SAGE Commission Report
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F I N A L R e p o R t Submitted to Minister of Finance The Hon. E.T. “Bob” Richards Jp, Mp October 31, 2013 October 30, 2013 The Honourable E.T. “Bob” Richards JP, MP Minister of Finance Government of Bermuda The Cabinet Building 105 Front Street Hamilton HM05 Dear Minister, I am pleased to submit to you the final report of the Spending and Government Efficiency (SAGE) Commission. This document and its related appendices represent the SAGE Commission’s review of the Bermuda Government since the Commission was officially gazetted on April 15, 2013. The observations, findings and recommendations outlined here are the result of an exhaustive analysis of the cost of running the Government. Each Commissioner involved in this initiative has been shaken by the magnitude of the financial challenge facing Bermuda. However, each of us is convinced that solutions are within reach – if we don’t allow partisanship to fracture our resolve. We believe that we have outlined recommendations that are achievable. Our hope is that Government will act on these recommendations, and act on them with a sense of urgency. We would like to express our sincere gratitude to the many volunteers from the private sector who worked tirelessly with the SAGE Commission, and to the many dedicated Civil and Public Servants who met with us and provided candid, constructive feedback. Minister, we would also like to thank you and your colleagues for introducing the legislation that made the SAGE Commission possible. The Commission was established at a time when an independent review of the Bermuda Government was a bold step in the right direction. We are presenting you with a hard copy of our final report and with the URL to a password-protected web site containing the entire report. We have created the site in the interests of transparency and accessibility, and ask that with the tabling of the report in the House of Assembly, your Ministry ensures that the web site is live to the public. It has been an honour to serve Bermuda as Chairman of the SAGE Commission. I thank you for the privilege. Sincerely, Brian Duperreault 1 Table of Contents Executive Summary _________________________________________________________________________________ 3 Methodology _______________________________________________________________________________________ 19 Recommendations __________________________________________________________________________________ 23 a. PERfoRManCE – The Critical Paradigm Shift ___________________________________________________ 24 b. STREaMlinE – Creating a nimble Government__________________________________________________ 60 c. MEaSuREMEnT & METRiCS – The Era of accountability__________________________________________ 71 d. PRivaTiSaTion & ouTSouRCinG – The Right Services for the Right Price__________________________ 78 e. PEnSionS – Securing our future _____________________________________________________________ 115 f. PRE-RETiREMEnT lump Sum leave Benefit Payment____________________________________________ 130 g. GovERnMEnT EMPloyEE HEalTH inSuRanCE (GEHi) _________________________________________ 133 a Glide Path ________________________________________________________________________________________ 137 appendix (provided on the flash drive accompanying this report) a. General appendix b. Section appendices i. Performance ii. Streamline iii. Measurement & Metrics iv. Privatisation & Outsourcing v. Pensions vi. A Glide Path: The Multiplier Effect vii. Interim Report c. Submissions d. Notes – Public Meetings (September 2013) e. Administration and Sponsorship: i. Secretariat ii. Interviews (Individual and Organisations) iii. Sponsors iv. Pro bono services f. Communications g. Reference library (Documents made available to the SAGE Commission can be viewed on the flash drive included at the back of this report.) 2 Executive Summary He knows not his own strength that has not met adversity. Ben Jonson, poet and playwright a Country in TRanSiTion During more than 400 years of settlement, Bermuda has weathered a battery of challenges. The Island has been buffeted by literal and figurative winds of change that have tested the country’s mettle. Bermudians proved to be resilient, responding to adversity with confidence and vigour. From a financial standpoint, a pragmatic ingenuity ensured that the Island continued to develop from strength to strength. Bermudians learned to capitalise on a service-based economy, leveraging a natural beauty and gift for hosting to create a buffer of affluence and a level of comfort for its residents that few other countries could offer. Now, for the first time in Bermuda’s history, that buffer is gone. A country traditionally ranked in the top tier as a leisure destination and business jurisdiction features an economic profile that a few decades ago would have seemed unfathomable. Bermuda is labouring under a cost of Government that continues to increase an already substantial debt and threatens to destabilise the financial foundation of the country. Its population is declining. Its two principal industries, tourism and international business, are facing increasing competitiveness. Where once its citizens had a choice of jobs, rampant unemployment hovers like a spectre over a country in profound transition. The scenario is an unfamiliar, uncomfortable one for a proud Island for which adjectives like “premier” and “blue chip” have long been the norm. But this is the grim reality Bermuda faces in 2013, the fourth straight year of decline in its gross domestic product. While other countries have begun to rebound from 2008’s global downturn, Bermuda remains in recession. We are staring at a degree of adversity for which we have no past experience. For the first time in the Island’s history, we have difficult, painful decisions to make that will affect thousands of our country’s citizens. Our collective response to this 21st century wind of change will shape Bermuda’s future for generations to come. 3 ExecutivE Summary an unSustainaBlE STaTuS Quo From 2005 to date, Government has spent more than it has earned. Bermuda Government Revenues and Expenditures 2005 – 2014 Includes Sinking Fund Contributions for Debt Interest 2010 and 2013 Millions The SAGE Commission was established in response to the massive public debt accumulated from years of sustained deficits. By the end of Government’s current fiscal year (2013/14), debt on a net basis will be almost $1.8 billion. Public Debt (Net of Sinking Fund) 2005 – 2014 Millions The Commission was charged with conducting a six-month analysis and making recommendations that will help to establish a more modern, efficient and accountable government – one that Bermuda needs and can afford. 4 Public Debt (Net of Sinking Fund) as % of Gross Domestic Product 2003 – 2012 Finance Minister the Hon. E.T. “Bob” Richards J.P., M.P. did not – in fact, would not – give the Commission a target figure for expense reduction. Minister Richards wanted the review and the resulting recommendations to be based on an objective analysis that was unconstrained by a predetermined benchmark. This report is the result of an extensive analysis conducted by dozens of volunteers committed to finding a way to help Bermuda recover her economic health. Thousands of hours went into reading reports, analysing data and interviewing members of the public and private sectors. Hundreds more were spent in lengthy meetings to discuss findings and recommendations. The Commission’s interim report, submitted on July 23 of this year, laid out key findings after three months of study (The Interim Report is included in the Appendix of this report.) In the main, none of these findings have changed. The work of the SAGE Commission has corroborated and, where possible, substantiated and quantified the Commission’s interim findings. There are a number of overarching themes and findings that were reflected in the Interim Report. They have been validated in subsequent analysis, and now drive our final recommendations: • There is a lack of effective, accountable leadership in Bermuda’s Civil and Public Service. If this issue is resolved, other weaknesses are likely to be addressed. • The Civil and Public Service suffers from a flawed organisational structure in which the principles of best practice management are not enforced and in which a cumbersome, lethargic culture is rife. • The manner in which the Civil and Public Service is governed and in which reporting lines are identified demands a paradigm shift to meet Bermuda’s needs in the 21st Century. • Political interference has been allowed to thwart the effective management of the Civil Service. • The lack of effective leadership is compounded by a lack of fiscal discipline by both Civil Servants and politicians. This shared responsibility to maintain revenue and expense budgets has been ignored for too long. • The Bermuda Government, including the Legislature, is too big for the size of the country it serves. With too many Ministries and Departments, the organisation has become bloated. As a result, there is evidence of unfocused, duplicated and diluted decision-making. 5 ExecutivE Summary • Because there is no integrated process for planning and measurement, the Bermuda Government does not have a national strategic plan. Clearly articulated measurable goals and objectives are absent, while stated goals and objectives rarely correlate with cohesive business plans. • Some of the services provided by Government could be delivered more efficiently and cost effectively by the private sector.