Without sharp service delivery and billing, councils still ill fated

Auditor-General Kimi Makwetu must be a happy but very exhausted man. He has finally managed to get the teeth for his office to do something about the widespread noncompliance and corruption in local government.

But he must be exhausted about the bad news he is expected to deliver annually. His “messengers”, usually armed with spreadsheets and calculators, may now need armed escorts.

On the first page of the executive summary of his latest report on local government, he laid bare the stress his colleagues faced: “… pressure was placed on audit teams to change conclusions purely to avoid negative audit outcomes … without sufficient grounds.”

This pressure is a diversionary tactic by local officials who are unwilling to confront a basic reality — in the absence of an overhaul of their “business processes”, their municipalities are not assured of survival.

There’s just too much debt to collect, too few creditors paid on time and too little by way of executed controls to keep those eyeing the till from wasteful and irregular spending. In one municipality, monthly accounts weren’t printed because the printing company hadn’t been paid. So many people and businesses didn’t pay their bills. A different audit opinion cannot change those facts.

Finance Minister Nhlanhla Nene has suggested that municipalities should consider financing some of their long-term capital expenditure through the capital markets. I think he is onto something.

Key to decentralised municipal governance is that municipalities ought to not only raise their own resources, but they can raise debt in capital markets for their long-term capital expenditure. They have predictable cash flows (where they bill and collect properly), have no competitors and have the power to set the prices on tariffs for services delivered. Surely this is a dream for fixed-income fund managers looking for stable streams of income for their clients?

What is required is that municipalities actually spend their capital budgets within schedule and deliver services for which they can bill residents and businesses. But 26% of water projects exceed their completion dates; twofifths of municipalities have water losses exceeding 30% of piped bulk water, and more than a third don’t assess the condition of the infrastructure to provide the water. Close to half have no water maintenance plans.

It shouldn’t be surprising, then, that there is the oftenmentioned “culture” of nonpayment, as many communities have limited assurance that services will be provided, and if they are delivered, that their accounts will come.

This suggests that municipalities do not only have an irregular expenditure problem, which has been the focus of most media reports, but also a “business process” problem. Municipalities are “businesses” delivering services at a certain cost to people who live in their locales. Perhaps there is a reluctance to accept that their competition is not necessarily other market actors but that they are competing for notes in residents’ wallets used to spend on beer, store accounts, school fees, clothing and many other necessities.

The rank of priority that consumers give to settling their accounts with municipalities is dependent on how well they serve, deliver, communicate and report to them — and perhaps what punitive costs are associated with not paying.

Municipalities have leverage to ensure a steady income stream. Unlike other creditors, their debt management policies can ensure that their customers have candle-lit take-away dinners and cold showers.

Conversely, if their services are delivered intermittently, it is unfair to expect regular payments. If the municipal cash offices do not open on weekends and they have no digital payment channels, how are those who work for a living expected to pay their arrears?

Makwetu will now have the Hawks on speed dial, but besides the punitive disincentive to corruption at municipalities, the government should also consider what is needed for them to become financially viable. This should be done before the lights go off and the taps run dry.

CONVERSELY, IF THEIR SERVICES ARE DELIVERED INTERMITTENTLY, IT IS UNFAIR TO EXPECT REGULAR PAYMENTS