Draft Budget Tabled for Public Input - ‘budget cut to the bone with no fat’

Overstrand Executive Mayor, Dr Annelie Rabie tabled her municipal budget speech of the proposed budget for the 2023/24 financial year at the 29 March meeting of Council. 

She said the devil is in the detail and urged councillors, residents and stakeholders to make time to review and digest the proposed budget.

The closing date for written representation from the public is set for 5 May 2023 by close of business (16:30).

In addition to the draft annual Budget, the Draft Integrated Development Plan (IDP) Review and Draft Top Layer Service Delivery and Budget Implementation Plan (SDBIP) for the 2023/24 financial year are also available to the community for representations and comment by 5 May.

Residents can peruse copies of these documents at the municipal offices and libraries, or download it from Overstrand Municipality’s website www.overstrand.gov.za (go to Documents, click on Strategic Documents and choose relevant document).

Mayor Rabie stated that the budget is cut to the bone with no fat and said “there will be dramatic change; we are going to pay more for municipal services. In addition to this, the additional services we provide, like Law Enforcement, lifesavers, traffic lights and bobby officers on every corner will be affected because these are non-chargeable services expected of the municipality which will be difficult for us to supply without getting additional money from somewhere”. 

She appealed to the community to temper their expectations of what the municipality can do, there is just not enough money. It has become necessary for us to sell land to enable us to bolster our depleted vehicle fleet (including honey suckers) and provide storm water infrastructure etc.

THE MAYOR’S SPEECH, IS PUBLISHED BELOW: 

• The budgeted revenue excluding capital grants received, amounts to R1,692 billion.
• The budgeted operational expenditure amounts to R1,749 billion (this includes non-cash items like depreciation). Hence an accounting deficit of R57,066m is reflected.
• The Capital budget amounts to R203,615m - It is to be used for very specific Capital projects

Projected Revenue per functional classification, including capital grants, are:

• Governance and administration = R460,614m
• Community and Public Safety = R179,758m 
• Economic and Environmental services = R21,679m 
• Trading services = R1,084 billion (including electricity/energy; water management, wastewater management, and waste management)
• TOTAL REVENUE (Including capital grants) = R1,746 billion 

Projected Operational Expenditure per functional classification are:

• Governance and administration = R334,374m
• Community and Public Safety = R297,756m 
• Economic & Environmental Services = R211,088m 
• Trading services = R901,649m 
• Other = R4,104m
• TOTAL OPEX EXPENDITURE = R1,749 billion (with a nett deficit of R3,399m)

A surplus on any trading service is crucial as it is intended and required to generate surplus cash to partly fund capital expenditure such as vehicles and ICT infrastructure. This is to ensure adequate cash backing of reserves and funds.

Employee and Councillor related remuneration:

In the budget, a provision of R551,04m is made for employee-related costs and the remuneration of Councillors. This is 31,51% of the total operating expenditure and is within the National Treasury norm of 25 - 40%.

The proposed increase in the salary budget is 5.4% and notch increases, which average 2% have also been budgeted for in view of the Agreement, thus a 7.4% increase.

Staff vacancies are still frozen and may only be filled following a motivation to the Municipal Manager. No new posts were considered for inclusion in this draft budget.

Cost of rendering services: 

With regards to electricity, our total expenditure is R606,066m and our income R640,359m which allows for a surplus of R34,294m or a margin of 5.36%, versus the margin of 7,89% for the previous Draft Budget.

In the case of water, our expenditure is R161,098m against an income of R164,563m giving us a surplus margin of 2.11% or R3,465m

Wastewater management provides for a net surplus of 3.25% or R4,142m. This is against an income of R127,423m and an expenditure of R123,281m.

Waste management, carries with a total income of R104,634m against an expenditure of R104,393m leaving a negligible surplus of 0.23% or R0,241m.

PROPOSED TARIFFS FOR THE NEXT FINANCIAL YEAR: 

The following increases are proposed:

1. The Property Rates increase approved almost a year ago for the current financial period (2022/2023) is 5.9%.

However, to note that the rate in the rand is downwards adjusted for 2023/2024, as follows:

• Current Business rate (c/R) 0.009940 - (minus) 26% Discounted Draft rate (c/R) = 0.0073680
• Current Residential rate (c/R) 0.006570 - (minus) 6% Discounted Draft rate (c/R) = 0.0042100
• Current Vacant Erven rate (c/R) 0.008990 - (minus) 30% Discounted Draft rate (c/R) = 0.0063150
• Current Farms rate (c/R) 0.001640 - (minus) % Discounted Draft rate (c/R) = 0.0010530

Calculations, based on the new valuations, are the basis for the new rate in the rand recommended in the draft budget to Council for consideration. 

The calculation will entail the following formulae:

• A rebate of R15 000 on all residential properties will be rewarded. 
• An additional rebate of R35 000 on improved residential properties will also be awarded.

The adjusted (decreased) cent in the Rand assessment on Urban Residential erven with improvements, will be:

R0,004210 X the property value after rebates = R YYY 

MINUS a further 20% rebate of the property rates payable if used for residential purposes only.

The adjusted (decreased) cent in the Rand assessment for bona fide Agricultural land is: 

R0,001053 X the property value = R ZZZ

2. Pensioners Rebates on Property Rates will still be considered, as follows:

- 100% to approved applicant who are older than 60, who’s gross monthly household income may not exceed the amount of two times (2X) of state funded social pensions per month.
- 50% to approved applicant who are older than 60, who’s gross monthly household income may not exceed the amount of four times (4X) of state funded social pensions per month.
- 40% to approved applicant who are older than 60, who’s gross monthly household income is more than four times (4X) but less than eight times (8X) of state funded pension per month.

3. Other Tariffs proposed are as follows:

• Sewer 6.8% Basic/Fixed 7.5% unit costs (Average 7.21%)
• Refuse 6.8%
• Water 6.5% Basic/Fixed 6.8% unit costs (Average 6.65%)
• Electricity 15% indicative, based on Eskom increases (The average increase of this basket of services excluding Electricity amounts and Property Rates, relate to an average increase between 6.5% and 7.5%. In instances where water consumption exceeds 18kl, the increase might be higher)
• Sundry tariffs (ranging from 6% to variable deductions or to a cost recovery adjustment. The extended list of tariffs is available).
• Implemented as part of our pro-poor approach in the current budget, the increased benefit for indigent households will continue in 2023/2024, as 10 kl of free water, and in respect of sewerage, 7 kl free sewerage units.

Comparison between basic charges 2021/22 2022/23 and the increases for 2022/23 2023/24 (Vat excl):

• Electricity from R438.66 to R504.46 (15%)
• Water from R155.62 to R165.74 (6.5%)
• Refuse from R213.48 to R228 (6.8%)
• Sanitation Basic: can connect to network R137.88 to R147.40 (6.8%); tanker services R92.91 to R99.32 (6.8%).

Availability charges are needed to ensure that the fixed costs to have a 365 day operational service and networks in place to provide a service to every erf across the Overstrand, at any time that the service is required and at the capacity and place where it is needed.

DORA

Division of revenue allocation (DORA) grants have been published and are therefore receivable from the National and/or Provincial Governments (in total R351,604m).

The contribution is as follows:

National

• Equitable Share R157,935m
• FMG R1,550m
• EPWP R3,565m
• MIG R25,565m
• INEP (electricity) R24,380m
• Energy efficiency & demand side management R4,2m
• Water infrastructure grant R5m
• TOTAL: R222,195m

Provincial

• Resource funding K9 unit R 3,345m
• Reaction Unit R 4,065m
• Human Settlements Development Grant R 79,918m
• Informal Settlements Upgrading Partnership Grant R 32,440m
• Title Deeds Restoration Grant R766,000
• Construction of Transport Infrastructure R 400 000
• Provincial Library Services Grant R8,399m 
• Thusong services centres grant 0
• Community Development Workers R76,000
• TOTAL R129,409m

It is important to note that these amounts consist of both operational and capital budget transfers. MIG, INEP, Water Infrastructure grants and a portion of the Housing Grant are examples of capital grants.

Capital Budget:

The Overstrand Capital budget only amounts to R203.6m for 2023/2024 The decreased own funding from surplus is due to the limited availability of cash for capital investment for the 2023/2024 capital budget.

The dedicated infrastructure upgrading and/or replacement project for water and sewerage networks had a 3-year lifespan, which came to an end on 30 June 2021, except for a roll-over amount of R54 m which was spend during the previous and current financial year.

Our own funding through new borrowings is anticipated at R50m. 

Borrowings contribute 46.76% of the funding over the 2023/24 MTREF. Internally generated funds contribute 6.31% and capital grants 46,93%

For 2023/2024 an amount of R138,8m has been appropriated for the development of basic services infrastructure which represents 68.17% of the total capital budget of R203,6m

Wastewater infrastructure has the second highest allocation at R56,3m or 40.54%; 

Water management at 18,45% or R25,6m

Waste management represents 0,29% or R0,4m and 40.73% or R56,5m is going towards electricity.

Over the 3-year MTREF, the capital housing grant expenditure relating to housing infrastructure provision amounts to R135,2m.

The top 10 capital projects are as follows:

These are only the Top 10 and the budget schedules reflect further capital projects and are open for inspection.

1. Low Cost Housing Construction Contracts across the Overstrand @ R41,890m
2. Kleinmond WWTW Refurbish Upgrade@R28,5m 
3. Electrification of low cost housing areas @ R27,4m
4. Franskraal Kleinbaai Birkenhead-new 66 11kv Substation @ R18,4m
5. Replacement of Overstrand Water Pipes @ R11,5m
6. Upgrade Stormwater Infrastructure-Proteadorp,Mountain view,Ext 6 & Overhills @ R8,2m
7. Upgrade Hermanus Well Fields Phase 2 @ R7,0m 
8. New Disinfection Systems at Wastewater Treatment @ R7,0m
9. Upgrade Hawston Sport complex @ R6,5m
10. Hermanus MV LV Upgrade Replacement @ R5,2m