CITY OF CAPE TOWNAND SELECT COMMITTEE ON FINANCE

Presented by: Clr I Neilson (Executive Committee Member Finance)

Date: November 2008

Objectives of this Presentation

1. Provide a context to the Current Status of the City of Cape Town

2. Indicate the Summary Future Plans and Current Actions for the City of Cape Town

3. Highlight the Keys to Service Delivery through: A closer and direct relationship with key national departments and the

City of Cape Town ensuring joint planning and co-ordination Ensuring that legislation is service delivery focused (eg MFMA) Ensuring the national policies and funding programmes meet the real

service delivery needs of the City of Cape Town Ensuring that grant funds are appropriate to the IDP and service menu’s

of the City of Cape Town Ensuring that the flow of funds is directly aligned, through interaction with

national departments, to the City’s long term delivery programmes

The City is Moving From ……….

The City is Moving To …..

The City is Moving Beyond ………..

Content1. City of Cape Town: Long term vision2. Institutional context of the City of Cape Town3. Regional context of the City of Cape Town4. Key factors the influencing the City of Cape Town5. Geographic growth corridors6. Relationship with State Owned Enterprises7. City alignment with Provincial strategies8. Current City of Cape Town initiatives 9. City of Cape Town: budget review10. Division of Revenue Act: performance11. Financial imperatives and strategies12. Service delivery: key statistics13. Utility services review14. What can government do to support the growth of the City of Cape

Town?

The City of Cape Town: Long Term Vision

Goal: a) A prosperous City.

b) Effective and equitable service delivery. c) A well governed and efficiently run administration

1.Shared Economic Growth2. Sustainable Urban Infrastructure and Services

3. Energy Efficiency for a Sustainable Future 4. Public Transport Systems

5. Integrated Human Settlements 6. Safety and Security

7. Health, Social and Human Capital Development8 Good Governance and Regulatory reform

Urban Efficiency Institutional Effectiveness

Institutional context of the City of Cape TownBackground:• Major political changes• Senior management changes• Amalgamation of 5 major local authorities• Skills exodus• Financial challenges• Service delivery backlogsOutcomes:• Stable management team• Amalgamation now complete (systems; financial; policy; operational)• Attracting skilled and appropriate staff • City has the capacity to deliver• Financially strong• Strategies to address backlogs and growth are in place and being

improved.

The Context of the City of Cape TownPopulation (3,5 million)Demographics (includes African 35%; Coloured 44%; White 20%)Cape Town has the highest net in-migration in South Africa resulting in pressure on services and infrastructureMigration to Cape Town reflects broad spectrum of high to low income levelsGeographic context: limited room for expansion (ocean/mountains)Primary industrial/business growth area –tourism and emerging informal market flowing from in-migration International and national tourist destinationInfrastructure status

backlogs in major maintenance and mass expansion of bulk infrastructure and transport required

Financial status Clean audit; Bond issue; Healthy financial status; Systems (IT)

The City’s Place in South Africa · How and why is the City important to SA?

Cape Town is an acknowledged world-class city.

Cape Town is one of the most strikingly beautiful places in the world as noted by National Geographic in its recent survey which identified Cape Town, only place in Africa, as one of the 50 places to visit

Cape Town: Major international brand recognition

Foreign direct investment in Cape Town is increasing

Investment levels in the central business district grew with approximately R 30 billion of direct investment in real estate projects (Cape Town Partnership 2008).

Cape Town has numerous other competitive advantages including value for money real estate, high educational standards and technical skills, first-class medical facilities as well as extensive (and improving) infrastructureCape Town retained the title “Best City in Africa & Middle East” (Annual awards)Contribution to GDP = 16%

Key factors influencing the City Growth Drivers

In-migration (upper and middle income)In-migration (<R3500 per month income) growth: 16 000 families per annumUpward economic mobility of population – more infrastructure (roads, waste water, public transport, water reticulation) required for newly established suburbsDemand for new housing delivery (all income groups)Informal settlement upgrade and development imperatives in the form of:

Rudimentary services strategyInformal Settlement Upgrade Strategy

Infrastructure requirements flowing from maintenance backlogs (industrial/household)Economic development (including industrial development) in the formal and informal sectorsGrowth of the tourist and other key City growth markets

HOW HAS CAPE TOWN CHANGED?CAPE TOWN GROWTH: 1977 - 2006

Geographic Growth Strategy•The City has adopted a variable growth strategy

•The growth strategy combines both the densification of the existing City footprint and the targeted expansion of the City footprint

•Key requirements for the targeted expansion strategy include development into high growth areas supported by investment nodes (job opportunities); public transport and social infrastructure (municipal services; education etc)

Primary Growth Areas:Immediate (1/2):AECI Precinct; Delft;Voortrekker Rd.;Darwin

Corridor;Parklands;Atlantis;FisantrekraalMedium/Long Term (3/4/5)

Relationship with State Owned EnterprisesPorts Authority

Role: Expanded trade and industryExpansion strategy of the harbour to be addressed

Cape Town International AirportRole: Tourism expansionExpansion strategy of the airport (parking)Impact of the airport: Noise corridors and the effect of planning policy on development

RailwaysRole: commuter travel and replacement for road transport of goods/servicesThe railways have a key link to City expansionRole regarding trade and industry (impact of fuel prices on demand)

ESKOMImpact on industry and housing delivery (all income)Koeberg Nuclear Facility: Impact on land availabilityNo linkage to City IDP

Note:None of the above are under City/local control but all have a major impact on City development strategies.

Joint planning/co-ordination is essential!!

City alignment with Provincial Growth and Development Strategy

• The City’s IDP is fully aligned to the Provincial Growth and Development Strategy

• Alignment includes:– Infrastructure development focus– Growing the local economy– Regional growth

• Annual discussions address the alignment of strategic focus areas during MTEC 1, 2 and 3 engagements

• The Provincial Isidima (Housing) document is aligned to the City’s 5 Year Housing Plan and Housing IDP

Current City of Cape Town Initiatives (Projects)

• Transport: Public Rapid Transport Strategy (incorporating the Bus Rapid Transport Plan)• Transport: Hospital Bend Interchange (Koeberg interchange)• Soccer World Cup: 2010 Stadium and related infrastructure• All Services: Asset Management Strategy• Convention centre upgrade• Housing: Affordable/GAP Housing Contracts (Partnership with Banks)• Housing: Innovative Housing Solutions (eg Scottsdene Show Village)• Housing/All Services: Informal Settlements Upgrade Programme• Housing: Delivery 10 000 opportunities per annum (DORA limited)• Housing: Development Programmes comprise

– Integrated housing projects– New rental housing– Hostels upgrade/refurbishment programmes– Comprehensive upgrade of City rental properties– Land restitution– Development partnership with Private Sector

Current City of Cape Town Initiatives (Other)

Supply Chain Management• Supply Chain Management is a key catalyst to delivery at all levels within the

organisation• The City has made great strides in addressing its procurement processes

whilst ensuring BEE support and the expansion of the Expanded Public Works Programme.

• City is ISO 9001 Accredited ( First in South Africa)

Housing Collections• The City has appointed a community based group (1 July 2008) to assist with

ensuring housing contract administration, debt collection and debt management.

• Payments to the organisation will be based on collection successes (ie increased collections for the City will result in increased payments to the community organisation)

Current City of Cape Town Initiatives (Other)

Housing Accreditation

• City of Cape Town has noted its readiness for full housing accreditation in the interests of service delivery

• City has received conditional level 1 accreditation – process very slow• Funds flows must be aligned (housing subsidies, MIG, INEP etc) in order to

ensure delivery at scale• Funding must be allocated on a multi year programme basis linked to specific

projects and the City’s IDP (currently funds allocations have no reference to the City IDP or delivery programme or the allocations from the different national sector departments)

City Asset Management Plan• The City is developing a comprehensive asset management plan• The asset management plan will standardise the current City asset

maintenance/new infrastructure delivery programmes• The asset management plan is linked to all City infrastructure (roads, water,

electricity, stormwater, solid waste etc)• Objectives:

– Provide comprehensive detail of the City’s current infrastructure– Provide comprehensive detail regarding the maintenance status of the

existing City infrastructure– Provide an upgrade and maintenance programme for the City’s existing

infrastructure– Provide funding requirements (and cash flows) for the maintenance

programme – Project the infrastructure requirements for new City developments

Mobility Strategy - Year 2020

Total Budget 2008/2009: R22,5 billion

R 17,127 Billion

R 5,405 Billion

Operating Budget

Capital Budget

City of Cape Town Budget Summary: Capital Budget

Note: Impact of 2010 funding in 2010/2011 year

2008/09 - 2010/11 CAPITAL BUDGET

0

500

1,000

1,500

2,000

2,500

3,000

Mill

ion

s

0809 Adj Budget 2008/09 2,644,996,544 763,872,706 1,917,773,761 71,446,321

0809 Adj Budget 2009/10 2,131,523,393 643,294,000 1,748,212,605 49,375,000

0809 Adj Budget 2010/11 672,064,600 341,530,000 1,902,848,484 22,370,000

CGD CRR EFF REVENUE

Capex funding sources – 2008/09

External Financing Fund35%

Revenue1%

Capital Replacement Reserve

14%

Capital Grants & Donations

50%

Capital Grant Dependency

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

2006/07 2007/08 2008/09

Per

cen

tag

e o

f T

ota

l C

apit

al B

ud

get

Capital Grant Dependency

Note: Impact of 2010 Soccer World Cup

Current Directorate Split (Original Budget Capex)

Directorate Budget 2008/2009 Budget 2009/2010 Budget 2010/2011

Office of the City Manager 31,500,785 33,818,402 33,000,000

Internal Audit 122,630 219,200 260,000

Utility Services 1,502,964,518 1,698,050,612 1,841,521,900

Community Development 181,468,613 116,433,693 115,401,930

Transport , Roads & Stormwater 475,822,865 961,681,503 365,483,296

Finance Services 11,690,180 12,439,870 12,312,700

Corporate Services 39,282,534 32,628,429 27,324,430

Health 15,303,131 11,172,214 11,858,247

Safety & Security 79,185,286 29,147,866 21,824,438

Housing 261,701,207 503,019,917 336,324,351

Service Delivery Integration 1,160,544,164 412,725,243 48,460,000

Economic and Social Development 23,746,477 28,632,869 23,892,983

Strategy and Planning 119,590,205 81,031,974 60,104,209

Metro Police 6,169,608 6,155,806 7,338,000

Total 3,909,092,203 3,927,157,598 2,905,106,484

City Finance: Key ImperativesBalancing of non-revenue generating and revenue generating growth areas is essential.Internal City funds are limited. The City can only sustainably operate within its mandate.Funding for major national imperatives must include national funding allocations (2010 stadium and infrastructure, bus rapid transport, housing)Long term structuring of capital and operating resources must align to IDP driven growth strategiesState funds (DORA) flows must align to the City’s real need as opposed to the current DORA processes (especially w.r.t. infrastructure development) which are not linked to the IDP.Impact of unrestricted infrastructure installation must be managed to ensure sustainabilityCity/State must take a long term view w.r.t. asset (land) acquisition for housing and related developmentCity must manage the cost of money (as opposed to availability of money)

City Finance: Key Imperatives (cont.)City income recovery is the key to sustainable growth and service provision.Debtor management strategies must reflect the approach of appropriate rebates/grants for families unable to pay as opposed to stronger measures for families unwilling to pay.The installation of, inter alia, water flow control meters has resulted in improved collection rates for water allowing the City to keep its tariff increases at a reasonable level whilst improving payment levels (2006=67%; 2008=91%).Raising capital funds (Bond Issue) to further enhance delivery is linked to ensuring value for money expenditure programmes as well as income generation programmes.Grant funding (viz housing subsidy, MIG etc) must be used as a mechanism to ensure a long term and sustainable gearing ratio (loans v grants)Bias towards revenue generating (and cross subsidising) ventures (industrial/commercial/environmental/housing)Restructuring of City operations to effect cost reductions

Summary: Once the basics are in place, expanded delivery will follow.

Specific Capex growth items funded from Council funds

Utility servicesWater - Development of Additional Infrastructure (R518 m), Cape Flats

Collector Sewer (R140m), Fisantekraal (R85 m)Electricity - Electricity System Infrastructure (R213m), Connection Infrastructure (R138m), Roggebaai Upgrade (R72m)Solid Waste - Development of Landfill Infrastructure (R387m), New Specialised Area Cleaning Vehicles (R104m), Purchase of Fleet (R41m)

Rate-funded servicesElectricity - Street lighting (R62 m)New Settlements - Land Acquisition (R184 m)Roads & Stormwater - Hospital Bend (R78 m), Strandfontein Road Upgrade (R53 m)Sport & Recreation - Athlone Stadium (R34 m), Khayelitsha Athletics stand (R16 m)Econ & Human dev - Business Support/SMME Facilities (R29 m)Parks - Khayelitsha Wetlands Park Upgrade (R4 m)City Spatial - Grand Parade Revitalisation (R27 m), 2010 World Cup Public Spaces (R26m)2010 Soccer WC - Green Point Promenade (R30 m)IT - Optic Fibre Broadband (R114m)

Operating Budget Summary

Total Operating budget - 11.3% increase to R15.8 billion

Overall staff costs increase of 19%

Repairs & maintenance increase of 10%; R1,2 billion spend represents a 57% increase over 2 years

Traffic Police: from R169m to R254m

Law Enforcement: from R77m to R95m

Emergency services: from R297m to R381m

Roads & storm water: from R423m to R466m

Electricity: from R2 840 to R3 490m

Focus on service delivery departments.

Revenue Collection – Rates and Debtors

2006/2007 2007/2008

12 Months Moving Average Payment Ratio for the 12 months ended 30 June 95.50% 94.71%

6 Months Moving Average Payment Ratio for the 6 Months ended 30 June 100.91% 95.67%

Key reasons for payment challenges:

Rates valuation;

Rates objections;

Socio economic factors (fuel and food)

Salaries percentage in Operating Budget

2006/07 2007/08 2008/09 *

Salaries, Wages and Allowance 23.6% 22.3% 23.4%

Based on projections.

The increase represents the City’s programme of attracting skilled and delivery focussed staffing as well as the City’s staff parity programmes.

Repairs and Maintenance expenditure

Full Year2006/07

Full Year2007/08

Year to Date (Budget/Actual)

Expenditure2008/09 *

Repairs and Maintenance – Budget 911,780,633

1,207,772,928 378,317,978

Repairs and Maintenance – Actual 963,529,802 1,207,772,928 380,256,566

% spent 105.7% 98.2% 100.5%

* Indicates progress based on year to date budget and expenditure

Division of Revenue Act: Performance

DORA ALLOCATIONS (@ 1 April 2008)           

  ALLOCATIONEXPENDITUR

EALLOCATIO

NEXPENDITUR

E ALLOCATION

DESCRIPTION   PERCENTAGE   PERCENTAGE  

  2006 / 2007 2007 / 2008 2008 / 2009

           

EQUITABLE SHARE 1,280,807,000 99%

1,451,246,000 99%

70,901,000

MUNICIPAL INFRASTRUCTURE GRANTS (MIG) 202,458,000 89% 232,398,000 68% 273,357,000

2010 FIFA WORLD CUP: GREEN POINT - n/a 434,104,000 188% 686,000,000

PUBLIC TRANSPORT INFRASTRUCTURE AND SYSTEMS 120,000,000 48% 230,000,000 21% 424,842,000

FINANCIAL MANAGEMENT GRANT - BUDGET REFORM 500,000 659%

500,000 361% 750,000

NEIGHBOURHOOD DEVELOPMENT PARTNERSHIP - n/a 5,000,000 125%

38,150,000

INTEGRATED NATIONAL ELECTRIFICATION GRANT 16,000,000 55%

15,052,000 111%

26,200,000

RESTRUCTERING GRANT 75,000,000 37% 75,000,000 123% n/a

HOUSING CONDITIONAL GRANT 316,716,412 100% 450,425,000 99% 550,086,000

Note: Roll over funds may result in >100% expenditure

Key statistics: Poverty ReliefRates Rebate (Senior Citizens/Disabled Persons)

2008/2009 Rebate based on monthly income between R2 880 – R7 000 = 23 768 registered persons for 2008/2009(17 195 person registered for the rebate in 2007/2008 when the rebate was limited to an income of R1 880 – R5 000 per month)

Indigent Grants (Housing/Services/Rates)100% Rates rebate based on monthly income < R2 880 (mainly pensioners)

= 2 992 (incl child headed households)100% Rates rebate based on property value < R88 000

= 68 422Housing rental and selling scheme indigent grant (income <R2 880)

= 3 432All properties valued <R199 000 receive a R30 indigent grant (used towards

water and sanitation)Various other poverty relief grants are available.

Informal Settlement Upgrades 2007/2008

Water422 new standpipes, 5 482 standpipes repaired and upgradedAll informal settlements have access to sanitation and water. Informal Settlements Plan provides to expanding this provision

Sanitation2 458 new toilets (2006/2007 – 633 toilets), 4 303 toilets repaired and upgraded

Refuse removalAll Informal Settlements have refuse removal service

Electricity and Area LightingCity Area of Supply: all eligible informal settlements provided with electricity and area lightingEskom Area of Supply: 1 area lighting complete, 2 underwayR6,0 million repair and upgrade

Utility (Trading) ServicesWater

Cape Town is a water scarce area

Continued in-migration stresses water supply

Berg river water project – short/medium term intervention

Major long term strategies (national) required with targeted funding for secured water supply

Impact on industrial growth/business confidence

City allows 6kl of free water (10,5kl free water if house value <R199 000)

Solid Waste

Limited landfill sites

Landfill sites expensive (environmental factors and court challenges)

Cost of transporting waste to outlying landfill sites is high

Key intervention - recycling

Utility (Trading) Services (cont.)Electricity

City and Eskom supply electricity in Cape TownCreates a challenge regarding:

Infrastructure development and maintenanceFunding for infrastructure development (particularly subsidy housing where the Eskom timelines do not align to City IDP and housing development strategy)

Split role of Eskom and City viz electricity supply creates consumer confusionRestructuring of electricity distribution is underway (RED’s)The financial effect on local authorities of the RED must be addressed.Current Eskom generating capacity is a major economic development inhibiting factorUrgent need to upgrade facilities for distribution of electricityImpact of tariff increases has not been addressed in terms of the impact on the City budget and City cash flows (debtor ability to pay the increased tariffs, affordability)City allows 50kWh of free electricity (consumption below 400 kWh/month)

Utility (Trading) Services (cont.)

Wastewater treatment

Cape Town’s sewerage infrastructure has not been expanded despite the tremendous growth of the City over the past 20 years.The City’s wastewater treatment works are under stress.  A sum of R285 million over three years has been budgeted to upgrade six of the City’s sewerage works.  

Services Infrastructure Backlogs: Funding

Utility (Trading) Services Operating Budget

2008/2009 R&M Budget 2008/2009% R&M of Opex

Total

Electricity Services R 4 227, 4 mill R 202,5 mill 5.6%

Water & Sanitation R 3 489,4 mill R 279,5 mill 8.5%

Solid Waste Services R 1 255, 2 mill R 60,2 mill 5.3%

Utility Services Total  R 8 971,9 mill R 635,3 mill 7.1%

Shortfall on 10% benchmark*  - R 261.9 mill -2.9% 

City of Cape Town Total R 18 934,1 mill R 1 286,8 mill 6.8%

*10% benchmark: maintenance average (national level)The City’s intention is to meet the 10% benchmark. Major movement in this

direction already underway.

What can Government do to Support Growth of the City of Cape Town?

Discussion Points:

Legislation/policy must be amended to allow for flexibility and a service delivery focus by ensuring:

Financial flows for State funds that meet the needs of the CityPolicy development and implementation that are specifically aligned to the IDP

Regional differences ito policy/funding must be acknowledged (No “one size fits all”)Project specific funding (similar to 2010) for key City projects (public transport/landfill)Reduce bureaucracy (direct funds flows to Metro’s) – Housing AccreditationReduce variability of funding/policy principles from the various sector departments to ensure that projects operate in a co-ordinated manner

What can Government do to Support Growth of the City of Cape Town? (cont)

Discussion Points:

Integrated strategic planning must be enhanced– City and National Government must interact in defining long term (>3 year) funding and infrastructural programmesRegional in-migration must be recognised in defining funds flowsLocal tax sources and opportunities to be investigated that will enhance the funding of infrastructure expansion The position of the City of Cape Town requires direct State intervention in developing and funding tax incentive schemes (economic development)Targeted funding is required for a comprehensive infrastructure maintenance/refurbishment programme as this will allow for expanded City growth (industry)

Thank you

Enkosi