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DIRECTORATE BUDGET AND TREASURY OFFICE: DRAFT BUDGET: 2014/2015 FINANCIAL YEAR AND MTREF FOR 2015/2016 AND 2016/2017

5/1/1-(2014/2015)

PURPOSE:

The Local Government Municipal Finance Management Act, No. 56 of 2003 Section 16(1)2 requires that the Mayor of municipality must table draft budgetat least90 days before the start of the new financial year.

BACKGROUND:

The draft budget is prepared to meet the Integrated Development Plan (I.D.P) priorities as well as the strategic objectives of the West Rand District Municipality. The Departments have been consulted to enhance the production of a credible balanced draft budget. The limited available funds require that priorities and strategic objectives should be carefully considered in the preparation and production of realistic credible draft balanced budget that is capable of being approved and implemented as tabled.

The draft IDP, as informed by the agreed strategies,is available and enhances alignment with the draft budget.

Municipal Budget and Reporting Regulations (M.B.R.R)were promulgated on 17 April 2009 as per Government Gazette no. 32141. As part of the regulations a totally new format is also prescribed in which municipalities must submit the budget for adoption and/or approval. This resulted in the re-engineering of the financial database in order to populate the prescribed forms.

Attached as Annexure, is the following documentation:

- Tables and Supporting Tables as prescribed.

- Graphs in support of the tables and supporting tables.

- Budget related policies.

The draft budget makes provision for all the functions and responsibilities of the WRDM as provided for in the 2014/2015 financial year, including the rendering of Emergency Medical Services(E.M.S) as well as Municipal Health Services (M.H.S).

The Constitution of the Republic of South Africa has section 156 (1) and (4) which places responsibilities on the municipality. The municipality has executive authority in respect of, and has the right to administer the local government matters listed in Part B of Schedule 4 and Part B OF Schedule 5; and any other matter assigned to it by national or provincial legislation. The national government and provincial governments must assign to a municipality, agreement and subject to any conditions, the administration of a matter listed in Part A of Schedule 4 or Part A of Schedule 5 which necessarily relates to local government, if that matter would most effectively be administered locally, and the municipality has the capacity to administer it.

The Honorable Minister responsible for Cooperative Governance and Traditional Affairs (COGTA) has authorized the West Rand District Municipality (WRDM) in January 2003 to perform the Municipal Health Services (MHS) in the Local Government Municipal Structures Act (MSSA). The authorization was followed by funds from the Equitable Share.

1. EXECUTIVE SUMMARY

The following is a concise summary of the draftbudget for the 2014/2015 financial year, as contained in Table A1 ( Draft Budget Summary):

Description 2014/2015

Operating revenue (incl. accum. funds)R285 092 228

Operating expenditureR280 956 457

Capital BudgetR 4 135 771

Total surplusR 0

2. CAPITAL BUDGET

The draftcapital budget projects identified as per the request of the departments is as follows:

Fire EnginesR3 885 771

ICT Equipment’sR 250 000

TOTALR 4 135 771

3. OPERATING REVENUE

Total operating revenue amounts to R285,092 million (including accumulated funds) and is contained in Table A4 (BudgetedFinancial Performance).

The Chart below illustrate where the municipality receives most of its funding:

3.1Service charges– other

The main components of revenue from service charges are the rendering of ambulance (R1, 000 m) and fire services (R1, 500 m) and the sale of electricity to tenants. The Draft budgeted revenue from this source for 2014/2015 amounts to R3 648million.

3.2Rent of facilities and equipment

Expected revenue for 2014/2015 amounts to R1, 778million of which the rental of shops (R1, 250million) is the biggest contributor.

3.3Interest earned – external investments

This source of revenue refers to interest earned on the investment of surplus cash.Interest earned, compared to the adjustments budget for 2013/2014 has increased. An amount of R6 169 million is provided.

3.4 Agency Services

This source of revenue refers to the ambulance services grant received from provincial department for emergency and medical services. The grant has increased as compared to R 37 789 m.

3.5Transfers recognized– operational

Operating grants and subsidies represent the bulk (67%) of the revenue sources of the WRDM.

A breakdown of the grants and subsidies for 2014/2015 is as follows:

RSC Replacement GrantR150 519 000 (National)

Equitable Share AllocationR 27 825 000 (National)

Library NetworksR 500 000(Provincial)

HIV/Aids grantR 6 637 000 (Provincial)

M S I GR 934 000 (National)

F M GR 1250 000 (National)

NDPGR 895 000 (National)

EPWPR 1 290 000 (National)

TotalR 189 589 000

3.6Other own revenue

Other revenue amounts to R45, 961 million and consists of the following main elements:

- Sale of Refuse BagsR 2 457 000

- Sale of PlantsR 310 000

- Insurance ClaimsR3 000 000

- Training Fund RefundsR 500 000

- IDC Grant (WRDA)R 6 000 000

- VAT Sundry RevenueR 7 000 000

- Mogale City Local Municipality TransformationR 500 000

-Merafong City Local Municipality TransformationR 500 000

-Randfontein Local Municipality TransformationR 500 000

-Westonaria Local Municipality TransformationR 500 000

- Accumulated funds (surplus cash)R20 000 000

4. OPERATING EXPENDITURE

Operating expenditure, including the West Rand Development Agency,amounts to R280 956 million and is contained in Table A4 (Budgeted Financial Performance) and supported by information in Supporting Table SA1.

The Chart below illustrates where the muncipalility is spending most of its budget.

4.1 Employee related costs

Zero-based budgeting and the increase as Circular 70 from National Treasurywas used to determine employee related costs for 2014/2015.The following are included:

  • Provisional annual salary increase of 6.8 and 6.4% for both 2015/16 and 2016/17 Financial Year Respectively based as per Circular 70 issued by National Treasury.
  • Provision for annual notch increases where applicable.
  • 80 New personnel costs related to EMS and Fire Services under Public Safety Department.

Total personnel costs amounts to R186 864 million and represents 67%of total operating expenditure.Personnel costs amounts to R95, 610 million (51%) are from Public Safety Department.The main components associated with personnel costs are contained in Supporting Table SA1.

4.2 Remuneration of Councilors

Provision for Remuneration of Councilors is as per the requirements of Circular 67 which refers to implementation of upper limits of councilors.

4.3Depreciation

Provision for depreciation for the 2014/2015 financial year, as per the financial policy of the WRDM, amounts to R9 165million and makes provision for current assets, assets purchased andcompliance with GRAP17.

4.4Interest and redemption on external borrowing

This provision is for servicing the current external loan of the WRDM taken up from the Development Bank of South Africa which is redeemable by

30 September 2014.

4.5Other general expenditure

Other main components of general expenditureamounts to R72 420 million and represents26%of total operating expenditure for the 2014/2015 financial year. Detailed information on other general expenditure is provided in Supporting Table SA1.

Note:The chart below clearly indicates how the budget is split between the departments. Public safety is the major department in terms of allocation of the budget followed by Health and Social Development, BTO, Corporate Support Services, Political Office, LED and Regional Planning, Municipal Manager’s Office and the WRDA.

5. BUDGET ASSUMPTIONS

Municipality has taken into account the Following CPI inflation forecast during the draft budget preparation process.

Fiscal year 2014 2015 2015

CPI Inflation 5.6% 5.4% 5.4%

This forecast increase applied only to General expenses and Repairs and Maintenance as it is stated on Circular 70.

6. BUDGET RELATED POLICIES

The following budget related policies are submitted in terms of the provisions contained in the MFMA. Since no changes are recommended to be made to the policies, they are submitted for cognizance.

5.1 Asset Management Policy

Approved under ITEM 5/1, dated 30 May 2013 (attached as Annexure).

5.2 Banking and Investment Policy

Approved under ITEM 5/1, dated 30 May 2013 (attached as Annexure).

5.3 Credit Control and Bad Debt Policy

Approved under ITEM 5/1, dated 30 May 2013 (attached as Annexure).

5.4 Supply Chain Management Policy

Approved under ITEM 5/1, dated 30 May 2013 (attached as Annexure).

5.5 Approved under ITEM 5/1, dated 30 May 2013 (attached as Annexure).

Other policies

7. BUDGET RELATED MATTERS

7.1Included in thedraft budget of the West Rand District Municipality for 2014/2015, is the ring-fenced entity of the West Rand Development Agency (WRDA).

The WRDA consists of Head Office, Donaldson Dam Recreation Resort, Katlego Arts and Craft,and the Plastic Recycling Plant, with a

- Operating expenditure budget of R9 949 961,

- Operating revenue budget of R13 051 200

The main own sources of revenueare the sale of refuse bags in the Plastic Recycling Plant, IDC Grant and Subsidy from WRDM.

Operating expenditure is directed towards, Employee related costs, Depreciation, Directors remuneration and other general expenses to the value of R9 949 million

7.2 Council of WRDM and Management must take note the requirements of Circular 70 from national treasury which clearly states that the municipalities must refrain in spending on non-priority projects rather by spending in services delivery projects.

RECOMMENDATION THAT:

1.The ConsolidatedDraft AnnualOperating and Capital Budget of the West Rand District Municipality and West Rand Development Agency for the financial year 2014/2015, and indicative amounts for the two projected outer years of 2015/2016 and 2016/2017 be approved as contained in the following attached schedules:

Operating revenue by standard classification, reflected in Table A2;

Operating expenditure by standard classification, reflected in Table A2;

Capital expenditure by standard classification, reflected in Table A5; and

Capital funding by source, reflected in Table A5;

2.Cognizanceis taken of the draftannual budgeted information for the 2014/2015 financial year and two projected outer years as contained in:

Budget summary: Table A1;

Budgeted financial performance (Municipal vote): Table A3;

Budgeted financial performance (Revenue/Expenditure): Table A4;

Budgeted financial position: Table A6;

Budgeted cash flows: Table A7;

Reserves and surplus reconciliation: Table A8; and

Asset Management: Table A9;

3.The local municipalities are requested to contribute an amount of R500000 each towards Transformation Committee;

4.The draft annualbudget of the WRDM for the 2012/2013 financial year, be placed on the WRDM website and be forwarded to all relevant stakeholders as prescribed by the MFMA;

5.Cognizanceis taken of the budget related policies attached as annexure to the report;

6.An amount of R20millionis utilised from accumulated funds in order to achieve a balanced budget;

7.No additional posts to be filled or created in the structure of the WRDM after the budget has been approved as the Employee Related Costs post a serious concern to the financial viability to the municipality.

8. The Shared Services functions( Legal, Finance, Supply Chain Management and Internal Audit) be implemented with the personnel being transferred to the local municipalities to reduce the support services burden costs in the WRDM

9. The Demarcation Board be consulted on the review of the service delivery functions in terms of section 85 (2) (a) of the local Government Municipal Structures Act, 1998(No. 117 of 1998)