PART 1 ANNUAL BUDGET
1.6 CAPITAL EXPENDITURE FRAMEWORK
The following table provides a breakdown of budgeted capital expenditure by vote:
Table 15: 2013/14 Medium-term Capital Budget Per Vote
Page | 28 The capital budget decreased by 23% compared to the 2012/13 revised budget. The decrease is attributable to the 2011/12 approved roll-overs being appropriated in the 2012/13 financial year.
The capital programme is R751 million in the 2013/14 financial year and then R797 million and R897 million in the 2014/15 and 2015/16 financial years respectively.
TABLE 16 – List of Key Projects Per Service
Directorate Project Name Source of Funding
2013-2016 TOTAL
Housing
Chief Operations Officer Reeston Phase 3 Stage 2 -P1 & P3 USDG 13 730 800 Chief Operations Officer Second Creek (Turn Key) - P1 & P3 USDG 8 100 000 Chief Operations Officer Sunny South - P1 & P3 USDG 18 000 000 Chief Operations Officer Reeston Phase 3: Stage 2 - P1 & P3 HSDG 27 684 600 Chief Operations Officer Reeston Phase3 Stage 3 - P1 & P3 HSDG 40 000 000
TOTAL : CHIEF OPERATIONS OFFICER 107 515 400
Electricity
Engineering Services
Bulk Electricity Infrastructure Upgrade(Ring-
Fenced 2% increase from Tarriff) Own Funds 60 000 000
Engineering Services INEP Electrification Programme DoE(INEP) 101 329 000 Engineering Services
Electrification of Informal Dwelling Areas within
BCMM USDG 30 000 000
191 329 000
Roads
Engineering Services Gonubie Main Road USDG 90 000 000
Engineering Services Upgrading of Mdantsane Roads USDG 190 500 000 Engineering Services West Bank Restitution - Water USDG 28 000 000 Engineering Services BCMM Urban Roads Upgrade USDG 125 000 000 Engineering Services Rehabilitation of Rural Roads USDG 80 000 000 Engineering Services Quinera Arterial Road USDG 55 000 000
568 500 000
Waste Water
Engineering Services
Waste Water Infrastructure Capacity (KWT
Regional Scheme) USDG 145 000 000
Engineering Services Reeston Phase 3 Bulk Services Sewer USDG 120 000 000
Engineering Services
Diversion of Amalinda and Wilsonia effluent to
Reeston USDG 85 000 000
Engineering Services
Sanitation backlog eradication - (Coastal Midland
& Inland) USDG 118 611 892
468 611 892
Page | 29
Directorate Project Name Source of Funding 2013-2016
TOTAL
Water
Engineering Services KWT and Bisho Infrastructure(Water) USDG 60 000 000 Engineering Services Augmentation of Water Treatment Capacity USDG 24 000 000 Engineering Services Upgrade Water Networks in terms of
Densification & Augmentation USDG 20 000 000
Engineering Services
Water Supply Coastal Areas and backlog
eradication USDG 20 000 000
124 000 000
Directorate of Development
Planning Bus Rapid Transit
Public Transport Infrastructure and
Systems Grant 70 000 000 Directorate of Development
Planning
Economic Development Infrastructure
Programme USDG 30 000 000
Directorate of Development
Planning Land Acquisition USDG 25 500 000
125 500 000
Environmental Services
Community Services
Development & Upgrading of Cemetries(Inland, Midland & Coastal)
USDG 32 040 943
32 040 943
Amenities
Community Services Development and Upgrading of Community Halls USDG 20 000 000 Community Services Construction and Rehabilitation of Waste Cells USDG 50 710 100
Community Services
Redevelopment of Mdantsane NU 2 Swimming
Pool and Upgrading of Waterworld USDG 40 000 000 Community Services Upgrading of Social Amenities USDG 20 000 000
TOTAL : COMMUNITY SERVICES 130 710 100
Public safety
Health and Public Safety KWT Traffic Building USDG 5 500 000 Health and Public Safety Closed Circuit Television Network - CCTV Own Funds 4 500 000 Health and Public Safety Construction of New Fire Station USDG 10 500 000
TOTAL : HEALTH AND PUBLIC SAFETY 20 500 000
TOTAL : MAJOR CAPITAL PROJECTS 1 768 707 335
1.7 AN The fol 8 of the 2013/14 current result n BCDA f Table 1
NNUAL BU lowing pag e Municipa
4 budget a tly not ope no budget for operatio 7: MBRR T
UDGET TA ges presen l Budget a and MTRE erational as has been onal costs Table A1 - B
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constitute allocated a A21).
Page | 30 of section
BCMM’s BCDA is ed. As a a grant to
Page | 31 Explanatory notes to MBRR Table A1 - Budget Summary
1. Table A1 is a budget summary and provides a concise overview of the City’s budget from all of the major financial perspectives (operating, capital expenditure, financial position, cash flow, and MFMA funding compliance).
2. The table provides an overview of the amounts approved by Council for operating performance, resources deployed to capital expenditure, financial position, cash and funding compliance, as well as the municipality’s commitment to eliminating basic service delivery backlogs.
3. Financial management reforms emphasises the importance of the municipal budget being funded. This requires the simultaneous assessment of the Financial Performance, Financial Position and Cash Flow Budgets, along with the Capital Budget. The Budget Summary provides the key information in this regard:
a. The operating surplus/deficit (after Total Expenditure) is positive over the MTREF b. Capital expenditure is balanced by capital funding sources, of which
i. Transfers recognised is reflected on the Financial Performance Budget;
ii. Borrowing is incorporated in the net cash from financing on the Cash Flow Budget
iii. Internally generated funds are financed from a combination of the current operating surplus and accumulated cash-backed surpluses from previous years. The amount is incorporated in the Net cash from investing on the Cash Flow Budget. The fact that the municipality’s cash flow remains positive, and is improving indicates that the necessary cash resources are available to fund the Capital Budget.
4. The municipality’s budget is fully funded and cash-backed and will be generating a surplus in the two outer years of the MTREF period to ensure a more balanced funding mix for capital projects.
5. Even though the Council is placing great emphasis on securing the financial sustainability of the municipality, this is not being done at the expense of services to the poor. The section of Free Services shows that the amount spent on Free Basic Services and the revenue cost of free services provided by the municipality continues to increase. In addition, the municipality continues to make progress in addressing service delivery backlogs.
Table 1 by stan
8: MBRR T ndard class
Table A2 - B sification)
Budgeted FFinancial PPerformancce (revenuee and expen
Page | 32 nditure
Page | 33 Explanatory notes to MBRR Table A2 - Budgeted Financial Performance (revenue and expenditure by standard classification)
1. Table A2 is a view of the budgeted financial performance in relation to revenue and expenditure per standard classification. The modified GFS standard classification divides the municipal services into 15 functional areas. Municipal revenue, operating expenditure and capital expenditure are then classified in terms if each of these functional areas which enables the National Treasury to compile ‘whole of government’ reports.
2. Total Revenue on this table includes capital revenues (Transfers recognised – capital) and so does not balance to the operating revenue shown on Table A4.
3. As a general principle the revenues for the Trading Services should exceed their expenditures. The table highlights that this is the case for Electricity, and Waste Management function. As already noted above, the municipality will be undertaking a detailed study of this function to explore ways of improving efficiencies and provide a basis for re-evaluating the function’s tariff structure.
4. Water and Sanitation Services that show a deficit between revenue and expenditure are being financed from rates and electricity.
Table 1 by mun
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Page | 34 nditure
enue and
venue and operating s possible ysis of the
Table 220: MBRR TTable A4 - BBudgeted FFinancial PPerformancce (revenuee and expen
Page | 35 nditure)
Page | 36 Explanatory notes to Table A4 - Budgeted Financial Performance (revenue and expenditure)
1. Total revenue is R3.959 billion in 2012/13 and escalates to R5.092 billion by 2015/16. This represents a year-on-year increase of 12.3 per cent for the 2013/14 financial year and 8 per cent for the 2015/16 financial year.
2. Revenue to be generated from property rates is R583.9 million in the 2012/13 financial year and increases to R803.1 million by 2015/16 which represents 14.7 per cent of the operating revenue base of the City and therefore remains a significant funding source for the municipality. It remains relatively constant over the medium-term and tariff increases have been factored in at 11.9 per cent, 11.5 per cent and 11.3 per cent for each of the respective financial years of the MTREF.
3. Services charges relating to electricity, water, sanitation and refuse removal constitutes the biggest component of the revenue basket of the City totalling R1.943 billion for the 2012/13 financial year and increasing to R2.673 billion by 2015/16. For the 2012/13 financial year services charges amount to 49 per cent of the total revenue base and grows by 1 per cent per annum over the medium-term. This growth can mainly be attributed to the increase in the bulk prices of electricity and water.
4. Transfers recognised – operating includes the local government equitable share and other operating grants from national and provincial government. It needs to be noted that although the grants receipts from national government were growing rapidly over the past MTREF, it is decreasing by 10.1 per cent and 1.7 per cent for the two outer years.
5. Bulk purchases have significantly increased over the 2009/10 to 2015/16 period escalating from R593.7 million to R1.332 billion. These increases can be attributed to the substantial increase in the cost of bulk electricity from Eskom and water from Amatola Water.
6. Employee related costs and bulk purchases are the main cost drivers within the municipality and alternative operational gains and efficiencies will have to be identified to lessen the impact of wage and bulk tariff increases in future years.
Table 2 and fun
21: MBRR T nding sourc
Table A5 - B ce
Budgeted CCapital Exppenditure by vote, standard clas
Page | 37 sification
Page | 38 Explanatory notes to Table A5 - Budgeted Capital Expenditure by vote, standard classification and funding source
1. Table A5 is a breakdown of the capital programme in relation to capital expenditure by municipal vote (multi-year and single-year appropriations); capital expenditure by standard classification; and the funding sources necessary to fund the capital budget, including information on capital transfers from national and provincial departments.
2. The MFMA provides that a municipality may approve multi-year or single-year capital budget appropriations. In relation to multi-year appropriations, for 2012/13 R978.1 million has been allocated. This allocation decreases to R752.2 million in 2013/14 and then steadily increases to R897.2 million in 2015/16.
3. The capital programme is funded from national and provincial grants and transfers, public contributions and donations, and internally generated funds from prior and current year surpluses. For 2012/13, capital transfers totals R834.1 million (85.3 per cent) and decreases to R823.8 million by 2015/16 (91.8 per cent). No new borrowing has been provided for.
Table 222: MBRR TTable A6 - BBudgeted FFinancial PPosition
Page | 39
Page | 40 Explanatory notes to Table A6 - Budgeted Financial Position
1. Table A6 is consistent with international standards of good financial management practice, and improves understandability for councilors and management of the impact of the budget on the statement of financial position (balance sheet).
2. This format of presenting the statement of financial position is aligned to GRAP1, which is generally aligned to the international version which presents Assets less Liabilities as
“accounting” Community Wealth. The order of items within each group illustrates items in order of liquidity; i.e. assets readily converted to cash, or liabilities immediately required to be met from cash, appear first.
3. Table A6 is supported by an extensive table of notes (SA3) providing a detailed analysis of the major components of a number of items, including:
• Call investments deposits;
• Consumer debtors;
• Property, plant and equipment;
• Trade and other payables;
• Provisions non-current;
• Changes in net assets; and
• Reserves
4. The municipal equivalent of equity is Community Wealth/Equity. The justification is that ownership and the net assets of the municipality belong to the community.
5. Any movement on the Budgeted Financial Performance or the Capital Budget will inevitably impact on the Budgeted Financial Position. As an example, the collection rate assumption will impact on the cash position of the municipality and subsequently inform the level of cash and cash equivalents at year end. Similarly, the collection rate assumption should inform the budget appropriation for debt impairment which in turn would impact on the provision for bad debt. These budget and planning assumptions form a critical link in determining the applicability and relevance of the budget as well as the determination of ratios and financial indicators. In addition the funding compliance assessment is informed directly by forecasting the statement of financial position.
Table 2
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23: MBRR T
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Table A7 - B
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Page | 41 budget is esult from o 2011/12 sition was eriod. This plemented priorities.
adequate
Table 2
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Table A8 - C
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Page | 42 ciliation
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Table 225: MBRR TTable A9 - AAsset Manaagement
Page | 43
Page | 44 Explanatory notes to Table A9 - Asset Management
1. Table A9 provides an overview of municipal capital allocations to building new assets and the renewal of existing assets, as well as spending on repairs and maintenance by asset class.
2. BCMM has allocated 10% of its capital budget towards asset renewal and 2.9% for Repairs and Maintenance as a percentage of PPE, which is at current replacement cost and this grows to 3.3% of PPE in the outer year.
3. National Treasury has recommended that municipalities should allocate at least 40 per cent of their capital budget to the renewal of existing assets, and allocations to repairs and maintenance should be 8 per cent of PPE. The City is attempting to meet both these recommendations in the future.
Table 226: MBRR TTable A10 -- Basic Serrvice Deliveery Measurrement
Page | 45
Page | 46
PART 2 – SUPPORTING DOCUMENTATION
2.1 OVERVIEW OF ANNUAL BUDGET PROCESS
Overview of the annual budget processThe Budget Steering Committee has been established in terms Section 53 of the MFMA and Municipal Budget Reporting Regulations.
The Budget Steering Committee consists of the City Manager and senior officials of the municipality meeting under the chairpersonship of the MMC for Finance.
The primary aims of the Budget Steering Committee is to ensure:
• that the process followed to compile the budget complies with legislation and good budget practices;
• that there is proper alignment between the policy and service delivery priorities set out in the City’s IDP and the budget, taking into account the need to protect the financial sustainability of municipality;
• that the municipality’s revenue and tariff setting strategies ensure that the cash resources needed to deliver services are available; and
• that the various spending priorities of the different municipal departments are properly evaluated and prioritised in the allocation of resources.
2.1.1 IDP/Budget process overview
In terms of Section 30 of the Municipal Systems Act no 32 of 2000, the Executive Mayor of a municipality must in accordance with S 29-
“(c ) submit the draft plan to the municipal council for adoption by the council ,further Section 53 of the Municipal Finance Management Act no 56 of 2003 subsection 1 (b) The Mayor of the Municipality must coordinate the annual revision of the IDP in terms of 34 of the MSA and the preparation of the annual budget and determine how the IDP is to be taken into account/ or revised for the purposes of the budget. Following is the process followed during the review of the IDP and Budget.”
The budget process is governed by the Municipal Finance Management Act 56 of 2003 and the Municipal Systems Act 32 of 2000. The objective process is to ensure good governance and accountability and enables the municipality to involve residents and other stakeholders in the budgeting process.
Page | 47 In terms of Section 16 (2) of the Municipal Finance Management Act (MFMA) No 56, 2003:
“the Mayor of the Municipality must table the annual budget at a Council meeting at least 90 days before the start of the budget year.”
Chapter 2 of the Municipal Budget and Reporting Regulations states that the Mayor of the municipality must establish a Budget Steering Committee to provide technical assistance to the Mayor in discharging the responsibilities set out in section 53 of the Act.
The Executive Mayor has established a Budget Steering Committee, which consists of the Portfolio Holder for Finance (Chairperson) and Senior Managers.
In terms of section 21 of the MFMA the Mayor is required to table in Council ten months before the start of the new financial year (i.e. in August 2010) a time schedule that sets out the process to revise the IDP and prepare the budget.
Section 28 (1) of the Municipal Systems Act requires each municipality to adopt a process in writing to guide the planning, drafting, adoption and review of its integrated development plan. In compliance with this requirement Buffalo City Metropolitan Municipality adopted the plan on 28 August 2012.