Provincial task teams’ efforts at municipalities could facilitate financial management {writer: Leon Alberts}

The annual report of the Department of Co-operative Governance and Traditional Affairs (CoGTA) recently tabled in Parliament has brought to light that the majority of South Africa’s 283 municipalities yet again did not succeed in spending their municipal infrastructure grants (MIGs) during the 2009-10 financial year.

But after interventions via provincial task teams and the deployment of engineers and financial professionals at problem municipalities, there is hope that the picture will improve by the end of the present budget year.

Municipalities collectively underspent their capital budgets by R8.5 billion or 17.1% in the 12 months to 30 June 2010.

At the end of August, the National Treasury stated that the under-expenditure for the 2009-10 municipal financial year was indicative of “either weaknesses in the ability of municipalities to compile credible budgets, or to manage the implementation of their infrastructure programmes.”

Of the aggregated capital budget of some R48bn, R39.7bn was spent by the end of the financial year, with the large metropolitan municipalities spending R22.2bn, or 88.6% of their budgets.

Overspending occurred in eThekwini at R6.7bn (112.6%) out of its R6bn adjusted capital budget, followed by Cape Town at R4.7bn (83.3%) out of a R5.6-billion budget. The City of Tshwane spent R2.2bn (82%) of its R2.7-billion budget.

Of the large metropolitan municipalities, the lowest capital spending occurred in the Nelson Mandela Bay Municipality, where only 78.9% of the budget was spent.

Looking at total budgets on aggregate, the 280 municipalities covered by the Treasury report spent R196.6bn (92.2%) of their collective total adjusted budgets of R213.3bn. They collected R210.8bn (95.1%) of the R221.8bn total adjusted revenue budgeted.

In total, 29 municipalities overspent their total adjusted budgets by more than 15%, while 27 underspent by more than 15%.

Outstanding debts

Metropolitan municipalities succeeded in collecting R120.4bn (92.1%) of their billed revenue against a collective budgeted total of R130.8bn. The municipality of eThekwini and of the City of Cape Town managed 96% and 96.4% collection respectively.

The aggregated municipal consumer debt, however, amounted to R56.1bn, with the largest component relating to households, which accounted for R31.6bn (56.3%) of the total outstanding debt.

Metropolitan municipalities were still owed a total of R30.6bn at the end of the financial year, an increase of R1.2bn (3.9%)compared to the 2008-09 financial year.

The City of Johannesburg had the largest outstanding amount at R8.4bn.

It did, however, represent a year-on-year decrease of R713 million. Ekurhuleni was owned R7.8bn, Cape Town R5bn and eThekwini R4.6bn.

Municipal debt to creditors collectively went up by R3.5bn to R11.6bn at the end of June this year compared to the end of March 2010.

The rural provinces battled the most, and the Free State’s municipalities had the highest percentage of creditors outstanding for more than 90 days at 36%, followed by North West at 31%, Limpopo at 28.9% and Northern Cape at 18%.

Water debt

It has since come to light that certain municipalities are badly in debt with regard to their water accounts, collectively amounting to more than R1.5bn.

Local municipalities are the worst offenders and owe collectively R856m, while the country’s 10 district municipalities have notched up R302m in unpaid water bills.

The Oliver Tambo District Municipality in the Eastern Cape has the largest outstanding water bill, at more than R113m, and recently had problems to provide water to schools.

Newcastle in KwaZulu-Natal has an outstanding water bill of more than R34m, while the Western Cape is in the deepest debt with its water bill for the West Coast District Municipality of more than R9m.

Provincial picture

According to the CoGTA report, it is particularly municipalities in provinces with a large rural component where there is a skills shortage and where they find it difficult to attract professional staff who battle to make targets.

Provincially, the picture

looked as follows:

• In the Northern Cape, municipalities by the end of March this year still had as much as R144m (43%) of their allocated MIGs in their bank accounts;

• In the North West province, R352m (39%) of the MIGs had not been spent;

• In Mpumalanga, some R354m (38%) of MIGs went unspent;

• Municipalities in Gauteng failed to spend R104m of their MIGs;

• In the Free State, the figure was R267m (34%);

• For the Eastern Cape, the figure stood at R593m (31%);

• Two provinces, Limpopo at 83% and KwaZulu-Natal at 95%, came fairly close to spending their full infrastructure subsidies; and

• The Western Cape’s municipalities were the only ones that succeeded in spending their full infrastructure grants.

In total, seven municipalities did not succeed in spending a single cent of their infrastructure budgets, while 37 spent less than 50% of theirs.

In terms of the applicable Division of Income Act, the grant money that has not been spent reverts to the Treasury.

Despite the fact that payments were withheld in August and December last year and March this year, some municipalities still underspent. As a result, CoGTA established provincial task teams to visit problem municipalities during May and September last year. Engineers and financial professionals were also deployed at some of these municipalities.

According to the director-general of CoGTA Elroy Africa, good progress has been made, but the impact will only be seen during the current financial year when some legislative and policy reforms will be implemented.

He noted a further problem in municipal spending, saying that in some cases where municipalities had their equitable share allocations stopped by the Treasury, they could not fund operational expenditure and, as a result, used MIG funding for day-to-day running of the municipality.

Grant funds are supposed to be dedicated to specific projects and are not for operational expenditure, which should be paid for from equitable share and revenue raised from municipal services and rates.

In April, Minister of Co-operative Governance and Traditional Affairs Sicelo Shiceka said his department had audited the backlog in the provision of infrastructure by local authorities and had come up with a figure of R495bn, which is 10 times the department’s budget.

He said at the time that by April next year, CoGTA would set up a special purpose vehicle to control and co-ordinate municipal investment and essential maintenance spending to help local authorities reduce their backlog.