Skip to content. | Skip to navigation

Personal tools

Navigation

You are here: Home / News / Economy / Mayor responds to Business Chamber

Mayor responds to Business Chamber

The Mayor has responded to some of the concerns of the Business Community. Here is the response...

Dear Sir

I refer to your representation dated 29 September 2011 and would like to reply as follows.

As you have preferred not to answer my e-mail dated 30 September 2011 (attached as annexure A) by providing examples of some of the statements made in your presentation, I will not comment thereon. Furthermore, as some of the topics are dealt with in your representation on more than one occasion I have identified your main issues and are dealing with them accordingly.

Firstly I need to point out that the Municipality does not have a cash flow problem.  Every operational budget and the resultant actuals over the last five years were cash backed and each year generated positive cash flows.  The trend of budgeting for a deficit is likely to continue for the next decade.  This Municipality has for years been able to manage its finances in a very prudent manner.  It is a pity that you have seen the reason for the increasing of deposits as being one of a cash flow problem.

The need for an adequate liquidity ratio is to raise the ratio to a level of 1,2 : 1, for fixed cost coverage and to protect the Municipality from an unexpected lower than budgeted income as budgets may not materialise due to unforeseen circumstances.

A municipality may, in certain circumstances, budget for a deficit as was explained in paragraph 5.1 of the report that accompanied the budget. The relevant section is quoted:  “It should be noted that although the 2011/2012 operational budget and indicative years indicate budgeted deficits, this does not reflect the actual cash position.” These circumstances arose as the result of the implementation of GRAP, with special reference to GRAP 17 (Property, Plant and Equipment-PPE). The introduction of reflecting PPE at Depreciated Replacement Cost (DRC) has increased the asset value in excess of R5 billion, thus depreciating assets at the increased value. Although accurately reflecting asset value, the cost of a substantial portion of these assets has been fully redeemed. The replacement thereof can thus not be recouped via current tariffs as this would lead to taxation in advance of need and no reserves may be established for these purposes.

These factors were taken into account with the determination of tariffs.

Coming back to the liquidity ratio I can mention that given the expected inflow of deposits (approximately R14 million) and with many consumers switching to pre-paid meters, the liquidity ratio is expected to increase to 1,2 : 1 at the end of June 2012.

Regarding the capital expenditure requirements of R2,5 billion I can advise that this calculation was done to give us a picture of  what the extent of our projected infrastructure backlog and asset replacement in infrastructure is and to assist us to determine priorities when the annual capital budget is prepared. Without this information one can tend to provide for ‘nice to haves’ rather than what is required.  For this current budget year the budget office has, for example, received requests, including those from ward committees, for a total of R400 million (as presented at the OMAF held on 23 November 2010). This was then brought down to R163 million based on what is required in terms of the above exercise and what we could prudently finance based on the information of, inter alia, possible land sales.  Very few other municipalities are doing these forward looking exercises.  Although it would be good if this backlog can be eradicated over 25 years or even earlier, the availability of finances will obviously play a role.

The Municipality is currently paying 5,74% of its cash funded portion of operational expenditure towards the repayment of loans.

You express your concern whether the Municipality is financially sustainable with a stagnant and impoverished tax base.  Firstly, I do not share your concern re financial viability (and the Auditor-General will vouch for this).  The ‘stagnant tax base’ is also not true.  According to our records the tax base has risen by 3.98% in the number of properties (1563) and by 8,57% in valuation (R3,3 billion) since the latest valuation roll came into effect on 1 July 2008.  Regarding the impoverishment I am very well aware of what is happening with the international and local economy and will, as we always have, take this into account in our budget process.

From your comment on tariff increases by ESKOM of 107% over the past 3 years I assume that your statement that other tariffs increased by 100% and more also apply to a period of 3 years.  Our calculation shows that our total income from rates and taxes and consumer services over the last 3 years increased by 72% and that if we exclude electricity tariffs, it has been 52,5%.  To calculate the real increase one should deduct the growth in the tax base, which is also an indicator of growth in services as well, and the inflation rate.  This gives a real increase of 44% compared to your 100%.  Municipalities do not budget for excess cash surpluses so as to present affordable tariffs to the community and should it become clear during the once a year budget adjustment process that savings on expenses or additional revenue will be generated, these are utilised to further enhance service delivery.

In comparing the cash flow of operating revenue and expenditure from 2009 to 2012, I provide the following information in order for you to get the full picture:  (It should be noted that cash generated from the operating budget is deployed in the following year’s capital budgets, apart from cash generated from land sales, to the benefit of the community.)

SUMMARY OF REVENUE & EXPENDITURE (CASH FLOW)

 

 

 

 

 

 

ACTUAL

ACTUAL

ACTUAL

BUDGET

 

2008/09

2009/10

2010/11

2011/2012

Revenue

 

 

 

 

PROPERTY RATES

93 619 861

99 800 099

103 005 266

107 772 280

ELECTRICITY

113 486 842

147 252 154

188 569 178

223 307 250

WATER

53 852 917

74 730 049

77 376 514

90 524 454

SEWAGE

32 056 044

36 078 120

50 522 871

59 777 146

REFUSE

31 512 376

33 116 688

37 218 264

40 389 000

 

324 528 040

390 977 110

456 692 093

521 770 130

LESS: Y-Y INC. IN DEBTORS

(15 011 538)

(4 769 659)

(5 987 103)

(4 000 000)

 

309 516 502

386 207 451

450 704 990

517 770 130

 

 

 

 

 

OTHER INCOME

35 314 915

36 352 133

39 557 830

40 132 970

EQUITABLE SHARE

20 894 239

22 452 206

28 067 000

31 156 000

GOVT GRANTS (OPEX)

3 073 485

2 715 692

2 349 825

3 359 000

TOTAL REVENUE

368 799 141

447 727 482

520 679 645

592 418 100

 

 

 

 

 

Expenditure

 

 

 

 

SALARIES & WAGES

127 919 992

152 157 091

179 836 039

190 737 483

GENERAL EXPENSES

101 633 179

123 594 785

131 736 251

153 320 166

BULK ELECTRICITY PURCHASES

59 353 373

78 005 898

101 683 452

127 243 420

REPAIRS & MAINTENANCE

42 151 209

45 710 786

58 621 490

65 220 050

FINANCE COSTS

7 526 953

19 294 616

22 695 141

32 665 006

TOTAL EXPENDITURE

338 584 706

418 763 176

494 572 373

569 186 125

 

 

 

 

 

 

30 214 435

28 964 306

26 107 272

23 231 975

 

 

 

 

 

LESS: REDEMPTION EXT. LOANS

(7 076 886)

(15 493 168)

(9 454 183)

(13 158 847)

SINKING FUND

 

 

(1 250 000)

(2 894 400)

OPERATIONAL CASH FLOW

23 137 549

13 471 138

15 403 089

7 178 728

Water tariffs were increased in line with our tariff policy that was approved during the budget process and not to make up for the shortfall in income from water. Other saving measures were put in place for this.

Capital projects dependent on land sales were clearly identified in the budget and should these sales not materialise, the projects will not go ahead unless other adjustments are possible.

From most of your comments it seems as if your Chamber has the impression that the Municipality is not actively managing its finances as is required of every business.  I can assure you that this is not the case.

The sport complex development (par. 2.1.5) is needed by a large section of the community to such an extent that a section of the community has actively become involved by designing it at no cost, investigating fund raising opportunities and how it can be managed in partnership with the Municipality. The main reason, however, for budgeting the R2,5 million is that the land on which the tennis courts are, has been identified as a possible land sale and, should that materialize, the Municipality will have to build tennis courts and a squash court.

The alleged increase of 144% in operating expenditure (par 2.16) is fallacious in terms of actual costs.  As a result of GRAP requirements the contribution to provisions increased from R1,1m to R36,8 m from 2008/9 (actual) to 2010/11 (actual) (a difference of R35,7) and depreciation, based on restated asset values, increased from R34,1m to R105,5m (a difference of R71,4m).  This gives a total of R107,1m of non-funded provisions and, as a result, the actual funded expenditure increased by R156m, from R338,5m to R494,5m i.e. ± 46%.

Salaries (par. 2.1.6) increased from R127 919 992 to R190 737 483 for the following reasons:

(a) Apart from top management, salary increases of staff are determined by wage negotiations between SALGA and the trade unions.  For the last 3 years these increases amounted to 8,3%, 13,5% and 6,08%.

(b) The Municipality has also introduced an evaluation system, TASK, which is managed by DELOITTE, in order to determine salaries on a more scientific basis, having been recommended by SALGA.  This increased salaries especially for the managers by a further 10%.  The benefit of these increases enables us to attract and retain better qualified staff.

(c) Funded staff positions increased from 1015 to 1083 over the last 3 years, i.e. by 6,7% to enable us to deliver the services we are required to provide.

The increase in top management salaries (par 2.1.6) can be attributed to an increase in top management numbers from 5 to 7, which already is an increase of 40%, while adjustments in salaries were also made to bring their salaries more in line with the market.  According to my information the salaries of our top management are definitely not out of line in comparison with other municipalities.  I also believe that the performance of our Municipality is a reflection of the quality of our management.

NERSA is the body that finally determines the electricity rates and not ESKOM. I do not believe that entering into negotiations with ESKOM will have any chance of success.

The 2011/12 capital budget for Local Economic Development is R5,7 million of which R4,2 million will be funded by National Government.  In order for us to obtain this grant we also need to counter fund a portion.  The operating expenses amount to only R2,5 million.  The R12m that you refer to, is the combined expenditure for the LED and Infrastructure and Planning Directorates and related functions.  See schedule A3A of the budget documentation.  LED is a Constitutionally provided primary object of local government (refer to Sections 152 and 153) and I believe that, given the extent of its functions, we are not overspending on this directorate.

Regarding your comments on communications I would like to ask you to provide evidence of your ‘accusations’.  I believe that we have an open door policy and that we do our best to provide the required answers.  We also have a democratically elected ward based system where we interact with the community on a monthly basis.

Your par 3.3 refers: The levying of basic charges for water, electricity and sewerage on lettable units was introduced with effect from 1 July 2009.  This is not a ‘new ’ tariff that has suddenly appeared from nowhere.   During the last budget cycle comments were received from the public sector and our own staff.   After reviewing these inputs only the definitions included in the policy were changed.  This was done to clarify the meaning of the unit between ‘commercial ’ and ‘residential ’.

In terms of the MFMA the Council may not change tariffs during a financial year, but we will investigate the possibility of applying a basic rate to the size of the property/improvements or some other suitable form of calculations due to the objections received in this regard.

As previously requested, I will appreciate it if you will provide every member of your Chamber with a copy of my reply.

Yours sincerely

NICOLETTE BOTHA-GUTHRIE

EXECUTIVE MAYOR


Our Presenters
Mhlangabezi Sithonga
Adrian Louw
André Vaynol
David Lowe
Paul Boshoff
Petrovna Metelerkamp
Nelia Louw
Janet Marshall
Toekie Oberholzer
Martin Fisher
Warwick Bursey
Anne Krebs
Pieter van Aswegen
Jevan Mcgregor
Heidi Scrooby
Contact Us

Whale Coast Media

Gateway Centre, Hermanus, 7200

PO Box 79, Kleinmond 7195

T: (028) 312 2314

F: (086) 545-6903

M: admin@whalecoastfm.co.za

Facebook Like Box