Reporting $2.1B liability would create huge deficits
(CNS): Financial Secretary Kenneth Jefferson has said that putting the Cayman Islands Government’s future liability for post-retirement civil service healthcare costs firmly on its books would create massive annual deficits for public finances. But until it fully reports and accounts for these future expenses, the Office of the Auditor General (OAG) will continue to give an adverse opinion on the annual Entire Public Sector (EPS) financials.
Answering questions when he appeared before the Public Accounts Committee on Thursday, Jefferson said that if the CIG were to recognise these liabilities “on the face of the balance sheet”, it would result in continual and significant budget deficits.
This might be addressed if the public finance legislation were amended to separate that liability from the overall day-to-day costs of running the public sector, he said. However, that would require support from the UK, and he was not sure if this was possible or if the British government would be willing to revise the Framework for Fiscal Responsibility to prevent this liability “from being held against us”, given that the FFR applies to all of the British Overseas Territories.
The PAC meeting, chaired by Opposition Leader Roy McTaggart, was held to examine a follow-up report by the OAG looking at the lack of progress on improving public finance reporting. The committee dealt with a number of issues surrounding how the CIG presents its spending and revenue to the people, such as delays by government entities in tabling annual reports and delays in the rollout of changes to the budget to make it more transparent.
For example, the CIG is still not placing $2.1 billion in future medical liability for retired public sector workers on the balance sheet. Jefferson explained that there had been a great deal of debate about how this liability, which is reported to Cabinet every month, should be accounted for.
In response to McTaggart’s questions about the EPS, Jefferson said there had been “no significant progress in terms of getting the government to agree to put the item fairly and squarely on the face of the balance sheet” in the same way that it now places the future pension liability on the books. The medical liability is not included in the budget itself, and doing so would have a major impact, Jefferson warned.
“If we were to fully account for post-retirement healthcare costs on an annual basis, then the hit on the surplus figure would be in the region of just over $100 million each year. That is obviously a hugely significant figure that would be sufficient to turn an otherwise surplus into a deficit,” the financial secretary told the committee.
Noting that the PAC chair, a former finance minister, was well aware of the problem, Jefferson reassured members of the public who were listening to the hearing that the money would be there when it was needed. But he said the liability calculation is based on the estimated entitlement for every civil servant once they retire, and it is not fully recognised.
He said the practice of the government has been to pay for healthcare costs as they arise in each annual budget.
The financial secretary noted that the accounts of some statuary authorities and government companies had gone from surplus budgets to deficits because they had started to show their future healthcare liabilities for retired staff in their annual financial reports.
He said it was a complex situation but he would continue talking to the political branch of this administration about this issue and the possibility of changing the legislation to accommodate the liability — “a big step for the government to take” — without falling foul of the FFR’s strict rules.
Jefferson said that Premier Wayne Panton had informally raised the possibility with the UK about changing the FFR because some of the ratios, such as those relating to debt and the cash government must have on hand, are quite onerous. But while the Cayman Islands’ finances are strong and the UK may not be worried by this liability, this is not the case across all of the territories, he said.
Jefferson said that as far as he was aware, none of the territories include their liabilities for public sector workers, and while Cayman is much more likely to be able to continue to fund the healthcare costs of its retirees, this is not the case for all territories and there may be difficulties in getting a carve out just for Cayman.
See the PAC proceedings below on CIGTV:
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Category: Government Finance, Politics
They say Cayman is the 5th biggest banking center in the world, but still can’t spot the crime, even when the perpetrators blow the whistle on themselves.
Roy McTaggart taking the helm is the best opportunity for this to be changed, as he can blame past governments and distance himself from the “sins of the past”.
The reason to account for it properly is that, until we do, there is no incentive whatsoever for anyone to stop digging.
Roy was the coordinating Financial Secretary for all the years PPM ran this conspiracy. Kenneth Jefferson put it together years ago as Public Pensions Chairman (still is). There was a critical public-funded consulting report from Mercer in 2017 that was ignored. Politicians are still double dipping.
This must be a matter the Governor has to look at closely as a liability of this scale is a matter for the national government not a territorial authority.
A full report is needed on the amount of subsidy (erroneously called “incentives”) the $$$ TENS OF MILLIONS OF DOLLARS not collected from fees not paid, duty not paid, licenses not paid, etc., etc., by BILLIONAIRE DEVELOPERS
Then match them up with the politicians who benefitted.
BILLION DOLLAR$ CORRUPTION $$$
There’s no H in PACT
This is embarrassing. the corruption and the ineptitude in cig is staggering. Wheres the accountability?
OAG has not grasped the Absurdistan Accounting Standards.
Cayman Islands Government has been painting a rosy financial façade.
The truth is that they are struggling to repay their debt.
Cayman News Service, this would make a great article.
Respect your work.
Well there is actually. You recognize the potential liability on the balance sheet then disclose movements in that liability year to year separately in the income statement. That way you can measure operational performance separation from the defined benefit plan liability. Incidentally it’s not a foregone conclusion that the liability will continue to increase – it may go down as the retirees pass on given there are no new entrants to the scheme. But that would require some honesty in the accounting. Our pols prefer the ostrich approach as they think any liability beyond their term of office is not their problem.
That’s what he’s saying would result in a deficit.
smoke and mirrors!
Switch to a defined contribution type of plan. Problem solved.
Did exactly that in 1999🕢
Everyone who fully books their defined benefit pension plan obligations would show a giant liability that they couldn’t pay right now. Its unavoidable. Nobody keeps a piggy bank full of the next 50 years of potential pension payments. The OAG needs to explain how it doesn’t mean you’re insolvent. They haven’t done a very good job of it.
As it is a liability, international accounting standards require it to be accounted for and disclosed. OAG simply audit to these standards and it is for governments to explain their financial statements in the notes to these statements not the auditors.
The pension scheme is meant to have income earning assets to offset those future liabilities.
I am still wondering if thats why they hijacked private pensions.
Lol
“If I say honestly what we owe, it will make us look bad”… So do you owe it or not?
When are we going to be tired of this farce. Every government, every year, padding and neglecting stats to make themselves look good and get relectd. When it all comes crashing down, they have their plans to escape with the silverware.
WE PAY THEM to maintain integrity and honesty, yet they act like they are above us?
Put the damn liability on the books as you should and lets see the whole picture. This hiding behind surplus can’t stand anymore. We can’t fix anything if we pretend we are in a different place than we actually are.
We are living in a dream world. We are paying taxes to support the Civil Service and Politicians, service, and retirement. We are actually BROKE.
That $100 million a year healthcare bill would not be so high if people would just change their lifestyle.
There is an epidemic of inactivity leading to various chronic diseases in these Islands. It’s all preventable without drug intervention.
Nothing will change though. Obesity is normalised here, and slim people are told they’re skinny and need to add weight.
deductibles and co-insurance like the rest of the population has to find and fund for their medical care. Not too much to ask when premiums are paid 100% by the employer…c’mon people, wake up! This is not a sustainable business plan.
CI is broke. It is a Ponzi scheme.
The answer to keep the wolves away is unbridled immigration and construction.
This will end badly in a violent, concrete jungle of discontent.
When the finance industry moves elsewhere, voters will have to sleep in the bed they made, content in the knowledge that the politicians that screwed them over for $2bln (some of them convicted criminals) had a Caymanian granny.
Well said, friend.
What do CIIPA,SIPLC, and FCO have to say about Ministers hiding billions in open liabilities from the public and parent nation? Do only a couple of the Nolan Principles apply, and sometimes when it suits? What else aren’t they sharing? Not a good look.
Hiding AML truth from FAFT?
there is no-one in cig or civil service with expertise or qualifications to tackle this issue.
civil service is filled with poorly educated people with zero ability to tackle these issues.
if we can’t be honest and face these facts we will never be closer to a solution.
Telling the truth is easier than lying, and not an educational shortcoming.
Not true… the expertise and qualifications is not difficult here… it’s the integrity and willingness to be honest about the country’s financial position that is the problem.
CIG hires actuaries to calculate the liability which is how they know this enormous future costs. Ken is more than qualified as a CA to move this number to the Balance Sheet.
It is a DECISION to not report and it’s an issue that’s been on the table for about 2 decades. Pretending that this liability is not an unfunded drag on the country’s finances seems to be the preferred approach.
who said cayman was a land of scams???
Perhaps the Government can explain why the Cayman people are covering the healthcare costs of retired foreign nationals living in other countries, and have enormous future liability for life, while requiring retired Caymanians living in Cayman to pay their own costs?
Probably, 11:40, because these “foreign nationals” also have Cayman Status and are persons who by their employment here were entitled to have their health care costs covered after retirement….civil servants for example.
Nope. Retired civil servants without status and living in other countries…
the civil service…an anchor around cayman’s neck.
As are our politicians.
How can anyone trust the people who run the Cayman government???
ANSWER: They can’t!
But isn’t it a financial crime for a qualified person to attest to accounting by omission? Isn’t it a conspiracy for more than one person to work collectively to suppress real liabilities from the accounting record? Seems like Cayman needs to arrest all the MPs from recent times that have been part of this accounting conspiracy. We shouldn’t overthink this. Cuffs and perp walks.
It’s not criminal but one of the reasons why they consistently get an “adverse” audit opinion.
The accounts are prepared using Cayman Regularity Accounting Principles, the acronym which is ? Yes you got it !
How can anyone trust the people who run the Cayman government???
Almost 10 years ago, David Legge printed that the unfunded pension and healthcare liabilities were estimated at about $1bln each. It seems lowball that they might have only risen to $2.1bln all these years later. Let’s see the full balance sheet accounting please. This is OUR collective liability. No thanks to the career dishonesty from many still standing MPs.
legge was right.
Hashtag
Actually this is what i do every day with things that make me look bad or make me sad, i pretend they’re not there and then its great. You should see my mortgage applications and my urine samples
“Daddy, just don’t list the debt…that means it doesn’t exist”.
“Yes, my little one. Just like how I disappear every time you close your eyes. Thanks dear, great idea!”
Simply cut Kenny’s and Jay’s projects and then we will have a surplus.
Sounds like a good idea to me!
TCHT did a program on excessive salaries at the port … that would be worth an investigation .
28 @ 1:20pm – Check the CI Airports Authority, C-suite salaries for gross overpays!!
We desperately need the new rich people private jet terminal or we will risk losing the high spenders. Please lets get it going.
Ah those pesky retired people again, such a liability. Maybe introduce a euthanasia programme like Canada did and encourages. Of course this would not apply to retired MP’s. They have made sure their pensions and medical coverage are gold plated.
Anyone elected since 2012 does not get the super nice pension and medical for life. The law was changed in case you did not know.
Only the defined benefits pensions was changed. Work 10 years and then retire from CIG you will have full CINICO healthcare for you and your dependents for life.
The Boomers are pretty much parasites everywhere in the developed world.
Will meet you for a nosh row any time you like. That’s an inconvenient truth, isn’t it? You lot don’t have the sand to stand on your own.
Not reporting a liability does not make it go away.
CIG’s statutory authorities report both these liabilities.
Come on CIG, do the proper thing.
This is what we’ve been telling you for over a decade. It’s all there in the Miller Shaw report.
Surplus my @$$!
umm why didnt you do it when you were Finance Minister Roy?
Yes!………. Why didn’t you?????
did-nothing-ppm
Why is CIG paying out of pocket for healthcare expenses instead of acquiring insurance?
Its cheaper
The PPM cooked the books for a decade and now Roy and friends want to keep lying to the UK so they don’t pull our credit rating and sovereign backstop on outstanding loans. Cheaper to tell the truth because the payables will come due either way.
CIG- The gift that keeps giving.
To themselves?
world’s class!
Perhaps he could own up about the pension liability at least.
It sounds crazy and all but almost every defined pension plan is in a massive deficit. The entire nature of a defined plan is never going to work – the future isnt defined.
Same thing is true re liabilities in every other country with these stupid things in place. USA and UK included.
No way to fix it.
It would be more reassuring if you got the terminology correct…defined benefit (DB) pension plan or final salary scheme are two established terms, not “ defined pension plan”. And your comment about “ the future isn’t defined” as a reason why the “defined plan” cannot work shows you have little or no idea what you are talking about. You call these plans “ stupid things”. Better brains than yours came up with them many many years ago as an important employee benefit in nearly every developed country in the world. Things change. For far too many reasons to go into here DB plans are deemed to be unsustainable. Sensibly, like many other countries, Cayman phased them out for new civil servants in 1999 but of course there are still many of the old timers still alive who are living in retirement and benefitting from them.
My dear you are wasting your time explaining to the numbnut above – he/she is like 7-up / never had it (brains) and never will!