YONELA DIKO: Amathole and the curious case of broke municipalities


The Amathole Municipality's financial woos, which have reached a tipping point where they now can't even pay salaries for the next four months, crawling their way into the new financial year's equitable share from Treasury, is but one in a long list of municipalities that are financially stressed and holding by a thread. There is clearly a much more pervasive and deeper governance crisis plaguing many of our municipalities across the country.

According to Ratings Afrika, which is a ratings agency specialising soundness of governance in municipalities and companies, “Only 23 municipalities from the sample of 100 have reported operating surpluses, with the remaining 77 reporting operating deficits. The combined profits of those with a surplus amount to only R1.4 billion, whereas the combined losses amount to R13.3 billion.” That's according to its 2018 Municipal Financial Stability Index.

This is a cumulative municipal debt that has been growing over the years, with municipalities digging themselves deeper into the debt hole with each year in an attempt to keep up with growing service demands without increased revenue.

At the core of the problem, of course, is that municipalities, unlike businesses that exist for profits, have a different mandate that involves provision of goods and services with a social value but not profit generating. While the goal of business is to raise as much revenue as they can and drive down costs irrespective of the human pain this may cause, the government must provide services to its citizens driven not by profit but by need. These goods are referred to as common goods, such as roads, schools, police stations etcetera.

In order to fulfill this mandate, a municipality receives an equitable share and other grants from Treasury. The share municipalities collect is hardly 10% of the government budget, with a huge stake going to provinces and the national government. As Finance Minister Tito Mboweni has explained, the reason for this is because municipalities are legally mandated to also collect revenue directly from citizens for the many services they provide, such as potable water and electricity. Municipalities buy products to sell to its customers to earn revenue.

Not being profit driven, however, does not mean being inefficient. Programmes can still be completed ahead of schedule, services can still exceed expectation and both programmes and services can still be provided within or under budget.

How can municipalities be efficient and financially stable?

It is for the very reason that municipalities are not profit-driven and therefore do not have bottomless cash reserves that they must constantly be innovative in how they provide services, always searching for more effective, quicker and less costly ways of providing services.

As some experts have advised, every municipality needs to have an innovation office that focuses on finding ways to advance municipal technologies and machination. Year after year, residents complain about chaotic municipality billing systems, which reflect a local government that does not deliver its core mandate - to collect accurate, timely and fair amounts of revenue for the services it provides. It baffles the mind that sorting the municipalities' billing systems and therefore its incomes would not be the top priority for them. Where do they think they will get the cash to function as a municipality if billing is a mess? This is besides the trust deficiency sending incorrect bills to residents causes, which results in many people shutting down and refusing to engage with municipalities. The result is reckless and in more revenue lost. Innovation, therefore, will result in much more efficient billing system and a constant flow of cash into the municipality.

The other area of concern in how municipalities manage their revenue collection duties is municipal real estate portfolios. Most municipalities have a very huge real estate portfolio from which to extract lots of value. The problem is that after successive poorly managed municipality accounts, municipalities usually don't have a proper database of its estate portfolio and it's also not properly valued. This means municipalities do not draw enough rent from its property portfolio and has over time, lost a lot of it. It is therefore important to start that process of searching for its entire portfolio and digitising it. This must be properly evaluated in order to draw appropriate rent, sell those it can sell at properly valued prices and repurpose those that it must.

Municipalities' revenue problems are not always of its own making. Sometimes they are trying hard, while residents themselves are defiant and put up a fight to secure their free ride over and against the very municipality they hope will give them unbroken service. The battle between Nkomazi Local Municipality in Mpumalanga and Johan Rupert's Leopard Creek Share Block - to pay R8.8 million a year out of a Golf Estate arguably valued at R1.3 billion and resulted in a bitter fight back by the estate that wanted to continue paying R35,000 per annum as per their agreement with the 1996 transitional council - is not unique to Mpumalanga. As with Leopard Creek, which the municipality calculates owes it R76.4 million in unpaid rates and taxes, many municipalities have expensively run estates and other structures shortchanging them on rates and taxes while guzzling all the critical resources like water and electricity.

Municipalities within themselves are generally operated inefficiently, with lots of duplications and offices that should have been shared functions. It is therefore important for each department and each unit to look into the services it offers that also come from other departments and to make sure such services are put into one centre so as to standardise delivery of and create standard expectations of results.

Service delivery
Once municipalities sort out their revenue collection and generation, then they can focus on key deliverables that are the first to suffer when there is not enough money, such as infrastructure delivery and maintenance, as well as technical capacity. It is a shame that most municipalities have spent almost zero on municipal infrastructure maintenance over the last five years.

Lastly, municipalities have to free themselves from being tools for political patronage at the expense of their financial stability. The case of Amathole Municipality having employed almost 900 people hey did not need over the years speaks to how it is used for patronage. This makes those who pay rates and taxes for services suffer because of politicians who want to secure themselves second terms.

Every expense of the municipality must be explained, justified and it must make financial sense.

While putting in place all these aspects of municipal governance might not solve all the problems, it could pull a lot of them out of their financial debt hole.

Yonela Diko is the former spokesperson to the Minister of Human Settlements, Water and Sanitation. You can follow him on @yonela_diko.

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