The big ugly facts of debt spending

At the St George’s SAGE Commission meeting, someone said that there was a need for more information about the true state of Bermuda’s economy. That people needed to know more.

I agree. But some things are hidden in plain sight and are about as well hidden as the old Bank of Bermuda building on Front Street. Sometimes ordinary citizens just need to grab some honest public domain numbers and do some middle school arithmetic.

Here’s an example. First a statement of fact:-  Bob Richards will borrow 31c out of every dollar that he plans to spend in Bermuda.

Now look at this simple arithmetic for this.

None — absolutely none — of that is hidden away. It’s all there. A Big Ugly Fact [BUF]. It only takes middle school arithmetic to see it. Of course, someone has to do the arithmetic. Today, I’ve done it for you.

If Bob is borrowing 31c out of every dollar that he spends in 2013/14, can Bob continue that into 2014/15?

Last week I said that in 2014/15, the KEMH PPP will kick in. That’s when we start paying the 30 year amortized construction cost payments and the agreed annual maintenance and management fees. In November 2012, then-Minister Zane DeSilva said that these annual costs would likely start around $27 million.

Minister Bob anticipates no real growth in revenue in 2014, BUT there will still be at least a $27 million jump in Government’s overall costs.

Doing the same middle school arithmetic for 2014/15, we see that in FY 2014/15, and assuming that Bob caps local spending at $1,068 million and makes no substantial cuts (those desperately needed $100 million cuts), Bob will have to spend $1,253 million overall and must therefore borrow around $375 million. Bob will then be borrowing at least 35c out of every dollar that he spends in Bermuda. The year after that, in 2015/16, it can easily hit 40c.

This whoop-de-doo spending and insanely high level of borrowing began nine years ago in 2004. Unchecked and unstopped, it’s now dangerously high. And it’s all in plain sight.

Despite all the avoidance of public discussion, like a Roman Legion marching on a straight Roman road, the numbers just march straight on. Never deviating. Never failing to add up. Always coming to the same absolute conclusion.

Today’s level and kind of borrowing is dangerous, damaging, and far too high.

Here is a thirteen year view. It starts with Mr Eugene Cox’s tenure. It ends with a peek into 2014. Note how saintly Mr Cox and his predecessors look.

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Wondering why DSC suddenly leaps in 2014? It’s that second elephant. It’s paying for the $331 million borrowed in 2013 and the commencement of payments for the KEMH PPP. Like that old Bank of Bermuda building, the problem is big and obvious.

Now you know why cutting spending on personnel and sending those savings to Operational costs thus reducing the need to borrow is so critically important. Now you know.

[Wondering why DSC went DOWN in 2012/13 even though Debt went way UP?  It’s because of official ‘trick accounting’. The $65.8 million was the ‘cash’ paid out. The ‘expense’ was around $95.8 million. If you really want to know more about that $30 million gap, I can explain…. if you want to know.]