Municipal review: 18 April
Metros can't spend their conditional grants
The metropolitan municipalities (the ‘metros’) were once the pride of local government. They are the richest and most populous municipalities with an historically wide tax base and the greatest degree of financial autonomy. Metros were capable of independently financing most of their expenditure, including their long-term capital spending.
Unfortunately, metros’ financial health has deteriorated over the last fifteen years along with the rest of local government, to the point where many of them struggle to absorb capital grants from national government. While corruption and financial mismanagement are the main culprits, the ongoing reduction of technical skills and engineering positions has also rendered many municipalities incapable of managing large infrastructure projects.
While it is less surprising that Mangaung and Buffalo City struggled to spend their conditional grants in the 2023/24 financial year, the worst performance came from Johannesburg, which spent a little over a third of the grants that National Treasury had earmarked for them. All calculations are based on the adjusted budgets, which already represent a reduction of hundreds of millions of rands compared with the original budgets.
Municipalities are in a dire financial state and the eight metros are no exception: they have stalled or regressed in their audit outcomes, they owe Eskom billions of rands and their failure to spend grant money from National Treasury has contributed to a review of the funding model for local government.
Conditional grants to local government are transfers from a national department, mostly for capital expenditure and subject to the approval of national government. The money is released quarterly. The bar chart shows the value of all conditional grants that Treasury earmarked for the metros in the 2024/24 financial year:
National government budgeted over R11-billion for conditional grants to the metros, mostly through two grants. The Public Transport Network Grant is a transfer from the Department of Transport’s 2023/24 budget and ‘funds the infrastructure and indirect costs of bus rapid transit services in ten cities’. R4.8-billion was budgeted for this grant, including almost R1.8-billion for Cape Town.
The Metro Informal Settlements Partnership Grant is a transfer from the Department of Human Settlements to upgrade informal settlements and create affordable housing in the metros. The department budgeted R4.1-billion for the metros, with a similar amount transferred to provincial government.
These figures come from Treasury’s summary of conditional grant spending for the 2023/24 financial year. The summary includes the rand value of the metros’ actual grant spending, and it is not a comfortable read.
For starters, Nelson Mandela Bay did not confirm any conditional grant spending, which is never a good sign. eThekwini spent a staggering 160% of its grant allocation, mainly due to an unfunded expenditure of R1.3-billion which was allocated to the Municipal Disaster Recovery Grant. Once this line item is removed, eThekwini’s spending increases to over 90% of its grant allocation - but this figure needs more scrutiny: the metro has overspent on a number of smaller grants.
Tshwane was the only other metro that seemed to have the capacity to implement its projects, spending over 91% of its conditional grants. Cape Town spent 74%, Ekurhuleni spent 72%, and Buffalo City spent 68%. Far below at the bottom of the table were Johannesburg and Mangaung, spending just 35% and 39% of their grant money respectively:
Spending for the individual grants showed the same trends. Mangaung and Johannesburg underspend significantly with the Public Transport Network Grant, spending just 18% and 34% respectively (Buffalo City does not receive this grant):
Spending was much better for the Metro Informal Settlements Partnership Grant. Both eThekwini and Tshwane spent over 97% of this grant and Cape Town spent 83%. Johannesburg spent just 42%.
Johannesburg’s original budget for conditional grants was over R2.2-billion, which was adjusted down to under R1.6-billion. The metro ended up spending just R553-million, returning over a billion rand in unspent grants to National Treasury.
Treasury, clearly tired of writing blank checks that are never cashed, has proposed that the new funding model focus on ‘performance-based’ grant allocations. If Johannesburg, Mangaung and Nelson Mandela Bay fail to improve their financial controls then their grant allocations will continue to shrink, placing even more pressure on infrastructure maintenance and resulting in even poorer service delivery.