Preliminary Results
The National Treasury today released local government’s revenue and expenditure for the fourth quarter of the 2011/12 financial year, as well as spending on conditional grants for the same period. This report covers the twelve months (1 July 2011 to 30 June 2012) of the municipal financial year ending on 30 June 2012.
This report is part of the In-year Management, Monitoring and Reporting System for Local Government (IYM), which enables provincial and national government 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.
Highlights:
- Aggregate revenue and billing exceeded aggregate expenditure indicating that municipalities are starting to adopt a more prudent approach to managing expenditure in line with revenue estimates.
- When compared to the aggregated operating adjustments budget, the decrease in expenditure is in response to the underperformance of billed own revenue indicating an improved understanding by municipalities of the funding requirements outlined in the Municipal Finance Management Act.
- On aggregate, municipalities are beginning to demonstrate an understanding of the importance of budgeting for operating surpluses to mitigate cash and liquidity challenges. In addition this prudent budgeting approach will contribute in generating internal capacity to fund capital infrastructure from own revenue sources. This trend applies to both the budgeted and actual operating figures for the 2011/12 financial year.
Key trends:
Aggregate trends
1. On aggregate, municipalities spent 88.3 per cent, or R233.9 billion, of the total adjusted budget of R264.8 billion as at 30 June 2012 (fourth quarter YTD results for the 2011/12 financial year). In respect of revenue, aggregate billing and other revenue amounted to 90.8 per cent, or R260.3 billion, of a total adjusted revenue budget of R286.6 billion.
2. Underpinning the above position is aggregate net overspending of R4.3 billion, or 1.6 per cent, and aggregate net underspending of R35.2 billion or 13.3 per cent of municipalities’ total budgets. The over- and underspending was made up as follows:
- Aggregate overspending of the adjusted operating budget – R4 billion or 1.8 per cent;
- Aggregate underspending of the adjusted operating budget – R22.3 billion or 10.2 per cent;
- Aggregate overspending of the adjusted capital budget – R2.2 billion or 4.9 per cent; and
- Aggregate underspending of the adjusted capital budget – R14.8 billion or 32.3 per cent.
3. Note that combining the capital and operating budgets will result in a different outcome to that of analysing them separately.
4. On aggregate municipalities overspent conditional grants by R0.8 billion, or 3.8 per cent, while aggregate underspending of conditional grants was R5.1 billion, or 25.3 per cent. These amounts are included in the aggregate amounts reflected in paragraph 2 above.
5. When measured against the total adjusted revenue budget of R170.4 billion, metropolitan municipalities achieved a 94.2 per cent, or R160.5 billion, of billed and other revenue. City of Tshwane has the highest proportion at 99.9 per cent followed by the City of Joburg at 97.1 per cent. Of concern is that these two cities have the highest growth rate in outstanding debtors, a clear indication that they are not collecting all billed revenue. The lowest reported was by Buffalo City at 75.9 per cent. Underperformance in relation to collections is a significant risk as it directly impacts on cash and cash equivalents.
6. A quarter-on-quarter comparison of preliminary in-year figures shows that the metros on average realised an increase in revenue of 8.8 per cent compared to the fourth quarter of the previous financial year. Most of this increase can be attributed to higher rates and tariffs, rather than efficiency improvements in revenue management.
7. The aggregate adjusted capital budget for all municipalities in the 2011/12 financial year was R46 billion, of which only R33.2 billion or 72.5 per cent had been spent by 30 June 2012. This reflects the challenges of planning for the implementation of capital projects.
8. The aggregated adjusted capital budget for metros in the 2011/12 financial year was R22 billion of which metros spent R17.5 billion or 79.5 per cent by 30 June 2012.
- By the end of the fourth quarter Nelson Mandela Bay had spent 96.1 per cent of its adjusted capital budget followed by the City of Tshwane with 87.2 per cent; and
- Spending has been low in Buffalo City and eThekwini where only 32.8 and 65.6 per cent respectively of their adjusted capital budgets were spent by the end of the fourth quarter.
9. Metros in aggregate spent the following on core services when measured against their adjusted budgets:
- Water R17.5 billion or 98 per cent;
- Electricity R45.6 billion or 95.5 per cent;
- Waste water management R4.4 billion or 94 per cent; and
- Waste management R6.5 billion or 94.5 per cent.
10. The spending on core services for the secondary cities was as follows:
- Water R3.1 billion or 90.7 per cent;
- Electricity R9.3 billion or 98.1 per cent;
- Waste water management R992 million or 79.8 per cent; and
- Waste management R1.1 billion or 103.2 per cent.
11. Aggregate municipal consumer debts were R77.6 billion at 30 June 2012 (unaudited figures) of which government’s contribution represents 4.1 per cent, or R3.2 billion. Households were largest component, accounting for 65.4 per cent or R50.8 billion.
12. Metropolitan municipalities were owed R46.1 billion as at 30 June 2012. This represents an increase of R7.5 billion, or 19.3 per cent, from the fourth quarter of the 2010/11 financial year. When compared to the previous financial year, Mangaung’s debt has increased by 37.6 per cent, City of Tshwane’s by 34.5 per cent and City of Joburg’s increased 26 per cent.
13. Secondary cities were owed R13.2 billion in outstanding consumer debt at 30 June 2012. This represents a decrease of R346 million from the corresponding period in the 2010/11 financial year. Analysis of the outstanding debtors per customer group indicates that outstanding household debt accounts for R9.4 billion, or 71.5 per cent, of the total outstanding debt.
14. Municipalities owed R15.9 billion as at 30 June 2012, an overall increase of R4.8 billion compared to the R11.1 billion reported in the third quarter of 2011/12. Free State had the highest percentage of creditors outstanding for more than 90 days at 55.4 per cent, followed by Limpopo (53.1 per cent) and North West (50.6 per cent). A rise in outstanding creditors, especially those in excess of 90 days, could be indicative of a cash and liquidity challenges.
15. Municipalities originally budgeted for an average 91.8 per cent collection rate. However, their adjusted budgets reflect an average collection rate of 95.9 per cent. The average collection rate for the four quarters of the 2011/12 financial year is 90.7 per cent, which suggests that many municipalities based their cash and revenue estimates in their adjustments budgets on unrealistically optimistic collection rate assumptions.
16. The underperformance of actual collections against billed revenue can be attributed to, amongst others, the affordability of municipal services. The ongoing economic slowdown and substantial increases in electricity tariffs are starting to impact on affordability and subsequently the ability of consumers to pay for services.
17. The total borrowing by municipalities is R45.5 billion as at 30 June 2012. This includes long term loans of R30.1 billion, short term marketable bonds of R10.2 billion, long term marketable bonds of R4.3 billion and other short term loans of R212 million.
Conditional Grants
18. The Division of Revenue Act (DoRA), 2011 (Act No.6 of 2011) allocated R65.6 billion originally for local government. This consists of the local government equitable share of R34.1 billion and R31.5 billion for both direct and indirect grants.
19. These allocations were adjusted in December in terms of Government Gazette No. 34 880 of 2011 DoRA which shows all additional in-year allocations, new allocations, re-allocations, rollovers and technical adjustments to local government spheres. These adjustments were done in terms of Sections 6(3), 17 and 18 of the 2011 DoRA. The adjustment Gazette increased the total baseline for the local government conditional grant allocations from R24.7 billion to a revised total of R24.8 billion.
20. R22.6 billion was transferred by the national departments responsible for administering local government conditional grants against an allocation of R24.8 billion for both direct and indirect conditional grants. This constitutes 91.1 per cent of the total conditional grants allocated for the 2011/12 financial year.
21. Municipalities receiving direct conditional grants reported an average expenditure of 78.5 per cent, or R15.8 billion, of the R20.1 billion allocated directly to municipalities. This represents an underperformance of R4.3 billion, or 20.4 per cent, for the municipal financial year.
22. The main contributor to under spending was the Public Transport Infrastructure and Systems Grants (PTIS) reflecting expenditure of 48.7 per cent or R2.3 billion from allocated amount of R4.8 billion, which accounts for 23.9 per cent of the direct allocation to municipalities.
23. Reporting and performance against unspent committed funds that were rolled-over by municipalities from 2010/11 allocation to 2011/12 financial year was very weak. In June 2012 the aggregate expenditure for roll-over funds was R360.3 million, or 14.8 per cent, of the R2.4 billion that was approved by National Treasury to be spent in the 2011/12 financial year.
Further details on this report can be accessed on the National Treasury’s website: www.treasury.gov.za
