The Knysna Council has approved a budget of more than half a billion rand for the 2014/2015 financial year.
The new budget for Knysna Municipality, which was approved on Thursday, amounts to some R610.9 million , of which R540 million is for operating costs and R70.2 million for capital expenditure and R540.7 million for operating expenditure.
It also includes tariff increases of between seven and eight percent for electricity, water and sanitation.
Knysna executive mayor, Georlene Wolmarans, says while, at a national level the economy of the country is under stress, paradoxically the economy of the Knysna municipal area may have already reached its turning point.
Wolmarans says the local economy is now on a positive, albeit very slow growth trajectory.
Here is the full statement
Executive Mayor Georlene Wolmarans said that the budget for the new financial year occurs at a critical point in the current national and local economic cycle. "At a national level the economy of the country is under stress with exchange rates at their weakest since 2007, with inflation under pressure and with low productivity and wage costs high. Paradoxically the economy of the Knysna municipal area may have already reached its turning point and the local economy is now on a positive albeit very slow growth trajectory. "
She said because Knysna remains fundamentally a tourist- and lifestyle-based economy, the national woes are not necessarily replicated in this area. "According to the latest GGP figures tourism and financial services contribute 49% of local GGP. The consensus from all role-players in Knysna is that this latest holiday period was one of the best in living memory. The collapsing rand meant that South African citizens holidayed and spent their money locally. Conversely, overseas visitors are attracted because of the cheap rand, and to Knysna in particular because of good marketing. In this regard the impact of the World Cup in 2010 and the fact that Knysna successfully hosted two European countries cannot be over-emphasised and is now paying off."
She singled out the grant to Knysna Tourism, saying that they are budgeted to receive R4 million in 2014/15. "Council has however requested the Knysna Tourism Board to review the future of Knysna Tourism, and has budgeted only for one year in terms of the current Service Level Agreement. I am positive that the outcome of this review will be for the benefit of our beautiful town"
The new budget for Knysna Municipality amounts to some R610.9 million in 2014/15, being R70.2 million for capital expenditure and R540.7 million for operating expenditure.
Wolmarans said that the Knysna Municipality is an extremely well-run municipality that fights well above its financial weight. "The municipality achieved a clean audit from the Auditor-General. A clean audit means that the financial and managerial operations of the municipality are honest, open, and transparent. Very few municipalities have this accolade and the private sector is not audited at the extreme levels. In fact a "clean audit" is a misnomer. A clean audit is an indicator which clearly reflects the ethos of the councillors, senior management and the organisation as a whole."
From 1 July 2014 amendments have been approved for a number of financial policies, including the Funding and Reserves Policy and the Budget Policy. In terms of the latter two forty percent of the increased equitable share over a normal CPI adjustment will be allocated directly to repairs and maintenance (R2.5m) and forty percent to the Capital Replacement Reserve (CRR) for future infrastructure. The balance (R1.25m) will go to the revenue account.
Economic development measures implemented by Council include the drive and emphasis by the Supply Chain department to fully implement Council's Supply Chain policy to use local contractors for Council business and paying an acceptable premium to use them. By the end of this financial year it is estimated that the local portion of Council's discretionary spend will have risen over the last two years by 31% from R110 million to R144 million. The HDI portion unfortunately has not grown at the same level with only an anticipated 20% growth from R40 million to R48 million. This has much to do with the fact that the growth areas for HDI involvement remains at the less specialised level. However Council is currently examining its procurement targets in conjunction with its procurement strategy to increase local BEE spend. Furthermore a Contractor Development Program will be developed and rolled out over the next few years. Additionally Council has recently approved an initiative to market local traders over the holiday periods.
Wolmarans said a four month freeze will be mandatory on all vacancies occurring after 1 July 2014. "This is in line with National Treasury's request to "share personnel" and will allow Council to examine its structure afresh each and every time a vacancy occurs. A Council-wide organisational review was started in January 2014."
The very successful ward project system in conjunction with Councillors and Ward committees will be repeated for the third year. Wolmarans said that there will be changes going forward. "For 2014/15, the amount allocated to capital projects in wards will remain at R200 000 per ward. National Treasury insists that all significant projects must be identified and specified in the budget if they are of a capital nature. The final projects and programmes will be included in the approved municipal budget and performance against the budget will be reviewed monthly."
She highlighted the following:
" The anticipated final outcome of the current 2013/14 budget is that Council will end with a surplus after all transfers of R47.3 million .This compares to the original budgeted figure of R42.2 million.
" The operational budget for 2014/15 projects R536.8 million operating revenue, R540.7 million operating expenditure, R39.5 million capital transfers and a surplus of R35.5 million. Capital expenditure is budgeted at R70.2 million.
" The capital budget for 2014/15 will total R70.2 million of which R39.5 million is funded from national and provincial grants and R30.7 million from internally generated funds and borrowings, which includes R4.3 million of unspent borrowings.
" R14.4 million is allocated to Community Services projects which include R3.2 million for Solid Waste and Environmental projects, and R1.8 million and R2.1 million for the Rheenendal and Smutsville multipurpose centres respectively.
" In terms of infrastructure R13.3 million is allocated to Electricity for the Electrical projects, R21.3 million for water and Sewer projects and R18 million for housing.
" Council has allocated a total of almost R13 million for road infrastructure. This includes R3.8 million for labour intensive paving; almost R2 million for maintaining and upgrading gravel roads; and almost R3 million for repairs and reseals. Of primary importance will be the resurfacing of Grey Street.
" The first phase of the upgrading of the CBD sewer reticulation will commence with Grey Street at a cost of R4.2 million. The total value of this project is R24 million.
" Additionally an amount of R2,5 million rising to R20 million in 2015/16 and R21,6 million in 2016/17 has been gazetted in the Division of Revenue Bill for the Bitou Municipality for a joint venture regarding water supply. A status quo report on this project has recently been submitted to Council.
" Of great significance is the R500 000 allocated to upgrade old external toilets in Hornlee. This is a priority for Council and is the first phase of a multi-year project.
Tariff Implications
The National Electricity Regulator (NERSA) has approved an increase in the bulk tariff from Eskom of 8.06%. National Treasury in MFMA Circular No. 70 advises local government "to structure their 2014/15 electricity tariffs increases based on the approved 7,39% NERSA guideline tariff increase."
The water tariff increases will be 7% across the board. Looking forward Council will be assessing this tariff along with the existing service standards. 2.5% of the increased tariff will again be allocated to the Capital Replacement Reserve (CRR) for water. National Treasury has decreed that all CRRs must be cash-backed. Anticipated costs associated with the water service means that monies must be set aside now to mitigate future costs of the various water projects required as a result of the increased population settling within the municipal area. The CRR will also be augmented by the portion of the increased Equitable Share as approved in the 2013/14 budget.
The sewerage tariffs will increase by 8%. As per last year's budget, 4% of the increased revenue will be channelled to the CRR for the projected further up-grading/replacement of the wastewater treatment works next to the Knysna Estuary beginning in 2018.
The refuse tariff will be increased by 8% for both domestic and business consumers. It should be remembered that 50% of the refuse charge for domestic consumers is already contained in the assessment rate payable. The reason for this increase is twofold. Firstly Knysna may only use the regional landfill beyond Mossel Bay. It is anticipated that in 2015 a new site managed by the Eden District Municipality will be opened. This will result in increased municipal dumping costs. Secondly, the fuel cost involved in the dumping process has obviously increased. This is a classic case where Knysna residents are forced to pay charges based on location and are above the norm of others. The three main cost drivers of the refuse service are salaries, fuel and dumping fees.
The only ways of significantly reducing costs in this service are via a major review of the technical and service methodologies. However it should be noted that new technologies in respect of refuse have not yet been proven to save significant money and are generally extremely costly to implement.
Eden District Municipality is presently in the process of examining proposals to develop composting centres throughout the District - Knysna Municipality is not budgeting for this until such time as the investigation with National Treasury is complete. The current projected operating cost increase is R2,6 million per annum.
Minor tariffs will be increased by 7.5% on average unless specifically shown in the tariff book. The increase in the rate in the rand will be 7.5% for both domestic properties and for non-domestic properties.
Assessment Rate Rebates
Rebates currently applied to domestic owners will remain at their current level of 15%. It remains the intention of Council to completely phase out the domestic rebate in forthcoming budgets.
The current Rural Rebate of 25% will be reduced further to 20% as was approved last year.
The current pensioner rebates will again remain unchanged. They were significantly increased in recent years and the top level is still well above the nationally approved norm.
No changes are proposed to the Heritage Rebate, the New Business Rebate or the Green Rebate. The proposed Biodiversity rebate, which will replace the Green Rebate in future years, will not be introduced at this time.
Other matters
Employee costs have risen by 5.3% on the 2013/14 adjustment budget figure. This includes the annual increase of 6.8% on basic remuneration as instructed by the Local Government Bargaining Council, however it also includes a 4% reduction (R6.1m) as a result of Council not filling vacancies from 1 July 2014. Without this approach the increase in staff costs would be in excess of 9% on the Adjustments Budget and would require another 3.5% rates rise above the 7.5% recommended.
The repairs and maintenance budget for 2014/15 will increase by 18% on the adjusted budget figure for 2013/14 from R29.4 million to R34.8 million. Council has noted the requirements of National Treasury in Circular 70 to increase Repairs and Maintenance. Without going into the debate about what percentage of asset value should be used to calculate the amount required in terms of maintenance, the simple fact is that the increases involved in Knysna's topographically inefficient area means that the figure and the increases will never be enough. The proposed increase of R5.4m (18%) to R34m is in line with rate and tariff increases and therefore above all other expenditures that can be controlled.
In conclusion Wolmarans said that Knysna Municipality has been selected as a pilot site for the implementation of the Standard Chart of Accounts (SCOA). "This is a huge honour but will require a serious shift in the way our operational structures report and input. It will take an enormous amount of time, effort and probably money at all levels to ensure full compliance. The money will have to be provided nationally."
She thanked the Director of Finance, Mr Grant Easton, and his team for drawing up a budget which "may not make everybody happy, but will keep Knysna financially sound. "
