Red light is flashing on BCM finances
Municipality living ‘from hand to mouth’ because of poor revenue collection rates
Opposition councillors say Buffalo City Metro is days away from financial collapse and accuse executive mayor Xola Pakati’s administration of misleading them on the true state of the city’s finances.
Pakati came under fire on Friday after he presented an update to the council on the city’s financial status, which showed its cash reserves were under serious threat.
The mayor and mayoral committee finance chair Sakhumzi Caga confirmed at the meeting that the city was not collecting anywhere near as much as it should from ratepayers.
It emerged at the meeting that BCM could soon be broke if households continued to not pay their services bills, prompting a councillor to warn that the city had funds for just 10 days.
The DA’S Geoff Walton said the metro was regressing in maintaining healthy cash reserves.
“This report paints a very distressing picture, much as we predicted in previous meetings,” Walton said.
“The situation is dire and I am angry about that as we have been stressing the declining financial position for years, with seemingly no one listening.”
Walton said the city had enough money for 10 days.
“We are in a serious financial position. Technically, our own funds are less than they were two months ago if you go and do the assessment.
“The trend is very concerning and something serious needs to be done.”
Walton said the metro had R202m of its own funds in the bank at the end of September. This was an issue the metro’s financial committee had debated at its last meeting.
He questioned whether BCM would be able to meet its obligations and slammed the city for having a surplus of only R79m, saying this was R69m short of what it had originally budgeted for by this stage.
“We have to take R767m to pay creditors, which means we are quite literally living from hand to mouth. Not a good position to be in.”
But Pakati said that the city had R705m in its cash reserves at September 30.
He said Walton ’ s comments on the financial report were a distortion of the facts.
Pakati said the city could meet its immediate obligations even though there was concern over a stagnant “revenue base and a higher rate of operating costs”.
He said BCM had debated the lower collection rates and had agreed to fully implement the city’s credit control policy to recover.
Pakati said the metro had adopted a strategy to increase revenue collection, and central to that was implementation of its credit control policy.
The policy was informed in anticipation of stagnant collection as a result of the national government’s resolution that households should not be subjected to credit-control measures during the Covid-19 lockdown.
The mayor said BCM had taken a long time to recover from the effects of the pandemic and now had a 68% revenue collection rate but that he expected this would increase to a more favourable rate.
Pakati said his colleagues should instead be discussing policy issues, imposed by the national government, where municipalities were given “a 9% share” of the fiscus in anticipation that they would use the
The situation is dire ... I am angry about that as we have been stressing the declining financial position for years, with seemingly no one listening
funds to provide services to communities.
“When communities are not able to meet these obligations, municipalities are then subjected to a dire financial strain and this is a policy matter that we must address with both the National Treasury and [co-operative governance and traditional affairs].
“We will do everything at our disposal to ensure that we improve on revenue collection because our credit policy should be fully implemented, but then these are matters that we are seized with,” Pakati said.
Caga conceded that the metro was not where it wanted to be in terms of its cash flow.
But, he said, there was “some kind of improvement in terms of our interventions that were taken by the council.
“If you look at the past month’s collection, it increased by 13% in so far as the collection is concerned. At least we are getting there.”
He said Walton was correct that the city was living from hand to mouth and that, should there be no improvement in collection from next month or so, it would be in trouble.
But he said the metro needed to be more innovative in how it raised capital.
The problem arose not because ratepayers did not want to pay their debts but because of the worrying economic situation in SA, which had been worsened by the pandemic and load-shedding, which was killing businesses.
The DA’S Sue Bentley told the council the party believed it had been misled by the administration.
This was because it had raised the point that the municipality appeared not to have enough money to finance its budget before it was approved in June.