Municipal finances hampered by debt, lack of transparency

A lack of transparency in municipal financial reporting makes it impossible to determine if enough is being spent on repair and maintenance of service infrastructure.

This is according to the Empowerdex Citydex survey, which covered the budgets and financial statements of 283 municipalities, focusing on six metro areas and 21 secondary municipalities.

Financial statements "were not always uniform across the two financial years", it found.

"The operating expenditure line item related to repairs and maintenance vanished somewhere between the second and third quarters of the 2009/10 financial year," the report says.

"It appears to have been absorbed into the other expenditure line item, but whether this is the case or not, it is ... impossible to determine from the data whether municipalities are spending adequately on asset maintenance."

Such expenditure should mainly be on "infrastructure for basic service delivery" such as roads and storm-water systems, water and sanitation services and, with the exception of municipalities where Eskom is the direct provider, electricity infrastructure, said Empowerdex analyst Paul Berkowitz.

He said that, with few exceptions, municipalities lacked adequate asset registers.

"The concern is not just about spending. Do they have an adequate asset register? In what condition are those assets? When should they be replaced?"

For every R10 of capital spending, R1 must be spent every year on repairs and maintenance, but it is impossible to determine to what extent this is being done.

Municipalities' capital spending has dropped slightly, from 85% of budgeted amounts in the 2008/09 financial year to 83%, mainly due to a drop in the expenditure by large metros.

While spending in secondary cities rose from 61% to 66%, it is "still too low", the report says.

Capital expenditure in secondary cities should be a focus, as they are likely to grow faster than large metros, Berkowitz said.

Huge outstanding debts remain a problem and hamper municipalities' performance; households, businesses and government owe municipalities R56.1-billion, R5.7-billion more than last year. Households are the biggest culprits, while the government's portion is only about 5%.

Billing problems and a high turnover of municipal staff may be partly to blame. It is unclear why more debt is not written off, as 79% of it has been outstanding for more than 90 days with a slim chance of recovery, Berkowitz said.

Metros are owed 55% of all outstanding debt and secondary cities 21%. Most debt is for water (28%), which is difficult to cut off, followed by property rates (21%) and electricity (14%). Much debt (23%) is not allocated to any debt source, Citydex found.

"This is money that could be recovered and spent on service delivery. Some municipalities outsource collection, but it is unclear why debt is not always pursued or written off," Berkowitz said.

eThekwini metro's water and sanitation division has raised debt collections from 50%-60% to above 95%, he said. This was partly due to a plan to write off old debts if consumers paid their current charges consistently for six months.

The good news is that metros have reduced budgeted revenue for capital expenditure from external loans, transfers and subsidies, "suggesting they are moving to greater autonomy and less reliance on transfers from national government", said Citydex.

Secondary cities retain a "high" dependence on transfer and subsidies, with 56% of the capital budget financed by government.