Municipalities struggle to collect revenue due to Covid-19 crisis

Municipalities, like businesses, have been hit hard by the Covid-19 pandemic with large metropolitan councils having already lost 30% of their monthly revenue.

This is according to the SA Local Government Association (Salga) which painted a bleak picture of the effects of the pandemic on the third sphere of the government, during a presentation to parliament’s select committee on appropriations on the 2020/21 Division of Revenue Bill.

Salga’s chief officer for finance, Khomotso Letsatsi, said the pandemic and lockdown would result in job losses and reduced income, which would ultimately affect municipal revenues and their ability to meet their financial obligations.

“The outlook does not look good for the sector across the board,” she said.

Municipalities were already struggling to collect revenue from service charges and rates and this situation was likely to worsen as a result of the pandemic. There have also been calls for municipalities to cut rates to ease the effect of the lockdown on ratepayers.

Letsatsi said ratepayers would struggle to pay property rates and service charges while the number of indigent households, to which municipalities are required to provide basic services, would also increase as unemployment spiked.

Salga has projected a 5% drop in payment rates which would cost local government an estimated R14bn though this would depend on how long the lockdown lasted.

Letsatsi noted that there would be a reduction in revenue from water and electricity due to reduced consumption for example from the closure of companies and businesses as well as from the rental of municipal facilities such as conference centres and community halls. Electricity consumption by industry, which subsidises electricity provision to households, has declined while consumption by households has increased.

“With the revenue erosion, municipalities are likely to default on bulk supply accounts, as municipalities will not be able to use disconnections to put pressure on nonpaying consumers. This period may even cause municipalities with clean sheets on bulk supply account to actually fall into the Eskom debt trap,” Letsatsi said.

Salga urged that the disconnection of water and electricity be suspended for the duration of the lockdown period. Eskom should also be encouraged to review the interest payable on arrears caused by, and linked to, the national state of disaster and the lockdown.

Municipalities will be allocated additional funding of R20bn in terms of government’s R500bn stimulus and relief package. This will be used for the provision of emergency water supply, increased sanitisation of public transport and facilities, and providing food and shelter for the homeless.

Letsatsi noted that the Covid-19 regulations had imposed additional responsibilities on municipalities, which placed a significant financial burden on them.

The Covid-19 pressures add to the existing financial challenges faced by local government. At the end of the last financial year for which there are figures, 34% of municipalities ended the year in deficit with the total deficit amounting to R6.29bn.

A total of 72 (31%) were in a vulnerable financial position while the financial statements of 35 (15%) were not reliable enough for financial analysis to determine their financial position.

ensorl@businesslive.co.za