Saba has deficit for first time, lack of structural funds remains an issue

      Saba has deficit for first time, lack  of structural funds remains an issue

The Government Administration Building in The Bottom.

 

SABA--The public entity Saba was again able to achieve an unqualified audit opinion of its 2019 year report, and while the financial statements once more meet the requirements stated in the law, the Saba government was left no other choice than to present a document with a deficit of just over US $621,000 because of the lack of structural funding from the Netherlands.

  Saba Finance Commissioner Bruce Zagers relayed the bad news about the deficit to Island Council Members during a Central Committee meeting on Tuesday, August 25.

  Zagers has warned several times before that a deficit would eventually materialise. He said Saba was not alone in voicing its grave concerns about government’s financial situation. The Committee for Financial Supervision CFT and accounting firm Ernst and Young have addressed these concerns as well.

 

Challenges

  Zagers explained that the main challenges faced by Saba in 2019 were covering the increase in operational cost, covering structural tasks with incidental funding, capacity issues due to the influx of incidental funding and projects, and an increase in tasks and responsibilities.

  “For many years, we navigated on a skeleton budget, which was balanced on paper, but was far from realistic. Only because of non-structural funding and a very conservative spending policy was it possible to close off without negative results.”

  Zagers noted that at first glance the primary cause of the budget deficit appears to be the increase in the pension provision for former politicians of $556,000 which is caused by a decrease in the discount rate to calculate the provision.

  This expenditure, he clarified, was not budgeted, is outside the control of the public entity and is not financed through any additional income.

  He said this matter should not take away focus from the real budgetary challenges with which the public entity is faced. One of these challenges is the investment deficit of some $100,000. The investment subsidies cannot be used for future investments or necessary maintenance.

  “This confronts us with even more challenges in managing cost and required investments in future budgets. Next to the negative investment balance, we had to repay part of our interest-free loans, amounting to $440,000,” stated Zagers, adding that these cash outflows deplete the available cash.

 

Legal obligations

  For many years, Saba has informed the Dutch government about its challenges and inability to cover its legal obligations. The message is straightforward: the public entity does not have sufficient funding to operate efficiently and effectively or to cover all its cost.

  The public entity has continued to take on additional necessary tasks over the past years in the areas of social services, public health, public order and safety and policy. These tasks are covered for the most part only by temporary incidental funding, but with added tasks comes an increase in operational cost which the public entity needs to cover in its budget.

  “Over the years, the public entity Saba has taken advantage of many opportunities to improve the government organisation, government services, island infrastructure and its services to our people. Government has also adapted every labour agreement ensuring that salaries and employment benefits were improved and secured in a timely manner for civil servants. Unfortunately, many of these improvements were financed with incidental funding which came with structural consequences,” stated Zagers.

  Saba’s successes can now be seen in this deficit, he noted. He said that had Saba not over-achieved, perhaps the amount of incidental funds would have been much less and maybe the Netherlands’ urgency to find structural financial solutions would have been found sooner.

  He gave the construction of a new parking lot in Windwardside and the repairs to the road to Fort Bay Harbour as examples.

  “Because of Saba’s financial management achievements, we were able to secure interest-free loans to execute these projects. We now see that on the other islands projects such as these are being financed through grants. The loan payments for these projects will remain on our books for several more years and will have consequences for subsequent budgets, annual reports and our liquidity position.”

  The lack of finances is two-fold. The free allowance (“vrije uitkering”), when set in 2012, was fixed at the bare minimum required to execute government’s legal tasks.

  “Since then our responsibilities have increased, the cost of doing business and salaries have increased. Yet, for the most part the free allowance has remained unchanged. The modest adjustments definitely do not reflect what it takes to run an island some eight years later,” said Zagers.

 

Own income

  The second problem is that the public entity lacks the ability to generate more income. Saba does not have the oil terminals of St. Eustatius nor does it have the infrastructure to be a touristic island such as Bonaire.

  Zagers said that increasing local levies and implementing local property taxes would have major consequences for an already-fragile community and business sector.

  “It is no secret that many of our people live day-to-day and that our private sector struggles to keep their doors open because of the high cost of doing business, not to mention the negative impact that COVID-19 is having on our people and businesses.”

  He said he hoped the saying of State Secretary of Home Affairs and Kingdom Relations Raymond Knops “more for more” would soon reflect Saba’s financial situation.

  “We have always acted in good faith and we have been a transparent and cooperative partner. We have been used as the good example in many publications and debates when speaking about the other islands and countries in our Kingdom. These accolades are nice, but they do not solve the financial problems.”

 

Structural funding

  Zagers said it was time for The Hague to support Saba with its biggest backlog: structural funding for executing the tasks for which the island gets so many compliments. “We should not be advertised as the positive example in the Dutch Caribbean if it does not come with the structural financial support for us to meet our legal obligations.”

  He shared with the Island Council a letter the Executive Council sent to Finance Minister Wopke Hoekstra in March, outlining Saba’s precarious financial situation. It painted the stark financial reality and gave a synopsis as to why, for the first time since Saba became a public entity, the local government had ended a fiscal year with a deficit. In the letter, Hoekstra was asked to structurally raise the free allowance.

  Last week, Zagers sent an urgent email to the Ministry of Home Affairs and Kingdom Relations BZK. In the email, the contents of which he also shared with the Island Council, he noted that after having sounded the alarm on every level in The Hague on this issue, it was inevitable that Saba would eventually reach a deficit.

   Zagers stated in the email that the problem could not be ignored any longer. Because of COVID-19, Saba expects a similar result for 2020 and it will be impossible to balance a budget for 2021. “We need a structural solution for a known structural problem.”