The City’s funding model continue to rely on revenue generated from trading services as a primary source of revenue, followed by grants and loans. What tends to differ is the share of each of the sources of funding. With the tight economic climate that South Africa is facing, the growth in national grants allocations is becoming flatter thereby forcing municipalities to find their own sources of funding. Furthermore, with innovations and technological developments, the traditional notion of utilities as ultimate monopolies that can generate excessive revenue is eroding. The current operational and capital budget funding model is based on the continued and sustained generation of surplus through trading services, primarily water and electricity services. This is complemented by revenue raised through property taxation and grant funding.
Tariff-setting therefore plays a pivotal and strategic part of the compilation of the City’s budget and an integral part of the City’s funding mix as it determines the affordability level, debt impairment and the capacity of the City to borrow to fund the City’s capital programs. Elements of a good tariff policy are proposed in section 74 of the Local Government: Systems Act, 2000. Tariff reviews take place within the framework of the City’s Tariff Policy that sets overarching principles. The City’s Tariff Policy remains premised on affordability of services, competitiveness of the City and returns on investments made on infrastructure used in the provision of services. Tariffs for these services are informed by increases in bulk purchases rather than inflation. The City further seeks to facilitate development initiatives within its boundaries and remains mindful of the basis of its tariff adjustments, its obligations to its citizen, requirements of the regulatory framework and the prevailing economic climate.
For the 2018/19 financial year, in addition to the ordinary practice of adjustment for inflation, cost reflectivity gained attention against the discussion of scarcity of resources. Tariffs should at least be expected to recover and match the cost of providing services. Administered prices and inflationary pressures limit the scope of tariff increases. Departments and entities are further also involved in finding out innovative forms of generating extra revenue to compensate for the changing economic environment. These proposals will be included in the tariffs basket for consultation or be part of measures designed to strengthen fiscal efforts. Such measures include exploring areas such as outdoor advertising, traffic law enforcement, parks maintenance partnerships, extracting value on the existing debtors book, tariff audits per category of customers and a review of various ways in which the current tariffs on the system can be made more cost reflective.
Effective 01 July 2018, the City will be implementing a 3rd General Valuation in July 2018 in terms of the Local Government Municipal Property Rates Act, 2004, hence an increase in rateable value. The date of valuation of this roll is 1 July 2017 as required by the Municipal Property Rates Act, 2004. Given that property rating share the same base with refuse removal the latter will further receive spill overs as a result of improvements in valuations. Through this process also, there was a potential to also deal with completeness of the property rates base as it relates to rating. Coupled with investigations on the mismatching of files, audit reconciliations, validation of reversals and improved billing, there is a potential to preserve the current property rates revenue levels. The 2018 General Valuation further include a new category of property- the public service infrastructure that has not been rated in the past general valuations and will be rated as per the regulations from the national government.
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With continued pressure on affordability level and economic performance, a scrutiny of performance drivers and uniqueness of each revenue source was undertaken as part of the budget process and matched to the required collection levels using past performance levels and future projections. For the 2018/19 financial year, the Budget Steering Committee discussions reviewed revenue targets recognizing the prevailing local economic conditions, input costs of each service, the affordability of services as expressed by historic consumption levels, and also to strike a balance between the interests of poor households, other customers and ensuring the financial sustainability of the municipality. The exercise also included modelling and quantifying the impact of revenue enhancement initiatives such as the auditing of meters and the ‘Buya Mthetho’ operations – a partnership between selected relevant departments and Group Finance designed to eradicate illegal connections and evasive rating practices.
The major challenge that tends to face the City is managing the gap between cost drivers and tariffs levied, as any shortfall should be closed through operational efficiency gains or service level reductions. An assessment of historic revenue performance indicated changes in patterns of consumption. In fact there are indications, that the revenue generating entities may be generating very marginal profit hence no longer subsidizing other departments and entities as expected. The tariffs were reviewed to ascertain whether they are still capable of producing the required revenue envelopes, taking note of the prevailing trends and changes on the trading account. To manage this dilemma, it is necessary that that budgeting be undertaken as a going concern at the entity level. There is a recognition that operations need to generate sufficient revenue to sustain their respective business units and cross-subsidize expenditure across other departments and entities.
With scarcity of resources such as water, tariffs are increasingly used to encourage the economic use of scarce resources and price appropriately returns to capital employed in the provision of services. The City monitors revenue trends, tariff structures, changes in regulatory framework and economic impact on various consumer categories as part of formulating revenue forecasts.
National Treasury (NT) continues to encourage municipalities to keep increases in rates and tariffs at affordable levels in order for the budget to be realistic as required by the MFMA. Municipalities are required to justify in their budget documentation all increases in excess of the 6 (six) per cent which is the upper boundary of the South African Reserve Bank’s inflation target. Excessive increases are likely to be counterproductive, resulting in higher levels of non-payment, and therefore a collapse of the existing revenue base. Municipalities are further encouraged to set cost- reflective tariffs especially for trading services such as water and sanitation, electricity and refuse removal. In MFMA Circular No 66, the NT notes that municipalities are increasingly under- recovering the cost associated with trading services.
The percentage increases of both Eskom and Rand Water bulk tariffs are far beyond the mentioned inflation target. Given that these tariff increases are determined by external agencies, the impact they have on the municipality’s electricity and water tariffs is largely outside the control of the City. Cross-subsidization should still entrench principles of equitability and economic use of resources. In cases where the City uses subsidy to fund operations, there is a need to extract efficiency through balancing the subsidy and revenue ratios.
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Within this framework the City has undertaken the tariff setting process relating to its major service charges as follows:
Property Rates
Rates revenue is one of the major funding sources of the City. It funds general services which include road infrastructure, parks, zoo, health, transportation, public safety as well as other community related services.
In order to realise the income required to finance the envisaged operational activities of the Council for the ensuing financial year, the proposed differentials for categories and application of the ratios and tariffs, are as indicated in the table below.
No Category Ratio
2017/2018
Rates for 2017/2018
Ratio 2018/2019
Rates for 2018/2019 (A cent in a Rand)
% Increase
1 Agricultural residential
1:1 0.006611 1:1 0.007345 0%
2 Agricultural business 1:2.6 0.019097 1:2.6 0.019097 0%
3 Agricultural other 1:1 0.006611 1:1 0.007345 0%
4 Residential 1:1 0.007345 1:1 0.007345 0%
5 Consent use 1:2 0.014691 1:2 0.014691 0%
6 Business and commercial
1:2.6 0.019097 1:2.6 0.019097 0%
7 Sectional Title Business
1:26 0.019097 1:2.6 0.019097 0%
8 Sectional Title residential
1:1 0.007345 1:1 0.007345 0%
9 Sectional Title other 1:1 0.007345 1:1 0.007345 0%
10 Municipal property 0 0 0 0 0%
11 Farming 1:0.25 0.001836 1:0.25 0.001836 0%
12 Mining land 1:26 0.019097 1:26 0.019097 0%
13 Vacant Land 1:4 1:4 0%
14 PSI 1:0.25 0.001836 1:0.25 0.001836 0%
15 PSI privately owned 1:0.25 0.001836 1:0.25 0.001836 0%
16 Private open space 1:0.25 0.001836 1:0.25 0.001836 0%
17 Public open space 0 0 1:0.25 0.001836 0%
18 State 1:1.5 0.011017 1:1.5 0.011017 0%
19 Public benefit organisation
1:0.25 0.001836 1:0.25 0.001836 0%
20 Education 1:0.25 0.001836 1:0.25 0.001836 0%
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21 Religious 0 0 0 0 0%
22 Multipurpose residential
1:1 0.007345 1:1 0.007345 0%
23 Multipurpose business
1:2.6 0.019097 1:2.6 0.019097 0%
24 R E of a township 0 0 1:26 0.019097 0%
Penalty Tariff
25 Unauthorised use 1:4 0.029380 1:4 0.031055 5.7%
The ratio for unauthorised use (penalty tariff) will be determined by Council on a yearly basis. It is proposed that the unauthorised use rate in a rand be increased by 5.7% from 0.029380 to 0.031055 to enforce compliance to the City’s Building control by-law and all other related legislations and by-laws.
Different communities have been proposing a higher penalty tariff. The ratio for this penalty tariff will remain at 1.4.
Rebates on Rates tariffs for 2018/2019
Residential Value Exclusion First R200 000 of value of all
residential property to be excluded from rating Other rebates :
Pensioner owners whose gross monthly household income is lower
than R9 245 Property value not more than R2.5 million 100%
Pensioner owners whose gross monthly income is higher than R9 245 but lower that R15 845 in a property value not more than R2.5 million
50%
Pensioners owners who are seventy and above irrespective of income in a property valued not more than R2.5 million
100%
High density rebate 5%
Expanded social Package pensioners who live in a property not more than R2.5 million
100%
People who are on Expanded social package who are not pensioners who’s property value does not exceed R500 000
100%
Heritage Sites 20%
Organizations with purpose of Animal Protection 100%
Property Owned by Organizations in terms of the Housing
Development Schemes For Retired Persons Act 50%
Vacant Land subject to conditions 50%
Private Sports Clubs 40%
Child headed family with a property value not exceeding R2 million 100%
Residential Value Exclusion First R200 000 of value of all
residential property to be
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excluded from rating People who are on a government grants because of disability
whose gross monthly household income which is lower than R9
245. Property value not more than R2.5 million 100%
People who are on pension because of disability whose gross monthly income is higher than R9 245 but lower that R15 845 in a property value not more than R2.5 million
50%
The property rebate principle criteria are:
Pensioners:-
(a) Minimum age: 60 years
(b) Maximum property value: R2.5 million (Market Value per the 2018 Valuation Roll)
(c) Gross monthly income for 100% rebate R9 245 maximum (d) Gross Monthly income for 50% rebate is R9 245 to
R15 845 (e) Pensioners over the age of seventy (70) are exempt
provided their property value is not more than R2.5 million Child headed family:-
(f) 100% rebate (pensioner property threshold will apply)
Maximum property value: R2.5 million
(Market Value per the 2018 Valuation Roll) Disability:-
(g) People who are on a government grant because of disability (Same principles as pensioners apply)
Maximum property value: R2.5 million
(Market Value per the 2018 Valuation Roll)
Gross monthly income for 100% rebate R9 245 Gross Monthly income for 50% rebate is R9 245 to
R15 845
Military veterans:-
100% Rates rebate.
The increase to the income levels for this category of rebates is inflation (CPI) related.
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(8) Special Cases
Various instances arise where the Council is requested to consider relief in respect of the payment of rates. This type of relief can be granted in terms of the rates policy to specified categories of property ownership.
In terms of the Rates Policy, those organisations and pensioners who continue to qualify for a rebate will be recorded on the billing system as a category of ownership. This will ensure that beneficial rating continues to apply to such property owners.
In the case of pensioners who own and live in those properties, the pensioner rebate benefit will be granted for four years or for the duration of the prevailing valuation roll. Pensioners will be required to reconfirm/re-apply, at the end of the four year period or at the end of the duration of the valuation roll, for the continuation of pensioner rebate. Pensioners applying for expanded social package are now required to complete the pensioner’s application form in order to qualify for the pensioner rebate. The period of granting the ESP pensioners will be same as the ordinary pensioners.
(9) Determination of Property Values and Earning Levels for Property Owners for rebates based on Category of Ownership
The Rates Policy allows for residential property owners who are retired to apply for pensioner rebate. It is necessary that the Council determines the appropriate cut off levels for the application of such rebates for pensioners. It is proposed that the threshold be increase to R9 245 per month for the lower level and the ceiling of the upper level be increased to R15 845 per month.
Life right pensioners, who live in sectionalised units registered in their names, will be treated as pensioners stated above.
Life rights pensioners who reside in life rights scheme registered in the name of the Trust or company will continue to receive the 50% rebate on the whole retirement village. Where a pensioner owns more than one property, the rebate is restricted to the property used as the place of primary residence.
(10) Exemptions, Reductions and Rebates
Section15 (2)(e) of the Act permits a Council to allow rebates to the owners of residential properties with a market value lower than an amount determined by the municipality. The Act provides that the first R15 000 of the value of all residential property be exempt from rating. The Council granted an additional threshold rebate of R185 000 giving the total threshold of R200 000 of market value for residential property.
(11) Residential high density rebate
The policy of the Council is to encourage the improved utilisation of land. The development of Sectional
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Title is an appropriate avenue through which the Council’s objectives are to archive densification. It is proposed that the current sectional title rebate be terminated, and the densification rebate be applied.
The category consists of properties that are developed with a minimum density of 80 dwelling units per hectare, including sectional title units.
A rebate of 5% of the current monthly rates will be applied.
(12) Vacant Land where Council is not able to provide infrastructure services
Certain pockets of land may be vacant owing to the Council not being in a position to provide infrastructural services within the ensuing financial year. Under such circumstances, a rebate of 50% of the vacant land tariff will be proposed.
The granting of this rebate is dependent upon successful application by the property owner concerned and the application has to be supported by the technical service departments concerned. Provision has been made in the estimates for a rebate 50%
for property situated outside the urban development zone since development is presently not permitted owing to lack of infrastructure services.
(13) Public service Infrastructure
In line with section 11(1)(b) of the Municipal Property Rates act, the City of Johannesburg will continue to exempt from rates the 30% of the value of the public service infrastructure.
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Water, Sewerage and Sanitation Services
South Africa faces similar challenges with regards to water supply as demand growth outstrips supply.
Consequently, NT is encouraging all municipalities to carefully review the level and structure of their water tariffs to ensure:
Water tariffs are fully cost-reflective – including the cost of bulk purchases, cost of maintenance and renewal of purification plants, water networks and the cost associated with reticulation expansion;
Water tariffs are structured to protect basic levels of service and ensure the provision of free water to the poorest of the poor (indigent); and
Water tariffs are designed to encourage efficient and sustainable consumption.
It is expected that Rand Water will increase its bulk tariffs by 12.2 per cent. Taking these factors into account, the City is proposing an average tariff increase of 14.2 per cent from 1 July 2018 for water and sewerage and sanitation services. 6 kℓ water per 30-day period will again be granted free to qualifying indigent, which is a policy shift meant to align the City with other metropolitan municipalities.
The proposed domestic average increase is smoothed across the various bands of the tariff structure as follows:
0 to 6kl 16.9%
Greater than 6 up to 10kl 16.9%
Greater than 10 up to 15kl 14.9%
Greater than 15 up to 20kl 12.2%
Greater than 20 up to 30kl 12.2%
Greater than 30 up to 40kl 14.7%
Greater than 40 up to 50kl 15.3%
In excess of 50kl (new band) 17.7%
Demand levy 14.2%
Institutional and commercial
Up to 200kl 14.2%
More than 200kl 14.2%
Demand levy 14.2
All other tariffs to be increased by 14.2%
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The tables below present the proposed water and sewerage and sanitation services for 2018/19.
Domestic Water Tariffs
Proposed Domestic Water Tariff – Metered Areas
Metered areas domestic
Kilolitres 2017/18 % Increase 2018/19 2019/20 2020/21 per connection
per month Tariff Tariff Tariff Tariff
(R/kl) (R/kl) (R/kl) * (R/kl) *
0-6 7.14 16.9% 8.35 8.96 9.67
> 6-10 7.58 16.9% 8.86 9.52 10.27
>10-15 13.17 14.9% 15.13 16.25 17.54
>15-20 19.63 12.2% 22.02 23.65 25.52
>20-30 26.96 12.2% 30.25 32.49 35.05
>30-40 29.22 14.7% 33.52 36.00 38.84
>40-50 37.11 15.3% 42.79 45.95 49.58
>50 38.72 17.7% 45.57 48.95 52.81
* Indicative only as cost of bulk water has not been confirmed by Rand Water and may change once confirmed.
Proposed Domestic Water Tariff – Pre-paid Meters Prepaid water
Kilolitres 2017/18 % Increase 2018/19 2019/20 2020/21 per connection
per month Tariff Tariff Tariff Tariff
(R/kl) (R/kl) (R/kl) * (R/kl) *
0-10 5.87 30.0% 7.63 8.20 8.84
>10-15 8.39 16.9% 9.81 10.53 11.37
>15-20 16.25 12.2% 18.23 19.58 21.13
>20-30 25.81 12.2% 28.96 31.10 33.56
>30-40 27.98 12.2% 31.39 33.72 36.38
>40-50 36.80 12.2% 41.29 44.35 47.85
>50 44.16 3.2% 45.57 48.95 52.81
*Indicative only as cost of bulk water has not been confirmed by Rand Water and may change once confirmed.
The Rand Water tariff is expected to be approved by Parliament and gazetted in March 2018.
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Proposed Domestic Water Restriction Tariff - Metered Areas
In the event that the City of Johannesburg imposes a level 2 water restriction, the Water Restriction Tariff below will apply.
Water restriction tariff domestic
Kilolitres 2017/18 2018/19
per connection
per month Tariff Normal
Tariff % Increase
Rand per increase
Final Water restriction tariff
(R/kl) (R/kl) (R/kl) (R/kl)
0-6 7.14 8.35 0% 0.00 8.35
> 6-10 7.58 8.86 0% 0.00 8.86
>10-15 13.17 15.13 0% 0.00 15.13
>15-20 19.63 22.02 0% 0.00 22.02
>20-30 26.96 30.25 15% 4.54 34.79
>30-40 29.22 33.52 35% 11.73 45.25
>40-50 37.11 42.79 50% 21.39 64.18
>50 38.72 45.57 60% 27.34 72.92
Proposed Domestic Water Restriction Tariff - Pre-paid meters Water restriction tariff prepaid
Kilolitres 2017/18 2018/19
per
connection per month
Tariff Normal tariff
% Increase
Rand per increase
Final Water Restriction Tariff
(R/kl) (R/kl) (R/kl) (R/kl)
> 0-10 5.87 7.63 0% 0.00 7.63
>10-15 8.39 9.81 0% 0.00 9.81
>15-20 16.25 18.23 0% 0.00 18.23
>20-30 25.81 28.96 15% 4.34 33.30
>30-40 27.98 31.39 35% 10.99 42.38
>40-50 36.8 41.29 50% 20.64 61.93
>50 44.16 45.57 60% 27.34 72.92
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Proposed Water tariffs for indigents as part of the Expanded Social Package
Indigent Category
Score on
Prevailing COJ Poverty Index
Allocation of additional free water per person per day (litres)
Monthly allocation cap of free water per household in which at least 50% of registered social package recipients qualify for the band in question
(Kilo-litres)
Band 1 1-34 25l. 10kl.
Band 2 35-70 35l. 12kl.
Band 3 71-100 50l. 15kl
Note:
a. Band 1 refers to individuals / households within the vulnerability range defined by the approved CoJ Poverty index of the expanded social package policy.
b. Band 2 refers to individuals/ households with some formal income that nonetheless falls below the survival range threshold set by the approved CoJ Poverty index of the expanded social package policy.
c. Band 3 refers to individuals/ households with no formal income from either grants or employment, or incomes below the individual survival level as set by CoJ Expanded Social Package policy.
Note: These benefits are applicable to the 2018/19 financial year. This report has not incorporated any proposed changes to the current Expanded Social Package
Proposed Institutional Water Tariffs
Institutional Water
Kilolitres 2017/18 % Increase 2018/19 2019/20 2020/21 per connection
per month Tariff Tariff Tariff Tariff
(R/kl) (R/kl) (R/kl) * (R/kl) *
Consumption up
to 200kl 23.92 21.0% 28.94 31.08 33.54
Consumption
exceeding 200kl 25.86 21.0% 31.29 33.61 36.26
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*Indicative only as cost of bulk water has not been confirmed by Rand Water and may change once confirmed.
The Rand Water tariff is expected to be approved by Parliament and gazetted in March 2018. The tariff applies to both conventional and prepaid meters.
Proposed Industrial/Commercial Water Tariffs
Industrial/Commercial Water Tariffs
Kilolitres 2017/18 % Increase 2018/19 2019/20 2020/21 per connection
per month Tariff Tariff Tariff Tariff
(R/kl) (R/kl) (R/kl) * (R/kl) *
Consumption up
to 200kl 33.91 14.2% 38.73 41.59 44.88
Consumption
exceeding 200kl 35.77 14.2% 40.85 43.87 47.34
*Indicative only as cost of bulk water has not been confirmed by Rand Water and may change once confirmed. The Rand Water tariff is expected to be approved by Parliament and gazetted in March 2018.
The tariff applies to both conventional and prepaid meters.
Proposed Pre-paid Industrial/Commercial Water Tariffs
Pre-paid Industrial/Commercial Water Tariffs
Kilolitres 2017/18 % Increase 2018/19 2019/20 2020/21 per connection
per month Tariff Tariff Tariff Tariff
(R/kl) (R/kl) (R/kl) * (R/kl) *
Consumption up
to 200kl 33.91 14.2% 38.73 41.59 44.88
Consumption
exceeding 200kl 35.77 14.2% 40.85 43.87 47.34
*Indicative only as cost of bulk water has not been confirmed by Rand Water and may change once confirmed.
The Rand Water tariff is expected to be approved by Parliament and gazetted in March 2018. The tariff applies to both conventional and prepaid meters.