The National Treasury has today published a report on local government’s revenue and expenditure for the first quarter of the 2013/14 financial year, as well as spending on conditional grants for the same period. This report covers the first three months (1 July 2013 - 30 September 2013) of the municipal financial year ending on 30 June 2014.
This report is part of the In-year Management, Monitoring and Reporting System for Local Government (IYM), which enables provincial and national governments to exercise oversight over municipalities, and identify possible problems in implementing municipal budgets and conditional grants.
In-year reporting is now well institutionalised with most municipalities consistently producing quarterly financial reports. The reporting facilitates transparency, better in-year management as well as the oversight of budgets, making these reports management tools and early warning mechanisms for councils to monitor and improve municipal performance.
Key trends:
Aggregate trends
1. On aggregate, municipalities spent 19.8 per cent or R60.9 billion of the total adopted budget of R307.3 billion. In respect of revenue, aggregated billing and other revenue amounted to 25.1 per cent or R76.8 billion of a total adopted revenue budget of R306.1 billion.
2. On average the expenditure for the first quarter of 2013/14 is 10.2 per cent higher and the revenue 7.7 per cent more than the figures for the first quarter of 2012/13.
3. Capital spending amounts to R6.4 billion or 11.3 per cent of an adopted capital budget of R56.4 billion.
4. Metropolitan municipalities achieved 23.7 per cent or R42.8 billion of billed and other revenue of the total adopted revenue budget of R180.8 billion. This is slightly less than the 24.5 per cent performance reported in the first quarter of the previous year. Buffalo City appears to have performed the best at 33.8 per cent but it must be noted that they bill their property rates at the beginning of the year and therefore the performance is distorted. All other metros performed at around 22 per cent.
5. A quarter-on-quarter comparison of the in-year figures shows that on average metros realised an increase in revenue of 6.3 per cent compared to the first quarter of the previous financial year. As the recommended bulk electricity increase from ESKOM was around 7 per cent, increases in revenue of less than 7 per cent could be a warning that some metros made insufficient provision in their tariffs and must therefore absorb some of these costs.
6. The aggregated capital budget for metros in the 2013/14 financial year was R28.6 billion of which metros have spent only R2.9 billion or 10.2 per cent by 30 September 2013.
7. Operating expenditure for the quarter amounts to R34.3 billion or 22.9 per cent average for the first quarter.
- City of Johannesburg has reported spending levels at 24.4 per cent; and
- Buffalo City reported only 17.8 per cent operating expenditure.
8. Revenue for service delivery functions of metros appears to be on target at about 25 per cent for all functions.
9. Metros in aggregate spent the following on core services when measured against their adopted budgets:
- Water R4.1 billion or 25.5 per cent;
- Electricity R14.8 billion or 26.6 per cent;
- Waste water management R1 billion or 15.6 per cent; and
- Waste management R1.3 billion or 20.4 per cent.
10. The spending on core services for the secondary cities are as follows:
- Water R804 million or 18.9 per cent;
- Electricity R3.1 billion or 24.9 per cent;
- Waste water management R247 million or 15.4 per cent; and
- Waste management R270 million or 18.9 per cent.
11. Aggregate municipal consumer debts were R90.5 billion as at 30 September 2013. This is R3.6 billion more than the R86.9 billion reported at 30 June 2013. Government’s share of the outstanding debtors represents 4 per cent or R3.6 billion. The largest component relates to households which accounts for 57.1 per cent or R51.4 billion.
12. National Treasury started collecting detailed outstanding debt information from 1 July 2013 for the new municipal financial year. Although some municipalities indicated that their systems are not ready to implement the new required unbundling of debtors, most of them complied with the new format. The new format for reporting on outstanding debtors requires municipalities to submit to National Treasury a breakdown of debtors based on the following categories:
- Outstanding debt of organs of state, listed by provincial and national department;
- Outstanding debt of commercial institutions, distinguishing between Eskom and municipal areas and businesses, industrial companies, mining companies and embassies / consulates; and
- Outstanding debt of households, distinguishing between Eskom and municipal areas as well as indigent and non-indigent households.
13. Metropolitan municipalities were owed R52.5 billion as at 30 September 2013. This represents an increase of R2.5 billion, or 5 per cent, from the first quarter of the 2012/13 financial year. The City of Johannesburg is still owed the largest amount at R17.6 billion, followed by Ekurhuleni Metro at R9.8 billion, Cape Town at R6.4 billion and City of Tshwane at R6.1 billion.
14. Secondary cities were owed R16.4 billion in outstanding consumer debt as at 30 September 2013, an increase of R1.6 billion or 10.7 per cent for the corresponding period in the 2012/13 financial year. Outstanding household debt accounts for R11 billion or 67.1 per cent of the total outstanding debt followed by business at R2.5 billion or 15.5 per cent. Of the total debt, R12.6 billion or 77.2 per cent has been outstanding for more than 90 days. Only two municipalities, Emfuleni and George, reported on bad debts written off totalling R74 million.
15. Municipalities owed R16.4 billion as at 30 September 2013, an overall decrease of R1.6 billion compared to the R18 billion reported in the fourth quarter of 2012/13. Free State still has the highest percentage of creditors outstanding for more than 90 days at 60.8 per cent, followed by North West at 56.7 per cent and Limpopo at 51.7 per cent. The year-on-year increase in outstanding creditors could be an indication that municipalities are experiencing liquidity and cash challenges.
16. The aggregated year-to-date actual collection rate is 84.1 per cent compared to an adopted budgeted collection rate of 94.5 per cent. This represents an under-performance of more than 10 per cent in aggregate. The high collection rate reported for other services is due to reporting issues and distorts the actual collection rate.
17. Metros reported a collection rate of 89.3 per cent while the secondary cities reported collection against billed revenue at 77.2 per cent which is 19.2 per cent less than the adopted target of 96.4 per cent.
18. It needs to be noted that collections that are below billed revenue pose a significant risk to the cash and liquidity position of municipalities as planned expenditure is based on collections that are higher than actual collections.
19. Reasons for collected revenue that is lower than billed revenue include the affordability of municipal services. The economic slowdown and the substantial increase in tariffs as a result of higher prices for fuel, water and electricity, and materials continue to reduce the affordability and therefore the ability of consumers to pay for services.
20. As at 30 September 2013, municipalities had borrowed R51.9 billion. This includes long term loans of R36.3 billion, short term marketable bonds of R10.1 billion, long term marketable bonds of R4.3 billion and other short and long term loans of R1.1 billion.
21. Municipalities has investment totalling R12.4 billion, including deposits at banks of R11.1 billion, guaranteed endowment policies (sinking funds) of R851 million, negotiable certificates of deposits at banks of R420 million and some smaller investments.
Conditional Grants
22. In the Division of Revenue Act, 2013 (Act No.2 of 2013) R30.6 billion was allocated to local government as conditional transfers (both direct and indirect transfers). This amount excludes the unconditional transfer of Equitable Share (ES) and Urban Settlement Development Grant (USDG) for R40.5 billion and R9.1 billion respectively.
23. Total conditional and unconditional allocations to local government amount to R80.6 billion, of which R403 million is unallocated in the DoRA and includes the Disaster allocation of R346 million that is made available to deal for immediate release to fund disaster relief. The remaining allocation of R57 million is earmarked for the two Cities that will be hosting the 2014 soccer tournament.
24. By the end of the first quarter national departments had transferred R8.1 billion to municipalities, which constitutes 26.4 per cent of the total direct conditional grant allocations of R30.6 billion. According to expenditure reports provided by the national departments, only 13.9 per cent of the transferred funds had been spent by 30 September 2013. Importantly, this performance excludes the Urban Settlements Development Grant (USDG) and indirect grants.
25. The analysis of expenditure report submitted by municipalities shows that an average of 15.1 per cent, or R3.7 billion, of the R30.6 billion had been spent by the end of September 2013.
26. The grant with the lowest expenditure levels is Municipal Water Infrastructure Grant. The National Department responsible for administering the grant reports that only 1.1 per cent of the funds disbursed to municipalities during the quarter had been spent by the end of September. Municipalities reported the expenditure as 1.6 per cent of funds received. The Municipal Water Infrastructure Grant is a fairly new grant and naturally newly established grants struggles with teething problems in the implementation of the programme in their first year.
27. Performance against the Water Services Operating and Transfer Subsidy Grant is also slow with the responsible National Department reporting expenditure levels of 3.6 per cent.
28. National Treasury is concerned about the significant variance between the expenditure levels reported by the National Department and by the municipalities. Municipalities reported expenditure on conditional grants of 20.9 per cent of the funds received versus a level of expenditure of 3.6 per cent reported by national departments.
The expenditure levels reported by municipalities are possibly inflated due to overlapping expenditure trends from the fourth quarter of 2012 financial year not accounted for in the previous financial year. This distortion of grant expenditure requires further investigation and corrective measures. In addition, National Treasury will issue a circular to guide municipalities on the parallel reporting on the expenditure on conditional grants.
29. Municipalities continue to face difficulties in kick starting their infrastructure projects in the first quarter. The reasons for this include: delays in the project registration process by both national government and municipalities; a lack of project management units; lack of capacity; delays caused by contractors; and poor multi-year budgeting. Spending on most capital grants for the first quarter was below 15 per cent.
30. A number of scheduled transfers were withheld from underperforming municipalities. These include Neighbourhood Development Partnership grant, Water Services operating and Subsidy grant, Rural Households Infrastructure grant, and the Integrated National Electrification programme (INEP). In the main, the reasons for withholding these funds included the fact that some municipalities were not yet ready to implement projects; some had not submitted business plans, in other cases allocations in respect of water services and subsidy grant were made in error to municipalities that are not water service authorities. In the case of the INEP, funds were withheld because some municipalities had no houses to connect to the electricity grid.
31. The Treasury is assisting national departments to amend their payment schedules for the affected municipalities, is considering stopping and reallocating funds originally budgeted for underperforming municipalities and issuing an adjustment gazette for allocations made in error.
Further details on this report can be accessed on the National Treasury’s website.
Note to editors:
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This information is published in terms of Sections 71 of the Municipal Finance Management Act, 2003 (Act No. 56 of 2003) (MFMA) and 30(3) of the 2013 Division of Revenue Act. The budgeted figures shown are based on the 2013/14 adopted budgets approved by municipal councils.
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In terms of the process, Municipal Managers and Chief Financial Officers were required to sign and submit data to the National Treasury by 15 October 2013. Any queries on the figures in the statement should therefore be referred to the relevant Municipal Manager or Chief Financial Officer. Queries on conditional grants may be referred to the national department responsible for administering the grant.
- The 17 non-delegated municipalities were required to report on their quarterly targets for service delivery for the first time this quarter. This is a new requirement and the poor response is an indication that this report is not yet institutionalised as part of the Section 71 reporting framework. This issue will be addressed in the coming quarters through the non-compliance list.
This first quarter publication covers 278 municipalities.
