Opinion: Burchall On America’s Cup & Finances

[Opinion column written by Larry Burchall] With the America’s Cup coming, works for a ‘new’ airport, new hotel construction at Ariel Sands, Pink Beach, Morgan’s Point and maybe one other location, with the probability of casinos and gaming coming on stream; it looks as if Bermuda’s flagging economy is about to get a boost.

With something between 2,000 and 3,000 Bermudians said to be unemployed or under-employed, it’s likely that many will soon be re-absorbed into Bermuda’s working Workforce.

That’s good. I hope that by 2017, all the new works happen and that many unemployed Bermudians are re-absorbed.

But where will that take Bermuda’s economy? How much will GDP rise? What higher level will Government’s tax revenue reach?

If all 3,000 said-to-be unemployed Bermudians are re-employed, then Bermuda’s National Workforce [NWF], that is the number of persons filling jobs in Bermuda, should get back to 38,000.

This 38,000 would likely consist of: 24,504 currently employed Bermudians + 3,000 said-to-be unemployed Bermudians + 9,773 currently employed non-Bermudians + 723 new and additional Bermudian and non-Bermudian workers = 38,000 persons filling jobs in Bermuda.

So by 2017, every Bermudian could be back at work, with a few non-Bermudians added. However, if the NWF settles at 38,000, it will be less than the 40,213 reached in 2008. At 38,000, the NWF will be about the same as the 38,363 NWF of 2004.

At 38,000 jobs filled, by 2017, GDP could achieve $6,500,000,000 [$6.5bn]. That’s 16% higher than now [$5.6bn in 2013], and 6% higher than the peak $6.11bn that GDP achieved in 2008.

With GDP at $6.5bn and a 17% tax uptake off GDP, Government can anticipate maximum tax revenues around $1.11bn.

Then Nanci appears! [Nanci = NNC = Non Negotiable Costs = Debt Service Costs = Interest + Sinking Fund]

By March 2017, on Debt of $2,095 million, basic Nanci will be $159 million a year. Add about $30 million in new non-negotiable costs for KEMH. Full Nanci becomes $190 million a year.

Subtracting Nanci’s $190m priority costs from Government’s $1.11bn revenue leaves just $920m for all of Government’s Personnel Costs + Operations + Services + Capital.

With only $920m available, Government’s net spending will remain below the net spending level of 2006/07 when net spending was $944.5m. [In 2014/15, projected net spending [$1,007.8m] is below the actual net spending [$1,041.6m] of 2007/08.]

With 38,000 filled jobs, with FULL EMPLOYMENT for all Bermudians [and their Spouses and all PRC’s], and with GDP at $6.5bn or even $6.6bn; Bermuda’s economy will still be too small to carry Nanci WITHOUT Government having to make severe cuts or borrow.

Even with GDP rising to $6.5bn/$6.6bn by 2017, even with ‘full employment’ for all Bermudians, even with new construction works and the America’s Cup input; Nanci will still push Bermuda’s economy.

With Nanci settling at $190m, Bermuda’s economy [GDP] must ultimately and quickly blast through the $7.0bn level and get past $8.0bn.

Bermuda’s economy meets its first real test in May and November 2019. In 2019 Bermuda must repay the $100 million + $80 million that the previous administration borrowed in 2009.

Because Bob’s $800 million runs out in FY 2016/17, Government can only repay that $180m out of surpluses built up in FY’s 2017/18 and 2018/19. [Surplus comes from total spending being less than total revenue.]

Sometime between ‘money run out’ in 2016 and December 2017, there will be an election. So it is actually the NEXT Government administration that must make the 2017/18 and 2018/19 Budgets run in surplus OR must borrow to repay that $180 million. [This administration’s mandate expires in December 2017.]

Running two consecutive surplus Budgets, requires net spending settling below the $920 million revenue that should be available – if GDP rises as suggested. That still requires deep cuts in spending. These cuts could reduce net spending to levels last seen in 2005/06 when it was $823.7m.

Or borrow again which simply postpones a now inevitable implosion and could result in a ‘Barbados drop’ as early as 2017.

With 38,000 persons filling jobs, with $6.5bn GDP, with every Bermudian fully employed, Bermuda’s economy will still be too small to carry a $190 million Nanci.

Every Bermudian and the whole machinery of Government must understand, accept, and deal with Nanci’s unchanging reality.

Bermuda is in a deep Debt Trap. More and faster growth is needed. This aggregate America’s Cup boost will prove too small.

There are, though, two nuggets hidden inside of all this. [Next week….]

- Larry Burchall

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