Report sketches grim picture of council finances

The inability of municipalities to pay debt and spend their budgets is threatening their sustainability, the Treasury warned.

The Treasury has released its preliminary report on local government revenue and expenditure for July 1 2016 to June 30 2017 in which it paints a bleak picture of municipal finances.

The report comes at a time when Eskom has resorted to scheduled power cut-offs in a bid to get defaulting municipalities to pay their debts.

A major contributing factor to municipalities’ woeful financial state is that households, businesses and government offices have more than R120bn in unpaid council bills.

The Treasury doubts this debt can be recovered.

“It needs to be acknowledged that not all the outstanding debt of R128.4bn is realistically collectable as these amounts are inclusive of debt older than 90 days (historic debt that has accumulated over an extended period), interest on arrears and other recoveries.

“If consumer debt is limited to below 90 days, then the actual realistically collectable amount is estimated at R24.9bn,” said the Treasury’s report.

In another trend that threatens councils’ sustainability, the Treasury said that municipalities were failing to spend their allocated budgets.

This was despite councils experiencing immense difficulties in providing services to residents and businesses.

“As at June 30 2017, municipalities on aggregate spent 87%, or R348.6bn, of the total adjusted budget of R400bn. In respect of revenue, aggregated billing and other revenue amounts to 91.2%, or R359.4bn, of the total adjusted revenue budget of R394.1bn,” according to the report.

Municipal IQ economist Karen Heese said the report highlighted broader capacity challenges in government.

“Nonetheless the figures do suggest, as with recent years, that local government’s bigger problem is capacity to deliver rather than funding, although this is not always true in either case in individual municipalities,” Heese said.

She said the liquidity pressures suggested by delays in creditor payments highlighted in the report “probably reflect, at least in part, recessionary pressures coming to the fore in local government”.

One of the affected creditors is Eskom, which has been in discussions with municipalities for the past few years in a bid to recover billions of rand owed to it by councils.