Local government revenue and expenditure: First quarter local government Section 71 report for the period: 1 July 2018 – 30 September 2018
National Treasury has today released local government’s revenue and expenditure data for the first quarter of the 2018/19 financial year, as well as spending on conditional grants for the same period. This report covers the first quarter of the municipal financial year ending on 30 September 2018.
The 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 institutionalised with most municipalities that consistently produce quarterly financial reports. The reporting facilitates transparency, better in-year management as well as the oversight of budgets. This makes these reports management tools and early warning mechanisms for councils, provincial legislatures and officials in order to monitor and improve municipal performance.
Aggregate trends
1. On aggregate, municipalities spent 18.6 per cent, or R82.0 billion, of the total adopted expenditure budget of R441.9 billion as at 30 September 2018 (first quarter results for the 2018/19 financial year). In respect of revenue, aggregate billing and other revenue amounted to 24 per cent, or R104.9 billion, of the total adopted revenue budget of R436.9 billion.
2. Of the adopted operating expenditure budget amounting to R368.5 billion, R75.4 billion or 20.5 per cent was spent by 30 September 2018.
3. Municipalities have adopted the budget for salaries and wages expenditure at R113.6 billion, which is R10.5 billion more than the adjusted budget of R103.1 billion for the 2017/18 municipal financial year. This constitutes 30.8 per cent of their total operational expenditure budget of R368.5 billion. At 30 September 2018, spending is 21.4 per cent, or R24.3 billion.
4. In the period under review, capital expenditure amounted to R6.6 billion, or 9 per cent, of the adopted capital budget of R73.4 billion. This is significant under performance for the first quarter.
5. Aggregated year-to-date total expenditure for metros amounts to R52.1 billion, or 20.3 per cent, of their adopted budget expenditure of R256 billion. The aggregated adopted capital budget for metros in the 2018/19 financial year is R38.9 billion, of which 6.9 per cent, or R2.7 billion, has been spent as at 30 September 2018.
6. When billed revenue is measured against their adopted budgets, the performance of metros shows surpluses across all four core services for the first quarter of 2018/19. This does not take into account the collection rate:
- Water revenue billed was R8.6 billion against expenditure of R6.9 billion;
- Electricity revenue billed was R20.8 billion against expenditure of R19.7 billion;
- The revenue billed for waste water management was R3 billion against expenditure of R1.6 billion, and
- Levies for waste management billed were R2.6 billion against expenditure R1.7 billion.
7. As at 30 September 2018, aggregated revenue for secondary cities is 23.0 per cent or R14 billion of their total adopted revenue budget of R60.7 billion for the 2018/19 financial year. The year-to-date operating expenditure level of the secondary cities is 16.8 per cent or R9.1 billion of the total adopted operating budget of R54 billion for the 2018/19 financial year.
8. Capital spending levels are low at an average of 9.4 per cent or R813.4 million of the adopted capital budget of R8.6 billion.
9. The performance against the adopted budget for the four core services for the secondary cities for the first quarter 2018/19 also shows surpluses against billed revenue without taking into account the collection rate:
- Water revenue billed was R1.7 billion against expenditure of R955 million;
- Electricity revenue billed was R4.8 billion against expenditure of R3.3 billion;
- The revenue billed for waste water management was R783 million against expenditure of R323 million; and
- Levies for waste management billed were R714 million against expenditure of R326 million.
10. Aggregate municipal consumer debts amounted to R158.9 billion (compared to R143.6 billion reported in the first quarter of 2017/18) as at 30 September 2018. A total amount of R162.4 million, or 0.1 per cent, has been written off as bad debt. Government accounts for 6.3 per cent, or R10 billion (R7.9 billion reported in the fourth quarter of 2017/18). The largest component relates to households which account for 72.4 per cent, or R115 billion (71.2 per cent or R101.9 billion in the fourth quarter of 2017/18).
11. It needs to be acknowledged that not all the outstanding debt of R158.9 billion is realistically collectable, as these amounts are inclusive of debt older than 90 days (historic debt that has accumulated over an extended period), interest on arrears and other recoveries.
12. If consumer debt is limited to below 90 days, then the actual realistically collectable amount is estimated at R35.4 billion. This should not be interpreted that the National Treasury by implication suggests that the balance must be written-off by municipalities.
13. Metropolitan municipalities are owed R84.8 billion (R72.8 billion reported in the first quarter of 2017/18) in outstanding debt as at 30 September 2018. This represents an increase of R12 billion. The largest contributors are the City of Johannesburg, which is owed the largest amount at R21.7 billion, followed by City of Ekurhuleni at R16.4 billion, City of Tshwane at R12.6 billion, and eThekwini at R11.5 billion.
14. Households in metropolitan areas are reported to account for R65.3 billion, or 77.0 per cent, of outstanding debt to metros, followed by businesses, which account for R15.3 billion or 18 per cent. Debt owed by government agencies is approximately R2.5 billion, or 3 per cent, of the total outstanding debt owed to metros.
15. Secondary cities are owed R28.3 billion (R29.3 billion reported in the first quarter of 2017/18) in outstanding consumer debt. The majority of debt is owed by households, which amount to R20.9 billion, or 74.0 per cent, of the total outstanding debt. Out of the total debt of R28.3 billion, R23.1 billion, or 81.9 per cent, has been outstanding for more than 90 days.
16. Municipalities owed their creditors R50.7 billion as at 30 September 2018, an increase of R7.8 billion when compared to the R42.9 billion reported in the first quarter of 2017/18.
17. The Free State has the highest percentage of outstanding creditors greater than 90 days at 85.2 per cent, followed by Northern Cape at 77.3 per cent, and Mpumalanga at 73.1 per cent. The year-on-year increase in outstanding creditors could be an indication that municipalities are experiencing liquidity and cash flow challenges.
18. The aggregated year-to-date actual collection rate is 83.3 per cent, compared to an adopted budgeted collection rate of 90.4 per cent. This represents an aggregated under- performance of 7.1 per cent. It is suspected that the reported collection rate is distorted, owing to reporting inconsistencies on cash flow movements of municipalities.
19. Metros budgeted for a collection rate of 92.3 per cent, and achieved an actual collection of 94.3 per cent, which is 1.6 per cent above the budgeted target. The secondary cities reported 61.3 per cent collection against an adopted collection rate of 87.7 per cent, which is 26.4 per cent below the budgeted collection rate.
20. The total balance on borrowing for all municipalities equates to R65.4 billion as at 30 September 2018. This includes long term loans of R45.2 billion, long term marketable bonds of R18.5 billion. The balance represents other short and long term financing instruments.
21. As at 30 September 2018, the total investments made by municipalities equates to R35.3 billion. This is R2.6 billion more than the R32.7 billion reported in the first quarter of 2017/18. Investments include bank deposits of R27.7 billion, guaranteed endowment policies (sinking funds) of R4 billion, negotiable certificates of deposits at banks of R2.1 billion, listed corporate bonds of R1.4 billion, and some smaller investments.
Conditional Grants Expenditure as at 30 September 2018
22. According to the 2018 DoRA, R112.9 billion has been allocated to local government in the 2018/19 financial year. This amount comprises of the unconditional transfer of the Equitable Share Equitable Share (R62.7 billion), direct conditional grants allocated for capacity building (R1.6 billion, includes an unallocated amount of R489.30 million for municipal disaster), direct conditional grants for infrastructure projects, (R31.2 billion), the Urban Settlement Development Grant (R11.3 billion) and the Integrated City Development Grant (R293.6 million) and Indirect conditional grants of R6.9 billion.
23. As at 30 September 2018, an amount of R9.8 billion was transferred to municipalities, which is 31 per cent against an allocation of R31.5 billion for direct conditional grants.
24. The overall expenditure reported by municipalities as at 30 September 2018 is 40.8 per cent or R4 billion against the R9.8 billion transferred to municipalities in the first quarter. In terms of the total allocation, the aggregate expenditure is 12.7 per cent or R4 billion of the R31.5 billion allocated to municipalities as direct conditional grants.
Capacity Building and Other Conditional Grants Expenditure as at 30 September 2018
25. A total of R1.6 billion is allocated to capacity building and other grants. These grants are meant to help develop municipalities’ management, planning, technical, budgeting and financial management capabilities in the 2018/19 financial year.
26. The highest performing conditional grant under this category during the first quarter is the Expanded Public Works Programme (EPWP) with reported performance of 28.6 per cent, followed by the Financial Management Grant (FMG) at 18.3 per cent and the Infrastructure Skills Development Grant (ISDG) at 11.3 per cent.
28. The lowest performing grant in the first quarter ended 30 September 2018 is the Energy Efficiency and Demand Side Management Grant (EEDSM) with reported expenditure performance of 6.2 per cent. The low expenditure reported on the grant is as a result of most projects being in the procurement stage and non-appointment of service providers.
Infrastructure Conditional Grants Expenditure as at 30 September 2018
29. National transfers for infrastructure, excluding indirect or in-kind allocations to entities executing specific projects in municipalities, amounts to R31.5 billion in the 2018/19 financial year.
30. The highest performing direct grants to municipalities during the first quarter is the Integrated City Development Grant (ICDG) with reported performance of 17.3 per cent, followed by the Municipal Infrastructure Grant (MIG) with reported performance of 17.0 per cent, and the Integrated National Electrification Programme (INEP) grant with reported performance of 13.8 per cent.
31. The lowest spending grant under the infrastructure grants during the first quarter is the Neighbourhood Development Partnership Grant (NDPG) with expenditure of 6.2 per cent or R37 million against the allocation of R601.9 million.
A summary of key aggregated information is included in the tables in Annexure A. Further details on this report can be accessed on the National Treasury’s website: www.treasury.gov.za.
