eThekwini budget – the good, the bad and the ugly

Originally published in the Sunday Tribune, February 27, 2011. Upfront story on losses at municipal entities (page 1 and 2) and a full package on page 12.

The eThekwini Municipality draft budget for the 2011/12 financial year was released at the end of February after being approved by the powerful multi-party executive committee and full council. The budget is substantially bigger than last year and there are subsequent rates and tariff increases. All of these are spelled out in the stories. Each year I have a look at the budget document (which is attached at the end of the post) and pull out the elements that I think are the most interesting. I ask questions of the city treasurer and his team and then do a full take-out on the budget. This post is the take-out done for the Sunday Tribune. It’s all the articles, including one that went on page one, and the full package on page 12.

 

Draft budget fast facts

R100m  stadium, uShaka, ICC bill

Durban ratepayers will fork out R100 million this year to fund expected losses at Moses Mabhida Stadium, uShaka Marine World and the International Convention Centre – but city leaders say it is money well spent.

uShaka is expected to lose about R36.5m and the ICC R30.7m, according to the city’s draft budget for the 2011/12 financial year.  An indication of losses at the stadium is not contained in the document, but since city treasurer Krish Kumar said losses at all three entities came to about R100m, losses of about R40m at the World Cup venue can be assumed.

The year’s budget is up substantially at R28.1 billion from the last.

Losses at these entities are likely to anger ratepayer bodies and opposition parties, particularly over the ICC and uShaka, which have run up similar losses in recent years.

Page 1 of the Sunday Tribune, February 27, 2011

The sustainability of the Moses Mabhida Stadium has also come under scrutiny amid poor attendance at local soccer games and other events since the World Cup.

Kumar told the Tribune: “Expenditure of less than R100 million is considered justifiable taking into consideration the regeneration, economic and tourism impact of the ICC and Ushaka.

“Both are not intended to make a profit. This is the trend worldwide. The main purpose of uShaka was to revitalise the Point. Notwithstanding this, every effort is being made to ensure value-for-money with regular audits undertaken. There are ongoing efforts to improve the marketability of the ICC and uShaka, in terms of increasing their footfall.”

Kumar said the benefits of the stadium outweighed the costs. “It must be viewed in terms of the strategy to create a sporting precinct.”

The budget document lists the sustainability of Moses Mabhida as one of the “challenges” the city faces in the coming financial year. The stadium has hosted 30 sporting events and 145 corporate events. A number of features have been built into the stadium to make it more sustainable, the document says. “The big three – the magnificent arch, sky car and adventure walk – have attracted more than 250 000 visitors and generated R11.7m. The stadium is also booked to host 15 PSL (Premier Soccer League) matches this year.”

It adds that the retail facilities are “doing well”, with nine stores operating and tenders out for seven.

“The city is in negotiations with a number of sports teams to become anchor tenants,” the report concludes, without naming them.

Page 2 of the Sunday Tribune, February 27, 2011.

Acting CEO of the ICC Jeremy Hurter said the expected loss was justified as convention centres brought in R2.6bn nationally with KZN benefiting directly by R400m in the last financial year.

“The city has to inject a small amount into the ICC to generate a substantial amount. We expect to break even this financial year. The loss is mostly building depreciation value, not running costs – which is the norm.”

He said the hotel industry benefited from ICC functions.

Patrick Pillay of the Minority Front (MF) said the only solution was to have private-public partnerships.

He said the MF was reluctant to have the stadium built two years ago because of the high operational costs.

“No one listened to our concerns and ratepayers now have to bear the burden. This is also not the first time uShaka has to be bailed out.  Ratepayers cannot afford to continue to bail the municipality out.”

Lilian Develing of the Ratepayers’ Association said the municipality should worry about running the city, not commercial enterprises.

“Where will they get this money? Ratepayers are already battling with increased rates and electricity tariffs, and cannot afford R100m.  No one consults ratepayers if they want these things in the city, including the Olympic bid…” she said.

Shawn Thompson, CEO of uShaka, declined to comment, saying a spokesman for the financial management of the entity would be nominated at a board meeting tomorrow.

 

Page 12 of the Sunday Tribune, February 27, 2011.

Making cents of city budget

Durban ratepayers should brace themselves for above-inflation increases in their monthly bills.

In the draft budget for 2011/12, municipal manager Michael Sutcliffe announced increases of 6.5 percent for rates, sewerage and refuse removal, 9.5 percent for residential water, 12.5 percent for business water and 22 percent for electricity.

This means that a family living in a house valued at R750 000, with controlled water and electricity usage, will have their total bill increased from the current R1 500 a month to about R1 700 a month from June. The total for a R1m property with slightly high water and electricity use will increase by about R250 to R2 310 a month. A pensioner in a property valued at R500 000 with low water and electricity consumption will have their bill increased from R440 to just less than R480.

Municipal treasurer Krish Kumar told the Tribune this week he was happy with the increases, which were kept as close to the inflation rate as possible.  He said nothing could have been done about the electricity tariff, which is linked to the increase approved forx Eskom by the National Energy Regulator last year.

Kumar said the 22 percent was provisional and even though it was lower than the Eskom tariff increase, the council was still going to try to reduce it further before the final budget is passed.

“Considering the development challenges we have and the infrastructure and services backlogs we face, I think we have done well with these increases. We could always do more, but we have to look at affordability and what it would mean for ratepayers. What I am really happy with is that, unlike the other metros, we are not cutting back on capital spending. We understand the backlogs and challenges we have, and we are pushing a development agenda,” he said.

He added the fact that the municipality had the highest unemployment rate in the country was also a big factor.

Kumar said that various city departments were looking at ways to become more efficient to get “more bang for their bucks”. He particularly praised water and sanitation boss Neil Macleod for the “innovative” things he was doing that were starting to show big financial benefits.

eThekwini treasurer Krish Kumar

Opposition parties, however, believe more should have been done.

DA economic development committee member Rick Crouch said: “We think that any increase right now is too high because of the extra financial burden placed on people because of the economic downturn. We don’t think these increases are reasonable because they are higher than the cost of living index, which is between 3 and 6 percent. Most of the increases are between 6 and 9 percent in eThekwini’s case.

“We know we are going to have to deal with some increase, but we will be working hard to try and get the increase down to as low as we can.”

Minority Front caucus leader Patrick Pillay agreed. “We think the increases are very high, especially when it comes to electricity. Even though this is because of what was given to Eskom, the city should have tried to do something and absorb it in some way. Grantees, pensioners and the poor are really fighting for survival – and the sad reality is that their incomes can’t pay for all these increases. They are really suffering. This is the year when ratepayers should have been given a tariff increase holiday and should not have been charged because they have been bombarded with the climbing cost of living. We do not support these increases at all,” Pillay said.

Budget challenges

Illegal electricity connections and water losses continue to plague the council and are among the key challenges facing the city this year.

According to the city’s budget document for the 2011/12 financial year, millions of rand worth of electricity is being lost to electricity theft, and this does not factor in the knock-on effects.

“Electricity theft via illegal connections and cable theft results in power outages which disrupt traffic and business, which impedes economic growth and, ultimately, costs jobs. Worse herein, is the loss of innocent lives and the loss of supply to paying customers due to overloading by illegal connections,” the document reads.

To try to deal with the problem, the National Intelligence Agency, the SAPS and Business Against Crime have been brought on board. Also, R90 million is being spent on taking electricity into informal settlements in the hope that this will reduce electricity theft.

More than a third of the city’s water is lost either to illegal connections or leaks, according to the budget document – and with it, implications for ratepayers. At 34 percent, this is down slightly from 36 percent last year.

However, it is a scary figure given recent warnings that eThekwini could face water shortages in the next decade.

“The current target is to reduce the non-revenue water (water that cannot be charged for because it is lost) to 28 percent in 2013 and 25 percent in 2018. Every possible measure will be taken to curb the water loss as this has an impact on the setting of an affordable water tariff,” according to the document. It goes on to say a target of 30 percent water loss has been set for the end of the financial year.
 
Housing issues
 
Durban’s biggest housing project, the Cornubia development near King Shaka International Airport, will start in the next few months.

Bordered by the N2 highway to the east, the R102 to the west and the Ohlange River to the north, the 1 200ha site is considered key in dealing with the heavy housing backlogs facing the city. The land is twice as big as the Durban CBD.

There will also 240ha set aside for commercial and industrial space.

The total project, which will be done in at least three phases, will cost about R20bn.

According to the draft budget document, the development of this project will start  “early this year”. “The R20bn project is a key flagship project of the city to accommodate a significant portion of the housing backlog within its boundaries,” the report reads.

Housing is one of the main challenges facing the city in the coming financial year – as it has been for the past several years. The backlog, according to the budget document is 365 000 housing units, which cost “in the order of R50bn to R60bn” to deal with.
 
Free services
 
More than R2.47 billion of water, rates, electricity and other services will be given back to ratepayers in the 2011/12 financial year – an increase of R286.8m from the R2.16bn in the current year.

All of the city’s ratepayers benefit from the rates rebate. The first R120 000 of any property value does not incur rates, and this increases to R400 000 for pensioners, child-headed households, disability grantees and medically boarded people.

Properties valued under R120 000 pay no rates at all. On vacant land, the first R30 000 does not incur rates. These rebates come at a cost of R1.16bn. With electricity, the first 50kWh is free for households using less than 150kWh a  month in Eskom reticulated areas. This increases for 65kWh for households in eThekwini reticulated areas. The cost of these rebates is R48.3m.

Properties valued at less than R190 000 pay no charge for domestic refuse removal, a rebate worth R274.9m.

Finally, the sewerage/sanitation allows for the first 9kl of water disposal via the sewerage system not to be charged for. This comes at a cost of R182.3m.

Government Debt

More than R1 billion is owed to the eThekwini municipality by other government spheres in outstanding rates and for unfunded mandates.

Unfunded mandates are services that should be provided by the national or provincial government but that the municipality pays for.

Unfunded mandates total R753.3 million for the financial year, up from R728.8m in 2010/11. This represents a significant growth from the R521.4m in 2008/09 and the R612.2m in 2009/10.

The DA and MF both criticised the municipality, saying that dealing with this area could remove a massive rates burden from ratepayers.

MF caucus leader Patrick Pillay said: “We don’t think that much is being done to ensure unfunded mandates and high government debt are reduced.”

DA councillor Rick Crouch has proposed: “Cut them off”.

Municipal Treasurer Krish Kumar said there were discussions with the provincial and national health departments over the unfunded mandates, as well as good developments in getting money from the national government, instead of having to go through provincial departments when dealing with housing.
 
Infrastructure maintenance

Angered by broken traffic lights? A sum of R23 million has been set aside to deal with the problem.

This is just one of the spending areas in the city’s budget, which focuses strongly on infrastructure maintenance in the 2011/12 financial year. More than R2 billion will be spent in this area.

This is good news for residents, with repairs and upgrades to road, traffic light, sanitation, water and electricity infrastructure earmarked for this financial year.

In terms of other specific spending, the budget document highlights R394m on roads, R261m on sanitation and R661.3m on electricity.

To read the full draft budget document, download this file: Draft 2011.2012

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