Another municipal year passes – along with wasted chances

By Paul Berkowitz 7 September 2011

The treasury released financial results for the fourth quarter of the 2010/11 municipal financial year. PAUL BERKOWITZ compares the numbers with previous years and reflects on another year of wasted opportunities. 

As a whole, municipalities continue to improve the quality of information they submit to treasury. Three years ago fewer than 50 municipalities produced financial reports, whereas this financial year every single one has submitted data. There’s not much other good news, sadly.  The results released on Friday cover the period April to June 2011 and provide a bird’s-eye view of the financial well-being of all 283 municipalities.

In terms of their operating budgets, municipalities on aggregate collected 97% of budgeted revenue and spent 93% of their budgets.  This is largely unchanged from the previous two years.  However, the breakdown in operating expenditure shows that the problems identified in last year’s budget are still present: the underspending on “other” expenditures and bad debts.

The under-allocation to bad debts is an ongoing problem related to poor credit control and debtor management in some municipalities.  The underspending on “other” expenditures will hopefully be minimised with the 2011/12 budget.  Treasury has released templates for this year’s budget reporting and there is a great degree of disaggregation in both the operating and capital budgets.  More line items in the budgets hopefully means more transparency in reporting and fewer dark corners in which corruption or poor administration can hide. But time will tell.

The municipalities’ capital budgets continue to paint a negative picture.  Municipalities collected 78% of their budgeted revenue and spent 73% of their budgeted expenditure.  This was their worst performance in three years. Just as in previous years barely half the annual budget had been spent by the end of the third quarter – and, just as in previous years, there was a rush to spend the outstanding budget in the final quarter.  In each of the past three years more than 30% of the annual capital budget was spent in the fourth quarter. 

The reports of metros paints a rosier picture of the overall capital budget performance. They managed to collect and spend 85% of their capital budgets, but only by spending 40% of their annual budgets in the final quarter. Ethekwini continued to lead the pack, spending and collecting 95% of their budget, followed by Joburg (93%) and Tshwane (89%). Cape Town (72%) and Ekurhuleni (67%) were the worst performers. Joburg spent 51% of its annual budget in the final quarter, which included 59% of the budget for water & sanitation and 46% of the electricity budget.

In comparison, the 19 secondary cities (which include the growing areas of Polokwane, Rustenburg and Mbombela) only managed to collect and spend 56% of their capital budgets. These municipalities have a population growth higher than the metros and, therefore, have the greatest need to close the service delivery gap, but they spend a little more than half of their infrastructure budgets. Madibeng (Brits and surrounding areas) only spent 29% of its budget, while Msunduzi (Pietermaritzburg) spent a staggeringly low 23% of its annual capital budget.

A large part of the problem appears to be in raising revenue from the transfers and subsidies line item. Municipalities may be doing a poor job of convincing national and provincial treasuries to release funds for capital projects. Many municipalities do not have properly constituted project management units to administer the spending of capital grants. These are not new problems, and more should have been done by now to strengthen the capacity of municipalities to manage and spend their capital budgets.

Lastly, there has been little to no improvement in the cleaning up of municipal debtors’ books. The outstanding debt owing to municipalities is R64.6 billion, up slightly from the R64.4 billion in the previous quarter. Joburg (R12.1 billion) and Ekurhuleni (R9.0 billion) are owed almost one in three rands of the total debt between them. 

For years municipalities have been allowed to accumulate debt without aggressively writing off this debt or pursuing debtors. Part of the problem has been a poor understanding by councils of the impact old debt has on a municipality’s financial well-being.  Treasury is now pressurising municipalities to account for their debtors’ books. In future municipalities will have to report on their debt in more detail and will have to report on their efforts to recover debt and to write off old debt.

A little more than a month ago the auditor general’s reports for the 2009/10 financial year were released, and the results were a cause for concern. The official reports from treasury for that year are not much different from the reports we have for 2010/11.  Presumably we cannot hope for too much improvement in the auditor general’s reports for the year. As another financial year passes us by and we approach the Clean Audit 2014 deadline, we have to ask how serious we are about improving municipal governance. Based on our current pace of progress the answer has to be “not very”. DM

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