Municipalities in turmoil as funds hang in the balance

With only days to go before Finance Minister Enoch Godongwana delivers his budget speech – against a backdrop of lower-than-expected tax collections and a myriad of spending demands in an election year – it has become known that National Treasury has notified several municipalities that it will withhold millions of rands in conditional grants earmarked for defined projects.

Apart from the R630 million Tshwane may lose, the City of Joburg may lose an eye-watering R1.1 billion, Ekurhuleni R607 million and Nelson Mandela Bay R523 million.

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The letter to Tshwane was published on the social media platform X a week ago by former ANC caucus leader in Tshwane Dr Kgoši Maepa, who is now working in the office of Gauteng Premier Panyaza Lesufi.

Maepa did not say anything about the other two metros in the province finding themselves in the same predicament.

He did however also ‘disclose’ on the social media platform that Brink is about to resign:

Brink says the real issue here is that national government does not have money and is now trying to retain some of the amounts agreed upon with local governments.

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National Treasury would not disclose how many similar letters were sent because discussions with municipalities “are still ongoing, therefore, we cannot respond at this time”.

The municipalities have been given seven days to respond to the letter, dated 12 February, with a list of information National Treasury requires and give reasons why the quoted amount should not be withheld. They must also indicate what amount they consider appropriate to withhold.

‘Money not being spent’

National Treasury says in the letters, which Moneyweb has seen, that Joburg and Ekurhuleni had spent less than 45% of the grants by the end of last year, which is three quarters into the municipal financial year, and Tshwane and Nelson Mandela Bay had spent less than 40%.

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Athol Trollip, ActionSA’s premier candidate for the Eastern Cape and a former mayor of Nelson Mandela Bay, said in a statement it would be devastating for the metro to lose the money, given the critical role these grants play in the metro’s development “and the well-being of residents”.

The City of Tshwane said in a statement on Sunday that it made “an elaborate, detailed and comprehensive submission about how it intends to spend its grant funds allocation before the end of the current financial year”.

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It said it informed National Treasury that it has developed recovery plans to ensure accelerated expenditure of the grant funds and explained what had contributed to unsatisfactory performance up to 31 December 2023.

The key factors are:

• Migration from an old financial management system to the new financial management system, which impacted on processing and accounting for expenditure;
• The reduction of the urban settlement development grant (USDG) and informal settlement upgrading partnership grant (ISUPG) during the second quarter as directed by National Treasury, which necessitated early review and repackaging of a number of programmes to accommodate the cuts;
• The prolonged unprotected labour strike which impacted heavily on the implementation and monitoring of projects;
• Delays in the initial stages of procurement (approvals of specifications and tender advertising); and
• Delays in the appointment of contractors to provide electrical cables and spares, as well as lead times in the supply and delivery of materials for electricity projects.

According to the city, these factors have been resolved.

The city said it has made “tremendous progress in most projects by issuing appointment letters and concluding contracts with the appointed service providers”.

It has depleted the transferred tranches when current expenditure and commitments for February 2024 are considered.

ALSO READ: ‘No Tshwane grant crisis’ – Tshwane mayor Brink

“From beginning of March, the city will face serious funding shortfalls when it comes to paying contracted service providers. Therefore, to mitigate this challenge, the final tranches must be transferred by the end of March 2024, as per the approved payment schedule.”

It stated that by the end of January 2023, 84% of transferred funds had been spent.

Tshwane municipal bonds suspension threat

In the meantime, the City of Tshwane is awaiting the response of the JSE, which earlier threatened to suspend the trading of its municipal bonds unless the audited financial statements are submitted by the end of this month. The initial deadline for the 2022/23 statements was 31 January.

Such a suspension may constitute an act of default and entitle bond holders and other financiers to call up the loans granted to the metro.

Brink told Moneyweb that newly appointed CFO Gareth Mnisi went to see the relevant people at the JSE and explained that the city is trying to rebuild and improve its systems after the shock adverse audit opinion from the Auditor-General (AG) a year ago.

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This required further work on the financial statements, which resulted in late submission to the AG and means the financial statements are not yet available.

According to Brink, the AG’s office committed to completing the audit by the end of February, completing the management letter by the middle of March, and providing the audit report by the end of March.

He hopes for improved audit outcomes, but does expect that it will be qualified, because it will take more time to correct the valuations of property plant and equipment, one of the issues the AG flagged before.

This article was republished from Moneyweb. Read the original here