Draft Annual Budget 2019/2020 – 2021/2022emakhazeni.gov.za/Municipal-Departments-/Financial... ·...

Draft Annual Budget 2019/2020 – 2021/2022

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TABLE OF CONTENTS

PART 1 - ANNUAL BUDGET

MAYOR'S REPORT

COUNCIL RESOLUTION

EXECUTIVE SUMMARY

OPERATING REVENUE FRAMEWORK

OPERATING EXPENDITURE FRAMEWORK CAPITAL EXPENDITURE

ANNUAL BUDGET TABLES - PARENT MUNICIPALITY

PART 2 - SUPPORTING DOCUMENTATION

ELM TARIFF LIST

BUDGET RELATED POLICIES

ANNUAL BUDGET - PER GFS CLASSIFICATION AND VOTE

MUNICIPAL MANAGER'S QUALITY CERTIFICATE

BUDGET LOCKING CERTIFICATE

OTHER SUPPORTING DOCUMENTS


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MAYOR'S REPORT

Pending the Municipal Budget State of address.

COUNCIL RESOLUTION

Please refer to attachment named "Council Resolution Draft Budget 2019/20.

EXECUTIVE SUMMARY

BUDGET: FINAL MEDIUM TERM REVENUE AND EXPENDITURE FRAMEWORK FOR 2019/2020,2020/2021 AND 2021/2022

REPORT OF THE CHIEF FINANCIAL OFFICER

BACKGROUND

In terms of section 24 of the MFMA the municipal council must at least 30 days before the start of the budget year consider approval of the Draft budget. An Draft budget must be approved before the start of the budget year and is approved by the adoption by the council of a resolution referred to in section 17(3)(a.)(i)

must be approved together with the adoption of resolutions as may be 17(3)(a)(i); and necessary

imposing any municipal tax for the budget year;

setting any municipal tariffs for the budget year;

Approving measurable performance objectives for revenue from each

approving any changes to the municipality's integrated development plan

approving any changes to the municipality's budget-related policies. source and for each vote in the budget; plan; and

The accounting officer of a municipality must submit the approved Draft budget to the National Treasury and the relevant provincial treasury.

An Draft budget of a municipality must be a schedule in the prescribed format setting out realistically anticipated revenue for the budget year from each revenue source; appropriating expenditure for the budget year under the different votes of the municipality; setting out indicative revenue per revenue source and projected expenditure by vote for the two financial years following the budget year; setting out estimated revenue and expenditure by vote for the current year; and actual revenue and expenditure by vote for the financial year preceding the current year; and statement containing any other information required by section 215 (3) of the Constitution or as may be prescribed.

An Draft budget must generally be divided into a capital and operating budget in accordance with international best practice, as may be prescribed.

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The MFMA refers to funding of expenditure and states:

An Draft budget may only be funded from: - realistically anticipated revenues to be collected

- cash-backed accumulated funds from previous years' surpluses not committed for other purposes; and

- borrowed funds; but only for the capital budget referred to in section 17(2).

Revenue projections in the budget must be realistic, taking into account: - projected revenue for the current year based on collection levels to date; and - actual revenue collected in previous financial years

Circular 94 issued by National Treasury provide further guidance for the preparation of 2019/2020 MTREF

Municipal revenue and cash flows are expected to remain under pressure in 2019/2020 and the municipality adopted a conservative approach when projecting their expected revenues and cash receipts.

A. Revising rates, tariffs and other charges

National Treasury guides that when municipalities revise their rates, tariffs and other

charges for their 2019/2020 budgets and MTREF, taking into account the overall

economic pressures such as inflation and economic growth and conclude on a

justifiable tariff in line with the CPI. Municipality is in a process to ensure that tariffs are

cost reflective.

B. Funding choices and management issues

Priority for the 2019/2020 financial year are given to the following:

Ensuring that drinking water and waste water management meets the required

quality standards at all times;

Protecting the poor;

Supporting meaningful local economic development (LED) initiatives that foster

micro and small business opportunities and job creation;

Securing the health of their asset base (especially the municipality’s revenue

generating assets) by increasing spending on repairs and maintenance; and

Expediting spending on capital projects that are funded by conditional grants

Municipality is implementing cost containing measures to eliminate waste and/or,

reprioritise spending to ensure savings on these six focus areas namely;

consultancy fees

no credit cards

travel and related costs

advertising

catering and event costs

accommodation


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C. Headline inflation forecasts.

The following table shows the prescribed inflation increase to be implemented on the budget preparation from National Treasury Circular 94.

Fiscal year

2018/19 Estimate

2019/2020 Forecast

2020/21 Forecast

2017/18 Actual

Real GDP growth

0.7% 1.50% 1.7% 2.1%

CPI Inflation

4.0% 5.20% 5.4% 5.4%

Source: MFMA Circular 94

D. Proposed Tariff increases 2019/2020

The recommended tariffs for approval after community participation: Electricity: 13% Pending NERSA approval Property Rates 5.2%

Sewerage: 5.2% Water 5.2%

Refuse removal: 5.2% Other income: 5.2%

Assessment rates will increase as per factor, as a new valuation roll will be implemented as from 1 July 2019.

All documentation related to the guideline determination is available on the NERSA

website (http://www.nersa.org.za/).

E. Capital Budget Summary

A summary of the proposed capital budget is set as follows: Capital projects are to funded from the following funding sources:-

http://www.nersa.org.za/


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Detailed capital project

The following are capital projects to be implemented by Emakhazeni Local Municipality during the financial year 2019/2020.


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F. Operating Revenue Framework

Revenue by source The following table and graph represents the percentage of the proposed budget of revenue as per source:

Property rates 21%

Electricity revenue 29%

Water revenue 7%

Sanitation revenue 5%

Refuse revenue

4%

Rental of facilities 1%

Interest - external investments 1%

Interest - outstanding debtors 1%

Fines 6%

Licences and permits 0%

Transfers and subsidies 24%

Other revenue 1%

Revenue Graph


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The following table gives a breakdown of the main revenue categories for the 2019/2020 financial year

Major sources of Revenue:

a) Property Rates

It must be noted that Emakhazeni Local Municipality is in the process to develop a new

valuation roll. Municipality expects to bill R 61 434 million for the year 2019/2020 on Property

Rates, also the municipality will be implementing the new valuation roll effective from 01 July

2019.

b) Service charges

Service charges comprises of the following water, refuse removal, sanitation. All services charges excluding electricity charges will increase by 5.2% as per the projected inflation rate and then electricity will increase by 13% pending NERSA approval. With these increases the services charges for 2019/2020 budget will amount to R 45 031 million and electricity to R 82 548 million.

c) Operational Transfers and grants Grants allocation are as per DoRA published by the National Treasury.


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G. Operating Expenditure Framework Expenditure per category

The following graph represents the percentage of the proposed budget of expenditure as per category:

The following table gives a breakdown of the main expenditure categories for the 2019/2020 financial year

Employee related costs 33%

Remuneration of councillors

3%

Debt impairment 12% Depreciation

15%

Finance charges 1%

Bulk purchases 16%

Other materials 4%

Contracted services 3%

Other expenditure 13%

Expenditure Graph


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The full detailed operating Budget 2019/2020 is attached with the Executive summary inclusive.

a) Employee related costs

Employee related costs

The current Salary and Wage Collective Agreement covers a period period 01 July 2018 to 30 June 2021 which indicate that for the financial 2019/2020 salaries should be increased with CPI plus 1.5% which is 6.7% Remuneration of councilors Municipalities are advised to budget for the actual costs approved in accordance with the Government Gazette on the Remuneration of Public Office Bearers Act: Determination of Upper Limits of Salaries, Allowances and Benefits of different members of municipal councils published Draftly between December and January by the Department of Cooperative Governance. Any overpayment to councilors contrary to the upper limits as published by the Minister of Cooperative Governance and Traditional Affairs will be irregular expenditure in terms of section 167 of the MFMA and must be recovered from the councilor(s) concerned.

b) Debt Impairment

A provision for debt impairment is made for 2019/2020 to the amount of

R37 592 million. This forms one of the non-cash items and was informed by

outstanding debtors amounting R 215 029 million and the audited performance for

2017/2018.

c) Depreciation

Depreciation and asset impairment has been informed by the Municipality’s Asset

Management Policy. Depreciation is widely considered a proxy for the

measurement of the rate asset consumption. Budget appropriations in this regard

total is R 49 315 for the 2019/2020 Budget.

d) Finance charges

Finance charges consist primarily of the payment of interest on arrears creditors’

accounts. Municipal revenue and cash flows are expected to remain under pressure

due to high balance in Eskom debt which cause the finance charges for the

2019/2020 budget to be R 4 million.

e) Contracted Services

Contracted services expenditure totals to R 8 400 million for the 2019/2020 budget.

This expenditure is primarily for security services.


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f) Repair and Maintenance

Repair and Maintenance comprise of amongst other the purchase of materials for

maintenance that totals to R 11 331 million for the 2019/2020 budget.

g) Other expenditure

Other expenditure comprises of various line items relating to the daily operations of the municipality and totals to R 43 080 million for the 2019/2020 budget. The draft budgeted figures reflected a deficit of R 34 888 million which includes the non-cash items such as depreciation and debt impairment amounting to R 86 908. The operating revenue reflect a surplus of R 52 019 million excluding the non-cash items.

Cash flow projections

Assumptions used for the cash flow projections was based on the average collection rate for the past seven months. The average collection for the past seven months was 80%, however it be noted that the average collection included collection on arrears debt.

The following tables shows the detailed cash flow calculations


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Financial Ratios Remuneration(Employee related costs and councilors remuneration) as a 33% of Total Operating Expenditure

The norm should be 25% and 40%. For Emakhazeni Local Municipality, the current norm is 37% which is within the norm. Own source revenue to Total Operating Expenditure (Including Agency Revenue)

Own source revenue( Total Revenue-Grants and subsidies-Public Contributions and Donations)/ Total Operating revenue Currently there is no norm. Currently 76% of the municipal budget is funded from own source.


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ANNUAL BUDGET TABLES - PARENT MUNICIPALITY


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ELM TARIFF LIST Please refer to attachment named " Proposed Tariffs 2019/20.

COUNCIL RESOLUTION Please refer to attachment named " Council Resolution 2019/20

BUDGET RELATED POLICIES Please refer to attachment named "Approved Draft Budget Related Policies 2019/20.

MUNICIPAL MANAGER'S QUALITY CERTIFICATE Please refer to attachment named "Quality Certificate Draft Budget 2019/20.

BUDGET LOCKING CERTIFICATE Please refer to attachment named "Locking Certificate Draft Budget 2019/20.

OTHER SUPPORTING DOCUMENTS Please refer to attachment named "A-schedule Draft Budget 2019/20.


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