mayoral speech idp budget 29 may 2008 - · pdf file29 may 2008 annual idp / budget speech by...

IDP BUDGET ADDRESS 29 MAY 2008

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ANNUAL IDP / BUDGET SPEECH by

EXECUTIVE MAYOR, CLR ELEANORE BOUW-SPIES THURSDAY • 29 MAY 2008

Speaker Deputy Executive Mayor Members of the Mayoral Committee Councillors Municipal Manager Directors Officials Colleagues of other Government Departments Members of the Public Members of the Media Ladies and Gentleman The budget tabled today has been one of the hardest and most complex budgets to collate in my eight years in Council. The ever-increasing cost of borrowing, the seemingly endless rise in inflation, the problems of ESKOM and the introduction of our new General Valuation Roll have all merged to impact upon the financial health of our Municipality. The Greater Knysna Local Municipality spans a vast area and holds a number of technical challenges. We have experienced a massive growth which coincides with national growth predictions and national economic policy. On top of domestic growth, we are also one of the foremost destination towns in Southern Africa, all of which requires us to maintain an infrastructure and service level on a par with that of cities. In order to meet these challenges Knysna has raised the annual borrowing requirement from R10 million in 2003-2004, to R20m and this year to R42million. We have borrowed R89 million in the four years to June 2008 on a budgeted capital spend of R224 million. Of this amount, R177million went to “hard” municipal services, as opposed to R36 million on “soft”, social services. This has also allowed Council to increase its borrowing requirement to fund Knysna 2020, and we will be required to spend still another R700 million on “hard” services to achieve the goals set out in our strategic vision. I must be frank: Knysna, from a financial perspective is weak, in that it is heavily geared and heavily dependant upon its domestic sector. Knysna is a domestic

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town with very little scope for cross-subsidisation from the business sector. Thus any increases in tariffs will impact directly upon domestic consumers and almost immediately upon the municipality’s cash flow. Increased taxation means increased non-payment. Last month reduced water and electricity sales caused a situation whereby we almost went into overdraft. LADIES AND GENTLEMEN, WE ARE NOT A WEALTHY TOWN. It is now clear that our previous high revenue growth has slowed. This impacted upon the current financial year, it will impact upon the budget before us and it is going to impact even more markedly on the 2009/10 budget and beyond. Slowing of growth is not unique to Knysna as our town is not immune to macro-economics, but slow growth will effect service delivery as less money is available. One such macro issue is ESKOM: Council has already been informed by ESKOM that no new capacity is likely to be provided to Knysna within the next two years. This impacts on our town’s development. We must therefore cut our cloth accordingly, hence the cutback in the tabled budget of our borrowing requirements in anticipation of lower growth and lower revenues in real terms. The ESKOM issue is outside Council’s control and whilst we could ignore it, the fact remains that most of our residents will be paying for ESKOM’s woes via accounts sent out in our name. It is Knysna Municipality that is going to be affected by non-payment, it is Knysna Municipality that is going to have the cash flow problems, it is Knysna Municipality that is going to be criticised for reduced service delivery if people cannot afford the ESKOM increases and it is Knysna Municipality that is going to be serving notice on residents when they cannot pay their Council bills. In short, Knysna simply cannot afford to continue to operate services which require huge capital infrastructures when we do not have the population base to fund them. Services such as water and electricity can no longer be regarded as local and must be regionalised to maximise economies of scale. It must therefore be asked if we have been getting a proper return on our investment; whether we can afford to be spending at these levels; or is there some alternative form of delivery mechanism. GENERAL VALUATION ROLL: The purpose of the Municipal Property Rates Act is “to make provision for fair and equitable valuation methods of properties” and the preamble of this legislation states “it is essential that municipalities exercise their power to impose rates … that not only enhances certainty, uniformity and simplicity across the nation, but also takes into account historical imbalances and the rates burden on the poor”.

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Previously rating was administered in terms of an Ordinance governing the old Cape Province and was based upon both land and improvements. The movement to one rate based on “fair and market value” immediately caused payment shifts. For example a property in Knysna Heights with a combined land and improvement value of R300 000 currently pays R288 a month in rates. The new valuation is R1,5 million and at the proposed rate the charge will be R390 per month, an increase of R36%. By way of example a property in Old Place with the same total value of R300 000 but with a different land and improvement mix currently pays R216 a month. At its new value of R1,5m the increase for this latter account will be 81%, yet the valuations now are exactly the same. Clearly the present system is inequitable but it is also abundantly obvious that the incidence shift effect is a major cause of the increases in its own right. This shift will happen irrespective of the property value. I wish to directly address the concerns about the Valuation Roll being wrong or flawed with some commentators calling for it to be redone or delayed: A “fair, market value” valuation roll is not compiled merely on the basis of comparative property sales. It is far more detailed and meticulous and includes examining erf sizes; improvement sizes, the age of such improvements and location. It is a very complex science and produces very emotive outcomes. A comprehensive report was tabled at the last Mayoral Committee which outlined the investigations we have undertaken. A detailed interrogation of submissions did not lead to the conclusion that the Roll is wrong or should be postponed. Where issues are raised the objection process caters for them and I am pleased to state that this process is well underway. In saying that, it is very clear that the biggest impact of the Roll will be felt by residents on Leisure Isle, pensioners and the industrial/commercial areas. The issue on Leisure Isle is one of free market forces pushing sales beyond the norm. I could go so far as to say that some sellers and buyers appear over zealous, but then if a buyer is willing to pay such ridiculous prices then who am I to criticise. I understand the concerns of the long-standing residents of Leisure Isle but Council cannot control the market place and therefore we can do little outside of what we are proposing in regard to pensioners. The weak position of our pensioners in an economic downturn is of paramount concern to me. Inflation, high interest rates, Eskom and the new Valuation Roll affects everybody negatively but the biggest impact will be on pensioners who have fixed incomes. Council has been examining the pensioner issue in some depth. We are therefore recommending that the present pensioner rebate system be greatly extended so that pensioners with a combined income of up to R10 000

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will receive a rebate upon application of 30% and those with a combined income of R6000 will receive a rebate of 90%. The third issue is the commercial/industrial areas and is extremely problematic. Clearly the land values in these areas exceed the value of the activities taking place and the economic implications of this are significant. Council must take bold steps to identify alternative commercial land in sufficient quantities to secure the future of the town and sub-region. We must speak to our neighbour Bitou and work together to create an economic hub along the N2 access and we must do this quickly. BUDGET 2008/2009 Councillors, Ladies and Gentlemen, I now turn your attention to the Budget for 2008-2009. Since the publication of the draft budget and more specifically the draft rate in the Rand, Council has interrogated the budget meticulously. As a result, the rate in the Rand has been revised, as have some tariffs. The operating budget has been cut and the capital budget revised to more accurately reflect project roll-overs from the current year. CAPITAL BUDGET The proposed capital budget totals R68,6 million with the main expenditures being R25 million for water, R12 million for housing, R8 million for cleansing and R7 million for electricity. The Council borrowing requirement is R41 million but that is because of loans not being taken up in this financial year being rolled over. One must hope that the interest rates do not continue to rise as expenditure delays now will impact considerably on future operating budgets negatively. OPERATING EXPENDITURE The Operating budget for the forthcoming year will total some R344 million, an increase of 11,3% on last years original budget and an increase of 7,8% on the probable final result. The major expenditure items are salaries (R91 million) up 12,5%, general expenses (R127 million) up 8,9%, repairs and maintenance (R22,9 million) up 17% and interest (R19 million) up 24%. Contrary to popular opinion the salary increase is predominantly caused by compulsory medical aid increases. The IDP process has clearly indicated that the general public who elect us and pay our salaries are not happy with how we are spending on general expenses and repairs and maintenance, and as a result proper maintenance and project plans will have to be drawn up before spending takes place. Our expenditures must be focussed on the community but in a manner that gets us the biggest returns on our investment.

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OPERATING INCOME Income from property rates is budgeted at R94,6 million, an increase of 23% on the original budget of last year, but of 35% on the revised budget. This percentage will be reduced as Council is holding interim valuations on some 500 properties, but the R6,5 million reduction in rates income in the current year is as a direct result of a downturn in the economy and delays in the interim process because of the new Roll. Unfortunately we are a government and may not increase our rates and tariffs as circumstances dictate. Economic cycles generally take 24 months to work themselves into the system and we are now facing this problem on a catch up basis. Service revenues will increase by 10,3% on the original budget and by 15,3% on the probable outcome. This again is as a result of the economic downturn as the difference in revenue does not appear in our debtors. FUNDING THE OPERATING BUDGET I have discussed the issue of the General Valuation earlier. For the first time ever all properties in the municipality have been rated and all property owners will be liable for assessment rates. Property ownership brings with it many benefits and responsibilities not least of which is the owner’s responsibility to the community by means of paying their municipal taxes and charges. This step of bringing all property owners into the tax system is a major move towards normalising and harmonising the fiscal base of Knysna and we should be very proud of where we are now compared to the apartheid local authority which existed before. The salient features of the new rates are:

• The proposed new rate in the Rand for 2008/09 is 0,00398; • domestic properties will not be taxed on the first R30 000 of their value

and will in addition receive a rebate of 20%: • bona fide farms will be charged at a ratio to domestic of 1:0,20 • Bed and breakfast owners with between 5 to 8 lettable bedrooms will be

charged for rates at a ratio to domestic of 1:1,33’ • B & B’s with over 8 lettable bedrooms will be charged on the same ratio as

any business, that is at a ratio of 1:2; • domestic properties in rural areas will receive the same rebate as those

granted to urban properties. Previously they were granted a rebate of 80% but if property taxes are now levied on the fair, market value basis, having a split rebate system is simply inequitable and biased against urban dwellers;

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Furthermore charges for water and sewerage will rise by 9%. Tariffs for refuse will increase by 14% simply because of the non-functioning of the Choo-Tjoe Waste by Rail and the increased fuel costs. The future viability of this service in its current format requires review. The electricity tariff will rise by 12% in line with the decision of National Treasury. CONCLUSION I said at the outset that this was the most complex budget I have known. Because the budget and the General Valuation Roll are intrinsically linked, it is also the most discussed and transparent budget I have known. Just to share some of the statistics with you:

• Some 650 people attended our IDP hearings; The feedback from the public was extremely useful and was used to facilitate and develop various community based projects that include an HIV/Aids strategy and Local Economic Development projects that created much needed jobs. We invested in youth development as well as sport development, the empowerment of women and facilitating entrepreneurs with the process of opening and running their own businesses. Various housing projects are in process and more will be implemented in the year ahead. We are in final negotiations with DWAF to acquire much needed land for housing, industrial and commercial sites and other requirements. Our focus will ALWAYS include our community as well!

• 700 attended the various Rates meetings; • we have met with 8 different ratepayer groupings; • our ‘e-gov’ website received over 3000 unique hits; • and over 800 000 page hits; • there have been over 1000 individual enquiries handled face to face; and • over 600 phone calls handled.

I have received no complaints about how we managed the public process and that speaks wonders for our customer care efforts. I wish to pay particular thanks to our staff involved. The final budget before us is not one which will make all of us happy, but in the circumstances that is hardly surprising. But this budget will, I believe, be a much-needed buffer against future economic downturns and allow us to take service delivery forward, as opposed to sticking our heads in the sand and allowing the poor economy to swamp us. It is a pragmatic, sensible and pro-active budget. In closing, I must thank my fellow Councillors and all the individuals and groupings that have taken the time to input into this budget - if only we could have this every year! My thanks to the Municipal Manager and his staff for their

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hard work and dedication and my thanks to the Finance staff who put the whole process together. Mr. Speaker. I am pleased to recommend to Council the budget for the financial year 2008/09 for adoption. [a] That the annual budget of Knysna Municipality for the financial year

2008/09; and indicative for the two projected years 2009/10 and 2010/11, as set-out in the schedules contained in Annexure 1, be approved : [i] Schedule 1: Operating revenue by source [ii] Schedule 2: Operating expenditure by vote [iii] Schedule 2(a): Operating expenditure by GFS classification [iv] Schedules 3 and 3(a): Capital expenditure by vote and by GFS

classification [v] Schedule 4: Capital funding by source

[b] Property rates reflected in Annexure 2 and any other municipal tax

reflected in Annexure 2 are imposed for the budget year 2008/09; [c] Tariffs and charges reflected in Annexure 2 are approved for the budget

year 2008/09; [d] The measurable performance objectives for revenue from each source

reflected in Annexure 3 are approved for the budget year 2008/09; [e] The measurable performance objectives for each vote reflected in

Annexure 3 are approved for the budget year 2008/09; [f] Council notes the amended Integrated Development Plan reflected as

summarised in section 5; [g] Council notes the performance indicators tabled with the budget for

subsequent approval by the Executive Mayor reflected in Annexure 3; [h] The amended policies for credit control, debt collection and indigents as

reflected in Annexure 6 are approved for the budget year 2008/09; [i] The other new and/or amended budget related policies reflected in

Annexure 6 are approved for the budget year 2008/09.

mayoral speech idp budget 29 may 2008 - · pdf file29 may 2008 annual idp / budget speech by...

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