Covid-19 turns up heat on shaky municipal finances
• Risks are beginning to materialise
The coronavirus crisis has found the financial fault lines in everything from health-care systems to corporate balance sheets and turned them into open fissures.
The same is true for municipalities, SA’s faulty linchpin of service delivery.
Finance minister Tito Mboweni’s supplementary budget last week sounded a stark warning on the hit that the country’s local governments are taking.
Metropolitan municipalities have reported that revenues fell on average 30% during April, due to lower demand for electricity and water, and “significantly higher nonpayment” of bills.
“Many local governments were already in financial distress,” the Treasury said. “Now the risks posed by their failure to adhere to funding benchmarks — such as retaining one to three months’ worth of cash coverage — are materialising.”
The stress is unlikely to ease up as residents struggle. In May civil society group Organisation Undoing Tax Abuse (Outa) received more than 50,000 signatures across 207 of SA’s 257 municipalities, seeking temporary property rates relief.
But as municipalities must look for ways to cushion residents, financial management remains poor.
A presentation to parliament from the auditor-general’s office revealed that just 8% of the country’s municipalities received unqualified audits with no findings. It showed more than half of municipalities owe more to creditors than they have cash in the bank.
For many, next year’s budget will pay for spending in the previous years. For 26% of municipalities this form of cannibalisation will eat up half their budget.
The crisis has not stopped many municipalities from proposing increases to water, electricity, rates and taxes or pay increases for staff and councillors.
The City of Johannesburg is due to finalise its medium-term budget for the 2021/2022 and 2022/2023 financial years on Tuesday. Though these numbers may change, its draft budget proposed a range of hikes, including 8.6% for water and sanitation, electricity increases of 8.1%, and property rates increases of 4.9%.
Pay increases for councillors of 6.4% are also proposed, while general staff costs are set to rise 5.4%.
Outa has objected to the proposals. “You cannot budget for increases when, even before the pandemic, we were in a recession,” said Julius Kleynhans, Outa’s executive for strategy and development.
The SA Property Owners Association (Sapoa), which represents the country’s commercial and industrial property industry, has pleaded with the city to “take cognisance of the dire state of the economy and the financial predicament of many of its ratepayers and to adjust its proposed budget accordingly”. Sapoa has voiced similar concerns to other municipalities, such as Msunduzi and Polokwane, arguing for no increases.
Matters are not helped by a standoff with unions after the Treasury asked municipalities to apply for exemptions from implementing the last round of increases under a 2018 multiyear wage agreement.
The crisis will compound municipalities’ difficulty collecting outstanding debt.
The Treasury’s most recent report on local government revenue and expenditure for the period up to March 31 revealed that consumer debt rose to R181.3bn. But less than 20% of this, or R30.4bn, is less than 90 days old and deemed “realistically collectable”.
City of Johannesburg spokesperson Nthatisi Modingoane said the metro is alive to the effect the pandemic will have on its finances and its residents. It has had undercollections of about R1bn a month since April, he said.
The declines in collections were not unexpected and the city is not being as stringent as before in implementing credit control instruments — such as cutting off services — during the pandemic, he said. Johannesburg is trying to “strike a balance” between providing relief to consumers and ensuring the municipality does not face financial collapse.
But the broader question of how to shore up municipal finances will outlast the pandemic.
Kleynhans said the Treasury’s plan to test zerobased budgeting — which aligns spending to revenues, without using the previous year as a base — must apply to local governments. The approach requires additional time and technical expertise but returns “basic accounting principles” to the budgeting process, he argued. Municipalities should not be increasing remuneration while cutting spending on investment and services, he said. “They need to start putting the customer first.”