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Morale City 


2011-2012 BUDGET REPORT 


24 th March 2011 


1 


1. TABLE OF CONTENTS 



BUDGET REPORT 

Page 

1 




TABLE OF CONTENTS 

2-4 


PART 1: ANNUAL BUDGET 


1 . 

Introduction 

5 

2. 

Budget Resolutions 

6-7 

3 

Executive Summary 

8 


— 


1 

PART 2: SUPPORTING DOCUMENTATION 


4 

Supporting Information on the budgeted proposal 


4.1 

Overview of Annual Budget Process 

12 

4.2 

Budget Assumptions 

13-14 

4.3 

Funding of the budget 

16-17 

4.4 

Cash Flow focus 

18 

4.5 

Disclosure of funding made by the municipality 

18 


— 



2 



5.1 

SCHEDULES TO THE BUDGET REPORT 


i 

MLCM Budget Summary 

19-22 

2(a) 

2010/2011 Proposed Secured IDP Link Capital Projects Budget 

23-25 

2(b) 

Out-of-books Capital Budget 

26 

3 

Proposed rates, tariffs and user charges for 2011/2012 

27-51 

5.2 

Annual Budget Tables 


A1 

Budget Summary 

52 

A2 

Budgeted Financial Performance (revenue and expenditure by standard 
classification) 

53 

A3 

Budgeted Financial Performance (revenue and expenditure by municipal 
vote) 

54 

A4 

Budgeted Financial Performance (revenue and expenditure) 

55 

A5 

Budgeted Capital Expenditure by vote, standard classification and 
funding 

56 

A6 

Budgeted Financial Position 

57 

A7 

Budgeted Cash Flows 

58 

A8 

Cash backed reserves/accumulated surplus reconciliation 

59 

A9 

Asset Management 

60 

A10 

Basic service delivery measurement 

61 


1 






3 



6 

ANNEXURES: BUDGET RELATED POLICIES & IDP 


1 

Credit Control and Debt Collection Policy 


2 

Revised Property Rates Policy 


3 

Revised Municipal Property Rates by law 


4 

Revised Write Off Policy 


5 

Sport & Recreation Facilities Tariff Policy 


6 

Revised Indigent Management Policy 


7 

Draft Tariff Policy 


7.1 

Engineering Services Tariff Determination Policy 


8 

Virement Policy 


9 

Funding & Reserves Policy 


10 

Policy Directive for Deviations from the normal Supply Chain 

Management Process 


11 

Draft 5 year Integrated Development Plan (IDP) 



4 


1. Introduction 


During the 2011/12 financial year we hope to raise Rl, 484,875,988 in billed revenue and 
operational grants, excluding capital grants of R115, 334,678. Of the Rl, 484,875,988 
revenue anticipated Rl, 484, 875,988 will be spent on operational budget to deliver services 
like water, electricity distribution, sanitation and sewerage and refuse removal. The rest 
amounting R115, 334,678 will be spent on capital budget to achieve the following objectives. 

1. To provide sustainable services to the community. 

2. To promote sustainable environmental services. 

3. To promote sustainable governance to the local community. 

4. To ensure sustainable governance practice within the municipality. 

In compiling this 2011/12 annual budget the strategic planning document was compiled and 
reconciled with the IDP. Community consultations were held in November 2010, and inputs 
from the community of Mogale City were gathered and used to inform the IDP. On 
operational budget however some of the items like bulk purchases and employee related 
costs are predetermined, despite that, the overwhelming request from communities for 
repairs on roads, street lights and storm water drainage resulted in additional funds set aside 
to improve maintenance of existing infrastructure. 


5 



2. Resolutions 


Council resolves: 

2. That the annual budget of Mogale City Local Municipality for the financial year 2011/12 
and indicative estimates for the two projected outer years 2012/13 and 2013/14, as set 
out in the tables listed below be tabled. 

2.1 Budget Summary : Table Al; 

2.2 Budgeted Financial Performance: (Revenue and Expenditure by standard 
classification): A2; 

2.2 Budgeted Financial Performance : (Revenue and Expenditure by Municipal votes):A3 

2.3 Budgeted Financial Performance : ( Revenue and Expenditure) :A4 

2.4 Budgeted Capital Expenditure vote: (Standard classification and funding): A5 

2.5 Budgeted Financial Position : A6 

2.6 Budgeted Cash Flows:A7 

2.7 Cash backed reserves/accumulated surplus funds reconciliation : A8 

2.8 Assets Management: A9 

2.9 Basic service delivery measurement : A10 

3 The proposed increase on property rates of 12%, based on the existing and 
supplementary valuation rolls be tabled. 

4 The proposed increase on sanitation tariffs of 13% on the 2011/12 budget be tabled. 

5 The proposed increase on electricity tariffs of 20.38% on the 2011/12 budget be tabled. 

6 The propose tariff increase on water is about 19% based on the new policy for 
Engineering Services Determination attached as Annexure 7 however an increase of 
12,9% in revenue is assumed. 

7 The increase of the remaining tariffs of 10% be tabled as reflected in Schedule 3. 

8 The amended credit control and debt collection policy be tabled as attached in 
Annexurel. 

9 That the revised property rates policy attached as Annexure 2 be tabled. 

10 That the revised municipal property rates by-law attached as Annexure 3 be tabled. 

11. The write off policy attached as Annexure 4 be tabled. 

12. That the Sport and Recreation facilities tariffs policy attached as Annexure 5 be tabled. 

13. That the revised indigent policy attached as Annexure 6 be tabled. 

14. That the tariff policy for Engineering Services Determination attached as Annexure 7 be 
tabled. 

15. That the Virement policy attached as Annexure 8 be tabled. 


6 


16. That the Funding and Reserves policy as Annexure 9 be tabled. 

17. That the Integrated Development Plan (IDP) as attached be tabled. 


7 



3. Executive Summary 


3.1 2011/2012 Operational budget proposal 

3.1.1 The total estimated operational revenue for 2011/2012 from own sources is 

Rl, 284, 152, 206 and estimated R200,723,782 from National, Provincial Government 
and District Municipality as operational grants and subsidies. The estimated total 
revenue for the year 2011/2012 is Rl, 484,875,988. The estimated revenue is 14% 
above the current adjusted budget. On the other hand the proposed estimated 
operational expenditure for 2011/2012 annual budget is Rl, 484,875,988, 14% above 
the current adjusted operational expenditure budget. 


Table: 1 Operational Expenditure 



2010/2011 

2010/2011 

2011/2012 


Original Budget 

Adjusted budget 

Proposed budget 


R 000 

R 000 

R 000 

Expenditure 

1,257,831,977 

1,307,886,887 

1,484,875,988 

Transfer to Capital 

214,330,391 

97,405,828 

115,334,678 

Revenue 

1,356,071,812 

1,307,886,887 

1,484,875,988 

Surplus/ (Deficit) 

0 

0 

0 


3.1.2 Table A2, A3 and A4 attached to this report shows budgeted financial performance, 
table A6 shows financial position and table A7 shows budgeted cash flow for financial 
year 2011/2012. 

3.1.3 The charts bellow illustrates revenue according to sources and operational 
expenditure allocations according to departments in Mogale City. 


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Chart 1: Revenue by source 


Grants and Others 
Fines Subsidies- 5% 
1 % 14% 


Sanitation 

Revenue 

6 % 


Water Charges 
11 % 


Property Rates 
17% 



Chart 2: Expenditure by type 


Rppairs and 

Maintenance^^ 

General 7% 

Expenses 
19% 




Internal 

Charges 

k 



Remunerations 
ouncilors 
1 % 


K 

Transfer 

to/from 


provisions 

11 % 


9 


Chart 3: Expenditure by vote 


MM'Office 

2 % 


corporate 
Support M UniC j pa | 
/-Services Financial 
' 9% Services 

n% 



Economic 
■Services 
18 % 


ntegrated 
Environmental 
Services 
12 % 

Social Services 

1 % 


3.2. 2011/2012 Capital Budget 

3.2.1 The total capital budget for Mogale City for 2011/12 is R258,331,582. This 
R58,287,547 (29%) above the 2010/11 adjusted capital budget. 

Table 2: Capital Expenditure 



2010/2011 

2010/2011 

2011/2012 


Original 

Adjusted 

Proposed 


Budget 

budget 

budget 


R 000 

R 000 

R 000 

Total Expenditure 

214,330,391 

200,044,035 

258,331,582 


3.2.2 Details of the proposed capital budget funding are as follows: 

• R58,231,588 from own source revenue generated from main 
tariffs. 

• R77,915,718 from Municipal Infrastructure Grant 

• R4, 064, 000 from Extended Public Works Program 

• R20,000,000 from Neighborhood Development Partnership Grant. 

• R5, 284, 400 from Department Local Government 

• R7, 070, 560 from West Rand District Municipality for DMA 

• Rl, 000, 000 Department of Sport Recreation Arts and Culture 

• R84,765,315 from long term loan 


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Chart 4: Funding of the proposed 2011/12 Capital budget 




Chart 5: Capital Budget by Vote 



Integrated 
Environmental 

Management 
Social Services 13% 

1 % 


Corporate Support 
Services 


Municipal Financial 
Management 
0 % 


3.2.3 Council also supports investments project within the municipal boundaries that 
are totally funded by other government sphere or private sector initiative. 
These projects are termed “out of books” project since the funding for the 
project does not flow through Mogale City 's bank account. A list of these 
projects is attached as Schedule 2(b). 


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4. SUPPORTING DOCUMENTATION ON THE BUDGETED PROPOSALS 
4.1 2011/2012 Overview of annual budget process 

4.1.1 Legislative requirements: The Municipal Finance Management Act sets out 
the key legislation for the budget process: These comprise the following: 

Timing: The Mayor must table the annual budget of the municipality at a council 
meeting at least 90 days before the start of the budget year. The council must 
consider approval of the annual budget at least 30 days before the start of the budget 
year. 

Content of the budget: Section 17 of the MFMA sets out the requirement of the 
content of the budget report and supporting. In addition, National Treasury published 
government gazette 32141 that serves as additional regulation and guidelines on the 
budget report content .The key document that must be supplied include the following 

• Resolutions imposing any municipal tax and tariffs for the budget year. 

• Resolutions approving measurable performance objective for the revenue 
from each source and for each vote in the budget 

• Resolution approving any changes in the municipality 's Integrated 
Development Program (IDP). 

• Resolution approving any changes to the proposed tariffs on the household 
account 

• Projected monthly cash flow forecast. 

Funding of the budget: Section 18(1) of the MFMA states that the annual budget 
may only funded from: 

• Realistically anticipated revenue. 

• Cash backed accumulated funds, from previous year’s surplus not committed 
for other purpose. 

• Borrowed funds but only for financing of capital budget. 

Consultation on the tabled budget: The budget documentation must be made 
public immediately after tabling. This includes posting the information on the 
municipal web site and placing the budget at the libraries. The requirements of the 
MFMA to seek view on the tabled budget from the under mentioned stakeholder must 
be adhered to. 

• The local community 

• The relevant district municipality 

• Other local municipalities within the area 

• The relevant provincial treasury and 

• Providers of bulk services. 


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4.2 Budget Assumptions 

i. Introduction: This section of the budget report provide 
comprehensive summary of all the assumption used in the budget 
proposal. Budgets are prepared in an environment of uncertainty and 
assumptions need to be made about both internal and external factors 
that could impact on the budget during the course of the financial year. 

ii. It should be noted that the longer the period the more uncertainly and 
vice versa, the two outer period as presented on the budget are more 
likely to be missed than the 2011/12 estimates. 

iii. National economic outlook: During the compilation of this budget 
the economic growth was recorded at 2.8% and it is estimated to grow 
at growth of 3 % in 2011 and 3.8% in 2012. This budget was prepared 
with these projected growth in mind 

iv. Inflation rate was recorded at 4.3% Y/Yin 2010 or 3.6% in December 
2010. It is estimated that inflation rate for the year 2011 will remain 
below 4.4% Y/Y. However this estimation assumed a stable crude and 
other commodity prices, with the price bent crude oil hovering around 
$115 , it is expected that inflation will higher than expected hence a 
rate of 4.9% was assumed in the budget. 

v. Prices increases on various items on the budget were assumed as 
follows 

• Employees related costs were increased by 7.5% based on 
the multiyear agreement signed between organized labour 
and employer which states that should inflation rate be less 
than 5% or more than 10% parties may open negotiations, 
the assumption made is that labour will reopen the 
negotiation and a settlement will be above the current 6,5% 

• General expenditure was increased by 27% mainly as a 
result of requests from departments 

vi. Price movements on bulk purchases: Based on correspondence 
received from Rand Water and National Treasury, the price of water 
purchases will increase by 12.9% and the price of electricity 
purchases will increase by 26.71% 

vii. Remuneration of councilors: Councilors remunerations were 
increased by less than 1% 

viii. Overtime and leave payment: it was assumed that leave will be paid 
only on termination due to resignation, death or dismissal. It was also 
assumed that the municipality will not purchase any leave in cash 
during the year. Overtime was budget based on municipal overtime 
policy and legislation that exempt employee earning more than R140k 
from earning overtime. 

ix. Depreciation Expenses: Depreciation expenses increase by 6% 
based on the current expenses and 6% increase in acquisition of new 
assets. 


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x. Interest on borrowing: Currently prime landing is 9.5% and based on 
the inflation rate above, stable interest rate is expected during the 
most of the budget period 

xi. Collection rate: collection rate of 91% was assumed during budget 
period based on the current performance and leading economic 
indicators which suggest improved economic activities. 


4.2.1 Overview of budget related policies: 

4.2.2 Various policies approved by Council underpin governance and the 
financial functioning of the municipality and are relevant to the budget 
process. The purpose of this section of the Budget Report is to indicate 
the key policies in this regard and to seek approval for any new or 
amended policies by Council. 

4.2.3 The following budget related policies approved by Council for 
implementation in the 2010/11 financial year remain in force for the 
2011/12 financial year: 

Supply Chain Management Policy, 

Investment, borrowing and cash management Policy 
Budget Management Policy 

4.2.4 Changes are proposed to the 2010/2011 Property Rates Policy as 
follows: 

1. Par 7.1: after 7.1.8, add 7.1.9, 7.1.10 and 7.1.11 for Institution, 
Education and Private Open Space respectively which are three more 
categories of properties. 

2. Par 11.1(a): Delete the sentence which reads as follows, “ Where 
municipal properties are leased, the lessee will be responsible for the 
payment of the determined assessment rates” and insert the sentence 
which reads as follows,” However, the municipality may levy rates and 
taxes on its own properties if the properties fall within the following 
categories: 

(i) Municipal properties that are leased out, more so on long leases, the lessee 
will be responsible for the payment of the determined assessment rates. 

(ii) Municipal properties that have been sold by a municipality and of 

Which possession was given to the buyer pending registration of Ownership 
in the name of the buyer. 


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4.2.5 Changes in the Credit Control Debt Management Policy 

• All debtors with arrears more or above R500 on clause 5.2 has been 
removed. 

• Are subject to the normal credit control and debt collection process clause 
has been added on clause 5.9 and are handed over for collection to debt 
collectors appointed for this purpose clause has been removed. 

• The account settled in full has been added on clause 6.1. 

• A Water and Lights account cannot be opened without written consent of 
the owner of the property, accompanied by proper identification, provided 
that no arrears are owed to the municipality for that property or unless 
there is a formal arrangement by the owner of the property to pay the 
arrears. This last paragraph on clause 6.2 has been deleted. 

• The amount subject to cut offs has been increased to R650.00 on clause 
6.4.1 and other credit control measures removed. 

• On clause 6.4.5 paragraph two, the word disconnections were replaced 
by restriction. 

• Is outstanding for 90 days and above clause has been removed on clause 
6, 11.1 and Government account will not be handed over to external debt 
collector’s clause was added on the same clause. 

• Clause 6.11.3.1,6.11.3.2, and 6.11.3.3 has been removed. 

• Any amount outstanding over 90 days and above clause has been 
replaced by accounts that remain outstanding after internal credit control 
measures on clause 6.11.4 

• Less 4 percent on clause 6.12,1 has been removed. 

• Clause 6.17 has been added; Consumers who settled their account in full 
or within six months will be entitled to hundred percent (100%) interest 
write off. 


4.2.6 Changes in the write off policy 

This clause has been added; 

• If the debtor is declared or approved as indigents in terms of the indigent 
management policy 

• With the exclusion of indigent, interest and any other write off in terms of any 
approved council policy. 


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4.3 Funding of the budget 

4.3.1 Key funding for operating budget: The operating budget is mainly 
funded by main tariffs, i.e. Property rates, Electricity, Water and Sanitation as 
well as refuse removal. Billed revenue from these sources is expected to 
amount to Rl, 200, 009, 191. Grant and subsidies amounted to 13.5% of the 
total funding. 

4.3.2 Funding source for the Capital Budget: Confirmed to date Capital 
Budget is funded largely from own revenue, long term loans and MIG which 
amounted to R77, 915,718 in 2011/12. The own funded projects is proposed 
to be funded from own funding to the value of R58, 231, 588. The funding 
structure of the capital budget is as follows 

• R58,231,588 from own source revenue generated from main 
tariffs. 

• R77,915,718 from Municipal Infrastructure Grant 

• R4, 064, 000 from Extended Public Works Program 

• R20, 000,000 from Neighborhood Development Partnership Grant. 

• R5, 284, 400 from Department Local Government 

• R7, 070, 560 from West Rand District Municipality for DMA 

• Rl, 000, 000 Department of Sport Recreation Arts and Culture 

• R84,765,315 from long term loan 


Table 3: Property rates Act 



2010/11 

Original 

Budget 

2010/11 

Adjusted 

budget 

2011/12 

Proposed 

budget 

Budget revenue 

387,064,942 

351,464,498 

393,663,553 

Revenue forgone 

131,369,217 

125,517,896 

140,580,045 

% Increase 

27,8% 

-12% 

12% 


4.3.3 Property Rates: The proposed increase for Property Rates is 12% during the 
financial year 2011/12. This rate is based on the new valuation roll. 


Table 4: Electricity 



2010/11 

Original 

Budget 

2010/11 

Adjusted 

budget 

2011/12 

Proposed 

budget 

Budget revenue 

524,983,900 

521,737,766 

628,067,923 

% Increase 

6,27% 

-0,61% 

20.30% 


4.3.4 The 2011/12 electricity revenue has assumed 20.30% increased as result of a 
communication from National Treasury on budget guidelines and Nersa. 


16 




Table 5: Water Revenue 



2010/11 

Original 

Budget 

2010/11 

Adjusted 

budget 

2011/12 

Proposed 

budget 

Budget revenue 

149,985,106 

149,287,643 

168,599,749 

% Increase 

11% 

-0.46% 

12,9% 


4.3.5 Water revenue is expected to increase by 12.9% as result of adjustment of 
tariffs by same percentage emanating from Rand Water 's intention to 
increase water tariffs by similar percentage. 


Table 6: Sanitation Revenue 



2010/11 

Original 

Budget 

2010/11 

Adjusted 

budget 

2011/12 

Proposed 

budget 

Budget revenue 

55,534,935 

73,034,035 

82,528,462 

% Increase 

-21% 

31.5% 

13% 


Table 7: Refuse Collection 



2010/11 

Original 

Budget 

2010/11 

Adjusted 

budget 

2011/12 

Proposed 

budget 

Budget revenue 

73,802,496 

57,085,734 

64,506,881 

% Increase 

-23% 

% 

13% 


17 







4.4 CASH FLOW FOCUS 


It is projected that the new financial year will be kicked off with a zero balance. 

4.4.1 We project to start the year with zero balance cash / cash equivalents and project an 
average collection rate for the coming financial year of 91%. Based on these 
assumptions the projected income for the year exceeds the projected expenditure for 
the year by R403k 

4.4.2 The average collection rate for main tariffs for the current financial year to date is 
91%. 

4.4.3 It is suggested that the proposed expenditure levels are maintained and not be 
increased at this stage. In the light of the current economic environment and the 
projection negative outlook in inflation it is prudent to budget for a higher than normal 
cash in hand to buffer against negative economic circumstances may cause the 
proposed collection rate of 91% not to be achieved. Therefore Mogale City will have 
to monitor its operational expenditure closely and safe as much as possible, curb all 
non essential and non service delivery expenditure and ensure that the budgeted 
collection rate is achieved to enable the municipality to function efficiently and deliver 
services to the community. 

4.4.4 It is recommended that Mogale City’s proposed operating and own funded capital 
budget is maintained for the time being and if the collection rate of 91% is proving to 
be achievable and maintainable and the propose increase of Water and 
Sanitation of 19% could yield positive results, the surplus that may become 
available could then be utilized to motivate an increase in the own funded capital 
budget at the time when the Municipality considers its adjustments budget. 


4.5 Disclosure on allocation made by the municipality 

4.5.1 Section 17 (j) of the MFMA requires the municipality to disclose in its budget 
documentation the amounts of any proposed allocations or grants by the municipality to 
other municipalities, municipal entities, other organs of state or any outside 
body/organization. The Council allocates grants-in-aid, discretionary grants, and grants by 
councillors (included in the operating budget) on an annual basis to needy organizations, 
based on business plans indicating the proposed usage of such funds. 


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