UNPACKING INFRASTRUCTURE DEVELOPMENT SPENDING IN LOCAL GOVERNMENT MUNICIPAL INFRASTRUCTURE SUMMIT 25 MAY 2015
OUT LINE Municipal Infrastructure Matrix Access to Basic services backlogs Capital Budget Funding Capital Expenditure Capital expenditure on New Assets Capital expenditure on refurbishment Expenditure on repairs and maintenance Under spending on repairs and maintenance Infrastructure challenges in local government 2
Municipal Infrastructure Matrix 3
ACCESS TO BASIC SERVICES BACKLOGS South Africa: Provincial Backlogs: Access to services: 2011 Households without access Households without access Households without access Electricty Water Sanitation Number % Number % Number % Eastern Cape 421,629 25.0 540,838 32.1 677,269 40.1 Free State 82,815 10.1 39,164 4.8 194,173 23.6 Gauteng 492,662 12.6 180,475 4.6 433,304 11.1 Kw azulu-natal 562,183 22.1 549,774 21.6 820,897 32.3 Limpopo 180,606 12.7 386,445 27.3 881,665 62.2 Mpumalanga 146,117 13.6 205,910 19.1 460,036 42.8 North West 169,589 16.0 173,853 16.4 450,551 42.4 Northern Cape 44,152 14.6 27,768 9.2 73,269 24.3 Western Cape 108,018 6.6 53,325 3.3 146,774 9.0 Total / South Africa 2,207,771 15.3 2,157,552 14.9 4,137,938 28.6 4
2014/15 CAPEX BUDGET OF ALL MUNICIPALITIES Capital Budget for Metros Own Revenue 25% Other 2% Capital Budget for Non-metros Own Revenue 22% Other 2% Borrowing 1% Capital Budget for Districts Own Revenue 8% Other 6% Borrowing 28% Grants 45% Borrowing 11% Grants 65% Grants 85% Municipalities remain largely dependent on government transfers. Over the 2015 MTEF period; R313.7 billion will be transferred directly to local government and a further R31.9 billion has been allocated to indirect grants. the local government equitable share, including the RSC/JSB levies replacement grant and special support for councillor remuneration and ward committees, amounts to R158.6 billion- R50.2 billion in 2015/16, R52.9 billion in 2016/17, and R55.5 billion in 2017/18.
Capital Budget Funding Table: Municipal capital funding, 2010/11-2016/17 R millions Source of finance 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 Outcome Pre-audit Outcome Medium- term estimates National Gov ernment 17 269 22 882 28 510 21 655 33 137 36 762 36 665 Prov incial Gov ernment 2 373 1 215 2 380 1 343 1 946 1 824 1 832 District Municipality 39 150 46 17 82 20 23 Other transfers and grants 296 1 760 154 71 298 255 230 % Average annual growth 2010/11-2013/14 2013/14-2016/17 Transfers recognised - capital 19 977 26 007 31 090 23 087 35 464 38 860 38 749 4.9% 18.8% Public contributions and donations 900 1 776 2 442 1 773 1 441 1 166 1 063 25.4% -15.7% Borrow ing 8 741 4 795 7 299 6 805 12 038 11 705 9 866-8.0% 13.2% Internally generated funds 5 948 7 339 7 613 10 163 13 595 13 594 13 738 19.5% 10.6% Total Source of Funding 35 566 39 916 48 445 41 828 62 539 65 325 63 416 5.6% 14.9% percentage of source of finance Transfers recognised - capital 56.2% 65.2% 64.2% 55.2% 56.7% 59.5% 61.1% Public contributions and donations 2.5% 4.4% 5.0% 4.2% 2.3% 1.8% 1.7% Borrow ing 24.6% 12.0% 15.1% 16.3% 19.2% 17.9% 15.6% Internally generated funds 16.7% 18.4% 15.7% 24.3% 21.7% 20.8% 21.7% Total Source of Funding 100% 100% 100% 100% 100% 100% 100% Source: National Treasury local government database 6
Capital Budget Funding (cont) In the previous year municipal own capital contributions has been more then the capital transfers received but it has not been the case since 2009/10. In 2013/14, municipalities allocated R18.7 billion to their capital budgets from internally generated funds. This source of funding is set to increase to R27 billion by 2014/15 but the decline over the 2014 MTEF in municipalities own contributions to capital expenditure both by way of internally generated funds and funds from borrowing is cause for concern. Municipalities are becoming increasingly dependent on national infrastructure grants to fund their capital budgets. This is not a sustainable trend, because it means the tariffs for the main municipal services are not covering the infrastructure costs of providing those services. The decline over the 2014/15 MTEF in municipalities own contributions to capital expenditure can be attributed to municipalities are finding it more difficult to generate surpluses on their operating budgets due to various cost pressures. 7
Capital Expenditure Table : Municipal capital expenditure, 2010/11-2016/17 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 2016/17 % Average annual growth Pre-audit 2010/11-2013/14- Outcome Medium -term estimates R million Outcome 2013/14 2016/17 Governance and Administration 4 360 4 158 4 877 7 576 6 206 4 325 4 131 20.2% -18.3% Ex ecutiv e & Council 2 302 1 258 2 220 4 072 1 500 1 685 1 753 20.9% -24.5% Budget & Treasury Office 598 705 736 1 370 953 829 825 31.8% -15.6% Corporate Serv ices 1 460 2 196 1 921 2 134 3 753 1 811 1 553 13.5% -10.0% Community and Public Safety 3 692 4 967 5 419 4 578 9 211 9 505 9 557 7.4% 27.8% Community & Social Serv ices 1 057 1 365 949 584 1 757 1 592 1 733-17.9% 43.7% Sport And Recreation 757 591 1 196 936 1 363 1 200 1 111 7.4% 5.9% Public Safety 494 463 603 396 950 918 825-7.1% 27.7% Housing 1 177 2 355 2 454 2 530 4 859 5 500 5 606 29.1% 30.4% Health 208 193 216 131 281 295 282-14.1% 29.0% Economic and Environmental Services 11 103 12 946 17 199 11 450 19 063 20 731 20 458 1.0% 21.3% Planning and Dev elopment 2 729 2 062 3 004 2 188 2 710 2 914 2 703-7.1% 7.3% Road Transport 8 333 10 823 14 101 9 184 16 166 17 676 17 640 3.3% 24.3% Env ironmental Protection 41 61 94 78 187 142 115 23.4% 14.1% Trading Services 16 836 17 566 20 565 18 148 27 788 30 472 29 012 2.5% 16.9% Electricity 4 921 5 364 6 383 5 578 8 442 9 268 8 342 4.3% 14.4% Water 7 908 6 105 8 202 8 023 12 281 14 273 13 766 0.5% 19.7% Waste Water Management 3 056 5 088 5 040 3 884 5 583 5 636 5 677 8.3% 13.5% Waste Management 951 1 009 939 663 1 481 1 295 1 227-11.3% 22.8% Other 272 280 386 76 270 291 258-34.7% 50.7% Total Capital Expenditure - Standard 36 262 39 916 48 445 41 828 62 539 65 325 63 416 4.9% 14.9% 8
Capital Expenditure (cont) Most municipalities capacity to budget reliably for infrastructure spending is weak. This is reflected by the declining allocations for future years, whereas in practice these will in all probability increase. This is because most municipalities only plan their infrastructure spending within a one-year time horizon. Even then the quality of planning is poor, resulting in significant under spending of capital budgets. Infrastructure budgets for electricity have been growing, but not as quickly as required given the backlogs. The hosusing expediture grew at an average rate of 29.1% between 2010/11 and 2013/14. 9
Capital expenditure on New Assets 10
Capital expenditure on refurbishment (cont) 11
Expenditure on repairs and maintenance 12
Infrastructure challenges in local government The most serious misalignment in municipal budgets probably involves the underfunding of repairs and maintenance. When a municipality experiences any kind of financial stress, invariably the first category of expenditure to be cut is repairs and maintenance. This is because the impact of not spending on this area is not visible and not obvious in the short term. However, the medium to long term consequences of under spending on repairs and maintenance include: deteriorating reliability and quality of services move to more expensive crisis maintenance, rather than planned maintenance increasing the future cost of maintenance and refurbishment shortening the useful life of assets, necessitating earlier replacement 13
Infrastructure challenges in local government The balance between operating budgets and capital budgets must be examined by municipalities. Operating budgets should be structured to generate surpluses required to fund infrastructure. Creditworthy municipalities also need to explore opportunities for leveraging private finance for the expansion and delivery of services, especially those that support local economic development. There needs to be effective spatial planning and land use regulations governing development. Implementing systems of asset management and improving levels of spending on repairs and maintenance. To assist in financing this spending, tariffs for the trading services must be cost reflective, incorporating all input costs associated with the production of those services. 14
THANK YOU 15