The National Treasury has today released local government’s revenue and expenditure for the third quarter of the 2011/12 financial year, as well as spending on conditional grants for the same period. This report covers the first nine months (1 July 2011 to 31 March 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 LocalGovernment (IYM), which enables provincial and national government to exercise oversight overmunicipalities, and identify possible problems in implementing municipal budgets and conditionalgrants.
Highlights:
- Almost all municipalities now consistently produce in-year financial reports compared tothree years ago when less than 50 municipalities regularly produced quarterly financialreports.
- This is a remarkable achievement given that the reporting facilitates transparency, better in yearmanagement as well as the oversight of budgets, making these reports managementtools and early warning mechanisms for councils to monitor and improve municipalperformance.
- Information on municipal borrowing, detailing the instruments used by municipalities, is nowavailable quarterly. As at 31 March 2012, total borrowing by municipalities amounted toR44.6 billion.
- Analysis of capital expenditure trends shows spending to be relatively low in the first sixmonths of the financial year, but increasing significantly during the second half of the year.It is hoped that that spending will be more evenly spread across the financial year asmunicipalities get better at planning their capital expenditure.
Key trends:
Aggregate trends
1. On aggregate, municipalities had spent 63.8 per cent, or R163.9 billion, of the total adjusted budget of R256.8 billion as at 31 March 2012 (third quarter YTD results for the 2011/12 financial year). In respect of revenue, aggregate billing and other revenue amounted to 67.1 per cent, or R192.5 billion, of a total revenue budget of R286.7 billion.
2. On the revenue side, metropolitan municipalities had collected 68 per cent or R115.9 billion of billed and other revenue of the total adjusted revenue budget of R170.6 billion.
Ekurhuleni had the highest proportion at 72.6 per cent, followed by Tshwane at 71.3 percent, while Mangaung reported the lowest proportion at 56.9 per cent.
3. Quarter-on-quarter comparison of the in-year figures shows that the metros, on average, increased revenue by 17.4 per cent compared to the third 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.
4. The aggregate adjusted capital budget for all municipalities in the 2011/12 financial year was R46 billion, of which only R18.8 billion or 40.8 per cent had been spent by 31 March 2012. This reflects the challenges of planning for the implementation of capital projects.
5. The aggregate adjusted capital budget for metros in the 2011/12 financial year is R22.3 billion of which the metros had spent R9.6 billion or 43 per cent by 31 March 2012.
- By the end of the third quarter Ekurhuleni had spent 49 per cent of its adjusted capital budget and Cape Town 44.6 per cent; and
- Spending has been low in Buffalo City and Joburg where only 18.9 and 42.2 per cent respectively had been spent by the end of the third quarter.
6. Aggregate municipal consumer debts amounted to R76.6 billion as at 31 March 2012, of which national and provincial governments accounted for 4.6 per cent or R3.5 billion. Households account for the largest component of consumer debtors, accounting for 64.9 per cent or R 49.8 billion. It is accepted that a certain percentage of this debt is probably irrecoverable because municipalities have not been writing-off irrecoverable debts on a consistent basis. National Treasury is currently working on reporting processes to get better information in this regard.
7. As at 31 March 2012, outstanding debt due to metropolitan municipalities was R45 billion. This represents an increase of R7 billion or 18.4 per cent from the third quarter of the 2010/11 financial year, of which City of Joburg accounted for 31.8 per cent, or R14.3 billion.
8. Outstanding consumer debt in secondary cities totalled R13.6 billion as at 31 March 2012, up R1.3 billion from the R12.3 billion reported in the corresponding period in the 2010/11 financial year. Household debt accounted for R9.8 billion or 72 per cent of the total outstanding debt. Of the total household debt, R8.3 billion or 84.8 per cent has been outstanding for more than 90 days.
9. Municipalities owed R11.1 billion as at 31 March 2012, an overall increase of R1.4 billion compared to the R9.7 billion reported in the third quarter of 2010/11. Free State had the highest percentage of creditors outstanding for more than 90 days at 63 per cent of total outstanding municipal creditors, followed by Limpopo at 56.3 per cent and North West at 44.7 per cent.
10. Analysis of the collection rates, municipalities were only able to collect 94.5 per cent of billed revenue for the third quarter, compared with 94.6 per cent for the second quarter and 79.3 per cent for the first quarter. Both the first and second quarter figures have been restated. Municipalities on average had budgeted for a 91.8 per cent collection rate, which was adjusted to 96.2 per cent during the adjustments budget process.
11. 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.
Conditional grants
12. The Division of Revenue Act, 2011 (Act No.6 of 2011) allocated R31.5 billion as conditional transfers (both direct and indirect transfers) to local government. This amount excluded the unconditional transfer (Equitable Share) of R34.1 billion and the sharing of the fuel levy of R8.6 billion which brings the total amount allocated to local government to R65.6 billion.
13. On 20 December 2011, the Minister of Finance approved an adjustment (Government Gazette No. 34880 of 2011), which increased the amount allocated to local government conditional grants by R57.8 million.
14. By the end of the third quarter the national departments administering conditional grants had transferred R22.6 billion or 91 per cent of the direct conditional grants to municipalities. According to expenditure reports from national departments, municipalities had spent only 46.3 per cent or R9.3 billion of the transferred amount.
15. Municipalities receiving direct conditional grants reported an average expenditure of 48.7 per cent or R9.8 billion of the R20.1 billion allocated directly to municipalities. However, this number might be understated because only 155 of 278 municipalities have complied with the expenditure verification process.
16. The above expenditure performance excludes performance against the Urban Settlement Development Grant (USDG), the Expanded Public Works (EPWP) incentive grant, unallocated programmes and all schedule 7 grants.
