INTRODUCTION
The 2020/21 Draft Budget must be judged by taking into account the following:

Downgrading to Junk Status.
This is one of the reasons why the Metro was placed under administration.The report is silent on this matter. One would have expected that the why and the how this budget is going to assist in getting back to an acceptable rating will form part of the tabled budget.

COVID-19
The impact of this pandemic will impact on the present budget as well as the 2020/21 budget and maybe even beyond that. In the Draft Budget the word COVID-19 is only used three times.

Financial Recovery Plan
The Executive Mayor admitted in a NCOP Meeting held on 12 June 2020 that not much was done in executing this plan. The budget report is silent on how this is going to be rectified,

Long term Financial Strategy
In the report on the Draft Budget reference is made to this in one sentence stating that the Metro don’t have such a plan. No explanation as to why and the plan and timeline to rectify it

Cost Containment Measures
No detail of what cost containment measures are in place. And in the tabled Draft Budget cost containment measures are only mentioned without detail and that means nothing.

The DA got a copy of the presentation that was made to the NCOP on 12 June 2020 and in the presentation the following is mentioned under the heading cost cutting measures.

• Usage of recent technology to monitor usage of telephone
• Managing and monitoring of overtime by supervisors and management
• Monitoring of ICT costs
• Implementation of water demand projects to reduce water los
• Reduction of expenditure on events, conferences, meetings, workshops, trainings, seminars, etc
• Review of Travelling Policy and align to MFMA Circular 82
  
• Gradual migration from printed statements to e-statements
  
• Scaling down the cost of consulting services and contracted services;
  
• Development of Donations policy
  
• Review outsourcing of security services, waste removal, grass cutting, etc.
  
• Value for money procurement
• Rolling out internal control to user department to monitor the expenditure on consumables eg. Fuel; printing paper; toilet paper etc.

The above is still just words and without amounts attached to that it means nothing. As in the past the DA is still of opinion that this council don’t really intend to do something about this cost containment.

Not addressing all the above issues seriously affect the credibility of this budget

OPERATING EXPENDITURE BY VOTE
1 below indicates the budgeted expenditure per vote. it can also be observed that the Adjustments budget for 2019/20 increases with R418 million (6.48%)

A logic step for everyone that experience financial problems is to cut back on expenditure. The COVID-19 consequences will have that effect on many businesses and households. This budget doesn’t reflect that and the argument will be that the increases are within inflation limits. But that is missing the point totally.

The budget allocations in the draft budget document are reflected in the Table and Graph below.

If one wants to fix the finances of the metro you need to understand the spread of budgeted funds amongst Votes. From the above Table and graph it seems as if this is not the best spread to meet the need for service delivery. Detail of the budget under Other is not available from the tabled budget

that makes it difficult to make a judgement on that. It is good practice when vague descriptions like other are used to also include a table with the detail.. For the DA it seems as if there are some empire builders active (HOD’s) in this metro. It is a normal tendency in big organisations where proper management and control is absent.

The Vote of the Executive Mayor is the first one that needs attention. This vote was inflated by creating political jobs for cadre employment and now the ratepayers most foot the bill.

It is also practice, if not controlled by the Municipal Manager and CFO, to build some fat into the budget. It is their responsibility to identify and address this practice.
Some of the items we could identify need attention in our opinion are the following

Project Management………………………….. R71.6 million
Management Fee……………………………….. R38.0 million
Security Services…………………………………. R34.7 million
Air Transport…………………………………….. R 1.4 million
Transport to events…………………………… R 1.3 million
Legal Cost advice and litigation…………. R 14.4 million
Legal Cost collection…………………………. R 36.5 million
Catering……………………………………………. R 1.0 million

These are only a few of the items that can be scrutinised to ensure that the amount provided is the amount needed. The more than R100 million that is budgeted for Project Management and Management Fees raises some question. Why is it needed to this extend whilst the metro employ HOD’s and Senior Managers at a high cost. Are they not capable to perform this function?

The huge increase of R177 million in the budgeted cost of the Metro Police should be put on hold until after COVID-19 and our finances are healthy again.

OPERATING EXPENDITURE BY SOURCE
In the Table below a comparison is made between the Draft Budget and the Financial Performance as at 31 May 2016 to cover the term of the present council up to now.

Employee related cost on its own increased with R640 686 000 from R1 442 519 000 to R2 083 205 000. On average this is represent a 9.6% growth per year in the term of the present council.

Employee related cost, remuneration of councillors and contracted services amount to R2 611 570 000 and equals 37,98% of the total budget. Debt impairment amounts to R1 114 764 00 that equals 16.21% of the total budget and Bulk purchases for water and electricity amounts to R2 208 863 000 that equals 32.3% of the total budget.

The total cost of the above three expenditure types amount to R5 935 197 000 that equals 86.3% of the total budget.

One important leg of the process to restore the financial position of the metro is to reduce expenditure where it matters.
The cost of Bulk Service purchases can obviously not be reduced.
The cost of debt impairment can be reduced if the political will and commitment to collect the outstanding debtors will appear for a change.
There is no other option than to address the remuneration expenditure. The logical way is to understand what caused this huge increase in cost and start by rectifying that.

Taking in consideration the fact that there is no provision for overtime in the draft budget one can reach no other conclusion than that this is not a credible budget. The annual cost of overtime up to now varies between R100 to R150 million. Surely that is much too high and must be reduced but to budget zero is ridiculous. For example, water pipes burst also happen at night and weekends and will require overtime to fix that.

If one looks at the R152 million overtime cost for the first ii months of this financial year the following stands out: Executive Mayor R5.4 million, Waste and Fleet Management R53.0 million. This is where one must start in addressing this problem.

OPERATING REVENUE BY SOURCE
The operating revenue by source is reflected in the Table below;

Property rates and sanitation services are both calculated by applying a tariff to the valuation of the property.

For the past few years the DA constantly pointed out that these tariffs are not calculated correctly and as a result of that ratepayers are over taxed. This tariff calculation should render a final real income that is very close to the budgeted amount that we know out of experience

To illustrate this point: For the present financial year as at 30 April the amount billed for the 10 months amounted to R1 109 951 that is R54.5 million more than the YTD budget. This as well as the fact that the metro do not have the reserves to assist here as relief for the hardship caused by COVID-19 epidemic is more than enough reason and motivation to approve a 0% increase for rates and sanitation. The loss in budgeted income is R161.7 million. This amount can easily covered by savings on the budget that the DA will propose later in this report (analysis.)

Water tariffs. It was reported in the Section 80 Committee Finance that the increase is based on an expected Bloemwater increase of 9% and that that might still be reduced. The DA acknowledges that water consumption can be used to curb usage because this is a scarce source. But because access to water is a basic right it should be more lenient on lower consumption than higher consumption

The loss as a result of water leakages is a big cost factor for which must be covered by the users who pay their accounts.

This fact is mentioned in the draft budget as in all the previous years but what we need now is a plan and action to stop this. A good start will be to repair reported leakages urgently.

Waste removal tariffs. This together with rates burden is a big risk for this metro. Frustration is building up amongst ratepayers and more and more voices are heard in favour of a rates boycott. This service is presently handled on a damage control basis and not a structured sustainable basis. The workers in this section should realise that, by bad service delivery and excessive pay demands, they will draw everybody down with when there is not enough money to pay the salaries of all employees. That day is closer than what they think.

All residential properties with a market value of R80 000 or less are exempted from paying refuse removal charges. The result of this is that about 70 000 households get this service for free. It is financed from the equitable share so that there is no real cost factor (R225.573 million) for those that pay for the service. It is, however, important that the equitable share cover the cost of delivering the service in the relevant cases.

Electricity Tariifs. In the Draft Budget it is recommended that the electricity tariffs be increased with 4.6% (on average) above the previous year….. This the only information available in the Draft Budget and because there is no reference to the detailed tariffs it is not possible to comment on this because many variation can appear in the “on average” reference

A further very important point regarding Centlec is that the Executive Mayor failed to comply with section 87 of the Municipal Finance Management Act Cenlec should have submitted their budget to the parent municipality before the end of January and more important is section 86 (3) that states:

“The mayor of the parent municipality must table the proposed budget of the municipal entity (Centlec) in the council when the annual budget of the municipality for the relevant year is tabled” The mayor failed to do so. The act further states that the Municipal Manager must immediately after the budgets were tabled make it public in the prescribed manner to allow the public to make inputs. Because the Centlec budget was not the public are denied the opportunity make inputs on that budget.

TARIFFS
The proposed tariff increases are reflected in the Table below

OUTSTANDING DEBTORS

From an analysis of outstanding debtors over a 48 month period (May 2016 – May 2020) The following can be observed.

• Total outstanding debtors at May 2020 is R3 577 553 400 more than at May 2016
  
• On average outstanding debtors increased with R75.5 million per mont
• Debt as a percentage of total debt was as follows on 31 May 2020

o 32.5% Water
o 20.4% Rates
o 14.1% Interest
o 13.2% Electricity

Outstanding water debtors increased with R1 001 813 383 over the period or on average with R250 million per year.
➢ The obvious solution is to replace rotating water meters with pre-paid water meters. The present ANC council under leadership the Executive Mayor failed to address this issue. Their solution is to raise the tariffs with the result that the debt of non-paying users is recovered by paying users.
➢ The second issue that needs to be addressed is the loss of purified water lost as a result of unmetered water used, burst pipes and illegal connections. The audited outcome for this water loss is around R200 000 000

When we as DA take control of this council we will rectify the two above issues speedily as an important step in fixing the financial problems of this metro. And for those who don’t know, it will curb the enormous provisions for dab debt and create space for spending on service delivery.

Outstanding Government debt increased with R1 536 865 920 over this period. If they do the right thing and settle their debt the more than R1 billion expenditure item on the budget for debt impairment can be removed. In the Systems Act it is clearly stated that National and Provincial departments and public entities must promptly meet their financial commitments towards municipalities.

The total provision in the draft budget for Legal Cost Collection (Debt Collectors) is R36 537 963. How can this cost be justified with the huge increase in outstanding debtors. It is not rocket science to collect outstanding debtors and can be done by our own personnel.

Failure to bring the outstanding debtors down to acceptable levels are surely going to lead to the downfall of this metro that finds itself already on the edge of the abyss.

CAPITAL EXPENDITURE
The DA is of opinion that this proposed Capital Budget is not credible and bases it on the following.

With one month left of this financial year the capital expenditure presents the following data.

The original approved budget was adjusted downwards as shown in the above Table and of that adjusted budget amount only 39.80% was spend with one month left of this financial year.

This is a trend in the past few years but this one is the worst.

The proposed budget for 2020/21 amounts to R1 136 562 and is financed as follows:

Comparing the above two Tables raises the question why will the new financial year perform better than the present financial year and is the not much sense in discussing the provisions in this budget

In the proposed budget for 2020/21 provision is again made for the bridge over rail in Vereeniging Avenue. There is R38 million ??? provided for that.

There is now for a few years the practice to put items in the budget that will make headlines but then it don’t happen, maybe it is a way to draw attention away from the real issues. Other projects that can be recalled are: Airport Development, Bridge over road in Furstenburgh Road, Relocating the Zoo, Cable Car up Naval Hill, Fixing Arthur Nathan swimming bath and so one can go on.

At best this metro’s capital budget is a joke. They can’t even spend the money received by way of grants. This fact is a good indication of incompetent Heads of Departments that are responsible for executing capital project.

What is more disturbing is the fact that the Executive Mayor submitted to the NCOP that grant money was used for salaries. How on earth could the Municipal Mannager and Chief Financial Officer allowed that. They should be charged in terms of the Municipal Finance Management Act.

BUDGET STEERING COMMITTEE
The following is mentioned in the Draft Budget report regarding a Budget Steering Committee

“The MFMA requires the mayor of a municipality to provide general political guidance over the budget process and to give priorities that must guide the preparation of a budget. The National Treasury Budget Regulations gives further effect to this by prescribing that the mayor of a municipality must establish a Budget Steering Committee to assist in discharging the mayor’s responsibility set out in Section 53 of the
Municipality Financial Management Act. Compilation of the Municipality’s annual budget commenced with the presentation of the budget parameters to the Budget Committee, composed of executive political representatives. The committee’s terms of reference include the following:

• To provide guidance on budget principles
• To consider budget operational and capital parameters
• To review directorates’ budget inputs via budget hearings after tabling of the
Budget, and
• To review and advice on the outcome of the MTRE

The DA is of opinion that inclusion of at least the main opposition parties on this committee will improve the general acceptance of the budget. It is too late for this budget but might assist in compiling the next budget.

PROPOSALS FOR BUDGET INPUTS
1,Give clarity on the Cost Containment measures by releasing detail of savings envisaged

2. Reconsider the allocation of budget resources to Votes especially the Vote of the Executive Mayor as a starting point

3. Table a concrete plan on how to rectify the allocation to employee related cost

4. Correct the non allocation of budget resources to overtime with a plan on how to manage it.

5. Reduce the tariff increases for Rates and Sanitation to zero. The loss of about R163 million can be recovered by reducing the provision for debt impairment with the same amount

6. Waste removal – submit a plan on how this service will be rendered on a sustainable basis

7. Indicate what steps will be taken for non-compliance regarding the Centlec Budget

8. Revisit the use of Debt Collection contractors to collect outstanding debtors

9. Make it a decision to collect all outstanding Government debtors in the 2020/21 financial year.

10.Replace all rotating water meters with pre-paid meters

11. Develop a plan how to reduce water losses. It doesn’t help to say we are going to reduce it, submit a plan that can be monitored.

12. Develop a greater urgency to execute the capital budget with measurable progress parameters

Prepared by:
DA PR Clr Hans Britz