Ina Opperman

By Ina Opperman

Business Journalist

Time to punish municipalities for poor budgeting – Outa

Municipalities face a R200 billion annual shortfall if the lack of revenue collection continues as it did between July and September.

It is time to punish municipalities for poor budgeting and hold officials accountable when they plan for income they know they will not be able to get, as this creates false expectations in communities for service delivery and sets municipalities up for failure.

Municipal councils do not seem to care if they will be able to collect the revenue and approve these budgets regardless, says Jonathan Erasmus, Outa’s project manager for its Community Action Network (CAN) initiative.

“Municipalities must rethink increasing revenue and the regulations governing the process, as well as greater accountability and consequence management for how they spend money. This is just one of the shocking findings according to National Treasury.”

Another worrying trend is the detached increases that are well above inflation imposed on consumers by mostly ill-performing and dysfunctional municipalities across the country.

“This is clear from the worryingly low municipal revenue collection data and rising household non-payment,” he says in reaction to a recently published report by National Treasury.

The report, covering the period from July to September, is meant to be used as a management tool and early warning system for councils and was published in terms of Section 71 of the Municipal Finance Management Act.

According to Section 71, accounting officers of municipalities are required to account for the municipality’s financial health once every quarter.

ALSO READ: Almost 90% of municipalities are ‘distressed’ or ‘dysfunctional’

Revenue collection at only 56.1% vs budgeted 83.1%

Treasury found that municipal collection rates stood at a staggeringly low 56.1% as opposed to the budgeted 83.1% collection anticipated for the period under review. According to Treasury the “economic slowdown and substantial increases associated with Eskom bulk purchases are directly impacting on affordability and subsequently the ability of consumers to pay for services”.

In addition, Treasury stated that the “underperformance of actual collections against billed revenue holds a significant risk for the liquidity position of most municipalities as the planned expenditure is based on a higher performance level”.

Erasmus says while an aggressive collection campaign by each municipality could work to get defaulters to pay up in the short to medium term, this alone will not fix the problem over the long term.

He says municipalities across the country have, for years, completely disregarded the need for any meaningful public participation where real concerns about affordability were raised.

“Instead, municipalities and bulk service providers such as Eskom and the various water boards implemented price increases sometimes more than double the consumer price index. These multi-year increases are now weighing heavily on ratepayers and residents who are further constrained by a shrinking economy and fewer economic prospects.”

Erasmus warns that if this collection status quo remained through the second, third and fourth quarters, it could lead to a collective shortfall of approximately R200 billion with a noticeable direct result on service delivery.

ALSO READ: Outstanding: Rand Water owed huge amounts by errant municipalities

City of Johannesburg a clear example of poor budgeting

He points out that the City of Johannesburg was a clear example of the type of arrogance that has led to the dire under-collection, ramming through a slew of controversial levies from electricity to sanitation and a general valuations roll raising individual property rates by more than 37% in some instances and denying a lot of objections in the process.

“It is no surprise then that the metro is owed the most by households in Johannesburg, with a total outstanding debt of R50.8 billion. This is simply a result of the city’s bullying and uncaring attitude. You cannot increase the cost of living without any regard for the realities on the ground and expect people to simply keep on paying.”

Treasury found that the metro collection average was a pitiful 53.7% as opposed to the anticipated 87.8% and that the metros were owed R144 billion in outstanding debt with households accounting for R108.1 billion or 75.1% of that debt.

Among the country’s 19 secondary cities, an amount of R57.6 billion or 86.4% of all debt owed to secondary municipalities has been outstanding for more than 90 days, the majority of which is from households.

“Until Johannesburg and other municipalities engage properly with residents, we are unfortunately entering into a financial death spiral,” Erasmus warns.

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