National Treasury has today released local government’s revenue and expenditure for the third quarter of the 201415 financial year, as well as spending on conditional grants for the same period. This report covers the first nine months (1 July 2014 – 31 March 2015) of the municipal financial year ending on 30 June 2015.
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 now well institutionalised with most municipalities consistently producing quarterly financial reports. The reporting facilitates transparency, better in-year management as well as the oversight of budgets, making these reports management tools and early warning mechanisms for councils and officials to monitor and improve municipal performance.
1. On aggregate, municipalities spent 62 per cent, or R214 billion, of the total adjusted budget of R345.3 billion as at 31 March 2015 (third quarter YTD results for the 201415 financial year). In respect of revenue, aggregate billing and other revenue amounted to 70 per cent, or R239.5 billion, of the total adjusted revenue budget of R341.9 billion.
2. In the period under review, capital expenditure amounted to R30 billion or 46 per cent of the adjusted capital budget of R65.4 billion. In the previous financial year 43.8 per cent performance was recorded.
3. Of the adjusted operating expenditure budget amounting to R280 billion, R184 billion (66 per cent) was spent by 31 March 2015.
4. According to the budgeted monthly operational and capital expenditure submitted by all municipalities as supporting tables to the adopted budgets, there is an over performance of 1.2 per cent or R2.6 billion on year-to-date revenue collection, an under performance of 6.7 per cent or R13.2 billion on operational expenditure and 38.7 per cent or R19 billion on capital expenditure.
5. Municipalities have adjusted their budget for salaries and wages expenditure to R77.2 billion for the 201415 municipal financial year. This represents 27.6 per cent of their total operational expenditure budget of R279.6 billion. At 31 March 2015 spending is R55.5 billion or 71.9 per cent.
6. Aggregated year-to-date expenditure reported by metropolitan municipalities amounts to R129.8 billion or 64.6 per cent. The aggregated adjusted capital budget for metros in the 201415 financial year was R35.3 billion of which they have spent 44.6 per cent or R15.8 billion compared to R13.7 billion reported in the third quarter of 201314 financial year.
7. When billed revenue is measured against their adjusted budgets, the performance of Metros shows surpluses across three core services for the third quarter 201415. This does not take into account the collection rate:
Water revenue billed was R15.7 billion against expenditure of R13.9 billion
Electricity revenue billed was R46.4 billion against expenditure of R41.5 billion
The revenue billed for waste water management was R6.4 billion against expenditure of R4.5 billion, and
Levies for waste management billed were R5.10 billion against expenditure R5.14 billion.
8. Similarly the performance against the adjusted budget for the four core services for the secondary cities for the third quarter 201415 also shows surpluses against billed revenue without taking into account the collection rate:
Water revenue billed was R4 billion against expenditure of R3.1 billion
Electricity revenue billed was R11.4 billion against expenditure of R9.5 billion
The revenue billed for waste water management was R1.6 billion against expenditure of R976 million and
Levies for waste management billed were R1.3 billion against expenditure of R1.0 billion.
9. Aggregate municipal consumer debts amounted to R104.9 billion (compared to R96.6 billion reported in the second quarter) as at 31 March 2015. The amount for outstanding debtors for government represents 5 per cent or R5.2 billion of the total outstanding debtors. The largest component relates to households which accounts for 63.7 per cent or R66.8 billion (62.7 per cent or R60.5 billion in the second quarter).
10. It needs to be acknowledged that not all the outstanding debt of R104.9 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.
11. If rates and consumer debt is limited to below 90 days, and all interest is excluded from the calculation then the actual realistically collectable amount is estimated at R20.8 billion.
12. Metropolitan municipalities are owed R57.5 billion in outstanding debt as at 31 March 2015. This represents an increase of R4.3 billion, or 8 per cent, from the third quarter of the 201314 financial year. Compared to the previous quarter’s publication, there is an increase of R2.1 billion. The City of Johannesburg is still owed the largest amount at R19 billion. This is followed by Ekurhuleni Metro at R11.7 billion, Cape Town at R6.9 billion and City of Tshwane at R6.5 billion. The three Gauteng metros constitute 64.7 per cent of the total debt owed to all eight metros across the country.
13. Households are reported to account for R37 billion or 64.3 per cent of outstanding debt to metros, followed by businesses which account for R17.1 billion or 29.8 per cent. Debt owed by government agencies is approximately R1.7 billion or 3 per cent of the total outstanding debt owed to metros.
14. Secondary cities are owed R20.5 billion in outstanding consumer debt. The majority of debt is owed by households which amount to R12.4 billion or 60.3 per cent of the total outstanding debt. Out of the total debt of R20.5 billion, R16.9 billion or 82.3 per cent has been outstanding for more than 90 days. The total amount shows an increase of R2.4 billion from the R18.1 billion reported in the second quarter of 201415.
15. Municipalities owed R25.4 billion as at 31 March 2015, an overall increase of R7.1 billion on the R18.3 billion reported in the third quarter of 201314. A majority of the amount owed to contractors and service providers is mainly under the 30 days classification and may indicate delayed spending by municipalities.
16. Free State has the highest percentage of outstanding creditors greater than 90 days at 78.8 per cent, followed by North West at 72.8 per cent and Mpumalanga at 69.3 per cent respectively. The year-on-year increase in outstanding creditors could be an indication that municipalities are experiencing liquidity and cash challenges.
17. The aggregated year-to-date actual collection rate is 91.1 per cent compared to an adjusted budgeted collection rate of 91.3 per cent. This represents an aggregated under- performance of 0.2 per cent. It is suspected that the reported collection rate is distorted owing to reporting inconsistencies on cash flow movements of municipalities.
18. Midway through the financial year, the metros adjusted their collection rate upwards to 94.2 per cent and achieved an actual collection of 93.2 per cent which is 1 per cent below the target.
19. The secondary cities reported 94.7 per cent collection against an adjusted collection rate of 6.3 per cent which is 8.4 per cent above the expected performance.
20. The total balance on borrowing for all municipalities equates to R44.1 billion as at 31 March 2015. This includes long term loans of R27.8 billion, short term marketable bonds of R4.0 billion, long term marketable bonds of R11.9 billion. The balance represents other short and long term financing instruments.
21. As at 31 March 2015, the total investments made by municipalities equates to R26.7 billion. This is R3.4 billion more than the R23.3 billion reported in the previous quarter. Investments include bank deposits of R19.8 billion, guaranteed endowment policies (sinking funds) of R3.8 billion, negotiable certificates of deposits at banks of R2.2 billion, listed corporate bonds of R864 million and some smaller investments.
22. All municipalities are now required to report on their quarterly targets for service delivery (non-financial performance) as from 1 July 2014. This is a new requirement and the response, although better than the first two quarters, is an indication that this reporting is not yet institutionalised as part of the Section 71 reporting framework. A concerted effort to collect the information from the metros and secondary cities has been made.
23. On 31 December 2014, the Minister of Finance approved (Government Gazette No. 38375 of 2014) additional allocations, shifts between allocations and roll-overs of conditional grants. This Gazette updates the information that was originally published in Government Gazette No. 37613 of 2014 published on 9 May 2014.
24. The adjustments budget increased the original allocation of R32.9 billion allocated to local government through the Division of Revenue Act, 2014 (Act No. 10 of 2014) by an amount of R281.9 million. The revised allocation excludes the unconditional transfers of Equitable Share (ES), General Fuel Levy, Urban Settlement Development Grant (USDG) and the Integrated City Development Grant (ICDG) amounting to R44.5 billion, R10.2 billion, R10.3 billion and R255 million respectively.
25. The Gazette reflects the re-allocation and shifting of funds between municipalities due to non-performance against the municipal allocations and these funds have since been allocated to municipalities that have fast tracked the implementation of their projects and have accelerated expenditure against the original allocation. The following grants were affected by the re-allocation and shifting of funds namely: Neighbourhood Development Partnership Grant (NDPG), Integrated National Electrification Programme (INEP, Infrastructure Skills Development Grant and Rural Households Infrastructure Grant.
26. The Gazette includes the roll-overs by departments for the following programmes: Municipal Water Infrastructure Grant, Department of Water and Sanitation, Municipal Infrastructure Grant, Regional Bulk Infrastructure Grant Municipal Disaster Recover Grant.
27. Lastly, the Gazette also includes the allocation of the unallocated amount for Municipal Disaster Grant and the conversion of grants between the schedules against the Public Transport Infrastructure Grant (PTIG) and the Public Transport Network Operation Grant.
28. Based on the third quarter cumulative performance (1 July to 31 March 2014), an amount of R25.5 billion was transferred by the national departments administering the grants to municipalities which constitute 99.9 per cent of the total direct conditional grant allocations of R25.5 billion.
29. According to expenditure reports provided by the national departments, 51.1 per cent was spent against the total conditional allocation as at 31 March 2015. Importantly, this performance excludes the USDG and indirect grants. The performance of the USDG is made against the entire capital budget of the recipient metropolitan municipalities and hence no specific performance against the grant.
30. Aggregated expenditure reported by municipalities as at 31 March 2015 is 59.4 per cent or R14.8 billion.
31. The lowest performing grants in the third quarter are the Rural Household Infrastructure Grant (RHIG) and Municipal Human Settlement Capacity Grant (MHSCG) reflecting 34.8 per cent and 6.4 per cent expenditure reported by the National Departments while the municipalities reported performance of 22.4 per cent and 10 per cent respectively. With regards to RHIG the programme was reconfigured and moved from the Department of Human Settlement to the Department of Water and Sanitation. With regards to the MHSCG the national departments responsible for administering the grant only transferred these funds very late during the financial year to the recipient metropolitan municipalities. An automatic roll-over approval will be granted for the Metros with regard to this grant.
32. National Departments and the municipalities also reported expenditure that is below 50 per cent in the third quarter against the following grants Public Transport Infrastructure Grant (PTIG), Public Transport Network Operations Grant (PTNOG), Rural Roads Assets Management Grant, Energy Efficiency and Demand Side Management (EEDSM) and Water Services Operating and Transfer Subsidy Grant (WSOS).
33. The third quarter performance further takes into account the publication of the second adjustments gazette that was published during the month of March 2015. National Treasury implemented Section 19 (stopping of the allocation) and 20 (reallocation of the allocation) of the 2014 DoRA against Municipal Infrastructure Grant (MIG) for certain municipalities, while other municipalities only had their funds stopped in order to allow them an opportunity to improve their spending by the municipal year end (June 2015).
34. National Treasury in consultation with the department of Cooperative Governance (DCoG) considered shifting the MIG funds against municipalities that showed spending of less than 40 per cent within six months of the municipal financial year. The stopped funds were re- allocated to the municipalities that have fast tracked the implementation of the capital projects.
35. The overall expenditure against MIG is less than 65 per cent, but the programme has a potential to improve performance in the last quarter of the municipal financial year since the municipalities have commitments to improve their spending against the grant.
36. In terms of the capital programme funded by grants, municipalities continue to delay the implementation of the infrastructure projects within the first six months of the financial year reason being: prioritizing unregistered projects absence of project management units lack of capacity delays with the contractors and limited multi-year budgeting. Most capital grants are showing a less than 65 per cent spending during this third quarter a trend that has been observed for the past few years during the same period.
37. With regards to the roll-over of 201314 unspent conditional grants, National Treasury approved a roll-over amount of R3.9 billion into the 201415 financial year and municipalities have reported expenditure of 38.5 per cent or R1.5 billion. Municipalities are struggling to report separately for roll-overs. A concerted effort is being put in place to train them on this regard.
38. 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.
Note to editors
This information is published in terms of Sections 71 of the Municipal Finance Management Act, 2003 (Act No. 56 of 2003) (MFMA) and 30(3) of the 2014 Division of Revenue Act. The budgeted figures shown are based on the 201415 adjusted budgets approved by municipal councils.
In terms of the process, Municipal Managers and Chief Financial Officers are required to sign and submit data to the National Treasury by 6 May 2015. Any queries on the figures in these statements 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.
A municipal budget must be funded in terms of Section 18 of the MFMA before a municipal Council can adopt that budget for implementation. A funded budget is essentially a budget that is funded by a combination of cash derived either from realistically anticipated revenues to be collected in that year and cash backed surpluses of previous years. It is a common practice amongst most municipalities when preparing their annual budgets to overstate or inflate revenue projections, either to reflect a surplus or on the surface to show that excess expenditure requirements are adequately covered by revenues to be collected. Hence, the revenue estimates are seldom underpinned by realistic or realisable revenue assumptions resulting in municipalities not being able to collect this revenue and therefore finding themselves in cash flow difficulties. Should such situations arise, municipalities must adjust expenditure downwards to ensure that there is sufficient cash to meet these commitments.
This third quarter publication covers 277 municipalities on financial information and 278 municipalities on conditional grant information.
Structure of inform ation released
Other information released on National Treasury’s website (www.treasury.gov.za) as part of this process includes the following:
Municipal Budget Statements:
a. Cash Flow closing balances as at 31 March 2015,
b. High-level summary of revenue for 277 municipalities, and
c. High-level summary of expenditure for 277 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.
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 third quarter:
a. Summary of total monthly operating expenditure – 277 municipalities
b. Summary of total monthly operating revenue – 277 municipalities
c. Summary of total monthly capital expenditure – 277 municipalities
d. Summary of total monthly capital revenue – 277 municipalities
e. Summary – Metros
f. Conditional Grant summary – Metros
g. Summary – Top 19 municipalities
h. Conditional Grant summary – Top 19 municipalities
i. Summary – Provinces
j. Conditional Grant summary – Provinces
k. Analysis of Sources of Revenue – 277 municipalities
l. Listing of borrowing instruments – 183 municipalities
m. Listing of investment instruments – 185 municipalities
n. Monthly repairs and maintenance expenditure per asset class – 277 municipalities and
o. Monthly repairs and maintenance operating expenditure – 277 municipalities.
Service delivery information (non-financial performance) for metros and secondary cities.
a. List municipalities not complying with Section 71 of the MFMA.
The section 71 information reported by municipalities to National Treasury is also published on the National Treasury website in the format of Schedule C, which is the format for monthly and quarterly municipal financial statements as prescribed by the Municipal Budget and Reporting Regulations.
Source : South African Government