Treasury uncovers worrisome picture

Local government finances have deteriorated significantly over the past four years. Some 66 of the country's 262 municipalities are in financial distress and another 37 are on the verge of it. More than half do not have sufficient cash reserves and could face liquidity meltdown making meeting short-term liabilities impossible. And overall they have underspent R12.4 billion or 29.3% of their capital budgets.

This is the worrying picture of the financial position of the country's local governments that comes to the fore in the latest report on the state of municipal finances just released by the Treasury.

It also identifies the practice of newly elected mayors  purging municipal managers and chief financial officers to make way for their own cronies as one of the big problems causing financial distress to municipalities.

For the present financial year, ending in June, 155 municipalities had less than one month's cash in reserve. This is in stark contrast to Treasury prescriptions that they should have at least three month's cash at hand as a buffer to ensure that they are able to meet their short-term liquidity requirements and pay creditors.

The report also reveals that most municipalities are heavily indebted and can barely manage to pay their debts on time.

Capital spending

The report found that municipalities continued to experience difficulties with the planning and execution of capital spending. Of the total capital budget allocated to 21 secondary cities, about R2.9-billion, or 44%, was underspent during the period under review.

District municipalities were found to be the worst performers, with more than half consistently underspending their budgets by more than 30%.

In other municipalities, 111 underspent their original capital budgets by more that 30%, impacting directly on the rollout of services.

Cooperative Governance spokesman Mbulelo Musi said the department had introduced the Municipal Systems Amendment Act and Operation Clean Audit to improve financial accountability.

"Municipalities do not have people with appropriate skills to manage finances hence a directive to request all municipalities to employ a CFO."

The department had established a municipal turnaround strategy, and technical support units in all provinces, to assist municipalities.

The underspending trend was attributed to poor capital budgeting; a shortage of planners and engineers able to draft appropriate specifications and prepare tenders of sufficient quality; poor capital expenditure planning; poorly managed procurement processes; political interference in procurement processes; and uncertainty as officials appear to have been reluctant to take spending decisions owing to political considerations.

Repairs and maintenance

Meanwhile, the National Treasury was preparing processes to ensure better quality budgeting and reporting on repairs and maintenance. This follows the finding that, should a municipality find itself in financial distress, the first expense cut was  repairs and maintenance.

“The impact of not spending on repairs and maintenance was not visible or obvious in the short term, and it was also less politically sensitive than cutting the capital expenditure programme or reducing the entertainment budget,” the report said.

However, the consequences of underspending on repairs and maintenance over the medium to long term included the deteriorating reliability and quality of services; more expensive crisis maintenance; the ever-increasing cost of maintenance and refurbishment; shortening the useful lifespan of assets; and reduced revenues owing to the failure of selling services.

Meanwhile, the report pointed out that 83 municipalities had acting municipal managers and 75 municipalities had acting CFOs. In 37 municipalities, acting officials filled both of these key roles. This was most prevalent in Mpumalanga, North West and Limpopo.

Treasury also criticised the lack of permanently employed municipal managers and chief financial officers in some of the municipalities, saying instability in these positions constituted a grave risk to the municipality.

"Eighty-three municipalities currently have acting municipal managers and 75 have acting chief financial officers, and in 37 municipalities both these key positions are filled by acting officials. The phenomenon is most prevalent in Mpumalanga, North West and Limpopo."

Vacancies in both positions tend to spike after elections, suggesting that municipal administrative and financial bosses either resign at the expiry of their five-year contracts, which are linked to the municipal cycle, or are pushed out by the newly elected political bosses.

"Information gathered since the elections indicates that the latter is probably the most likely explanation, especially in those provinces where the instances of acting officials is highest."

''A certain number of the new mayors are more concerned about the official vehicle they drive, their accommodation and perks than serving their communities," the report states.

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Comments (4)

• |2012-01-17 10:58:20 SeanO  - Pathetic
  Can someone please tell us, what the hell is going to be done about this pathetic situation?
  
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• |2012-01-17 14:28:43 Anonymous
  Maybe we need to take the same approach that was used in the 1980's to bring the apartheid government to its knees. The people need to stand together and begin not paying their municipal rates and taxes across to the municiapality until services are rendered. Rather this money should be placed into a separate account managed by a ratepayers association and only paid across to the municipality if they can show that they have the expertise to manage the funds and deliver the service for which they are appointed. If they cannot deliever the funds should be held back until the members of the municipal council are replaced.
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• |2012-01-18 09:42:35 Anonymous
  my proposal is that municipalities should be absorbed into the different departments of government because they are also involved in education, welfare, transport, etc. absorb them into the relevant Government Departments eg. Education and Training into Department of basic education and Higher Education.
  
  I see a lot of double funding happening accros the various departments. The Municipalities are operating as if they are the Government themselves. I think that they should stick to the electricity and water and all other projects or departments they have must be merged with existing Government Departments.
  
  South Africa will move forward once we have one kind of each service and not the duplicated services that occurs all over the show!
  
  This is a situation for Carte Blanche or Fokus. What about the comments of those South Africans who do not have access to multi-media to air their views? Come on and be realistic, stop the duplication, it wastes money!
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• |2012-01-18 14:42:19 Rob Sowry  - we gotta do something!
  We South Africans are an apathetic lot - if it doesn't affect me I don't worry about it. What this report describes is where we all in SA are going so we had better get off our bums and do something. A Rates boycott until competent people are appointed is a good start.Just a credible threat of it happening could make an impression on our talking head "leaders".
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