News agency, Cape Town, South Africa
Tuesday March 26th 2019

Municipalities and the economic crisis: The tightening noose

Caitlin Ross

A rise in rates arrears as a result of the global economic recession could spell a downturn in municipal service delivery across the country, with major municipalities seeing a drop in people’s ability to make rate payments.

With tough economic times, municipalities report that people falling behind in payments are more likely to address their car payments before their property rates.

To varying degrees, municipalities rely on income from local taxes, fees for services or national treasury transfers – on which many of the smaller ones are almost entirely dependent.

“The bigger municipalities depend very heavily on service fees and rates for their income. Cape Town relies on these for about 90% of its income, the downside of which is that if there is a large arrears it would definitely impact on service delivery,” said Derek Luyt, advocacy head at Rhodes University’s Public Service Accountability Monitor (PSAM).

City of Cape Town Director of Revenue Trevor Blake said people battling to fulfill their rate-paying as a result of the crisis had reflected in the amount outstanding for arrears for rates and municipal services, with an increase of R2,773bn to R 2,889bn for the period 1 July 2008 to 31 December 2008.

During this time the payment ratio was 96.01% of the total billings for this period – meaning that for every R100 billed R96,01 was paid.

Louis Kruger, Head of Income and Expenditure for the Ethekwini Municipality confirmed a similar situation.
“I would like to concur with what Cape Town is saying. The NCA together with the general economic meltdown is playing a part in rates payment not being as forthcoming as it should,” he said.

Ethekwini has seen a drop in payment levels for rates to “about 90%” for the financial year to date (July 2008 to February 2009). This is in contrast to the previous financial year (1 July 2007 to end June 2008), which saw a rates-fulfilment of 103%.

“We are fairly cash-flush at the moment, but if the situation continues like this service delivery will suffer and there would certainly be cause for concern,” said Kruger, adding that if payment were to drop below 70% the municipality would have to “look at different options”. These included a cut back on budget and expenditure or, if it could be seen as a short-term situation, getting loans on the open market.

Len Verwey, Budget Unit Manager for the Political Information & Monitoring Service (PIMS) at the Institute for Democracy in South Africa (Idasa), said although the financial crisis may have had this impact, other municipalities in the country were clouded with huge arrears and non-performing debt-books and did not have adequate finance to deliver services anyway.

“Even before the crisis it’s fair to say that 30-40% of South African municipalities are strapped.”

Verwey said there are a number of factors to consider when assessing the monetary situations of these municipalities.

“You ask ‘Is the problem with the municipality? Are they doing enough to recover the funds? Or is the problem with policy and is it too expensive?'”

While bigger municipalities may put an increase on service fees, smaller ones might “play a budgeting game” in vying for more money from Treasury.

Patrick Bond, a senior professor at the University of KwaZulu-Natal and director of its Centre for Civil Society, believes the reality of the situation has not been acknowledged and is far more serious than authorities are letting on.

“The global economic meltdown is still to fully hit SA, because we have been somewhat protected by residual exchange controls. However, investors lost many tens of billions of rands worth of paper wealth since last October because of local crashes of currency, stock and real estate markets,” he said.

He said the property bubble in South Africa rose 389% compared to just 102% for the USA from 1998-2007, so a bigger crash was still to come.

Bond said this led to a negative-equity situation (in which you owe more than the property is worth) and this is where people found it was in their best interests to “walk away” from their rates-payments and properties.
“Of course when this happens the municipalities are the first to feel it,” he said. — West Cape News

Tags: capetown, ethekwini, municipalities, rates

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