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Municipal Finance Assessment of 15 towns Maharashtra
CEPT University with support from CRISIL Risk & Infrastructure Solutions
November 2014
1
Structure
2
Context
City profiles
Budgeting and accounting practice
Income and expenditure analysis
Investment capacity
Context
3
Context
Aim is to develop better information on performance
The information to form basis of funding from state and local govt. and
improvement in service
CEPT will partner with ULBs and State Governments to develop
Performance Assessment System (PAS) for
– Performance Measurement
– Performance Monitoring
– Performance Improvement
CEPT has collected information for 250 ULBs in Maharashtra
CRISIL Infrastructure Advisory appointed by CEPT to assess the financial
situation of 15 Class A ULBs in Maharashtra
4
City Profiles
5
City Profiles
6
S.No City 2011 Populationin lakhs
Decadal growth rate (%)
City size (in sq.kms)
1 Panvel 1.80 174.1% 3.632 Latur 3.83 27.6% 33.003 Ambernath 2.54 24.6% 38.004 Jalna 2.85 21.2% 81.865 Parbhani 3.07 18.5% 57.616 Barshi 1.19 13.2% 36.007 Ichalkarnji 2.88 11.6% 29.648 Satara 1.20 11.1% 8.159 Chandrapur 3.21 10.9% 56.2810 Gondia 1.33 9.9% 18.0811 Achalpur 1.12 9.8% 16.0012 Bhusaval 1.88 8.9% 13.3813 Beed 1.46 5.8% 8.2914 Yavatmal 1.17 -3.3% 10.1715 Wardha 1.06 -5.0% 7.44
Budgeting and accounting practices
7
Budgeting – Urban local bodies
8
Urban local bodies to prepare to separate budgets – Function based
– Services based
As specified in the Maharashtra Municipal Councils Act – Chapter VIII for Budgets and Accounts – a separate budget should be prepared for water supply and sewerage services
– to indicate the extent of subsidy for each of the services
– the source of the subsidy for the services
Currently no separate budget is prepared– ULBs prepare single budget, with separate heads or items for the services provided
– No provision for showing the transfer of revenue/ subsidy
– Items are incorrectly classified under the budget heads
– Capital grants classified under revenue receipts
– Capital expenditure classified under revenue expenditure
Budget classification as per Accounting Manual
9
Part I - Revenue Budget– Revenue Receipts
– Revenue Expenditure
Part II – Capital Budget– Capital Receipts and Expenditure but grouped separately under following sub-parts
• Capital Receipts and Expenditure from own sources.• Capital Receipts received in the form of new loans and the Expenditure carried out from them.• Capital Receipts received in the form of development grants and the Expenditure carried out from
them.
Part III – Extra-ordinary Budget – Receipts and Payment of extra-ordinarynature grouped under following distinct parts.– Deposits and Fund Budget – Deposits and Special Funds receipts and payment made
from them.
– Advances Budget - New advances given and advances adjusted or recovered back.
Budget classification – Urban local bodies
10
Municipal Budget
A Budget (General)
Revenue Account
Income Expenditure
Capital Account
Income Expenditure
Extra-ordinary Account
Receipts Liabilities
C- Budget (Water supply and sewerage)
Revenue Account
Capital Account
Extra-ordinary Account
Budget classification – Urban local bodies
Jalna and Beed prepare only income and expenditure statementsNo segregation for the source of income and expenditure i.e revenue and capital 11
Municipal Budget
Revenue Account
Income Expenditure
Capital Account
Income Expenditure
Extraordinary Account
Receipt Liabilities
Accounting system - existing
12
ULBs follow cash basis accounting system – which is easy to maintain
Income actually received is reflected and receivables are not known.
Payments actually made are reflected and payables are not known.
System provides only surplus/deficit in cash.– Assets and liabilities are not reflected, and consequently, financial strength cannot be
estimated
Example,– Power bills are paid partly and in most cases ULBs default on payment
– Arrears are not reflected in the financial statements
– Outstanding liabilities are not reflected in the financial statements
– Improper classification of revenue and capital expenditure distorts cost recoverycalculations and assessment of operational performance
Accounting system – Accrual based
13
Revenue is shown as both revenue received and receivable.
Expenditure is shown as both amount paid and payable
Expenses are matched with the income earned in the year
Items of ordinary nature and capital nature are differentiated
Assists in effective follow-up of receivables and payables
Costs which are not charged can be carried forward– These items can be kept under constant review
Surplus or deficit as shown at the year-end– correct financial position of the ULB.
– helps in better financial management
Income and expenditure analysis
14
Approach to the study
15
Key items of data used for the study which included – the budget books of the ULB
– PAS data
– data related to capital expenditure plan
– water tariff statement
– demand collection balance statements
– loan statements
Recasting of the budget documents as and where needed. – Recasting was done to reallocate the misreported items of income and expenditure into
revenue and capital accounts.
Develop a template for municipal finance assessment.
Assessment of the financial position carried out
Determining the investment capacity of the ULB under optimized conditions
Recasting of budget items
16
Recasting of the budget items as per source of income and type of expenditure
Recurring grants shown capital grants
Capital grants shown under revenue grants– UIDSSMT and IHSDP scheme grants
– State scheme grants for development works
Capital expenditure items shown under revenue expenditure– Purchases / procurement
– Development works
– Creation of assets under new schemes
Budget items shown as general– Items have been segregated to its source / types
– Water supply/ sewerage expenditure revenue and capital expenditure items which were shown as general
Revenue Income – trend for the 15 towns
Actual figures for the year 2009
17
Revenue Income (in Rs. Lakhs)
1621 1737 1794 1901 1934 1950 2076 2176 22982589 2678 2833
32173675
7397
0
1000
2000
3000
4000
5000
6000
7000
8000
Revenue income constitute three major components– Tax income
– Non – tax income
– Revenue grants and contributions
Revenue Income - sources
18
Revenue income constitutes tax income mainly through property tax– Under The Maharashtra Municipal Council, Nagar Panchayats and Industrial Townships
Act, Maharashtra 1965 ULBs can levy a mandatory consolidated property tax consistingof• General tax,• General water tax,• Lighting tax,• General sanitary tax,• Special latrine tax,• Fire tax and• Environment tax.
– apart from this mandatory tax, it can also levy the following taxes related to water supplyand sanitation• special sanitary tax upon private latrines, premises or compounds cleansed by municipal agency.• drainage tax• special water tax for water supplied by the council in individual cases,These charges for such supply being fixed in such modes as shall be best suited to the varying
circumstances of any class of cases i.e fixed water charges per connection depending onconnection size or volumetric tariff charges in case of metering
Revenue Income
19
Revenue income constitutes tax income through own source which include– Property tax, entertainment tax, vehicle tax etc.,
– Non tax income through charges, fees, rent, fines• Development charges and regularization charges • Permission fees• Water charges and water connection charges• Sewerage charges • Municipal property - land and building rent• License and form fees • Registration fees
– Grants and Contributions• Assigned grants Census, education, library, health, minority welfare, salary grants, finance commission grant, special
schemes, etc.,• Non assigned grants octroi compensation grants, tax compensations, development grants, stamp duty grants, etc.,
Revenue Income – trend for the 15 towns
Actual figures for the year 2009
20
Revenue Income (in Rs. Lakhs) Per capita revenue income (in Rs)
686 847 853
1,008 1,176
1,343 1,410 1,452 1,469 1,536 1,671 1,754
1,943
2,451 2,611
-
500
1,000
1,500
2,000
2,500
3,000
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
Per c
apita
reve
nue
inco
me
in R
s.
Tota
l rev
enue
inco
me
in R
s. La
kh
Revenue grants Non-tax income (own sources) Tax income (own sources) Per capita revenue income
Except for Parbhani, Chandrapur and Latur all the ULBs have per capita revenue income more than Rs. 1000
Ichalkaranji has the highest per capita revenue income with Rs 2,611, followed by Panvel with Rs 2451 and Satara with Rs. 1943
Revenue Income – source wise break up
21
Source wise revenue income break up
0%10%20%30%40%50%60%70%80%90%
100%
Non-tax income (own sources) Tax income (own sources) Revenue grants
Yavatmal constitutes high share of tax income and Achalpur has the lowest with 5% of its revenue income coming from tax income– Most of the ULBs have lesser income through tax i.e less than 25%
– shows high dependency of ULBs on grants and other sources
Revenue Income – own sources
22
Source wise revenue income break up
0
10
20
30
40
50
60
70
80
90
100
0
500
1000
1500
2000
2500
3000
Per capita revenue income Own sources (taxes) as a % of total income (2009-10)
Revenue Income – own sources break up
23
Source wise revenue income break up
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
property tax Services user charges others
Own sources income for 15 towns– Property tax
– Services user charges (Water supply charges and Sewerage and sanitation income)
– Others
Revenue Income – property tax
24
property tax/ property (in Rs) per capita property tax(in Rs)
51 65 71 98
141 163 175 178 184 200 246
290
373 380 403
- 50 100 150 200 250 300 350 400 450
-
500
1,000
1,500
2,000
2,500
3,000
Prop
erty
tax
colle
ctio
ns p
er c
apita
(in
Rs.
)
Prop
erty
tax
colle
ctio
ns p
er
pero
pert
y (in
Rs.
)
Property tax / property Per capita property tax
Per capita property tax varies among the 15 towns
Variations for the per capita property tax and average property tax – non -coverage of properties under the property tax net
– collection efficiency of the property tax
– difference in the property tax rates
Revenue Income – property tax
25
S.No City Properties 2011 Population Per capita property tax (in Rs)
1 Wardha 18,515 105,543 2902 Achalpur 22,742 112,293 513 Yavatmal 23,791 116,714 1634 Barshi 24,469 118,573 1845 Satara 25,773 120,079 4036 Gondia 24,764 132,889 1757 Beed 25,814 146,237 1418 Panvel 26,845 180,464 3809 Bhusaval 30,454 187,750 20010 Ambernath 34,972 254,003 24611 Jalna 38,151 285,349 9812 Ichalkaranji 44,992 287,570 37313 Parbhani 62,230 307,191 6514 Chandrapur 57,830 321,036 17815 Latur 55,007 382,754 93
Revenue Income – property tax
26
S.No Population size Highest per capita property
tax (in Rs)
Town
1 One lakh to two lakh 403 Wardha2 Two lakh to three lakh 373 Ichalkarnji3 Above three lakh 178 Chandrapur
Wardha has the highest per capita property tax among the towns with less than two lakh population– Per capita of Rs 403
Ichalakarnji collects the highest per capita property tax for towns with less than three lakh population and more than two lakh population– Per capita of Rs 373
Chandrapur has the highest per capita property tax with towns with more than three lakh population– Per capita of Rs 178
Property tax
27
As per the Maharashtra Municipalities Act, Property tax can be levied as percentage of rateable rate of the building or land– Specifies different tax rates
• A class Municipalities – Maximum of 28% and minimum of 23% of the rateable value of the property tax
• B class Municipalities – Maximum of 27% and minimum of 22% of the rateable value of the property tax
• C class Municipalities – Maximum of 26% and minimum of 21% of the rateable value of the property tax
– Special latrine tax – 0.25% to 2% of the rateable value
– Drainage tax – 5% of the rateable value
– Other fixed rates for special sanitary and special water tax
Revenue expenditure
28
Revenue expenditure (in Rs. Lakhs) Per capita revenue expenditure (in Rs)
564 743 749
942 1,147 1,166 1,214 1,237
1,345 1,407 1,480 1,492 1,495
2,023 2,209
-
500
1,000
1,500
2,000
2,500
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
Revenue expenditure Per capita revenue expenditure
Most of the cities have a per capita revenue expenditure from Rs 1000 to Rs 1400
Latur has the lowest per capita revenue expenditure with Rs. 564 and Ichalkaranji highest with Rs 2209
Loan
29
S.No City No. of Loans Loan amount (in Rs. Lakhs)
Outstanding loan (in Rs. Lakhs)
1 Achalpur 6 488 12782 Ambernath 4 940 1273 Barshi 13 772 9964 Beed 12 867 7805 Bhusaval - - 3296 Chandrapur 21 84 397 Gondia - - -8 Ichalkarnji 4 2159 7139 Jalna - - -10 Latur 6 2735 227211 Panvel - - -12 Parbhani 58 691 57813 Satara - - -14 Wardha - - 3915 Yavatmal 1 260 -
Water supply income and expenditure
Actual figures for the year 2009
30
Revenue expenditure (in Rs. Lakhs)
0100200300400500600700800900
1000
Water supply expenditure Income from water supply
Ambernath, Achalpur, Beed and Bhusaval are reporting a revenue surplus
Possible reasons for revenue deficit– Lower collection efficiency of water charges
– Inappropriate tariff rates
Water supply – Demand vs O&M expenditure
Actual figures for the year 2009
31
Demand vs O&M expenditure(in Rs. Lakhs)
177 227
109 155
383
903
591
201
- 100 200 300 400 500 600 700 800 900
1,000
Beed Ichalkarnji Jalna Parbhani
Water supply revenue demand O&M expenditure for water supply services
Demand not adequate to cover O&M charges indicating– Not all consumers issued with bills; and
– Tariffs may also need to revised upwards
Water supply – production cost
Actual figures for the year 2009
32
Water production (in Rs per KL)
0.000000
1.000000
2.000000
3.000000
4.000000
5.000000
6.000000
7.000000
8.000000
Achalpur Barshi Beed Bhusaval Gondia(MJP)
Ichalkarnji Jalna Latur Panvel Parbhani Satara Wardha
Production cost (Rs per KL) Power cost (Rs per KL)
Power costs reported may not reflect the actual value of electricity cost payable by the ULB on account of the single-entry accounting system
This does not allow valid inferences to be drawn
Sewerage and sanitation
Actual figures for the year 2009
33
Revenue income and revenue expenditure (in Rs Lakhs)
There is no sewerage network in any of the towns
None of the cities have 100% cost recovery for sewerage and sanitation services
Sanitation tax collection as part of property tax but not adequate
User charges need to be collected by the towns for cost recovery of these services
Sewerage and sanitation – revenue expenditure
Actual figures for the year 2009
34
Revenue expenditure (in Rs Lakhs) - per capita revenue expenditure (in Rs)
196
347 302
417
249 251 247 313
210 256
446
123
206
687
268
-
100
200
300
400
500
600
700
800
-
200
400
600
800
1,000
1,200
Revenue expenditure on sanitation services Per capita expenditure
Average per capita expenditure is around Rs 250 for the towns.
Highest per capita expenditure incurred by Wardha with Rs 687 followed by Panvel at Rs 446
Lowest per capita incurred by Parbhani with Rs 123 and Achalpur with Rs 196
Capital account
Actual figures for the year 2009
35
Capital income utilisation (%)
0.00%
50.00%
100.00%
150.00%
200.00%
250.00%
300.00%
350.00%
400.00%
Capital income utilisation - 2009
Nine towns have 100% or more capital utilisation of its capital income
Few towns, do not utilise 100% of capital income for development of projects
Capital utilisation varies every year for the towns
Capital account
Actual figures for the year 2005-2009
36
Capital income utilisation (%) – overall for five years
43%81% 85% 95% 101% 107% 110% 110% 123% 125% 128% 136%
305% 309%
420%
0%
50%
100%
150%
200%
250%
300%
350%
400%
450%
Capital income utilization
Capital income is generally on account of grant support from the State / Central government
Higher than 100% utilization reflects spill-over from un-utilised funds from previous years
Revenue surplus/ deficit – 10 year projected
37
Revenue surplus / deficit (in Rs. Lakhs)
-10,000
-5,000
0
5,000
10,000
15,000
20,000
25,000
Overall Surplus/ Deficit Overall Surplus/ Deficit after revenue improvements
Most of the towns have a revenue deficit for a projected 10 year period
No significant revenues with ULBs for investment in additional projects– Stress on ULBs for ongoing projects
– Existing debt payment is still a concern for most ULBs
Revenue enhancement for towns
38
Revenue enhancement – critical for towns for investing in performance improvement measures
Some of the measures to be taken up – Property tax coverage– increase of tax coverage for higher demands (additional 15 to
20%)
– Property tax collection – improving collection efficiency of 85% to 90% (annual equal increment over five years)
– Revision of existing water charges
– Water charges – improving collection efficiency (to achieved 85% to 90%) – annual increment
– Introduction sewerage tax as part of the property tax
– Additional revenues through implementation of capital projects• Increase of water supply coverage
Investment capacity
39
Investment capacity
40
Possible additional revenues (in Rs Lakhs)
768 1,246 1,539 1,588 1,750 1,9532,694
3,715 3,787 4,024
7,0257,727
9,985
12,575
15,922
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
Possible overall revenue improvement possible
Possible additional income through enhancement measures– Improved collection efficiency of taxes and charges
– Revision of tariff charges and tax rates
– Introduction of tariffs for sewerage charges and SWM
– Improving coverage of tax net and services
Investment capacity
41
Towns with capacity for additional investment– Barshi
– Chandrapur
– Jalna
– Latur
– Panvel
– Parbhani
Towns with no capacity for additional investment– Achalpur
– Ambernath
– Beed
– Bhusawal
– Gondia
– Ichalkarnji
– Satara
– Wardha
– Yavatmal
Revenue surplus – 10 year projected
42
Investible surplus for service improvement (in Rs. Lakhs) - Achalpur
1,715
515 594
136
2,961
-
500
1,000
1,500
2,000
2,500
3,000
3,500
Revenue surplus / deficit-Business as usual
Increment due toimprovement in property tax
collection
Increment due to tariffrevision and improvement in
water charges collection
Levy of Sewerage Charges Net investible surplus /deficit
Revenue surplus – 10 year projected
43
Investible surplus for service improvement (in Rs. Lakhs) - Ambernath
4,737.00
3,148.00
567.00
8,452.00
-
1,000.00
2,000.00
3,000.00
4,000.00
5,000.00
6,000.00
7,000.00
8,000.00
9,000.00
Revenue surplus / deficit- Businessas usual
Increment due to improvement inproperty tax collection
Increment due to tariff revision andimprovement in water charges
collection
Net investible surplus / deficit
Revenue surplus – 10 year projected
44
Investible surplus for service improvement (in Rs. Lakhs) - Barshi
4,374.00
944.00 640.00
5,958.00
-
1,000.00
2,000.00
3,000.00
4,000.00
5,000.00
6,000.00
7,000.00
Revenue surplus / deficit- Businessas usual
Increment due to levy of sewagetax through property tax
Increment due to tariff revision Net investible surplus / deficit
Revenue surplus – 10 year projected
45
Investible surplus for service improvement (in Rs. Lakhs) - Beed
(1,684.00)
992.00
3,032.00
2,340.00
(2,000.00)
(1,000.00)
-
1,000.00
2,000.00
3,000.00
4,000.00
Investible surplus Increment due to improvement inproperty tax collection
Increment due to tariff revision andimprovement in water charges
collection
Net investible surplus
Revenue surplus – 10 year projected
46
Investible surplus for service improvement (in Rs. Lakhs) - Bhusawal
(8,167.97)
2,254.46
4,176.12
371.78 223.07
(1,142.53)
(10,000.00)
(8,000.00)
(6,000.00)
(4,000.00)
(2,000.00)
-
2,000.00
4,000.00
6,000.00
Investible surplus/(need for external
funds)
Increase in demandand improvement incoverage of property
taxation
Increment due to tariffrevision and
improvement incollection to 90% of
user charges
Levy of SewerageCharges (5% of
property tax)
Levy of Charges -SWM services (3% of
propert tax)
Net investible surplus /deficit
Revenue surplus – 10 year projected
47
Investible surplus for service improvement (in Rs. Lakhs) - Chandrapur
(6,536.15)
3,948.18 3,948.18 4,679.33
6,039.52
(8,000.00)
(6,000.00)
(4,000.00)
(2,000.00)
-
2,000.00
4,000.00
6,000.00
8,000.00
Revenue surplus - Businessas usual
Increment due toimprovement in property tax
collection
Increment due to tariffrevision and improvement
in collection to 90%
Levy of Sewerage Charges Investible surplus afterrevenue augmentation
measures
Revenue surplus – 10 year projected
48
Investible surplus for service improvement (in Rs. Lakhs) - Gondia
-2739
1614
339
-786
-3000
-2500
-2000
-1500
-1000
-500
0
500
1000
1500
2000
Revenue surplus - Business asusual
Increment due to improvement inproperty tax collection
Levy of Sewerage Charges Investible surplus after revenueaugmentation measures
Revenue surplus – 10 year projected
49
Investible surplus for service improvement (in Rs. Lakhs) - Ichalkarnji
2,083.00 1,687.00
2,100.00
5,870.00
-
1,000.00
2,000.00
3,000.00
4,000.00
5,000.00
6,000.00
7,000.00
Revenue surplus - Business asusual
Increment due to improvement inproperty tax collection
Increment due to improvement inwater charges collection
Net investible surplus / deficit
Series1
Revenue surplus – 10 year projected
50
Investible surplus for service improvement (in Rs. Lakhs) - Jalna
412.00
8,671.00
7,251.00
16,334.00
-
2,000.00
4,000.00
6,000.00
8,000.00
10,000.00
12,000.00
14,000.00
16,000.00
18,000.00
Revenue surplus - Business asusual
Increment due to levy of sewagetax through property tax
Increment due to tariff revision Net investible surplus / deficit
Revenue surplus – 10 year projected
51
Investible surplus for service improvement (in Rs. Lakhs) - Latur
18,116.00
541.00 998.00
19,655.00
-
5,000.00
10,000.00
15,000.00
20,000.00
25,000.00
Revenue surplus - Business asusual
Increment due to improvement inproperty tax collection
Increment due to tariff revision andimprovement in water charges
collection
Net investible surplus / deficit
Revenue surplus – 10 year projected
52
Investible surplus for service improvement (in Rs. Lakhs) - Panvel
7,050.00
1,102.00 1,592.00
9,744.00
-
2,000.00
4,000.00
6,000.00
8,000.00
10,000.00
12,000.00
Revenue surplus - Business asusual
Increment due to levy of SWMcharges through property tax
Increment due to tariff revision Net investible surplus / deficit
Revenue surplus – 10 year projected
53
Investible surplus for service improvement (in Rs. Lakhs) - Parbhani
(677.00)
2,159.00
5,568.00
7,050.00
(2,000.00)
(1,000.00)
-
1,000.00
2,000.00
3,000.00
4,000.00
5,000.00
6,000.00
7,000.00
8,000.00
Revenue surplus - Business asusual
Increment due to improvement inproperty tax collection
Increment due to tariff revision andimprovement in water charges
collection
Net investible surplus / deficit
Revenue surplus – 10 year projected
54
Investible surplus for service improvement (in Rs. Lakhs) - Satara
4,120.00
8,308.00
1,677.00
14,105.00
-
2,000.00
4,000.00
6,000.00
8,000.00
10,000.00
12,000.00
14,000.00
16,000.00
Revenue surplus - Business asusual
Improvement in cost recovery ofwater supply
Improvement in cost recovery ofsanitation
Net investible surplus / deficit
Revenue surplus – 10 year projected
55
Investible surplus for service improvement (in Rs. Lakhs) - Wardha
20,782.18
2,740.86 479.23 384.22
24,386.49
-
5,000.00
10,000.00
15,000.00
20,000.00
25,000.00
30,000.00
Revenue surplus -Business as usual
Increment due toimprovement in collection
efficiency
Increment due to tariffrevision and improvement
in collection to 90%
Levy of Sewerage Charges Net investible surplus /deficit
Revenue surplus – 10 year projected
56
Investible surplus for service improvement (in Rs. Lakhs) - Yavatmal
2331
1645
105
4081
0
500
1000
1500
2000
2500
3000
3500
4000
4500
Balance available for investment inperformance improvement actions
Increment due to increase indemand of property taxation
Increment due to Levy of SewerageCharges
Net investible surplus / deficit
Thank you