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Presentation on theme: "SACN PRESENTATION LOCAL GOVT EXPENDITURE REVIEW Krish Kumar 2006-11-14."— Presentation transcript:


2 INTRODUCTION Amalgamation of 843 municipalities into 283 must not be under- estimated in terms of complexity, HR rationalisation, disparate systems, policies and procedures - all in tandem with normal functioning of the Admin Apartheid legacy / rationalisation / legislative challenges Maintenance (operating expenditure) and renewal (capital expenditure) -Added areas with no tax base and poor ability to pay -Poor service quality / aging infrastructure inherited Budget allocations need to be linked to an assessment of actual needs and affordability Severe constraints on skilled and experienced resources -acknowledge that capacity differs between municipalities -metro / well-capacitated municipalities but still have the country ’ s poorest cities – urban migration

3 INTRODUCTION Alignment of national priorities and provincial growth strategies with local IDP ’ s -poor integration Alignment of functions and fiscal powers -RED ’ s -Housing accreditation -Unfunded mandates -National targets set for local government – water and sanitation & free basic services 2010 - during, beyond and legacy “ One machine can do the work of fifty ordinary men. No machine can do the work of one extraordinary man ” – Elbert Hubbard

4 PLANNING & BUDGET ALIGNMENT Need to establish integration structures that bring together national, provincial and local IDP ’ s Alignment of budgets with IDP Determine 3,10 and 20 year development plans, budgets and financial model Additional national funding / grants required to ensure backlogs eliminated - Implications are greater with REDs & 2010 / tariffs stretched -Local Government budgets / Revenue raising limited -Capacity to borrow exists in certain municipalities, however, affordability and impact on tariffs significantly huge “ I skate where the puck is going to be, not where it has been ” – Wayne Gretzky, professional hockey player

5 INFRASTRUCTURE BACKLOGS Huge infrastructure backlogs inherited that requires integration and rationalisation Dynamic environment -migration pattern / urbanisation rates -growth and unemployment -changing household formation Impact of asset management plans -target level of service / standards -life cycle costs of infrastructure -sustainability “ We will receive not what we idly wish for but what we justly earn. Our rewards will always be in exact proportion to our service ” – Earl Nightingale

6 INFRASTRUCTURE BACKLOGS Funding constraints -Municipal Infrastructure Grant insufficient -Additional funding not affordable -Impact on tariffs “ Imagination is more important than knowledge. Knowledge is limited. Imagination encircles the world. ” – Albert Einstein

7 INFRASTRUCTURE / SERVICE BACKLOGS AS AT 30/06/2006 Infrastructure / ServiceEthekwini (Rm)Ekurhuleni (Rm) Cape Town (household) N Mandela (Rm) Water562804500492 Sanitation308Incl in Water45 000477 Electricity/Basic Energy1 18095049 10056 Refuse Removal07744 13011.5 Housing/Shelter1 7503 000300 000No figures Access Roads, Sidewalks, & Footpaths, Public Transport Infrastructure & Services 2 9403 7271 100km2 000 Stormwater Drainage15370032%No figures ***Figures from Johannesburg and Tshwane not available “ Opportunity always involves some risk. You can ’ t steal second base and keep your foot on first ” – Joseph Heller

8 UNFUNDED MANDATES Fiscal dumping Unfair burden on municipalities Need to get commitment to relieve local authorities of this unfair burden MUNICIPALITYHOUSING & HOSTELS (Rm) HEALTH (Rm) MUSEUMS (Rm) LIBRARIES (Rm) TOTAL ETHEKWINI151.9244.429.4120.9546.6 JOHANNESBURG-135--135.0 EKURHULENI1132150.263391.2 CAPE TOWN-1709.4145324.4 NELSON MANDELA -2.8 TOTAL264.9767.239.0328.91 400.0 ***No figures available from Tshwane

9 IMPACT OF MUNICIPAL PROPERTY RATES ACT Huge implementation challenges Cost of preparation of valuation roll in respect of market value Impact of ratio of commercial to residential Impact of the shift in incidence Manage the implementation – big bang vs phased “ Often the difference between a successful man and a failure is not one ’ s better abilities or ideas, but the courage that one has to bet on his ideas, to take a calculated risk and to act. ” – Dr Maxwell Maltz

10 2010 Stadium funding Infrastructure -Transport -ICT -Operating costs – fan parks, shade cloth, fencing, parking -Upgrading / improvements/ City beautification -Security costs Will have a major impact on local authority spending Future maintenance “ Every problem has in it seeds of its own solution. If you don ’ t have any problems, you don ’ t get any seeds ” – Norman Vincent Peale

11 2010 MUNICIPALITYIMPACT OF NEW/IMPROVED STADIUM (Rm) INFRASTRUCTURE IMPACT (Rm) OPERATING COST IMPACT p.a (Rm) ETHEKWINI1 8944 02989 JOHANNESBURG5 2003 900Not finalised RUSTENBERG1404Not finalised MBOMBELANot finalised200Not finalised NELSON MANDELA 1 1009.5 TSHWANE9788Stadium owner to pay CAPE TOWN2 4902 548264 ***Figures from, Polokwane and Mangaung not available “ The world is a great mirror. It reflects back to you what you are. If you are loving, if you are friendly, if you are helpful, the world will prove loving and friendly and helpful to you. The world is what you are. ” – Thomas Dreier

12 MUNICIPALITY 2003/2004 % 2004/2005 % 2005/2006 % AVERAGE % ETHEKWINI909793 JOHANNESBURG90939492 EKURHULENI898889 CAPE TOWN95 TSHWANE989410198 NELSON MANDELA92959694 AVERAGE %92949594 CASH COLLECTION RATE Monthly billing versus payments Affected by increasing unemployment trend and urbanisation Notwithstanding the increase in debtors, the payment/cash collection rates have increased Debtor increase due to historical debt – interest and penalties

13 MUNICIPALITY TOTAL (Rm) ETHEKWINI353.2 JOHANNESBURG17,5 EKURHULENI91.4 CAPE TOWN247.8 TSHWANE938.5 NELSON MANDELA87.9 TOTAL1 736,3 GOVERNMENT DEBT Very disappointing Why can ’ t National Treasury offset from equitable share?

14 DEBT & LIQUIDITY S/TERM DEBT (Rm) L/TERM DEBT (Rm) TOTAL DEBT (Rm) CASH HOLDING S (Rm) CASH COVERAGE (TOTAL DEBT) CAPE TOWN362.42 126.72 489.01 711.80.7 EKURHULENI103.31 441.51 544.72 387.01.5 ETHEKWINI606.43 737.94 344.32 762.20.6 JOHANNESBURG671.84 536.95 208.72 695.50.5 NELSON MANDELA 17.8427.3445.01 379.43.1 TSHWANE105.02 679.62 784.61 134.80.4 TOTAL1 866.714 949.916 816.312 070.70.7 LOANS OUTSTANDING & PROJECTED BORROWINGS

15 FINANCIAL STATISTICS TOTAL INCOME DAYS CASH ON HAND NET CAPEX : TOTAL INCOME TOTAL DEBT : INCOME NET DEBT : INCOME CAPE TOWN9 097.774.58.927.48.6 EKURHULENI7 731.6133.19.320.0(10.9) ETHEKWINI10 043.2117.620.443.316.1 JOHANNESBURG12 856.989.915.940.519.5 NELSON MANDELA 2 920.5173.315.115.2(32.0) TSHWANE8 110.659.220.534.320.3 WEIGHTED AVERAGE N/A98.

16 BUSINESS LEVIES Need to ensure that local government autonomy and funding not compromised Need a growth related income stream that takes into account growth in the economy to replace business levies Local business tax must be given serious consideration 15% growth per annum Distribution must be equitable “ The weak can never forgive. Forgiveness is the attribute of the strong ” – Mahatma Gandhi

17 IMPACT OF REDs The fundaments and necessity for RED ’ s appreciated, however, the institutional framework / public entity model is a concern Concern about whether we will achieve the redistribution we are trying to achieve with the 6 RED model SALGA / Constitutional challenges Will affect credit rating and gearing – impact on borrowing Contribution / surcharge only for 10 years in terms of blueprint – will seriously impact on the municipality ’ s funding Impact on cash flow if local government does not do collections Need to have urgent clarification on these issues due to the major consequences Would have preferred the 6 + 1 RED model – less impact on Metros Why not create Water & Sanitation as a public entity at the same time?

18 MUNICIPALITY2004/2005 INCOME ACTUAL (Rm) 2005/2006 INCOME ESTIMAT E (Rm) % 2004/2005 EXPEND ACTUAL (Rm) 2005/2006 EXPEND ACTUAL (Rm) % ETHEKWINI9 61710 273>6.89 1469 374>2.5 JOHANNESBURG13 14914 331>9.011 86913 115>10.5 EKURHULENI8 1628 712>6.77 9757 726<3.0 CAPE TOWN9 29310 497>13.08 92610 338>15.8 TSHWANE7 2147 995>10.86 6167 602>14.9 NELSON MANDELA 2 9203 086>5.72 9873 013>0.8 TOTAL50 35554 894>9.047 51951 168>7.7 GROWTH IN INCOME & EXPENDITURE OPERATING

19 MUNICIPALITY2004/2005 ACTUAL (Rm) 2005/2006 ACTUAL (Rm) % 2005/2006 ACTUAL (Rm) 2006/2007 EST (Rm) % ETHEKWINI2 4032 528>5.22 5282 847>12.6 JOHANNESBURG1 8612 722>46.22 7223 193>17.3 EKURHULENI918,4849.0<7849.01 077,4>26.0 CAPE TOWN951.51 521>59.91 5212 686>76.6 TSHWANE1 1951 568>31.21 5681 725>10.0 NELSON MANDELA 455.5631.5>38.6631.51 374.2>118. 0 TOTAL7784,49819,5>26.19819.512 902.6>31.4 GROWTH IN EXPENDITURE CAPITAL

20 PERSONNEL Attraction and retention a major challenge especially in engineering, town planning, valuations, IT, and health fields Salaries of municipal managers need to be market related Need to ensure that we pay a fair rate for any given job – do not compromise on qualifications, especially technical and senior management level Agree that there should be a common public sector pay curve, pension benefits, etc, across the sector, but, this needs to be phased in There needs to be focused attention on capacity building with assistance / co-ordination from National Government Skills SETA not effective – there needs to be a focus on public sector as a priority project Once staff are trained by the public sector, they are snapped up by the private sector Employment equity targets are difficult to meet as there are not enough graduates

21 GENERAL Cost of compliance -legislation -fund business plan requirements is onerous -MFMA reporting onerous for smaller municipalities Eliminate duplication and effort by municipalities – National Govt should set up a Small Municipalities Legislation Compliance Network to get economies of scale Ensure that information requested is being utilised to inform stakeholders and decision-makers Targeted support for struggling municipalities Further rationalisation of grants and subsidies

22 THE WAY FORWARD All spheres of government need to work, plan and implement in an integrated manner Need to address funding gaps Need to take cognizance of the different capacities / abilities to spend Need to carefully analyze municipalities carefully in terms of effectiveness, ability to spend and focus attention on key areas of intervention (similar to the restructuring grant) -set clear targets -monitor / regulate -provide feedback and mentorship Need focused attention on capacity building with regard to key / scarce resources with a nationally co-ordinated programme to identify, train and retain skilled staff

23 CONCLUSION : KEY ISSUES Impact of REDs – prefer 6 + 1 model Replacement of business levies with a local business tax for Metros and Category B municipalities Creating a single consolidated public sector needs careful analysis “ Learn to separate the majors and the minors. A lot of people don ’ t do well simply because they major in minor things ” – Jim Rohn

24 THE END “ Keep in mind that you are always saying ‘ no ’ to something. If it is not to the apparent, urgent things in your life, it is probably to the most fundamental, highly important things. Even when the urgent is good, the good can keep you from your best, keep you from your unique contribution, if you let it ” – Stephen Covey


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