Bitou not bankrupt
According to a statement issued by Deon Lott, chief financial officer of the Bitou Municipality on Tuesday, August 30, “The financial statements as at 30 June, 2011 indicates that the municipality’s assets still exceed its liabilities, therefore technically it is not bankrupt.”
He said that due to the fact that so much had been said in the media about the financial position of the Bitou Municipality, it was necessary to clarify the facts.
“Fact of the matter is that the municipality does experience cash-flow problems,” said Lott. The municipality still has investments and a positive bank balance, but its unspent government grants are not fully supported by cash or investments. Thus, the requirements of the Division of Revenue Act, which is promulgated annually, have been contravened and the situation “needs to be rectified speedily”.
According to Lott, the reasons for the cash deficit of R25 million can be summarised as follows:
The capital programme funded from own reserves since the 2006/07 financial year up to the 2010/2011 financial year, was much too aggressive compared to similar sized municipalities. An amount of R135 million was spent on improvement of infrastructure and other related projects in the municipal area.
Another contributing factor was the growth in operating expenditure from the 2006/2007 financial year to the 2009/2010 financial year. Expenditure items like personnel expenditure, repairs and maintenance, finance charges and electricity purchases grew by more than 65% over a period of four years. For the same period operating revenue grew by 47.6% whilst expenditure grew by 52.9%.
Although the provision of housing is a provincial government function, the municipality added an average amount of R27 550 per house, in total R9.4 million from own funds. This was done to improve the quality of houses. In the long run this cannot be sustained.
In order to remedy this situation, a cash budget was introduced to ensure that the daily operating expenditure does not exceed the cash receipts. “Through this exercise savings of R13.5 million over a 12-month period have been identified,” explained Lott.
He said that the provincial government would make a grant of R2 million available to subsidise the cost of providing library services, as this had not been budgeted for in the original 2011/2012 operating budget.
The municipality is in the process of negotiating a long term loan facility of R30 million to re-finance some of the capital expenditure that was funded from its own revenue over the past financial years.
“Our calculations show that the municipality will be able to service the interest and redemption payments of such loan. The loan will be sufficient to cover the cash backlog and to fund the budgeted 2011/2012 capital projects,” said Lott.
He envisages remedying the contravention of the Division of Revenue Act by instituting cost-cutting measures, increasing the revenue collection percentage from 92% to at least 95% and by concluding a loan agreement to re-finance certain capital projects previously funded from the municipality’s own revenue.
Source: The Knysna-Plett Herald