Budgeting for Tough Times

January 7, 2021

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Dear Bitou Councillors,

BUDGETING FOR TOUGH TIMES – 2021/22

The approval of the municipal budget is one of the most important tasks undertaken by councillors.

It is our understanding that the 2021/22 budget for the financial year beginning in July 2021 must be approved before end of June 2021. The draft budget, therefore, should be ready around March so it can be used for consultation with stakeholders.

As we have reminded you repeatedly, the budget needs to be zero-based, which means tariffs should be based on actual costs, and not a thumb suck increase. All the municipal charges that follow on that must be calculated on a realistic cost-plus basis. Bitou’s tariffs vary widely from Knysna’s, even though our two towns should be similar. That is a sure indicator that somewhere along the line, someone is guessing.

Bitou’s budget needs to be adjusted to face reality. Nationally we are facing a serious retraction in Gross Domestic Product (GDP), and Bitou’s GDP is below most of the other towns in the Garden Route District. Bitou’s revenue collection has dropped significantly, and there is no reason whatsoever to think it will recover in 2021. Therefore, Bitou needs to cut out all the fat (all the nice-to-haves) and reduce the workforce. The budget should be prepared on the basis that officials look at basic services first (streets, water, electricity, waste removal, sewerage). The municipality must ensure we can provide these services effectively, efficiently and sustainably and yet be able to service our looming debt. The party is over.

Employee Cost

The largest operating expenditure is Employee Cost. Employment costs are out of control and keep increasing year on year. Bitou budgeted its employee costs to increase 13% from R237 m to R269 million this year – this in the midst of the pandemic in which it was obvious that revenue would decrease. Employee cost is a bloated 36% of the operating budget, whereas the provincial goal is 30%. In comparison, Knysna budgeted to decrease to 27%.

Where do you start to cut?

Salary freeze. Both councillors and municipal employees took increases this year while others were losing their jobs.
Put a freeze on hiring. It is not government’s job to provide employment; it is government’s job to enable employment and investment.

Put a moratorium on all overtime (except emergency callouts): it is R15 million and could be more – the MM says it is uncontrollable. Why?
Suspend “payment in lieu of leave” for municipal officials which costs us R197,000.
Eliminate staff performance bonuses. (their reward is still having a job!)
Do councillors really use and need R44,400 in cell phone and data per annum each? Cut it in half.

Eliminate bodyguards, driver and personal security for the mayor and deputy mayor.
Eliminate office staffs who are purely political appointees.
Put a moratorium on travel. R1.85 million was spent in 2019/20.
Eliminate attendance at congresses and seminars.
Rescind the order for expensive new vehicles for the mayor and deputy mayor, which is an unlawful expense.
Eliminate the housing allowance and charge fair market rental on the use of municipal houses.

Where should we further cut the budget?

Unfortunately, things like sport, recreation and entertainment are not necessities for service delivery or survival.

Although the budget does not give expenditure details, past financial statements provide insight into discretionary spending. We call on council to eliminate or reduce:

Municipal funded concerts, festivals and event sponsorships.
Printing and postage: R1 million spent last year!
Subscriptions and memberships: R4.68 million spent last year increased from R2.16 million.
Catering.
Reduce entertainment expenses – well in excess of R100,000 was spent on the municipal year-end party.
Grants in Aid: MEC Bredell has documented many of these mayoral grants as misappropriation.
Cancel municipal credit cards since fuel expense has skyrocketed.
Reduce advertising to only what is legally required. R200,000 has been budgeted for job adverts; if we put a freeze on hiring we won’t need adverts!
Reduce the R8 million-plus spent on legal fees by evaluating each case and settle or drop cases.
Reduce security for municipal buildings. Yet another tender was awarded to Isolomzi Security for R16 million pa. They have received an estimated 20% increase year on year for almost ten years.

Contracted services: National Treasury says municipalities should not exceed 6% of its operating budget on contracted services, yet Bitou spends over 14%. This year consultants and professional services are budgeted at R40 million, outsourced services at R25 m: total of R65 million up from R54 million last year. With contractors included, Bitou spends almost R100 million on contracted services. Bitou should remove unwarranted contractors and nonproductive personnel.

Capital Budget.

Bitou’s capital budget for this financial year budgeted for: office furniture, office aircons, R600,000 for security cameras, yet no one can see who is doing the illegal dumping which is costing us millions to clean up.

Municipal money should be spent on infrastructure to replace aging fibre cement water pipes, road repairs, working street lights, not comfort features for themselves. Repair and maintenance as a percentage of the PPE (plant, property and equipment) budget decreased from 7.8% to 7.2%.

Conclusion.

The above represents at least R150 million in budget reductions that should have been eliminated from the 2020/21 budget, but wasn’t. We called on Council to adopt National Treasury’s Cost Containment Guidelines as Bitou policy over a year ago, but it is continuously delayed. We ask you again to adopt the policy and eliminate frivolous expenditure.

Kind regards,

Peter Gaylard

Chairman