RELATIONSHIP BETWEEN THE BUDGET AND THE IDP 28 FEBRUARY 2017

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Contents

• Introduction

• Legislative Requirements – Inc. MSCOA

• Why MSCOA

• Local Government Accountability Cycle

• Budget Process and linkage to IDP

• IDP – Strategic Focus Areas

• SDBIP

• Challenges in preparing Budgets

• National Treasury Benchmark

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Legislative Mandate

• Section 216(1) of the Constitution states that: “national legislation must establish a national treasury and prescribe measures to ensure both transparency and expenditure control in each sphere of government by introducing:

i. GRAP

ii. Uniform expenditure classification – SCOA/General Ledger

iii. Uniform treasury norms and standards

• Section 168 of the MFMA states that: “the Minister of Finance, acting with the concurrence of the cabinet member responsible for local government, may make regulations for, among other things – (p) any other matter that may facilitate the enforcement and administration of the Act”

• SCOA to be prescribed ito section 168 of the MFMA to ensure compliance by ALL MUNICIPALITIES and MUNICIPAL ENTITIES.

• SCOA Regulations gazetted on 22 April 2014

• Impact of non compliance – NT can withhold Equitable Share to the municipality

Why mSCOA?

• 278 different municipal ‘charts of accounts’ (COA) aggregation of budget and other information extremely difficult with inconsistent use of account labels and definitions across municipalities

• Quality of municipal information is compromised due to lack of uniform

classifications for revenue and expenditure items (posting level) • Lack of consistent information across the IDP, Budget, SDBIP, IYM and AFS

• Compromises monitoring and oversight by Councils, DCoG, treasuries and

legislatures.

• Compromises government’s ability to formulate coherent policies affecting local government, and its ability to use the budget as a redistribution tool to address poverty and inequality

• Municipalities continuously change and amend detail COA – No consistency year-on-year

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MSCOA Background

• The object of these Regulations is to provide for a national standard for the uniform recording and classification of municipal budget and financial information at a transaction level by prescribing a standard chart of accounts for municipalities and municipal entities

• mSCOA – is not only a re-creation of the municipal Votes/GL structure but also a change in business processes

• A vote will now compromise 7 segments which need to be budgeted against and transacted against.

• Posting level transactions will need to be at the segment level going forward.

• No mapping permitted as mSCOA requires transacting on all segments and is not reporting.

• mSCOA will enable uniform information sets recorded in terms of national norms and standards across the whole of government for the purposes of national policy coordination and reporting, benchmarking and performance measurement in the local government sphere.

Segments of mSCOA

Segments

Function

Costing

Item Project

Regional Indicator

Standard Classification

• Budgeting is a careful juggling/balancing act

• Input from all stakeholders considered are considered and prioritized based on the IDP

• In compliance with the Municipal Structures Act and MFMA a the City’s budget must be informed by and aligned to the IDP objectives

• The budgetary allocations for both capital and operating expenditure needs to be undertaken in a manner that will not only ensure that the IDP outcomes are achieved but also leads to the city’s vision being realised

• It is a process not an event and requires continuous improvement

• Balanced and sustaiable budgets

What’s budgeting

Standard Chart of Accounts Improved Service Delivery

Local Government Accountability Cycle

8

L IDP • 5 Year Strategy

BEPP • Spatial transformation plan &

process

Budget • 3 Year Budget

SDBIP • Annual Plan to

Implement

IYR • Monitoring & Council

Oversight

AFS • Oversight

Annual Report

• The IDP determines the strategy, objectives and service delivery targets for the municipality

• mSCOA, creates the environment to enable the execution of the accountability cycle, from IDP to Annual Report

• mSCOA , if well implemented and managed, after future phases have been completed, will provide direct evidence in dashboard format, of the achievement of IDP strategy, objectives and service delivery targets in the municipality

• Limits unauthorised expenditure.

By 2030 eThekwini will be Africa’s most caring and liveable city 9

STRATEGIC PLANNING AND THE IDP

By 2030 eThekwini will be Africa’s most caring and liveable city 10

ALIGNMENT OF THE BUDGET TO THE IDP

• IDP derived from LTDF

• IDP – 8 point plan of action

• Aligned to budget via programs and action plans

NOTE: IDP COVERED IN A SEPARATE PRESENTATION

What we have to do

How we are going to do it

A Plan to make it happen

Deciding on the platform to build in order to achieve the prosperity we desire

Screening all actions to promote only development that supports our core principles and values

8 city plans with key focus areas that outline a set of programmes and projects with budgets and timeframes for delivery

Where we want to be

Refining and refocusing or Vision to help guide action:

A defined Vision

Making hard choices

Development Principles

8 action plans

VISION

By 2030 eThekwini

will be Africa’s most

caring and livable city

CHOICES MADE

•Creating Sustainable Livelihoods •A Socially Cohesive City •A Financially Sustainable City •Creating a Safer City •Promoting an Accessible City •Environmentally Sustainable City

eThekwini’s

EIGHT

POINT

PLAN

From Vision to Action action…

ETM 8 Point Plan 8 Point plan

Creating a Quality Living Environment

IDP

8 P

OIN

T P

LAN

Financially Accountable and Sustainable City

Good Governance and Responsive Local Government

Embracing out Cultural Diversity, Arts and Heritage

Creating a Platform for Growth, Empowerment and Skills Development

Fostering a Socially Equitable Environment

Develop and Sustain our Spatial, Natural and Built Environment

Developing a Prosperous, Diverse Economy and Employment Creation

PROCESS : BUDGET LINK TO IDP

STEP 1

• Assess previous year’s spend • Commitments • Approve budget Principles (capital and operating), which

provide guidance on how allocations are made and budgets are spent. Principles are drawn from intent of IDP.

STEP 2 • Key projects prioritised as identified in the IDP and allocated budgets (if not previously budgeted as part of MTEF)

Other workshops IDP Approval & Budget Review

Ward workshops

Other input (e.g. Sectors)

Mostly capital, but also

operating where it is

project related

STEP 4 • Discussion on first draft capital budget

STEP 5 • Budget workshop with politicians

• 8 Programme meetings led by plan owners

• ABM budgeting • Community needs budgeting

STEP 3

STEP 6 • Budget Workshop • input from all stakeholders (business,

community based organisations, ward committees, etc)

PROCESS : BUDGET LINK TO IDP

STEP 7 • Review and prioritise all requests • Finalise impact of tariff increases

• Approval of Draft Budget by Council • Feedback/presentation to business,

community based organisations and wards

• Approval of final budget by Council • Prepare SDBIP • Quarterly monitoring

STEP 8

STEP 9

PROCESS : BUDGET LINK TO IDP

By 2030 eThekwini will be Africa’s most caring and liveable city 16

BUDGET ALLOCATION – IDP STRATEGIC FOCUS AREAS R’ 000

Example of Linkage of IDP to SFA and Budgets

Key Performance Area 8 point plan Strategic Focus Area Operational Budget Capital Budget Strategic

Priority

Municipal Institutional

Development and

Transformation

Creating a Platform for

Growth, Empowerment

and Skills Development

Human Capital

Development

183 194 3 297 Socially

Cohesive City

Develop City as a

learning City

101 417

Healthy and productive

employees

271 089 1 500

Basic Service Delivery Develop and Sustain our

Spatial, Natural and Built

Environment

Develop, manage and

regulate the Built and

Natural Environment

447 461 2 825 Environmentally

sustainable city

Climate protection

planning

167 001

Creating a Quality Living

Environment

Meet infrastructure and

household service

needs and backlogs

19 916 787 5 242 417 Accessible City

Address community

service backlogs

1 759 612 227 397

Develop, manage and

regulate the Built and

Natural Environment

Environmentally

sustainable city

Good Governance and

Public Participation

Coordinate and

Implement INK projects

All KPAs

AligEnt

Key Performance Area 8 point plan Strategic Focus Area Operational Budget Capital Budget Strategic

Priority

Fostering a Socially

Equitable Environment

Promoting the safety of

citizens

1 653 997 79 303 Safe City

Promoting the health of

citizens

682 405 34 941

Financially Accountable and

Sustainable City

Durban Energy Office Environmentally

Sustainable City

Local Economic

Development (LED)

Developing a Prosperous,

Diverse Economy and

Employment Creation

Providing Economic

Leadership and

Intelligence

964 383 383 454 Creating

Sustainable

Livelihoods

Facilitating Private Sector

Investment and

Partnerships

Leverage, Influence and

Facilitate Key

Infrastructure

Development and

Maximise the Local

Benefit

Facilitating Development

in Priority Nodes and

Corridors

Enterprise and Sector

Development

Developing a Competitive

Tourism Sector

Facilitating Sustainable

Livelihoods

Example Linkage of IDP to SFA and Budgets

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SERVICE DELIVERY AND BUDGET IMPLEMENTATION PLAN (SDBIP)

• The MFMA requires municipalities to prepare a service delivery and budget implementation plan as a strategic financial management tool to ensure that budgetary decisions that are adopted by municipalities are aligned with the IDP strategy

• The SDBIP serves to provide an implementation plan that covers all functional areas of the municipality and focuses on actual implementation and delivery with mechanisms for regular review

• The primary objective of the SDBIP is to strengthen local accountability and governance and improve capital, as well as operational, planning, spending and service delivery

• To avoid issues related to budgets being underspent and not achieving the programme’s desired outcomes an outline of quarterly projections of service delivery targets and performance indicators are also included

By 2030 eThekwini will be Africa’s most caring and liveable city

Macro Challenges

• Responding to the current economic climate

• Sustainability of housing provision from current financing sources

• Infrastructure and service delivery backlogs

• Bulk purchase costs

• Minimal level of growth major costs to unblock development – return on investments

• Unaccounted for water and theft of electricity

• Challenges relating to the drought

• Poor growth – rate base and services

• Free Basic Services

• Unemployment – sustaining existing collection rates

• Pace of economic transformations – work stoppages

• Service delivery demonstrations

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• Competing for resources – all departments need funds

• Expenditure constraints – never sufficient funds

• Historical backlogs regarding services

• High Expectation from communities for services

• Need for new infrastructure versus maintaining existing versus historical backlogs regarding services

• Funds allocated – inability to spend budget

• Outputs to achieve outcomes are also not clearly understood

• Managed on a micro rather than macro perspective

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ETM - Challenges in preparing budgets

By 2030 eThekwini will be Africa’s most caring and liveable city

NATIONAL TREASURY BENCHMARK ENGAGEMENT

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Ethekwini - Operating expenditure framework

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Notwithstanding that the City is financially sound, the following challenges need to

be acknowledged:

• Responding to the current economic climate

• Sustainability of housing provision from current financing sources

• Infrastructure and service delivery backlogs

• Bulk purchase costs

• Minimal level of growth major costs to unblock development – return on

investments

• Unaccounted for water and theft of electricity

• Challenges relating to the drought

• Poor growth – rate base and services

• Free Basic Services

• Unemployment – sustaining existing collection rates

• Pace of economic transformations – work stoppages

• Service delivery demonstrations

Ethekwini - Conclusion

Credibility

• Budget assumptions are credible

• Revenue and expenditure Budget – certain line items may be over and understated (not

material)

• Budget is multi-year

Relevance

• Budget alignment to the SDF, IDP, BEPP has been verified

Sustainability • Cash flow sustainable over MTREF • Adequate cash coverage • Collection rate – highest of all Metros • The budget is sustainable over the MTREF • The budget over the MTREF is cash backed and funded

The budget is therefore credible, reliable and funded and sustainable over the MTREF in terms of Section 18 of the MFMA .

However, it is evident that the 2016/17 MTREF reflects the reality of the current budgetary pressures

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THANK YOU

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