Download Report on the analysis of municipal budgets for the 2004/2005

REPORT ON THE ANALYSIS OF MUNICIPAL
BUDGETS FOR THE 2004/2005 FINANCIAL YEAR
BACKGROUND TO THE REPORT
• SALGA started during the 2003/2004 financial
year to analyse and comment on budget
trends based on information obtained from
sample Municipalities
• For the 2003/2004 financial year the report
focussed only on operational budgets whilst
this report is extended to also include capital
expenditure and the effect of tariff increases
on household consumers
PURPOSE OF THE REPORT
• To present comments and provides some
trends based on a review of operational and
capital budgets submitted by a sample of
Municipalities for the 2004/2005 financial year
STRATIFICATION OF MUNICIPALITIES PER
CATEGORY
• Metropolitan municipalities
• District municipalities
• Local municipalities
Group 1 – budgeted income > R500m
Group 2 – budgeted income > R60m &
< R500m
Group 3 – budgeted income <R60m
EXPENDITURE BUDGET NORMS
•
•
•
•
•
•
Salaries, wages & allowances – 30%
General Expenses – 45% to 48%
Repairs and Maintenance – 10%
Capital Charges – 12% to 15%
Contributions to Funds – 3%
Provision for Bad Debt Reserve – Based on
current payment rates
ISSUES DISCUSSED IN THE REPORT
•
•
•
•
•
•
•
•
•
•
General growth in Municipal Budgets
Operating Expenditure per Category
Operating Income per Category
Impact on Monthly Consumer Accounts
Capital Expenditure
Sources of Funding for Capital Projects
Surplus Generating Potential of Services
Indigent Support
Bad Debt Provision
Influence of Equitable Share Allocations
GENERAL OBSERVATIONS ON EXPENDITURE
• Salaries, wages & allowances in general remain constant as %
of expenditure - norms for salary cost to be reviewed
• General expenses increased below inflation – controllable costs
such as telephone, transport and subsistence, stationary and
printing still require good financial management
• Repairs and maintenance in general still well below the norm –
importance of preventative maintenance
• Capital costs are decreasing due to cash flow constraints –
more dependent on grants for capital
• Contribution to funds not enough in respect of bad debt
provision – as a result budgets not cash funded
GENERAL OBSERVATIONS ON INCOME
•
•
•
•
Tariff increases in general below inflation targets
Free basic services benefit smaller users
Electricity still the main source of income
Assessment rates second largest source of income –
potential to increase income base in rural areas
• Devolution of water services will pose major
challenges in respect of payment
• Distribution losses for water & electricity problematic
• Refuse removal and sewerage increasingly rendered
at cost only
IMPACT ON MONTHLY CONSUMER ACCOUNTS
• Accounts increased by 5% to 7% - no increase in
smaller Municipalities due to subsidies
• Monthly accounts for large households differs
significantly – result of valuations of properties
• Monthly accounts for small households cheapest in
smaller Municipalities – result of equitable share
CAPITAL EXPENDITURE
• Priorities in terms of the DORA
- Water
- Sanitation
- Electricity
• Current budgets good reflection of these priorities –
85% on infrastructure
• Sources of funding becoming more reliant on grants
and subsidies – less from internal funds
• Only large Municipalities raising external loans
OUTSTANDING DEBTORS AND PROVISIONS
• Municipalities in general and specifically smaller
Municipalities not providing adequately for bad debt
reserve
• Outstanding debtors as % of operational budget
constant but still alarmingly high
• Insufficient provision result in cash flow difficulties
and budgets only to be academic
• Cash flow constraints also negative impact on capital
expenditure and the needs of the IDP
CLOSURE
• Implementation of MFMA significant impact
on current way of operations
• Summary of implementation dates in report –
Municipalities to draft implementation plans
• SALGA in a position to analyse and report on
budgets for individual Municipalities on
request
Thank You