Auditor general warns SAGCs are under strain

| 23/01/2018 | 57 Comments

(CNS): Well over half of all statutory authorities and government companies that are managed as autonomous public sector entities are running at a loss and under considerable strain, the auditor general has warned. Sue Winspear said more than eight SACGs had ended the last five years with deficits in contravention of the Public Management and Finance Law. She said this raised questions about their business models and the current government policy. At the end of the 2016 financial year, five SAGCs had ended the 12-month period with a deficit, she said.

While it has been well documented that some entities, such as the Cayman Turtle Centre and Cayman Airways, receive massive cash injections from the public purse to keep afloat, they also ended this year with deficits, and Winspear has raised concerns about the financial viability of many more of these semi-independent public entities.

In her latest comprehensive review of where government stands regarding its financial reporting, Winspear issued a warning that several SAGCs are facing challenges when it comes to meeting their obligations to deliver public services.  She warned that several are in need of restructuring or government must adapt its policy.

While the turtle centre and CAL remain entirely dependent on government financial support to stay in business, Winspear also pointed to the Cayman Islands Development Bank. She said that it had a loan delinquency rate of more than 52% at the end of the last financial period, undermining its ability to carry out is primary functions to support and facilitate business to boost the economy.

Winspear also raised concerns about the Health Services Authority. At the end of 2016 the outstanding debt was more than the HSA actually collected over the year, and despite improvements in its financial situation, she warned that the authority’s debt situation remains a challenge.

Meanwhile, the high operating costs and the continuing sale of houses at a loss, which amounted to more than a million dollars at the end of 2016, is placing the National Housing Development Trust in jeopardy. In order for it to stay open and manage the government’s affordable housing project, the public purse will have to continue injecting significant amounts of cash, the auditor said in her report.

Although the port authority is currently profitable, the auditor said that more than $32 million of liabilities relating to employee healthcare is unfunded and measures will need to be put in place to address this in the coming years.

When it comes to public pensions, the auditor also warned that the defined benefit fund of the public sector pension would be depleted in six years if the payments into the fund are not increased and that the parliamentary pension plan is severely underfunded.

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Category: Government Finance, Government oversight, Politics

Comments (57)

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  1. Anonymous says:

    Guarantee some of the same people who are crying out about “Rampant Caymanian unemployment” are the same persons advocating for shutting down these SAGCs.
    Subsidies are not necessarily a bad thing CAL serves a purpose and as far as I am concerned it is justified stabilizing the prices of tickets and can be commissioned when in times of need
    The Turtle farm however, there is an argument to be made that perhaps they should be trying to maximize profit and cutting costs, with drastic measures if necessary

    In any case i’ll remind persons who seem to have forgotten there are plenty of other portions of the government that can be trimmed to cut costs, for instance MLA. Chief Officer salaries and wasteful spending such as those god forsaken unnecessary electric plates.
    Millions could be saved annually in the CIG with reduction of unnecessary spending

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  2. Anonymous says:

    ???? but then board members wont get paid along with their quirks? Please dont get rid of authorities operating at a liss! They will suffer??

  3. Anonymous says:

    Cayman Airways needs to remain, but why does the board and their respective families and all employees have travel benefits for life (at least so it seems)? I understand that apparently that benefit only applies if space is available, but I have serious doubts whether this is really adhered to, especially for board members. Perhaps someone would like to share exactly how this works?

    Also as every other airline does, why does Cayman Airways not charge for luggage at least for visitors? I seriously doubt that visitors and tourists chose to fly Cayman Airways over any other carrier because of the luggage allowance.

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  4. Anonymous says:

    Cutting the huge salaries of some of these bosses would help…Maritime, CAA, Monetary Authority for example where the top salaries plus benefits are around $200k.

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    • Anonymous says:

      Amen brother!

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    • Anonymous says:

      But they work very hard and we all know the cost of living is real expensive

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    • PPM Distress Signal says:

      How about cutting Marco Archer’s big salary as CEO of the CI Stock Exchange especially since he was all about lowering costs of SAG’s when he was the minister of finance. Or is it ok that he makes big bucks now that ppm hooked him up with a job?

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    • Anonymous says:

      Perhaps cutting MLA salaries would send a good sign.

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  5. Anonymous says:

    An SAGC is what most other countries on this planet call a job creation scheme – get used to it Ms Winspear because it ain’t going to change.

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  6. Anonymous says:

    I seem to recall reading similar headlines every January for a very very long time.

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  7. Anonymous says:

    To those of you that suggest getting rid of Cayman Airways, I am so pleased that there are some commenters that understand how ‘it’ works. (the industry that is)
    Check out from this morning at 10:21am.
    Any of you that are saying to shut KX down, you must not have been here for Ivan. We were abandoned well before necessary by all of the US commercial carriers. Completely and totally. AA being the worst offender!
    I will always defend my National Carrier.
    PS. As soon as the T&C carrier closed down, AA raised the cost of flights to/from Provo $200. As soon as KX dropped Orlando from their seasonal schedule, AA raised the cost $150-$200. I know this because I was in the industry (not KX employee) during these periods.
    Cayman Airways IS the reason costs are kept in check. I don’t care if you believe that or not!

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    • SKEPTICAL says:

      Does it ever occur to you that in an “ Ivan “ situation, US and other foreign airlines have little choice about flying into Cayman to rescue people pre-storm. They have virtually no corporate discretion in the decision making process. One major reason – INSURANCE. How would they explain to their insurers a decision that led to the loss of a $100/200 million aircraft they had knowingly flown into an area being affected by a hurricane.
      Post storm, they have to be certain the entire aviation infrastructure is up and running, including supplies of uncontaminted fuel for the return flight.
      Cayman Airways is to be congratulated for what they managed, but next time you decide to take a cheap shot at the foreign carriers, think the whole thing through – properly.

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    • Anonymous says:

      So have the government charter some planes when there is a need. It would be much cheaper than losing $20 million every year.

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      • Anonymous says:

        Cayman Airways is the most expensive insurance policy in this country.
        It continues to be a political football that represents jobs for friends and supporters. The overpaid CAL pilots run the company with no accountability to the tax payers at the CAL management and Board of Directors level. Appointees to the board are proxies for Moses with no relevant experience.

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    • Anonymous says:

      so explain to me how Southwest can charge US$200 return to FLL, KX is not on that route so the floor pricing does not apply

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  8. Anonymous says:

    Why do so many commenters see profit as the sole function of these entities?
    sure, some may be less essential, but some serve a valuable purpose, and provide a subsidised service.
    If C.A.L was taken out of business, I guarantee every other airline serving the islands would immediately put their prices up.
    These companies do not have to generate a profit to have value to society.

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    • Anonymous says:

      I fly 6-10 times a year and they are never the lowest price. So how is it they are keeping prices down? Obviously Delta, United, American, Southwest, etc are competing against each other, not against CAL CAL is like the Post Office, a place for Caymanians to do a little work and draw a big check, and for various contractors to have sweet deals.

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      • Anonymous says:

        You might go to work everyday and do little work for a big check but do not make the mistake of thinking the staff at CAL do not work hard to ensure safe and enjoyable travel for Caymanians and visitors alike. And lets not mention the economic contribution CAL brings for the country. Do your homework and learn the facts!

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    • SKEPTICAL says:

      Because on a stand- alone basis, they have to be able to keep on paying all their operating expenses – lease payments, landing fees, salaries, maintenance costs etc., etc.
      If an airline is going to be a Public Service, then, as is the case, operations like Cayman Airways have to be subsidized. However, that demands that government generate sufficient revenue to comfortably include that cost in its budget. When it can’t, it has to raise additional revenue through taxation, or reallocate funds already budgeted for other government expenditure, and that other thing suffers. As they say – “ you can’t squeeze a quart out of a pint pot “.

    • Anonymous says:

      What do the Maritime Authority and the Stock Exchange contribute to Cayman except, in the case of the first “heritage” and a financial loss and in the case of the second, a vanity project plus a huge salary for poor Marco Archer plus a financial loss?

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  9. anonymous says:

    I can understand the call to shut down the Turtle Farm, but shutting down Cayman Airways would be crazy, and here is why:

    1. I guess the first thing that I should say is that neither I nor any of my family work for Cayman Airways.
    2. Shutting down the airline would mean hundreds of Caymanian looking for jobs.
    3. No airlift in and out of Cayman for days before and after a hurricane.
    4. Possibly no service into Cayman for months after a hurricane.
    5. And this one is the big kicker; all of the money saved by shutting down Cayman Airways would then be paid to other airlines! It’s called Minimum Revenue Guarantee. Look it up people.

    Ask the Bermuda government how much they pay in minimum revenue guarantees to the airlines that bring their tourist.

    Ask the Jamaican government if they pay minimum revenue guarantees to American Airlines to bring tourist to them.

    Take a look at a place as popular as Steamboat Springs in Colorado with ski tourist and see that they were committed to paying up to $5.7 million to airlines to bring the skiers to them in 2016.
    https://www.steamboattoday.com/news/airline-revenue-guarantees-jump-to-5-7-million/

    Now just sit back and imagine the deal that we would get if our politicians went out to negotiate with American, Delta, Jet Blue, etc.

    At least I can bitch at Fabian Whorms and everyone else working at Cayman Airways if I don’t like something

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    • West bay Premier says:

      10:21am , I agree with your opinion on this issue, and # 6 getting rid of the Turtle Farm would give the Government enough savings to put anothe CAL in service .

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      • Anonymous says:

        I might be wrong, but I think the Turtle farm runs at a profit if you exclude the huge debt they were given after the redevelopment. So if you shut the turtle farm someone would have to repay that debt, which is being partially covered by operating income, To sort the TF out they could restructure the debt so that it can be fully covered by income, assuming that’s possible.

    • Anonymous says:

      That’s interesting but Cayman and most places have never had to do this, even before CAL existed.

      • anonymous says:

        Before CAL existed they didn’t charge for the first two suitcases either, or charge extra for a seat at a bulkhead for extra leg room, or block all of the window and aisle seats when you try to book online, or charge $20 if you wanted to board early, or charge exorbitant fees if you wanted to change flights, etc. etc. etc.

        What we do know is that no airline has ever dropped any fees once they were able to get away with charging them, and I’m willing to bet that if Cayman Airways is ever shutdown that Cayman will see the biggest “minimum revenue guarantee” that any destination has ever seen.

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        • Anonymous says:

          Let’s take that bet and give it a try. the government could take the $20million a year and send a big check to every Caymanian every year. I’d rather have the check than the airline.

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        • Fred the Piemaker says:

          Sorry but your comment makes no sense. So with CAL there are multiple airlines competing to fly here; competing with each other as well as CAL. You are suggesting that if CAL stopped operating those airlines would then demand minimum revenue guarantee fees to fly here – when they don’t need them now, and there is active competition for the passengers? What’s to stop one airline who doesn’t ask for the MRG simply getting the others slots? Think you will find that MRG are driven by profit marginal routes and /or monopolies.

          • Anonymous says:

            American, United, Delta, and Jetblue all fly to Bermuda, but the Bermuda government pays the minimum revenue guarantee, which they hide in their budget the same way we hide the amount of payoffs to Civil Servants in ours.

            The airlines will fly as long as their flights are full, but that means the days and times that are best for them, and they will cancel flights and divert their jets to another route anytime it makes them more money.

            If you haven’t noticed, Cayman Airways has a schedule that they generally stick to, even if there are only 20 people on the flight. Do you think other airlines would send those flights to Cayman? No, you will be stuck in Miami or wherever until they have enough passengers to put on the next scheduled flight. However, with minimum revenue guarantee they would be willing to send regularly scheduled flights completely empty since it would be no loss to them.
            https://www.iwnsvg.com/2017/01/16/what-would-it-take-to-get-international-flights-to-land-at-argyle/

            • Fred the Piemaker says:

              Thanks. That at least makes sense – guarantee of service supply irrespective of season or market movement. Would interesting to see what the available seats are into Cayman by month though – there seems to be no issue with AA and Delta flying a base load in here all year without an MRG, but I take the point on certainty if demand fluctuates. Still – $20m pa for a population of 65,000 seems a high tab to pay. It also doesn’t explain why the airlines flying in here – privately owned – presumably make money on the route, whereas CAL is $20m short.

  10. Anonymous says:

    Sell Cayman airways and Turtle farm…simple as it. There is plenty airlines fly in and out cayman…no need to have a national airline when not making any profit.

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    • Anonymous says:

      That subsidized national airline is what keeps everyone else from raising prices significantly. While as a single entity it looks like they’re losing money, they are also serving a public service that puts savings from relatively lower prices back in your pocket.

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      • Anonymous says:

        Hmmm, I have always heard that Cayman Air kept the prices higher.

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        • Anonymous says:

          One scenario is that if CAL dropped out there would be a race to lower prices, some other companies would drop out, then we’d be ‘stuck’ with a monopoly foreign air service raising their rates back. I believe its called the Eastern Caribbean model. (Then you’d get some smaller regional players moving in, the competitive cycle trying to restart, etc.)

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      • Anonymous says:

        Except their prices are not lower.

    • Anonymous says:

      Tell me how one “sells” massively indebted loss-making businesses….

  11. Anonymous says:

    There will always be fiscal deficiencies in some Government companies/agencies (SAGC) because there remains an entrenched culture of gross waste (at best) and dishonesty (at worse), plus corrupt political input. Mr. Manderson’s intent to “change” the CS culture is a pipe-dream and will not even break the surface of the scum on the swamp.

    The core Civil Service is only part of the problem; SAGC’s with their “autonomous” structure and their Boards run on cronyism and “brotherhood” loyalty is a larger part of the issue, as Ms. Winspear has discovered.

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    • Anonymous says:

      What IS that word that endemic to Cayman. What does it have to do with money disappearing.

      • Mr. Hirollah says:

        Theft? Graft? Embezzlement? Misappropriation? Payola? Pick one.

        • Anonymous says:

          C A L, need to stop some of the free flights for their workers and families and board members etc. Only allow them 2 free flights a year. Remember every lb. (weight on a plane causes the Plane to burn more fuel and we all know fuel is not cheap.

  12. Anonymous says:

    Lol

  13. Anonymous says:

    Simple solution. Dump C.A.L and the turtle farm! I mean neither one makes a profit so why keep them? No brainer

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    • Anonymous says:

      And the Hospital

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      • Anonymous says:

        The hospital has a deficit because people don’t pay their bills. Cal don’t let passengers on without a ticket.Perhaps those complaining about the health service would agree to a no pay no treatment option. Often these are the people who block up the emergency service with their coughs,colds and other petty complaints.

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  14. Anonymous says:

    This is what happens when you have morons in charge of the Government. As much as I love my national airline, it has been eating up the public purse for years! 20 Million every year to be exact!
    It doesn’t matter to Alden and the rest of his puppets though, they still make their 10 plus thousand a month, so why would they

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  15. Anonymous says:

    Yawn, clearly the Auditor General is new, CIG are experts at sweeping long term problems under the rug. I especially how Cayman Airways makes money if you dont include the $20M from CIG.

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  16. Anonymous says:

    Govt need to start asking 2 questions for every public entity…

    1. Is it essential
    2. Is it profitable

    If the answer is no to both, shut it down. No brainer really.

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    • Anon says:

      Anonymous say 23/01/2018 @ 5:15 a.m. that is a simple decision but not very smart. Unfortunately your mindset is the same kind of business acumen that makes some of these SAGC,s unprofitable. What we need is to keep improving the operations and make those departments that are losing money profitable. In most case a better business model will improve the profits. There is no reason why the Cayman Turtle Center should not be profitable. But we need to make some difficult decisions about the operations and the business model to make it a profitable business. Most of the other entities also can be made profitable if we would just try a little.

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    • Anonymous says:

      There goes the NHS.

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      • Anonymous says:

        NHS is essential. Why would it go?

        • Anonymous says:

          The NHS is not essential. Health Care is. So you can privatize the NHS (shut down the SAGCs in a Cayman context) because it is (a) not essential (someone else will step in and provide the service for a fee) and (b) losing money.

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