Joburg facing crisis as it can't pay its bills

The City of Joburg is almost bankrupt. It has only R350 million in its cash reserves.

This means the council is unable to pay its bills in full and have enough money to deal with infrastructural problems like potholes.

According to a financial strategy report tabled in a council meeting recently, the city has overspent by R923m on World Cup stadiums and by R2 billion on the Rea Vaya Bus Rapid Transit system.

It found that other reasons for the city's financial situation included:

# The spending of R90m on the hosting of the Miss World beauty pageant.

# The increased expenditure from R300m to R800m on the Phakana Project, an IT project that is aimed at improving revenue collection.

# Increased spending on salaries after violent strikes increased the wage bill by 22 percent.

# Lower than expected profits from City Power, Joburg Water and the Fresh Produce Market.

# Slower and lower than expected payment of government grants.

Joburg DA leader Victor Penning said yesterday he found the report "mind-boggling".

"I have been a councillor for 28 years and have never seen such a state of affairs. There has been a total mismanagement of finances," he said.

Penning said it confirmed what the DA had been warning the council of for the past 18 months regarding a developing financial crisis.

"Yet the ANC leadership repeatedly denied there were any problems," he said.

Penning said another area of huge concern was that the council was owed close to R8bn in arrears by residents, despite R2.8bn being written off last year. "Revenue collection is a major problem and has been for the past nine years . Despite promises of action and solutions, year after year the problem persists, with council reports claiming to collect in excess 95 percent of the previous month's billing, while actually collecting only 50 to 60 percent each month.

"Unless the total revenue collection rate, including the collection of arrears, is regularly well in excess of 100 percent of the total billings of the previous month, we are going backwards," said Penning.

The report, he said, indicated a lack of management and accountability, resulting in budgets being overspent, unauthorised expenditure, departments raising money from banks without treasury approval, and projects being approved and started without consideration of the full financial implications

Indicators, said Penning, confirmed the city's precarious financial position.

The current assets to current liabilities ratio has declined from 0.71:1 in 2008 to 0.66:1 in 2009, meaning the city can find only 66c out of every rand owed from liquid assets.

Also, the ratio of interest-bearing debt, which stood at 46 percent in 2008, worsened to 54 percent in 2009. Fifty percent was deemed to be the highest level that can comfortably be accommodated in good financial planning, Penning said.

According to the report, cash reserves, which in previous years stood at between R700m and R1bn, have been halved.

The report recommended that capital expenditure be cut by R1.1bn and operational expenditure by R 3.3bn.

The city is yet to comment.

The Star

Posted at 09:52AM Mar 03, 2010 by Editor in Residential  |  Comments[6]