National Treasury releases local government’s revenue and expenditure for third quarter of 2018/19 financial year

• Capital expenditure – 45.2 per cent or R24.8 billion under performance against monthly forecasts.

5. Municipalities have made marginal downward adjustments to the budgeted expenditure for salaries and wages from R113.6 billion to R112.9 billion. The reduction is primarily from categories A and C municipalities. Employee related cost constitutes 32.1 per cent of their total operational expenditure budget of R372 billion. At 31 March 2019 spending is 69.6 per cent or R78.6 billion.
6. Metropolitan municipalities achieved 70.3 per cent or R182 billion of billed and  other revenue against the total adjusted revenue budget of R258.8 billion.
7. Aggregated year-to-date total expenditure for metros amounts to R164.7 billion or 64.4 per cent of their adjusted budgeted expenditure of R255.9 billion.
8. Aggregated year-to-date operating expenditure for metros amounts to R150.7 billion or 69.2 per cent of the adjusted operational budget. Operating expenditure constitutes 84 per cent of the total expenditure budget.
9. The aggregated adjusted capital budget for metros in the 2018/19 financial year is R38 billion of which 36.1 per cent or R14.1 billion has been spent as at 31 March 2019.
10. In aggregate, metropolitan municipalities recorded an over performance of 7.0 per cent or R11 billion on revenue collection, an over performance of 1.7 per cent or R2.5 billion on operational expenditure and under performance of 50.6 per cent or R14.4 billion on capital expenditure.
11. As shown in the figure below, when billed revenue is measured against their actual expenditure, the performance of metros shows surpluses across all four core services for the third quarter 2018/19. This does not take into account secondary costs or actual collections.
    • Billed water revenue totaled R23.9 billion against expenditure of R21.8 billion;
    • Billed electricity revenue totaled R56.3 billion against expenditure of R51 billion;
    • Billed waste water management revenue totaled R8.9 billion against expenditure of R5.5 billion; and
    • Billed waste management revenue totaled R7 billion against expenditure R6.1 billion.

12. The performance of secondary cities against the adjusted budget for the four core services shows (see figure below) surpluses for the third quarter of 2018/19. This also excludes secondary costs and actual collections:
    • Billed water revenue totaled R5.2 billion against expenditure of R4.3 billion;
    • Billed electricity revenue totaled R14 billion against expenditure of R11.1 billion;
    • Billed waste water management revenue totaled R2.1 billion against expenditure of R1.2 billion; and
    • Billed waste management revenue totaled R1.9 billion against expenditure of R1.3 billion.

13. As at 31 March 2019, aggregated revenue for secondary cities accounts for 67.7 per cent or R41 billion of their total adjusted revenue budget of R60.5 billion. A year-on-year comparison shows that the total revenue on average has decreased by 8.5 per cent when compared to the same period in 2017/18.
14. The year-to-date operating expenditure level of the secondary cities is 62.7 per cent or R34 billion of the total adjusted operating budget of R54.3 billion for the 2018/19 financial year.
15. Capital spending levels for secondary cities are low at an average of 44.6 per cent or R4.1 billion of the adjusted capital budget of R9.1 billion. Low capital spending has potentially serious implications for the government’s ability to meet the targets for expanded access to water, sanitation, electricity and job creation.

16. Secondary cities reported an under performance of 5 per cent or R2 billion when measured against monthly budgeted billed revenue, while there is an under performance of 10.5 per cent or R4 billion on operational expenditure and R2.8 billion or 40.5 per cent on capital expenditure.
17. Aggregate municipal consumer debts amounted to R162.9 billion (compared to R184.7 billion reported in the previous quarter this year) as at 31 March 2019. A total amount of R10.2 billion or 6.3 per cent has been written off as bad debt. Government accounts for 6.1 per cent or R10 billion.
18. It needs to be acknowledged that the outstanding debt of R162.9 billion is inclusive of debt older than 90 days (historic debt that has accumulated over an extended period), interest on arrears and other recoveries. Municipalities are encouraged to apply their credit control and debt collection policies to recover outstanding debt.
19. An inverse relationship between municipality’s ability to collect its debt and its funding exists. There have been more unfunded budgets (adopted and adjusted) with the growth of debt exceeding 90 days.
20. The actual debt owed to municipalities in the below  90  days’  category  amounts  to R29.4 billion. This should not be interpreted that the National Treasury by implication suggests that the balance must be written-off by municipalities.
21. Metropolitan municipalities are owed R83.9 billion (R100.45 billion reported in the second quarter) in outstanding debt as at 31 March 2019. This is a decrease of R16.5 billion when compared to the previous quarter’s publication.  A year-to-year comparison shows that this is an increase of R9.9 billion or 13.4 per cent from the third quarter of the 2017/18 financial year.
22. Households in metropolitan areas are reported to account for R66.3 billion or 79 per cent of outstanding debt, followed by businesses which account for R13.8 billion or 16.4 per cent. Debt owed by government agencies is approximately R2.5 billion or 3 per cent of the total outstanding debt owed to metros.
23. As at 31 March 2019 secondary cities are owed R30.3 billion in outstanding consumer debt. The majority of debt is still owed by households which amount to R23.2 billion or 76.8 per cent of the total outstanding debt. An amount of R26.1 billion or 86.3 per cent has been outstanding for more than 90 days.
24. The creditors’ age analysis shows that R50.6 billion is owed by municipalities as at 31 March 2019; a decrease of R300 million when compared to the R50.9 billion reported in the second quarter of 2018/19. Of concern, is the outstanding creditors in excess of 90 days relating to bulk purchases, trade creditors and other creditors.
25. Municipalities in the Free State have the highest percentage of outstanding creditors in the greater than 90 days’ category at 89.4 per cent, followed by North West at 81.1 per cent and Mpumalanga at 82 per cent. An increase in outstanding creditors could be an indication that municipalities are experiencing liquidity and cash challenges, and consequently are delaying the settlement of their outstanding accounts.
26. The aggregate year-to-date actual collection rate is 87.9 per cent compared to an adjusted budgeted collection rate of 89.1 per cent. This represents an under performance of 1.2 per cent in aggregate.
27. The metros budgeted for an adjusted collection rate of 91.1 per cent and achieved an actual collection of 96.4 per cent, this represent an over performance of 5.3 per cent.

28. The secondary cities reported a 68 per cent collection against an adjusted collection rate of 84 per cent.
29. The total balance on borrowing for all municipalities amounts to R63.8 billion as at 31 March 2019. This includes long term loans of R43.7 billion, long term marketable bonds of R18.3 billion and other short term loans of R1.5 billion. The balance represents other short and long term financing instruments.
30. A total of 201 municipalities reported on 349 borrowing instruments. 118 municipalities reported that they have no loans.
31. A total of 209 municipalities reported on 2 709 investment instruments.
32. As at 31 March 2019 the closing balance for investments made by municipalities equates to R41.9 billion. This is R6.4 billion more than the R35.5 billion reported in the previous quarter. Investments includes bank deposits of R33.9 billion, guaranteed  endowment policies (sinking funds) of R4.4 billion, negotiable certificates of deposits at banks of R2.2 billion, listed corporate bonds of R1.4 billion and some smaller investments.

Conditional Grant performance

Conditional Grants Expenditure as at 31 March 2019

33. The third quarter publication in terms of section 71 of MFMA provides for various adjustments to the baseline allocations approved during the beginning of the financial year. National Treasury published three national gazettes namely Government Gazette No. 42067 of 2018, Government Gazette No. 42243 and Government Gazette No. 42318 dated 28 November 2018, 21 February 2019 and 18 March 2019 respectively during the 2018/19 financial year.
34. The gazettes were done in line with sections 19, 20 and 21 of DoRA that stipulate that National Treasury may in its discretion or at the request of a transferring national officer or receiving officer stops the transfer for a schedule 4, 5 or/and 6 allocation pertaining to anticipated underspending on programmes or allocations by the municipalities. Further, National Treasury approved a request by the transferring officers to convert conditional grants between schedules.
35. The Minister of Finance approved the additional allocations, stopping and re-allocations to municipalities made in terms of section 19 and 20 and also the amendment to conditional grant frameworks in terms of the Division of Revenue Amendment Act, 2018, (Act No.14 of 2018).
36. Similar to the other two gazettes, DCoG and DWS in consultation with the National Treasury initiated another process of stopping funds against under-committed and underspending municipalities. The stopping and reallocation process was due to significant under performance and non-compliance against various conditional grants i.e MIG, WSIG and RBIG.
37. Urban Settlements Development Grant (USDG) and PTNG were also included in the gazette because the two programmes were also significantly underperforming. Most cities reflected less than 40 per cent expenditure against the allocations on these two capital grants.
38. Integrated Skills Development Grant (ISDG) stopped and re-allocated an amount of R2.3 million from uMhlathuze Local Municipality (LM) to eThekwini Metropolitan Municipality due to uMhlathuze LM’s lack of institutional capacity.
39. R33.8 million is also allocated to Eastern Cape, Kwa-Zulu Natal and Western Cape municipalities respectively after the Department of Human Settlements (DHS) declared a disaster in municipalities in these provinces.  The allocation is done through the Municipal