Guarantee questions asked but still to be answered
Recently, there has been much discussion and controversy about the Fairmont Southampton hotel project, regarding transparency of the government concessions/financial guarantees and the recently (unanimously) approved Fairmont Southampton Hotel Act 2022, which will ultimately facilitate the hotel’s redevelopment.
In addition to the extensive concessions, we have now just learnt that the Government will give a guarantee of up to $75 million, which would represent 21 per cent of the revised costs of the project of $376 million and that the guarantee was set up so that the $75 million loaned to developers and the repayment of the loan will be financed by taxes collected through the hotel’s operation. David Burt, the Premier, noted: “There is no tax giveaway for wealthy foreigners.” So in spite of the former finance minister Curtis Dickinson’s strong reservations, it’s a go. The contract has been signed, Gencom, the developer, is “very happy and grateful”, and the Premier is confident that the deal he has struck is “rock solid” and in the best interests of Bermudians. Let us hope he is right.
On the subject of government guarantees, in March of this year, reporter Gary Foster Skelton released a YouTube video on the level of the Bermuda Government's financial guarantees, which are listed in the 2022 Budget. He revealed that as of March, the total of government guarantees was at $1.1 billion — excluding the just approved $75 million for Gencom/Fairmont Southampton — which is almost double the amount shown in last year’s Budget. He correctly warned that taxpayers could be liable for some of these costs if there is a payment default, as was the case with the failed Caroline Bay development.
One item of particular interest in Mr Skelton’s report was that the Bermuda Hospitals Board recently raised the financial guarantee for the Acute Care hospital construction contract to $787.7 million, up from $276.8 million, representing a $510.9 million increase. This upward adjustment, according to the health minister Kim Wilson, now reflects both the contract principal and the projected interest/legal costs, which were never included in previous government financials.
It is of note that there was no BHB guarantee amount reflected on government financials at the time of the announcement of the hospital construction in 2011. A number was finally first shown in the Government’s financials in 2014 — the amount fluctuating from $250 million to $280 million over the next few years — and remained in that range up until earlier this year, when it was increased to $787.7 million.
To date, full details of the Acute Care hospital contract have yet to be released to the public. Below are the actual questions Mr Skelton has put to the Government: (at the time of this writing, I am not aware of any responses from the Government on this capital project, details of which have not had anywhere near the transparency the taxpaying public deserve).
1, As this shows an additional $500 million plus of taxpayer exposure, please can the Government provide the original (hospital) contract showing the guarantee agreement and the parties involved?
2, Can the Government provide a breakdown of what the principal $250 million to $280 million covered, and also what the additional $500 million plus of interest or service covers?
3, Does the guarantee primarily cover ongoing costs and losses for the construction and maintenance of the new hospital building on Point Finger Road?
The Bermuda Government’s financial obligations are substantial, and they are made even more critical with our ageing pensioner demographic and the shrinking workforce. The latest projections, based on recent statistics, state that 25 per cent of our population is expected to be senior citizens by 2026. David Burt, the Premier and finance minister, stated in the 2022-23 Budget that a declining population in a small-island state increases the cost of living and an ageing population increases the cost of healthcare. A shrinking workforce puts future pensions at risk. He said that these trends must be reversed, our population and workforce must grow and for that to happen we must create jobs through domestic or foreign investment. I agree with him wholeheartedly.
However, we must also remember that the legislative government is the steward of the public purse and any perceived rewards from its policymaking/spending must always be balanced with the associated risk. In a perfect world, the Premier should mandate that before one more government capital project gets approved, before one more big Accountant-General cheque gets issued, before one more government guarantee is given, the taxpaying public should have full and complete disclosure on the value and return that is expected. Equally as important, there should be disclosure of every aspect of future taxpayer liability that could come our way if things go south. This information should be presented to the public before the contractual “ink” has dried, rather than at a town hall meeting after the fact. Then, just maybe, the accountability for the fallout of flawed, failed (costly) government policy can legitimately fall squarely on the shoulders of those who continue to support it.
Our boat is full of holes and we are adrift in the Atlantic Ocean.
No one is coming to save us; we must do it ourselves.