On probation … – The Royal Gazette
David Burt, the Prime Minister, has again acted with some speed in an attempt to end criticism of the loss of $ 800,000 in taxpayer money after it was loaned to a company to establish a studio in ‘check-in at Dockyard.
As is often the case, Mr. Burt’s apology ended up being partial. He took the opportunity to criticize the One Bermuda Alliance for America’s Cup, the technical officials who reviewed the loan and this newspaper to rekindle this scandal after it was first reported ago a year.
But he accepts responsibility for the decision to lend the money, admitting that he supported the idea and pushed it forward.
Earlier this year, that newspaper criticized former Finance Minister Bob Richards for the government’s decision to guarantee loans to the Caroline Bay construction project, which then failed, leaving the government and the public in debt to the tune of $ 200 million.
At the time, it was noted that Mr. Richards undoubtedly made the decision to secure the loans for the best reasons and after considering all the facts available. But in the end, it was clear that Mr. Richards was wrong. He had taken a risk and it had turned against him at great cost to the taxpayer.
The newspaper noted that among the critics of the decision to grant the guarantee was Mr Burt, the shadow finance minister at the time, who had rightly questioned the wisdom of providing guarantees to private companies.
It’s a shame Mr. Burt ignored his own advice when it comes to the misnamed Savvy Entertainment.
Of course, there is a big difference between $ 800,000 and $ 200 million. Mr Burt undoubtedly felt the need to ensure that Moresby House at Dockyard was put to good use after its costly restoration by the previous government for the America’s Cup. He has since publicly stated how Bermuda should diversify the economy by taking a bigger stake in the global arts and entertainment industry.
So he undoubtedly did this with the best of intentions. He may also have felt that asking officials to do due diligence would be enough to ensure the security of the loan and its repayment.
There is therefore no reason to doubt his good intentions. But the premise remains the same: giving government support to private enterprise should be in the overwhelming public interest. And one should think about the idea that if larger scale projects are not considered creditworthy by banks, it should be a warning signal to other investors.
But just as Mr Burt warned in 2015, he should have remembered in 2018 that governments are generally incapable of picking winners and losers among private companies. Indeed, there are disturbing signs from the Progressive Labor Party platform that, far from learning this lesson, Mr Burt threw it out the window, as the platform promotes a number of programs of ‘private companies.
This is not to say that governments do not systematically support, whether through loans or guarantees, small businesses and start-ups, especially when they do not have a history of credit or financial support. ‘history justifying that a bank or other credit institution invests. This is the essence of the mission of the Bermuda Economic Development Corporation. But the amounts involved are relatively small and it is understood that some will be successful while others will not.
It is also fair to say that for many years Bermuda has not had the means to finance small and medium enterprises where the banks are unwilling to take the risk. In other larger countries, this void is being filled by venture capitalists and private equity investors, but little has been done in this area, although the Ignition business incubator and the infrastructure funds of the Bermuda are recent examples.
Private investors expect some of the companies they invest in to fail or fall short of expectations, and include it in their business models. This is the sense of risk and their investors are aware of the potential for losses when they put their money in a private fund. But taxpayer money is another matter. Indeed, there is a valid point to be made that one should not expect taxpayers to fund the success of another taxpayer. People who have money available to invest should be allowed to do so, rather than having their money lost in risky private sector ventures such as Caroline Bay or Savvy.
Likewise, governments are generally more successful when they create the conditions in which economic growth is possible rather than having a direct share in investments. Such a role should also include ensuring that opportunities are fair and equal, that anti-competitive and monopoly practices are discouraged and that no section of the community receives an unfair advantage.
The problem is greater when such investments are linked to other forms of social engineering. While this newspaper recognizes and supports efforts to narrow the wealth gap between white and black Bermuda due to the inequity that has resulted from centuries of white privilege, providing taxpayer-funded loans to companies that seem belonging only to strangers is surely not the way to right this wrong. And if public funds need to be loaned to someone, for goodness sake let’s do our homework on them and pay the funds gradually as they reach a carefully crafted list of goals.
It’s also worth noting that the only question left unanswered in all of this is the property of Savvy Entertainment. Mr Burt said the company was jointly owned by a Bermudan and a non-Bermudan. Still, the documentation identifies the company as an exempt company, 100 percent owned by a non-Bermudian. By definition, such a business is prohibited from selling services in Bermuda. And yet, not only was he doing that, but he was getting loaned from the Bermuda government.
Mr. Burt must be frank on this point. If the company got a waiver, what were the reasons?
He said Thursday that the finance ministry had now “ordered that any future loan agreements that might be considered must be accompanied by a receiver agreement to ensure that the loan proceeds are used for their intended purpose.” Does that mean that until the Savvy fiasco, it wasn’t? Do those who hold the purse strings only now recognize the need for those who receive our taxpayers’ money to prove their ability?
It feels like we’ve been in this movie before – where the financial rules that already exist weren’t followed, the money went into a black hole and then after that we’re told it’s not happening. will reproduce more.
The PLP platform suggests that government funds will be used to help disadvantaged people, especially those of African descent, women and people with disabilities. We applaud this goal. But what is even more important are strict checks and balances on how public funds are spent. At the very least, the credibility of such programs would be undermined, perhaps permanently, if such investments were to prove as unsuccessful as the Savvy Loan turned out to be.
So Mr. Burt and his government, with the evidence of the Savvy debacle laid bare, should take great care to ensure that taxpayer dollars are not recklessly wasted on business ventures.
As the saying goes, the road to hell is paved with good intentions. To ensure that taxpayer dollars are protected, it would make sense to have a panel or commission of seasoned investors who could advise on the feasibility of such investments or loans as well as their social value.
Not so wise: David Burt’s post as prime minister has been strained by his involvement in the trendy $ 800,000 loan (Photograph by Akil Simmons)