Summary
1. National Treasury has today released local government’s revenue and expenditure for the third quarter of the 2010/11 financial year. The statement covers revenue and expenditure as well conditional grant spending for the period 1 July to 31 March 2011. It is available on the National Treasury’s website.
2. National Treasury publishes this information in terms of Section 71 of the Municipal Finance Management Act, 2003 (Act No. 56 of 2003)(MFMA) and in terms of Section 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.T his information, referred to as the In-year Management, Monitoring and Reporting System for Local Government (IYM), will enable 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 14 April 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 that submitted reports increased to full coverage of 283 in the third quarter of 2010/11, from 282 in the second quarter of 2010/11.
Highlights
6. The fact that all municipalities now consistently produce in-year financial reports every quarter is a remarkable 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 facilitates transparency and better in-year management of budgets.
7. Although the aggregate outstanding debtors of municipalities have risen to R64.4 billion, this amount expressed as a proportion of total municipal revenue has begun to decrease. This suggests that the efforts by many municipalities to improve their revenue and debt management processes are beginning to bear fruit. The debtors also include amounts that need to be written off as there is a low probability that they can be recovered. In addition, governments’ portion of outstanding debtors has also decreased significantly.Municipalities’ billing of revenue is broadly in line with their budgets.
8. Municipalities’ reporting on their cash flow situations has improved. Initial analysis indicates that the cash coverage of many municipalities is better than a year ago.
9. Municipal operating spending is broadly on track at 73.5 per cent of municipalities’ total adjusted operating budgets.
Challenges
10. Now that consistent in-year financial reporting is in place, many municipalities need to pay attention to the quality of their reporting. Also municipalities need to institutionalise processes to use these reports as management information to improve their performance. In addition, councils need to use the information to exercise in-year oversight of the implementation of their approved adjusted budgets.
11. 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 the writing-off the amounts that are uncollectable, or ensuring that amounts owed by government institutions get paid timeously.
12. Spending of the capital budget and conditional grants at the end of the third quarter of the municipal financial year is low. This may be partly due to the reluctance of management teams to approve projects in the run-up to the local government elections, as well as weaknesses in the project planning and supply chain management procedures.
13. Capital spending remains slow and this is a concern for government. From the start of the 2011/12 national financial year, the Department of Co-operative Governance is responsible for the engineering and infrastructure component of the Siyenza Manje programme and is exploring ways of strengthening the programme so as to provide more effective and sustainable assistance to municipalities to improve their capital spending performance.
Key trends
Aggregated trends
14. As at 31 March 2011, municipalities had in aggregate spent 62.5 per cent or R148.6 billion of the R237.8 billion total adjusted budget. The total revenue adjusted budget amounted to R247.7 billion for 2010/11, of which aggregated billing accounted for R171.8 billion or 69.4 per cent.
15. Metropolitan municipalities had billed R94.7 billion or 67 per cent of their total adjusted revenue budget of R140.6 billion by the end of the third quarter. Nelson Mandela Bay had billed the highest proportion of its adjusted revenue at 72.4 per cent, followed by Ekurhuleni at 68.6 per cent.
16. The aggregated adjusted capital budget for all municipalities for 2010/11 is R41.6 billion, of which R19 billion or 45.7 per cent had been spent by the end of the third quarter. The aggregated capital adjusted budget of metropolitan municipalities amounted to R19.2 billion, of which R8.6 billion or 45 per cent had been spent by 31 March 2011. Most metros had spent less than 50.0 per cent of their capital budget in the third quarter. The Ekurhuleni Metro and Cape Town had the lowest capital spending rate at only 37.1 per cent.
17. The municipalities owed their creditors R9.7 billion as at 31 March 2011. This is R1 billion less than the R10.7 billion owed at the end of the second quarter of 2010/11. Free State had the highest percentage of creditors outstanding for more than 90 days at 54.2 per cent, followed by Mpumalanga at 44.4 per cent, Limpopo at 40.3 per cent and the Northern Cape at 31.21 per cent. The creditor age analysis results differ vastly from quarter to quarter.
Conditional Grants
18. On 15 December 2010, the Minister of Finance approved an adjustment Gazette (Government Gazette No. 33879 of 2010). This Gazette updates the information that was originally published in Government Gazette No. 33100 of 2010 published on 13 April 2010.
19. Based on the revised allocations the amount allocated in transfers to local government amounts to R51.9 billion. This consists of the unconditional transfer (Equitable Share) of R30.2 billion and conditional transfers of R21.7 billion. The conditional transfers consist of direct conditional grants to municipalities of R17.9 billion and allocations-in-kind of R3.8 billion. It should be noted that the direct conditional grant amount of R17.9 billion does not include the Municipal Infrastructure Grant (MIG Cities) to metropolitan municipalities as they are required to report performance on the entire capital programme.
20. By the end of the third quarter national departments administering conditional grants had transferred R17.7 billion which constitutes 81.6 per cent of the direct conditional grants to municipalities for the 2010/11 financial year.
21. Expenditure reports from national departments indicate that municipalities had spent only 62.1 per cent or R11.2 billion by the end of the third quarter. The percentage however excludes all schedules 4, 7 and 8 grants. Municipalities receiving direct conditional grants reported third quarter aggregate expenditure of R9.2 billion or 51.2 per cent of the R17.9 billion conditional grants allocated to municipalities. However, one must also take into account that only 236 of 283 municipalities have complied with the expenditure verification process, hence the number could be understated.
22. The Electricity Demand Side Management Grant, Municipal Systems Improvement Grant, Neighbourhood Development Partnership Grant and Integrated National Electrification Programme (Municipal) Grant reported expenditures of less than 50 per cent at the end of 31 March 2011.
23. It should be noted that the 51.2 per cent expenditure reported by municipalities for the third quarter excludes the amounts that the metros may have spent in relation to the Municipal Infrastructure Grant (MIG Cities). In terms of Section 11(2)(b)(ii) of the Division of Revenue Act, 2010, metros are required to report on the implementation of their entire capital programme, and not specifically on the spending of the MIG cities grant. This is because the MIG cities grant is designed to supplement the capital budgets of the metros.Secondly, the EPWP incentive grant performance is also not reflected in the publication due to it’s “after the event” performance nature.
24. A summary of key aggregated information is included in the tables in Annexure A [PDF].
Structure of information released
25. Other information released on National Treasury’s website as part of this process includes the following:
- Municipal Budget Statements:
a. Cash Flow closing balances as at 31 March 2011;
b. High-level summary of revenue for 283 municipalities; and
c. High-level summary of expenditure for 283 municipalities.
- Summary of revenue and expenditure per function (electricity, water, etc):
a. High level summary of revenue per function; and
b. High level summary of expenditure per function.
- Detail per province per municipality.
- Summary of Conditional Grant (CG) Information for all municipalities and per grant.
- CG - Detail per province per Municipality.
- Section 71 summary information for the first 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; and
i. Analysis of Sources of Revenue – 283 municipalities.
- Non Compliance:
a. List of Non Compliance to Section 71 of the MFMA.
26. 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 report can be found on the Treasury website.
