RESPONSE TO SAPOA MUNICIPAL SERVICES COST REPORT

BACKGROUND TO SAPOA STUDY

• SAPOA Study must be seen in context of moves to introduce Development Charges.

• Present revenue from Development Charges miniscule in comparison with Infrastructure needs.

• Development Charge Principles - Fair & Equitable; Transparent; Sustainable.

• Not in Metros best interests to penalize Developers but must apply tariffs fairly across ALL groups of ratepayers/ consumers.

Response To SAPOA Municipal Services Cost Report

OVERALL COMMENTS

• Accuracy of Figures/Calculations Questionable:

- Anomalies apparent (e.g. Electricity Fees of R46740 for eThekwini Municipality).

- Officials interviewed not decision makers and unable to clarify rationale for tariffs.

- Survey should have been addressed to City Manager; CFO or Head of Department. Better accountability.

- Is ‘like being compared with like’?

• National Treasury Section 71 Comparison of Costs of ‘Basket of Services’ for metros at odds with findings of SAPOA study, especially in case of eThekwini Municipality.

Response To SAPOA Municipal Services Cost Report

OVERALL COMMENTS cont…

• Inappropriate to label cities as ‘most expensive’ or ‘cheapest’ as relationships with other groups of consumers/ratepayers in City’s Budget have not been considered. e.g. Cross-subsidisation takes place at all metros and is a necessity.

• Municipalities not identically comparable as population demographics; geographic make-up; resources; economic activity, etc. are all different.

• Land and Building Costs were assumed to be constant throughout municipalities - questionable?

Response To SAPOA Municipal Services Cost Report

Response To SAPOA Municipal Services Cost Report

COMPARISON OF HOUSEHOLD BILLS - NATIONAL TREASURY

Measure Johannesburg Cape Town eThekwini Ekurhuleni TshwaneNelson

Mandela Bay Buffalo City Mangaung

AVERAGE HOUSEHOLD BILLS              

Property rates 162.58 151.55 289.43 173.47 330.06 176.73 298.84 82.34

Electricity: Basic levy 322.39 0.00 0 0 0 0 0 0Electricity: Consumption 448.1 590.3 520.09 453.72 574.36 504.84 464.50 574.45

Water: Basic levy 0 0 0 0 0 23.66 0 0

Water: Consumption 201.34 205.44 265.02 176.8 232.24 186.46 257.82 248.37

Sanitation 98.7 147.98 55.85 85.28 117.67 133.09 173.68 71.76

Refuse removal 96.78 85.21 49.01 82.77 42.37 61.04 40.00 122.15

Other 0 0 0 0 0 0 0.00 28.06

Total Monthly Bill 1329.89 1180.48 1179.4 972.04 1296.7 1085.82 1234.84 1127.13

Response To SAPOA Municipal Services Cost Report

REGULATORY DETERMINANTS OF RATES & TARIFFS

• Section 74(2)(d) of Municipal Systems Act 2000 states “Tariffs must reflect the costs reasonably associated with rendering the service, including capital, operating, maintenance, administration and replacement costs, and interest charges”.

• Tariffs must be FULLY COST REFLECTIVE.

• Relief granted to one group/category of ratepayers will have to be borne by another group.

MUNICIPAL RESPONSIBILITIES & CHALLENGES• SAPOA study cities several ‘Key Opinions’:

Challenges, from municipalities surveyed.

- Overwhelming theme is need for infra-structure maintenance and expansion, but resources very limited and diminishing.

• Need for Development Charges thus absolutely necessary. Issue is one of ‘Quantum’.

• World Bank: SA Urban Agenda: Municipal Infrastructure Finance Synthesis Report May 2009.

- eThekwini Municipality (Figure 19: Calculated Rates of Development Charges shown as 0,1%) based on Total Revenue

received.

Response To SAPOA Municipal Services Cost Report

MUNICIPAL RESPONSIBILITIES & CHALLENGES cont…• World Bank Report conclusion:

“Development Charges have the potential to allocate costs more equitably”.

At present, existing ratepayers subsidising Capital budget and major rehabilitation projects which benefit developers.

• National Treasury Zero Draft document “Towards a Policy Framework on Municipal development charges” – March 2010.

- Current system weak.

- Revenue from Development Charges have declined as a % of Total Municipal Capital Finance from over 4% in 2003/04 to an estimated 2%

in 2009/10.

- Transparent & equitable framework for Development Charges can benefit all stakeholders & provide certainty on development trajectory of cities.

Response To SAPOA Municipal Services Cost Report

PROPERTY DEVELOPERS DOING BUSINESS WITH MUNICIPALITIES

• Overall ‘Customer Rating’ shows only 7% ‘above average’ with 57% ‘bad and below average’.

• eThekwini Municipality taking challenge seriously.

• Best Practice Commission & City Planning Commission being appointed.

• First task is to streamline planning operations to a more efficient and effective process.

Response To SAPOA Municipal Services Cost Report

RECOMMENDATIONS

• Agree with need for standardisation of Cost Calculation Methods.

• Index on Development Costs should be created.

• All Role-players be involved in decision making processes where they will have the opportunity to motivate concerns and explanations for actions.

• Release of National Treasury Framework will go a long way to establish principles and parameters for the levying of Development Charges.

Response To SAPOA Municipal Services Cost Report

THANK YOUTHANK YOU