Gov’t faces $1billion liability

| 08/02/2010

(CNS): While government is still wrestling with its short term economic difficulties and the need to balance spending with revenue for this year’s budget, it is also facing an even worse additional future financial liability. As a result of the obligation to pay for future pension and health care claims by its 6,000 plus public sector workers as well as their dependents, government is currently facing a billion dollar liability. Current government assets, however, amount to around US$600 million, which means government will have to find a way to seriously boost its earnings in the future or default on its obligation to pay civil service benefits.

In the recent Offering Memorandum issued to the parties interested in purchasing the government’s recent bond offering in November (to raise money to pay last year’s budget deficit and help balance the 2009/10 books) government sets out its future liability for pension payments and health insurance coverage for all public sector workers.

In the memo, government admits to having a combined unfunded pension liability of US$324.8 million which represents the payments that it will need to be made to civil servants who are entitled to defined pension befits when they retire. Although this figure will be affected by the poor performance of government pension funds, civil servants are no longer entitled to defined benefits so the liability should not increase excessively, especially if pension performance improves in the future.

However, government is facing an even greater liability when it comes to providing future health care coverage for civil servants, including their spouses and dependent children who are all entitled to free medical and dental care, not only while they work for government but after retirement as well. The memo reveals, for the first time, the extent of that liability, which government said was estimated to be around US$798 million.

Auditor General Dan Duguay told CNS that he had been trying to confirm this figure for some time as it is an area of interest to his office. However, despite requests to the financial secretary, he had not seen the estimated total liability for health care benefits until he saw the Offering Memorandum, which was shown to him by CNS.

“The future health care benefits liability is the largest single liability of the government. My office has, for several years, been asking for an actuarial valuation of this liability,” Duguay stated. “This apparently has now been done but my office has not seen it as yet. We will be reviewing this valuation carefully once we receive it."

Coupled with the pension liability, the whopping future health care bill means government is currently facing well over US$1 billion in additional liabilities. As a result of a growing civil service, the health care obligation on government could grow to unfeasible levels unless it makes a decision to alter the kind of health benefits it currently offers to employees.

Government would not expect to have to pay the $1 billion bill in one go, but as the liability increases over the years, each financial year the cost of servicing it, which is already substantial, will continue to increase. The 2009/2010 budget included provision for US$17.2 million relating to the current costs of providing benefits to retired public servants.

In the memo government said it is: “currently reviewing ways in which this accrued liability may be limited or reduced, such as by capping the amount payable to any one individual or by limiting eligibility under these plans.”

Category: Headline News

Comments (47)

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  1. Anonymous says:

    Dear CNS – There are not 6,000 Civil Servants, there are 6,000 public servants, which includes Civil Servants as well as employees of Statutory Authorities and Government Companies.  I believe another publication put that number at 2,300+ leaving less than 3,700 Civil Servants.  This is a significant point, because the benefits for those persons are not ‘paid’ as they were established as profit earning entities.

    I would also like to say that I am saddened at people calling for the termination of the three Civil Servants who the Government has placed on paid-leave.  Imagine, s new manager comes to your work place and on day number one says to the HR Manager that they don’t like you, or they heard something about you, and because of it they want you fired, regardless of your performance or loyalty to the company to date.  Which of you would take that?  None of you! You would declare that it is wrong, you would say that it is unfair dismissal.  Well that is what has happened to those 3 civil servants.  They are put out unfairly.  The answer is to put them back to work, at jobs that are deserving of their level of experience and expertize, not to call for their heads on a platter.

    Instead of witch-hunting the civil service, why don’t you stop and see that the way that system is set up is the way that it should be for all of us, to stop unfair firings. instead of speaking out against their union, why don’t we have our own to protect us?

    We are still the crabs in the barrel.

    • frank rizzo says:

      Civil Servants at that level serve at the pleasure of the government of the day. Losing your job at the change of government is to be expected. Be it fair or unfair, that’s the way it is. I’m sure all high level civil servants know this.

      • Anonymous says:

        What a pile of unmitigated cr%#. Which of the overpaid spin doctors working for Beloved Leader are you pray tell?

      • Anonymous says:

        No, Frank, that is not the way the Westminster model is supposed to work. That is why the Chief Officers of Ministries were called "Permanent Secretaries". They are not supposed to be moved at the whim of the political directorate of the day. That is the way it works in the U.S. of course but they have a different system.

  2. American in Cayman says:

    I am not saying that this is a good thing, but before everyone goes nutty.  Every single country in the world save Norway and a few oil producers has this exact same problem.

    The U.S. number is like $20 trillion just for government employees plus another $80 trillion for Social Security, Medicare and Medicaid.

    Everyone knows that these benefits will have to be cut back at some point, so Cayman has the make the same hard decisions as everyone else:

    1) push back the retirement age

    2) ask beneficiaries to contribute a higher % of the costs

    3) make the benefits less lucrative

    The sooner these decisions are made, the less severe the changes have to be.

     

  3. Anonymous says:

    Charity Casinos are the answer Cayman.

    Cayman should sell licenses to operate Charity Casinos where the owner/operator pays a percentage of net profits directly to the government coffers.  These funds are then earmarked forthe construction of hospitals, schools, and other infrastructure projects.

    In Ontario Canada there are number of these facilities operated by the government with huge benefits to the host cities.  Jobs are generated during and after construction.

    This could be the sustainable revenue source the FCO is looking for.

    • Anonymous says:

      Thats a fine idea but there should be one rule.

      1. As they do in the Bahamas, DO NOT allow locals or work permit holders to gamble.  This way no residence will risk losing any money.

       

      • STBO says:

        Now if Mac puts the entire government revenue for a year on black, either the budget problem goes away or the Brits come over and take power away from the government.  A win-win scenario. 

      • Anonymous says:

        Thats stupid. You’re telling me I can gamble all around the world, but if they legalised it here, you would want to stop me having a flutter?

        Get real pal. I can understand the need to stop the poor gambling their wages away, but professional civlized people do not need the government to ban them from gambling to stop them wasting their money.

        Let the casinos decide who can gamble. Make them screen the clients or request minimum membership fees or proof of earnings etc. Thsi way we can keep the peasants out which increases the profile of the place and its attractiveness to tourists and professionals.

  4. Look=see says:

    The fact that the current government is responsible for the dire straights Cayman is in right now is pretty apparent.  The fact that if it is allowed to continue it will bankrupt Cayman (if it hasn’t already) should now also be apparent.  The reason it has been allowed by the Caymanian people to do this is still just speculation.  If the reason is what most people think than The Government will continue until the U.K. has no choice but to step in and try to salvage what they can. If they stepped in right now they would still have a lot to overcome before Cayman can start haveing a future again.  Good luck Cayman!

  5. Civil Servants Stranglehold says:

    Civil Service = Death by Strangulation!

    The Civil Servants will strangle Cayman to DEATH and there is nothing the politicians are willing to do about it because they won’t take any cuts in salary or benefits themselves!…

    But NEW CIVIL SERVICE LAWS have to be passed urgently to loosen the death-grip that the union-like Civil Service have on their welfare, as  the islands’economic viability and future is at stake…

    Here are a few facts:

    – Not counting the Statutory Authorities, which make a LOSS in the aggregate, there is 1 Civil Servants for every 13 residents, consuming ~55% of the entire Budget in perks and salaries.

    – Including the Authorities owned by government, the number climbs to 1 in 9, based on 6,000 total Civil Servants and 55,000 inhabitants…

    http://www.compasscayman.com/caycompass/2010/01/26/Duguay–About-6000-working-in-government/

    – In California, Civil Servants number 1 for 120 and Puerto Rico is the next most bloated Civil Service location with 1 Civil Servant for every 23 residents: thankfully many have been laid off recently, as funds run out to pay them…

    Here is how we can save around $130 million and balance the budget in one fell swoop:

    – For starters, make Civil Servants pay their 1/2 of pension and health contributions currently forked out by Cayman’ citizenry…

    – Reduce their numbers to be more in line with other islands in the Caribbean, say no more than 1 Civil Servant for every 20 residents, or a ~25% reduction…

    – Bring their salaries down a notch – say 10% – more in line with the realities of other sectors of the economy that have had to tighten their belts in this recession…

    – Stop guaranteeing their pensions: there is great inequality in having the citizens of Cayman obligated to make up any shortfall for any reasons – including recession and mismanagement – in the Civil Servant pension funds, when their own funds are going down the drain…

    – Stop paying them to do nothing: there is no reason why they should be guaranteed a life-long salary if they no longer have a job to do…

    Unfortunately, the UK will have to take control if we’re ever to see a fair and balanced Civil Service, instead of once that’s eating Cayman alive!…

    • Anonymous says:

      What many of you do not realize is that this is a small country.  if you lower the ratio of civil servant to population to the levels you are touting here, then we will all be slave to the merchant class.  The civil service is there to provide services to the community, many of them social in nature, and the vast majority of them demanded by some of the same people on CNS now complaining about the size of the civil service.  Who will provide those social and welfare programs when the ratio is so drastically cut?  It is well known by those in business that the reason the Cayman Islands have ben so successful is exactly because of the relationship between the private sector and the civil service’s ability to provide for its needs quickly.  Compare the speed that this civil service moves at to other countries and you will see that we are giving them a hard time for no reason.

      So yes, drastically cut the size of the civil service, in a country that is service based, that has a history of letting the merchant class dictate how things really happen from the shadows, in an economic downturn, while knowing that the private sector does not want to hire qualified Caymanians for appropriate jobs, while crime is increasing, and Social Services Department has no funds… send all of those blood-sucking civil servants home, that’ll solve all of our problems.

      Do we see the real problem yet?  those Caymanians are our problem, those expats are our problem, those civil servants are our problem, those politicians are our problem, those pastors are our problem, those chilren are our problem………  everybody stop…. now repeat after me…. "I am the problem" 

      • STBO says:

        We agree – "You are the problem".

        We the community do not think the civil service is providing good value for money.  Tghe money wasted on wages and benefits would be better spent elsewhere.

      • Shock and Awe says:

        I agree with you that some, but not all, civil servants also provide services for social programs.  What many of the posters are also aware of is the overwhelming over staffing of many government services.  Far higher than you would find in the private sector, or "merchant class", type of business.  The reasoning behind that of course is that on Cayman ( and I agree.. elsewhere) there is no restraint shown.  None of these agencies have to turn a profit to operate, as opposed to the private sector. As a matter of fact, they are not even required to break even.  Therefore the size of a civil service department is often a multiple of how much a manager wants to make..more workers (and ostensibly more responsibility).. equals higher salary.  The civil service then becomes like an amoeba that continues to grow.  I didn’t say cancer that would be nasty.  The other issue is that most civil services become more like a private club and the price of admission is often political affliation or who you know.  Here, as elsewhere, The Civil Service Association (union) also wields a lot of power (potential votes) and has the government by the shorts.  Even if does become bloated and inefficient it is next to impossible reduce the numbers in this exclusive club. So many people take exception to that considering also the amazing perks involving pension, healthcare, dental care, for themselves and spouses, and dependents.  Forever.  Not many careers offer that except for CEO’s.

        Consider also this:

        Fifty-five percent of the government’s total expenditures in wages and benefits is outrageous and unmanageable by any standard.

        That would mean that for every remaining dollar made available as you said in social programs it cost fifty-fivecents… to deliver it.  Does that sound realistic?

  6. Anonymous says:

     The Government should make Sunday trading possible and also make business firms and companies able to work at night hours.

  7. Hello Anybody in Govt.? says:

    Yep, and cut paying those civil servants Angela Martins, Debbie Drummond etc… who are on unpaid leave so to speak and I would like to know from what?  They were fired by the new Govt. as they wouldn’t work with them.  Are you telling me there is nothing in place to deal with this kind of foolishnes.  I heard the same thing went on with Tim Hubble when the PPM got into power. 

    Time to stop the oozingin Govt.  keep the hard working civil servants and the rest who are dragging their feet and doing nothing all the day long but making strife with other staff, let them go.

    It is foolishness that we out here are struggling ourselves to make two ends meet and the country’s money is going to waste on wasters in an abundance in the Govt.  Who is managing the darn people employed?  If the Supervisors and Managers can’t fire the people then hire someone who will go into every dept and find the weak links and trim the fat.

    I am sure that all those shelved reports will say what I just said, so dig them out and start reviewing them and implement the best of them and get this Govt. oozing ship back in repair and being run like a well oiled machine.

    Get on with it now, I am wanting to see some changes soon and the retirement and removal of many.  Stop paying those who are no longer working in the Govt. and demand they refund what money they received whilst they were not working, that is only fair to the people of this country.

    I want to know why is it that most of the politicians have gone silent again, and you can only hear from the Premier.  Good grief as if he was the only one we voted for.  Attn: Mark, Dwayne, Elio, Mike, Eugene, Julianna, and the rest of them lets see some work out of all of you.  No more wasting time, we the people out here votedfor you and we are demanding results.  I am tired of one voice being heard, you are all free to speak, because we determine your fate out here every four years, and if you feel that your leader must be the only speaker, then we will be silent when it comes to supporting you all next election. 

    Govt. wake up and get this country on its feet and stop fooling around the place.  Fix what is broken and cut the wastage and trim the fat.

    • Chicharon says:

      Cut paying them at what cost though? Why don’t you send in an FOI request and see exactly how much "trimming the fat" actually ends up costing. Start with the previous Chief Education Officer and go from there. Go on, you know you want to.

  8. Anonymous says:

     We should either limit the civil service to top quality employees and pay them the current wages and high benefits or cut the benefits massively and have lower quality staff.  Right not the civil service is bulked up with ineffective dross who are overpaid in terms of benefits.

  9. Shock and Awe says:

    In other jurisdictions, civil servants pay for their own pension and health benefits.  But not here.  It is completely paid for by government  Spouses and dependents are sometimes covered by a dental plan but only to 70%.  But not here, it is completely gratis.  Before the next person says something about expats being a burden perhaps they should look at this policy. Six thousand people and their spouses and dependents?  Who are represented by the most powerful and only thing close to a union that exists on the island?  All eligible for this enormous gift?  It may have made sense for this giveaway when votes needed buying but now it is a recipe for financial disaster. That we must all pay for with increased fees, etc.  Unless the civil service is trimmed to something realistic, we are sunk.  Even if it is trimmed we are sunk! I don’t want to hear one more peep from hardworking civil servants, for they have achieved the biggest sweetheart deal imaginable.

  10. Turtle on his back says:

    Hey guys whats the problem, Mckeeva last year did tell the world that the Cayman Islands was bankrupt, at least he got that one right ! any other things to come out of the woodwork about our economy thats falling off a cliff ?

     

  11. Anonymous says:

    Perhaps Mr. Miller has the solution, roll over all expats. 

    • Anonymous says:

      The roll over system is the biggest piece of cr-p  THAT HAS EVER BEEN LESISLATED. When sent home another comes in and fills that place . Within a few months that roll over returns and the one that was filling his space never returns home. Lets do away with Residence and Status and we wont need the STUPID ROLL OVER, it is not working.

    • Anonymous says:

      "Pensions & health care" are Mckeeva’s baby, who he gonna blame now? He is becoming more & more of a liability to these islands, that I’m afraid that our only salvation is if Ezzard calls for a referendum to oust the premier. The premier has totally lost control of our good ship Cayman & has no idea what to do. He comes up with pie in the sky suggestions & has to immediately discard them because they are so fool-fool. He is ruining this country, & running us into total bankrupcy during these terrible times of recession with his out of control spending (mostly on self), & he has no clue what to do. Please Ezzard, please we beg you to call for a referendum on the premiers job. That is our only hope!

    • not far enough says:

      Na, Miller would want it to go a step further- roll over the expats, and keep all their pension monies too.

      I find it interesting that FM Jefferson is silent on all these finance topics. He is a B & B Caymanian and no one seems willing to hold his feet to the fire? The Auditor General is an expat who is effective at holding people accountable and uncovering wrongdoing, yet there are people calling for him to leave the post.

      It seems the priorities  of some are backwards. Jefferson and his cronies got to go. 

      Keep Duguay and find 5 more like him.

      As for Miller, he’ll manage to stick around with his 200 or so votes. He may even be next in line for Austen’s job! 

    • Anonymous says:

      What about the rich politicians, are we paying for their health care?

      It would be enlightening to understand about their pension benefits. How long do they have to work to get it, how much etc.

      • Anonymous says:

        Mon 1:33.

        You wouldn’t want to know. They get the same health benefits as the civil service but much more genrous pension benefits. But not as generous pension benefits as the judges…….

    • Anonymous says:

      Did you even read the article?  The Civil Service is made up of over 70% Caymanians!  If you rolled over all expats in the civil service you wouldn’t even make a dent in this problem.  The pension liability relates to those that RETIRE in Cayman, which is very few expats, of course after they jump through all the hoops and many many years.

      But then again, I guess you just proved the point of ignorance.  Civil Servants get all the benefits because the government a long time ago ahd to provide social services to Caymanian, hence if you didn’t get a job in the private sector because you lacked any qualificaitons you went to the Civil Service.

      That being said, this is NOT the case today, I know many hardworking, qualified Caymanian Civil Servants, that actually probably deserve more than they get paid.  But in the past (which is not coming to fruiition) this wasn’t the case.

      Yes, the lazy Civil Servants should get cut, but who is going to do that? The politicians won’t/cant’ becuase it cuts out their largest voting block and they don’t have the **** to do it.  So guess what Cayman, your laws that you wrote to keep all Caymanians well off many years ago and affecting you today and will continue to affect you in the future.

    • Anonymous says:

      Are you absurd.  If all the expats are gone we will have know one to blame for this mess.  We can’t point the finger at Caymanians.

    • noname says:

      Yes some of you on this forum seem to think and enjoy the displacement of Caymanians  but do not delude yourselves, if you think you and the grand emperor are going to live happily ever after, Kid yourselves. Ezzard is wise enough to see the signs of the coming situation. Have fun in your garrison communities.

  12. anonymous says:

    when the time comes, government just ain’t gonna pay – what do you think…  no, it’s not a question.

  13. Lachlan MacTavish says:

    This is reality…….we have allowed our elected leaders to continue to convince ……SOME….. that they will make tings right…IE the logb will lead us to salvation…….not gonna happen……we are wayyyy out of sinc…..time for change……..   

  14. Chris Johnson says:

    If I read this correctly information is being withheld from the Auditor General. That really tops it. How is he expected to do a decent job?

    Cayman holds itself out to be a premier financial centre as seen by all the pompous advertisements. Yet the Government neglects to give the AG information that he has requested.This is totally unacceptable and no doubt the UK Government and indeed the new Governor are watching this lastest fiasco with bated breath.

    And what does the new elected board of Cayman Finance have to say about all of this?

    I guess taxation will be implemented about June. What a surprise!

    In the interim please Mr. Financial Secretary respond to the AG; it does not look good.

    • A Louse In Wonderland says:

      Sunlight is said to be the best disinfectant. 

      • Justice Brandeis says:

        This is true, but it might be too confusing for CNS.

        • Justice Brandeis says:

          By "CNS" I meant the posters not the wonderful editors!  Just in case anyone thought otherwise!

  15. what a mess says:

    Another fine example of a total lack of planning…and Politricks! 

    Also, if the Auditor General is to be given so much trouble with getting such information from the Financial Secretary…then, is there any wonder why there is so much inefficiency in the Civil Service?

    And of course no one will be held truly accountable…and such incompetence will continue…

    Imagine now if we go Independent, like some want…. With no "real" Auditor General or no "real" Freedom of Informaton…we would not know anything (other than prepared GIS releases) until way too late.

  16. Anonymous says:

    This is going to be interesting to watch and I hope that the already meagre pensions payments for many former and present hard working civil servants will not suddenly disappear. Government has squandered funds elsewhere but this is not the route to go to try to recap. For years, in every country, pensions funds have been struggling, not just here in the Cayman Islands, but as usual nothing has been done to put matters right. If this is not fixed government will end up with a much bigger liability because this is all that many have or will have to live on.

  17. Sybil Suivant says:

     Cut the civil service by 20% NOW.  Unilateral terminate their ridiculous long term benefits NOW.  We cannot afford it.

    • Anonymous says:

      And how do you propose doing that? How does anyone demanding broad cuts to the civil service and "thumbs up"-ing comments like this think government could go about that task?

      You cannot just fire individuals with no reason. There is far more job protection in a civil servant’s contract than in the private sector where they can easily fire people when times get rough. It would take a lot of time and effort to determine where cuts should be made and how they should be made. We’re not going to lose 20% of civil servants over night.

      Furthermore, if you cut the civil service you would have to cut benefits and services from government because government would have less employees who do that work. Ever stop to think about what would happen then? You’d all complain even more about the civil service and how no one can do their jobs!

      Yes, there is "dead wood" that needs to be cut from the civil service and many positions are overpaid and or unnecessary, but demanding a 20% cut immediately is foolish, impractical and completely impossible. The civil service needs a thorough review that identifies areas where cuts in staffing could gradually be made by phasing out specific positions and revising certain job descriptions with a more appropriate salary, making the government more lean and efficient. And the result may not be a 20% cut, it may be less or more, but it would be appropriate. You cannot throw out a random number and suggest government fire people willy-nilly.

      Think about that for a minute, and while you’re at it also consider how you would feel if people constantly called for your job with absolutely no real reason to single you out. When you realise that your comment and others like it are rash and foolish then you can come on over to the real world where a few of us live. Over here we would like a comprehensive review of the civil service. Of every single job description. Now.

      • Anonymous says:

        You are talking about the logistics of letting people go and I would agree with some of your thoughts. The point however is that there appears to be a lack of political will to make those decisions to find ways in reducing the headcount. If the management of the civil service really want to make this happen, they should be able to find a way. It appears that the Civil Service wouldn’t even want a comprehensive review done of each job.

  18. Anonymous says:

     I don’t make enough money to be knowledgeable about it, but I do wonder with new financial problems showing up every day why it is that Mr. Kenneth Jefferson hasn’t been held a little more responsible?  Isn’t he the man who is supposed to look after finances and make sure everything is kosher?

    • Anonymous says:

      If this only affected him it would be bad but not too bad, however, the lack of leadership at the top in Finance is pitiful.

      The Government has several bright individuals working in that area, but their abilities have been stifled due to the Government’s unwillingness to put propper leadership in place.

    • Anonymous says:

      Answer to your question is very simple. Mr. jefferson is a Caymanian "B & B" which makes him exempt from any fiscal responsibility.

      His incompetence has been obvious going back several years where he has not been able to come up with any sort of financial picture for the affairs of the country. Just think back to the recent election where the PPM was convinced that they had a large surplus which in fact was a large deficit.

      Until someone gets hold of the reins of this country and reins in the government things will never be any different. It is utter ignorance to believe that someone with only a basic education level can get us out of our Financial mess. I have a strong feeling that The UK is just around the corner waiting for the first opportunity to step in. I hope this happens very soon before this Government gets us any deeper into the Pit.

      Just take for an instance the idea that raising Turtle meat by 200 percent is going to cure the Boatswains Beach problem. How much 6.00 a pound turtle bone do they believe they are going to sell???????

      At the end of the day the only ones that are going to look good are those who can convince the Premier to do the things that suits them for the prupose of lining their pockets.

      The only thing we should be expanding at this time is Northward Prison.