RELATIONSHIP BETWEEN THE BUDGET AND THE IDP 28 FEBRUARY 2017 1
Contents Introduction Legislative Requirements Inc. MSCOA Why MSCOA Local Government Accountability Cycle Budget Process and linkage to IDP IDP Strategic Focus Areas SDBIP Challenges in preparing Budgets National Treasury Benchmark 2
Legislative Mandate Section 216(1) of the Constitution states that: national legislation must establish a national treasury and prescribe measures to ensure both transparency and expenditure control in each sphere of government by introducing: i. GRAP ii. iii. Uniform expenditure classification SCOA/General Ledger Uniform treasury norms and standards Section 168 of the MFMA states that: the Minister of Finance, acting with the concurrence of the cabinet member responsible for local government, may make regulations for, among other things (p) any other matter that may facilitate the enforcement and administration of the Act SCOA to be prescribed ito section 168 of the MFMA to ensure compliance by ALL MUNICIPALITIES and MUNICIPAL ENTITIES. SCOA Regulations gazetted on 22 April 2014 Impact of non compliance NT can withhold Equitable Share to the municipality
Why mscoa? 278 different municipal charts of accounts (COA) aggregation of budget and other information extremely difficult with inconsistent use of account labels and definitions across municipalities Quality of municipal information is compromised due to lack of uniform classifications for revenue and expenditure items (posting level) Lack of consistent information across the IDP, Budget, SDBIP, IYM and AFS Compromises monitoring and oversight by Councils, DCoG, treasuries and legislatures. Compromises government s ability to formulate coherent policies affecting local government, and its ability to use the budget as a redistribution tool to address poverty and inequality Municipalities continuously change and amend detail COA No consistency year-on-year 4
MSCOA Background The object of these Regulations is to provide for a national standard for the uniform recording and classification of municipal budget and financial information at a transaction level by prescribing a standard chart of accounts for municipalities and municipal entities mscoa is not only a re-creation of the municipal Votes/GL structure but also a change in business processes A vote will now compromise 7 segments which need to be budgeted against and transacted against. Posting level transactions will need to be at the segment level going forward. No mapping permitted as mscoa requires transacting on all segments and is not reporting. mscoa will enable uniform information sets recorded in terms of national norms and standards across the whole of government for the purposes of national policy coordination and reporting, benchmarking and performance measurement in the local government sphere.
Segments of mscoa Standard Classification Function Segments Regional Indicator Costing Project Item
What s budgeting Budgeting is a careful juggling/balancing act Input from all stakeholders considered are considered and prioritized based on the IDP In compliance with the Municipal Structures Act and MFMA a the City s budget must be informed by and aligned to the IDP objectives The budgetary allocations for both capital and operating expenditure needs to be undertaken in a manner that will not only ensure that the IDP outcomes are achieved but also leads to the city s vision being realised It is a process not an event and requires continuous improvement Balanced and sustaiable budgets
L IDP Local Government Accountability Cycle 5 Year Strategy BEPP Spatial transformation plan & process Budget 3 Year Budget SDBIP The IDP determines the strategy, objectives and service delivery targets for the municipality mscoa, creates the environment to enable the execution of the accountability cycle, from IDP to Annual Report mscoa, if well implemented and managed, after future phases have been completed, will provide direct evidence in dashboard format, of the achievement of IDP strategy, objectives and service delivery targets in the municipality Annual Limits Plan to unauthorised expenditure. Implement IYR Monitoring & Council Oversight AFS Oversight Standard Chart of Accounts Improved Service Delivery Annual Report 8
STRATEGIC PLANNING AND THE IDP By 2030 ethekwini will be Africa s most caring and liveable city 9
ALIGNMENT OF THE BUDGET TO THE IDP IDP derived from LTDF IDP 8 point plan of action Aligned to budget via programs and action plans NOTE: IDP COVERED IN A SEPARATE PRESENTATION By 2030 ethekwini will be Africa s most caring and liveable city 10
From Vision to Action action Where we want to be What we have to do How we are going to do it A Plan to make it happen A defined Vision Refining and refocusing or Vision to help guide action: Making hard choices Deciding on the platform to build in order to achieve the prosperity we desire Development Principles Screening all actions to promote only development that supports our core principles and values 8 action plans 8 city plans with key focus areas that outline a set of programmes and projects with budgets and timeframes for delivery VISION CHOICES MADE ethekwini s By 2030 ethekwini will be Africa s most caring and livable city Creating Sustainable Livelihoods A Socially Cohesive City A Financially Sustainable City Creating a Safer City Promoting an Accessible City Environmentally Sustainable City EIGHT POINT PLAN
IDP 8 POINT PLAN ETM 8 Point Plan 8 Point plan Develop and Sustain our Spatial, Natural and Built Environment Developing a Prosperous, Diverse Economy and Employment Creation Creating a Quality Living Environment Fostering a Socially Equitable Environment Creating a Platform for Growth, Empowerment and Skills Development Embracing out Cultural Diversity, Arts and Heritage Good Governance and Responsive Local Government Financially Accountable and Sustainable City
Ward workshops Other workshops PROCESS : BUDGET LINK TO IDP IDP Approval & Budget Review Other input (e.g. Sectors) STEP 1 Assess previous year s spend Commitments Approve budget Principles (capital and operating), which provide guidance on how allocations are made and budgets are spent. Principles are drawn from intent of IDP. STEP 2 Key projects prioritised as identified in the IDP and allocated budgets (if not previously budgeted as part of MTEF) Mostly capital, but also operating where it is project related
PROCESS : BUDGET LINK TO IDP STEP 4 STEP 3 8 Programme meetings led by plan owners ABM budgeting Community needs budgeting Discussion on first draft capital budget STEP 5 Budget workshop with politicians STEP 6 Budget Workshop input from all stakeholders (business, community based organisations, ward committees, etc)
PROCESS : BUDGET LINK TO IDP STEP 7 Review and prioritise all requests Finalise impact of tariff increases STEP 8 Approval of Draft Budget by Council Feedback/presentation to business, community based organisations and wards STEP 9 Approval of final budget by Council Prepare SDBIP Quarterly monitoring
BUDGET ALLOCATION IDP STRATEGIC FOCUS AREAS R 000 By 2030 ethekwini will be Africa s most caring and liveable city 16
Example of Linkage of IDP to SFA and Budgets Key Performance Area 8 point plan Strategic Focus Area Operational Budget Capital Budget Strategic Priority Municipal Institutional Development and Transformation Basic Service Delivery Creating a Platform for Growth, Empowerment and Skills Development Develop and Sustain our Spatial, Natural and Built Environment Creating a Quality Living Environment Human Capital Development Develop City as a learning City Healthy and productive employees Develop, manage and regulate the Built and Natural Environment Climate protection planning Meet infrastructure and household service needs and backlogs 183 194 3 297 Socially Cohesive City 101 417 271 089 1 500 447 461 2 825 Environmentally sustainable city 167 001 19 916 787 5 242 417 Accessible City Good Governance and Public Participation Address community service backlogs Develop, manage and regulate the Built and Natural Environment Coordinate and Implement INK projects 1 759 612 227 397 Environmentally sustainable city All KPAs
Example Linkage of IDP to SFA and Budgets AligEnt Key Performance Area 8 point plan Strategic Focus Area Operational Budget Capital Budget Strategic Priority Fostering a Socially Promoting the safety of 1 653 997 79 303Safe City Equitable Environment citizens Promoting the health of citizens 682 405 34 941 Local Economic Development (LED) Financially Accountable and Sustainable City Developing a Prosperous, Diverse Economy and Employment Creation Durban Energy Office Providing Economic Leadership and Intelligence Facilitating Private Sector Investment and Partnerships Leverage, Influence and Facilitate Key Infrastructure Development and Maximise the Local Benefit Facilitating Development in Priority Nodes and Corridors Enterprise and Sector Development Developing a Competitive Tourism Sector Facilitating Sustainable Livelihoods Environmentally Sustainable City 964 383 383 454Creating Sustainable Livelihoods
SERVICE DELIVERY AND BUDGET IMPLEMENTATION PLAN (SDBIP) The MFMA requires municipalities to prepare a service delivery and budget implementation plan as a strategic financial management tool to ensure that budgetary decisions that are adopted by municipalities are aligned with the IDP strategy The SDBIP serves to provide an implementation plan that covers all functional areas of the municipality and focuses on actual implementation and delivery with mechanisms for regular review The primary objective of the SDBIP is to strengthen local accountability and governance and improve capital, as well as operational, planning, spending and service delivery To avoid issues related to budgets being underspent and not achieving the programme s desired outcomes an outline of quarterly projections of service delivery targets and performance indicators are also included 19
Macro Challenges Responding to the current economic climate Sustainability of housing provision from current financing sources Infrastructure and service delivery backlogs Bulk purchase costs Minimal level of growth major costs to unblock development return on investments Unaccounted for water and theft of electricity Challenges relating to the drought Poor growth rate base and services Free Basic Services Unemployment sustaining existing collection rates Pace of economic transformations work stoppages Service delivery demonstrations By 2030 ethekwini will be Africa s most caring and liveable city 20
ETM - Challenges in preparing budgets Competing for resources all departments need funds Expenditure constraints never sufficient funds Historical backlogs regarding services High Expectation from communities for services Need for new infrastructure versus maintaining existing versus historical backlogs regarding services Funds allocated inability to spend budget Outputs to achieve outcomes are also not clearly understood Managed on a micro rather than macro perspective 21
NATIONAL TREASURY BENCHMARK ENGAGEMENT By 2030 ethekwini will be Africa s most caring and liveable city 22
Ethekwini - Operating expenditure framework Notwithstanding that the City is financially sound, the following challenges need to be acknowledged: Responding to the current economic climate Sustainability of housing provision from current financing sources Infrastructure and service delivery backlogs Bulk purchase costs Minimal level of growth major costs to unblock development return on investments Unaccounted for water and theft of electricity Challenges relating to the drought Poor growth rate base and services Free Basic Services Unemployment sustaining existing collection rates Pace of economic transformations work stoppages Service delivery demonstrations 23
Ethekwini - Conclusion Credibility Budget assumptions are credible Revenue and expenditure Budget certain line items may be over and understated (not material) Budget is multi-year Relevance Budget alignment to the SDF, IDP, BEPP has been verified Sustainability Cash flow sustainable over MTREF Adequate cash coverage Collection rate highest of all Metros The budget is sustainable over the MTREF The budget over the MTREF is cash backed and funded The budget is therefore credible, reliable and funded and sustainable over the MTREF in terms of Section 18 of the MFMA. However, it is evident that the 2016/17 MTREF reflects the reality of the current budgetary pressures 24
THANK YOU 25