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STRICTLY CONFIDENTIAL 


EXECUTIVE SUMMARY 


SUBMISSION TO : Council 


DIVISION REQUESTING THE 


SUBMISSION Finance 


TITLE OF THE SUBMISSION 








MFMA Section 16(1)&(2) — Annual budget 2020/21 





1. SOLUTION REQUIRED 





Strategy Endorsement 





Commercial Options 





Approval 











Information xX 





2. PURPOSE 


To table the draft annual budget for the 2020/21 Multi Term Revenue and Expenditure 
Framework (MTREF). 


3. LEGISLATIVE BACKGROUND 


In terms of section 16 (1) and (2) of the MFMA, the council of municipality must for each financial 
year approve an annual budget for the municipality before the start of that financial year and in 
order for a municipality to comply with subsection (1), the mayor of the municipality must table the 
annual budget at a council meeting at least 90 days before the start of the budget year. 


4. DISCUSSION 


Overview of the Budget Process 


As required by section 21 (1) of the MFMA Council approved an IDP/ Budget Process Plan for the 
2020/21 Financial Year in August 2019. The plan outlined schedule of key deadlines for the 
review of the IDP and adoption of the budget. 


Various consultation processes were held with stakeholders in terms of the process plan, at 
public participation engagements for the draft IDP however due to COVID19 lockdown the 
consultation process had to be done using other platforms such as putting the notice on the 
website and local newspaper requesting comments from the public as well final IDP and Budget 
had to. 








Budget assumptions 


National Treasury issued MFMA/Budget Circular 99 indicating information relevant in the 
compilation of the 2020/21 budget. The following CPI’s were used to project expenditure for the 


2020/21 financial year as well as the two subsequent years: 























Item 2020/21 2021/22 2022/21 
Salaries 6.25% 4.6% 46% 
General expenditure 4.5% 4.6% 4.6% 








There has been an increment of 8.1% on Bulk electricity and 6.6% increase on water and 
ERWAT. The said projections were used to forecast revenue from services as well as to 
determine tariff increases for the 2020/21 financial year. 


The said circular advises municipalities to give attention to several areas of concern, among 
others: 


Revenue management 

Collection of outstanding debt 

Pricing services correctly 
Under-spending on conditional grants 


Division of Revenue bill of 2020/21 financial year has been issued, advising on the allocation of 
revenue raised nationally to other government spheres. It is outlined in the said bill, that the 
Lesedi’s allocation for equitable share is estimated at R148 million, indicated in Division of 
Revenue bill of 2020/21 financial year, while Municipal Infrastructure Grant is estimated at R26.4 
million. The proposed allocation has a significant impact on the municipality’s fiscal position and 
its commitment to meeting its set objectives. 


Cost containment measures 


In MFMA Circular No. 97 requires all municipalities to implement cost containment measures with 
effect of July 2019. The cost containment measures must be implemented to eliminate 
waste, reprioritize spending and ensure savings on six focus areas namely, consultancy 
fees, no credit cards, travel and related costs, advertising, catering and event costs as well 
as costs for accommodation. Municipalities were subsequently strongly urged to take note of 
the cost containment measures as approved by Cabinet and align their budgeting policies to 
these guidelines to the maximum extent possible and develop a cost containment policy. 


Although it’s acknowledged that local government is autonomous in its strategy formulation (IDP) 
and setting of budget appropriations, local government remains a sphere of government and must 
therefore align itself to the maximum extent possible to that of national and provincial 
government. In this regard in terms of section 62(1) of the MFMA the accounting officer of the 
municipality is responsible for managing the financial administration of the municipality, and must 
for this purpose take all reasonable steps to ensure: 

e That the resources of the municipality are used effectively, efficiently and economically; 

e That full and proper records of the financial affairs of the municipality are kept in accordance 
with any prescribed norms and standards; 

e That the municipality has and maintains effective, efficient and transparent systems of 
financial and risk management and internal control; and of internal audit operating in 
accordance with any prescribed norms and standards; and 

e That unauthorized, irregular or fruitless and wasteful expenditure and other losses are 
prevented. 


Overview of alignment of the Budget with the IDP 


The strategic objectives as per the draft IDP would be addressed by the budget. A reconciliation 
of the IDP strategic objectives and the budget are populated in the budget supporting tables SA4 
(revenue), SA5 (operational expenditure) and SA6 (capital expenditure). 


Measurable Performance Objectives and Indicators 


MFMA Circular 13, advises municipality to formulate the Service Delivery and Budget 
Implementation Plans (SDBIP), after adoption of the budget. The draft SDBIP will be informed by 
the approved budget and will be tabled to the Executive Mayor 14 days after approval of the 
budget, while the final SDBIP will be signed by the Executive Mayor within 28 days of approval of 
the budget, as legislated. 


5. FUNDING OF THE BUDGET 


In terms of section 18(1)(a)(b)(c) of the MFMA, an annual budget may only be funded from 
realistically anticipated revenues to be collected; cash-backed accumulated funds from previous 
years’ surpluses not committed for other purposes; and borrowed funds, but only for the capital 
budget referred to in section 17(2). 


Tariff increases 
It is well understandable that the municipality's ability to fund its operations is also based on its 


own generated revenue. MFMA circular 99 advises municipalities to apply cost-reflective tariffs. 
The following tariff increments are proposed to be affected in the 2020/21 financial year. 


Assessment Rates - 4.9%. 
Electricity - 6.23% 
Water - 6.6% 
Sanitation - 4.9% 
Refuse - 4.9%. 
Other income - 4.9%. 
Rental - 10% 


The electricity tariff application is in line with NERSA’s guidelines and as a result is approved by 
them. 


The following are budget related policies are presented for adoption: 


2 
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Credit Control and Debt Collection Policy 
Indigent Management Policy 

Tariff Policy 

Property Rates Policy 

Supply Chain Management Policy 

Cost containment policy 

Asset Management policy 

Budget policy 

Virement policy 

Loan policy 

Grants policy 

Funds reserves policy 

Inventory management policy 

Cash Management and payment of creditors policy 
Supply chain management policy 


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Short term insurance policy 


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Funding and reserves policy 


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Investments policy 
Long term financial policy 


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Revenue 


Proposed revenue for the 2020/21 financial year is as follows: 


Provision for doubtful debtors and debt write off policy 
























































eee Parenter E A 
Description cae 2021/22 2022/23 | Weighting 
R R 
Property rates 135,625,634 142,271,291 149,242,584 13.4 
Service charges- electricity revenue | 367,083,522 | 389,850,522 | 414,030,895 36.1 
Service charges — Water revenue 129,982,158 138,551,261 147,685,449 12.8 
Service charges — sanitation revenue 32,976,846 34,592,711 36,287,754 3.2 
Service Charges refuse revenue 35,285,092 37,014,062 38,827,751 3.5 
Fines 35,065,563 36,783,776 38,586,181 3.5 
Interest earned outstanding debtors 35,988,137 37,844,033 39,796,972 3.5 
Transfers recognized -Operational 162,749,024 179,328,479 203,279,479 16.0 
Transfers recognized -Capital 71,074,000 73,241,000 78,610,000 7.0 
Rental of facilities and equipment 5,587,756 5,861,554 6,148,771 0.6 
Other revenue 4,257,880 4,466,515 4,685,375 0.4 
Total 1,015,675,612 1,064,832,078 | 1,157,181,211 100 





The largest revenue items are electricity at 36.1%, grant income at 23% (16% is operational 
grants and 7% is capital grants), property rates at 13.4% and water sales at 12.8%. The three 


items generate 85.3% of the revenue of the municipality. 





Expenditure 


Proposed expenditure for the financial year is as follows: 












































Sea FR TET 

Description ny 21 2021/22 2022/23 | Weighting 
R R 

Employee costs 215,770,342 226,662,542 237,724,630 22.3 
Councilors remuneration 12,559,572 13,375,944 14,084,869 1.3 
Debt Impairment 158,355,796 | 166,728,545 | 175,549,677 16.4 
Depreciation 39,845,956 41,687,517 43,730,203 4.1 
Finance charges 7,607,693 7,547,828 7,917,673 0.8 
Bulk purchases: Electricity and 37.6 
Water 363,306,696 | 388,150,882 | 414,694,535 
Other Materials 17,452,857 17,658,889 18,516,775 1.8 
Contracted services 95,961,839 85,955,457 97,272,720 9.9 
Other expenditure 55,087,636 57,509,580 59,850,221 5.7 
Total Expenditure 965,948,387 | 1,005,277,184 | 1,069,341,303 | 100.0 


The largest expenditure items are bulk purchases at 37,.6% employee related costs at 22.3% and 


debt impairment at 16.4%. The three items make up 76.3% of the expenditure of the municipality. 


Capital Budget 


The Capital Budget amounts to R79,691,405 and is funded as follows: 























Budget 
Description 2020/21 Weighting 
R 
National Government funded 65,639,000 82% 
Lesedi L.M. (own funded) 14,052,405 18% 
TOTAL 79,691,405 100% 














CAPITAL PROJECTS 2020/21 


























































































































GRANT FUNDED PROJECTS 

Typ Votenumber Description Department Source of funding Budget Adj Budget Budget 20/21 Budget 21/22 Budget 22/23 
P (31106420420CLDO6ZZWM [VEHICLE Libraries Recapitalisation of Community Grant - Libraries 500 000.00 525 000.00 550,000.00 
P  |31106456420CLD4822W7 _ {ALARM SYSTEM Libraries Recapitalisation of Community Grant - Libraries 50000.00 
P |31106456420LBD4922W7  |RFID GATES Libraries Library Plan - 280,000.00 - - - 
P [31106460420CLC95ZZWM ĮFURNITURE Libraries Recapitalisation of Community Grant - Libraries 150 000.00 - 300 000.00 315 000.00 330 000.00 
P (31106460420LBD44ZZW7 {CCTV CAMERAS Libraries Library Plan 50000.00 
P (31106460420LBD45ZZW7 [BIG SCREEN TV Libraries Library Plan 50000.00 
P  |31106460420LBD4722WM {OFFICE EQUIPMENT Libraries Library Plan - 78 000.00 - - - 
P (31106470020CLC84ZZWM [COMPUTER HARDWARE Libraries Recapitalisation of Community Grant - Libraries 480 000.00 510.000.00 250 000.00 262 500.00 275 000.00 
P (31106473520CLD03ZZW2 _|MAINTENANCE DEVON Libraries Recapitalisation of Community Grant - Libraries 2.000 000.00 430 433.00 
P |31106473520CLD04ZZWM ĮREWIRING OF HEIDELBERG LIBRARY Libraries Recapitalisation of Community Grant - Library Plan - 1917 483.00 - - - 
P [31106473520CLDO8ZZWM ĮNEW BOOKS Libraries Recapitalisation of Community Grant - Libraries 1000 000.00 3000 000.00 1000 000.00 1050 000.00 1100 000.00 
P  |31106473520CLD38ZZW4 _|FENCING OF RATANDA PROPER Libraries Library Plan 1000 000.00 2.000 000.00 
P |31106473520CLD39Z2W4 [CAR PORTIN RATANDA Libraries Recapitalisation of Community Grant - Libraries 120 000.00 129 045.00 - - - 
P (31106473520CLD55ZZWA  JKWA - ZENZELE LIBRARY Libraries Library Plan - 2515 000.00 2694 000.00 2874 400.00 
P |31106473520LBD46ZZW7 _|PLAY AREA EQUIPMENT Libraries Library Plan 150.000.00 
P |31206473520CGD50ZZWM JFIRE ENGINE Fire Fighting and Protection COGTA - 6 000 000.00 - 
P |371564324201PC61ZZW4 JELECTRIFICATION- OBED NKOSI Electricity INEP 900 000.00 6545 000.00 
P (37156433020CFC63ZZWM STREET LIGHTS (EDDSM) Electricity EEMD 7 000 000.00 
P (371564330201PC65ZZW4 JELECTRIFICATION- OBED NKOSI Electricity INEP 727 600.00 - - - - 
P (371564370201PD12ZZW7 JELECTRIFICATION- IMPUMELELO - MV Electricity INEP 5000 000.00 4027 600.00 12455 000.00 15 500 000.00 18 000 000.00 
P (371564374201PD11ZZW7 __|ELECTRIFICATION- IMPUMELELO - LV Electricity INEP 6372 400.00 6 372 400.00 - 
P (371564374201PD13ZZWM _JINSTALLATION OF HIGHMASTS AT LESEDI Electricity MIG 1904 000.00 3 104 000.00 : 6241 000.00 - 
P [37306472420FMDO1ZZW4 |CONST ROADS & S/W RATANDA 1;3;6 & OBED N Roads and Stormwater MIG 11500 000.00 1100000.00 5490 000.00 7 000 000.00 8 000 000.00 
P (37306472420FMD15ZZW8 |CONSTR ROADS & STORMWATER JAMESON PARK Roads and Stormwater MIG 7800 000.00 7800 000.00 5977 581.04 13.000000.00 
P  |37306472420FMD16Z2W4 {CONSTR ROADS & STORMWATER RATANDA EXT7 Roads and Stormwater MIG 4000 000.00 4000 000.00 2910 000.90 - 
P (37306472420FMD51ZZW5 |CONSTR ROADS & STORMWATER EXT 23 Roads and Stormwater MIG 6171418.06 5000 000.00 - 
P |37306472420FMDS3ZZWA_|CONSTR ROADS & STORMWATER KWAZENZELE PHASE 1 [Roads and Stormwater MIG - 5700 000.00 10 000 000.00 8 698 000.00 
P (37356449420FMD14ZZW2 JUPGRADING OF DEVON WASTE WATER TREATMENT Waste Water Management MIG 1200 000.00 - 
P |37356449420WGD18ZZWM JUPGR SEWER PIPELINE THOKOLOHONG AGRI VIL Waste Water Management MIG 7 000 000.00 2.000 000.00 - - - 
P (37356449420WGD54ZZW4 JUPGR SEWER PIPELINE IN RATANDA EXT 2 Waste Water Management WSIG : - 6 000 000.00 7220 000.00 7566 560.00 
P |37456446020WGD17ZZWM JREPLACEMENT OF ASBESTOS PIPES LESEDI P5 Waste Water Management WSIG 8 000 000.00 8 000 000.00 9825 000.00 11 780 000.00 12 345 440.00 

Total Grant funded Projects 66 154 000.00 51048 961.00 65639 000.00 67 587 500.00 72739 400.00 











INTERNAL FUNDED PROJECTS 










































































































































































Typ Votenumber Description Department Source of funding Budget Adj Budget Budget 20/21 Budget 21/22 Budget 22/23 
P  [31106473520CFDSSZZWA IKWA - ZENZELE LIBRARY ibraries ternal Fundin 1200000.00 
S1156472420CFD30ZZWM_ {INTERNAL ROADS EKHUTULENI CEMETERY Cemeteries nternal Fundin 1500000. - - 
P (31206456420CFD27ZZWM _|FIRE ENGINE Fire Fighting and Protection internal Fundin 4500000. 4652 405, 4652.405,00 
31306420420CFDO6ZZWM [VEICI ealth nternal Fundin - - 
P (31556456020CFC83ZZWM BUSH CUTTERS; CHAINSAWS: BLOWERS jodiversity and Landscape nternal Fundin 350000. 115470, 200000.00 
32156421020CFD40ZZWM {MAYOR'S CAR ecutive Mayor Internal Fundin 700000. 527 04d, 
32206421020CFD41ZZWM SPEAKER'S CAR Speaker nternal Fundin 500000, 502.174, 
P  |33206473520CFCS6ZZW6 {SHARED ECONOMIC INFRASTRUCTURE FACILITY D internal Fundin 59.960 
S4106474020CFC4AZZHO UPGRADE OF MUNICIPAL BUILDING Finance ternal Fundin 300000 
P  |35106460420CFCOSZZWM  |FURNITUR Administrative and Corporate Support Internal Fundin 350000. - 
35206470020CFCBAZZWM {COMPUTER HARDWARE CT ternal Fundin 1000000, 62911 1500000.00 
P  |37156420420CFCO3ZZWM VEHICLE CHERRY PICKER ectricity internal Fundin 300000. 
P  |37156433020CFCEGZZW4 ELECTRIFICATION- RATANDA EXT 8 ectricity internal Fundin 500000. 500000. - 
P  |37156433020CFC7OZZW4 ELECTRIFICATION- IMPUMELELO ectricity internal Fundin 3000000.00 
P  |37156433020CFD2222WM UPGRADING & REFURBISHMENT OF NETWORK ectricity internal Fundin 500000. 
P (37156456420CFD24ZZWM TOOLS & EQUIPMENT ectricity nternal Fundin 150000. 77000, - 
P (37306472420CFC87ZZWM |RESEALING OF ROADS Roads and Stormwater nternal Fundin 5000000, 3500000.00 
P  [37306472420CFCSGZZW8 {CONSTRUCTION OF ROADS JAMESON PARK Roads and Stormwater ternal Fundin 1310000, 
P  |37356420420CFCS1ZZWM_ TRAILERS Waste Water Management Internal Fundin 350.000. 
P  |37456456420CFD37ZZW4 |UPGRADING TELEMETRY SYSTEM Water ternal Fundin 500000 : - 
Total Internal funded Projects 16200000. 8636 964, 14052 405.00 
TOTAL CAPITAL 82354000. 59 685 925.00 79.691. 405.00 67587500.00 72739400.00 
5. LEGISLATIVE PROVISION 
Section 16 (1) and (2) of the MFMA. 
6. LC.CM-.../05/2020 RECOMMENDATION 
6.1 THAT Council notes the annual budget with operational and capital revenue of 


R1,015,675,612 operational 
R79,691,405 for the 2020/21 financial year as contained in the following tables: 


expenditure of R965,948,387 and Capital 


Expenditure of