Note to editors: The following statement was distributed at a press conference held in Johannesburg today by DA Mayoral Candidate for Johannesburg Mmusi Maimane, DA Federal Chairperson Wilmot James MP and DA councillor Victor Penning.
Today, I am making two documents available to the public and the media from the Johannesburg City Council. These documents are a cash flow management report and a report on revenue collection for the last six months. The reports can be downloaded here.
Both documents should be public. They detail information to which the public should by right have access. But they have been concealed by the City. We are thus today putting them in their rightful place: before the public and open to scrutiny and oversight. We believe there are other such documents and all should be made available to the public, as they were intended to be.
The reports detail Johannesburg's financial position, leading up to the end of March 2011. The contents of the reports are cause for serious concern. They paint a picture of an administration operation with huge deficits and suggest Johannesburg is unable to properly collect and manage its revenue - a general financial situation that is both untenable and, in turn, will have significant and negative consequences for the ability of this metro to deliver those services expected of it. As Johannesburg's debt continues to rise, the city has been forced to spend more and more money on paying debt servicing costs, leaving less money for the provision of services to the people of this city.
If Johannesburg is going to be able to deliver services, especially to the poor, its finances must be properly managed. Central to this is a functioning revenue collection system, the financial lifeblood that fuels the City's programmes and services.
I am making the reports public for two reasons:
First, because the audited financial statements for the City of Johannesburg, as contained in the City's annual report, have still not been tabled before the council. Johannesburg is the only metro in this situation and there is every reason to believe the nature of its financial situation has been shielded from public scrutiny because we are currently in an election period. The people of Johannesburg deserve to know the facts.
Second, because it is quite clear from the reports we are releasing today that there are several other significant documents that provide a fuller picture as to the extent of the problem. By making these documents available, it is my hope the administration will be compelled to put all the facts before the public.
What the report says
In general terms, the report reveals that the City of Johannesburg has been operating at a significant deficit for a sustained period of time, as are those public entities reporting to it. As a result, the City has had to put in place a series of emergency measures to raise capital and manage its deficit. These measures have had some limited success over the past few months, but the City still faces a serious and deeply significant debt problem, one which is now threatening its ability to deliver those services expected of it. The cash management report states that "From the analysis it is clear that CoJ operations are at risk of sustainability if projections turn out worse than expected."
The facts as contained in the reports are as follows:
Deficit spending: For the past financial year, Johannesburg has been operating with significant financial deficits - meaning that the municipality has been accumulating a growing stock of debt. The reason for this is the city's failure to properly collect revenue. The cash flow management report, for example, indicates that expenditure outstripped inflows by R188 million during January 2011 alone. In total, the net deficit for the period between July 2010 and January 2011 is projected to be roughly R2.842 billion, with the report stating that "the amount of R2.842 billion equates to total (external) funding of operations as at 31 January 2011".
MOE cash flow problems: Many of Johannesburg's key municipal-owned entities (MOEs) have recorded negative cash movements, and therefore losses, in the months between July 2010 and January 2011. Some of the key MOEs that the cash flow management report mentions are:
a) City Power, which has accumulated a loss of R741 million in July 2010, followed by another loss of R676 million in August 2010 and another loss of R166.9 million in September 2010. The report states that "the negative cash flow movement... is mainly due to an undercollection of revenue".
b) Joburg Water, which recorded a R204.3 million loss in July 2010, in addition to a R94.3 million loss in August 2010. The report states that these losses were "mainly due to under collections which were R53 million below budget, and bulk purchases were R173 million above budget."
c) Joburg Roads, which recorded losses of R112 million in July 2010. The report states these losses were "mainly driven by general expenses which were R73 million above budget."
In all of these cases, the cash management report states that the losses were incurred either due to under-collection of revenue or overspending of budgets. This suggests that significant challenges exist with regards to financial management within MOEs.
The reasons for the problem
Poor revenue collection: The revenue collection report indicates that the City is collecting significantly less revenue than it needs to. The document indicates that for the year to date, only 86.3% of revenues have been collected. Johannesburg's budget and financial projections for the current financial year have been premised on a 94% collection ratio. This means that revenue collection is coming in at a much lower level than what was originally expected - which helps to explain why the city has encountered significant cash flow challenges as set out by the cash management report. Although the document does not allude to it directly, it would appear that revenue collection fell furthest behind in the months that the billing crisis was most acute. There is therefore a suggested causality between the current administration's inability to properly manage the billing system and the failure to collect enough revenue.
Exhaustion of debt reserves: According to the cash management report, Johannesburg has access to roughly R2.965 billion in external debt financing from commercial and other banks. This acts as a potential "overdraft" facility that the municipality can tap into when needed. It is concerning to note that during the month of January 2011, the city had utilised R2.960 billion of this "overdraft" facility to cover operating expenditure. This means that the City had come within R5 million of exhausting all available external funding sources - which underscores the severe financial pressure the municipality was under during that time.
The use of state grants to repay debts: The cash management report states that the city of Johannesburg received R1.479 billion as an operational grant from the state. Of this, R1.314 billion was spent on repaying some of the debt that the municipality had accumulated over the last year. The report does not elaborate further on this point, and therefore, with only these documents at our disposal, we cannot make an informed judgment about the utilisation of the state's operational grants. It is, however, concerning that future operational and transportation grants will be ring-fenced for the repaying of debt as per the report.
When read in conjunction, these facts clearly indicate that all is not well with regards to financial management in Johannesburg - and these failures have very real implications for service delivery to the people. If a municipality is not able to bill residents properly, collect revenue or control expenditure, less money remains available for the delivery of basic services to the people.
The report makes reference to two annexures. These documents, copies of which the DA has not seen, are critical to understand both the extent of the problem and the full picture. The DA believes the City Council needs to make all information on the state of the City's finances available to the public. Any government is accountable to the people it serves and for too long the City has kept the facts sealed behind closed doors. It is time for it to be open and honest with the people of Johannesburg.
The consequences
There are a number of consequences to not being able to properly fund government programmes, of which the most obvious is a decline in service delivery. But it also has a direct and negative effect on rates, which are inevitably increased to make up for any shortfall. A comparison between Cape Town, which under the DA has an excellent revenue collection record, and Johannesburg makes the case:
Because Cape Town is in a healthier financial position than Johannesburg, it is able to shield its residents from the recent Eskom tariff increases to some extent, whilst Johannesburg has had to increase service charges by much higher rates to help pay off the increasing debt burden of the City. The increases in service rates in the two cities compare as follows:
In Johannesburg, service charges for electricity are rising 35% in 2011/12; in Cape Town, they are rising 19.9%.
In Johannesburg, service charges for water are rising at 13% in 2011/12; in Cape Town, they are rising 8.3%.
In Johannesburg, service charges for refuse collection are rising at 6% in 2011/12; in Cape Town, they are rising 5.5%.
In Johannesburg, service charges for property rates are rising at 6.7% in 2011/12; in Cape Town, they are rising 5.9%.
The fact is that, because of prudent financial management, Cape Town is able to deliver more services to more people, at more affordable rates - as indicated by government's own Universal Household Access to Basic Services report.
How Johannesburg compares to Cape Town
The information in these documents showcases the stark contrast between Johannesburg and Cape Town's approaches to financial management. In Cape Town, this information has been publicly released within the accepted timeframe, whilst in Johannesburg the City Council has kept this information hidden for as long as possible.
The Johannesburg cash flow management report furthermore states that "a closing deficit bank balance of R1.45 billion is projected". It would seem that this is mostly due to the failure of Johannesburg to collect revenues effectively. In Cape Town, similar documents indicate that the operational budget is balanced, even as Cape Town has spent R4.244 billion on capital expenditure, and 94% of revenues are collected in line budgets. That is the difference a DA administration makes. Where the DA governs, we effectively manage our financial affairs and this ensures that more money is available for the development of infrastructure and the delivery of services to the people.
Issued by the Democratic Alliance, April 21 2011
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