cayman is in a somewhat unique situation of paying down its debt and building cash reserves at the same time.
Any larger capital projects, like the $303 million programme planned for 2020 and 2021 combined, are paid from those cash reserves without plans to incur new debt.
The projected revenue for 2020 is about the same as the one expected for the full year 2019. This year, higher-than-anticipated revenues from import duties; stamp duty on land transfers; banks and trust licence fees; partnership fees; and tourist accommodation charges were the main factors for bringing in about $100 million more than budgeted.
As usual, government projects one-third of its revenue in 2020 to come from companies, partnerships, banks, securities businesses, trusts and other business-entity fees. Work permits and the equivalent permanent residency fees contribute about 10.4% of revenue. Import duties are another big-ticket item, making up a fifth of the income. The remainder is raised from charges for government services, stamp duties on land transfers and other fees collected across government.
On the expenditure side, government spends almost half of its funds (47.9%) on personnel. The budget foresees an increase of $28 million in personnel costs as several government agencies aim to hire additional staff, in particular to improve policing and education and ensure compliance with international financial services regulations.
$20 million for prison upgrades
Work to replace Cayman’s overcrowded prison facilities will begin within the next two years, Premier Alden McLaughlin announced.
The prison system was labelled “squalid” and “hardly fit for human habitation” in a 2015 report by a UK inspection team. Earlier this year, the Human Rights Commission issued a statement warning that the prisons were “chronically underfunded” and suggesting failure to improve conditions, particularly at HMP Northward, could result in violations of prisoner’s human rights.
In his speech Friday, McLaughlin said funds had been allocated for:
“much-needed work on a new prison facility to replace the existing male and female prisons at Northward and Fairbanks to provide modern facilities for all types of offenders in a single location.”
Few details were given and it is not clear if a location has yet been determined.
The budget highlights $9.85 million in capital expenditure on prison infrastructure in 2020 and a further $10.5 million in 2021.
It is anticipated that planning and building a new prison will be an ongoing project that could take several years to complete.
Finance Minister Roy McTaggart also highlighted $8.3 million in spending in 2020 and $1.3 million for 2021 on courtrooms.
McLaughlin said this money would “fund the next stage of the courthouse redevelopment project that will see facilities for the Court of Appeal in the Government-procured Scotia building, a new six-storey court facility and a renovation of the existing courthouse to provide additional courtrooms.”
Roads a major focus
The budget includes $14 million a year to be spent on improving Cayman’s road network. The lion’s share of this funding will go towards the expansion of the East West Arterial highway from Savannah to Bodden Town.
McLaughlin said, “The planned extension of the East-West Arterial road, first to Northward and then through to Look Out in Bodden Town, has been brought forward into this budget period rather than being left until the next as had originally been planned.
“This means we can deliver the most significant increase in the capacity of the road network east of George Town in at least a decade.”
Part of the funding is expected to go towards an Environmental Impact Assessment on the bulk of the road project.
McLaughlin also highlighted ongoing plans for road expansion in the eastern districts, including expansions to the Red Bay and Grand Harbour roundabouts.
Big losses projected for Cayman Airways
The national airline is expected to lose in excess of $10 million in 2020.
The airline, which gets $18 million in funding annually from government, as well as an additional $9 million to help pay off its debt, is still expected to finish the year in the red.
Though it turned a small profit in 2015, according to financial statements, the airline has been hit hard in recent years by a number of international developments.
First, the opening up of Cuba to US operators impacted one of its most profitable routes. Then, the grounding of the airline’s two new Boeing 737-Max 8 jets after two high-profile accidents in Indonesia and Ethiopia caused further problems.
Ultimately, Cayman Airways and other airlines are likely to be compensated by Boeing, but for now, the inability to use the newer, faster planes is costing the national airline.
“With the airline and the country now experiencing very strong demand for airlift, the limited capacity has restricted the airline’s ability to maximise its revenues,” CEO Fabian Whorms told the Cayman Compass in July.
Though Cayman Airways continues to eat up significant funds, Finance Minister Roy McTaggart, said it was worth the investment to bring tourists to the island and allow businesses to prosper.
“Cayman Airways is funded to enable it to operate vital services between our three islands and to support the economy by maintaining important air links with strategic markets,” he said.
$4M-a-year for Turtle Centre
Though it has paid off its long-term debt, the Cayman Turtle Centre still requires a considerable grant from government to cover its operating losses.
The centre will get $4 million next year and $3.9 million in 2021.
Government made the last repayment on a $50 million loan for the centre in March.
The money was borrowed to build the taxpayer-funded tourism facility at its current location in Boatswain Bay after Hurricane Michelle destroyed much of the old turtle farm in 2001.
At the time, it was envisaged that a cruise jetty would be built close to the centre, providing a steady stream of customers. But that project never materialised and the Turtle Centre, as it is now known, has never made a profit.
In an interview with the Cayman Compass earlier this year, managing director Tim Adam said the centre was worth every penny spent in terms of the economic spin-off benefits.
It employs more than 100 people and is an “integral part” of the islands’ tourism product, Adam said.
He added that the value of its turtle release programme, which studies show has helped bring Cayman’s wild green sea turtle population back from the brink of extinction, was inestimable.
With the major loan repayment behind them, Adam said the long-term goal was to try to break even.
“Our aim over the next few years is to try to get to that point,” he said.
Pay rise for teachers, new curriculum planned
Government plans to make good on its commitment to increase salaries for teachers to a minimum of $5,000 a month during this budget cycle, McLaughlin said.
He said the move, first announced by Education Minister Juliana O’Connor-Connolly in August 2018, would help “attract and retain the best in the profession”.
The first part of that pay rise came into effect 1 Sept. last year. The second phase, initially planned for this academic year, is now expected in 2020.
More changes to the curriculum are also planned, which the premier said would raise standards in schools.
“The budget before the House today provides the resources needed to support the successful roll out of the new curriculum across our public education system.”
An additional $68 million will be spent over the next two years on infrastructure, including completing John Gray High School and development of a new Sunrise Adult Training Centre.
Healthcare still a serious challenge
The increasing cost of healthcare remains a serious challenge for government, with Premier Alden McLaughlin accepting successive governments have “failed to get to grips with the issue”.
The Health Services Authority is projected to continue to suffer “significant operating losses” of more than $23 million over the next two years.
Meanwhile government has been forced to increase the budget for overseas care for the “medically indigent”, seafarers and underinsured. McLaughlin said the budget contained a more “accurate estimate” of $26 million per year to cover that cost.
Previously, government has allocated around $11 million annually for those expenses, but it has had to go back to the House for supplementary funds. Government spent $25.8 million more than originally planned on this in 2019, according to Finance Minister Roy McTaggart.
McLaughlin, in his speech to the House Friday, appeared to accept the current situation is unsustainable, saying a “radical approach” is needed to reform healthcare.
He said, “Health insurance costs are one of the factors driving the increasing cost of living and yet government is increasingly left to pick up the tab for those who find that they cannot afford to participate in our private insurance-based system.”
He suggested a review of CINICO, government’s health insurance programme, may provide some answers. But he said this and future governments would need to work on more significant reform.
“The incremental approaches we have reached for have proven illusory. It is my belief that a more radical approach is called for.…
“The first task for government, then, is to gather the necessary information and carry out the analysis to facilitate that national debate. And once the analysis is done and the debate complete there is need for suitable action.”
More cash for civil servants, seafarers, pensioners
Around 2,000 of “Cayman’s most vulnerable and hard-pressed households” will get a cash boost over the next two years.
The monthly stipend for veterans, those in need of social assistance and long-serving civil service pensioners, will be increased by $100 in 2020 and then again by the same amount in 2021.
It is the second time government has moved to increase the allowance for this group. By January 2021, the stipend will have increased from its previous level of $550 to $950, McLaughlin said.
The premier also announced a further increase in salary for civil servants. Government workers will get a 5% cost-of-living bump. McLaughlin said it would be funded by “efficiencies” elsewhere in the budget.
He added that he hoped the increase would spur movement in private sector wages and added that a review of the island’s $6-an-hour minimum wage was under way.
“I hope the experts leading the review will look at the opportunity for an increase in real terms in the national minimum wage.”