PRESENTATION OF FINAL MULTI-YEAR BUDGET 2017/18 - 2019/20 BY HER WORSHIP MAYOR NNP MKHULISI

26 MAY 2017

COUNCIL MEETING

Honourable Speaker Cllr KER Hadebe

Honourable Deputy Mayor, Cllr AH Mthembu

Councillors

Members of management and Officials

Good day

We are in the midst of the significant commemoration of Africa Month, and as Africans we know too well the struggle we have endured to achieve quality of life and delivery of adequate services for our people.

Yesterday we celebrated Africa Day, which presented an opportunity for South Africans to reconnect and recommit themselves in support of all government interventions to develop a better Africa and a better world.

As a sphere of government charged with creating a better district, we have to ensure that our budgets speak to transformation, equality and prosperity for our citizens.

It is my extreme pleasure to present the first budget compiled under the current term of Council, a budget that is prepared with a focus on service delivery.

Fiscal constraints caused by a rise in costs and the reduction in our revenue, compounded by the calls for cost-containment measures from the National Treasury required that all non-essentials were trimmed from the budget.

The Budget process applied by King Cetshwayo District Municipality is therefore one of prudency and affordability, due to the economic challenges mentioned above.

It is said that the budget is not just a collection of numbers, but an expression of the values and aspirations of the people it will benefit.

It expresses the needs raised and identified during the IDP engagement process, and through public participation meetings, where the community communicated their service delivery challenges and aspirations.

Honourable Speaker and Councillors,

The2017/2018 - 2019/2020DRAFT Budget for the King CetshwayoDistrict Municipality, is now presented to you, in compliance with the regulations of the MFMA and all applicable legislation and circulars from National Treasury.

The Municipal Finance Management Act, 2003, (MFMA) Section 16 (2), requires the Mayor of the municipality to table the annual budget at a Council meeting at least 90 days before the start of the budget year.In keeping with this, the budget is hereby tabled.

In thecompilation of the 2017/2018 Medium Term Revenue and Expenditure Framework, the following points from MFMA circulars number 85 and 86 have been considered:

Firstly we will look at the Local Government Conditional Grants and Additional Allocations

We have a reduction in our Levy Replacement Grant for the incoming year due to funds beingprioritised in favour of other government priorities.

In 2017/18, adjustments will be made to the RSC/ JSB levies replacement grant to redistribute funds to the 13 district municipalities currently receiving less than R40 million per year from this grant. The growth rates of the 10 district municipalities with the largest allocations are reduced to fund the increases to the other districts.

They will receive two-thirds of their original growth rate in 2017/18 and one-third of their original growth rate in 2018/19. Unfortunately King Cetshwayo DM is one of the top 10, and as a result there was a decrease in our Levy Replacement Grant.

We were however informed by the Department of Cooperative Governance that there are plans for a new funding model for district municipalities.

COGTA, which administers the municipal infrastructure grant, has also issued a guideline on how to plan, assess and implement refurbishment projects funded by the grant, as well as a revised guideline on the use of project management unit funds. Municipalities are allowed to use up to 5 per cent of their allocations from this grant for a project management unit.

Our revenue collection has to be well managed and planned, and with the decrease in grant funding, it is all the more important for us to ensure that we set tariffs that will enable us to balance our books.

While we have to consider the economic challenges faced by our consumers, and to set tariffs that are affordable, we have to be firm with our collection systems so that those who can afford to pay are encouraged to do so.

Our tariff increases reflect an appropriate balance between the affordability to poorer households and other customers while ensuring the financial sustainability of the municipality. The Consumer Price Index (CPI) inflation has breached the upper limit of the 3 to 6 per cent target band; therefore municipalities are now required to justify all increases in excess of the 6.4 per cent projected inflation target in their budgets.

On 1 July 2017 municipal employees will receive a salary increase in accordance with the South African Local Government Bargaining Council’s three-year Salary and Wage Collective Agreement for the period 01 July 2015 to 30 June 2018. We are in the last year of the agreement which is as follows: average CPI from Feb 2016 – Jan 2017 + 1%.

Councillors will receive an increase in accordance with the Government Gazette on the Remuneration of Public Office Bearers Act published annually by the Department of Cooperative Governance.

We are currently in the final push before the implementation of the Municipal Standard Chart of Accounts (mSCOA).

The mSCOA Regulations apply to all municipalities and municipal entities with effect from 1 July 2017. Technically, for a municipality to be regarded as mSCOA compliant on 1 July 2017, it must be able to transact across all the mSCOA segments and its core system and all sub-systems (including that of its municipal entities) must seamlessly integrate.

mSCOA compliance in respect of the tabled 2017/18 MTREF and IDP submission means that the data string uploaded to the LG Database portal must meet the following requirements:

Transacting in all the MSCOA segments;

Seamless integration of core system with all the sub-systems; and

Integrated budgeting facility directly linked to the IDP and SDBIP facilities on the system.

Staff members in the various departments are undergoing intensive training in mSCOA budgeting and accounting to help them adjust to the new system.

The 2017/2018 budget is in compliance with the regulations regarding the new standard chart of accounts of Municipalities which were published in Gazette 37577, dated 22 April 2014, and the budget is therefore prepared in accordance with the MSCOA requirements.

The administration of the municipality, led by the Finance Department, went through a stringent process of eliminating non-priority projects from the budget, and to this end, managed to reduce a deficit of R117 million to R14 million. To augment the budget funding, an amount of R17m was utilized from the accumulated depreciation reserves to fund capital expenditure.

Faced with an unbalanced budget with a deficit of R14m, the deficit was reduced by deciding on the following course of action:

•Reduce the Support Service Agency (SSA) contract by R8m. This must be reprioritised in the February 2018 adjustment budget.

•It must noted that the water tanker budget is half of the expected annual expenditure, and this too must be prioritised in the February 2018 adjustment budget, whilst we must also come up with a strategy to reduce the number of water tankers.

•Remove all the requested positions except for that of the DMM : Specialised Services (COO), top up the funding on the vacant post of Strategic Manager to fund Senior Manager : Communications, and fund the post of Manager : IT Governance and Security from the already budgeted for funds which were used for the service provider that was performing this function.

•Increase the zero rated VAT by R10m to fund the deficit; as this is dependent on expenditure on infrastructure grants, but management must carefully consider the risk of not achieving the full R36m at year end. This could mean a further downward adjustment in the February 2018 adjustment budget.

•Any savings up to February 2018, be it operational budget or Salaries, be utilised to fund the SSA contract and water tanker budget.

As required by section 23 of the MFMA with regards to public participation, we published the draft budget in the local newspapers and held roadshows in the five local municipalities in the district during April and May 2017. The views of the communities were noted and have been addressed in the final 2017/2018 multi-year budget to a greater extent, within the available means. The budget roadshows were held as follows;

-AmakhosiRoadshow– 04 April 2017

- uMfolozi Municipality– 25 April 2017

-uMlalazi Municipality– 05 May 2017

-Corporate & Government– 10 May 2017

-Mthonjaneni Municipality– 11 May 2017

-Nkandla Municipality– 17 May 2017

-uMhlathuze Municipality– 20 May 2017

Our projected revenue is as follows:

The detailed grant allocations from National Treasury, per the Division of Revenue Bill, 2017, as well as provincial allocations have been factored into the final 2017/2018 Medium term budget.

In terms of Provincial allocations, an amount of R400,000, R500,000 and R600,000 for 2017/18 to 2019/20 respectively for Development Planning Shared Services grants, has been included in the 2017/18 budget.

The proposed increases on Trading Services revenue have been included in the current budget. The expected revenue on water service charges is expected to be below the MTREF amount by R3.8m.

I will recap the changes in the revenue when compared to the 2017/18 budget approved in the 2016/17 MTREF, as mentioned in my draft budget presentation in March:

  • The Equitable Share allocation has seen a decrease of R10,7m when compared to the 2017/18 projections as Gazetted in the 2017 Division of Revenue Act.
  • The Municipal Systems Improvement Grant (grant in-kind) has increased slightly to R1,6m and R1m for 2017/18 and 2019/20 respectively.
  • The Water Services Infrastructure Grant has decreased from R115,5m to R110m, a decrease of R5,5m.
  • The Municipal Infrastructure Grant (MIG) has decreased by R4m from R178m to R 174m.
  • The Expanded Public Works Incentive grant allocation for the 2017/18 financial year is R5,032m.
  • Trading Services charges are budgeted for at R85,6m, this is a slight decrease of R2,894m from the R88,57m that had been estimated in the 2017/18 MTREF.
  • It is anticipated that an amount of R36m in respect of VAT on MIG, WSIGand RBIG grants will be received from SARS. This has been factored into the 2017/18 budget and R18,9m for the Accumulated Depreciation Reserves. This will be used to augment the expenditure on capital projects.

Overall, the total revenue anticipated for the municipality in the 2017/18financial year is R998,7 million rand. This is a net decline of R139m from the 2017/18 projections.

The expenditure is budgeted as follows:

The overall Expenditure for the 2017/18 financial year is R998.7 million rand, decreasing by R138m from the 2017/18 indicative budget approved in the 2016/17 MTREF, in line with the anticipated revenues.

Operational Budget including employee costs is R618m, an increase ofR24.9m from the 2017/18 indicative budget approved in the 2016/17MTREF.

The salary increase of 7.36% has been factored into the final MTREF in terms of the current collective wage agreement, with the total salary budget amounting to R232m.

A budgeted increase of 7.36% has also been provided for the Councillors allowances, as determined in terms of the Remuneration of Public Office Bearers Act.

There were minor movements between cost centres, with the biggest being 2% change from the draft to the Final Budget of 2017/18. The change between IDP operational projects tabled in March and the final is an amount of R9.2m which has been moved from the capital projects to the operational projects as requested by the Technical services, Performance Management and the MM’s Department.

The total Operational IDP Project budget for the final 2017/18 budget is R131m and is expected to increase to R140m in 2018/19 and R143m in the 2019/20 financial year.

The decrease of R9.2m in the Capital budget under the Municipal Infrastructure section is an allocation that has been moved to Operational IDP projects under the Waste Water and Water Use Efficiency section.

The total multi-year budget is as follows:

2017/2018 / 2018/2019 / 2019/2020
R 998757 000 / R 1 088956 000 / R1099678 000

Our tariff increase for the 2017/2018 financial year is as follows:

Indigent consumers and consumers who use water conservatively will bear increases averaging 6%, however with the implementation of new stepped tariffs for the 2017/2018 year, consumers will be charged progressively higher tariffs as volumes increases.

Sanitation and Cemetery tariffs will increase by 10%. Solid waste tariffs will increase by 20% and Adhoc services by 10%.

Honourable Speaker and Councillors, this budget is ours to take ownership of and to ensure that our oversight role as the custodians of this council is not taken lightly. As servants of the people we will be held accountable for the expenditure and delivery of services emanating from the implementation of this budget, and it is a task we will not take lightly.

I wish to thank The Honourable Speaker and Councillors for your support in the past financial year, and express my hope for a progressive and successful 2017/2018 as the Council of King Cetshwayo.

I also convey my gratitude to the Municipal Manager, DMM’s and the staff of the municipality for their hard work and commitment during the past year.

Thank you.