1

melc

sounds to good to be true

simple to work..
and no consultant fee’s what ever next ..
and no civil servants pushing it..
Too sensible and simple..
Nan this idea will get kicked out..

Matt.. Isn’t the idea to bankrupted our economy and put our tax up up and up robbing the poor so the wealthy save tax in our tax reduction centres and we have to let more wealth English in.
or feels like it to me

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5

Jackie

There is something missing here. Arte both sponsors accepting all of the capital expenditure products outlined by T&R? The problem I have with both models is the premis by which it was decided all projects were needed. Seems to me the list came out of T&R and that was it -no discussion

Or have the authors of the Alternative proposal already thought this through and accepted that there is no point having a prioritisation debate?

The Alternative is well thought through and thank neither models include PFI or PPP.

Well done authors, well written, well worded and worth a read. Good luck

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7

CD

Trouble is we all know that the projected spending figures for these capital projects will inevitably be massively underestimated. They always are.

This will lead the States to borrow “just a little bit more” (either internal or external borrowing)and so it goes on.

I feel strongly that Guernsey’s lack of government debt is gives us a temendous commercial advantage and we should protect it rather than squander it.

I welcome Matt Fallaize’s attempts to avoid external borrowing but this is still just a compromise. Surely we need to address the real issues of wastage in governement spending, failure to stick to budgets and, above all, loss of tax revenue form Zero 10.

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9

Jackie

Good point CD. Those of us who voted for the 0/10 ‘tweakers’ seem to have forgotten one of the stages.

Taxes are going to rise because of zero/10 whetehr we have borrowing or not. To compound the problem with borowing without even attempting to deal with the underlying cause is odd.

I wish the GP would use its brain an pick up the real stories here. Faiure of 0/10 deftly silence of the ‘tweakers’.

It’s unfathomable that we are even having this conversation.

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11

Martyn

I’m with CD on this one. Let’s start a little bandwagon rolling. Option 4 – for sure!

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13

Matt Fallaize

I’ll try to respond to points in the order raised by posters, although I may have to cover several at once because I may not have time to post all that frequently.

melc – your initial response is encouraging – thanks.

TL – I hope the link to our alternative funding report has answered the questions you raised in respect of internal borrowing.

donkeys life – The States has wisely avoided accumulating external debt for several decades. We agree that the island should remain free of what might be termed ‘national debt’ if at all possible – and our alternative proposals demonstrate that it is, indeed, possible.

The latest published value of the general revenue cash pool is £281million. Its constituent parts include corporate housing programme funds, local currency notes and coins held in reserve, working balances, and deposits from States trading undertakings. Funds should not be withdrawn without being repaid; however, loaning from the cash pool has been used many times in the past and remains a perfectly viable and sensible option today.

Jackie – thanks for your generous comments.

It is not quite right to say that the authors of the alternative report fully accept the need to carry out the full list of priority one projects recommended by Treasury & Resources.

Essentially, at the May meeting of the States, the Assembly will debate the principles of how best to fund capital investment. All capital projects will remain on a recommended/in-principle list and none will be approved until separate States debates later in the year.

Our report proposes an alternative funding model which is equally viable whether the States subsequently approves one project, three or four projects, or the full list recommended by T&R.

Our report is genuinely neutral on the question of whether all projects should be approved; we are merely presenting an alternative funding model that can be applied whether the States subsequently decides to spend just a few million or anything up to T&R’s recommended £301million.

We agree with your view of PFIs. And we do not necessarily disagree with the merits of a bond issue should the majority of States members decide that the island should borrow externally. We simply cannot see the good sense of borrowing externally – and leaving taxpayers with a repayment bill of £10million a year for the best part of 20 years – when it is so patently unnecessary.

Stephen John – The contingency reserve (the so-called ‘rainy day’ fund) is untouched in our alternative funding model. Its value would remain the same whether the States votes for T&R’s proposals or our alternative proposals. Nonetheless, we would agree that the States should restore the value of the contingency reserve to its pre-zero-10 levels as soon as possible. That may be less likely in the event that the States approves T&R’s borrowing proposals and commits future States to debt repayments of £10million a year.

Section 13 of the report deals with the potential advantages and disadvantages of internal borrowing. We would like to think that they are presented fairly clearly; however, should there be any technical issues not covered, please feel free to e-mail me and we shall do our best to reply.

CD – Yes, to a degree our proposals are a compromise. We are not seeking to present them as perfect or risk-free. We are, however, convinced that they are inherently less risky, more prudent and more sustainable than T&R’s proposals. As was once said – politics is the art of the possible.

We agree that Guernsey should not rush to accumulate external debt when it is not necessary.

On the question of sustainability, the States has borrowed internally in the past without making a habit of it. But we share the view that the States could very quickly develop an appetite for borrowing externally, as many jurisdictions have around the world; indeed, it is difficult to see how that could be avoided under T&R’s proposals, in view of the obvious effect their model would have on future States (see section 14 of our report).

Darren – I think most of your questions should be directed to the current and previous boards of T&R. However, you do raise a couple of points which I will do my best to address.

First, while there were, quite unsatisfactorily, a succession of overspends on major capital projects in the late 1990s and early years of this decade, to the best of my knowledge there have been none since the Machinery of Government reforms of 2004. It is to be hoped that the more rigorous processes put in place since then will prevent the sort of dreadful overspends that occurred all too frequently in the past.

Our alternative funding model does not propose depleting the cash reserves. We are proposing internally loaning around 40% of the cash pool to the capital reserve. Our model does not propose using any of the genuine reserves of the States, which are held in the contingency reserve.

Jackie – We agree that it would be particularly ill-advised for the States to accumulate external debt, and require taxpayers to contribute £10million a year to repay that debt, when the island faces annual budget deficits of anything up to £60-65million a year, as forecast by T&R.

T&R is reporting to the States later this year on measures to address the budget deficit. I think the T&R Minister is on record as saying that zero-10 will have to be reviewed as part of that process.

CD – I understand the analogy with your roof; however, the cash pool (the source of any internal borrowing) cannot be regarded as the ‘life savings’ of the States, which are held in the contingency reserve, and to a degree perhaps in the island’s pension pots.

Nonetheless, the premise of your argument – which is, I think, that the States should fund capital expenditure by generating operating surpluses, and should balance the budget as expeditiously as possible – is very much in agreement with the long-term views of the authors of the alternative report (it is covered in paragraphs three and four on page 17 of our report).

But if I had to choose between your option four and T&R’s proposals, I’d definitely choose yours.

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15

Gilthead

CD – spot on (again!).

The solution is so simple.

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17

Matt Fallaize

Stephen John –

There are very clear differences between T&R’s proposals and our alternative report in respect of the repayment obligations attached to both models.

Under T&R’s proposals, £175million of external debt would be repaid in the following two ways:

1 – £5million of income per annum (maintained in real terms) from gate fees at the solid waste treatment plant. This figure is an assumption running consistently through T&R’s calculations, our calculations and those of the Public Services Department, which is responsible for solid waste;

2 – £10million per annum from general revenue income, i.e. ordinary taxpayers. The States has approved that £20million pa (at 2009 values) should be appropriated from general revenue to the capital reserve to fund capital projects. T&R’s proposals would use £10million of that every year to build up a sinking fund to repay in 20 years the debt accumulated by this States.

In contrast, under our alternative proposals, £113million of internal borrowing would be repaid via income totalling £6.775million per annum (maintained in real terms) from the two ‘income-generating’ projects that we are suggesting the internal borrowing should be allocated against – the solid waste treatment plant (as above) and a portion of the work on the airport runway.

These effects of our proposals are covered in sections 11, 12 and 13 of our alternative report.

In respect of repayment obligations, in our view one of the most important points to consider is that T&R’s proposals require £10million per year of general revenue income from taxpayers to be allocated to a sinking fund to repay £175million of external debt, whereas the repayment costs to taxpayers/general revenue under our model is zero.

One could look at the above in either of two ways – under our proposals, the size of the island’s budget deficit could be reduced by £10million per year, or the next several States would have £10million per year more to spend on capital projects of the future.

In response to your last sentence – the answer is yes – obviously there would be no sinking fund interest accrued under our proposals because we don’t require the establishment of a sinking fund to make our model work.

The relevant point here is that the interest accrued to the sinking fund, under T&R’s proposals, would be used to assist in the repayment of the original debt accumulated. Under our alternative proposals, interest paid on internal borrowing will stay within States funds for the benefit of the island.

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19

David

Stephen
Matt has demonstrated that it doesn’t take long to pick up the ability of all politicians to avoid giving straight and short answers even when they agree with something !

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21

Deputy Dave Jones

Borrowing

Whatever else you may think about the alternative proposals by five fellow Deputies, you can’t argue that they have not put an awful lot of thought into them, I am attracted to these alternative proposals because it is a system of internal funding without the loss of millions in interest payments which is money we can spend elsewhere and without raiding the contingency reserve. Whatever happens, we will need to do some of these essential projects just to inject money into the local economy to protect our local building industry and other local jobs. I suspect that one issue alone will be in the forefront of Deputies minds when the airport expenditure comes to the States because I and others will not sit idly by and watch while all that money is spent on companies off island and our local contractors are shedding staff.
Anyway back to these alternative proposals. I am opposed to borrowing in principle and I think the people of Guernsey have to rewind back to the days when we had to live within our means, before we had millions in surpluses pre zero 10. I, like Matt and others have no wish to leave office at the end of this term with a massive debt tied around the necks of islanders.
I also don’t think we need to put more burden on the ordinary taxpayer to balance the books, we have yet to implement any of the more sensible solutions for savings in States expenditure and I believe there is much scope in that area before we attempt to raise more taxes from the general public. That doesn’t mean I agree with everything proposed by Tribal helm either, or what I imagine the Welsh audit office will come back with, after all these are two sets of consultants who come from a country that is currently the basket case of Europe and in Tribal Helms case one of the most scary things was their boast that they have been advisers to the UK government which is not something I would be running around telling people given the mess the UK is in. We have as Matt has said a 281 million pound cash pool, If we stage these essential projects over a sensible time period then we can do most of them with our own money, what we have to get away from, is this I” want it now” culture that has sprung up over the last few years and if we do we will be able to do most of what the island needs rather than this wish list that has been discussed.

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