I refer to the draft 2020/21 budget as presented at various forums and the invitation to respond thereto. This response is from the Betty’s Bay Ratepayers Association – an association that has existed for more than 20 years and has a strong and representative membership base of paid up members.
When the draft budget was presented a totally different financial and economic scenario to what prevails at present existed. Since that time a State of Disaster to manage the COVID-19 pandemic has been proclaimed – first for three weeks and subsequently for a further two weeks. All indications by the Government are that there will be a further extension or even multiple extensions as is evidenced in most countries of the world.
It is submitted that it would be incumbent on the Municipality to do a total and comprehensive review of the draft budget.
To this end I quote from paragraph 2 of the Annexure to MFMA Circular No 99 of the National Treasury:
“The National State of Disaster and subsequent lockdown comes amidst already dire macro-economic conditions which have seen South Africa slump into a technical recession and downgraded to sub-investment grade (“junk” status) and worsening already high levels of unemployment.
The lockdown will likely have a devastating effect on economic activity as non-essential business are forced to shut down completely resulting in a reduction in overall economic output and job losses. National Government, in conjunction with prominent private sector role-players, has introduced various forms of relief programmes to aid small businesses and employees alike during the period of the lockdown to compensate for a loss of income and wages, etc.
Municipalities will be impacted negatively due to a loss of revenue streams as businesses, households and communities reel from the economic fallout caused by COVID-19. They may also be required to expand their scope of basic services and free basic services.”
In paragraph 9 of the same Annexure National Treasury indirectly encourages municipalities “to re-do their entire 2020/21 MTREF budget, given that these budgets were prepared prior to the declaration of the national disaster and subsequent nationwide lockdown”.
It should be noted that this Annexure was dated 8 April and thus prior to the extension of the lockdown until 30 April. If anything, the exigency of reviewing the budget in its totality has been exacerbated by this extension and possible further extensions and, at best, a slow lifting of the inhibiting restrictions.
MOTIVATION FOR A BUDGET REVIEW.
Overstrand Municipality (OM) has a high standard of service delivery and excellent financial management competencies as evidenced by its regular clean audits and other award winning recognitions. This is also recognised and appreciated by the BBRA. To maintain this record will require that a number of challenges are successfully met.
In general it can be stated that OM has a large component of retired or semi- retired residents. These residents rely on their pensions or income from investments. These investments in the main are either interest bearing savings or investments linked to the JSE or a combination of both.
It is common cause that both investment fields have been hard hit by recent developments. The JSE has lost at least 20- 30 % (until recently as much as 40%) of its value and the bank rate has dropped by 2 percentage points. The latter may constitute a real loss of between 25% and 33 % in income. A drop from say 6% to 4% represents a loss of 33,3% and from 8% to 6% a loss of 25%. Indications are that further bank rate cuts may be in the offing. Whereas these cuts may be beneficial to the economy as a whole it has hardly any beneficial effect on pensioners as they, as a rule, have little or no debt.
In addition the Governor of the Reserve Bank has encouraged certain listed companies e g within the financial sector to withhold dividend payments in order to have sufficient funds to weather the expected slump or recession in the economy. This represents another loss of regular income for retired persons.
OM has a diverse economy but one of the main drivers is the macro hospitality industry - from vineyards to restaurants/coffee shops to accommodation establishments to whale watching/shark cage diving to boutique shops to supporting service industries. This whole sector has been extremely hard hit and will, due to the expected slow lifting of restrictions, remain in the doldrums for a very long time. It is already evident that businesses are closing down and will continue to do so at a more rapid rate as the lockdown continues. In the process thousands of jobs in both the formal and informal sectors are being lost.
Those residents that have not lost their work suffered severely due to a significant or even total loss of income.
As a result it can be expected that a large number of property owners and consumers of municipal services will be unable to meet their financial obligations towards the Municipality with a resultant loss of revenue. To try and shift this loss to the remaining ratepayers will not only meet with justifiable resistance but could have a knock –on effect to also bankrupt them and deepen the recession spiral .
BUDGET REVIEW PROPOSALS
The BBRA is not in the position to indicate specific steps but as a departure point reference is again made to Circular No 99 where in paragraph 8.2 of the Annexure it is stated:
“The 2020 Budget Review highlighted the proposed wage bill reduction for the public service. Similar to national and provincial government, municipalities must ensure that compensation demands are balanced with the broader needs of society. In this context, municipalities should start taking decisive action to address bloated organisational structures and above inflation increases.
Wage bill increases are crowding out spending on capital projects for future economic growth and impacts on service delivery”.
Against this background the BBRA is of the opinion that it behoves the Municipality to critically review the draft budget with the view of cutting costs in order to prevent or curtail rates and tariff increases which will burden the already hard hit ratepayers.
Some general proposals are:
That no increase in rates be approved and that the rate tariff rather be reduced by 5% to 10%.
That water, sanitation and refuse tariffs remain unchanged.
That, although Betty’s Bay falls outside OM’s supply area, the electricity increase be capped at the NERSA approved bulk supply increase.
That the loss of income due to the abovementioned proposals be off-set by:
Making no salary adjustments for 2020/21;
Freezing all vacant positions in principle and only filling those positions that would ensure basic service delivery;
Ensuring that all staff performances are carefully aligned and monitored to ensure maximum efficiency and value for money efficacy;
Conducting an in-depth zero-based budgeting exercise and then implementing the findings – no matter how harsh these might appear to be;
Effecting other drastic cost saving measures examples of which the BBRA deems to be too presumptuous to suggest but which could emanate from the preceding proposals.
I can only endorse the following from paragraph 10 of the Annexure to Circular No 99:
“The COVID-19 pandemic has introduced new dimensions of volatility, uncertainty, complexity and ambiguity to the task of financial stewardship across all spheres of government. Public policy decision-makers at all levels of government must act with vision, understanding, clarity and agility in responding to the crisis in a resilient manner. This will require a fundamental strategic rethink of the way in which we currently conduct our planning, budgeting and implementation processes.”
Chairperson of BBRA
21 April 2020