Poor service delivery a stumbling block
Ratepayers get little bang for their buck as more municipalities fall into financial distress
The National Treasury has once again flagged poor financial management at local government level as a problem, with 43 municipalities in “financial and service delivery crisis”. But an increased grant allocation to councils could bolster provision of services to residents.
The municipalities in crisis require intervention by the provincial and national governments, according to the 2023/2024 Budget Review.
This is a perennial headache for the Treasury: each year, despite an increase in its budgetary allocation to subnational levels of government, municipalities “are mostly still not able to optimise resource use and improve service delivery”, the review says.
For instance, at local government level the number of municipalities in financial distress — as opposed to those in crisis — grew from 66 in 2010/2011 to 162 out of 257 in 2021/2022, according to the review.
With the provision of services also in dramatic decline — potholes are rarely fixed, uncollected refuse lines streets, water cuts are regular and, of course, electricity supply is erratic — ratepayers hardly feel they are getting bang for their buck. Perhaps this accounts for the number of households that simply don’t pay their municipal bills.
Finance minister Enoch Godongwana on Wednesday increased the mediumterm allocations to local government by
R14.3bn, comprising R8.1bn in the equitable share and R6.2bn in direct conditional grants. This takes the total direct allocation to municipalities to R522bn over that period.
Energy, in particular, featured in the budget, with an additional R1.1bn allocated to the electricity component of the local government equitable share formula.
Energy regulator Nersa last month approved an 18.7% tariff hike for Eskom, due to take effect from April 1. However, the Budget Review notes: “Because the municipal financial year begins on July 1, Eskom often charges municipalities higher rates than its other customers to recover revenue lost in the first three months of its financial year.”
As a result, the budget allocates an extra R1.1bn to the electricity component of the local government equitable share formula “to offset this additional charge for the households that receive free basic electricity within municipalities”.
In addition, the Treasury is looking at ways to deal with the astounding debt municipalities owe Eskom. Soweto alone owes the utility R5bn an amount President Cyril Ramaphosa last month said the government should consider writing off.
In his budget speech, Godongwana noted that municipal debt to Eskom was at R56.3bn by end-December and rising. “Undertaking a debt relief of this magnitude without addressing this risk
[of rising debt] would be counterproductive,” he said.
“We are working with Eskom to provide a solution to this problem, wherein Eskom will provide incentivised relief to municipalities whose debt is unaffordable. However, the relief will come with conditions.
“And to avoid a repeat of debt build-up over time, the relief will attach measures, including the installation of prepaid meters, to correct the underlying behaviour of nonpayment and operational practices in these municipalities.”
As Godongwana noted, Eskom’s financial viability depends on customers including government departments and municipalities paying their bills.
In response to the budget, Cape Town mayor Geordin Hill-Lewis welcomed the increase in grant allocations in key areas, which he said were higher than expected. In particular, he flagged the equitable share allocation for the public works programme and public transport.
“I am pleased with the tax incentives for solar,” he tells the FM. “This will make a positive difference in encouraging many more people to take the dive and invest in solar.”
On the provincial side, direct allocations increased by R92.7bn to R2.17-trillion in the medium term. The increase consists of R79.6bn added to the provincial equitable share and R15.8bn added to direct conditional grants.
Godongwana said the allocations at municipal and provincial levels would alleviate financial pressure, particularly in health care, education and where service provision costs are rising.