KSD Budget and Related Issues

1
KSD Budget and Related Issues

• Presented by
• Clr B Bodlani - Acting Executive Mayor
• Vuyo Zitumane-Caretaker MM
• 8 June 2007

2
Introduction and Background

• In March 2006 on advice received from the CFO the
  Executive Mayor wrote to the MEC for Local
  Government requesting assistance with improving
  the financial position of the municipality. MFMA
  section 135.
• The MEC arranged with DPLG for a team from the
  United Nations Development Program to provide
  assistance and a Financial recovery program was
  drawn up and approved by council.
• The UNDP team were at KSD for the September 2006
  to March 2007 period.
• In December 2006 the Municipal Managers contract
  was terminated.

3
Introduction and Background cont.

• During December 2006 and January 2007 KSD lost
  the services of its two senior finance officials.
• In early February 2007 the MEC for Local
  Government appointed a Caretaker MM for a period
  of six months.
• Subsequent to this appointment a meeting was held
  in Bisho between DHLG and TA DPLG National
  Treasury Provincial Treasury UNDP and KSD to
  determine a way forward.
• This group met with the council to outline the
  plan of action. This plan was accepted by the
  council of the municipality.
• The National Treasury deployed a municipal
  advisor to work directly with the Caretaker MM to
  assist with financial issues and to commence
  implementing the MFMA.

4
IDP/Budget Processes

• The IDP/ Budget process this year faced a number
  of challenges which had to be considered and
  addressed in a very short period of time between
  the February 2007 and the 31 May 2007 which was
  the day for the adoption of the budget.
• A budget time schedule was completed in February
  2007.
• A draft IDP / Budget and Service Delivery and
  Budget Implementation Plan were tabled in council
  on the 31 March 2007.
• During the April / May period the council
  conducted its outreach program consulting the
  communities.
• The Budget and related policies were adopted by
  council on 31 May 2007.

5
Equity in the Budget Process

• After an intensive IDP and Budget Public
  Participation Process, a Budget Committee made up
  of Councillors, Heads of Department, Municipal
  Manager, National Treasury Municipal Advisor and
  Finance Officials scrutinised all requests
  together with the relevant Portfolio Councillor
  and the HOD and agreement was reached on all
  budget allocations.
• The Budget Committee, the Standing Finance
  Committee and the Mayoral Committee were provided
  with a presentation of the budget figures. The
  allocations were decided upon in an open and
  transparent manner involving all levels within
  the municipality.

6
The Budget 2007/2008 Operating Revenue

• The increases in tariffs and charges were
  considered in light of the standard of services
  that have been provided to the community over the
  past year and with also a view to funding
  resources for the improvement of these services
  in the coming financial year.
• KSD will never survive if some hard decisions,
  for the benefit of the community are not taken.
  It is a reality that the level of services we are
  currently providing are not up to the required
  level, and must be improved.
• We can only improve if we enter into a social
  contract with the community which will ensure
  that we collect the required revenue that will
  enable us to provide the best services.

7
Operating Revenue Increases

• Property Rates increase by average 12 to R67.9 m
• The electricity increase is 5.6 to R78.2 m
• Refuse Collection increases by 12 to R12.9 m
• The Council is to introduce a Fire Services Levy
  effective from 1 July 2007 with the following
  rates
• Domestic property - R15 per month
• Commercial Gov property - R27 per month

8
Service Level Agreements

• During the previous five years the municipality
  performed powers and functions that are
  competencies of other organs of state and for
  which the municipality did not received adequate
  funding.
• During 2006 Service Level Agreements were
  prepared by the United Nations Development
  Programme (UNDP) for each functions
• Primary Health Care (Department of Health)
• Municipal Health Services (DHLGTA)
• Library Services (Dept of Arts Culture)
• Fire Fighting Services (DHLGTA)
• Disaster Management Services (DHLGTA)
• NATIS (Department of Transport)

9
Service Level Agreements cont.

• The funding required to carry out these functions
  is R25 million per annum however to date the
  agreements have yet to be signed by the other
  organs of state.
• The municipality is unable to continue to support
  these functions without receiving upfront
  funding.
• Accordingly if these agreements are not formally
  completed prior to the start of the 2008 budget
  year the municipality will have no other option
  but advise the relevant organs of state that
  there are insufficient funds to continue
  supporting these competencies.
• The Caretaker MM has engaged the Provincial and
  National Treasury on this matter, and if their
  intervention does not yield results, the
  municipality will not have a balanced budget and
  as such will be forced to take drastic action
  against the departments concerned.

10
Debtors Arrears

• The council is to consider selling its debtors
  book of more than R200m through an open tendering
  system.
• The proceeds will be applied to service delivery
  orientated and Local Economic Development
  projects.
• The proceeds are conservatively estimated at R10
  m, for this financial year, although there are
  prospects to raise more.
• The council adopted a Credit Control and Debt
  Collection Policy on 31 May 2007 which will be
  rigidly enforced so as to improve debt
  collection.
• The budgeted debt collection rate is 97.

11
Budgeted Operating Revenue 2007/2008 - Summary

• Budgeted revenue from Grants and Subsidies
  totals R88.7 million
• Total budgeted revenue for the 2007/2008 totals
  R305.8 million
• A provision for doubtful debts has been budgeted
  at R5 million, which brings it to R300m.

12
Operating Budget - Expenditure

• This Council inherited a high level of personnel
  costs - 55 of operating revenue for the
  2007/2008 financial year.
• The result is the wider community is being
  deprived of funds that should be used for road
  maintenance, electricity reticulation, refuse
  collection repairs, and to provide staff with the
  resources to perform their duties.
• With this level of funds being used for personnel
  costs there is only a minimal amount available
  for capital purposes R4.7 m for the 2007/2008
  financial year.
• The Treasury guideline for personnel costs is in
  the vicinity of 30 and the budgeted percentage
  for the 2008/2009 and 2009/2010 financial years
  is 53 and 48 respectively.

13
Operating Budget Expenditure cont.

• An effort has been made to increase the Repairs
  and Maintenance budget and the allocation has
  increased from R5 m to R8.9 m in the 2007/2008
  financial year.
• There must be a concerted effort to increase the
  OM allocation, as failure to service our assets
  results in dissatisfied communities, and huge
  costs for major repairs and reconstruction.

14
Operating Expenditure 2007/2008 - Summary

• Personnel Costs R166.7 million
• General Expenses R51.3 million
• Bulk Electricity R42 million
• Contracted Services R21.9 million
• Repairs Maintenance R8.9 million
• Bad Debt Provision R5m
• TOTAL OPEX R295M

15
Capital Budget 2007/2008

• The Capital Budget is R137.9 m with funding as
  follows
• National Government Grants R64.8 m
• Provincial Government Grants R60.3 m
• Donations Petro SA R8 m
• Internally Funded R4.7 m
• TOTAL CAPITAL R138 m
• The major capital projects for 2007/2008 are
  listed on page 28 of the budget document.
• There is only R4.7 funded internally for capital
  and this must be turned around, as KSD cannot
  perpetually depend on external grants for capital
  funding.
• If we raise more revenue internally, we will be
  able to allocate funding to all wards on an
  equitable basis, as currently we cannot due to
  the fact that most of our capital budget comes
  from other departments who also have limited
  resources.

16
IDP and Budget Synchronisation

• The linkage between the budget and the IDP in
  terms of the budget figures is outlined on page
  14 of the budget document and the basis for
  arriving at these figures is as follows
• The two votes of Executive and Council as well as
  Finance and Asset Management have been allocated
  equally over all seven functions therefore will
  not be indicated in isolation as they feature in
  all the key focus areas.
• Corporate Services is allocated to Institution
  Building
• Community Services is allocated over Public
  Amenities and Sports Facilities, and Cleansing
  and the Environment.
• Infrastructure is allocated to Service Delivery.
• The Urban Renewal Program is transferred to
  Planning, Social and Economic Development.
• Planning, Social and Economic Development has
  been allocated to Local Economic Development.
• Public Safety has been allocated to Public Safety.

17
IDP and Budget Synchronisation cont.

• The breakdown of the percentages of funds
  allocated to each activity is as follows
• Service Delivery 38
• Local Economic Development 15
• Public Amenities and Sports Facilities 13
• Public Safety 11
• RDP Housing 9
• Cleansing the Environment 8
• Institutional Building 6
• These allocations are to link up with the Service
  Delivery and Budget Implementation Plan to be
  approved during June 2007.

18
Budget Conclusion

• The reality is that not everyone and every ward
  will be satisfied with the allocations however
  there has been a significant improvement from
  last year. This is why some of the resolutions
  are proposing that during the budget adjustment
  process, we should consider ward based
  allocations, if our collection exceeds our
  projections. This is to ensure an equitable and
  even distribution of allocations.
• This budget is balanced and credible.
• Service delivery and standards will be enhanced
  by the positive co-operation of everyone in
  ensuring that all the policies and measures that
  have been put in place will be embraced to make
  KSD better.

19
MFMA Compliance

• The lack of capacity in the municipality and the
  difficulty in employing officials with the
  appropriate experience and qualifications is a
  significant limiting factor in the implementation
  of the MFMA.
• Currently the top three finance position CFO,
  GM-Budget, Manager - Accounting in the
  municipality are vacant and the Caretaker MM is
  due to complete her six months term in July 2007.
• In view of this it is going to be difficult to
  keep normal operations on track leaving little
  time and resources for MFMA implementation.
• However the outputs that have been produced since
  February have been consistent with MFMA
  requirements and are to provide a guide and
  benchmark for future efforts

20
MFMA Compliance cont.

• Major areas where there is MFMA Compliance
• The 2007/2008 budget and National Treasury
  reporting
• The Service Delivery and Budget Implementation
  Plan for 2007/2008
• The Section 57 performance agreements
• The 2005/2006 Annual Report
• Monthly electronic reporting to National and
  Provincial Treasury
• Supply Chain Management
• Internal Audit Committee and Unit

21
MFMA Compliance cont.

• Annual Financial Statements were in GRAP format
  for 2005/2006 submitted 15 days late to the
  AGs Office
• Budget related policies were adopted 31 May 2007
  Credit Control and Debt Collection policy
  Financial Management policies Indigent policy.
• A primary bank account has been established
• Section 71 reports are being completed monthly.
• There is a considerable amount of work to be
  completed with regard to MFMA implementation,
  however a start has been made and progress will
  continue at a rate determined by the capacity the
  municipality is able to attract.

22
Conditional Grants 2006/2007

• The municipality received two major conditional
  grants during 2006/2007
• Municipal Infrastructure 2006/2007 Grant this
  grant is fully committed and spent prior to the
  end of the 2006/2007 financial year.
• Municipal Infrastructure 2007/2008 Grant
  submitted projects have been approved and the
  grant is fully committed.
• Provincial Health Grant this grant was applied
  to Primary Health Care and Municipal Health
  Services. The grant is to reimburse services
  performed by the KSD municipality and does not
  cover 100 of the costs.

23
Inter-governmental Relations

• The municipality enjoys good working
  relationships with some government departments
  and endeavors to maintain these for the benefit
  of all.
• There are two matters that have been discussed
  with other spheres of government
• The first is whether or not the O R Tambo
  District Municipality should continue to be the
  Water Service Authority and Provider in the KSD
  area. It is the contention of the KSD
  municipality that the Water Service Provider
  function should be returned to the local
  municipality as there are synergies, economies of
  scale, and practical considerations that favour a
  return of this function to KSD.

24
Inter-governmental Relations cont.

• The timely receipt of provincial allocations as
  per section 36 of the MFMA is not being complied
  with and this makes preparation of a realistic
  and credible budget extremely difficult. This is
  particularly so when the municipality is required
  to table a budget in council by the 31 March each
  year and has not received any advice or
  indication as to what the allocations from the
  provincial departments are.
• Apart from these two issues the municipality
  enjoys cordial working relationships with its
  co-partners in government.

25
CAPACITY CONSTRAINTS AT FINANCE DIVISION

• CFO position has been vacant since January 2007.
• Processes to appoint have been exhausted twice
  after a recommended CFO was threatened not to
  take the position
• CMM headhunting currently 3rd attempt
• General Manager- Budget position also vacant
  since January 2007, and has not been filled due
  to financial constraints, however will be filled
  during the new financial year
• On Revenue management and Asset Management, there
  is lack of skills and numbers for the required
  standards of management.
• On expenditure Management, there is a shortage in
  numbers, and this area is critical in terms of
  support that must be provided to service delivery
  units.

26
CAPACITY CONSTRAINTS AT INFRASTRUCTURE DIVISION

• There is less that 50 of the required personnel
  within this division.
• Most personnel at Project Management Unit are on
  a 3 year contract basis, as these positions
  cannot be sustained, if the financial position of
  KSD is not improved
• As a result of this, there is a risk of staff
  turnover as job security is critical for some
• There is a shortage of staff for road maintenance
  programme and if roads are not maintained, the
  result is more cost on major repairs and or
  reconstruction

27
CAPACITY CONSTRAINTS AT INFRASTRUCTURE DIVISION

• Plant and equipment is very old and not able to
  service all areas
• There is a need for new plant in order to service
  all areas equitable
• Estimated cost of all road repairs in KSD
• Urban Roads
• Rehabilitation/Researching/Pothole R310M
• Reconstruction R120M
• Rural Roads
• Blading of existing R6M
• Reconstruction R300M
• This would be spent over a period of 5 years,
  with co-sourcing
• Options as there is no adequate capacity
  internally

28
CAPACITY CONSTRAINTS AT INFRASTRUCTURE DIVISION

• Electricity blackouts are being attended to as
  there is A R30m injection to upgrade sub-stations
  W.E.F 2007-2010
• The substation at Hillcrest will be ready for
  connection by end July 2007
• There is a further need to replace electrical
  cables for reticulation to cater for the demand.
• Both managers at electricity are not registered
  and do not have the adequate qualifications,
  however one has resigned.
• LED Unit is also under-capacitated because of
  limited funding.

29
GENERAL SERVICE DELIVERY

• Cleansing and waste management has improved
  significantly over the last 3 months and this can
  be sustained by adequate funding
• A financial injection by National Treasury and
  Department of Transport has assisted KSD in
  repairing potholes.
• The Urban renewal programme is progressing well
• Housing projects have been unblocked and have
  recommenced.

30

GENERAL SERVICE DELIVERY

• Water sanitation delivered by ORT DM since
  2005 Level of service not adequate
• UNFUNDED SERVICES DELIVERED e.g.
• (Primary health , fire services, social
  development services) - SERVICE LEEL AGREEMENT
• Developing social public Amenties such as
  public libraries, sporting facilities is a huge
  challenge
• 2010 funding has not been guaranteed, as a result
  KSD has developed a Private Investment Strategy
  for this project.

• 
  

31
CONDITIONAL GRANTS SPENDING

• See attached spreadsheet on MIG funding.