Mr. Speaker, six weeks ago, on Friday 25 March I delivered a statement by way of a personal explanation setting out the reasons for my resignation as Minister of Finance.
Mr. Speaker, in that statement, I advised this Honorable House and the people of Bermuda that: “… the quantum of and form of the government’s support of the redevelopment of the Fairmont
Southampton were the primary reasons behind my resignation.”
This legislation is among the reasons for my standing down.
Mr. Speaker, let me state at the outset that it is possible to not support this bill but still be in support of the redevelopment of the Fairmont Southampton.
I now intend to provide context on those reasons as a participant in this debate. Before, I address those specifics, I would like to reiterate another part of my personal explanation:
“Mr. Speaker, first and foremost, I want to make it absolutely clear that I was, and still am, supportive of a level of financial support for this project. There truly are numerous potential
benefits of renovating and reopening a large, iconic hotel of this nature, especially at this time where economic recovery is vital. These include immediate and significant stimulus, construction and related economic activity, a large number of future hotel jobs, and a large increase in hotel
room inventory, which could help support more visitor demand and airlift capacity over time.
However, Mr. Speaker, I was and continue to be unable to ignore the principals and judgement gained through my over 30 years of experience in investment and commercial banking.”
Now, my specific concerns.
GIVEN THE GOVERNMENT’S FISCAL POSITION, THE PROPOSED LEGISLATION IS TOO GENEROUS.
The Existing Legislation:
Under the existing legislation which provides for up to 10-years of relief, Westend Properties Limited/Gencom would be entitled to between approximately $59 million (using the model developed by the Government’s advisors) and $66 million (using Gencom’s model) of hotel occupancy, payroll tax and land tax relief. These figures do not include the approximately $16 million of Customs Duty Relief that the project would be entitled to during the redevelopment.
When including the customs duty relief, the total value of the Government of Bermuda’s support through concessions-only, in other words not including any value that may be generated from reduced borrowing costs associated with the provision of any Government of Bermuda guarantee, would total between approximately $75 million and $82 million.
The Proposed New Legislation:
The proposed legislation contemplates providing 15 years of relief and Westend Properties Limited/Gencom would be entitled to between approximately $98 million (using the model developed by the Government’s advisors) and $117 million (using Gencom’s model). These
figures do not include approximately $16 million of Customs Duty Relief that the project would be entitled to. When including the customs duty relief, the total value of the Government of
Bermuda’s support through concessions-only, in other words not including any value that may be generated from reduced borrowing costs associated with the provision of any Government of
Bermuda guarantee, would total between approximately $114 million and $133 million.
The extension of the concession period from 10 years to 15 years will provide the developers with incremental value of between $39 and $50 million of additional value to the developers.
Those additional costs will be borne by the people of Bermuda.
THERE IS NO LIMIT ON THE QUANTUM OF THESE CONCESSIONS; THEY ARE OPEN-ENDED.
Under the terms of the existing Special Development Order, the developers are allowed to develop hotel residences which would entitle them to the same customs duty relief, and concessions on payroll tax, occupancy tax and land tax relief that they receive for the
redevelopment of the hotel. These amounts would be over and above the figures that I mentioned above. In other words, the value of these concessions or foregone government revenues could be greater than the $114 million and $133 million already mentioned (based on
the Government’s and Gencom’s respective financial assumptions).
THERE EXIST A STRONG POTENTIAL FOR INCREMENTAL COSTS?
Mr. Speaker, I will be guided by a formal legal opinion on an issue where there are differing points of view. That issue is the Most Favor Nations provisions contained in the Hotelco Master Development Agreement. I am of the view that Master Development Agreement between the
Government of Bermuda and Hotelco Bermuda Holdings Ltd. provides Hotelco with the opportunity to seek to be equalized with the provisions of the proposed legislation. Hotelco is
currently benefitting from a 10-year concessions framework. Passage of this legislation may give rise to additional benefit entitlements to Hotelco, the cost of which are currently unidentified.
Additionally, I believe that there is a risk that other hotel operators may approach the Government for retroactive relief given. We have seen this in the case of the owners of both Rosewood Tucker’s Point and the Loren who had previously been entitled to 5 years of concession relief under the Hotel Concessions Act 2000 and sought and received approval to be entitled to the benefits under the more robust Tourism Investment Act of 2017.
Again Mr. Speaker, we are flying blind here on what the potential costs of this legislation will be to the people of Bermuda.
WHAT IS THE DEAL?
Mr. Speaker, today we are being asked to approve this legislation which I understand to be a critical part of the Government’s deal with the developers. Yet as of this sitting we as legislators
remain unaware of the specifics of that deal. How can we in good conscience allow ourselves to approve this legislation without knowing the contours of the overall government deal. Why are
we committing ourselves to a course of legislative actions without knowing the totality of what we are giving to the developers? We are committing to giving someone more than $100 million
dollars without having any understanding of what more is to come. What is the rush; why are we doing this now?
A common feature of debates on issues like the Government’s support of major private sector projects is the back-and-forth exchange of criticism of the previous administration’s negotiated
deals. We’ve seen it more recently on the Morgan’s Point and the Airport projects and I suspect, if given more time, I could list prior PLP administration initiatives that have been the subject to criticism from the Opposition. In the spirit of advancing the quality of the debate on these matters, and stopping the cycle of perpetual finger-pointing, wouldn’t it be wise for the Government to provide Honorable Members with more comprehensive information on all of the
aspects of this deal so that we can all provide the support that our tourism industry so badly needs.
The Government has engaged professional advisors to assist in their negotiations with the developers. Given the significance of the potential overall commitment by the government,
wouldn’t it make sense to share their advice with Honorable Members.
IS THIS LEGISLATION IS IN THE INTEREST OF THE PEOPLE OF BERMUDA.
Mr. Speaker, I again refer to my statement of March 25 wherein I stated the following,
“… the redevelopment of the Fairmont Southampton, in my view, is a national strategic initiative;
one that requires that the Government be pragmatic in its approach to any support. However, the national strategic importance does not give justification to the abandonment of best principles. To be clear, I want to see the successful redevelopment and reopening of the Fairmont Southampton hotel. A redeveloped hotel will see investment in Bermuda’s economy, the creation
of construction jobs, the reemployment of many hospitality workers, and the return of paying guests; all told a potentially positive impact on Bermuda’s economy.”
Mr. Speaker, I can understand the desire to get the Fairmont Southampton redeveloped and reopened for business.
Mr. Speaker, we all have an obligation to, in the execution of our responsibilities as leaders and legislators, protect the interests of the people of Bermuda. There have been discussions of the benefits that this project will bring to the island and her people. I do not believe that there is anyone who disputesthat assertion. There are also significant costs and risks. A risk-free or cost-
free solution is not being sought. Instead, what I am looking for is a solution that seeks to provide support while protecting the interests of the people of Bermuda. I do not believe that this
legislation does that as we have not been given sufficient information to make such a determination.
Mr. Speaker, in simple terms, the Government and the people of Bermuda will be providing this project with between $180 million and $200 million of support (assuming the inclusion of a
guarantee of $50 million to $75 million; the exact amount of the guarantee is not yet known). A significant question that remains unanswered, what is Westend Properties’ contribution to this
transaction. I suspect that it is nowhere near as much as the people of Bermuda are being asked to put at risk.
CONCLUDING REMARKS
Mr. Speaker, it has been suggested that those who have concerns or oppose this legislation are disingenuous or naïve and may not be looking out for the interests of Bermudians; especially those who are employed in the hospitality sector.
Mr. Speaker, I would respond to those comments by pointing out the following:
While serving as Minister of Finance, I lead the team (i) that paid local contractors who had been
left unpaid by the developers at Morgan’s Point; (ii) that took steps to pay the workers at The Fairmont Southampton when their owners refused to honor their obligations and (iii) that put in
place an Unemployment Benefits program for the benefit of workers who were negatively affected by loss of work brought on by the impacts of the COVID-19 pandemic.
Mr. Speaker, with the greatest of respect, my bona fides on representing the interests of the employees/people of Bermuda are clear for all to see. Any suggestion that my lack of support
for this bill is based on a fixation with the numbers or a lack of concern for the interests of Bermudian workers is nothing more than – to borrow a word from the Minister of Tourism –
NONSENSE.
Mr. Speaker, it has also been suggested that a portion of the concessions do not go to the developers but instead goes into a bank account used to pay the $75 million of guaranteed debt.
Are we suggesting that there is no benefit to the developer? For the abundance of clarity, the debt is owed by the developer and while it doesn’t go into their hands, it is used for their benefit.
Mr. Speaker, with a burgeoning national debt and little remaining debt capacity under the current debt ceiling, the Government need to be judicious on how it decides to forego future revenue.
We are at an inflection point and everyone one is watching to see how we move forward: our people are watching our industry partners – domestic and international – are watching and our
bond investors are watching.
Mr. Speaker, it is my view that the existing concessions framework is more than enough to provide support to the developers while also preserving the public purse. I cannot in good conscience support this legislation.
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