Local Government Revenue and Expenditure for the period ended 30 June 2011

Fourth Quarter Local Government Section 71 Report (Preliminary Results)

Summary

1. National Treasury has today released local government’s revenue and expenditure for the fourth quarter of the 2010/11 financial year. The statement covers revenue and expenditure as well conditional grant spending for the period 1 July 2010 to 30 June 2011. It is available on the National Treasury’s website.

2. National Treasury publishes this information in terms of Sections 71 of the Municipal Finance Management Act, 2003 (Act No. 56 of 2003)(MFMA) and 30(3) of the 2010 Division of Revenue Act. The budgeted figures shown are based on the 2010/11 adjusted budgets approved by municipal councils during January and February 2011.

3. This information, referred to as the In-year Management, Monitoring and Reporting System for Local Government (IYM), enables provincial and national government to exercise oversight over municipalities, and identify possible problems in implementing municipal budgets and conditional grants. The information will also be of interest to policy makers, researchers, sector specialists and academics with an interest in local government. It is also envisaged that regularly published budget implementation information will empower communities to hold their municipal councils accountable.

4. All information in this statement is based on the Section 71 MFMA reports that Municipal Managers and Chief Financial Officers were required to sign and submit to the National Treasury by 11 August 2011. 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.

5. The number of municipalities submitting reports remained at full coverage of 283 in the fourth quarter of 2010/11.

6. Although for comparison purposes it would be ideal to use audited figures for the previous financial year, the National Treasury is not yet in a position to do so due to inadequate information submitted to the Local Government Database by municipalities. Once all municipalities adhere to this good practice, the system will be adjusted accordingly. This publication will reconcile with the previous year’s publication. In future, municipalities will be required to report their end-year results as at 30 June in three stages: Preliminary results, pre-audited information as at 31 August and finally, audited results once the audit outcomes are available.

Highlights

7. The fact that all municipalities now consistently produce in-year financial reports every quarter is a significant achievement for local government. This is a massive improvement from just three years ago, when less than 50 municipalities produced quarterly financial reports regularly. This improvement facilitates transparency and better in-year management of budgets.

8. According to the fourth quarter reports, municipalities’ cash flow situations have improved compared to the previous quarters of this financial year. This is largely as a result of significant under expenditure of both the operating and capital budgets by municipalities.

9. A quarter-on-quarter comparison of preliminary figures submitted at the end of the municipal financial year shows that the metros reported a 17.3 percent or R5.8 billion increase in billings and other revenue, compared to the fourth quarter of the previous financial year.

Challenges

10. Now that consistent in-year financial reporting is in place, municipalities need to institutionalise processes to use these reports as management information to improve municipal performance. In addition, councils need to use the information to exercise in-year oversight of the implementation of their approved adjusted budgets.

11. Underspending at year end remains a challenge, especially in relation to capital and conditional grant performance.

12. Municipalities need to unbundle their outstanding debtors total so that steps can be taken to address each of the components – for instance, making provision for writing-off the amounts that are uncollectable, or ensuring that amounts owed by government institutions get paid timeously.

Key trends

Aggregate trends

13. As at 30 June 2011 (fourth quarter YTD results for the 2010/11 financial year), municipalities had spent 89.7 percent or R213.4 billion of the total adjusted expenditure budget of R237.9 billion. In respect of revenue, municipalities’ billing and other revenue amounted to 93.8 per cent or R232.2 billion of a total adjusted revenue budget of R247.5 billion.

14. Underpinning the above position is aggregate net overspending of R3.9 billion or 1.6 percent, and aggregate net underspending of R28.4 billion or 12 percent of municipalities’ total budgets. This is made up as follows:

• Aggregate overspending of the operating budget – R4.5 billion or 2.3 percent
• Aggregate underspending of the operating budget – R17.8 billion or 9.1 percent
• Aggregate overspending of the capital budget – R1.1 billion or 2.5 percent
• Aggregate underspending of the capital budget – R12.4 billion or 29.3 percent

(Note: the separate totals for the operating and capital budgets shown above do not add up to the ‘aggregate net’ totals due to the effect of netting out the over- and underspending of the operating and capital budgets within each municipality).

15. Municipalities’ aggregate overspending of conditional grants was R0.6 billion or 3.2 percent, while aggregate underspending of conditional grants was R5.1 billion or 28.2 percent. These amounts are included in the aggregate amounts reflected above.

16. Metropolitan municipalities reported billed and other revenue at 95.1 percent or R134.4 billion of the total adjusted revenue budget of R141.3 billion. City of Johannesburg has the highest proportion at 99.3 percent, with Nelson Mandela Bay following at 98.7 percent.The lowest was reported by Ekurhuleni at 89.3 percent.

17. The aggregated adjusted capital budget for metros in the 2010/11 financial year amounts to R19.2 billion. Of this metros spent R16.4 billion or 85.2 per cent by 30 June 2011.By the end of the fourth quarter eThekwini had spent 95.4 percent of its adjusted capital budget and the City of Johannesburg with 93.4 percent. Spending has been low in Cape Town and Ekurhuleni where only 71.5 and 67.3 percent respectively of their adjusted capital budgets were spent by the end of the fourth quarter.

18. In aggregate metros have:

• spent 99 percent or R14.9 billion of a total adjusted budget of R15.1 billion on water
• spent 96.5 per cent or R35.6 billion of a total adjusted budget of R36.9 billion on electricity
• spent 95.3 per cent or R3.3 billion of an adjusted budget of R3.5 billion on the provision of waste water management
• spent 99.4 per cent or R5.70 billion of an adjusted budget of R5.74 billion on the provision of solid waste management.

19. In aggregate secondary cities have:

• spent 88.9 percent or R3.3 billion of a total adjusted budget of R3.7 billion on water
• spent 94.2 percent or R10 billion of a total adjusted budget of R10.7 billion on electricity
• spent 76.6 percent or R1.4 billion of an adjusted budget of R1.8 billion on the provision of waste water management
• spent 85.3 percent or R1.2 billion of an adjusted budget of R1.4 billion on the provision of solid waste management.

20. Aggregate outstanding consumer debts amount to R64.6 billion as at 30 June 2011 (unaudited figures).The largest component of outstanding consumer debt relates to households, who account for 63.3 per cent or R40.9 billion. National and provincial government’s contribution represents 4.5 percent or R2.9 billion. Going forward, municipalities will have to report on the different components of their consumer debts to ensure that they are actively managing their debtors, which includes making the necessary provisions for the write-off of irrecoverable debt.

21. Metropolitan municipalities were owed R36.6 billion in outstanding debt as at 30 June 2011. This represents an increase of R6.0 billion or 19.7 percent from the fourth quarter of the 2009/10 financial year. The City of Johannesburg’s share in this increase is R3.6 billion or 60 per cent. The City of Johannesburg’s outstanding debt has grown by 44 percent year-on-year, the highest of any metro.

22. Secondary cities were owed R13.5 billion in outstanding debt as at 30 June 2011.This represents an increase of R1.9 billion from the fourth quarter of the 2009/10 financial year. Analysis of the outstanding debtors per customer group indicates that the total amount outstanding from households is R9.6 billion or 71.3 percent of the total outstanding debt.

23. The creditor age analysis shows that R16.2 billion was owed by municipalities as at 30 June 2011, compared to the R9.7 billion reported in the third quarter of 2010/11; this shows an overall increase of R6.5 billion quarter-on-quarter. Free State consistently has the highest percentage of creditors outstanding for more than 90 days at 48.6 per cent or R488 million, followed by Limpopo at 46.9 percent or R256 million, and North West at 45.5 percent or R268 million.

Conditional Grants

24. In aggregate, municipalities reported expenditure of 75.8 per cent or R13.5 billion of the R17.8 billion in conditional grants transferred directly to municipalities. This represents an underperformance of R4.5 billion or 25 percent for the municipal financial year.

25. An amount of R54.4 billion was originally provided in the 2010 Division of Revenue Act (Act No.1 of 2010) for local government. This consisted of the local government equitable share of R30.2 billion and R24.2 billion for both direct and indirect grants.

26. These allocations were adjusted in December as reflected in Government Gazette No. 33879 of 2010, 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) and 24 and re-allocations in terms of Section 18 of the 2010 DoRA.

27. Additional allocations of R533.9 million were made to local government during the 2010/11 financial year. Of this, R390.1 million was added to the equitable share, while a further R143.0 million was added to direct conditional grants following additional allocations to the Municipal Drought Relief programme, rollovers, and virements from the Department of Water Affairs.

28. The adjustment Gazette increased the total baseline for the local government conditional grant allocations from R17.9 billion to a revised total of R18.0 billion, while the unconditional grant (equitable share) also increased from R30.2 billion to R30.6 billion.

29. Of the R21.7 billion in conditional grants allocated to municipalities for the 2010/11 financial year, R17.8 billion has been transferred directly to municipalities as at 31 March 2011. According to expenditure reports provided by the national departments, only 81.4 percent of this amount was spent.The R21.7 billion conditional grant allocation includes R3.7 billion in indirect conditional grants.

30. The spending analysis for the fourth quarter indicates that the Financial Management Grant (FMG) is the best performing programme with expenditure of 91.2 percent. However, municipalities reported over expenditure of 3.8 percent on this programme in the 2010/11 financial year. The Water Services Operating and Transfer Subsidy grant reflects expenditure of 90.7 percent, as reported by the transferring national department, and over expenditure of 128.9 percent as verified by municipalities.

31. The Electricity Demand Side Management Grant (EDSM) reflects under spending of 16.4 percent against an allocated R220 million as reported by the national transferring department. However, total under spending of 25.2 percent was reported by municipalities at the end of the municipal financial year.

32.

A summary of key aggregated information is included in the tables in Annexure A.

Structure of information released

33. Other information released on National Treasury website as part of this process includes the following:

• Municipal Budget Statements:

• Summary of revenue and expenditure per function (electricity, water, etc)

a. High level summary of revenue per function
b. High level summary of expenditure per function.

• Consolidation of revenue and expenditure numbers for each municipality in one file.

• Detail per province per municipality.

• Summary of Conditional Grant (CG) Information for all municipalities and per grant.

• CG - Detail per province per Municipality.

• Summary of Conditional Grant (CG) information per programme.

• Section 71 summary information for the fourth quarter:

a. Summary of total monthly operating expenditure – 283 municipalities
b. Summary of total monthly capital expenditure –283 municipalities
c. Summary – Metros
d. Conditional Grant summary – Metros
e. Summary – Top 21 municipalities
f. Conditional Grant summary – Top 21 municipalities
g. Summary – Provinces
h. Conditional Grant summary – provinces
i. Analysis of Sources of Revenue – 283 municipalities.

• Non Compliance:

a. List of Non Compliance to Section 71 of the MFMA.

34. The section 71 information reported by municipalities to National Treasury is now being published on the National Treasury website in the format of Schedule C, which is the format for municipal monthly and quarterly financial statements as prescribed by the Municipal Budget and Reporting Regulations.

The full statement including tables can be found on National Treasury website