Struggling metros need a bailout
The quality of service delivery in municipalities is deteriorating and the only way for local authorities to avoid collapsing is through a government bailout, says a study.
Municipalities are at the coalface of service delivery in SA and provide day-to-day services such as distributing water and electricity, refuse removal and fixing potholes. The state of these municipalities is, however, a major cause of concern.
A lot of them are struggling to collect revenue for services rendered such as water and electricity and are having to depend on provincial governments to remain afloat.
The department of co-operative governance & traditional affairs has worked on a turnaround plan for the most distressed municipalities.
The municipal financial sustainability index (MSFI) for 2017/2018, compiled by agency Ratings Afrika, was released on Tuesday. The index evaluates the operating performance, liabilities management, budget practices and liquidity position of a municipality and scores it out of 100.
It looked at the financial results of the 100 biggest municipalities, as well as seven of the eight metros, excluding Mangaung.
Ratings Afrika analyst Leon Claassen painted a dire picture of the state of the municipalities evaluated. Swartland Municipality in the Western Cape was the highest score at 86 out of 100.
Claassen said only 23 out of the 100 sample municipalities evaluated by Ratings Afrika reported operating surpluses for 2017/2018, while the remaining 77 reported operating deficits.
He said the working capital shortfalls in municipalities, which totalled R23bn nationally, were expected to get worse every year as the majority of the municipalities continue to attain losses. And revenue collection remained “subdued” due to slow economic growth in SA.
“To prevent a total collapse of the municipalities, the only solution would be for the government to bail them out. The R23bn burden [of working capital shortfalls] will unfortunately have to be carried by the taxpayer,” Claassen said.
He said the situation in the metros was similar to the local municipalities, with only two out of the seven metros analysed reporting a profit. Only Cape Town and Tshwane had an operating profit, according to numbers provided.
Claassen said the working capital positions in the metros had improved from the previous financial year, with only Johannesburg and Tshwane reporting liquidity deficits.
“Cape Town is head and shoulders above the rest with a large operating profit of R3.6bn and a liquidity surplus of R8.5bn,” Claassen said.
The Western Cape as a province was lauded as the highest-scoring province (an average of 63), as well as the province that has improved the most over the past five years.
The DA-led governments of Johannesburg and Tshwane were the lowest scoring of the metros, respectively receiving a score of 29 and 35, while Cape Town (completely governed by the DA) was scored 81 out of 100. Claassen said the scores obtained by Johannesburg and Tshwane were of “great concern”, as the “weak financial stability of these metros might have a detrimental effect on service delivery and also economic growth within their jurisdictions”.
He did, however, note it was possible a change in approach over the past two years might be causing increased spending in areas that were previously neglected, but which might have long-term benefits that now cause medium-term “hardship”.
The official audit results for the 2017/2018 financial year are expected to be released by the auditor-general by the end of May.
THE R23BN BURDEN [OF WORKING CAPITAL SHORTFALLS] WILL UNFORTUNATELY HAVE TO BE CARRIED BY THE TAXPAYER