Increase in unpaid municipal bills adding to the mess
The continued increase in unpaid municipal bills – up more than threefold in the past decade – is yet another indicator of the depth of the financial and economic crisis SA is in. The rise in consumer debt explains the sharp decline in the quality of public services such as water and electricity, that municipalities are supposed to provide. The crisis has another leg – the basis municipalities use to set their tariffs is no longer fit for purpose. The Financial and Fiscal Commission says municipalities use historical costs to determine tariff increases, not what it would cost in today’s money to replace or upgrade the infrastructure. This means municipal revenue budgets have become unrealistic.
A 10-year view shows that unpaid municipal bills have ballooned from R87bn at the end of June 2013 to more than R313bn by June 2023, the end of the financial year for municipalities. The latest data for the six months to endDecember shows the debt had risen to R338.2bn. The biggest driver is money owed by households, which accounts for R230.5bn (R55.5bn), more than half of which - R127.5bn - is due to metros. National and provincial governments account for R17.6bn (R4.2bn) of unpaid municipal bills.
The government’s share of unpaid municipal bills has interesting features – 72% of the debt is owed to secondary cities and other municipalities, which are weak relative to the big cities. The remainder 28% - of what the government owes is due to metros. Though their finances have weakened in recent years, metros were historically the category of municipalities better placed to collect revenues because of the larger base of economic activity within their boundaries.
The depth of the financial crisis is outlined in a paper by the Financial and Fiscal Commission that warns that the increase in consumer debt has left several municipalities “unable to settle their bills” to bulk service providers, including Eskom and water boards. This failure has a ripple effect – leaving a big hole, for example, in Eskom finances. In 2023 the Treasury said its R254bn debt relief package for Eskom would enable the utility to write off monies owed to it by municipalities under “strict conditions”. However, this approach will likely embolden those consumers who don’t pay their bills. If the government can force Eskom not to send the sheriff to the municipal offices, and municipalities aren’t keen to pursue nonpaying residents, why should residents pay?
The commission lists several factors that explain why consumers aren’t paying their municipal bills. These include a culture of nonpayment or entitlement, dissatisfaction with the services, the inability to pay, the failure by municipalities to educate households about the importance of paying bills, perception that municipal officials are corrupt and mismanage municipal finances, poor governance and maladministration, and the failure by political office-bearers and municipal officials to work together. Binding these factors together is the widening trust gap.
The commission recommended several steps to improve the level of payment. These include the provision of adequate services, enforcement of revenue collection, management of municipal finances competently and efficiently, improvements in billing and accounting systems, and communication with residents about the importance of paying for services. Municipalities should also address complaints about the delivery of services, a step that can help build trust.
Trust by citizens in state institutions is key. A 2021 policy brief on trust in the government published by the department of planning, monitoring & evaluation says the “competence of government to deliver services at the level, quality and timely expectation of citizens” is one of the foundational blocks of trust between citizens and state institutions. The other has to do with government transparency, accountability and the implementation of policies “with integrity, fairness and commitment towards development outcomes”.
Municipal performance has regressed on all these measures, with the big cities such as Joburg, Tshwane, eThekwini and Ekurhuleni sliding faster. After many years of erratic availability of electricity, partly due to Eskom and in part due to the deterioration of municipal infrastructure, the availability of reliable water supplies has become another crisis point, particularly in Joburg.
What all of this says is that municipal finances will continue to worsen as more residents stop paying for services, creating a vicious cycle in which the provision of public services will worsen.