Local Government Revenue and Expenditure: Second Quarter Local Government Section 71 Report
The National Treasury has published a report on local government’s revenue and expenditure for the second quarter of the 2013/14 financial year, as well as spending on conditional grants for the same period. This report also covers the first six months (1 July 2013 - 31 December 2013) of the municipal financial year ending on 30 June 2014.
The report is part of the In-year Management, Monitoring and Reporting System for Local Government (IYM), which enables provincial and national governments 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 to monitor and improve municipal performance.
1. On aggregate, municipalities spent 42.9 per cent or R131.8 billion of the total adopted budget of R307.3 billion. In respect of revenue, aggregated billing and other revenue amounted to 48.6 per cent or R148.7 billion of a total adopted revenue budget of R306.1 billion.
2. On average the expenditure for the second quarter of 2013/14 is 13.5 per cent and the revenue 10.9 per cent higher than the figures for the second quarter of 2012/13.
3. Capital spending amounts to R17.7 billion or 31.4 per cent of an adopted capital budget of R56.4 billion.
4. Metropolitan municipalities achieved 47.3 per cent or R85.5 billion of billed and other revenue of the total adopted revenue budget of R180.8 billion. This is slightly less than the 48.3 per cent performance reported in the second quarter of the previous year.
A quarter-on-quarter comparison of the in-year figures shows that on average metros realised an increase in billed revenue of 9.9 per cent compared to the second quarter of the previous financial year.
6. The aggregated capital budget for metros in the 2013/14 financial year was R28.6 billion of which metros have spent R8.8 billion or 30.9 per cent by 31 December 2013.
7. Operating expenditure for the year-to-date amounts to R71.1 billion or 47.4 per cent average.
8. Revenue for service delivery functions of metros appears to be on target at between 44 and 50 per cent for all functions.
9. Metros’ performance on core services when measured against their adopted budgets are as follows:
Water billed revenue of 49.7 per cent or R9.0 billion and expenditure of 52.7 per cent or R8.5 billion;
Electricity billed revenue of 47.9 or R30.0 billion and expenditure of 48.3 per cent or R26.8 billion;
Waste water management billed revenue of 48.0 per cent or R3.6 billion and expenditure of 39.1 per cent or R2.6 billion, and
Waste management billed revenue of 50 per cent or R2.9 billion and expenditure of 44.8 per cent or R2.9 billion.
10. The performance on core services for the secondary cities are as follows:
Water billed revenue of 55.3 per cent or R2.5 billion and expenditure of 42.1 per cent or R1.8 billion;
Electricity billed revenue of 51.3 per cent or R7.5 billion and expenditure of 47.3 per cent or R5.9 billion;
Waste water management billed revenue of 54.7 per cent or R1.0 million and expenditure of 33.4 per cent or R535 million; and
Waste management billed revenue of 56.7 per cent or R891 million and expenditure of 42.6 per cent or R607 million.
11. Aggregate municipal consumer debts were R93.3 billion as at 31 December 2013. This is
R2.8 billion more than the R90.5 billion reported at 30 September 2013. Government’s share of the outstanding debtors represents 4.4 per cent or R4 billion. The largest component relates to households which accounts for 63.2 per cent or R59 billion.
12. National Treasury started collecting detailed outstanding debt information from 1 July 2013 for the new municipal financial year. Although some municipalities indicated that their systems are not ready to implement the new required unbundling of debtors, most of them complied with the new format. The new format for reporting on outstanding debtors requires municipalities to submit to National Treasury a breakdown of debtors based on the following categories:
Outstanding debt of organs of state, listed by provincial and national department;
Outstanding debt of commercial institutions, distinguishing between Eskom and municipal areas and businesses, industrial companies, mining companies and embassies / consulates; and
Outstanding debt of households, distinguishing between Eskom and municipal areas as well as indigent and non-indigent households.
13. Metropolitan municipalities were owed R52 billion as at 31 December 2013. This represents an increase of R4.7 billion, or 9.9 per cent, from the second quarter of the 2012/13 financial year. The City of Johannesburg is still owed the largest amount at R17.6 billion, followed by Ekurhuleni Metro at R10 billion, Cape Town at R6.3 billion and City of Tshwane at R6 billion.
Secondary cities were owed R16.5 billion in outstanding consumer debt as at 31 December 2013. Outstanding household debt accounts for R11.4 billion or 69.1 per cent of the total outstanding debt. Of the total debt, R13.4 billion or 80.9 per cent has been outstanding for more than 90 days. Consumer debtors written off during the reporting period amounts to R16.6 million and was reported by George and Drakenstein municipalities.
15. Municipalities owed R17.7 billion as at 31 December 2013, an overall increase of R1.3 billion compared to the R16.4 billion reported in the first quarter of 2013/14. North West has the highest percentage of creditors outstanding for more than 90 days at 70.3 per cent, followed by Free State at 67.3 per cent and Mpumalanga at 64.0 per cent. The year-onyear increase in outstanding creditors could be an indication that municipalities are experiencing liquidity and cash challenges.
16. The aggregated year-to-date actual collection rate is 92.8 per cent compared to an adopted budgeted collection rate of 94.5 per cent. This represents an under-performance of 1.8 per cent in aggregate. The high collection rate reported for other services is due to reporting issues and distorts the actual collection rate.
17. Metros reported a collection rate of 93.6 per cent while the secondary cities reported collection against billed revenue at 85 per cent which is 11.4 per cent less than the adopted target of 96.4 per cent.
18. It needs to be noted that collections that are below billed revenue pose a significant risk to the cash and liquidity position of municipalities as planned expenditure is based on collections that are higher than actual collections.
19. Reasons for collected revenue that is lower than billed revenue include the affordability of municipal services. The economic slowdown and the substantial increase in tariffs as a result of higher prices for fuel, water and electricity, and materials continue to reduce the affordability and therefore the ability of consumers to pay for services.
20. As at 31 December 2013, municipalities had reported borrowing of R49.6 billion. This includes long term loans of R34.5 billion, short term marketable bonds of R10.1 billion, long term marketable bonds of R4.4 billion and other short and long term loans of R652 million.
21. Municipalities has investment totalling R21.3 billion, including deposits at banks of R15.3 billion, guaranteed endowment policies (sinking funds) of R3.9 billion, negotiable certificates of deposits at banks of R1.4 billion and some smaller investments.
22. In the Division of Revenue Act, 2013 (Act No.2 of 2013) R30.6 billion was allocated to local government as conditional transfers (both direct and indirect transfers). This amount excludes the unconditional transfer of Equitable Share (ES) and Urban Settlement Development Grant (USDG) for R40.5 billion and R9.1 billion respectively.
23. Total conditional and unconditional allocations to local government amount to R80.6 billion, of which R403 million is unallocated in the DoRA and includes the Disaster allocation of R346 million that is made available to deal for immediate release to fund disaster relief. The remaining allocation of R57 million is earmarked for the two Cities that will be hosting the 2014 soccer tournament.
24. By the end of the second quarter national departments had transferred R14.5 billion to municipalities, which constitutes 57.8 per cent of the total direct conditional grant allocations of R25.1 billion. According to expenditure reports provided by the national departments, 32.5 per cent of the transferred funds had been spent by 31 December 2013. Importantly, this performance excludes the Urban Settlements Development Grant (USDG) and indirect grants.
The analysis of expenditure report submitted by municipalities’ shows that an average of 37.5 per cent, or R9.4 billion, of the R30.6 billion had been spent by the end of December 2013.
26. The grant with the lowest expenditure levels is the Electricity Demand Side Management Grant. The National Department responsible for administering the grant reports that only 3.9 per cent of the funds disbursed to municipalities during the quarter had been spent by the end of December. Municipalities reported the expenditure as 12.6 per cent of funds received.
27. Performance against the Municipal Water Infrastructure Grant is also slow with the responsible National Department reporting expenditure levels of 8.8 per cent.
28. A number of scheduled transfers were withheld from underperforming municipalities. These include Neighbourhood Development Partnership grant, Rural Households Infrastructure grant, Integrated National Electrification programme (INEP) and the Municipal Infrastructure Grant. In the main, the reasons for withholding these funds included the fact that some municipalities were not yet ready to implement projects and some had not submitted business plans. In the case of the INEP, funds were withheld because some municipalities had no houses to connect to the electricity grid.
29. 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.