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KSD Budget and Related Issues

KSD Budget and Related Issues. Presented by: Clr B Bodlani - Acting Executive Mayor Vuyo Zitumane-Caretaker MM 8 June 2007. Introduction and Background.

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KSD Budget and Related Issues

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  1. KSD Budget and Related Issues Presented by: Clr B Bodlani - Acting Executive Mayor Vuyo Zitumane-Caretaker MM 8 June 2007

  2. Introduction and Background • In March 2006 on advice received from the CFO the Executive Mayor wrote to the MEC for Local Government requesting assistance with improving the financial position of the municipality. MFMA section 135. • The MEC arranged with DPLG for a team from the United Nations Development Program to provide assistance and a Financial recovery program was drawn up and approved by council. • The UNDP team were at KSD for the September 2006 to March 2007 period. • In December 2006 the Municipal Manager’s contract was terminated.

  3. Introduction and Background cont. • During December 2006 and January 2007 KSD lost the services of its two senior finance officials. • In early February 2007 the MEC for Local Government appointed a Caretaker MM for a period of six months. • Subsequent to this appointment a meeting was held in Bisho between DHLG and TA; DPLG; National Treasury; Provincial Treasury; UNDP; and KSD to determine a way forward. • This group met with the council to outline the plan of action. This plan was accepted by the council of the municipality. • The National Treasury deployed a municipal advisor to work directly with the Caretaker MM to assist with financial issues and to commence implementing the MFMA.

  4. IDP/Budget Processes • The IDP/ Budget process this year faced a number of challenges which had to be considered and addressed in a very short period of time between the February 2007 and the 31 May 2007 which was the day for the adoption of the budget. • A budget time schedule was completed in February 2007. • A draft IDP / Budget and Service Delivery and Budget Implementation Plan were tabled in council on the 31 March 2007. • During the April / May period the council conducted its outreach program consulting the communities. • The Budget and related policies were adopted by council on 31 May 2007.

  5. Equity in the Budget Process • After an intensive IDP and Budget Public Participation Process, a Budget Committee made up of Councillors, Heads of Department, Municipal Manager, National Treasury Municipal Advisor and Finance Officials scrutinised all requests together with the relevant Portfolio Councillor and the HOD and agreement was reached on all budget allocations. • The Budget Committee, the Standing Finance Committee and the Mayoral Committee were provided with a presentation of the budget figures. The allocations were decided upon in an open and transparent manner involving all levels within the municipality.

  6. The Budget 2007/2008 – Operating Revenue • The increases in tariffs and charges were considered in light of the standard of services that have been provided to the community over the past year and with also a view to funding resources for the improvement of these services in the coming financial year. • KSD will never survive if some hard decisions, for the benefit of the community are not taken. It is a reality that the level of services we are currently providing are not up to the required level, and must be improved. • We can only improve if we enter into a social contract with the community which will ensure that we collect the required revenue that will enable us to provide the best services.

  7. Operating Revenue Increases • Property Rates increase by average 12% to R67.9 m • The electricity increase is 5.6% to R78.2 m • Refuse Collection increases by 12% to R12.9 m • The Council is to introduce a Fire Services Levy effective from 1 July 2007 with the following rates: Domestic property - R15 per month Commercial & Gov property - R27 per month

  8. Service Level Agreements • During the previous five years the municipality performed powers and functions that are competencies of other organs of state and for which the municipality did not received adequate funding. • During 2006 Service Level Agreements were prepared by the United Nations Development Programme (UNDP) for each functions: • Primary Health Care (Department of Health) • Municipal Health Services (DHLG&TA) • Library Services (Dept of Arts & Culture) • Fire Fighting Services (DHLG&TA) • Disaster Management Services (DHLG&TA) • NATIS (Department of Transport)

  9. Service Level Agreements cont. • The funding required to carry out these functions is R25 million per annum; however to date the agreements have yet to be signed by the other organs of state. • The municipality is unable to continue to support these functions without receiving upfront funding. • Accordingly if these agreements are not formally completed prior to the start of the 2008 budget year the municipality will have no other option but advise the relevant organs of state that there are insufficient funds to continue supporting these competencies. • The Caretaker MM has engaged the Provincial and National Treasury on this matter, and if their intervention does not yield results, the municipality will not have a balanced budget and as such will be forced to take drastic action against the departments concerned.

  10. Debtors Arrears • The council is to consider selling its debtors book of more than R200m through an open tendering system. • The proceeds will be applied to service delivery orientated and Local Economic Development projects. • The proceeds are conservatively estimated at R10 m, for this financial year, although there are prospects to raise more. • The council adopted a Credit Control and Debt Collection Policy on 31 May 2007 which will be rigidly enforced so as to improve debt collection. • The budgeted debt collection rate is 97%.

  11. Budgeted Operating Revenue 2007/2008 - Summary • Budgeted revenue from Grants and Subsidies totals R88.7 million • Total budgeted revenue for the 2007/2008 totals R305.8 million • A provision for doubtful debts has been budgeted at R5 million, which brings it to R300m.

  12. Operating Budget - Expenditure • This Council inherited a high level of personnel costs - 55% of operating revenue for the 2007/2008 financial year. • The result is the wider community is being deprived of funds that should be used for road maintenance, electricity reticulation, refuse collection repairs, and to provide staff with the resources to perform their duties. • With this level of funds being used for personnel costs there is only a minimal amount available for capital purposes – R4.7 m for the 2007/2008 financial year. • The Treasury guideline for personnel costs is in the vicinity of 30% and the budgeted percentage for the 2008/2009 and 2009/2010 financial years is 53% and 48% respectively.

  13. Operating Budget – Expenditure cont. • An effort has been made to increase the Repairs and Maintenance budget and the allocation has increased from R5 m to R8.9 m in the 2007/2008 financial year. • There must be a concerted effort to increase the O&M allocation, as failure to service our assets results in dissatisfied communities, and huge costs for major repairs and reconstruction.

  14. Operating Expenditure 2007/2008 - Summary • Personnel Costs R166.7 million • General Expenses R51.3 million • Bulk Electricity R42 million • Contracted Services R21.9 million • Repairs & Maintenance R8.9 million • Bad Debt Provision R5m • TOTAL OPEX R295M

  15. Capital Budget 2007/2008 • The Capital Budget is R137.9 m with funding as follows: • National Government Grants R64.8 m • Provincial Government Grants R60.3 m • Donations – Petro SA R8 m • Internally Funded R4.7 m • TOTAL CAPITAL R138 m • The major capital projects for 2007/2008 are listed on page 28 of the budget document. • There is only R4.7 funded internally for capital and this must be turned around, as KSD cannot perpetually depend on external grants for capital funding. • If we raise more revenue internally, we will be able to allocate funding to all wards on an equitable basis, as currently we cannot due to the fact that most of our capital budget comes from other departments who also have limited resources.

  16. IDP and Budget Synchronisation • The linkage between the budget and the IDP in terms of the budget figures is outlined on page 14 of the budget document and the basis for arriving at these figures is as follows: • The two votes of Executive and Council as well as Finance and Asset Management have been allocated equally over all seven functions; therefore will not be indicated in isolation as they feature in all the key focus areas. • Corporate Services is allocated to Institution Building • Community Services is allocated over Public Amenities and Sports Facilities, and Cleansing and the Environment. • Infrastructure is allocated to Service Delivery. • The Urban Renewal Program is transferred to Planning, Social and Economic Development. • Planning, Social and Economic Development has been allocated to Local Economic Development. • Public Safety has been allocated to Public Safety.

  17. IDP and Budget Synchronisation cont. • The breakdown of the percentages of funds allocated to each activity is as follows: • Service Delivery 38% • Local Economic Development 15% • Public Amenities and Sports Facilities 13% • Public Safety 11% • RDP Housing 9% • Cleansing the Environment 8% • Institutional Building 6% • These allocations are to link up with the Service Delivery and Budget Implementation Plan to be approved during June 2007.

  18. Budget Conclusion • The reality is that not everyone and every ward will be satisfied with the allocations; however there has been a significant improvement from last year. This is why; some of the resolutions are proposing that during the budget adjustment process, we should consider ward based allocations, if our collection exceeds our projections. This is to ensure an equitable and even distribution of allocations. • This budget is balanced and credible. • Service delivery and standards will be enhanced by the positive co-operation of everyone in ensuring that all the policies and measures that have been put in place will be embraced to make KSD better.

  19. MFMA Compliance • The lack of capacity in the municipality and the difficulty in employing officials with the appropriate experience and qualifications is a significant limiting factor in the implementation of the MFMA. • Currently the top three finance position CFO, GM-Budget, Manager - Accounting in the municipality are vacant and the Caretaker MM is due to complete her six months term in July 2007. • In view of this it is going to be difficult to keep normal operations on track leaving little time and resources for MFMA implementation. • However the outputs that have been produced since February have been consistent with MFMA requirements and are to provide a guide and benchmark for future efforts

  20. MFMA Compliance cont. • Major areas where there is MFMA Compliance: • The 2007/2008 budget and National Treasury reporting • The Service Delivery and Budget Implementation Plan for 2007/2008 • The Section 57 performance agreements • The 2005/2006 Annual Report • Monthly electronic reporting to National and Provincial Treasury • Supply Chain Management • Internal Audit Committee and Unit

  21. MFMA Compliance cont. • Annual Financial Statements were in GRAP format for 2005/2006 – submitted 15 days late to the AG’s Office • Budget related policies were adopted 31 May 2007 – Credit Control and Debt Collection policy; Financial Management policies; Indigent policy. • A primary bank account has been established • Section 71 reports are being completed monthly. There is a considerable amount of work to be completed with regard to MFMA implementation, however a start has been made and progress will continue at a rate determined by the capacity the municipality is able to attract.

  22. Conditional Grants 2006/2007 • The municipality received two major conditional grants during 2006/2007 • Municipal Infrastructure 2006/2007 Grant – this grant is fully committed and spent prior to the end of the 2006/2007 financial year. • Municipal Infrastructure 2007/2008 Grant – submitted projects have been approved and the grant is fully committed. • Provincial Health Grant – this grant was applied to Primary Health Care and Municipal Health Services. The grant is to reimburse services performed by the KSD municipality and does not cover 100% of the costs.

  23. Inter-governmental Relations • The municipality enjoys good working relationships with some government departments and endeavors to maintain these for the benefit of all. • There are two matters that have been discussed with other spheres of government: • The first is whether or not the O R Tambo District Municipality should continue to be the Water Service Authority and Provider in the KSD area. It is the contention of the KSD municipality that the Water Service Provider function should be returned to the local municipality as there are synergies, economies of scale, and practical considerations that favour a return of this function to KSD.

  24. Inter-governmental Relations cont. • The timely receipt of provincial allocations as per section 36 of the MFMA is not being complied with and this makes preparation of a realistic and credible budget extremely difficult. This is particularly so when the municipality is required to table a budget in council by the 31 March each year and has not received any advice or indication as to what the allocations from the provincial departments are. Apart from these two issues the municipality enjoys cordial working relationships with its co-partners in government.

  25. CAPACITY CONSTRAINTS AT FINANCE DIVISION • CFO position has been vacant since January 2007. • Processes to appoint have been exhausted twice after a recommended CFO was threatened not to take the position • CMM headhunting currently – 3rd attempt • General Manager- Budget position also vacant since January 2007, and has not been filled due to financial constraints, however will be filled during the new financial year • On Revenue management and Asset Management, there is lack of skills and numbers for the required standards of management. • On expenditure Management, there is a shortage in numbers, and this area is critical in terms of support that must be provided to service delivery units.

  26. CAPACITY CONSTRAINTS AT INFRASTRUCTURE DIVISION • There is less that 50% of the required personnel within this division. • Most personnel at Project Management Unit are on a 3 year contract basis, as these positions cannot be sustained, if the financial position of KSD is not improved • As a result of this, there is a risk of staff turnover as job security is critical for some • There is a shortage of staff for road maintenance programme and if roads are not maintained, the result is more cost on major repairs and or reconstruction

  27. CAPACITY CONSTRAINTS AT INFRASTRUCTURE DIVISION • Plant and equipment is very old and not able to service all areas • There is a need for new plant in order to service all areas equitable • Estimated cost of all road repairs in KSD Urban Roads • Rehabilitation/Researching/Pothole R310M • Reconstruction R120M Rural Roads • Blading of existing R6M • Reconstruction R300M This would be spent over a period of 5 years, with co-sourcing Options as there is no adequate capacity internally

  28. CAPACITY CONSTRAINTS AT INFRASTRUCTURE DIVISION • Electricity blackouts are being attended to as there is A R30m injection to upgrade sub-stations W.E.F 2007-2010 • The substation at Hillcrest will be ready for connection by end July 2007 • There is a further need to replace electrical cables for reticulation to cater for the demand. • Both managers at electricity are not registered and do not have the adequate qualifications, however one has resigned. • LED Unit is also under-capacitated because of limited funding.

  29. GENERAL SERVICE DELIVERY • Cleansing and waste management has improved significantly over the last 3 months and this can be sustained by adequate funding • A financial injection by National Treasury and Department of Transport has assisted KSD in repairing potholes. • The Urban renewal programme is progressing well • Housing projects have been unblocked and have recommenced.

  30. GENERAL SERVICE DELIVERY • Water & sanitation – delivered by ORT DM since 2005 – Level of service not adequate • UNFUNDED SERVICES DELIVERED e.g. (Primary health , fire services, social development services) - SERVICE LEEL AGREEMENT • Developing social & public Amenties such as public libraries, sporting facilities is a huge challenge • 2010 funding has not been guaranteed, as a result KSD has developed a Private Investment Strategy for this project.

  31. CONDITIONAL GRANTS SPENDING • See attached spreadsheet on MIG funding.

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