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

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 materialize. He said that Public Entity Saba had not been alone in voicing its grave concerns about government’s financial situation. The Board for Financial Supervision CFT and accountant’s firm Ernst and Young have addressed these concerns as well.

Challenges

Zagers explained that the main challenges faced by the Public Entity Saba in 2019 were covering the increase in operational costs, 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.”

The Commissioner noted that at first glance the primary cause of the budget deficit appears to be the increase in the pension provision for former politiciansof US $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 also not financed through any additional income. He said that this matter should not take away the focus from the real budgetary challenges that the public entity is faced with.

One of these challenges is the investment deficit of some US $100,000. The investment subsidies cannot be used for future investments or necessary maintenance. “This confronts us with even more challenges in managing costs and required investments in future budgets. Next to the negative investment balance, we had to repay part of our interest-free loans, amounting to US $440,000,” stated Zagers, who added that these cash outflows deplete the available cash.

Legal obligations

For numerous years, the Public Entity Saba has informed the Dutch Government about its challenges and the 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 costs. 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 in most parts only by temporary incidental funding, but with added tasks comes an increase in operational costs 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 organization, government services, island infrastructure and its services to our people. Government has also adapted every labor 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.

Over-achieved

Saba’s successes can now be seen in this deficit, noted the Commissioner. He said that had Saba not over-achieved, perhaps the amount of incidental funds would have been much less and maybe the urgency of the Netherlands 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 Harbor 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, year 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 businesses has increased 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 own income. Saba doesn’t have the oil terminals of St. Eustatius nor does it have the infrastructure to be a touristic island like 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.”

The Commissioner said he hoped the saying of State Secretary Raymond Knops “more for more” would soon reflect on 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 are not solving 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 that the island gets so many compliments for. “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.”

The Commissioner shared with the Island Council a letter that the Executive Council sent to Finance Minister Wopke Hoekstra in March this year, outlining Saba’s precarious financial situation. It painted the stark financial reality and gave a synopsis as to why, for the first time that Saba became a public entity, the local government ended a fiscal year with a deficit. In the letter, the Minister 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 mail, the contents 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.”

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