Analysis of Municipal Budgets 2004/2005 Report

1. REPORT ON THE ANALYSIS OF MUNICIPAL BUDGETS FOR THE 2004/2005 FINANCIAL YEAR

2. BACKGROUND TO THE REPORT • SALGA started during the 2003/2004 financial year to analyse and comment on budget trends based on information obtained from sample Municipalities • For the 2003/2004 financial year the report focussed only on operational budgets whilst this report is extended to also include capital expenditure and the effect of tariff increases on household consumers

3. PURPOSE OF THE REPORT • To present comments and provides some trends based on a review of operational and capital budgets submitted by a sample of Municipalities for the 2004/2005 financial year

4. STRATIFICATION OF MUNICIPALITIES PER CATEGORY • Metropolitan municipalities • District municipalities • Local municipalities • Group 1 – budgeted income > R500m • Group 2 – budgeted income > R60m & < R500m • Group 3 – budgeted income <R60m

5. EXPENDITURE BUDGET NORMS • Salaries, wages & allowances – 30% • General Expenses – 45% to 48% • Repairs and Maintenance – 10% • Capital Charges – 12% to 15% • Contributions to Funds – 3% • Provision for Bad Debt Reserve – Based on current payment rates

6. ISSUES DISCUSSED IN THE REPORT • General growth in Municipal Budgets • Operating Expenditure per Category • Operating Income per Category • Impact on Monthly Consumer Accounts • Capital Expenditure • Sources of Funding for Capital Projects • Surplus Generating Potential of Services • Indigent Support • Bad Debt Provision • Influence of Equitable Share Allocations

7. GENERAL OBSERVATIONS ON EXPENDITURE • Salaries, wages & allowances in general remain constant as % of expenditure - norms for salary cost to be reviewed • General expenses increased below inflation – controllable costs such as telephone, transport and subsistence, stationary and printing still require good financial management • Repairs and maintenance in general still well below the norm – importance of preventative maintenance • Capital costs are decreasing due to cash flow constraints – more dependent on grants for capital • Contribution to funds not enough in respect of bad debt provision – as a result budgets not cash funded

8. GENERAL OBSERVATIONS ON INCOME • Tariff increases in general below inflation targets • Free basic services benefit smaller users • Electricity still the main source of income • Assessment rates second largest source of income – potential to increase income base in rural areas • Devolution of water services will pose major challenges in respect of payment • Distribution losses for water & electricity problematic • Refuse removal and sewerage increasingly rendered at cost only

9. IMPACT ON MONTHLY CONSUMER ACCOUNTS • Accounts increased by 5% to 7% - no increase in smaller Municipalities due to subsidies • Monthly accounts for large households differs significantly – result of valuations of properties • Monthly accounts for small households cheapest in smaller Municipalities – result of equitable share

10. CAPITAL EXPENDITURE • Priorities in terms of the DORA • - Water • - Sanitation • Electricity • Current budgets good reflection of these priorities – 85% on infrastructure • Sources of funding becoming more reliant on grants and subsidies – less from internal funds • Only large Municipalities raising external loans

11. OUTSTANDING DEBTORS AND PROVISIONS • Municipalities in general and specifically smaller Municipalities not providing adequately for bad debt reserve • Outstanding debtors as % of operational budget constant but still alarmingly high • Insufficient provision result in cash flow difficulties and budgets only to be academic • Cash flow constraints also negative impact on capital expenditure and the needs of the IDP

12. CLOSURE • Implementation of MFMA significant impact on current way of operations • Summary of implementation dates in report – Municipalities to draft implementation plans • SALGA in a position to analyse and report on budgets for individual Municipalities on request

13. Thank You