Summary
The operating budget for 2017/2018 will be financed as follows:
Charged for electricity, water, refuse and sewage R 422 703 310
Property Rates R 50 885 510
Provincial and National Grants R 116 405 740
Sundry charges / Other R 54 072 030
The capital budget for 2017/2018 will be financed as follows:
Own Funds (Capital Replacement Reserves) R 22 285 564
Grants R 33 598 260
Long Term Borrowings R 20 124 420
Reserves
The accumulated surplus will be used to finance the depreciation on assets as the impact of the full provision for depreciation will make the tariffs not affordable to residents. The financing of the depreciation will be phased in over a medium to long term period.
Sustainability of municipality
The funding of the budget will ensure that the municipality will be sustainable on the short term. The full effect of legislative compliance, which the municipality has no control over, may on the long run impact negatively on the sustainability of the municipality. This is a concern for the municipality.
Impact on rates and tariffs
The way that the budget is funded will ensure that tariff increases will range from 6% to 12% on certain
services while electricity tariffs will increase by 1.88%. The 0.31% increase in ESKOM bulk electricity
tariffs, which the municipality has no control over, might have a negative impact on the economy and pose
an added financial strain on already struggling consumers and small businesses.
Property valuations, rates, tariffs and other charges
The valuations of properties are based on valuations done in the 2014/2015 financial year and that was implemented on 01 July 2015. The General Valuation was done in terms of the Property Rates Act, (Act 6 of 2004) and was implemented on 01 July 2015.
The rates tariffs as well as tariffs for electricity, water, refuse, sewage together with the sundry tariffs are listed in Section B – Tariffs. The tariff increases are also indicated.
Collection Rate
Revenue collection rates for service charges and rates as at 30 April 2017:
Rates 93.07% (Will increase towards the end of financial year)
Electricity 95.62%
Water 97.35%
Sanitation 96.46%
Refuse 97.19%
The budget was based at a collection rate of 95%.
Planned savings and efficiencies
The following areas were identified for possible savings after the efficiency of the usage of the assets/services has been evaluated:
Non-priority spending not linked to service delivery
Telephone costs
Overtime
Congresses and Meetings outside municipal area
Fuel usage
Revisiting policies relating to post-employment benefits Investments
Particulars of monetary investments as at 17 May 2017:
Deposit R 35 M Maturity date – 23 May 2017;
Contributions and donations received
A grant of R 500 000 was budgeted for as a contribution from the Cape Winelands District Municipality towards the rehabilitation of sports grounds.
Planned proceeds of sale of assets An amount of R 1 293 720 was budgeted.
Planned use of previous year’s cash backed accumulated surplus
It is planned to use the previous year’s cash backed surpluses to increase the Capital Replacement Reserves, for the financing future capital projects.
Particulars of existing and any new borrowing proposed to be raised
An external loan of R 35 M is proposed to finance Electricity Infrastructure Assets in 2017/2018 and 2018/2019, the approval of the capital budget in relation to assets to be funded out of external borrowing is dependent on the securing of a R 35 M loan.
Roll-Over Grants received
A roll-over grant was approved by the Western Cape Provincial Government for the 2017/18 financial year
of R 470 000, to assist with the TASK job evaluation project. This was included in the Annual Budget for
the 2017/18 financial year.
Particulars of budgeted allocations and grants over the MTREF period:
Operating Budget
Capital Budget
FUNDING ASSESSMENT FOR 2017/2018
The following table lists the factors that have been reviewed. Each of the factors is then further described below.
No. Funding Compliance
1 Cash/cash equivalent position
2 Cash plus investments less applications
3 Monthly average payments covered by cash or cash equivalents 4 Surplus/deficit excluding depreciation offsets
5 Property Rates/service charge revenue % increase less macro inflation target 6 Cash receipts % of ratepayer and other revenue
7 Debt impairment expense % of billable revenue 8 Capital payments % of capital expenditure
9 Borrowing as a % of capital expenditure (less transfers/grants/contributions) 10 Transfers/grants revenue as a % of Government transfers/grants available 11 Consumer debtors’ change (Current and Non-current)
GRANT
GOVERNMENT
SPHERE 2017/2018 2018/2019 2019/2020
Local Government Financial Management Grant NATIONAL 1 550 000 1 550 000 1 550 000 Municipal System Improvement Grant NATIONAL - - 1 000 000
Municipal Infrastructure Grant NATIONAL 4 580 940 2 870 610 3 009 630
Equitable Share * NATIONAL 65 384 000 73 248 000 79 403 000
Intergrated National Electrification Programme (Municipal Grant) NATIONAL 122 800 122 800 - Expanded Public Works Programme Intergrated Grant NATIONAL 1 866 000 - - Human Settlements Development Grant (Beneficiaries) PROVINCIAL 32 150 000 22 500 000 20 000 000
Library Services: CONDITIONAL GRANT PROVINCIAL 3 000 000 3 175 000 3 356 000
Library Services: REPLACEMENT FUNDING FOR MOST VULNERABLE B3 MUNICIPALITIES PROVINCIAL 5 570 000 5 799 000 6 136 000 Community Development Workers (CDW) Operational Support Grant PROVINCIAL 19 000 19 000 19 000 WC Financial Management Support Grant PROVINCIAL 240 000 360 000 480 000 Thusong Service Centres Grant (Sustainability: Operational Support) PROVINCIAL - - 100 000 Fire Service Capacity Bulding Grant PROVINCIAL 800 000 - - Municipal Maintanance and Construction of Transport Infrastructure PROVINCIAL 153 000 - -
CWDM DISTRICT 500 000 - -
Total Operating Grants 115 935 740 109 644 410 115 053 630
GRANT
GOVERNMENT
SPHERE 2017/2018 2018/2019 2019/2020
Municipal System Improvement Grant NATIONAL - - - Municipal Infrastructure Grant NATIONAL 32 721 060 20 504 390 21 497 370 Intergrated National Electrification Programme (Municipal Grant) NATIONAL 877 200 877 200 - Total Capital Grants 33 598 260 21 381 590 21 497 370
14 Financial Performance Budget result 15 Financial Position Budget
16 Cash Flow Budget
17 Other key performance measures 18 Summary question
Funding compliance factor description
Each of these ‘funding factors’ have been analysed and reviewed in their entirety, prior to undertaking any analysis. Where the factor appears unfavourable and cannot be adequately motivated, the budget has been adjusted appropriately.
(a) Cash/cash equivalent position
The municipality foresees a positive cash position for the medium term, as all the reserves & working
capital are cash-backed. The cash situation seems as if it is getting worse, as the funding of capital
projects from own funds have been taken into consideration. History has indicated that although the
municipality does not budget for surpluses, there were surpluses recorded for the last few years. The cash
flow is currently positive and the total Cash and Cash Equivalents at 30 April 2017 is R 118, 046 M a
decrease of R 21, 528 M from March 2017. The graph below shows the movement of Cash and Cash
equivalents on a month on month basis.
(b) Cash plus investments less application of funds
The purpose of this measure is to understand how the municipality has applied the available cash and investments identified at factor 1. Below are commitments against Cash and Cash equivalents as at 30 April 2017:
(c) Monthly average payments covered by cash or cash equivalents
The purpose of this measure is to understand the level of financial risk (ability to meet monthly payments as and when they fall due) should the municipality be under stress.
The municipality does recover enough cash on a monthly basis to cover its monthly average payments. A financial risk arises if unforeseen circumstances occur, which negatively impacts the recovery of electricity revenue (which is nearly 51.33% of the municipality’s revenue).Financial ratios are compiled on a monthly basis and the cost coverage ratio and current ratio at 30 April 2017 was as follow:
(d) Surplus/deficit excluding depreciation offsets
The main purpose of this measure is to understand whether revenue levels are sufficient to conclude that the community is making a sufficient contribution for the municipal resources consumed each year. An
‘adjusted’ surplus/deficit is achieved by offsetting the amount of depreciation related to externally funded assets.
This exercise indicates that there will be a surplus if the depreciation has been offset.
2 Month
Cash and cash equivalents 118 045 SF Position
Unspent Conditional Grants 20 813 SF Position (Unspent Conditional Government Grantas and Receipts Overdraft
Short Term Investments
Total Annual Operational Expenditure 560 562 SF Performance (Total Expenditure - Depreciation & Amortisation - Impairments) *10/12
1.95
Current Assets 170 348 SF Position (Current Assets)
Current Liabilities 87 219 SFP (Current Liabilities) ((Cash and Cash Equivalents - Unspent
Conditional Grants - Overdraft) + Short Term Investment) / Monthly Fixed Operational Expenditure excluding (Depreciation, Amortisation, Provision for Bad Debts, Impairment
and Loss on Disposal of Assets) Cash / Cost Coverage Ratio
(Excl. Unspent Conditional Grants)
Please refer to page 7 of MFMA Circular No. 71 1
Statement of Financial Position, Statement of Financial Performance, Notes to the AFS, Budget, In year Reports and AR
1 - 3 Months
1.5 - 2:1 Please refer to page 7 of
MFMA Circular No. 71 Current Ratio
2 Current Assets / Current Liabilities
Statement of Financial Position, Budget, IDP and AR
(e) Property Rates/service charge revenue % increase less macro inflation target
The purpose of this measure is to understand whether the municipality is contributing appropriately to the achievement of national inflation targets. This measure is based on the increase in ‘revenue’, which will include both the change in the rate or tariff as well as any assumption about real growth (i.e. new property development, services consumption growth). Revenue growth as at 30 April 2017 was as follow:
(f) Cash receipts % of ratepayer and other revenue
This factor is a macro measure of the rate at which funds are ‘collected’. This measure is intended to analyse an underlying assumed collection rate; i.e. how much cash is expected to be collected from current billing, charges and arrear debtors.
The assumed collection rate is based on collections of service charges of the current year (2017/2018) and is regarded as realistic.
The average collection rate on services as at 30 April 2017 was as follow:
(g) Debt impairment expense % of billable revenue
The purpose is to measure whether the provision for debt impairment is being adequately funded and is based on the underlying assumption that the provision for debt impairment (doubtful and bad debts) has to be increased to offset under-collection.
Debt impairment has been based on service charges not collected during the current year (2016/2017) and is regarded as realistic.
(h) Capital payments % of capital expenditure
The purpose of this measure is to mainly understand whether the timing of payments is being taken into consideration when forecasting the cash position. The measure focuses on the capital budget, because
1%
CPI 6% March 2017 y/y (STATSSA)
Total Revenue (Previous) 501 431 (SF Performance 2016 Restated - Total Revenue) *10/12 Total Revenue (Current) 507 282 (SF Performance 2017 - Total Revenue)
Please refer to page 15 of MFMA Circular No. 71 Revenue Growth (%)
(Period under review's Total Revenue - previous period's Total Revenue)/ previous period's Total Revenue ) x 100
Statement of Financial Performance, Budget, IDP, In-Year reports and AR = CPI 2
98%
Gross Debtors closing balance 72 002 Notes to AFS (Note 19 + 20 - Total receivables from exchange and non-exchange transactions 2017) Gross Debtors opeining balance 68 290 Notes to AFS (Note 19 + 20 - Total receivables from exchange and non-exchange transactions 2017) Bad debts written Off 5 718 Notes to AFS (Note 19 + 20 - Bad debts written off 2017)
Billed Revenue 380 025 [SF Performance (Service Charges)] + [Notes to AFS (Note 22 Actual Total Assessment Rates)]
Collection Rate 1
(Gross Debtors Closing Balance + Billed Revenue - Gross Debtors Opening Balance - Bad Debts Written Off)/Billed Revenue x 100
Statement of Financial Position, Statement of Financial Performance, Notes to the AFS, Budget , In-Year Reports, IDP and AR
95% Please refer to page 5 of
MFMA Circular No. 71