City of Cape Town Metro IDP, LED and budget implementation

NCOP Finance

31 January 2017
Chairperson: Mr C De Beer (ANC, Northern Cape)
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Meeting Summary

The National Treasury noted that capital expenditure for the Western Cape and Cape Town City was below 90 percent. The City had an operating surplus of R2.2 billion. The City had to implement cost containment measures to generate cash for road infrastructure, water and electricity. The City had improved steadily with regard to capital grant dependency. Borrowing increased to 44 percent in 2015/16. The City had to implement stringent cash collection strategies to improve the cash flow. 75 percent of capital grants was spent. The transformation of City space would attract investment. The City employed a variety of revenue management strategies.

In discussion, the National Treasury was questioned about its concerns listed in the previous year.

The Western Cape Provincial Treasury noted that for the City of Cape Town, the operating revenue budget performance went up to 52 percent of the total adjusted budget as at 31 December 2016. There was underperformance on fines revenue collection. The operating expenditure was 44 percent of the total budget. There was underspending on transfers and grants. The total of outstanding debtors amounted to R7.58 billion. The largest overdue debt was related to water and property rates. Total accounts payable to the City was R256.65 million. The closing balance on the investment portfolio was R9.85 billion. Support to the City covered the reduction of debt owed by government departments; revenue management; expenditure management; supply chain management; expenditure management, and infrastructure.

In discussion, there were remarks and questions about water and property rates; engagement by the PT with the City about debtors and creditors; the fact that the City had improved from capital grant dependency, but borrowing increased; spending of capital grants; control problems in Western Cape municipalities that needed intervention; the fact that tenders by those who owed the City were not considered, whilst payment to suppliers was being withheld; and economic growth in metros as it related to overall economic growth.

The briefing by the City of Cape Town dealt with alignment of the Integrated Development Plan (IDP) with the NDP. There had to be spatial transformation for densification, and an improved public transport system for mobility. Housing opportunities, infrastructure investment and capital budget spending had to be improved. The City Council adopted an Organisational Development and Transformation Plan (ODTP) in August 2016, to enable the City to be responsive to citizen needs, to be sustainable, and to be adaptable in terms of services. The economic growth strategy promoted business sectors to attract investment. Local development programmes aimed to enhance the informal sector. There were work programmes to develop a comprehensive green economy; to manage water conservation, and to sustain and expand the eco-tourism sector.

In discussion, there were remarks and questions about the 30 percent spending of the Human Settlements Grant; Cape Flats challenges, especially flooding; spatial development and expansion; desalination and water disorders; measurable resources turned into programmes; the EPWP and drug and gang interventions; fires, and planning for informal settlements to get basic services.

Meeting report

Introduction by the Chairperson
The Chairperson welcomed everyone to what was to be a difficult and busy year. If everyone saw to their responsibilities, life would be easier in South Africa. He introduced himself as Charl de Beer, representing the Northern Cape. It was the first time ever that the City of Cape Town appeared before the Select Committee. National treasury (NT) was to present on the budget performance of Cape Town City, and the Provincial Treasury (PT) on budget performance and support to the Cape Town Metro. He told everyone to relax, as it was not a fight. Parliament and the entities had to support each other to take SA forward. The Select Committee on Appropriations would start at 13h00. There were visitors from Saldanha Municipality already present. Mr Mohai would chair the Appropriations Select Committee meeting. Previously, Mr Mohai served on the executive of the Free State government. The Cheetahs won the Currie Cup the year before, and the province had the best matric results. The National Council of Provinces (NCOP) was often asked what it was doing, at street level. The media portrayed the National Assembly as being the whole of Parliament. But there were two Houses. According to the Constitution the NCOP had to promote and adhere to cooperative government and intergovernmental relations. It was stated in chapter 3 of the Constitution that the three spheres of government had to cooperate and coordinate their actions. There had to be engagement with the Cape Town City financial position and revenue expenditure and deficit and surplus liabilities. The SC Appropriations could get into Municipal Infrastructure Grant (MIG) funding, in terms of the Division of Revenue Bill. The equitable share for the Western Cape was R2.4 billion, and conditional grants amounted to R2.1 billion, for a total of R4.5 billion. Liabilities came to R9 billion. There had to be good government and sound financial management, and accountability and compliance in terms of the Constitution and the Public Finances Management Act (PFMA). If there was compliance, there would be fewer managerial problems. There had to be consequences for breaking the law. It would not do to just talk. People outside wanted government to do its best for them. The IDP and the budget had to speak to each other. It was a difficult year for economic growth. The Deputy President had led a team to Davos, and there was a nine point plan. Everyone had to do their best.

Briefing by the National Treasury on the performance of Western Cape municipalities and the City of Cape Town
The briefing was presented by Mr Templeton Phogole, Director: Local Government Budgets, and Mr Nishendra Moodley, Governance Leader: City Support programmes. Capital expenditure for the Western Cape and Cape Town was below 90 %. The City’s operating surplus before capital transfers stood at around R2.2 billion. Capital grant transfers did not contribute to generated cash flow. The City had to implement cost containment and had to generate more cash for road infrastructure, water, electricity and refuse collection. The City was advised to operate within the 93:7 and 95:5 cost to income ratio to generate cash flow reserves. The City was steadily improving from capital grant dependency. Borrowing increased from 36 percent in the 2012/13 to 2014/15 period to 44.6 percent in the 2015/16 year. The City had to implement stringent cash collection strategies to further improve its cash flow. TheCity spent 75 percent of its capital grants, according to unaudited results. The NT drove a city support programme to transform city space. The private sector had to be engaged in the budgeting process for transformation. Transformation of City space could attract investment. The City’s revenue management strategies included upfront credit control checks before providing services; not considering/awarding SCM tenders to tenderers who owed the City money; withholding payment to suppliers who owed the City money, and installing prepaid electricity meters and water management devices for regular defaulters. (See Document)
The Chairperson asked about the NT concerns listed in the previous year.

Mr Phogole replied that there was an operating surplus of R200 million. Strategic programmes had to include informal settlements.

Mr Moodley replied that expenditure performance on capital projects was just under the norm of 90 percent, at 89.2 percent. The City was evolving  key mechanisms to address portfolio and programme management, to set up a pipeline of capital infrastructure. Better performance management could improve delivery on capital projects. There was the challenge of underperforming contractors. New management techniques were adopted. There were mechanisms to improve blacklisting. With regard to City infrastructure and delivery, there was a portfolio management system for the delivery of infrastructure projects. He encouraged members to use the NT portal that included financial information of all municipalities.

Mr Phogole added that the operating deficit had improved over the preceding two years. Long term borrowing could cover liabilities. The City might experience challenges to meet financial obligations in the future.

The Chairperson noted that there were representatives from the Finance Ministry office. There were apologies from the Finance MEC for the Western Cape, and Cape Town Executive Mayor de Lille.

Briefing by the Western Cape Provincial Treasury on budgetary performance of the City of Cape Town, and support provided
Mr Andile Dyakala, Director: Local Government Finance, Western Cape Provincial Treasury, presented. The operating revenue budget performance of Cape Town City for the period up to 31 December 2016 amounted to 52 percent of the total adjusted budget of R34.93 billion. There was underperformance on fines revenue collected to date, with the YTD figure being only 29 percent. Operating expenditure amounted to 44 percent of the total adjusted budget. There was underspending on transfers and grants. YTD capital expenditure amounted to 34.2 percent. Total outstanding debtors amounted to R7.58 billion. Total outstanding debtors older than 90 days amounted to R5.31 billion. Households were the largest component of the over 90 days customer category. Largest overdue debt was related to water and property rates. Total accounts payable to the City at 31 December 2016 amounted to R256.65 million. Cash flow inflows exceeded cash outflows. The cash flow closing balance amounted to R6.51 billion at end December 2016.
The closing balance on the investment portfolio was R9.85 billion. Support to the City included working with the City to reduce government debt owed; revenue management; expenditure manmagement; supply chain management; cash management, and infrastructure. (See Document)

Mr T Motlashuping (ANC, North West) noted that the PT had referred to water and property rates and had said that it would be returned to. He asked the PT to explain why. Water issues had to distinguish between the indigent and the rest.

The Chairperson noted that it was said that the PT engaged with Cape Town City about debtors and creditors. He asked what engagement meant, in terms of action plans, who was responsible, and cutoff dates. If the questions could not be answered at that moment, it could be sent to the Secretary. The Select Committees had to be able to measure progress. 

Mr Motlashuping  referred to slide 21 of the NT presentation. It was said that the City had improved with regard to capital grant dependence. Yet at the same time borrowing had increased. He asked for an explanation of slide 23. He asked if the 75 percent of the capital grant spent, was for the whole financial year. If so, it was due to bad planning or mismanagement. It had to be closer to 100 percent at the end of the fourth quarter. Slide 23 mentioned that the Public Transport Grant was reported at 54 percent (unaudited) and the City presented 78 percent during midyear. He referred to slide 25. 11 municipalities were assisted by the Provincial Treasury to implement revenue enhancement initiatives. There were municipalities with control problems that needed intervention. The current state of municipalities had to be reflected. Cape Town City had stated that tenders by those who owed were not considered. But it was also stated that payments to suppliers were withheld.

Mr Dyakala replied that the City had overperformed on revenue, especially as related to property rates. In future there would be renewed evaluation on an annual basis. Water services revenue was based on penalties levied. A significant amount owed came from water services. There were difficulties around collecting cash.

Mr Motlashuping referred to water and property rates. It was taken over 90 days. It was said that there was overperformance. The implication was that the account grew over a period of 90 days.

Mr Dyakala replied that municipalities worked on an accrual basis for property rate evaluation. There were problems around converting debt into cash. With regard to debtor engagement, he replied that the City had set up a management committee in the office of the CFO. The PT and the City set up targets. It was undesirable for government departments to owe the City. CFOs of departments were called to explain and to make commitments. The City was robust with the Department of Education. It warned that it was going to cut services. The Department had to pay by February. With regard to creditors, Eskom and AG accounts were tracked for. There was a structured format that included the PT, the City and Departments, to ensure the management of debt.

Mr Phogole replied that metros were encouraged to borrow a certain percentage of national grants. Borrowing had to fast-track service delivery and infrastructure. The City had to depend on its own resources for payment on capital expenditure. Borrowing was measured as a percentage of total revenue. He replied with reference to the 75 percent spending of the conditional grant, and the spending on the Public Transport Grant, that the National Treasury could present on what cities submitted to it. Verification of audited financial statements at the end of each year was required of all municipalities nationally. The process ended in February. Budgets had to inform and support planning.

Mr Moodley replied with regard to capital expenditure. There was a long appeal period when a tender was awarded. There were protracted land issues and poor contractor performance. Environment impact assessments took time. There had to be better planning towards better management. The Cape Town City portfolio management project required screening tests before it was included in the budget. There was citizen engagement and community planning. There were infrastructure changes in the major cities. A holistic approach was followed, to attain 90 percent spending or more.

The Chairperson remarked that the President, the Finance Minister and the Minister of Economic Development agreed that economic growth in cities enhanced overall economic growth. There was migration between provinces, which placed pressure on health and education budgets. Budgets had to be an expression of economic objectives.

Briefing by the City of Cape Town on its Integrated Development Plan and performance
Alderman Ian Neilsen, Deputy Executive Mayor, presented. Cape Town City was committed to alignment of the IDP with the NDP. In terms of the NDP, environmental sustainability was aimed at. There would be spatial transformation towards densification and a better mix of human settlements. A better public transport system would facilitate greater mobility. There was a focus on early child development, and child nutrition. The State had to play a developmental and transformative role. Over a 3 year period, the number of passenger journeys on the MyCiti public transport system was 18.5 million. Expanded Public Works Programme (EPWP) job opportunities created were 44942. Subsidised electricity connections installed totalled 2297. Improvement of housing opportunities was required, as well as infrastructure investment and capital budget spending. The City Council adopted an organisational development and transformation plan in August 2016. It would be incorporated into the IDP. The ODTP was underpinned by 11 transformational priorities. The ODTP would enable the City to be responsive to citizen needs, to be sustainable and to be adaptable with regard to services. The economic growth strategy would promote business sectors and attract investment. Cape Town City was committed to building a globally competitive city. Underutilised City assets had to be leveraged to maximise economic opportunities. Local development programmes had to enhance the informal sector. A comprehensive green economy work programme had to be developed, and water conservation had to be managed. Environmental assets had to be protected to sustain and expand the eco-tourism sector.

The Chairperson asked if there was anyone in the City team that could speak to the budget.

Alderman Neilsen replied that it was not required in the letter that the City received.

The Chairperson asked about the Municipal Manager and the CFO.

Alderman Neilsen replied that they were not present, but would be brought up to date.

The Chairperson thanked the City for the presentation. It was difficult to measure things, but the Committee would grapple with it. Mention was made in the Treasury presentations that there was only 30 percent spending of the Human Settlements grant. Cape Town City received R1.423 billion from the Urban Settlements Development Grant, in terms of the 2016 division of revenue. The Development Partnership Grant amounted to R12.2 million. The EPWP grant was R31.7 million. The Cape Flats were an inherent challenge to the City and had been so for many years. There was flooding in winter. He asked what was being done to enhance living conditions in areas below sea level. One could look at what was done in Holland. 30 percent had been spent on the Human Settlements Grant. Spatial development on the flats had to bear expansion in mind. Kraaifontein bordered on agricultural land. If one drove on the West Coast R27, open land could be seen. There was open land around Atlantis. He asked what the City vision was. People flocked to that area. At Sedgefield, a small coastal town, they had desalinated water for five or six years. He got documentation from the Municipal Manager, as well as from his Municipal Manager at Richtersveld, five years before. There was engagement with the National Department of Water and Sanitation about the matter, with a meeting at Port Nolloth the day before attending to it. Cape Twon City and the coastal areas had to speed up programmes directed at water disorders. The Minister of Water and Sanitation had made a statement that people needed decent drinking water.

Mr Motlashuping said that he welcomed the presntation. He appreciated the City’s audit opinion received.  SA was doing well. The National and Provincial Treasuries were present. When the IDP and the NDP were aligned in a broad framework, it was done by looking at predetermined objectives. The question was what measurable resources would be turned into programmes and projects. Only implementation was measurable. Percentages were stated, but it was not stated what it was a percentage of. It was stated, for instance, that there were 2297 electrifications, but it was not stated what the success rate was. The Committee had to be able to measure why it was said that 86 percent was achieved, for instance. He referred to the local economic growth strategy. When the five priotities were discussed, there was talk of Cape Town, not City of Cape Town.

Mr L Gaehler (UDM, Eastern Cape) asked if there was any EPWP project directed at gang and drug related problems. Mostly youth was affected. He asked if there were projects that could protect them from gang and drug activities. There were problems of planning. He asked what was done about fires.

Ms B Mathebula (EFF, Limpopo) pointed out that it was said that there was a focus on informal settlements. It was said that informal settlements were not well placed for service delivery. She asked about planning for informal settlements to get basic service delivery.

Alderman Nielsen replied to the Chairperson’s question about flooding on the Cape Flats. The Cape flats were in fact 20 metres above sea level. Before humans settled there it was sand dunes, with no drainage. The Cape flats rivers were manmade for the purpose of drainage. The way the Cape Flats developed made such channels to be undersized. It had to be enlarged. Informal settlements grew on dunes before the land could be shaped, with the dunes flattened. Cape Town City had to create drainage. Ideally people had to be moved off for the land to be shaped, and then moved back to properly drained land. The informal settlements were also vulnerable to fire. Shacks were bundled, and if one went, all went. Fire hazards could be prevented by re-blocking, or by painting shacks with fire retard. A smaller number of people were being displaced by floods than ten years before. There had to be cooperation from communities for re-blocking. People were suspicious when asked to move. The City had grown at the edges. The City did not want that trend to continue. To move away from the Apartheid pattern there had to be densification and shorter travelling distances. There was a move away from new development at the edges. Langa was currently in the middle of the city. High density was being built there. The old hostels would be demolished and flats put up. Cape Town City worked with the Department of Water and Sanitation on water. There was a Western Cape water systems analysis and a range of projects. Kalk Bay dam was increased in size. The City only took 40 percent of its water. A major groundwater project considered drilling deep wells on Table Mountain, which would yield a good supply of underground water. Desalination was expensive, and led to increased water tariffs.

Alderman Neilsen responded to the question about percentages (of what?). The IDP was mapped in terms of an available range of predetermined objectives for the Auditor-General to measure.  AG reports were available to the effect that there were accurate and credible reports. By “Cape Town” was meant the whole of Cape Town, and not just the CBD. R20 million was granted by the Treasury for EPWP, but the City spent R200 million to drive EPWP projects across the board. A broader use was needed. Assistance was given in the property management department and the revenue collection department. It provided some source of income, and also training. It was crucial for the City to address drug and gang problems. Gangs were handled by the SAPS, but the City had school resource officers, and family intervention initiatives. The Mayor had driven an anti-drug message that drugs were also a problem to those who did not use them. There were programmes for drug users, and also for families and communities. The Mayor took a personal interest in the mattter. There were also disrupters of gang activities. He referred to the role of SARS. Tenders had to have tax clearance before they could submit a tender. Informal settlement services were dependent on drainage and re-blocking. All informal settlements had water supplies. Improved sanitation services had to be rolled out and improved. During reshaping, flush toilets had to be installed. If not, it had to be chemical toilets. There were several hundred thousand portable flush toilets that were serviced three times a week. It would be preferable to have flush toilets everywhere.

The Chairperson concluded that engagement had to continue. The Committee programme had to include site visits to the metro. The team would then be called back to engage. There would be engagement with Saldanha. The Municipal Manager and the CFO had to be part of the City delegation, according to the Municipal Finances management Act (MFMA). He was looking forward to more rain. The SeC Finance would meet on the coming Friday at 9h00 about the Financial Sector Regulation Bill (FSRB). Mr Rento would distribute the Bill. The Committee Researcher, Ms Fundisile Cwele, was leaving to study and would one day return as Dr Fundisi.The Researcher would become more professional, which was desirable for everyone.

Ms Cwele thanked the Chairperson for his challenges, which helped her to grow. She thanked Members for being dedicated and focused. The staff had worked with Members during the Limpopo intervention, and were treated well. She learned a lot from the support staff.

The Chairperson adjourned the meeting.


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