South African municipalities have underspent R12.4-billion, or 29.3%, of their capital budgets in the 12 months to the end of June 2011, the National Treasury stated this week.

Municipal underspending of capital budgets stood at R8.5-billion, or 17.1%, in 2009/10.

In a report on the state of local government finance and financial management as at June 30, 2011, the National Treasury stated that municipalities continued to experience difficulties with the planning and execution of capital spending.

Of the total capital budget allocated to 21 secondary cities, about R2.9-billion, or 44%, was underspent during the period under review. District municipalities were found to be the worst performers, with more than half consistently underspending their budgets by more than 30%.

In other municipalities, 111 underspent their original capital budgets by more that 30%, impacting directly on the rollout of services.

The underspending trend was attributed to poor capital budgeting; a shortage of planners and engineers able to draft appropriate specifications and prepare tenders of sufficient quality; poor capital expenditure planning; poorly managed procurement processes; political interference in procurement processes; and uncertainty as officials appear to have been reluctant to take spending decisions owing to political considerations.

MAINTENANCE A CONCERN

Meanwhile, the National Treasury was preparing processes to ensure better quality budgeting and reporting on repairs and maintenance. This follows the finding that, should a municipality find itself in financial distress, the first expense cut was the repairs and maintenance.

“The impact of not spending on repairs and maintenance was not visible or obvious in the short term, and it was also less politically sensitive than cutting the capital expenditure programme or reducing the entertainment budget,” the report said.

However, the consequences of underspending on repairs and maintenance over the medium to long term included the deteriorating reliability and quality of services; more expensive crisis maintenance; the ever-increasing cost of maintenance and refurbishment; shortening the useful lifespan of assets; and reduced revenues owing to the failure of selling services.

Meanwhile, the report pointed out that 83 municipalities had acting municipal managers and 75 municipalities had acting CFOs. In 37 municipalities, acting officials filled both of these key roles. This was most prevalent in Mpumalanga, North West and Limpopo.