Adjustment budget

Sea Point Fresnaye and Bantry Bay Residents’ and Ratepayers’ Association

We are a democratically elected body, representative of the ratepayers of the suburbs concerned.

We want to participate and respond to your invitation to comment on the 2019/20 Adjustments to the Revenue and Expenditure Framework as a result of Covid-19.

Our comments are not directed to the details of the adjustment budget but to the extraordinary context of its publication. We do not purport to be qualified to comment on detailed financial plans concerning the administration of a City. We do not want our comments to be seen as politically motivated.

However, the circumstances are extraordinary and we are very dissatisfied about what we understand to be the City’s approach to revenue and expenditure in this time of crisis.

We will keep it simple: The City is engulfed by a crisis of international proportions, a veritable plague. The reaction of the national government has delivered the economy into a much deeper and much more prolonged financial despair than the recession that preceded and accompanies it.

We are interested in the ratepayers of our area, but our comments embrace the fortunes of many homeowners across the city.

Anecdotal evidence tells us that there is a severe strain on household economies. The outcome is that scarce resources are allocated to necessities, and municipal rates are not among them at this time. We have a high proportion of entrepreneurs, self-employed homeowners and non-governmental employees who have lost or suffered severely impacted income streams and will benefit nothing or little from the government’s relief schemes.

That has and will impact severely on the City’s collection of revenue from rates. What exacerbates our position on the Atlantic Seaboard is the exorbitant value attributed to many properties because of an inherently unfair and prejudicial valuation system.

Against that, we have a City administration that simply carries on with expectations from ratepayers as usual. The following extracts from the overview of budget assumptions tell us that the City is in denial about the impact of Covid-19 on ratepayers:

“A Rates growth of 1% is projected for 2019/20, due to the results of the 2018 General Valuations (GV) to be implemented in 2019/20. The outer years is expected to grow by 0.5% annually. This position will be reviewed depending on the GV objection process.”

And: “While the Rates collection rate is expected to average 96% over the MTREF (Medium Term Revenue and Expenditure Framework), it is expected to be potentially impacted on by the higher service charges increases over the MTREF. The projected collection rate was adjusted downward to 93% due to the Covid-19 pandemic and the ability of the consumers to pay.” The City is apparently tone-deaf to the background against which the fiscal adjustment is proposed.

We see no recognition of the distress of ratepayers and no gesture towards the reduction of expenditure in terms of salary sacrifices, retrenchments and reallocation or curtailing of services, for example. Quite the contrary if our information is correct. We can hardly believe that the City is actually planning salary increases whilst many citizens have lost their income and ratepayers backs are against the wall.

The City takes refuge in all manner of assumptions, excuses and explanations for why it cannot do much about easing the ratepayers’ burden. Touting short- term debt postponement but no rates reduction leaves ratepayers hardly better off and is an empty gesture in hard times like the present.

We think that there is a case for relief for homeowners who have lost or suffered the curtailment of income as a result of this national crisis. The relevant legislation provides for it and we are in a “disaster” situation.

All the criteria for relief envisaged by the legislature are in place. In fact, the City has admitted as much and grudgingly implements half-hearted measures: granting temporary deferment to qualifying applicants but requiring a repayment plan for the full amount soon after. That, unfortunately, does not come near to what the legislation envisages, which includes exemptions, reductions and rebates of rates, not simply temporary deferments of payment.

Yes, it will certainly impact service delivery but that is what we have high-priced bureaucrats and councillors for – to make strategic adjustments to revenue and expenditure budgets and reallocate services and resources when disaster circumstances require it. What we are told instead is they will get salary increases and that the bureaucracy will expand. Meanwhile, ratepayers are expected to simply pay up as if all is well. It isn’t and the City knows it.

The Local Govern-ment Municipal Property Rates Act 6 of 2004 Exemptions, reductions and rebates 15. (1) A municipality may in terms of criteria set out in its rates policy- (a) exempt a specific category of owners of properties, or the owners of a specific category of properties, from payment of a rate levied on their property; or (b) grant to a specific category of owners of properties, or to the owners of a specific category of properties, a rebate on or a reduction in the rates payable in respect of their properties. (2) When granting in terms of subsection (1) exemptions, rebates or reductions in respect of owners of categories of properties, a municipality may determine such categories in accordance with section 8(2). and when granting exemptions, rebates or reductions in respect of categories of owners of properties, such categories may include- (a) indigent owners; (b) owners dependent on pensions or social grants for their livelihood; (c) owners temporarily without income; (d) owners of property situated within an area affected by – (i) a disaster within the meaning of the Disaster Management Act, 2002 (Act No. 57 of 2002) (ii) any other serious adverse social or economic conditions: determined by the municipality; or (e) owners of residential properties with a market value lower than an amount (f) owners of agricultural properties who are bonafide farmers.”

The ratepayer community of the “wealthier suburbs” has been the City’s golden goose for far too long and has been treated egregiously in our opinion. Amongst other abuses, we include:

Estimating the market value of a property by selectively using sales data that especially includes outliers (super high-priced examples) that skew and inflate the “average price” of homes in the area;

Being slow about making adjustments to valuations when market conditions deteriorate rapidly and significantly as they have now, and relying on outdated and overvalued data to calculate and levy punitive rates notwithstanding the distress of homeowners in economic disaster;

Failing to resolve objections and appeals against outrageous valuations for an inordinate period of time and causing significant and unnecessary financial prejudice and stress to ratepayers as a result.

In the circumstances, we want the municipality to be responsible and apply the legislation that makes it lawful to grant exemptions, reductions and rebates of rates.

We want the City to adjust its revenue and expenditure model to recognise and take proper account of the crisis engulfing us. The proposed adjustment does none of that and all attempts to obfuscate or take refuge in excuses are simply disingenuous.

We want the City to make meaningful adjustments to the budget that are needed right now by reducing both expenditures, reallocating resources and granting relief to ratepayers without further delay. Finally, we want the City to treat us as valued customers and a primary source of revenue, and to treat our comments as worthy of proper attention and respect.

City of Cape Town deputy mayor Ian Neilson, responds:

The budget extracts from the adjustments budget documents that are being quoted here are more than a year out of date. They reflect the situation as projected in May 2019, when the original 2019/20 budget was adopted.  Thus they are far ahead of the Covid-19 pandemic and national economic crisis.

The MTREF period is over three years, of which one year was already 10 months completed. Collection rates during June and July have been over 95% so it is quite possible that the 93% collection rate can still be achieved. If they are arguing for a lower collection rate to be assumed, that would mean that the City would have to provide for a higher level of bad debt, which would push to higher rates and tariffs, not lower ones.

It would be more useful to examine the 2020/21 budget than to deal with the 2019/20 adjustment budget which essentially only dealt with the last quarter of the financial year.  The City does extensively apply exemptions, rebates and reductions and it is false to claim that we do not do so. 

Regarding salary increases, any increases were determined in a bargaining council agreement of 2018. The City would ideally prefer to have these increases reviewed in light of the pandemic, however it may not do so unilaterally. It is a matter that the South African Local Government Association holds the mandate for. The City has called for a review. It is working through the SALGA mechanisms to see what can be done.

The City manager and executive directors, who fall outside the Bargaining Council system, did not receive any increase this year. At least R450 million staff-related expenditure has been cut in this financial year.

Between March and May, the original proposed budget was drastically amended due to the extreme Covid-19 impact. We have worked very hard to see what relief we can offer within the confines of our mandate and without over-burdening ratepayers in the near future with steep increases to make up for what is required for service provision.

What is often asked for is a blanket protection from rates. This is unfortunately not possible, given the regulations that the City has to adhere to. We are able to look at relief on a case-by-case basis. All income received from rates and tariffs is used for the provision of basic services, which is our main mandate as a municipality. We do not budget for a profit on this income. We have made R3.3 billion available for rates and services assistance in the new financial year.We have also made relief available for those severely impacted financially by Covid-19 .

Interest-free payment arrangements are available for those who qualify. The City is granting relief in terms of what it is able to do without jeopardising immediate basic and essential services and over the medium- to long-term. It is not the government of last resort in this crisis. It simply cannot afford to give blanket write-offs or exemptions. There is relief available as far as rates and services are concerned, as well as interest-free payment arrangements. 

The regulations of the Municipal Property Rates Act must also be taken into consideration. These strongly limit the extent to which a municipality can use the rebate and exemption system.

The City has cut salary expenditure by R450 million; it has reorganised its budget; rephased projects and plans. Of the total monthly income required to pay for the delivery of services, some 70% comes from rates and services income. The City budgets through internal sources to pay the shortfall. All is definitely not well with the South African economy and this is of course having an impact on local government and its people.

The affordability of our residents have been one of the key considerations in compiling our budget. Our average rate and tariff increases are 4% – the lowest for a metro in South Africa. Ideally, we’d have wanted to have no increases because of Covid-19 , but we simply could not do so as costs outpaces the income we receive in any case.

The Covid-19 impact on the municipality is about R5.7 billion (to date and projected). We have increased our capital budget for service delivery-related infrastructure to R9.6 billion in the new year to help boost Cape Town’s economy and local livelihoods. We are looking at all options of assistance and reductions.

But service provision needs to continue, and we need to do so in a manner that does not lead to massive price increases in the next years. That is why we emphasise, we are offering assistance but on a case-by-case basis. Blanket relief is not possible.

 A general valuation (GV) is held every three years; more frequently than in any of the other metros in South Africa, to ensure that rates are reflective of property values at a given time. The last GV was done in 2018 and the next valuation is planned for 2021. 

Circumstances have, however, changed greatly since 2018 as we were coming off the back of unprecedented three-year property growth to the great advantage of property owners. There is not yet adequate sales data to assess the changed values that could be used for a General Valuation. At least a year of sales data under the changed conditions would be necessary to be able to adequately assess property values. The impact of Covid-19 is being felt by everyone, but it is unfortunately simply not possible for the City to provide a blanket approach to relief across all income groups.

The City determines market values of residential properties using the comparable sales approach, which is also the preferred approach used by our courts.

In any valuation involving the comparable sales approach, comparable sales are selected that are most similar in terms of important value-forming attributes, such as erf extent, dwelling extent, and quality and condition of construction. It is therefore not correct that the method of valuation adopted by the City is incorrect.

Rather, the selection of the wrong comparable sales or attribute data problems of the subject property and/or comparable properties are usually the cause of incorrect valuations. 

The law is clear that dissatisfied property owners need to appeal to the Valuation Appeals Board, which is independent of the City. There is no political route for dealing with any property’s valuation.

The City follows the national laws and there is no provision made for changing valuations rapidly to deal with an extraordinary situation such as Covid-19 . The only way that this can be done is through a General Valuation (GV). As discussed above, that is not a viable step yet. The City intends to do a GV in 2021. We would need the particulars of the appeals mentioned here. Over 90% of objections have been finalised.Not every appeal is the same and there are differing circumstances.Where there are instances that feedback on appeals have taken longer than what the City would normally allow, it can be ascribed to the extreme impact of the Covid-19 lockdown and regulations. For this we sincerely apologise.

We have worked very hard to see what relief we can offer within the confines of our mandate and without over-burdening ratepayers in the near future with steep increases to make up for what is required for service provision. What is often asked for is a blanket protection from rates. This is unfortunately not possible. We are able to look at relief on a case-by-case basis and are applying exemptions, reductions and relief on this basis currently in accordance with the law and policy.  

We truly mean it when we say we are grateful to our ratepayers across the metro and in communities of Sea Point Fresnaye and Bantry Bay  especially for their contributions and for always being willing to engage and to look at what is in the best interest for these communities and also the broader community of Cape Town. We hope this gives a bit of insights as a contribution to what we do regard as an ongoing conversation. Thank you for bringing these matters to our attention and for allowing us the space to give our inputs.