THE City of Cape Town’s Mayoral Committee has adopted its Medium Term Revenue and Expenditure Framework (MTREF) to guide the municipality’s budget formulation for the next three years.

 The MTREF, which is reviewed annually, takes account of budget and economic realities and sets the path for sustainable medium-term funding of service provision.
Adaptations have been made to the previous MTREF to take account of changed conditions, which include lower interest rates, the national three year salary settlement and lower collection ratios.

The City’s ambitious capital investment programme, which has been accelerated over the past few years, is impacting more heavily on the operating budget through increased interest and depreciation charges.

While such increases were previously anticipated, a reassessment of the limit on the City’s medium-term borrowing capacity has indicated that a moderate slowing of capital expenditure is required to ensure long-term sustainability.

 In addition to continuing capital investment, the City also seeks to improve its spending on repairs, maintenance and operational costs, such as for an adequate fire service, and must ensure an adequate balance between these competing needs.

In order to avoid rates increases that are significantly above the inflation rate, specific savings are proposed for rates-funded services in the coming year, including a cut of R180m from General Expenses, R113m from vacant posts, and a reduction in provisions for international travel, furniture, equipment, grants and subsidies.

A rates growth requirement of 7.7% is projected for the 2010/11 Financial Year. As a new General Valuation is to be implemented this coming year, the impact on individual rates bills will vary.

The major challenges projected are in achieving sustainable funding of the tariff-funded services:

• Based on the proposed Eskom tariff increase of 35% and a projected zero increase in electricity sales, an average 29% increase is required in retail tariffs. However, this would be insufficient to fund all infrastructure needs and a number of projects will therefore be postponed to future years
• Due to the closure of localised refuse disposal sites (because they are full), refuse must now be transported over longer distances. The construction of transfer stations can no longer be delayed and significant capital expenditure is also required for extensions to the Vissershok refuse disposal site and new collection trucks. An average refuse collection tariff increase of 18% is anticipated for 2010/11 to ensure adequate funding for this service
• The Water and Sanitation service also requires significant infrastructure provision and refurbishment. Subsequent years’ increases in water tariffs will need to ensure adequate funding for this system if water supply shortages are to be avoided

In recognition of the current financial difficulties that have beset consumers and ratepayers, Mayco has sought to find a balance between moderating tariff increases and ensuring that services will continue to be adequately provided in coming years.

The final valuations of properties are due at the end of this month. Once available, modelling of the impact of the proposed rates and tariffs will be undertaken to obtain a fuller understanding of the proposals on different income groups.

Consideration will then be given to the rebate structure to minimise the impact of the increases on the more vulnerable members of society.

The MTREF will form the basis for the development of the draft budget to be tabled in Council at the end of March.

A public process and examination of the budget proposals by the Portfolio Committees of Council will ensue thereafter and all inputs will be considered prior to the final adoption of the budget at the end of May.

Source: Cape Town