Cash crunch

Councils cash-strapped as poor – and not rich suburbs – carry bulk of their shortfalls.

Cash-strapped as municipal bills accounted for great share of their income.

South African cities are facing a financial crisis, and it is lower income households bearing the burden of revenue shortfalls in local municipalities, prompting calls for an overhaul of the country’s intergovernmental fiscal framework.

The 2018 State of the Cities Report, by the South African Cities Network, highlighted the rampant inequality in urban areas, evidenced by the higher proportion of income paid by poorer households towards municipal rates than their wealthier counterparts.

According to the report, South Africa’s metros have a funding gap of between 20% and 38% of their capital expenditure.

In 2017 this funding gap was at R18 billion and projected to grow to R83 billion by 2026.

This amounted to a total funding gap of R569 billion over the next 10 years. Research in the report suggested that the poorer income brackets were bearing the brunt of this shortfall.

Own revenues for municipalities made up over 75% of total income, with the main sources being property rates and service charges. Using an affordability analysis threshold of 10% maximum of household income spent on tariffs, the report found that municipal bills accounted for a proportionally greater share of the income of poorer households than that of wealthier households.

While some panelists suggested that poor financial management in municipalities contributed the most to the resource shortages in local governments, an expert suggested that the fiscal powers and functions of local government needed to be reviewed, suggesting government did not spend enough on the sector.

Pundy Pillay, professor of Economics and Public Finance at University of the Witwatersrand, said SA was due for a review of its intergovernmental and fiscal framework to address the administrative and accountability issues faced by local governments.

“This is something we as a country have been reluctant to talk about, aside from the occasional initiative by government to look into the intergovernmental framework in certain provinces – and that debate seems to have died. It’s time to remind people that it impacts on how government is treating local government finances,” Pundy said.

He said metros were the backbone of growth and development in SA and therefore integral in attracting foreign investment. This meant government needed to rethink how it prioritised resources toward economic growth, starting at local government level.

“It’s evident that local government as a sector – aside from the cities – is receiving an unacceptably low share of total government funding in what is generally known as an equitable share. That proportion to local government has yet to reach 10%.”

Mpho Motsumi, president of the Alexandra Chamber of Commerce, said ratepayers in the township were not only burdened with “crazy” municipal rates, but lack of service delivery meant they were not even getting their money’s worth. Even a regime change in local government had not changed the state of affairs.

“In Alexandra, in terms of rates, there was a policy initiated by the previous administration where the affluent neighbourhoods such as Sandton would pay more to subsidise us. The previous administration introduced that and it was mainly aimed at townships.

“But today it’s a different story. Electricity can go at any time without any warning or explanation. Refuse removal is very poor.

“Even when we lodge complaints, they are not given the same priority as the richer suburbs.”

Alexandra burdened with ‘crazy’ municipal rates, but lack of service delivery meant they were not getting their money’s worth.