Municipalities spent less than 10% of their capital budgets in the first six months of the financial year, raising fears that they are using loans earmarked for capital projects to cover operating costs or that ‘their planning is skewedâ€, says the Department of Provincial and Local Government.
Between July and December 31 last year, the nine metropolitan councils spent only 9,1% of their capital budget allocations, smaller municipalities 6,2% and district councils 9,9%, special departmental adviser Daniel Manyindo told Parliament’s local government committee.
Manyindo highlighted the deepening crisis of municipal debt and the high levels of debt compared to income generated by municipal services. Many councils used ‘creative accounting†to fund their operating costs, relied on overdraft facilities or even dipped into council workers’ pension and medical funds.
Most councils did not have financial audit structures, Manyindo said. Even the metros would struggle to bring their financial records up to date; only two could do so within a month.
Manyindo said debt owed to South Africa’s 284 councils now stood at R24,3-billion. A third of this debt is owed by business and 6% by government departments. Most of the debt was for water provision (26%), rates and taxes (24%) and electricity (16%). Gauteng councils owed the most, Limpopo’s the least.
In a comparative study, the department found that the R1,8-billion debt accumulated by municipalities in the Free State almost equals their income of R1,98-billion, and that municipal debt surpasses revenues in the Northern Cape.
In the Eastern Cape the debt-to-income ratio stands at 58%, and in Gauteng at 60%.
About 96% of local government revenues are raised through municipal taxes, service charges and levies. The remaining budget comes from the national government — equivalent to R12-billion during the 2003/04 financial year. This includes grants earmarked for infrastructure and basic service delivery, such as the Consolidated Municipal Infrastructure Programme conditional grant.
The Cabinet on Wednesday approved the infrastructure grant to consolidate ‘in a phased manner, grants in areas such as water, public works, electrification, local economic development as well as sport and recreationâ€. It would be implemented with a monitoring system to improve national oversight.
The government hopes the Municipal Finance Management Bill, currently before Parliament, will force greater accountability and transparency in municipal finances.
The law requires councils to draft budgets over a three-year cycle and implement controls, including the regular submission of financial statements.
Meanwhile, the financial and fiscal commission (FFC) told Parliament’s finance committee this week that it expected real increases in provincial spending on basic services from the 2003/04 financial year onwards, following a ‘significant growth of 11%†in national government transfers to provinces.
The projected spending hike comes on the back of cutbacks, which led to a 1,19% decrease in provincial spending over the past five years. Marginal real spending increases of less than 1% were recorded only in health (0,11% a year) and welfare (0,82% a year) budgets.
This was due to an increase in the take-up of the child support grant and the impact of HIV/Aids on the health system, said Conrad van Gass, FFC budget analysis manager.
This trend appears to be confirmed in Gauteng, where MEC for Finance Jabu Moleketi on Tuesday announced capital expenditure would increase to 19% (R5-billion) of the province’s R27-billion budget from just 5% (R553-million) in 1995/96. However, much of the capital budget is earmarked for Blue IQ-related projects (R1,4-billion) and the Gautrain (R649-million).
The North West provincial administration on Tuesday announced that R2,27-billion of its R13-billion budget would be spent on infrastructure and economic development.
MEC for Finance Martin Kuscus said 72% of the 2002/03 capital budget was expected to be spent before the new financial year after ‘capacity problems†were resolved.