FINANCIAL REFORM IN KWADUKUZA MUNICIPALITY
4.6.2 Trend analysis
The analysis of operating revenue and expenditure shown below reflects growth in monetary terms from the total expenditure of R215 million in 2003 to R295 million in 2007. Revenue increased from R215 million in 2003 to R331million in 2007.The major contribution in revenue increase came from rates, Service charges and grants (KwaDukuza Municipality Internal Memorandum: Phase 3 Project - Annual Financial Statements. Item Fin :76 dated 22/06/2006).
FIGURE 4.1 : REVENUE AND EXPENDITURE ANALYSIS FOR THE PERIOD 2003 TO 2007
REVENUE 2002/3 2003/4 2004/5 2005/6 2006/7
PROPERTY RATES 46,810,694 56,359,781 70,207,364 80,995,525 84,635,221
PENALTIES AND CHARGES 0 0 5,012,345 7,072,649 5,136,662
SERVICE CHARGES 116,552,501 112,130,002 130,652,534 140,376,819 163,357,159
RENTAL OF FACILITIES 0 0 1,113,325 702,529 591,988
INTEREST FROM INVESTMENTS 3,448,217 6,926,746 6,486,143 5,773,113 8,571,732
INTEREST FROM DEBTORS 0 0 4,140,400 4,871,229 3,717,060
FINES 0 0 3,536,111 4,296,212 5,747,604
LICENCES AND PERMITS 0 0 63,007 3,897,961 3,978,154
GRANTS AND SUBSIDIES 17,843,763 20,122,230 21,703,351 23,078,382 44,796,081 OTHER INCOME 30,835,480 26,976,916 9,262,861 8,560,042 11,133,166 TOTAL INCOME 215,490,655 222,515,675 252,177,441 279,624,461 331,664,827
EXPENDITURE
EMPLOYEE COSTS 63,571,700 65,318,697 67,984,439 74,129,497 82,091,345 COUNCILLORS REMUNERATION 2,985,107 3,555,068 3,732,738 4,074,555 7,167,028
BAD DEBTS 0 0 11,500,000 0 0
COLLECTION COSTS 0 0 992,942 2,000,915 1,612,179
DEPRECIATION 0 0 0 23,150,181 25,446,142
REPAIRS AND MAINTENANCE 15,656,590 14,761,926 15,851,356 21,726,446 24,527,780 INTEREST PAID 15,532,393 14,140,735 27,398,561 8,094,100 10,215,217 BULK PURCHASES 63,067,733 68,929,060 74,340,327 80,151,176 92,342,390
CONTRACTED SERVICES 0 0 7,060,041 8,245,039 10,172,995
RETIREMENT BENEFITS 0 0 0 26,276,615 2,877,686
GENERAL EXPENSES 91,838,146 62,353,051 41,598,761 49,129,795 64,782,442
LOSS ON DISPOSAL OF PROPERTY 0 0 0 78,710
CONTRIBUTIONS 4,497,886 2,250,682 7,518,251 0 0
ADJUSTMENT TO PROVISIONS 0 0 0 0 (3,854,746)
LESS : RECHARGES (41,373,587) (8,361,198) (7,992,626) (20,341,242) (22,529,754) TOTAL EXPENDITURE 215,775,968 222,948,021 249,984,790 276,637,077 294,929,414
SURPLUS / (LOSS) -285,313 -432,346 2,192,651 2,987,384 36,735,413
Source: Figure 4.1. Audited Financial Statements for KwaDukuza Municipality.
In 2004/5 financial year, the Municipality generated profits for the first time after many years
of operational losses. The profits were in excess of R13 million. That enabled Council to write off bad debts to the amount of R11,5 million. The bulk of the debt was made up of irrecoverable debts accrued to indigent households. In 2006 the Municipality generated profits in excess of R25 million. An amount of R23,5 million was utilised to restructure asset finance by financing depreciation. In 2007 the municipality generated profits in excess of R36 million.
The profits were utilised to finance capital investment in the 2007/8 financial year (KwaDukuza Municipality Internal Memorandum: Phase 3 Project- Annual Financial Statements. Item Fin :76 dated 22/06/2006).
FIGURE 4.2 : REVENUE AND EXPENDITURE ANALYSIS FOR THE PERIOD 2003 TO 2007
REVENUE 2002/3 2003/4 2004/5 2005/6 2006/7
TOTAL INCOME 215,490,655 222,515,675 252,177,441 279,624,461 331,664,827
0 0 0 0 0
215,490,655 222,515,675 252,177,441 279,624,461 331,664,827
Variance 0 7,025,020 29,661,766 27,447,020 52,040,366
% Variance 0 3.26% 13.33% 10.88% 18.61%
EXPENDITURE
TOTAL EXPENDITURE 215,775,968 222,948,021 249,984,790 276,637,077 294,929,414
0 0 0 0 0
215,775,968 222,948,021 249,984,790 276,637,077 294,929,414
Variance 0 7,172,053 27,036,769 26,652,287 18,292,337
% Variance 0 3.32% 12.13% 10.66% 6.61%
SURPLUS / (LOSS) -285,313 -432,346 2,192,651 2,987,384 36,735,413
Source: Figure 4.2.Audited Financial Statements for KwaDukuza Municipality.
The year-to-year analysis reflects that revenue collection between 2002/3 and 2003/4 increased by 3,26%. The revenue increase between 2003/4 and 2004/5 rose to 13,3%.That was when the impact of the recovery project began to take effect. The revenue increase between 2004/5 and 2005/6 rose again to 16,59% on a year-to-year basis. That was when the impact of the recovery plan began to take effect.
FIGURE 4.3 : REVENUE AND EXPENDITURE ANALYSIS FOR TTHE PERIOD 2003 TO 2007
REVENUE 2002/3 2003/4 2004/5 2005/6 2006/7
Variance Variance Variance Variance
PROPERTY RATES 0 9,549,087 13,847,583 10,788,161 3,639,696
PENALTIES AND CHARGES 0 0 5,012,345 2,060,304 (1,935,987)
SERVICE CHARGES 0 (4,422,499) 18,522,532 9,724,285 22,980,340
RENTAL OF FACILITIES 0 0 1,113,325 (410,796) (110,541)
INTEREST FROM INVESTMENTS 0 3,478,529 (440,603) (713,030) 2,798,619
INTEREST FROM DEBTORS 0 0 4,140,400 730,829 (1,154,169)
FINES 0 0 3,536,111 760,101 1,451,392
LICENCES AND PERMITS 0 0 63,007 3,834,954 80,193
GRANTS AND SUBSIDIES 0 2,278,467 1,581,121 1,375,031 21,717,699
OTHER INCOME 0 (3,858,564) (17,714,055) (702,819) 2,573,124
TOTAL INCOME 0 7,025,020 29,661,766 27,447,020 52,040,366
EXPENDITURE
EMPLOYEE COSTS 0 1,746,997 2,665,742 6,145,058 7,961,848
COUNCILLORS REMUNERATION 0 569,961 177,670 341,817 3,092,473
BAD DEBTS 0 0 11,500,000 (11,500,000) 0
COLLECTION COSTS 0 0 992,942 1,007,973 (388,736)
DEPRECIATION 0 0 0 23,150,181 2,295,961
REPAIRS AND MAINTENANCE 0 (894,664) 1,089,430 5,875,090 2,801,334 INTEREST PAID 0 (1,391,658) 13,257,826 (19,304,461) 2,121,117 BULK PURCHASES 0 5,861,327 5,411,267 5,810,849 12,191,214
CONTRACTED SERVICES 0 0 7,060,041 1,184,998 1,927,956
RETIREMENT BENEFITS 0 0 0 26,276,615 (23,398,929)
GENERAL EXPENSES 0 (29,485,095) (20,754,290) 7,531,034 15,652,647
LOSS ON DISPOSAL OF PROPERTY 0 0 0 0 78,710
CONTRIBUTIONS 0 (2,247,204) 5,267,569 (7,518,251) 0
ADJUSTMENT TO PROVISIONS 0 0 0 0 (3,854,746)
LESS : RECHARGES 0 33,012,389 368,572 (12,348,616) (2,188,512)
TOTAL EXPENDITURE 0 7,172,053 27,036,769 26,652,287 18,292,337
SURPLUS / (LOSS) 0 -147,033 2,624,997 794,733 33,748,029
Source: Figure 4.3.Audited Financial Statements for KwaDukuza Municipality.
In the 2006/7 financial year, revenue increased by 18,6% compared to the 2005/6 financial year. These results reflect marked improvements from in revenue collection and bears testimony to the fact that the Recovery Plan was yielding good results.
The net increase or decrease on a year to year comparison reflects that property rates, service charges, interest and grant funding were major performers in the drive by the municipality to improve revenue collection. The trend reflects that major cost drivers in the expenditure side were employee costs, councillor remuneration, bulk purchases and general expenses. Figure 4.4.is an Extract from the Audited Financial Statements for KwaDukuza Municipality.
FIGURE 4.4 : INDEXED ANALYSIS OF REVENUE AND EXPENDITURE ANALYSIS FOR THE PERIOD 2003 TO 2007
REVENUE 2002/3 2003/4 2004/5 2005/6 2006/7
PROPERTY RATES 100.00% 120.40% 144.97% 160.34% 164.83%
PENALTIES AND CHARGES 100.00% 0.00% 100.00% 141.10% 113.73%
SERVICE CHARGES 100.00% 96.21% 112.72% 120.17% 136.54%
RENTAL OF FACILITIES 100.00% 0.00% 100.00% 63.10% 47.37%
INTEREST FROM
INVESTMENTS 100.00% 200.88% 194.52% 183.53% 232.00%
INTEREST FROM DEBTORS 100.00% 0.00% 100.00% 117.65% 93.96%
FINES 100.00% 0.00% 100.00% 121.50% 155.28%
LICENCES AND PERMITS 100.00% 0.00% 100.00% 6186.55% 6188.61%
GRANTS AND SUBSIDIES 100.00% 112.77% 120.63% 126.96% 221.07%
OTHER INCOME 100.00% 87.49% 21.82% 14.24% 44.30%
TOTAL INCOME 100.00% 103.26% 116.59% 127.47% 146.09%
EXPENDITURE
EMPLOYEE COSTS 100.00% 102.75% 106.83% 115.87% 126.61%
COUNCILLORS
REMUNERATION 100.00% 119.09% 124.09% 133.25% 209.15%
BAD DEBTS 100.00% 0.00% 100.00% 0.00% 0.00%
COLLECTION COSTS 100.00% 0.00% 100.00% 201.51% 182.09%
DEPRECIATION 100.00% 0.00% 0.00% 100.00% 109.92%
REPAIRS AND MAINTENANCE 100.00% 94.29% 101.67% 138.73% 151.62%
INTEREST PAID 100.00% 91.04% 184.80% 114.34% 140.54%
BULK PURCHASES 100.00% 109.29% 117.14% 124.96% 140.17%
CONTRACTED SERVICES 100.00% 0.00% 100.00% 116.78% 140.17%
RETIREMENT BENEFITS 100.00% 0.00% 0.00% 100.00% 10.95%
GENERAL EXPENSES 100.00% 67.89% 34.61% 52.71% 84.57%
LOSS ON DISPOSAL OF
PROPERTY 100.00% 0.00% 0.00% 0.00% 100.00%
CONTRIBUTIONS 100.00% 50.04% 284.08% 184.08% 0.00%
ADJUSTMENT TO PROVISIONS 100.00% 0.00% 0.00% 0.00% 100.00%
LESS : RECHARGES 100.00% 20.21% 15.80% 170.30% 181.06%
TOTAL EXPENDITURE 100.00% 103.32% 115.45% 126.11% 132.72%
SURPLUS / (LOSS) 0.00% -0.0638% 1.1394% 1.3619% 13.3603%
Source: Figure 4.4.Audited Financial Statements for KwaDukuza Municipality.
The indexed analysis which uses annual increment reflects an upward trend, particularly on the revenue side. The trend analysis reflects that best performers under the revenue section of the income and expenditure statements over the period 2003 to 2007 were property rates at 164%, interest from investments at 232%, grants and subsidies at 221%, and licences at over 6000%.
Expenditure trends reflects that councillor remuneration increased two folds to 209%
over the period, financing of debt recovery efforts increased by 182% over the period, and repairs and maintenance increased by 151% over the period. The overall increase reflects 132% over the period 2003 to 2007 compared to 151% of revenue within the same period. The conclusion can therefore be drawn that expenditure was well contained not to overrun and exceed revenue.
FIGURE 4.5: REPORT ON THE ANALYSIS OF MUNICIPAL BUDGETS 2007
SOURCE : Commonwealth Local Government, 2007
International experiences compare well with the South African scenario in that in Australia, taxes comprise 39% on aggregate; Sale of services comprise 31% of the budget; grants make up 11% of the total revenue, interest and other sources make up 20% of total revenue(Commonwealth Local Government Handbook, 2007:23).
FIGURE 4.6 :REVENUE AND EXPENDITURE ANALYSIS FOR THE PERIOD 2003 TO 2007
COMMON SIZED ANLYSIS
REVENUE 2002/3 2003/4 2004/5 2005/6 2006/7
PROPERTY RATES 21.72% 25.33% 27.84% 28.97% 25.52%
PENALTIES AND CHARGES 0.00% 0.00% 1.99% 2.53% 1.55%
SERVICE CHARGES 54.09% 50.39% 51.81% 50.20% 49.25%
RENTAL OF FACILITIES 0.00% 0.00% 0.44% 0.25% 0.18%
INTEREST FROM INVESTMENTS 1.60% 3.11% 2.57% 2.06% 2.58%
INTEREST FROM DEBTORS 0.00% 0.00% 1.64% 1.74% 1.12%
FINES 0.00% 0.00% 1.40% 1.54% 1.73%
LICENCES AND PERMITS 0.00% 0.00% 0.02% 1.39% 1.20%
GRANTS AND SUBSIDIES 8.28% 9.04% 8.61% 8.25% 13.51%
OTHER INCOME 14.31% 12.12% 3.67% 3.06% 3.36%
TOTAL INCOME 100.00% 100.00% 100.00% 100.00% 100.00%
EXPENDITURE
EMPLOYEE COSTS 29.46% 29.30% 27.20% 26.80% 27.83%
COUNCILLORS REMUNERATION 1.38% 1.59% 1.49% 1.47% 2.43%
BAD DEBTS 0.00% 0.00% 4.60% 0.00% 0.00%
COLLECTION COSTS 0.00% 0.00% 0.40% 0.72% 0.55%
DEPRECIATION 0.00% 0.00% 0.00% 8.37% 8.63%
REPAIRS AND MAINTENANCE 7.26% 6.62% 6.34% 7.85% 8.32%
INTEREST PAID 7.20% 6.34% 10.96% 2.93% 3.46%
BULK PURCHASES 29.23% 30.92% 29.74% 28.97% 31.31%
CONTRACTED SERVICES 0.00% 0.00% 2.82% 2.98% 3.45%
RETIREMENT BENEFITS 0.00% 0.00% 0.00% 9.50% 0.98%
GENERAL EXPENSES 42.56% 27.97% 16.64% 17.76% 21.97%
LOSS ON DISPOSAL OF
PROPERTY 0.00% 0.00% 0.00% 0.00% 0.03%
CONTRIBUTIONS 2.08% 1.01% 3.01% 0.00% 0.00%
ADJUSTMENT TO PROVISIONS 0.00% 0.00% 0.00% 0.00% -1.31%
LESS : RECHARGES -19.17% -3.75% -3.20% -7.35% -7.64%
TOTAL EXPENDITURE 100.00% 100.00% 100.00% 100.00% 100.00%
SURPLUS / (LOSS) 0 0 0 0 0
Source : Figure 4.6. Audited Financial Statements for KwaDukuza Municipality.
The South African Local Government Association Report for 2007 reflects that Group Four Local Municipalities average 15% income from taxes or rates, 35% on electricity, 12% on water, 5% on sanitation, 5% on refuse, 16% on grant funding, and 8% under other, which will include interest and surplus funds.
Both scenarios compare well with the reports sourced from KwaDukuza Municipality.
Trend analysis reflects that the main contributions to revenue over the period 2003 to 2007 were property rates at an average of 25%, services charges at an average of 50%, and grants at an average of 10%. The three streams of income contribute over 80% of total revenue and should always be targeted and sustained as main sources of revenue for the municipality.
According to Saito (2008:199), metropolitan municipalities in South Africa account for 90% of own revenue, whereas poor municipalities account for 92% being subsidies and grants.
FIGURE 4.7: ANALYSIS OF OPERATING (CURRENT) DEBTORS FOR THE PERIOD 2003/4 TO 2006/7
2001/2 2002/3 2003/4 2004/5 2005/6 2006/7
SUNDRY DEBTORS 93,415,628 110,238,525 126,735,189 119,173,515 79,186,261 23,185,195
Source: Figure 4.7.Audited Financial Statements for KwaDukuza Municipality.
FIGURE 4.8:
ANALYSIS OF SUNDRY DEBTORS
Source: Figure 4.8.Audited Financial Statements for KwaDukuza Municipality.
The total debt recorded in 2002 was R93 million. In 2003 that increased to R110 million, and in 2004 debt reached its highest level at R126 million. In 2005 the impact of the programme began to yield results and the debt began decreasing and reached R119 million. In 2006 the downward trend continued, and the total debt was reduced to R79 million. In 2007 total debt reached its lowest level of R23 million (KwaDukuza