Newcastle municipality under fire from KZN and National Treasury
The municipality was criticized in the same month for hiring back more than 200 workers who had been sacked concurrently in November 2019 despite not having the funds to pay them. Read more here:
Both National Treasury and KwaZulu-Natal have criticized the Newcastle municipality for submitting an unrealistic (unfunded) 2022–2023 budget.
The Newcastle Advertiser is in possession of two letters indicating that the municipality was under scrutiny for the ‘unfunded’ budget.
It’s also evident that they have come under fire for rushing the process to reinstate the previously fired 223 workers without having money to back-pay them.
In a letter sent to the municipality on October 4, National Treasury said it was against the Municipal Finance Management Act (MFMA) to present an unfunded budget.
The municipality was given a chance to self-correct and if it failed to do so, that would be interpreted as defiance.
The letter reads as follows:
“National Treasury wishes to bring to your attention the following contravention of the MFMA by your municipality. “Our records show that your municipality has adopted a budget that is not funded or aligned to section 18 of the MFMA as well as showing non-compliance with the MFMA. The adoption of an unfunded budget goes against the resolution taken both by the Budget Council and the Budget Forum. Our experience confirms that adopting an unfunded budget is indicative that the municipality will experience cash flow challenges during the year in which ultimately contributes to a transgression of the legal prescripts for payments to creditors within 30 days as per section 65 (2)(e) of the MFMA,” the National Treasury wrote to the municipality.”
Furthermore, the municipality was also criticized for hiring back more than 200 workers who had been sacked concurrently in November 2019 despite not having the funds to pay them.
In response, it informed the provincial treasury that it would reduce spending by paying R80 million to back pay the employees for 12 months rather than the 36 months they were unemployed.
The municipality acknowledged that it would need to make budget adjustments in order to raise the money, which infuriated the provincial treasury because it did not have the money to pay for it.
Treasury questioned how the municipality would pay for that given that it had a negative cash balance of R128.5 million for the 2022–2023 terms and that it had to return grant money that it had not spent.
Responding to a media inquiry from IOL News, the municipality’s mayor, Xolani Dube said that the problem of an underfunded budget is not new.
“We urgently instructed our administration to create a budget funding plan, which was then submitted to treasury in response to the issue of the underfunded budget as required by legislation, when the IFP-led coalition took over the governance of Newcastle municipality. Additionally, the Treasury approved the budget financing plan, which Dube explained meant that it had given its approval to the financial recovery procedures we had in place to make sure Newcastle Municipality’s budget was financed.”
Dube stated that the council requested two legal opinions on the subject of the dismissed employees, one from the South African Local Government Association (Salga) and the other from independent lawyers.
He asserted that both legal responses made it abundantly clear that the chances of the municipality succeeding in its lawsuit against the workers were essentially non-existent, and that continuing to delay the case would put additional financial strain on the municipality given the costs already incurred by it in this matter.
“Consequently, council applied its mind to the matter and took a just decision that would be in the best interests of the municipality financially and fair to the 223 workers; consequently, we are aware that this decision was unpopular to others who (wield) a certain degree of power to influence an administrative attack on Newcastle municipality. Regarding the correspondence, the media needs to understand that we are a state organ and that this is an interaction between state organs, which is a routine exercise that happens,” he added.
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