HRA Commentary: OM Budget 24/25 & IDP

Feedback of the Hermanus Ratepayers Association (“HRA”) on the 2024/25 Budget & Overstrand Integrated Development Plan

Feedback of the Hermanus Ratepayers Association (“HRA”) on the 2024/25 Budget & Overstrand Integrated Development Plan

Introductory Comment

We, the newly formed Hermanus Ratepayers Executive Committee, congratulate the Overstrand Municipality on its recent award for being one of the top-performing municipalities and having attained a clean audit for the eleventh consecutive year. We believe this shows that the municipality is performing an excellent function within an increasingly challenging socio-economic environment. We also appreciate the municipality’s prompt and efficient response to repairing the infrastructure damaged in the recent storms, which clearly placed pressure on the municipal resources.

We are aware of several letters of comment having been prepared and we presume brought to the attention of the Overstrand Municipality (“OM”). In many cases, these are highly critical of the budget which has been proposed. This comment letter of the Executive Committee of the Hermanus Ratepayers Association (“HRA”) has been drafted in the spirit of making a positive contribution to these important processes, and so we hope that our comments will be considered carefully in the spirit in which they are given. It should also be noted that the comments have been compiled by an executive that has only been recently elected and are faced with the challenge of renewing the HRA. Part of this process is to strive to establish a fruitful working relationship with the Municipality based on more of a partnership approach.

The context in which we have reviewed the IDP and Budget is such that we have focused on certain key strategic imperatives if the Overstrand is to continue to enjoy providing leading municipal services and a good quality of life for all its stakeholders, including the ratepayers and residents of the Overstrand. These focus areas are:

• Safety and Security
• Local Economic Development, including Tourism, Business, and Employment
• Sustainable Infrastructure Development
• Service Delivery Quality
• Resource Management

We are supportive of the Values, Vision, Mission, and Strategic Goals set out on page 9 of the IDP. We are also supportive of the Top Ten risks identified by the OM.

Our comments deal first with the IDP since that sets the context for the Budget commentary which follows.

We complement the OM team on a comprehensive IDP; however, we have a concern that there are many actions and plans hidden in the detail which, if not listed, prioritised, and status measured monthly or more frequently, may not be carried out. We have noted the Performance Management section in Chapter 13 and are pleased that there exists a Municipal Scorecard as well as a process for monitoring and evaluating the OM’s “entire workforce.”

A: Commentary on the Integrated Development Plan (“IDP”)

1. Management of Baboons: We are aware of the current contract for Baboon Management expiring at the end of this year. We also understand that there are no plans to extend the municipal funding for the contracted services. In this regard, we would contend that it is important that regardless of funding, the Municipality continues to ensure that a relationship is maintained with both the Department of Environmental Affairs and Cape Nature and that they support endeavours to ensure that baboon management is addressed in a coordinated manner. We contend that the municipality still has both a role and an obligation to participate in the development of a sustainable solution. On page 37, we note the Baboon Management Program is shown as a continuation priority, including the repair of the existing baboon fences. On page 119, however, it is stated that the Human Wildlife Solutions contract will come to an end on 31 December 2024. The IDP does not, however, deal with what happens after that date. This is an area of acute concern for residents in the Pringle Bay, Kleinmond, Betty’s Bay, Voëlklip, Vogelgat, Hermanus Heights, and Fernkloof areas. It affects residents’ quality of life, property values, and ultimately tourism and economic activity if not managed effectively. We would like to see the IDP deal with the post-December 2024 period, and in this regard, we believe that the Municipality to which our rates are paid should fund the continued management of this quality of life risk. For the Environmental Department to say that “baboons are a lifestyle choice and living on the urban fringe is a lifestyle choice. You will have to take [your own] preventative measures…” is not acceptable to the people of the HRA. This is a safety and security matter of no less importance than the overall safety and security issues which challenge us in the Overstrand.
2. Cliff Path management: We welcome the Ward 3 priority on page 37 of building new sections and maintaining existing sections, extending also to the upkeep of the paths, marine pools, and ablution facilities. Tourism is a major strategic imperative for the employees of businesses in our area. The Cliff Path is a critical feature rated highly by visitors to Hermanus. We cannot neglect to maintain and improve the Cliff Path offering for visitors and residents. For Ward 8, we welcome the new Cliff Path to be established in Hawston [page 43]. We are concerned, however, about the perceived lack of support and/or involvement of the OM in the new Pooles Bay extension, which is being funded privately. We believe that the path can be socio-economically justified and is in the best interests of Hermanus as a tourist destination. We understand that the Path is outside the jurisdiction of the OM and that it is inappropriate for the municipality to become embroiled in the legal process. However, we believe the municipality could play a more active role in coordinating the respective interests in this ambitious project.
3. Protection Services: We support the strategic initiatives in Ward 3 regarding the CCTV camera upgrade and extended patrolling hours and patrols on the ward and on the Cliff Path in particular.
4. Drug-Related Crime: We note on page 31 that there has been a dramatic increase in Drug-Related Crime. This crime is defined to be where the perpetrator is found to be in possession of or under the influence of or selling drugs. In many communities in South Africa where the drug trade takes root, other very serious crimes follow. An example of this is on our doorstep in the Cape Flats. We would like the IDP to specifically cover the response which is needed to mitigate this risk before it gets out of hand.
5. Fernkloof Nature Reserve: On page 113, the Fernkloof Nature Reserve is the “Flagship Nature Reserve for the Overstrand Municipality,” and the viewpoints at the end of Rotary Drive are assets which tourists and residents return to. We are concerned that safety measures need to be improved in these locations if we are to continue to have visitors and others return to our Hermanus. We cannot continue to have visitors mugged in the Fernkloof reserve or at viewpoints on Rotary. Probably best if HSRA could include these areas. We believe that a long-term strategic vision for the broader reserve, inclusive of the buffer of unallocated land, needs to be developed to ensure it is fully protected in the longer term.
6. Fire Risk: Whilst not specifically mentioned as a risk in the Overstrand’s Top Ten risks, the impact of the 2019 Wildfire is still very much in our memories. Overstrand’s capacity to deal with the significant threat posed by fires, particularly when we recall what happened in Betty’s Bay, is of concern. Of particular concern is whether there are any plans to improve the early warning and communication of fire events and then the effective response thereto.
7. Social Cohesion: Social Cohesion remains one of the significant risks posed to the municipality. We are pleased to see the Human Settlements projects implemented in the 2023/4 year and plans for later years. We have noted the comments made about sporting facilities on page 156. Sport is one of the interventions which can significantly mitigate this risk. We are pleased to see the Ward 8 planned Upgrade of the Hawston Sport Complex and the Mount Pleasant Sport Grounds, as well as the Gansbaai playgrounds. Also, the Ward 5 and 6 priority to upgrade the Zwelihle sports grounds, among other projects on pages 39 & 40. However, we see no budgeted amount to improve the state of the Zwelihle Football stadium. The issue is glossed over in the narrative on Sporting Facilities when, in fact, the stadium is in a disgraceful state. The HSC, on the other hand, is the regular recipient of injections of cash from the Municipality. This issue has been raised repeatedly by the HRA with several individuals, both in Council and the Administration, without success. Our plea is that this is taken seriously.
8. Energy Cost Management: Residents are all too aware of the increasing cost of electricity. On page 83, it is noted that to date [Jan 2024], only 47 grid-fed back installations have been connected. Page 84 makes the point that the number of renewable installations has increased “at an exponential rate.” Since private grid-fed installations can be significantly expanded with cost-saving and other benefits for the OM, we would encourage the municipality to promote the grid-tied project more actively than has been the case in the past. In addition, we would encourage the municipality to research the successful renewable energy projects which many municipalities have either implemented or have plans to do so. We welcome the Renewable Energy Plant from IPPs being planned by 2026 and the fact that a request for proposals will be advertised soon.
9. Public Transport Services: In the SWOT analysis in Chapter 4, reference is made to a “Weakness” in being able to achieve the Overstrand’s goals, namely the Inadequate and/or non-existing Public Transport Services. This is probably one of the longest-standing items which has received the least priority and the most lip service over many years. We would like to see more attention given to this in the IDP
10. Bypass Road: As all are aware, there are very strong views held by residents and property owners regarding the previously planned Bypass Road in Ward 3. Whilst for the moment this issue has abated, there remains a challenge for reticulated vehicles trying to navigate the roads in Hermanus. For this reason, we believe that the Royal Street/ Lord Roberts Street traffic circle should be modified to allow large vehicles to bypass the main road of Hermanus.
11. Road Injuries: We note that the 5 Major Causes of Death in the Overstrand includes Road Injuries. Whilst speeding vehicles is not the only cause of such deaths, it is one which our residents are very concerned about. The issue of traffic calming in Hermanus remains emotive. Residents in most suburbs are keen to see better speed control in built-up urban areas. Unless priority is given to this issue, we run the risk of there being serious loss of life before long. Page 89 does not deal adequately with Traffic Calming and Pedestrian Safety. The Traffic Authorities have stated that they do not have the resources to police this risk adequately, and so other measures need to be explored without the need for lengthy public participation processes. One life lost will be too many.
12. National Health Program: Whilst President Ramaphosa still has to sign this new and far-reaching legislation into law, we have a concern that no attention has been given to the risks associated with this national plan. One of the reasons which retirees give as a reason for why they have chosen to retire in the Overstrand is the excellent medical care. The National Health legislation risks undoing the excellent work of past decades in building the medical care, resulting in many then choosing another location to live.

B: Commentary on the Budget 2024/5

It is apparent that much work has gone into the drafting of the budget. It is a lengthy document containing a significant amount of detail, and so we have tried to limit our commentary to a strategic level as far as possible.

We are mindful of the fact that much has to be achieved with limited finances. However, we are also acutely aware of the fact that not all Overstrand residents are wealthy; some of the residents in the Overstrand earn low salaries when compared to other parts of the country, and many pensioners are battling to eke out a living on their static and, in some cases, decreasing pension incomes.

An overall concern we have is that the budget lacks sufficient long-term focus, particularly in the context of local economic development in infrastructure investment. In this regard, we are concerned that the immediate shorter-term socio-economic challenges crowd out the longer-term investment requirements. We feel that the R152m proposed for infrastructure is far too low and that it should be closer to R250m, reflecting about 15% of the total budget.

An important point is made on page 14 of the budget, namely that “It must be acknowledged that the whole of the Overstrand municipal area can to a large extent be regarded as a holiday destination with many holiday homeowners as well as still a substantial number of vacant erven with no improvements on. A metro municipality (city) with large industries and a vastly different and much larger customer / rates base, and a municipality as Overstrand cannot be compared.” This is correct but of course also implies that the service demands on the municipality would be significantly less and cost less than that of a large metro.

1. Budget Basis: The first question we have is whether the budget in its entirety has been done on a top-up basis or whether it has been done on the zero-base principle? No information is given on what the OM has done to challenge its expenses across the board. The private sector has shown repeatedly that zero-based budgeting is critical if a business is to survive. It is too easy simply to take existing numbers and adjust them upward for inflation rather than critically examining each category on its merits. A zero-based budget should also critically look at the human resources employed and challenge those in charge as to whether as many are needed and whether what they are doing can be done more efficiently in another way. An effective budget and financial management process leads to more resources being available for critical strategic imperatives, which presently there are no funds for. Then more can be achieved with less.
2. Tariff Increases: Based on some of the new bases of setting costs, such as electricity charges and the changes in exemptions, it is difficult to understand how the significant tariff increases can only result in much lower estimates of revenue shown on the budget schedules. One of the explanations for this would be the possibility that there is cross-subsidisation.
3. Indigent Households: Regarding indigent households, one has a perception that if only the income of the registered householder is considered, then the system is open to abuse. With the critical housing shortage, there must be many multi-family households whose combined income exceeds the indigency threshold and who are not making an adequate contribution to the cost of services. This needs to be addressed.
4. Property Rates and Tariffs: In the context of significant increases in property values last year leading to increased rates revenue in the 2022/23 financial year, we see that for 2024/25 the rates TARIFF is increasing by 8%, water tariffs by 6%, sanitation/sewerage tariff increases by 8.9%, and refuse removal by 11%. For properties of the same value as last year, these year-on-year levels of increase above inflation on higher property values are just not sustainable when Consumer Price Inflation is between 5 and 6%. We cannot support this increase in rates when we are informed that Cape Town is proposing a 5.7% increase, Johannesburg 4.8%, and Nelson Mandela Bay by 5%. The budget argues that fuel price increases and maintenance costs are the reason for over-inflation increases; however, in the CPI basket of goods, these items are included as well? We understand and acknowledge that the basket of goods used in the CPI is not always an ideal benchmark; however, please remember that pensions and salaries are adjusted based on CPI. Also, not necessarily all our residents are lucky enough to get an increase in pension or salary.
5. Property Value Reconciliation: It would have been helpful to include a reconciliation of the property value increases/decreases and the impact these value changes are budgeted to have on revenue. Table 68 provides information on valuation increases and decreases, but there are no comparatives and no way of assessing whether the changes applied to the new tariff increases will reconcile with the revenue estimates in the budget?
6. Service Charges Revenue: Service charges revenue, taken together and after including revenue from the sale of goods and rendering of services, are budgeted to increase by 7% overall. Non-exchange revenue, which includes rates, is budgeted to increase by 2.5%.
7. Rates Revenue: Rates revenue specifically increases by 5.56%. However, the TARIFF increase is 8%. This does not make sense when one considers that property valuations would have increased last year, and in our Municipal area, property developments continue at a pace !!? By exempting properties of R300,000 and less, surely this would not have made a significant impact on total rates revenue? Last year, we understood the exemptions would be for properties of R250,000 and less.
8. Exemptions and Rebates: On page 18 of the budget document, it states various reasons for exemptions and rebates; however, there is no table reconciling the impact which each of these has on the rates revenue, so we remain unclear as to how a tariff increase of 8% can result in only a 5.56% increase in rates revenue?
9. Electricity Charges: We have noted on first impression that the basic electricity charge is to be reduced from R580 (inclusive of VAT) to R536 (incl). This is to be welcomed; however, it is still significantly higher than the Cape Metro and needs explanation. We also note that now there is going to be a “Capacity Charge,” which appears to negate completely the decrease in the basic charge? It is not possible to assess because consumption will differ from home to home, but it certainly appears to be the case that the Basic plus Capacity Charges will mean that households will, in fact, be paying more than before? [see page 21] On a further reading of the budget document on page 69, Table 34 [Household Middle Income Range] indicates the Basic Levy will increase by 22%? This is not acceptable. This table shows an increase inclusive of VAT from R580 to R707. Exclusive, it is an increase from R504 to R615. Residents, however, pay inclusive of VAT, and so this increase cannot be justified. The overall increase for such households is 8.2%, which is also unacceptable.
10. Impact of Solar Energy: We could find no analysis of the impact which private homes investing in solar energy panels and battery systems will have on the estimate of electricity being consumed and charged for.
11. Eskom Tariff Markup: We also cannot see any disclosure of the markup on the Eskom tariff which the Municipality charges. As you will be aware, some time ago, Andre De Ruyter was critical of many unspecified municipalities for the size of their markups on Eskom rates. We have requested this information from the Finance Manager on several occasions in the past, and this information has not been forthcoming. The budget document should make this disclosure in the interests of transparency.
12. Renewable Energy Funding: Some time ago, the Western Cape Provincial Government indicated that Overstrand would be one of several municipalities in the Western Cape that would get funding for Renewable Energy investment. It is not clear whether this funding has been requested nor what it is planned to be invested in. Table 16 on page 30 indicates Provincial Govt funding planned; however, it shows a decrease from R33M in the 23 year to a budget of R13M. What is the reason for this? And is any plan in place to take advantage of this funding promise? The Top 10 Capital Projects on page 30 make no mention of any planned investment in renewable energy.
13. Capacity Charge: The new “capacity charge” is of concern because the effect of the new charge structure appears unknown at this stage.
14. Bulk Electricity Charges: Bulk charges of electricity are estimated/budgeted to equal R484 million, which is an increase of 12.8% on the prior year and in line with the NERSA increase. However, the impact of the significant investment which private homeowners and businesses have made into solar and battery installations has not been factored in? Further, no comment has been made on the opportunity which exists to buy electricity from private grid-tied wind/solar installations at much cheaper rates than charged by Eskom?
15. Household Cost Increases: Page 24 Table 11: The estimated monthly increase in all the cost categories for a Middle Income, Affordable, and Indigent household appears to be 8.2%, 8.9%, and 9.9% respectively. This is too high in the current economic climate.
16. Employee and Councillor Costs: Table 17 (Budget Summary) on page 32: Of the total Expenditure budget of R1,944 billion, the Employee and Councillor costs amount to R601 million and Contracted Services R316M. This is very high, and the question needs to be asked as to whether this has been critically evaluated and if it is sustainable in the longer term? Is the remuneration of top earners skewed in relation to those lower down? A further question which arises annually is the 2% over and above the nationally negotiated increases, as this continually pushes up the wage cost.
17. Contracted Services: We welcome the comment made on page 26 that “Contracted services have been identified as an area for the municipality to implement efficiencies,” and that “this group of expenditure was critically evaluated, and operational efficiencies are being enforced, a process that will be continued with.” Despite this, however, the budget includes an amount of R316M for contracted services which, according to Table 62 on page 100, is for outsourced services, consulting and professional services, and contractors. Despite the desire to reduce this line item, it is still budgeted to increase by 3.6%?
18. Other Expenditure: Also in Table 17 under Expenditure is an amount of R571M for “Other Expenditure.” We have previously asked for details, and this is again requested as to how this is broken down as the amount is significant. On page 26, it is said that “Other Expenditure, now classified as Operational Costs in mSCOA, comprises of various line items relating to the daily operations of the municipality.” and that “This group of expenditure has also been identified as an area in which cost savings and efficiencies can be achieved.” Table 62 MBRR SA1 does not give details of this R571M as was promised on page 26?
19. Salary Increases: The salary bill is budgeted to increase by 6.8%, which is more than inflation. We do not believe consistently high increases in levels of remuneration are sustainable. Ultimately, corners will be cut elsewhere to balance the budget, and service delivery will be negatively affected.
20. Political Impact: Increasing the salary bill by 6.8% is too high at a time when pensioners and low-income earners are lucky to get a 5% salary increase. These levels of salary increase are not sustainable, and in particular, not at a time when politically, the DA are under threat in the Western Cape, not to mention elsewhere.
21. Deficit Concerns: The “Bottom Line” is that in the past three years, actual revenues over expenses were of the order of a deficit of R20M each year. For 24/25, the budget shows a budgeted deficit of R115M. This leaves no contingency for any unexpected expenditures. Accordingly, we strongly believe some of the expense categories should be reassessed on a zero-based budget methodology to see if this planned deficit can be reduced or eliminated. After transfers and subsidies, the deficit reduces to R49M, compared to the previous three years where there were surpluses.
22. Free Basic Services: On page 32, there are line items described as “Cost of Free Basic Services provided” and also “Revenue Cost of Free Services Provided.” In prior years, there were no such provisions in the budget. However, in the budget for 24/25, there are two amounts of R36M and R84M, totalling R120 million. According to the note, this shows the amount “spent” [and presumably not recovered] on Free Basic Services and the Revenue Opportunity Cost of free services. This apparently continues to increase; however, there is no indication of by how much this is planned to increase because there are no comparative amounts in the analysis.