States £70m. short for massive investment plan

AN INVESTMENT programme costing up to £335m. including new schools at La Mare has been unveiled by Treasury and Resources – but the States is £70m. short of being able to fund it all.

AN INVESTMENT programme costing up to £335m. including new schools at La Mare has been unveiled by Treasury and Resources – but the States is £70m. short of being able to fund it all.

The programme is split into two: £225m.-worth to be paid for from the capital reserve, a pool of money set aside from general States income for building; and £100m. to £110m. of projects which are funded from fees, charges or loans – for example waste plants and social housing.

Treasury’s report, to be debated by the States in September, concentrates on prioritising those in the first of these categories.

This includes the first phase of the bus fleet replacement, coastal defence improvements, new equipment at the hospital and moving community services to the King Edward VII site.

Comments for: "States £70m. short for massive investment plan"

guern abroad

So after that spend what will be the projected level left in the capital reserrves fund?

Dave Jones

The fact that we cannot afford to do everything is not really news, the States over several decades has always lived within its means, which is why it is unique in most of the world of not having any Island debt.

This kind of fiscal caution has prevented us from paying millions in interest and from getting ourselves into the position of the rest of Europe whose populations have been brought to their financial knees under the burden of their countries national debts.

So the position we find ourselves in by having to choose what we can afford to do should be regarded as a notable feat, not be the subject of public or media disapproval.

JC

Cannot agree more with this. If we cannot afford it we cannot have it - that is a simple fact of life that should not be ignored. The world is in a mess due to people borrowing too much and having everything - take the lesson to heart and do not follow the lead of governments in trouble.

PLP

Agreed....and it's a vicious spiral.

Borrow to fund capital projects you can't afford and be prepared to go into further debt paying the ongoing maintenance costs.

Pouqued

I agree Mr Jones, so let's not start borrowing now.

pyer

Agreed.

Please do not even consider borrowing.

Matt Fallaize

T&R proposed external borrowing (of up to £175m.) in the last round of capital prioritisation.

Their proposals were defeated by an alternative funding package put from the floor of the States.

Looking at the membership of T&R today, I think it is safe to assume that they would have less of an appetite for external borrowing: three of the five members voted for the amendment (i.e. against external borrowing) in 2009 and one of the two members who was not a member of the last States has said publicly that he is sceptical about external borrowing.

Should they have a change of heart and propose external borrowing for capital projects with no associated income stream, we will put up an alternative package just like last time.

Shane Langlois

Matt

The £175million ‘external’ borrowing proposed in 2009 was towards the then current £301million capital prioritisation programme 75% of which was allocated to four projects; rebuilding Les Beaucamps School, replacing the Castel Hospital, the solid waste facility and the airport expansion. Your ‘alternative funding model’ which the States approved, relied on distinguishing the latter two projects as income generating and therefore eligible to be funded and partially funded respectively by ‘internal’ borrowings of £113 million. The £62million shortfall being made up by ‘re-interpreting’ the Capital Reserve projections and tolerances.

There is little to distinguish between ‘internal‘ & ‘external’ borrowing. If a family has £15,000 saved in joint account and one parent needs a new car is it really better to spend the £15,000 savings, intending to rebuild the fund over time, rather than taking out a £15,000 bank loan? The latter option might cost more (the difference between the interest rates) but on the other hand its advantage is that it leaves the savings available for unforeseen events and, importantly, imposes a discipline on the repayments.

When States Departments borrow ‘internally’ as the PSD did for the Airport Terminal and was obliged to do under your alternative model for £30million of the airport expansion project the loan is often converted by the States into a grant after special pleading. There is no repayment discipline at all and, arguably, little restraint on the amount of capital expended. It is therefore reassuring that the solid waste facility, as an income generating service, will probably now have to be funded by a bank loan rather than ‘internal’ borrowing as the alternative model proposed. Though that is only because, from T&R’s figures, the cupboard looks too bare for the alternative model to be sustainable. Its going to be an interesting States debate in September.

Matt Fallaize

Shane

It's Groundhog Day and we know from the 2009 debate that you and I will never agree on this subject.

For a start the 'cash pool' can't be regarded as the savings of the States. And the 'discipline' of repayments incurred by borrowing £175m. externally might have looked more credible had T&R provided a single word of information about where the circa £10. per annum repayments would have come from.

Our alternative Model A looks more sustainable today than it did when carried by the States in 2009. Back then T&R initially claimed that our proposals might empty the capital reserve during parts of the programme and leave it with around £21million by the end of the programme. In fact they now estimate that there will be £67million left in the capital reserve.

Our proposals of 2009 have left available around £300million for a six-year programme of non-income generating capital projects. If annual transfers to the capital reserve were increased to meet the fiscal framework target, the amount of funding available would be closer to £450million for a six-year programme.

£300-450million: that's not a funding shortfall.

Internal borrowing for the now much-revised solid waste facility remains as valid now as it did in 2009. Whether it ends up being funded by external or internal borrowing will be down to interest rates, not the integrity of the 2009 funding model.

Funding schools, hospitals etc. in this capital programme via external borrowing is totally unnecessary and would be utter madness.

Shane Langlois

Matt

I am more optimistic than you, I believe one day you will see the light.

At the heart of your ‘alternative funding model’ is the notion that borrowing or guaranteeing borrowing against ‘income-generating’ projects is fine but not otherwise. Dave repeated something similar in an earlier post but it just does not make sense, all services provided by the States have an associated income stream. Take two similar, independent islands in which the governments want to extend their hospitals. In one island treatment is provided ‘free at the point of use’, a typical islander pays £4,500 income tax annually of which £500 goes towards healthcare. In the second island healthcare is not provided ‘free’, a typical islander pays only £4,000 income tax but also £500 fees and charges towards his healthcare. Your argument implies it is perfectly acceptable for the government in the second island to borrow to fund the hospital extension but “utter madness” for the government in the first island to do so.

I do not believe many of the posters supporting ‘no borrowing’ are particularly interested in this false distinction between project types, they oppose borrowing because they simply do not trust the States to spend money wisely. As I have said before this is because the States often appears to consider capital projects as an end in themselves rather than what they really are, just a component of a service to the public. Hence the sometimes justifiable claim that a capital project is ‘gold-plated’. Many politicians find it more appealing to be associated with a large capital project than with the most cost-effective provision of a service.

Matt Fallaize

Shane,

The distinction between income-generating and non-income-generating projects, made by the States for a long time, is not false.

It is the distinction between on the one hand merit goods and public goods and on the other hand services provided or managed by the States for which it is reasonable to charge the user at or close to the accounting cost or even the full economic cost.

Incorporating this distinction in States policy has the practical effect of very much limiting borrowing in the public sector - and far more effectively than some arbitrary percentage buried somewhere in a fiscal framework which few people can get their head around.

Even leaving aside the interest rate business, favouring internal borrowing above external borrowing has a not dissimilar effect: the pot available for internal borrowing is actually quite small and therefore very much limits public sector borrowing.

I'd rather the States not borrow at all, but if that argument cannot be carried I'd rather set a tight limit on that borrowing by linking it to projects for which user charges can be applied and if possible requiring it to be internal borrowing only.

Anyhow, the borrowing and distinction arguments are unnecessary for the next phase of the capital programme. The alternative funding model which the States approved in 2009 has left the island with sufficient money available to the capital reserve to undertake over a six-year period all of the projects prioritised by T & R.

Shane Langlois

Matt

Your wish to firmly constrain borrowing is understandable and laudable. However your methodology has consequences.

There is not much income redistribution in Guernsey. What little there is, outside social security, occurs in the funding of those services provided free at the point of use eg secondary healthcare and education. The very services you prohibit from borrowing for capital projects. Whereas services, funded by charges, for which both rich and poor pay the same are free to borrow. That sounds perverse to me.

The only one of the ‘Big Four’ 2009 projects I listed earlier you would countenance borrowing to fund is our solid waste facility because it will be ‘income generating’. However at the moment half the income is derived from a TRP based refuse rate, which could just as well be collected by the States as the parishes. Are you saying that if the change to a charge per bag is not implemented then we cannot borrow to fund the domestic refuse elements of the new facility at Longue Hougue?

The distinctions you make between ‘internal’ & ‘external’ borrowing or ‘income generating’ & ‘non-income generating’ projects just distract from the real debate which should be about how much we spend and on what.

mrspinthepantry

Obviously we've had our differences online before but couldn't agree with you more here Dave.

We should not borrow under ANY circumstances, recent history elsewhere could not demonstrate this clearer.

For once let us learn from others unfortunate mistakes instead of copying them.............

Shane Langlois

Dave, its all very well beating the ‘no borrowing’ drum but what is the total sum of loans currently guaranteed by the States ie the taxpayer and what will that total be in a year or two when Aurigny has borrowed to buy its jet and a loan has been taken out to finance the solid waste facility? Would you feel any more comfortable guaranteeing a neighbour’s bank loan than taking one out yourself?

Dave Jones

Shane

Those guarantees are only feasible because the loans are being paid back from a steady income stream , we should never borrow for vanity projects or for things we would get eventually if we wait to generate the income needed to pay for them.

Certainly not for anything that does not have an income stream.

Beanjar

I totally agree Dave. At least the taxes we pay now are for current services, not somebody's ego trip 50 years ago. As I tell our kids "Once you start spending your income on interest and rents you are screwed". And the same applies to governments.

Local

I think it makes more sense to trickle these projects out anyway. If everything happens at the same time we are back to having to import labour and increasing the work force to the point that we are all struggling for work again when the projects are completed.

Island Wide Voting

Close La Mare de Carteret school

Sell it off to a developer and if necessary use the funds to expand St Sampsons High and Les Beaucamps after re-jigging the catchment areas

Martino

Island Wide Voting for Education Minister x 2

PLP

Is it 3 strikes and you're in?

Toolbag

What's happened to the proposed sell-off of certain States-owned properties, that didn't fit with their overall planning?

Dave Jones

Toolbag

We haven't finished that debate yet and it resumes again in September

Questor

Think you'll find the Beaucamps site would be too small. If they had rebuilt LMDC before Beaucamps your solution might just have been workable...

Castiel

Don't buy what you cannot afford or we will end up with VAT at 20% and God knows what other taxes our spendaholic State's will have to impose on us, especially at a time when our Finance Golden Goose is slowly dying and no one seems to have a plan B.

Neil Forman

At first I thought this was funny....Then I realized the awful truth of it. Be sure to read all the way to the end!

Tax his land,

Tax his bed,

Tax the table

At which he's fed.

Tax his work,

Tax his pay,

He works for peanuts

Anyway!

Tax his cow,

Tax his goat,

Tax his pants,

Tax his coat.

Tax his tobacco,

Tax his drink,

Tax him if he

Tries to think.

Tax his car,

Tax his gas,

Find other ways

To tax his ass.

Tax all he has

Then let him know

That you won't be done

Till he has no dough.

When he screams and hollers;

Then tax him some more,

Tax him till

He's good and sore.

Then tax his coffin,

Tax his grave,

Tax the sod in

Which he's laid.

When he's gone,

Do not relax,

It's time to apply

The inheritance tax.

Accounts Receivable Tax

Airline surcharge tax

Airline Fuel Tax

Airport Maintenance Tax

Building Permit Tax

Cigarette Tax

Cooking Tax

Corporate Income Tax

Goods and Services Tax (GST)

Death Tax

Driving Permit Tax

Environmental Tax (Fee)

Excise Taxes

Income Tax

Fishing License Tax

Food License Tax

Petrol Tax (too much per litre)

Gross Receipts Tax

Health Tax

Heating Tax

Inheritance Tax

Interest Tax

Lighting Tax

Liquor Tax

Luxury Taxes

Marriage License Tax

Medicare Tax

Mortgage Tax

Pension Tax

Personal Income Tax

Property Tax

Poverty Tax

Prescription Drug Tax

Real Estate Tax

Recreational Vehicle Tax

Retail Sales Tax

Service Charge Tax

School Tax

Telephone Tax

Value Added Tax

Vehicle License Registration Tax

Vehicle Sales Tax

Water Tax

Workers Compensation Tax

Tax (VAT) on Tax.

And Now they want a blooming Carbon Tax!

STILL THINK THIS IS FUNNY?

Not one of these taxes existed 100 years ago, & our nation was one of the most prosperous in the world... We had absolutely no national debt, had a large middle class,a huge manufacturing base, and Mum stayed home to raise the kids.

What in the Hell happened? Could it be the lying parasitic politicians wasting our money?

Oh, and don't forget the relatively new bank charges....

And we all know what we think of Bankers.

Island Wide Voting

It seems tthat only paid parking is left...... they wouldn't would they?

islander

IWV.

There is always internal borrowing.States of Guernsey Superannual Fund.

Neil Forman

IVW

Don't encourage them;-))

I copied that post from Facebook, it is meant for England but you can see where we are going.

There are a couple on the Environment board who want this, hopefully they will fail. We don't need more taxes and we do certainly not want to go down the borrowing route as DJ states.

As the original post says, stop the waste!

Neil Forman

islander

Don't even go there! :-))

Although they could go down the loan shark route and charge an extortionate rate of interest, after all the taxpayer will cover the deficit one way or the other.

Valeite

Well you had better get your alternative to borrowing ready Matt cos Gavin St Pier on CTV just saying borrowing a possibility.

Laurie Q

Valeite

I would certainly vote against external borrowing.

Castiel has given some very good reasons why that should be the case. If ever there was a time for Guernsey prudence to come to the fore, to only do what is absolutely necessary and truly live within our means, this is it.

Shane has correctly pointed out that we are already somewhat extended.

PLP has made a very good point. Historically the States have generally been poor re regular and proper maintenance of infrastructure. To borrow to create more perhaps unnecessary infrastructure that we could not afford to maintain would be most unwise. Jurisdictions that borrow never seem to get out of debt. In fact their debt increases over time and more and more revenue gets swallowed up servicing the debt rather than providing services.

Toolbag

The States Asset Management Plan is still in the pipeline.

Island Wide Voting

Talking about pipelines ... can someone please advise PSD to search out a few more quotes for the replacement sewage pipes(s)

15M ! Come on ,it's a bloomin' plastic / metal pipe for goodness sake.This sounds like another opportunity to treble / quadruple the price because it is the States ( sorry taxpayers) footing the bill

Gavin Sf Pier

Valeite - I was restating what is in the Report. If all the projects listed in the report are approved to enter the next stage in the process - scoping, looking at options, getting a firmer handle on cost - and if the broad estimates of cost prove to right, then we will need to consider our funding options. In essence, there are three: increase the appropriations from general revenue (taxation); draw down on other reserves; or borrow. T&R's view is that it is our role to look at the impact of all of these and report back to the States. At that point - again as the Report makes clear - if the States does not find any of the alternatives attractive, it will then be necessary to review the programme. This could for example mean trimming it back or deferring some of the projects. So, we are at quite an early phase in the process rather than at its end. At this point, we are recommending that these are the projects which the States should look at in more depth including, obviously, the costing and funding implications.

Matt Fallaize

I didn't hear Gavin on Channel, but the capital prioritisation policy letter published by his committee is very lukewarm indeed on external borrowing.

All this angst about funding capital projects is totally unnecessary. It's not a question of funding - it's a question of timing.

What T&R are saying is that there is a funding gap of £70million for a programme of projects for the years 2014-2017.

But the present States capital programme is for six years, not four years. If T&R maintains a six-year programme (2014-2019) a further two years of appropriations from general revenue can be included in the funding package and the gap shrinks to about £10million, which is merely a matter of minor adjustments in a £225million programme over a six-year period.

guern abroad

Good post Dave.

We must not borrow and must learn from the crippling affect that borrowing has had on other areas such as Europe which is kneeless it is so beaten.

Pillsbury

GsP resigning and paying back the losses incurred by the useless SAP fiasco might be a good start.

Dave Jones

Or Gavin pace these projects as we can afford them, not borrow millions that my children and grandchildren will have to pay back plus millions in interest.

I seldom agree with the Press editorial but I do on the subject of the Leopardess, I see absolutely no reason to change this boat at this time, especially when I see our health department juggling its finances over which expensive cancer drug they can afford and the low paid in our community struggling on a daily basis to pay their bills and feed their families.

We the States must do what every Guernsey family is having to do at the moment and that is make do and mend. If and when the economy improves then we might be able to upgrade this vessel but certainly not now.

Valeite

I heard what you said Gavin and I realize what context it was meant, but you did say borrowing was an option, so I was just telling my Vale deputy to be ready for another fight,us Guerns don't want to borrow, end of. Thank goodness there are some deputies prepared to listen to us.

Pouqued

Dave Jones

Total agreement with you on the Leopardess. Is it a sea fisheries vessel or a customs vessel, I seem to remember it was used to transport prisoners to the UK and Mr Prout bragging to Martin Clunes on a TV program that it was his customs boat; or is it another Home Affairs toy for the boys?

maurice

I am amazed when the States tell us they are 70 millions Pounds short for necessary enterprises. But lets analyse what it has been happening in the last 10 years or so and see whether the States has properly prioritise or not. For instance many of us poor citizens would like to know what necessity there was to extend the runway at the airport. I cannot fathom the reason because or maybe they expect huge jets i.e, Boeings coming from US or Australia? We have coped before for so long why spending money with this Langan Co. that it looks will never end this operation, reminding me the Tower of Babel in the Bible! Whereas what is important really still needs to come to fruition, in fact is not even contemplated I think. For example the treatment of sewage, the roads signs that are in such poor an in some place unreadable state, re organizing footpaths, tarmac or adjust parking spaces at the parks and at the beaches where one can ruin their car's suspensions. Simple things you know! One could go on enumerating real vital and significant others. Unfortunately who are we to say what should be done? The present States is in an erratic status at present, but I suppose they think they are doing their best for all of us, but it is sad that they don't take on board what all of us are suggesting and make a good analysis of it all!

Shane Langlois

Maurice

Your post raises two issues far more salient than the smoke-screen of borrowing whether ‘internally’ or ‘externally’. Those issues are;

1. Decisions on the amount allocated to various capital projects to the exclusion of other projects.

2. The target for the total amount allocated annually towards capital projects.

The States has a system for prioritising capital projects which works reasonably well but it is the amount allocated to the prioritised projects which does not come under sufficient scrutiny. For instance most would have agreed with the States that the airport runway refurbishment was a priority. It is the extent therefore cost of those works which lacked any serious consideration despite the best endeavours of a few. Some will deny it but there is a far higher ‘vanity element’ in certain projects than in, say, extending our sewer network.

The States target is to allocate 3% of GDP annually towards capital projects. This is quite a common target in the Western world. However it does not take into account that in Guernsey we have an inflated GDP, much of which is ‘ring-fenced’ by our 0% rate of corporation tax. Our GDP per head of population is roughly 25% higher than in the UK. Personally I think it would be more prudent to acknowledge this and reduce our annual capital allocation target to 2.25% of Guernsey’s GDP rather than striving to achieve 3%.

Maurice

To the above I would like to mention and add something that it has been at my heart from the beginning. Why get rid of the School Dentistry? They (the States ) say is too expensive to run and no money for this, but then what they do? They make new schools, when they could have modified and refurbished the old ones and save millions of pounds. When one think that the free dentistry for school children was available even over 50 years ago. Shameful to go backward instead than forward. Thus what will happen in time as these children grow up, many will present with poor state of teeth endangering their adulthood's health. We cannot call this the Health of Nation's program being up to scratch! Can we?

Spartacus

I gather the school dentist is still there but the service is only available to those who really need it due to financial need or severity of dental problems in accordance with a set criteria.

Realist

It strikes me that many of these capital spending projects, while highly desirable, are not absolutely essential.

For example...

We have a very modern and well equipped hospital and huge sums have been spent on it in recent years. Of course it can always be upgraded and improved but many other countries around the world would give their right arm for something of this standard.

We do not need to replace the bus fleet. Yes it is a bit dated but the buses still work. What we do need to do is ensure it is properly managed to meet islanders needs.

Spend money on coastal defence improvements if they are in imminement risk of failing - otherwise leave them alone.

How much would it cost to extensively renovate La Mare School - a lot less than rebuilding it I'll bet.

I could go on but the key point is, when finances get tight, we should cut our cloth accordingly.

Lest we forget, the finance industry is under very real pressure and future tax revenues are by no means certain - now is not the time to go on a spending spree.

As for external borrowing (or so called internal borrowing which is the same thing but with cleverly massaged figures) - that is such an obvious mistake I cannot beleive the States are even considering it.

Debt is always expensive and we don't need it.

I appreciate that every politician wants to be seen to be improving things for the benefit of their electorate. That does not mean they have to leave some great legacy project for future generations to admire - those future generations would be much more grateful if you left the islands finances in a healthy state.

Probity.

Well done to both Dave Jones and also Matt Fallaize, for, once again, communicating their explanations and views, instead of being like some other elected representatives.

Some of them are more like 'the secret service' in attitude' it seems.?

Craig

Why cant the State just create the money out of thin air like they did in the 1800s when they wanted to build the Sea Walls and the Original Market?.

The Government should create, issue, and circulate all the currency and credits needed to satisfy the spending power of the Government and the buying power of consumers. By the adoption of these principles, the taxpayers will be saved immense sums of interest. Money will cease to be master and become the servant of humanity. -Abraham Lincoln

Shane Langlois

Craig

That innovative scheme worked because those were deflationary times. Though its something to bear in mind if our economy ever experienced a serious, prolonged downturn! I’ve always thought it strange that politicians 200 years ago seemed so much more financially literate than those today, despite the island having become an international finance centre.

mrspinthepantry

Craig!

Now we are talking. Someone knows their economic history. It's true we did provide the model for modern fiat currency, the rest of the world took the idea and ran with it........ and look at the mess they made!

Would like us to remain debt free please.

Beanjar

Craig and Abe have the right idea. I am not in favour of the States borrowing money to pay for current projects but if they do decide to do so, why not issue bonds? There are so few Guernsey based savings opportunities available nowadays that they would be well received. People with spare money really only have two options currently, invest off island which does little to help our economy, or become landlords thereby fueling the crazy property prices.

West

If a small island such as Gsy goes down the borrowing route there is a strong possibility that we would follow others down the same road. Seychelles in 2009 for example. If we then need to go cap in hand for a bail out you can say goodbye to finance and life as we know it.

Questor

A few questions...

1. if the Environment Department has been working with Education for the use of their sites for motorcycle training, why didn't they (or did they and were refused?) ask Education to include an area on one of their sites scheduled for redevelopment? Surely with some intelligent management such an area could be shared?

2. I presume in these days of seeking to reduce our CO2 emissions and energy costs T&R's corporate data centres will be designed so that the inevitable surplus heat can be used to heat the buildings within which they are situated? Seems like madness to pay to cool one room in a building and at the same time pay to heat the rest of it?!

3. If the Education Department is planning to do some sort of secondary review in line with the potential change/removal of the 11+ system how can they design and build an appropriate size of secondary school on the LMDC site if they don't know how many pupils they might need to put in it?

4. In respect of the Alderney airport runway, since Alderney seem to insist that they know far better how to manage the facility can't we just let them have it and get on with it?

5. If the C&E/PSD Departments are that fussed about being "green" why don't they look at the energy usage of their sites in the first place? Are the lights on longer than necessary? Are other systems (e.g. radar at the airport etc.) run all night?

A more general question: the prioritisation process seems to have been based on a percentage scoring system, then seeking to find the funding for those which landed within the top two categories. Surely it should be a case of prioritising the requests then limiting the expenditure to what is available to fund the most essential projects? (i.e. fund only those with the highest priority within the overall available funding total)