In the wake of four years of negative GDP, public debt approaching $2 billion, a shrinking population and fierce rivalry in its core industries of tourism and offshore business, Bermuda is contemplating new measures to revive its struggling economy. A private sector ‘brain trust,’ the Spending and Government Efficiency Commission led by insurance tycoon Brian Duperreault, was commissioned to investigate, analyze and report on the performance of the public sector.Its findings are stark and its solutions drastic.
The full extent of wastefulness, poor leadership and inefficiency in Bermuda’s public sector are laid bare in a new report designed as a roadmap to economic recovery for the recession-hit territory.
With Bermuda facing debt problems that make Cayman’s $600 million hole look like child’s play, the island commissioned a comprehensive review aimed at identifying where money was being squandered.
The conclusions, featured in the Bermuda Sun newspaper under the headline “Your tax dollars, up in smoke,” identified a bloated and inefficient public sector blighted by poor leadership, lack of applicable skills and a “culture of lethargy.”
The commission’s report points out that its members were “staggered by the magnitude of the financial challenge facing Bermuda” and warns, “Inefficient use of the resources entrusted to government by the taxpayer should no longer be tolerated.”
The report concludes that $310 million must be cut from the country’s annual budget, currently about $900 million, in the next four years.
It recommends cutting some programs completely, privatizing others and outsourcing some services to the private sector.
The report also recommends that the number of legislators on the island be reduced to 30 from 36 and that sitting politicians take a pay cut. It also says the island faces unprecedented adversity and warns that everyone must share the pain, including civil servants who may face further pay cuts and redundancies if the findings are implemented.
Bermuda’s influential labor and public sector unions have yet to respond in depth to the proposals, which are likely to be contentious, but concern over the concept of business principles being applied to the public sector at the expense of services and workers’ rights is anticipated.
The ruling One Bermuda Alliance government may face a choice between breaking an election promise not to shed jobs and ignoring SAGE’s recommendations; the latter would likely spark accusations of timidity and weakness by the party’s core supporters, who are drawn from the business community.
In his introduction to the report, Mr. Dupperault, CEO of Marsh & McLennan Companies, summarizes the depth of the challenge facing Bermuda and pinpointing the size of government as the core of the problem.
“A country traditionally ranked in the top tier as a leisure destination and business jurisdiction features an economic profile that a few decades ago would have seemed unfathomable.
“Bermuda is laboring under a cost of government that continues to increase an already substantial debt and threatens to destabilize the financial foundation of the country.
“Its population is declining, its two principal industries, tourism and international business, are facing increasing competitiveness. Where once its citizens had a choice of jobs, rampant unemployment hovers like a specter over a country in profound transition. The scenario is an unfamiliar, uncomfortable one for a proud island for which adjectives like ‘premier’ and ‘blue chip’ have long been the norm.
“But this is the grim reality Bermuda faces in 2013, the fourth straight year of decline in its gross domestic product. While other countries have begun to rebound from 2008’s global downturn, Bermuda remains in recession.”
Summary of the report’s key findings and recommendations:
A ‘bloated’ government
- Findings: The government, including the legislature, is too big for the size of the country it serves. There is consequently unfocused, duplicated and diluted decision-making.
- Recommendations: Reduce the House of Assembly from 36 to 30 seats. Reduce the number of government ministries from 12 to eight and the number of departments from 72 to 52.
- Findings: “Ample evidence” that some areas of government are undertaking functions that are inefficiently delivered; in other areas, government should not be undertaking the function in the first place.
- Recommendations: Establish an independent Privatization and Outsourcing Authority to review all government activities.
Consider privatizing: Airport Operations, Civil Aviation, Highways Management, Maritime Administration, Public Lands and Building, Waste Management.
- Consider outsourcing: Conservation Services, Corrections, Health Insurance Department, Human Resources, Marine and Ports, Parks, Public Lands and Buildings, Public Transportation, Transport Control Department, Youth, Sport and Recreation and Vehicle and Equipment Operations.
- Findings: Pension schemes for government employees and parliamentarians are close to $1 billion underfunded. Government cannot make up that amount in the foreseeable future.
- Recommendations: Adjustments that will keep schemes operating while maintaining a good level of benefit for current and future retirees.
- Findings: Government has negotiated some union contracts that grant benefits, such as sick leave and the provision of overtime pay, that are exorbitant and significantly higher than the norm in the private sector.
- Recommendations: Government union negotiations should be conducted by an independent body, not members of that union.
‘Abuse’ of sick leave
- Findings: The average sick leave among government employees is eight days, which is about three times the average sick days for government workers in the Isle of Man and Gibraltar.
- Recommendations: Departments with chronic sick leave problems need to be investigated thoroughly, and those abusing the system must be managed appropriately.
- Findings: GP-plated vehicles have “often” been observed in the parking lots of supermarkets, health clubs and golf courses, suggesting that government cars are not used strictly for government business.
- Recommendations: The head of the Civil Service should review the use of government cars and to whom such vehicles are assigned with a view to reducing their number. This review should include the use of government cars by senior officers in the police, prisons, fire, regiment and customs services.
- Findings: An uncoordinated, ineffective and inefficient infrastructure within government.
- Recommendations: Reduce the size of the Cabinet to a maximum of eight ministers, including the premier.
- Findings: The post office currently has over 100 too many staff and its current business model is no longer sustainable. Losses of around $134 million are predicted for the next decade.
- Recommendations: Close all post offices apart from one in Hamilton (the capital), one in the east and one in the west. Sell the old buildings and use funds to pay off national debt. Stop delivering mail to houses and businesses, and use cluster boxes instead.
- Findings: “Serious operational weaknesses” and a need to streamline work processes and improve performance. The average cost per inmate per year is approximately $80,000; the average daily inmate population is 283.
- Recommendations: The Privatization and Outsourcing Authority should be tasked with identifying outsourcing opportunities to reduce operating expense. Employ nonviolent prisoners to reduce expense and provide them with earning and learning opportunities. Use of electronic tags as opposed to confinement and greater use of video link between court and the prison.
- Findings: Major maintenance issues with ferries, in particular with fast ferries, as well as problems with fare collection, resulting in lost revenue.
- Recommendations: The maintenance of the ferry service, tendering operations for cruise ships, and government-operated ship slips and cradles be outsourced.
- Findings: Bermuda’s bus fleet is an expensive one: Buses are custom-built for the island and the cost of replacement parts is high. Operating costs for Bermuda’s buses are excessive.
- Recommendations: Department of Public Transportation should purchase “off the shelf” rather than customized vehicles for its fleet. Maintenance should be outsourced, and certain routes, or portions of those routes, should be reviewed for outsourcing.
The summary of the SAGE report first appeared in the Bermuda Sun.