CITY BUDGET 2015/16 – GROUNDHOG DAY FOR RATEPAYERS

On behalf of the ACDP, I expressed serious reservations on the draft budget tabled by the DA at the end of May 2015, primarily because it is again funded almost exclusively through exorbitant increases in the rates, electricity, and water charges to the ratepayers of Cape Town. Over 70% of the public comments received on the draft budget are dedicated to appealing these increases, which the ACDP fully supports. Surely, what irks ratepayers just as much, is that having raised all of this additional income last year the City proceeded not to spend 20% of its capital budget amounting to R1.1 billion! In a ‘groundhog day’ moment, I found myself repeating once again this year that this money should have been left in our ratepayers pockets. Simply put, the City must stop billing ratepayers to raise income that it cannot spend.

In fact, since 2006/7 ratepayers have been forced to increase their payments to the City from:
a) R2.4bn to R6bn for rates accounts (150% increase);
b) R2.6bn to R10bn this year for electricity (400% increase);
c) R1bn to R2.4bn this year (150% increase) for water.

Yet, while charging more for the same service, ratepayers are told to use less. After more than a decade, the ‘save water’ message is finally hitting home to the extent that the City now faces significant income shortfalls due to lower usage. Electricity is following suit.
As the Deputy Mayor recently revealed, the City is facing a funding dilemma (putting it mildly). In his own words: “A combination of factors – high energy costs, unreliability of supply, “green” consciousness of alternative energy sources, and new technologies – is prompting more consumers (mainly large – industrial or commercial – or wealthy ones) to consider “getting off the grid”. He correctly points out that as more and more mainly large and wealthy consumers “get off the electricity grid” or reduce consumption, the burden of funding the City’s budget growth and of cross-subsidising the services to the poorest residents, will increasingly fall on our middleclass ratepayers.

Cross subsidisation is necessary given our dehumanising history and it is a natural expression of our humanity towards each other, particularly the most vulnerable; the poorest; the weakest; and most marginalised among us – but, such high and ever increasing levels of cross subsidisation, is unsustainable as the middleclass funding source is squeezed more and more.

While household income is generally pegged at or even below inflation, the City’s rates and service charges are continually well above: rates at 10%; electricity at 10.8%; water at 11%; sanitation at 11%; refuse at 8.3%; and disposal at 9.3% for 2015/16. These six lines alone make up 75% of the City’s revenue each year. The now annual above-inflation increases for ratepayers, coupled with the City’s “use less but pay us more” message, just to fund the DA’s unbridled capital and operating budget appetite, is making Cape Town an unaffordable and an unsustainable City to live in.

Ratepayers’ debt to the City is also increasing exponentially, now sitting at R8.5billion, yet there remains no mention in this budget of what is being done to reverse this going forward. However, as with previous years, we can expect another front-page announcement of the write off of debt amounting to another R1 – R2bn in the next few months. What is helping drive this spiralling ratepayer debt? Unaffordable, above-inflation increases to the monthly rates accounts of the City’s ratepayers, annually since 2006/7, in spite of their and our protestations.

Senior citizens in middle-income residential units are the hardest hit and ought to be treated differently. Over and above the City’s existing rebates to seniors, once they reach a particular age, say 70, they should automatically qualify for a second rebate because increases to their pensions (if any) won’t have kept up with their rates accounts increases. They should not ever have to face eviction or City-aided hardship in their older, more vulnerable years, yet they do.

One of the obvious options, is for the City to reduce its Capex and Opex budgets, to introduce zero % rates and services increases for a few years and for the City to very quickly learn to do more with less, to drive efficiencies and cut unnecessary and lavish budget lines (like the building of a new Head Office for Water and Sanitation, at an initial cost of R181 million). The more disposable income we leave in ratepayers pockets, the more they are able to increase consumption, boost economic activity thus creating jobs and expanding the ratepayer base.

Did the ratepayers know how much it was going to cost them every month and for years on end, just to have a DA government? And do they know how much more it’s going to cost them in the future to retain this DA-only government instead of a multi-party government that restrains the DA’s unbridled demand for revenue and spending. It’s easy to govern better than the ANC, but why prove that at the ratepayers expense?

 

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The ACDP is pleased that we are recently seeing an acknowledgement that the City’s revenue streams from its traditional sources are increasingly constrained. Consumers are lowering their consumption on basic services of electricity and water, based on governments sustained calls for savings, based on constant annual increases in the costs of these services and that the supply of these services, particularly electricity, is frequently constrained and unreliable.  Load-shedding has become the norm.

In terms of water, In August last year, just a month after the start of the FY, Council approved a transfer of R98m from the Capital Replacement Reserve (CRR) to supplement the lower revenue being recorded and to absorb the negative impact of revenue decline on the City’s cash flows.  Effectively, the City topped up its cash from its savings. So the City is raiding the piggy bank.

The ACDP asks how much will be transferred from CRR this August / September?  And what will the City do when the CRR savings run dry?

The ACDP is deeply concerned there remains no long term solution – The City will naturally seek to fund the declining revenue by drawing from the CRR (while funding remains) and raising service charges to ratepayers in other ways including through fines income, tariffs and fees, etc.

The City’s and governments message to ratepayers will thus continue – “use less water and electricity, but your monthly municipal accounts will continue to increase”  ie:  “Use less but spend more” is the City’s message to consumers.  In a very informative newspaper report in the last week, our Deputy Mayor believes electricity from Eskom will be 50-100% more costly in 5 years time.

The reality, given the inevitability of projections like that, is that reductions in consumption by rate payers is a certainty – To quote the Deputy Mayor, “A combination of factors – high energy costs, unreliability of supply, “green” consciousness of alternative energy sources, and new technologies – is prompting more consumers (mainly large – industrial or commercial – or wealthy ones) to consider “getting off the grid”. Already, Blackheath Industria boasts Africa’s biggest solar rooftop array”

As hard as it is, the City can no longer milk consumers to fund exorbitant Capex and Opex budgets or even just to pay for the associated distribution networks. Its not just the ACDP saying this, it’s the ratepayers too.  The City’s own assessment in the report before us today on public comments on the draft budget confirms that the “overwhelming majority of public comments are appealing the increase in consumptive tariffs and rates.”  Property rates are too high and unaffordable given the other spending imperatives of ratepayers, primarily being safety and security spending to compensate for the lack of visible SAPS and law enforcement agencies in their areas.

Senior citizens ought to be treated differently too – over and above the existing seniors rates rebates, seniors reaching a particular age, say 70, should qualify for a second rebate – their pensions income has not increased yet their rates accounts have. Currently the City seems to ignore the depth of their growing plight.

Since 2011/12, electricity revenue has increased by 37% and will increase by 75% in the next 2 years, over 2011/12 revenue levels.  Similarly, water revenue has increased by 43% since 2011/12 and is budgeted to increase by 65% in the next two years over 2011/12 revenue levels.   Consumers cannot afford these increases and this is evident in the growing debtors book and the now annual write-off’s of R1,5bn of consumer debt.

In fact, since 2006/7, revenue from rates has increased from R2,4bn to R6bn this year (a 150% increase).  Electricity revenue has increased from R2,6bn to R10bn this year (a 400% increase), and Water has increased from R1bn to R2,4bn this year (a 150% increase).

To answer Cllr Hassiem’s question – “at what cost”

Did the ratepayers know how much it was going to cost them every month, just to have a DA government – and do they know how much more it’s going to cost them in the future to retain this government on its own instead of with governing partners who will restrain their unbridled demand for revenue and spending?

In terms of water, our dams are at their lowest in 5 years. This situation is not set to improve dramatically; in fact, we are a water-scarce city with a perpetual water demand management programme City – even with 370 km’s of coastline.

So two of our biggest sources of income and our two most basic of services (water and electricity), which together account for some 45% of our income, are under increasing strain – this represents the biggest threat to the City’s financial viability to deliver any services at the current rate and level for longer than 5 years.

The city is right – the “long term impact needs to be monitored and proactively managed” – but the “long term” started 10-15 years ago when we first started hearing this message. The solutions are needed now. So then, lets look at what the City is doing about it? – very little. What has been said in this draft budget? – nothing to speak of. Is the City investing heavily this coming year or two looking into alternatives?  No.  Did we hear any major speeches or announcements today?   No

Not only does the City squeeze even more out of our rate-payers year after year to fund an ever growing capital budget appetite, it then proceeds to underspend by 20% on its capital infrastructure projects, and then write off another 1,5bn in consumer debt.  The ACDP says – If you can’t spend it, don’t raise it as income from our struggling ratepayers in the first place. 

Instead of raising that R1,1bn in revenue, the City should have left that in the ratepayers pockets for them to spend on economic activity.

In August 2014 the ACDP said that cross subsidisation is necessary and a natural expression of our humanity towards each other, particularly the most vulnerable, the poorest and the weakest among us – but such high levels of cross subsidisation is unsustainable as the middle class funding source is squeezed more and more.

A week ago, Ald Neilson agreed, saying “High income consumers can afford to find and fund alternatives – as more of them do so, the burden of funding free services to the increasing number of indigent households, will increasingly fall on the middle income consumers.”

This has remained a matter of deep concern to the ACDP for many years.

One of the obvious options, is for the City to reduce its Capex and Opex budgets, to introduce zero % rates increases for a few years and for the City to do more with less – The more disposable income we leave in consumers / ratepayers pockets, the more they are likely to increase consumption and or economic activity.  Yet the DA continues to reject these affordability proposals.  To repeat – instead of raising that R1,1bn in capital under spending, you should have left it in ratepayers pockets.

Instead, today the DA is again opting for a 10% increase in rates, 10.8% increase in electricity and 11% increase in water – in the face of CPI sitting at 5,7% and “overwhelming public negativity”

Adding insult to injury, the budget for the electrification of backyarders has been halved from last year BUT we all know that the need has not halved. Furthermore, the loss of electricity revenue grew by 47% over the previous year.  What is being done to stem that tide, to stop the loss, to root out the illegal connections, to find those staff profiteering on the side at the expense of the City, to collect that revenue and to spend it on the backyarders? This budget is thin on concrete details in that respect.

The DA wants Cape Town to be an opportunity city – only by increasing consumers disposable income, you will be providing opportunities.  But by continuing at these unaffordable levels of rates increases and expenditure, the DA is reducing opportunities for ratepayers and making Cape Town an unaffordable and unsustainable City to live in

If only the City paid as much attention to increasing its revenue on other lines in the table dealing with “revenue by source” as it does with Rates, electricity and water.

In comparison to the massive % increases in rates, electricity and water given earlier (37% and 75% for electricity and 43% and 65% for water), the revenue generated from the rental of facilities and equipment has only increased by 19% since 2011/12 and will only increase by 32% in the next 2 years compared to 2011/12 revenue values.  In fact, revenue from this source has only increased from R220m in 2006/7 – a pathetic R140m increase in 8 years.

Why the difference?  Well that’s obvious.  To increase the revenue of rates, electricity and water the City simply decides on the increase,  applies it to rates accounts and improves its collection processes. But to increase revenue from rental of facilities and equipment is an entirely more complex matter, requiring quite a lot of hard work on the part of the City departments.

This is clearly too complex for the City to be concerned with – it sounds too much like effort, long hours, ingenuity and hard work, so it is happy to rather plod along with negligible increases of adding R56m to its revenue from rental of facilities and equipment since 2011/12 years, growing to R93m in the next 2 years – (merely an additional R14m per year) followed by a paltry R4m increase in revenue per year.  This is truly appalling and smacks of a lack of effort, management and political leadership. Worse still, this attitude confines most of our municipal facilities as costly white elephants.

In assessing this draft budget, the ACDP also looked for evidence that the City had learned from the mistakes of the previous financial year and the opportunities it presented.

  • Only 10% of treated wastewater is re-used – 90% being lost into the natural water system yet we have a water shortage – our dams are at their lowest levels in 5 years. Are there plans to address this? No
  • The value of consumer debt is increasing exponentially, now sitting at 8,5billion, yet there remains no mention of what is being done to reverse this in the new FY. Except that we can expect another front-page write off of debt of another R1 – R2bn in the next few months.
  • MPAC correctly asked – “At the moment our law-enforcement complement spends a lot of time doing the work that SAPS must do – this while Council property like halls, clinics, etc, are vandalized due to lack of security- this costs the line department’s a lot of money that they do not have” – The ACDP is pleased to note the additional funding allocated to providing security services at Human Settlements projects sites, but what about protecting our existing and costly municipal facilities, when the R&M budget is inadequate?
  • MPAC asked the same question earlier this year, that many of us long-serving Councillors have been asking since 2000 – “Why do the various departments in the City and Province concerned not work together when planning housing developments. The Houses are built and populated yet schools are not planned yet, street lighting is not planned yet, civic amenities are not planned yet, parks are not planned yet, ECD centres are not planned yet, community facilities like churches not available yet etc. This has all to be fought for and planned and built years afterwards instead of being built from the start for a more satisfied new community?

This one single question goes to prove that nothing much has changed in the governance and budgeting of this City in the last 15 years – this same elementary budgetary blunder continues to occur in 2015.

The ACDP wishes to now call for a review of the Policy on Ward Allocations in this year ahead.  Lingering apartheid-driven disparities between communities are no more starkly illustrated than in the ways in which ward councillors get to spend their allocations. Political priorities are necessarily skewed towards meeting the basic infrastructure and resource needs in historically under-developed communities who were denied these basics until 20 years ago – while in the developed communities, the leafy suburbs, equivalent exorbitant amounts are spent almost entirely on beautification.

How is it that R120k can be spent on weed spraying in one ward, R50k is spent on painting house numbers onto curbs, R60k is spent on tree pruning,  R250 – R300k is spent on upgrading side-walks in some wards – while in others the needs are so great that the budget is spent on almost purely on the basics?  It’s this kind of skewed spending that adds to the notion that we are two distinctly disparate cities – one for the “have’s and one for the have not’s”

The review of this policy should include assessing the expenditure over the last 10 years across wards, and assessing the budgetary implications of increasing the allocations to the areas and wards where the basic infrastructure needs are the greatest.  These communities will never look and feel the same as the leafy suburbs, will never consider themselves part of our City, until their basic infrastructure needs are in place and expenditure on widespread beautification can take place.

There are also millions of Rands of ward allocations budget being spent every year on once-off “entertainment functions” – the average is around R50k per event, some cost as much as R120k PER EVENT, some wards have more than one,  and one subcouncil last year spent R600k on these public functions.

If every ward has at least one, and we know many have at least 2, then we are looking at over 150 of these events every year. At an average cost of R50k per event, means the City is spending over R7m on once off entertainment events

I have been to many of these and so have members of the ACDP across the City. We’ve seen the exorbitant spending on food, decorations and entertainment – all just to please a few ratepayers for 2-3 hours.

Let’s not kid ourselves – many of these are overtly political events, with party t.shirts and councillor branding everywhere, etc.  So in effect the city is spending over R7million per year (at least) on party political branding and promoting the re-election campaign for currently elected ward councillors.

These events should be banned in terms of the policy on ward allocations.

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