With unpaid bills owed to the City of Johannesburg rising from about R15-billion in 2014/15 to nearly R72-billion in 2024/25, the Centre for Development and Enterprise (CDE) cautions that the City’s budget is “increasingly disconnected from reality”.

In the second issue of the independent think tank’s new report series, ‘Johannesburg Matters: Fixing South Africa’s growth engine’, which highlights the multiple crises confronting the City of Johannesburg and presents recommendations, the CDE warns that the City is falling into a dangerous financial spiral.

It noted the non-payment of rates and utility bills by residents, amid the City’s lack of service delivery and failing infrastructure, and stressed that the municipality’s financial situation was more serious than just a budget deficit.

“Johannesburg’s budget is increasingly disconnected from reality. The City spends money it does not collect, imposing ever-higher costs on a shrinking rates base and stagnant economy, while squeezing infrastructure investment and turning its suppliers into de facto lenders,” the report found.

CDE executive director Ann Bernstein explained that the City registers its bills to residents and businesses as revenue, assuming that it can catch up.

She noted that over the last decade, unpaid bills to the City have increased to almost 17% a year.

Added to that, infrastructure investment has fallen by about 50% since 2014/15 and by almost 70% per resident.

The City’s spending, the CDE said, has increased much faster than its stagnant economy can support, noting significant issues in water and electricity.

The CDE report says water poses the greatest danger for the City, with unpaid water bills over the last decade growing by 20% a year.

“The City needs revenue to maintain and upgrade water infrastructure. But the more unreliable the infrastructure becomes, the harder it is to bill accurately, collect consistently and persuade residents that payment is justified by the quality of the service they receive. Johannesburg can survive potholes and poor refuse collection for a while. It cannot survive without reliable water. Households need water, firms need reliable supplies of water. The deterioration of the water system is an existential threat to the city,” stressed Bernstein.

While electricity previously provided the bulk of the City’s revenue, that has now fallen from 34% to 28% in ten years, leaving poorer households to foot the bill to maintain the electricity network as wealthier customers adopt electricity alternatives to reduce their dependency on the municipality.

SUPPLIERS FINANCE CITY’S OPERATIONS

The CDE report further noted that in the wake of collapsed infrastructure investment, employee and contractor costs have risen significantly.

Employee-related costs rose by 9% a year over the last decade, from R8.6-billion to R20.7-billion, and now absorb about 40% of the revenue collected from customers.

This as suppliers debt rose from R12-billion a decade ago to over R28-billion, today, resulting in the City delaying payments to deal with its revenue deficit.

“This means Johannesburg is forcing its suppliers to finance its operations. That is not a sustainable financing model. It also shifts the costs of Johannesburg’s failure onto institutions that are themselves important to the national economy,” Bernstein stated.

She further warned that lenders are increasingly more apprehensive about financing the city, noting the recent decision by the French development finance agency AFD to not extend its R2.5-billion loan, pointing to concerns over governance.

The CDE warned against an unconditional bailout for the City.

“Johannesburg is too important to the country to be allowed to collapse. But national government must not write a cheque that allows the same political and financial practices to continue. Any assistance must form part of a fundamental restructuring of the way the City is governed and financed,” Bernstein said.

CDE advises Johannesburg to protect indigent households while it seeks to improve revenue collection and also tamp down on employee and contractor costs.

Further, the City needs to expand its infrastructure spend, reduce supplier arrears and rebuild confidence in the accuracy of its billing and financial management.

“The City has spent years behaving as though billed revenue is the same as cash, rising costs can indefinitely be imposed on a stagnant economy, and infrastructure can be neglected without consequences. That fiscal fiction is now crumbling,” the CDE said.

Berstein said the upcoming local government election is an opportunity for the City to change its prospects.

“Johannesburg does not need another budget speech promising a turnaround. It needs a reckoning,” she stated.

Download the 'Joburg’s Broken Budget' report here.