EY report: Gov’t should sell assets, outsource services

The potential sale of $65 million worth of government land and the outsourcing of all public sector medical operations were among the recommendations made for the short-to-medium term in a government consultant’s report released Tuesday afternoon.  

The report, completed by “big four” accounting firm Ernst & Young at the request of the Cayman Islands government, generally seeks to trim public sector costs through a variety of means – not only sale of assets or outsourcing, but by way of management reviews, public-private partnerships and department restructuring.  

The Cabinet has not decided on any of the recommendations presented to it by EY. Premier Alden McLaughlin’s office said further consideration and decisions would occur in the coming weeks. Only those recommendations Cabinet accepts will be implemented. 

“It is going to take Cabinet some time to consider the recommendations … and consider what we can accept,” Mr. McLaughlin said.  

The EY report breaks down recommendations into three categories, those considered “priority 1” or top priority; “priority 2” or medium priority; and “other recommendations,” which are considered lower priority by the firm. 

“I’m pleased to see that the government of the day … is taking the opportunity to build for the future,” said Dan Scott, managing partner of EY in the Cayman Islands.  

Land sales 

Among the top priority recommendations are the “sale of surplus lands and properties” now owned by government.  

“According to analysis undertaken by the Department of Lands and Survey, the sale of surplus lands could raise $65 million in freed up capital for the retirement of debt and other essential infrastructure,” the EY report recommends.  

The recommendation includes setting up an investment trust that certain government properties might be sold to – the current government administration building being one of the prime properties under consideration for that, the report states.  

However, this option would carry significant public concerns about the sale of public land and would require careful management by government.  

In making all recommendations, Mr. Scott’s company was careful to list the pros and cons it had considered relative to each proposal. It also set a time line within which it believed the recommendation could be carried out. 

Health services  

Another top priority recommendation focuses on the outsourcing of medical operations, including the Cayman Islands Hospital in George Town and Faith Hospital in Cayman Brac, district medical clinics and dental clinics.  

If this option is implemented, government would engage a “brand name third party operator” seeking to reduce costs through economies of scale and cost reductions.  

Such a move would bring high-quality employees and healthcare professionals with specialist knowledge, and also help to recover the Health Services Authority’s current $55 million in bad debts, the EY report opined.  

However, EY reviewers noted there would be difficulty in attracting such a third party group because of the “small scale of the George Town hospital operation.” Also, if the third party contractor failed, the government would be required to resume control of the public hospital system. This option was placed in the “medium term” for implementation.  

A potentially quicker option would be to establish a “joint venture operation” between the Cayman Islands National Insurance Company and a private sector company.  

EY recommends this could be done in the short term and would enable CINICO to compete on a “more equal footing” with private sector medical insurers. It would also mean far fewer government employees involved in the provision of healthcare services.  

However, the EY report noted there was likely to be push back from private sector companies that did not want the competition taking such a step might bring.  

There would also be “potential for discontent amongst [the] civil service for the introduction of deductibles and/or co-pay charges” on health insurance policies. The government service currently receives 100 percent coverage on its health care benefits.  

Turtle Farm  

The EY report recommends that the government explore selling the Cayman Islands Turtle Farm, potentially to a cruise ship operator, while keeping the meat production facility at the farm under the public sector’s direction.  

The difficulty of pursuing this option includes identifying private sector partners willing to take on the farm’s tourism-related operations. This option was placed in the recommendations as a medium term goal.  

Education  

There were two primary recommendations with regard to Cayman Islands public schools. 

First, that “the charter schools type of approach” should be sought in a “phased-in manner.” Second, that Cayman Brac primary schools should be merged.  

This option would reduce costs to government for operating public schools and also allows the private sector to participate in educational policy, EY reviewers said.  

At the same time, any such charter school program would still have to be monitored and likely regulated to some extent by government, the EY report states. This option was recommended for implementation in the short term.  

Water Authority 

The EY report recommends a “dual track process” for the Water Authority, Cayman, which is now operated as a quasi-government entity under the direction of an appointed board.  

The government could seek either a “trade sale” or an initial public offering for the authority, whichever option would provide maximum value, EY recommended.  

“[This] allows the government to focus on core services and water regulation,” the EY report recommended. “[It also] reduces the headcount and operating expenditure of the government.”  

On the downside, the report notes “asset condition” could impact the value of this sale. Also, the small market in Cayman could deter potential buyers, the EY report noted. This option was to be explored in the short term.  

Port Authority 

The report also said Cayman could consider a sale or initial public offering for the port, but that would require the government to clarify its “capital objectives” with regard to the port and its existing plan for the new cruise ship terminal.  

A public-private partnership proposal would allow the government to retain ownership of the port and establish a “modern facility that would separate cruise and cargo handling.”  

This option has been explored by previous governments and could run up against certain restrictions contained in the Public Management and Finance Law. The government would also have to determine whether a stand-alone cruise terminal is financially viable. This option was placed in the medium term for implementation.  

Airports 

While the government’s current plan for redeveloping the airport “should be pursued,” the EY report also noted that an option of a new airport development at a new site “should be considered vis-à-vis with the current site expansion.”  

Exploring a public-private partnership regarding any airport development project would benefit government in both the transference of risk and in improvements to airport efficiency in operations.  

However, the report was uncertain whether a pool of potential buyers for such a move had been identified.  

“[There is] likely to be a small pool of local investors or trade buyers, including local pension funds,” the EY report states.  

The report does not recommend outsourcing Cayman Airways, only “proactive improvement” of operational transparency, strategic functions and benefits.  

Airline pricing should be reviewed in conjunction with the services it delivers, the report recommended. In other words, the airline should review whether it is charging enough to cover the cost of service.  

Waste disposal 

The EY report recommends outsourcing waste collection to the private sector. 

“Public private partnership would provide a solution to the numerous and many existing problems and provide capital investment to support the initiatives,” the report noted.  

The EY report also recommended eliminating all government subsidization of garbage collection fees, which would make every household pay for trash collection.  

This move, only set for longer-term implementation, would mean loss of jobs within government and would likely require some regulation and monitoring of the service. The public reception to new fees from government is also likely to be poor, the report noted.  

Postal service-Radio Cayman-CIMA 

The EY report recommends exploration of a joint partnership with a private sector vendor to allow the postal service to reduce its government subsidy and provide more parcel-related services than it does currently. 

This would be a significant “cultural change” in the postal service and would require government to “up skill” its operations and employees, the EY report noted.  

The immediate sale of Radio Cayman to a private sector company is recommended with a contractual proviso that community, cultural and emergency services would still be provided by the station.  

The provisions would be set down in a two to three year contract with the purchaser. The government would be required to monitor the service provider after the sale to see if these requirements were being met.  

The report also recommends combining the Cayman Islands Monetary Authority with the General Registry. 

Priority 2 recommendations 

These recommendations, while worthy of consideration, were placed a bit farther down the list by EY reviewers. They include:  

The potential sale of the University College of the Cayman Islands within two to three years.  

Abolishing the Cayman Islands Development Bank, if there is “no political imperative” to support it. 

The eventual sale, within three to five years, of the Cayman Islands Stock Exchange.  

Centralization of government human resources services and simplification of government budget reporting.  

Eventual outsourcing of government IT functions. 

The creation of a government Utilities Commission to monitor the operations of utilities providers.  

Centralization of government tribunals to save money on administrative functions.