City availed R2,1 billion of internal funds to cushion residents from COVID-19 impacts

28 January 2021

When the City of Cape Town’s budget for this year (2020/21) was first drafted, way back in December 2019 and January 2020, we as yet did not know about the disaster of COVID-19 that was to strike us, and did not yet know of the implications that would arise for our income or on the delivery of services.

In the short time available, and based on inadequate information of the precise nature and duration of these impacts, the City adapted the budget very quickly to address the needs as best we could project at the time. Given our subsequently justified fears of a significant impact on our economy and the ability of residents to cope with rates and tariff increases, the City took the decision to make use of R2,1 billion of our prior year internal surplus funds to support the budget and to cushion the impact on our residents.

It is confirmation of the prudent management of finances in the City that we had such available resources to assist in times of disaster. Having just come out of one crisis, being a sustained drought, where we were at risk of running out of water, but also at risk of running out of money, we took care to keep ourselves financially strong, despite the siren calls to spend, spend, spend. We could have spent those resources on many things that always seem essential, but we chose rather to keep our finances in a strong position. Nor did we spend that money on feel-good patronage, on parties, or on making life good for councillors. We husbanded those resources, and we were right to do so.

But as the wheel turned again, it was time to use those savings. That will get us through this financial year, but of course is not sustainable in the long-term, because those savings will run out. We have to return to a balanced budget as soon as we can. We have to be mindful that there could be another disaster lurking just around the corner and we must also be ready for that.

The good news

Despite the financial impact that the disaster has had on our residents, they have been loyal to the city they love and enjoy, and have paid their bills at better rates than we anticipated. I wish to extend the thanks of the City to our loyal residents for their continued payments. It is you who make the city and who keep us able to deliver services.

While payments had dropped for the period April to June 2020, this recovered sharply and from July to December 2020, the payment ratio was 101,7%. Thus many residents caught up with the arrears they had run into in the previous period. This is an indication of trust and support of the City as an institution.

Billings for rates, electricity and water were close to projections for this period, but billings for sanitation and refuse were around 5% under projections.

Overall revenue was R392 million below projections, equivalent to 1,7% of budget, which is well within historical expectations.

 The efforts to drive savings have been successful, even if sometimes painful for delivery departments. Savings of R689 million were achieved, of which the biggest contributor was in salaries and wages where R431 million has been saved. This goes a long way towards our goal of closing down the income-expenditure gap to put the City on a more sustainable footing for the future. I know that driving such savings has not been easy for line departments. Our residents have high expectations of delivery from the City. Rightly so, and their historical experience of high levels of service from the City has given them certain expectations. So, with a tightening of the belt, while at the same time experiencing a growing population to service, it is tough.

However, emergencies also bring new ideas and experiences. So innovation is driven to achieve more with less.

The City’s capital expenditure at midyear was R2,9 billion. This is one of the highest expenditures ever at midyear both in terms of value and as a percentage of budget. This delivery is despite the lockdowns that impacted on construction site activities. It is a result of the greater level of project management that has been implemented in the City, which has led to better tender preparation, tender outcomes and the more precise budgeting that flows from such management. The levels of engineering professionalism have always been high in this City. But these are now combined with better and more disciplined project management to bring better results.

Adjustment Budget

Key points include:

Reduction of the operating expenditure to more affordable levels.

Reduction of the capital expenditure from borrowings, to reduce impacts on future budgets.

Further adjustments to incorporate changes to grant funding.

The Capital budget is reduced by R1,2 billion to R7,3 billion.

Of course, at an adjustment budget, no rates or tariffs are changed, but the recent history of consumption levels result in a reassessment of the income that we project to receive for the full financial year. The net amounts make little change on overall income projections.

Due to the favourable payment rates experienced in the first half of the financial year, the projected payment ratios for the full year have been increased. This results in a lowering of bad debt provisions by R429 million.

The Executive Mayor, Alderman Dan Plato, and I want to thank our Mayoral Committee members for their endurance and commitment and to the City Manager, the Executive Directors and all the City staff for the effort that they have put in and continue to put in, to meet the objectives we set them.

This they have all done while having at the same time to cope with the demands of COVID-19 regulations on their work and on their personal lives, through illness and tragedy. Our frontline staff have battled staying safe while serving members of the public, whether they are in our clinics; collecting refuse; in our informal settlements helping residents with basic services and assisting fire-victims; providing housing and transport services; fixing streetlights and restoring power; keeping the water in the taps flowing; enforcing the law and keeping people safe; fighting fires; or behind the frontlines scenes making sure the City runs sustainably; or serving frustrated residents from behind a counter.

We commend them for their commitment to serve our public. We thank the residents of Cape Town for their support and dedication.

Issued by Media Office, City of Cape Town, 28 January 2021