assessment of municipal finances of 15 municipalities … application/municipal finance... ·...

Assessment of Municipal Finances of

15 Municipalities in Maharashtra

Performance Assessment System CEPT University January 2013

[ii]

Contents

Acknowledgements .................................................................................................................................iii

Abbreviations ......................................................................................................................................... iv

1. Background and Methodology ........................................................................................................ 1

1.1 Objective ................................................................................................................................. 1

1.2 Methodology ............................................................................................................................ 1

2. Analysis of Revenue income and expenditures .............................................................................. 6

2.1 Revenue Income ..................................................................................................................... 6

2.2 Revenue Expenditure ............................................................................................................ 10

2.3 Revenue Surplus ................................................................................................................... 13

2.4 Water supply and Sanitation Services .................................................................................. 14

2.4.1 Water supply services .............................................................................................. 14

2.4.2 Sewerage and solid waste management services .................................................. 19

3. Capital Account ............................................................................................................................. 22

4. Investment capacity of ULBs for undertaking performance improvement measures ................... 23

5. Conclusions................................................................................................................................... 27

6. Way Forward ................................................................................................................................. 31

Annexure 1: Illustration of reclassification / recasting of budget items ................................................. 32

Annexure 2: Trend of increase in revenue surplus after revenue augmentation measures ................. 35

[iii]

Acknowledgements

This paper has been prepared as a part of support to Government of Maharashtra under the

Performance Assessment System (PAS) Project of CEPT University. In response to a request from

the Government of Maharashtra (GoM), PAS Project initiated preparation of Performance

Improvement Plans for 15 Class A cities. In a meeting in May 2012, the Chief Secretary, Government

of Maharashtra, suggested that these plans should focus on ‘making cities open defecation free’ and

‘moving towards 24x7 water supply’. The preparation of Performance Improvement Plans

necessitated a detailed assessment of finances of all the 15 urban local bodies. This paper provides a

summary of these detailed assessments.

We would like to put on record and thank, the Chief Secretary, Government of Maharashtra for the

initial discussions. We also thank the Principal Secretary Water Supply and Sewerage Dept. (WSSD),

Govt of Maharashtra and Member Secretary, Maharashtra Jeevan Pradhikaran (MJP) for providing all

the support needed for this task. We would also like to thank the elected representatives, Chief

Officers and staff of all the 15 ULBs for their valuable time and sharing all the information.

This study on assessment of municipal finances was carried out by CRISIL Infrastructure Advisory.

Their study is based on the information gathered by members of PAS team at CEPT and AILSG

during their field work in these cities.

Meera Mehta Dinesh Mehta

[iv]

Abbreviations

CAGR Compound Annual Growth Rate

DCB Demand, Collection and Balance

HPEC High Powered Expert Committee

MJP Maharashtra Jeevan Pradhikaran

NRW Non-Revenue Water

SJSRY Suvarna Jayanti Shahari Rojgar Yojana

SWM Solid Waste Management

UIDSSMT Urban Infrastructure Development Scheme for Small and Medium Town

ULB Urban Local Body

[1]

1. Background and Methodology

The increasing urban population is posing a serious challenge to urban local bodies (ULBs) in the

country in providing good quality services. There are several parameters which will allow the ULBs to

deal to a significant extent the challenges posed by increasing urbanization. One of the enabling

elements is financial empowerment and capacity to meet the expenditure requirements.

This report will examine the finances of the 15 ULBs in Maharashtra and draw inferences on their

ability to meet the expenditure obligations. The study was a desk based study and drew information

from the budget books of these 15 ULBs and some additional information such as property tax details

collected from each of these municipalities.

1.1 Objective

The objective of the study is to assess the investment capacity of the Municipalities in undertaking the

performance improvements in provision of municipal services. The capacity of a Municipality in

undertaking the capital investments and its capacity in servicing the O&M obligations as a result of the

Infrastructure creation and reforms measures have been assessed.

1.2 Methodology

This study undertakes a cross- sectional analysis of the finances of 15 ULBs in Maharashtra in terms

of their financial performance. The population of these towns varies between 1.06 lakh to 3.83 lakh.

The list of the towns studied is as under:

Table 1: List of towns studied for assessment of Municipal Finances

S.No.

City Population

(2011) Decadal growth

rate (%) City size

(in sq.km) Population Density (persons / sq.km)

1 Achalpur 1,12,293 9.80% 16.00 7,018

2 Ambernath 2,54,003 24.60% 38.00 6,684

3 Barshi 1,18,573 13.20% 36.00 3,294

4 Beed 1,46,237 5.80% 8.30 17,640

5 Bhusaval 1,87,750 8.90% 13.40 14,032

6 Chandrapur 3,21,036 10.90% 56.30 5,704

7 Gondia 1,32,889 9.90% 18.10 7,350

8 Ichalkarnji 2,87,570 11.60% 29.60 9,702

9 Jalna 2,85,349 21.20% 81.90 3,486

10 Latur 3,82,754 27.60% 33.00 11,599

11 Panvel 1,80,464 174.10% 3.60 49,715

12 Parbhani 3,07,191 18.50% 57.60 5,332

13 Satara 1,20,079 11.10% 8.20 14,734

14 Wardha 1,05,543 -5.00% 7.40 14,186

[2]

S.No.

City Population

(2011) Decadal growth

rate (%) City size

(in sq.km) Population Density (persons / sq.km)

15 Yavatmal 1,16,714 -3.30% 10.20 11,476

Source: Census of India 2001; Census of India 2011; PAS data;

This study assesses the investible surplus available with the municipality as on the latest available

records. The investible surplus establishes the capacity of the municipality in undertaking

performance improvement investments as on date. A cross section study of the revenues and

expenditures of the municipalities

has been undertaken for a relative

comparison on the performance

of the ULBs. Income and

expenditure (including debt

liabilities) have been analyzed to

project the trends of the municipal

finances over a 10 year horizon

period. This projection has been

used to ascertain the future

revenue surplus considering the

business as usual scenario. Here

analyses of revenue and capital

accounts have been undertaken.

The extra ordinary accounts have

not been considered for projects

and analysing the revenue

surplus considering its temporary

and unpredictable nature of the

account.

Similarly, potential areas of

revenue augmentation have been

identified and the investible

surplus over a 10 year horizon

has been analyzed considering a

scenario where the revenue

augmentation measures are

adopted.

The municipal finances have been assessed for a period of past seven years i.e. from 2005-06 to

2011-12 (details of actuals from 2005-06 to 2009-10) to capture the accurate trend across various

income and expenditure sources.

Similarly revenue and capital accounts of the Water supply and Sanitation services of these ULBs

have been analyzed independently to assess the level of expenditure and cost recovery in provision

of these services.

Figure 1: Methodology adopted for the study

[3]

Maharashtra Municipalities, Nagar Panchayats and townships act, 1965. Chapter – VIII (Budgets and

Accounts)

101. Budget.- (1-A) The chief Officer shall, while

preparing the statement referred to in clause (i) of sub

section (1) append thereto a report indicating whether

the following services were being provided in a

subsidised manner and, if so, the extent of the subsidy,

the source from which the subsidy was met and the

sections or categories of the local population who were

the beneficiaries of such subsidy, namely: -

a. water supply and disposal of sewage, b. scavenging, transporting and disposal of

wastes, c. municipal transport, and d. street lighting

Structure as suggested by National Accounting Manual

1. Part I – Revenue Budget: Revenue Receipts and Revenue Expenditure.

2. Part II – Capital Budget: Capital Receipts and Expenditure but grouped separately under following sub-zaq1parts. a. Capital Receipts and Expenditure from own

sources. b. Capital Receipts received in the form of new

loans and the Expenditure carried out from them.

c. Capital Receipts received in the form of development grants and the Expenditure carried out from them.

3. Part III – Extra-ordinary Budget: Receipts and Payment of extra-ordinary nature grouped under following distinct parts. a. Deposits and Fund Budget – Deposits and

Special Funds receipts and payment made from them

b. Advances Budget - New advances given and advances adjusted or recovered back

Data and Limitations of the Study

The budget books prepared and

published by the ULBs on an annual

basis form the key data point for

assessing the municipal finances. The

budget books and other related details

such as tariff statements, data collected

under Performance Assessment Project

(PAS), capital expenditure progress

reports under the Urban Infrastructure

Development Scheme for Small and

Medium Towns (UIDSSMT) framework,

water tariff statements, demand

collection balance statements of

property tax and water charges, loan

statements etc. were used for the

study.

The study being a secondary study based on the budget books and the associated data. The analysis

and the results of the study are limited to the details made available in the budget books. No primary

consultation / assessment have been conducted for arriving at the conclusions.

Budgeting system in municipalities

Maharashtra Municipalities, Nagar Panchayats and Townships act, 1965 (Act), Chapter VIII under

Budgets and Accounts chapter of the Act mandates the preparation of the budget books and provides

broad guidelines for preparation of the same.

Under the Act, it is mandatory for these

local bodies to provide a separate

report for the water supply and

sanitation, municipal transport and

street lighting clearly indicating the

extent of subsidy provided to each of

the services and the source for

providing subsidy to these services.

National Municipal Accounting Manual

which is the guideline document,

indicates the exact budget structure

and the budget preparation

methodology for municipalities.

A draft Maharashtra Budgeting Code

was prepared for adoption in

Maharashtra during 2007 - 08.

However the document has since been

in draft stage and has not been

implemented. Thus in Maharashtra, no

state specific guidelines are present for

[4]

preparation of budget documents that is followed throughout the state.

This lack of guidelines / standard format is reflected in the inconsistent budget structures of the ULBs

studied. It was further observed that none of the municipalities had separate budget statements for

the water supply and sanitation services as mandated in the Act.

The ULBs were observed to prepare a single budget, with segregation into Revenue, Capital and

Extra-ordinary accounts. This was further divided into budget heads representing each of the services

being catered by the municipality.

There was a lack of consistency in budget structures and more importantly, incorrect classification of

income / expenditure items. The most frequent error was of classification of capital income /

expenditure into revenue income / expenditure or vice-versa.i.e. a capital grant such as UIDSSMT

recorded as revenue income instead of capital expenditure / income. For e.g. funds under UIDSSMT

have been classified under revenue grants or Octroi compensation grant is classified as Capital

income.

Two budget statements (Jalna and Beed) had only income and expenditure statements. There is no

segregation of capital and revenue accounts.

Need for recasting of the budget books of the ULBs

Use of such details while assessing the investible surplus would yield incorrect results. To avoid the

aberration in the results, a recasting exercise was conducted on the budget books of the

municipalities.

The budget items which were clearly identifiable (and self-explanatory) from the title such as

UIDSSMT funds, Octroi compensation grant etc. were reclassified under their appropriate account

head. If octroi compensation grant was categorized as a capital grant, then it was reclassified under

revenue income (grants).Annexure 1 provides the further details of the recasting exercise as a part of

the study.

On the basis of these re-casted financial statements, the financial capacities were derived in the form

of year-on-year investible surplus with the ULBs. Based on the assessment of revenue streams, the

revenue augmentation measures were also suggested for the ULBs.

Limitations of the Study

The budget statements, income and expenditure trends have been analysed based on the items

specified in the budget books. Thus it is assumed that the amount specified under the revenue

income would have actually been a revenue income and not a capital income wrongly classified (and

titled) under a revenue income head. The cross-checking of the accounting entries is an extensive

field exercise and is beyond the scope of this study.

In all the 15 ULBs, it was observed that cash-based accounting system is followed. This will pose a

limitation in understanding the actual revenue potential and completeness of the expenditure incurred

in a particular year in the performance of their obligations.

None of the ULBs had separate report prepared for the level of cross subsidies for provision of water

and sanitation services. This was a major limitation towards assessing the cost recovery levels and

accurate costs (such as the water production or expenditure against SWM services) against the

services.

Some of the key expenditure items such as power costs in case of water supply, or fuel costs have

not been recorded separately. In such as case it has been assumed that they would have been

[5]

covered under the general O&M expenditure. More importantly, this restricts the analysis of actual

costs of service provision across the services.

[6]

2. Analysis of Revenue income and expenditures

2.1 Revenue Income

The revenue income for municipalities is derived from own sources and grants and contributions. Own

sources are the sources such as taxes and charges which a municipality can collect under the

provisions of Maharashtra Municipalities, Nagar Panchayats and Townships act, 1965. These include

taxes such as property tax, entertainment tax etc. and non-tax incomes such as property rents,

development charges, license fees and other charges.

Grants and contributions from state and central governments form the other source of revenue

income for municipalities. These include grants provided by the state / central governments for

specific functions (tied grants) such as census grants, education grants, library grants, health grants,

minority welfare grants, salary grants, etc. and general assistance grants such as octroi compensation

grants which can be applied by the municipality at its own discretion (untied grants).

Assessment of Revenue Incomes of Municipalities

The current revenue income of the municipalities ranges from a Rs. 16.21cr (Yavatmal) to Rs. 73.97

cr (Ichalkaranji), with a median revenue income being Rs. 21.74 cr. (Bhusawal). The median per

capita revenue income among the municipalities was Rs. 1452 (Gondia). Ichalkaranji had the highest

per capita revenue income of Rs. 2,611 and Parbhani had the lowest per capita income of Rs.686.

13thFinance Commission report estimated a per capita revenue requirement of Rs. 1578 for provision

of core services. Five out of the 15 municipalities assessed meet this benchmark. The following

graphs (Figure 2, 3 and 4) give a comparative statement of the total revenue income and contribution

of various sources revenue incomes across all the 15 municipalities studied.

Figure 2: Total revenue income (in Rs. Lakh) and per capita revenue income (in Rs.) for the 15 towns (2009-10)

Source: Actual budget figures of 2009-10

686 847 853

1,008 1,176

1,343 1,410 1,452 1,469 1,536 1,671 1,754

1,943

2,451 2,611

-

500

1,000

1,500

2,000

2,500

3,000

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000 P

er

cap

ita

reve

nu

e in

com

e in

Rs.

Tota

l re

ven

ue

inco

me

in R

s. L

akh

Revenue grants Non-tax income (own sources) Tax income (own sources) Per capita revenue income

[7]

Dependence on Grants and Contributions

Grants and contributions contribute, on an average, 60% of the total revenue income. With highest

being 77% in case of Jalna while the lowest being 51% in case of Panvel and Bhusawal. The

municipalities with relatively higher revenue incomes also had relatively higher amount of revenue

grants (figure 4). This strong correlation further establishes the dependence of municipalities on

grants and contributions from state and central governments.

Figure 3: Revenue income and share of own revenue sources to external revenue sources


Here Yavatmal at 13% contribution from grants and contribution is an exception among the other

municipalities. Yavatmal still collected octroi (own source) in 2009-10, while others had stopped

collecting octroi and instead received an octroi compensation grant (revenue grant). This is reflected

in higher own sources in Yavatmal.

Figure 4: Break up of per capita Income across various sources (2009-10)


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Non-tax income (own sources) Tax income (own sources) Revenue grants

686 847 853

1008 1176

1343 1410 1452 1469 1536 1671 1754 1943

2451 2611

0.00

500.00

1000.00

1500.00

2000.00

2500.00

3000.00

Pe

r ca

pit

a re

ven

ue

inco

me

(in

Rs.

)

per capita tax revenue Per capita non tax own revenue Per capita Grants

[8]

Tax and Non – Tax based own sources of revenue income

Across the ULBs studied, the median contribution of own sources to the revenue income is 40 % in

case of Achalpur, Barshi and Wardha. Jalna has the least contribution of 23 % from own sources of

income and Bhusawal and Panvel has the highest of up to 49%1 of the total income coming from own

sources.

Property tax forms the most important source of income and also contributes a larger share of the

total income from own sources. The other two important sources of income are rents from land and

municipal properties and services charges / fees for various services provided by the Municipality.

The contributions of property tax, user charges against services (water supply charges, service

charges for clearing drains and septic tanks etc.) and other own sources of revenue income towards

the total own source of revenue income are as represented in figure 5.

Figure 5: Percentage contribution of various own sources to the total revenue income from own sources


Property tax

Maharashtra Municipalities, Nagar Panchayats and Townships act, 1965 allows the Municipalities to

levy property tax on building and land within its jurisdiction limits. The per capita property tax

collections, as represented in Figure 6, vary significantly between the 15 towns from a low of Rs. 50 in

Achalpur and a high of Rs. 403 in Satara. The median per capita property tax income being Rs. 178

(Chandrapur)

1 Not considering Yavatmal due to reasons mentioned in the earlier subsection.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

property tax Services user charges others

[9]

Figure 6: Percentage contribution of various own sources to the total revenue income from own sources


In terms of yield per property, the three year average collection of property tax has been assessed. It

is observed that in spite of the property tax rates being similar across the states, the collections per

property shows significant difference. The lowest property tax yield based on collections per property

is observed in Achalpur and Parbhani at Rs. 319 and Rs. 321 respectively. The highest is observed in

Ichalkaranji at Rs. 2266 per property.

Figure 7: Property tax collections per property across the studied towns (three year average from 2007 to 2010)

Source: Actual budget figures of 2007-08, 2008-09 and 2009-10.

This difference in yields can be attributed to multiple factors of those detailed below:

1. Number of Assessed Properties: The amount of property tax levied is directly related to the

number of properties assessed under the tax net.

2. Billing and Collection Efficiency: The billing and collection efficiencies are closely linked to

the institutional capacities of the ULBs. From the assessment of DCB tables of these ULBs,

51 65 71 98

141 163 175 178 184 200 246

290

373 380 403

- 50 100 150 200 250 300 350 400 450

-

500

1,000

1,500

2,000

2,500

3,000

Pro

pe

rty

tax

colle

ctio

ns

pe

r ca

pit

a (i

n R

s.)

Pro

pe

rty

tax

colle

ctio

ns

pe

r p

ero

pe

rty

(in

Rs.

)

Property tax / property Per capita property tax

319 321 548 556 599 671 767 792

1027

1382

1719 1725 1839 1852

2266

0

500

1000

1500

2000

2500

Rs.

[10]

it was observed that the collection efficiencies varied from 32% to a high as 92%. The

collection efficiencies have been detailed in Figure 7.

3. Value and nature of Property: Since the tax rates are function of the property rates, the

value of properties within the municipal limits also impact the total property tax potential in a

city.

Trends of improvements in collection efficiencies were assessed for projecting the potential of the

property tax revenues and the projected revenue income from property tax. It was observed that at an

overall level the collection efficiencies in these ULBs have increased over a period of time albeit at

varying rates of improvements.

Figure 7: Property tax Collection efficiencies and Average Yields per property

Source: Actual budget figures of 2007-08, 2008-09 and 2009-10 and DCB Tables from PAS Project

database.

2.2 Revenue Expenditure

The revenue expenditure of the municipalities varies from Rs. 13.41 crs in case of Yavatmal to Rs.

62.57 crs in case of Ichalkaranji. The median per capita revenue expenditure among the

municipalities was Rs. 1237 (Bhusawal). Ichalkaranji had the highest per capita revenue expenditure

of Rs. 2209 and Latur had the lowest per capita revenue expenditure of Rs.564. (figure 8).

[11]

Figure 8: Revenue expenditure


The above expenditure is broadly categorized into five departmental heads. (1) General

Administration and tax collection: includes the expenditure towards the income tax, accounts and

other departments pertaining to the Administration and Tax collection functions (2) Public Health and

Welfare: includes the expenditure towards provision of services such as water supply, sanitation,

health infrastructure, gardens and other civic amenities (3) Social Security: includes the expenditure

towards streetlights and Fire safety services, (4) Education: which includes the expenditure towards

library and schools and (5) Other departments.

Figure 9: Break up of revenue expenditure across 15 towns in Maharashtra


An assessment towards the expenditure across these five heads indicates that in 13 municipalities

the Public Health and Welfare departments account for more than 50 % of the total revenue

564

743 749

942

1,147 1,166 1,214 1,237 1,345 1,407

1,480 1,492 1,495

2,023

2,209

-

500

1,000

1,500

2,000

2,500

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Revenue expenditure Per capita revenue expenditure

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Other departments Education Social security General administration and tax collection department Public Health and Welfare

[12]

expenditure. Only in Achalpur and Gondia, the expenditure towards Public Health and Welfare is less

than 50%.

Proportion of expenditure towards water and sanitation services (public health and Welfare) varies

from a low of 20% in case of Achalpur to a high of 64 % in case of Latur. The median expenditure

towards water and sanitation services is 36% in case of Satara.

Salaries and establishment expenditure forms one of the major revenue expenditure components for

the ULBs. The median establishment expenditure as a percentage of the total revenue expenditure is

35 % in Barshi, with a high of 61 % in case of Latur and a low of 13% in case of Gondia.

Figure 10: Establishment expenditure as a percentage of total revenue expenditure

Source: Budget books of municipalities for the financial years of 2005-06 to 2010-11

Debt Servicing

Most of the towns have taken loans for implementation of various schemes projects related to water

supply, housing, roads, slum improvements and others. The tenure of these loans was generally

observed to be 5 to 10 years, while the interest rates charged ranged from 8% to 15%.

The debt servicing expenditure in these ULBs was observed to be varying in a very broad range of

0.2% to 9% of the overall expenditure. The outstanding amounts as on 2009-10 were compared to the

repayment term of the loan. It was observed that the outstanding amounts of repayments were higher

than what was scheduled to be repaid. This could indicate a scenario wherein the ULBs have not

serviced the debt repayment obligations thereby incurring penal interest and penalties to be paid.

In certain cases, the lenders had levied heavy penalties for nonpayment of debt on account of

irregular in servicing their debt obligations. Yavatmal Municipal Council has outstanding debt to the

amount of Rs. 3045 Lakhs to MJP against a principal of Rs. 708 lakhs. Out of the total amount due,

Rs. 1954 lakhs is towards penalty for delay in repayment.

13% 17% 18%

25% 26% 27% 31%

35% 36% 45% 46% 49% 49%

59% 61%

0%

10%

20%

30%

40%

50%

60%

70%

[13]

Table 2: Outstanding loan details for the towns

S. No

City No. of Loans

Loan amount (in Rs. Lakh)

Outstanding loan (in Rs. Lakh) (As on 2009-10)

Repayment of loans (Rs. Lakhs)

2007-08 2008-09 2009-10

1 Achalpur 6 488.00 1,278.00 20.39 10.12 6.27

2 Ambernath 4 940.00 127.00 38.00 38.00 38.00

3 Barshi 13 772.00 996.00 - - -

4 Beed 12 867.00 780.00 - - -

5 Bhusaval - - 329.00 - 20.00 -

6 Chandrapur 21 84.00 39.00 - - -

7 Ichalkarnji 4 2,159.00 713.00 - - -

8 Latur 6 2,735.00 2,272.00 137.00 137.00 299.00

9 Parbhani 58 691.00 578.00 - - -

10 Wardha - - 39.00 167.26 201.08 166.81

11 Yavatmal 1 260.00 - - - -

Source: Budget booksof municipalities for the financial years of 2005-06 to 2010-11 and information collected from respective

ULBs by CEPT team.

2.3 Revenue Surplus

The revenue incomes have increased at a CAGR of 9.42% while the revenue expenditure has

increased at a CAGR of 7.47%. On an average, the revenue surplus has increased at a CAGR of

8.59% in the municipalities studied. Six municipalities recorded a negative compound annual growth

rate of revenue surplus.

Figure 11: Compound annual growth rates of revenue surplus for the studied ULBs during 2005-06 to 2009-10

Source: Budget books of municipalities for the financial years of 2005-06 to 2010-11

-48.00% -12.79% -6.83% -3.91% -3.87% -3.09% 1.43% 3.28% 5.36% 6.09%8.99% 9.04% 10.00%

19.85%

30.58%

-60.00%

-50.00%

-40.00%

-30.00%

-20.00%

-10.00%

0.00%

10.00%

20.00%

30.00%

40.00%

[14]

In 2009-10, three municipalities, Chandrapur, Beed and Parbhani, recorded a revenue deficit of 43%,

11% and 8% of their revenue incomes respectively. Chandrapur and Beed have recorded revenue

deficits in all five years assessed, while Parbhani has recorded revenue deficit in two of the five

financial years assessed (2005-10). The other municipalities recorded a revenue surplus ranging from

2% to 36% of their revenue incomes. The details have been provided in figure 20 below.

Figure 12: Revenue Surplus / Deficit as on financial year 2009-10 (Rs. Lakhs)


2.4 Water supply and Sanitation Services

2.4.1 Water supply services

Municipalities, under the Act, are mandated to provide water supply services within their

administrative jurisdictions. In case of Gondia, Yavatmal and Ambernath, MJP is providing the water

supply services. MJP’s scope of work in these towns includes bulk supply, treatment and distribution

of water, metering, billing and collection of the user charges.

The service coverage by MJP in Gondia, Yavatmal and Ambernath is close to 65 % of the entire

population. The remaining population (of 35% population) is serviced by the municipalities through

pump-sets and bore-wells.

Chandrapur has adopted private sector participation model in management of water supply services.

Ithas adopted a model wherein the entire water supply operations including the collection of user

charges have been contracted to a private sector player. Only major maintenance of the system is to

be carried out by the municipality. The operator is to provide a committed royalty to the municipality in

return of the right to operate and collect the user charges.

Water supply revenue expenditure

On an average, 13% of the municipalities’ overall revenue expenditure is towards water supply

services. The per capita expenditure towards water supply services ranges from a low of Rs. 46 in

case of Barshi to a high of Rs. 851 in case of Wardha (In case of Gondia and Yavatmal, the total per

capita expenditure after considering the expenditure by both MJP and the ULB is Rs. 154 and Rs. 563

respectively).

(1,163) (215) (173)54

141 183 280

350 386 452

548

729

1,092 1,140

1,317

(1,500)

(1,000)

(500)

-

500

1,000

1,500

[15]

The per capita O&M expenditure for water supply estimated by HPEC for class I city (1 lakh to 10 lakh

population) for 2009-10 prices is Rs 491 and per capita O&M expenditure for water supply estimated

by Zakariya Committee for class I city (1 lakh to 10 lakh population) in Rs/ capita (2009-10 prices) is

Rs 302. In the cases studied Panvel, Yavatmal and Ichalkaranji had per capita expenditure of more

than Rs. 302. All other municipalities were far below the normof revenue expenditure.

Figure 13: Per Capita Water supply expenditure2 (2009-10)

Source: Budget books of the municipalities (2010-11)

The different expenditure items incurred by the towns towards water supply services are for

administration and establishment, operations and maintenance like repairs, fuel, chemicals, energy

expenses etc., debt services (interest payments) and bulk water expenses.

2 The per capita expenditure in Ambernath, Gondia and Yavatmal (MJP cities) has been derived after considering only the

percentage of population being serviced by the ULB.

6%

2%

21%

7% 7%

1%

3%

14%

21% 19%

6%

9%

13% 12%

17%

0%

5%

10%

15%

20%

25%

-

100

200

300

400

500

600

Rs.

Water supply expenditure per capita % of total revenue expenditure

HPEC norm

[16]

Figure 14: Water supply revenue expenditure distribution across the studied municipalities (2009-10)


As highlighted in the above figure, O&M expenses account for more than 50% of the revenue

expenditure towards water supply services in case of 8 out of 15 cities studied. The O&M expenses

which include energy expenses, replacements and repairs and emergency expenses occupy a major

share of most of the city’s water supply expenditure. In Ambernath, Gondia, Yavatmal the O&M

expenses are low as part of the cost is being borne by MJP. While in Chandrapur, all O&M expenses

are outsourced to a private operator and hence are not recorded on the books of the ULB.

Water Production Costs

From the assessment of budget books it was observed that the expenditures against bulk water

charges and power charges were either not recorded separately or not paid by the ULBs each

year.Yavatmal, Chandrapur and Ambernath did not record energy costs separately in the budget

books. The records do not follow a fixed pattern and hence trends towards the contribution of these

costs in the overall production costs cannot be conclusively ascertained3.

Achalupur, Beed, Bhusawal, Ichalkaranji, Gondia, Jalna, Latur, Panvel, Parbhani, Satara, Wardha

and Barshi recorded the energy costs across all the years and their expenditure towards electricity as

a percentage of the overall water supply expenditure has been represented in figure 124. The

variation in the share ranges from 6 % in case of Gondia to as high as 64 % in Achalpur.

3Eg: In Case of Achalpur and Beed, the bulk water costs are recorded for each year but the amount paid varies significantly indicating

partial payment of the water dues as the tariff and the demand are expected to be consistent for such duration. In case of Ambernath, none

of the bulk water costs and the energy costs were recorded separately. 4 Here five year averages of water supply expenditure and power costs have been considered for analysis.

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

100%

Interest payments Administration and establishment Bulk Water expenses O&M Expenses

[17]

Figure 15: Water production cost and Power costs (five year average 2005 – 06 to 2009 - 10)


Water supply revenue Income

Source of income for water supply services is the user charges and the tax component as a part of

the property tax. Most of the towns levy a flat rate for water supply services on a monthly or an annual

basis. Jalna, Satara and Ambarnath levy volumetric tariff within the service area.MJP levies a

volumetric tariff within its service area. The following graph indicates the per capita revenue income

from water supply charges.

Figure 16: Per capita revenue income from Water supply charges5

Yavatmal and Gondia have the least per capita revenue income from water supply services. These

municipalities do not levy any user charges on the consumers. In case of Yavatmal the per capita

income for water supply services to MJP is Rs. 581. In case of Chandrapur, the right to collect and

appropriate the user charges has been subcontracted to the private player. Thus the only revenue

income from water supply services is in the form of a royalty. Apart from these three municipalities,

5 The per capita income in Ambernath, Gondia and Yavatmal (MJP cities) has been derived after considering only the

percentage of population being serviced by the ULB.

6% 7%

17% 19%

22%

29% 30%

43% 44%

54%

63% 64%

0%

10%

20%

30%

40%

50%

60%

70%

Gondia (MJP)

Panvel Jalna Bhusaval Parbhani Beed Satara Latur Ichalkarnji Barshi Wardha Achalpur

Percentage of power cost to total production costs

0 1 8 31 33 51 124 127 130 141 152 168 204 250 259 -

50.00

100.00

150.00

200.00

250.00

300.00

[18]

the lowest per capita income is Rs. 31 in case of Parbhani and the highest is Rs. 259 in case of

Ambernath.

Water supply cost recovery

Of the towns studied, Achalpur, Ambernath, Bhusawal and Beed were the only municipalities more

than 100 % cost recovery. In all other municipalities, the cost recovery was less than 100 %.

Figure 17: Cost recovery in water supply services

To further assess the cost recovery in water supply services, the demand and the O&M expenditure

have been compared. Demand represents the actual amount of charges that are levied / billed. Ideally

the demand should be equal to the expenditure.

Figure 18: Demand vs O&M expenditure (in Rs. Lakh)


0%

20%

40%

60%

80%

100%

Water supply services cost recover

177 227

109 155

383

903

591

201

-

100

200

300

400

500

600

700

800

900

1,000

Beed Ichalkarnji Jalna Parbhani

Water supply revenue demand O&M expenditure for water supply services

[19]

However, as the figure 18indicates that the demand of the water supply charges is far lesser than the

revenue expenditure. This implies that even if the collection efficiency is 100 %, the cost recovery of

water supply services would not be 100 %. This situation can be because of multiple factors such as:

1. Non revision of water tariff: The water supply charges may not have been revised from time to

time across the ULBs; and / or

2. Amount of non-revenue water through either wastage or illegal connections is not known;

The collection efficiencies of the municipalities studied varied between 60% to 85%. This implies

that a significant share of the billing amount is not collected by the municipalities.

2.4.2 Sewerage and solid waste management services

The service levels towards sewerage and solid waste management services are very low with most of

the ULBs lacking a full-fledged sewerage network in the city except partial sewerage networks in

Ambernath, Ichalkaranji, Latur and Panvel. The waste management practices adopted are unscientific

and the disposal of waste is generally without any treatment.

Revenue expenditure towards Sewerage and Solid waste management services

The median per capita expenditure towards Sewerage and SWM services is Rs. 275 in case of

Bhusaval. The highest per capita expenditure towards Sewerage and SWM is Rs. 446 in Panvel and

the lowest per capita expenditure is Rs. 128 in Parbhani.

The per capita O&M expenditure for waste water services and SWM estimated by HPEC for class I

city (1 Lakh to 10 Lakh population) for 2009-10 prices is Rs425and Per Capita O&M expenditure for

waste water services and SWM estimated by Zakariya Committee for class IC city (1 Lakh to 10 Lakh

population) in Rs/ capita (2009-10 prices) is Rs 335.

Figure 19: Per capita expenditure of sanitation services


The main activities included under these services are as follows:

1. Maintenance and clearing of drains / nallahs and sewerage system if any;

2. Maintenance / desludging of septic tanks,

127 44 210 0 179 2 43 39 34 314 130 0 369 412 78

1

1520

246 73 254228 236

269 0206 346

0

5367

128

196210

247 251 256271 275

303 314337 346

369

417446

-

50.00

100.00

150.00

200.00

250.00

300.00

350.00

400.00

450.00

500.00

Per Capita revenue expenditure - SWM Per Capita revenue expenditure - SeweragePer Capita revenue expenditure for Sanitation services

HPEC Norm

[20]

3. Street sweeping and collection of waste from intermediate collection stations; and

4. Collection, Transportation and disposal of waste

Seven out of the total municipalities studied were found not to record either SWM or sewerage

services separately. This results into inability of assessing the actual costs and recoveries at

independent service levels.

In cities which reported SWM and

Sewerage services as separate

statements, it is observed that in

case of SWM services,

Administrative and establishment

expenses account for more than

60% of the expenses. This can be

attributed to the labor oriented

services being provided such as

street sweeping, cleaning of drains

etc.

In case of sewerage services, as

well, the administrative and

establishment charges accounted

for the largest share of the revenue expenditure. Cities such as Gondia and Barshi had reported all

the expenses into a single entry of other O&M expenses.

Revenue income towards Sewerage and Solid waste management services

Municipalities, under provisions of Maharashtra Municipalities, Nagar Panchayats and Townships act,

1965 can levy taxes and charges against these SWM and sewerage services to recover the costs.

These include special sanitary tax, drainage tax and sanitation tax and environmental tax (for SWM

services) forming a sub component of the Property tax.

As observed in the figure 17, the per capita revenue income from SWM and sewerage services is

negligible. Of all the studied towns, only Achalpur, Satara, Barshi and Panvel have reported marginal

incomes against SWM services through solid waste tax in case of Achalpur and Barshi, while other

cities are not reporting this specific source of income. The highest per capita revenue income is Rs.

42 in case of Panvel.

Maharashtra Municipalities, Nagar Panchayats and Townships act, 1965.

As per the Act, towns can levy the following water and sanitation related additional taxes apart from the mandatory consolidated property tax:

Special sanitary tax upon private latrines, premises or compounds cleansed by municipal agency after making provision for the cleansing thereof by manual labor; or for conducting or receiving the sewage thereof into municipal sewers.

Drainage tax and;

Special water tax for water supplied by the council in individual cases, with charges for such supply being fixed in such modes as shall be best suited to the varying circumstances of any class of cases.

[21]

Figure 20: per capita Revenue income from Sewerage and SWM services

Figure 21: Income and Expenditure for sewerage and solid waste management services (in Rs. Lakh)


0 0 0 0 1 0 2 0 7 9 13 11 20 24 37

0 0 0 0 02 0 3

00

0

6

0

0

5

0 0 0 0 12 2 3

79

13

17

20

24

42

-

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

45.00

Per Capita revenue income - SWM Per Capita revenue income - SeweragePer Capita revenue income for Sanitation services

[22]

3. Capital Account

Capital account of municipalities consists of incomes on account of capital grants under various

scheme of Government of India (GoI) and Government of Maharashtra (GoM). The capital

expenditure mainly comprises of the expenditure on account of utilization of capital grants under such

schemes.

Eight towns have 100% or more utilization of its capital income and the other towns, do not have

100% utilization of the capital income for development of projects. It was observed that the capital

utilization varies every year for the 15 towns. The capital income received by the towns have

substantially increased during the period of assessment, primarily due to the UIDSSMT grant made

available to the towns for the purpose of the water supply, sewerage, housing and slum improvement

projects.

The following table presents the capital income and expenditure for the period under assessment.

Table 3: Capital Income and Expenditure (in Rs. Lakh)

S. No

City Capital Income - in Rs. Lakh (2005/06 to 2009/10)

Capital expenditure – in Rs. Lakh (2005/06 to 2009/10)

Capital income utilization

1 Achalpur 1,404 602 43%

2 Beed 6,691 5,419 81%

3 Yavatmal 2,797 2,376 85%

4 Parbhani 6,833 6,468 95%

5 Gondia 5,781 5,865 101%

6 Barshi 5,049 5,379 107%

7 Panvel 4,633 5,117 110%

8 Wardha 1,291 1,427 110%

9 Jalna 7,051 8,697 123%

10 Bhusaval 2,137 2,665 125%

11 Satara 6,993 8,943 128%

12 Latur 13,019 17,689 136%

13 Ambernath 1,655 5,042 305%

14 Ichalkarnji 2,874 8,889 309%

15 Chandrapur 7,312 30,743 420%

Source: Actual budget figures of from 2005-06 to 2009-10

[23]

4. Investment capacity of ULBs for undertaking

performance improvement measures

As observed from the previous sections, the revenue incomes have increased at a CAGR of 9.42%

while the revenue expenditure has increased at a CAGR of 7.47%. On an average, the revenue

surplus has increased at a CAGR of 8.59% in the municipalities studied. Six municipalities recorded a

negative compound annual growth rate of revenue surplus.

Estimated Investment capacity over ten year horizon in business as usual scenario

The investment capacity has been defined as the internally generated revenue surplus that is left with

the towns after paying its revenue expenses, debt service, committed capital expenditure and routine

capital expenditure.

The investment capacity was assessed based on the business as usual scenario on the hypothesis

that the past trends in key financials of the towns would continue in the future. The key assumptions

used for projecting the investible surplus for business as usual scenario are as under:

1. Compound Annual Growth Rates of the incomes and expenditures for past five years base on actuals have been used to project the individual income and expenditure items;

2. The service provisioning models currently adopted are not changed;

3. All outstanding debt service obligations are serviced within a span of 10 years or lesser as the case may be; and

4. No new / additional revenue income sources are introduced;

The results of the assessment on overall surplus and deficit for the ten year period is as given below:

Figure 22: Overall surplus / deficit of income for the towns (in Rs. Lakh) (2012 – 2022)

Source: Projected figures for ten years

(8,168) (6,536) (2,739) (1,684) (677) 412

1,715 2,331 4,120 4,374 4,737

7,050

18,116 20,782

(14,000)

(9,000)

(4,000)

1,000

6,000

11,000

16,000

21,000

[24]

The assessment of the investment capacity of the towns shows that most of the towns have marginal

or no additional capacity to invest. Based on this definition, and the low amount of overall revenue

surplus indicates that most of these towns have very low or no capacity (in case of Bhusawal,

Chandrapur, Beed, Parbhani and Gondia) to undertake service level improvements through

investments.

There will be no significant revenues available with ULBs for investment in additional projects and

already there will be a stress on ULBs for completion of the ongoing projects. In some cases, the net

investible deficit has found to increase during the course of the study time period.

The reasons for the situation could include increasing expenditure towards services, inadequate tariffs

/ tariff structure, low collection efficiency and inefficient operations etc. However, considering the

various reforms being undertaken in the country towards performance improvements and service level

improvements of ULBs, it is expected that certain reforms / improvement measures aimed at revenue

augmentation shall be implemented.

Revenue improvement measures and investment capacity

A second scenario was developed to ascertain the impact of revenue improvement measures on the

investible surplus of the ULBs. Potential improvements in collection efficiencies, additional revenue

streams in accordance with the Act and introduction of efficient tariff regimes were the key measures

assessed.

The potential of applicability of each of the measure was checked on the ULBs and the improvements

in revenue income were assessed. Some of the measures taken under the study for enhancing the

investment (where applicable) are:

- Property tax coverage– increase of tax coverage for higher demands (additional 15 to 20%)

- Property tax collection – improving collection efficiency of 85% to 90% (annual equal increment over five years)

- Revision of tariff charges and tax rates to match the expenditure of the respective towns

- Revision of existing water charges to match the expenditure of the respective towns

- Water charges – improving collection efficiency (to achieve 85% to 90%) – annual increment of 4-5%

- Introduction sewerage tax as part of the property tax to match the expenditure of the sewerage services for the towns

- Additional revenues through implementation of capital projects

- Increase of water supply coverage

- Improved collection efficiency of taxes and charges

- Introduction of tariffs for sewerage charges and SWM

The below table summarizes the measures proposed against each of the ULB and the improvements

in the income source thus adding to the investable surplus.

[25]

Table 4: Revenue improvement measures and the increase in investible surplus consolidated over ten years (in Rs lakhs)

Revenu

e s

urp

lus b

usin

ess a

s

usual

Incre

ase a

nd u

pda

tio

n o

f T

ax n

et

Levy o

f S

ew

era

ge C

harg

es

Impro

vem

ent

In c

olle

ctio

n

effic

iency o

f pro

pert

y t

ax

Levy o

f S

ew

era

ge C

harg

es

Revis

ion in w

ate

r supp

ly c

harg

es /

taxes

Revis

ion in s

ew

era

ge /

sanitation

charg

es / taxes

Levy o

f S

WM

charg

es t

hro

ugh

pro

pert

y tax

impro

ve

me

nt of colle

ction

effic

iency o

f serv

ice c

harg

es

tota

l Im

pro

vem

ents

Surp

lus a

fter

revenu

e

impro

ve

me

nts

Achalpur 1,715 - 136 515 - 594 - - - 1,246 2,961

Ambernath 4,737 - - 3,148 - 567 - - - 3,715 8,452

Barshi 4,374 - - - - 644 944 - - 1,588 5,962

Beed -1,684 - - 992 - 3,032 - - - 4,024 2,340

Bhusawal -8,168 2,254 - - 372 - 4,176 223 - 7,025 (1,143)

Chandrapur -6,536 - - 3,948 4,679 3,948 - - - 12,575 6,039

Gondia -2,739 - - 1,614 339 - - - - 1,953 (786)

Ichalkaranji 2,083 - - 1,687 - - - - 2,100 3,787 5,870

Jalna 412 - - - - 7,251 8,671 - - 15,922 16,334

Latur 18,116 - - 541 - 998 - - - 1,539 19,655

Panvel 7,050 - - - - 1,592 - 1,102 - 2,694 9,744

Parbhani -677 - - 2,159 - 5,568 - - - 7,727 7,050

Satara 4,120 - - - - 8,308 1,677 - - 9,985 14,105

Wardha 20,782 - - 384 - 384 - - - 768 21,551

Yavatmal 2,331 1,645 105 - - - - - - 1,750 4,081

The actions do not require any capital investments for implementation and need only process

changes by the towns. The potential additional revenues because of the revenue enhancement

measures for each of the towns can be observed in the chart above.

Thus as can be seen from the revenue enhancement measures, the investible surplus can be

gradually improved. The following towns have additional investment and have better financial position

which can invest for service improvements

[26]

Figure 23: Towns with revenue surplus after projected revenues enhancement measures (2012 – 13 to 2021-22) (in Rs. Lakh)

Source: Projected figures for ten years

(1,143) (786) 2,340 2,961

4,081 5,870 5,962 6,039

7,050 8,452

9,744

14,105 16,334

19,655 21,551

-10000

-5000

0

5000

10000

15000

20000

25000

Revenue surplus business as usual Surplus after revenue improvements

[27]

5. Conclusions

The financial situation of 15 towns was assessed and the investible surplus determined. It was concluded from the study that existing financial situation of the

ULBs do not permit significant investments for service level improvements. Some of the key financial indicators indicating financial situation of the ULBs is as

under:

Rs. Lakhs Achalpu

-ur Ambarn

--ath Barshi Beed

Bhusav--al

Chandrapur

Gondia Ichalkar

anji Jalna Latur Panvel

Parbhani

Satara Wardh

a Yavatmal

Population (2009-10) (Lakhs)

1.11 2.50 1.16 1.44 1.84 3.16 1.30 2.83 2.81 3.77 1.05 3.02 1.18 1.03 1.14

District Per capita Income

Total Revenue Income (2009-10)

1,950 3,675 1,794 1,934 2,176 2,678 1,901 7,397 2,833 3,217 2,589 2,076 2,298 1,737 1,621

Total Revenue Expenditure (2009-10)

1,564 2,358 1,444 2,149 2,121 3,840 1,760 6,257 2,104 2,125 2,137 2,248 1,750 1,554 1,341

Total Capital Income (2009-10)

916 1,875 248 3,338 459 4,069 4,353 1,831 5,688 2,508 2,302 5,255 2,423 327 1,288

Total Capital Expenditure (2009-10)

1,526 3,631 606 2,959 733 13,994 4,365 3,722 5,762 4,518 2,224 4,320 3,151 157 342

Total Revenue Surplus (2009-10)

386 1,317 350 (215) 54 (1,163) 141 1,140 729 1,092 452 (173) 548 183 280

Operating Ratio 0.80 0.64 0.81 1.11 0.98 1.43 0.93 0.85 0.74 0.66 0.83 1.08 0.76 0.89 0.83

[28]

Rs. Lakhs Achalpu

-ur Ambarn

--ath Barshi Beed

Bhusav--al

Chandrapur

Gondia Ichalkar


Parbhani

Satara Wardh

a Yavatmal

CAGR of Revenue Surplus (2005 - 2010)

30.58% 19.85% 10.00% -

12.79% 1.43%

-48.00%

6.09% -3.09% 5.36% 8.99% 9.04% -3.87% 3.28% -

6.83% -

3.91%

CAGR of Revenue Income (2005 - 2010)

12.61% 11.69% 6% 27.57% 9.18% 3% 10.69% 6.38% 3.65% 6.72% 12.97% 7.92% 7.37% 7.69% 7.93%

CAGR of Revenue Expenditure (2005 - 2010)

7.87% 3.75% 4% -

16.64% 11.20% 8% 12.68% 14.37% 1.38% 1.23% 13.85% 11.29%

11.93%

15.59%

11.54%

Ratio of Revenue Exp to Capital Exp. (2009-10)

1.02 0.65 2.38 0.73 2.89 0.27 0.40 1.68 0.37 0.47 0.96 0.52 0.56 9.92 3.92

Per capita revenue expenditure (2009-10)

1,407 942 1,237 1,492 1,147 1,214 1,345 2,209 749 564 2,023 743 1,480 1,495 1,166

Per capita revenue income (2009-10)

1,754 1,469 1,536 1,343 1,176 847 1,452 2,611 1,008 853 2,451 686 1,943 1,671 1,410

Own sources (taxes) as a % of total income (2009-10)

40% 41% 40% 45% 49% 34% 25% 36% 23% 35% 49% 26% 43% 40% 87%

Grants as a % of total revenue income (2009-10)

60% 59% 60% 55% 51% 66% 75% 64% 77% 65% 51% 74% 57% 60% 13%

Property tax as a % of total income (2009-10)

3% 17% 13% 13% 21% 21% 12% 15% 10% 11% 21% 10% 22% 20% 12%

Collection efficiency of Property tax (2009-10)

29% 95% 82% 74% 94%

24% 93%

76% 80% 73% 67% 54% 94%

[29]

Rs. Lakhs Achalpu

-ur Ambarn

--ath Barshi Beed

Bhusav--al

Chandrapur

Gondia Ichalkar


Parbhani

Satara Wardh

a Yavatmal

Property tax per capita (2009-10)

58 250 198 176 249 178 176 397 97 92 507 67 428 331 163

Property tax per property (2009-10)

286 1,790 947 981 1,509 975 630 2,499 711 632 1,994 325 1,965 1,859 788

Total Outstanding Loans (Rs. Lakhs)

1,278 127 996 780 329 39

713 2,272

578

39

Expenditure on WS services against total expenditure (2009-10)

20% 39% 45% 34% 31% 22% 21% 28% 56% 64% 28% 52% 36% 37% 40%

Per capita revenue expenditure towards WS services (2009-10)

228 369 348 515 301 299 310 382 292 336 821 318 801 1,538 464.17

Per Capita establishment expenditure (2009-10)

783 258 385 653 718 499 528 334 317 302 651 335 885 281 362.13

Cost recovery for water supply (%)

16% 6% 15% 23% 21% 19% 26% 22% 39% 31% 84% 159% 288% 124% 72.94

%

Cost recovery for Sewerage and SWM services (%)

8.51% 0.46% 0.90% 0.17% 15.62% 0.22% 0.93% 6.53% 0.00% 2.90% 9.34% 0.27% 0.82% 1.37% 8.86%

Investible surplus in base line scenario

1,715 4,737 4,374 (1,684) (8,168) (6,536) (2,739) 2,083 412 18,116 7,050 (677) 4,120 20,782 2,331

Cumulative Investible surplus after revenue

1,246 3,715 1,588 4,024 7,025 12,575 1,953 3,787 15,922 1,539 2,694 7,727 9,985 768 1,750

[30]

Rs. Lakhs Achalpu

-ur Ambarn

--ath Barshi Beed

Bhusav--al

Chandrapur

Gondia Ichalkar


Parbhani

Satara Wardh

a Yavatmal

augmentation

The study notes that the scope for investment by the towns in performance improvement actions for water, waste water and solid waste management

services is limited. The investible surplus can be augmented only by implementing reforms aimed at revenue augmentation. Some such possible actions are:

- Converting the public taps/ stand posts to paid group connections

- Identification and regularization of unauthorized connections

- Identification and repair of leaks in the service line connections

- Better operational planning for reduction in O&M costs- like rescheduling pumping operations to off peak period of electricity supply

- Reduction in NRW

Even though the size of the towns considered for study are very small compared to that large cities, the services mandated to the ULBs are very common

which are to be delivered. The trends in revenue and expenditure of these ULBs show that there are steadily growing and do not truly reflect the decline in

service levels provided by them. It can be clearly understood that the additional requirement of finances by ULBs to meet the investment challenges for better

service delivery is very huge and cannot depend of the grants and support provided by the State and Central Government. The dependency of these towns is

clearly seen by the mismatch between services and finances of ULBs. One of the other key observations is the source of financing a particular service is not

always from the same corresponding function or service, and majorly relies on subsidy from other sources.

There is a need for mapping the accounting practices to ensure that each services to be provided by the towns is self-sufficient by the corresponding

financing source in the form of taxes, charges and fees.

[31]

6. Way Forward

Each of the 15 ULBs need to find ways and means to increase their revenues. To achieve this the

following steps would need to be undertaken:

1. In the case of property tax, for each of the cities there is a need to assess if the optimum

coverage level has been reached. This will enhance the revenue base of the ULBs.

2. There is a need to assess if there is scope of property tax rate increase. ULBs can compare

the tax rates with peer groups to build a consensus for the same.

3. ULBs will need to assess whether the water supply revenue demand is adequate to meet the

O&M expenditure. If not, either not all the consumers in the system are getting billed or tariffs

need to be revised or both.

4. The ULBs reviewed have property tax and user charges and other fees as their revenue

base. There is a need to add other income sources like consumption-based taxation (octroi or

local body tax) and income-based taxation like professional tax to provide buoyancy to their

revenues. These revenue sources will reduce the dependency on State Government transfers

to a significant extent.

5. The new revenue sources will allow the ULBs to generate a surplus which can be leveraged

to borrow and meet their capital expenditure requirements.

[32]

Annexure 1: Illustration of reclassification /

recasting of budget items

As highlighted in the earlier sections a recasting exercise was conducted on the budget books of the

municipalities to correctly classify them into either capital / revenue accounts. The budget items

which were clearly identifiable (and self-explanatory) from the title such as UIDSSMT funds, Octroi

compensation grant etc. were reclassified under their appropriate account head.

The following note provides an illustration of the recasting carried out in municipal accounts of

Wardha municipal council. In the budget books of Wardha, the capital income and expenditure were

registered as revenue income and expenditure respectively in the budget documents. The two

accounts were not separated from each other. Here the assessment was done after recasting of

budget documents and reclassification of appropriate items of income and expenditure items into

the capital account.

However, it has to be highlighted that through the recasting exercise, it is not possible to completely

identify (and reclassify) all the capital income / expenditure from existing method of recording the

revenue account, as detailed break up of many of the items are either not provided or improperly

recorded.

An example of reclassification of heads under revenue income is provided in the following table.

Revenue Income 2007-08 (Actuals)

2008-09 (Actuals)

2009-10 (Actuals)

2010-11 (Budgeted)

2011-12 (Budgeted)

Municipal Taxes and Charges

Consolidated property tax 321.47 292.55 344.12 500.00 525.00

Tree tax 6.31 5.70 6.66 10.00 11.00

Entertainment tax 0.00 0.00 0.00 1.00 1.00

Advertisement tax 1.00 0.92 2.52 2.00 2.00

Special sanitation tax 6.37 7.85 6.46 7.00 7.00

water benefit tax 133.70 124.33 135.48 200.00 250.00

kondawade 0.00 0.00 0.00 0.05 0.05

other taxes 0.00 0.00 0.00 0.00 0.00

Special charges 0.00 0.00 0.00 0.10 0.10

Land/ Property rent, fees and charges

Land 1.09 2.22 2.25 3.50 3.50

Rents from properties 1.50 9.88 13.51 20.00 25.00

Markets 1.52 1.04 1.71 3.00 4.00

Registration fees 0.00 0.00 0.00 0.05 0.05

slaughter house 0.00 0.00 0.00 0.10 0.10

water connection fees 3.38 3.57 3.88 4.00 4.00

license 1.01 0.96 0.94 2.00 2.00

[33]


2008-09 (Actuals)

2009-10 (Actuals)

2010-11 (Budgeted)

2011-12 (Budgeted)

building permission fees 14.71 26.80 24.14 25.00 30.00

Notice fee 0.92 0.33 0.91 0.50 0.50

Warrant fee 0.09 0.07 0.00 0.50 0.50

other fees and charges 0.00 0.00 0.00 0.00 0.00

interest on tax collections 0.54 0.41 0.00 1.00 1.00

penalties 0.00 0.00 0.00 0.00 0.00

Grants and Contributions Compensation for octroi 431.66 455.64 490.51 539.53 0.00

Stamp duty 0.00 0.00 0.00 763.32 840.00

Grant for operation of automated lamp posts 5.52 16.16 24.60 0.00 25.00

Development scheme 131.66 6.68 15.99 50.00 50.00

Inflation compensation 199.78 256.15 217.15 0.00 0.00

Slum redevelopment 184.70 39.90 0.00 50.00 50.00

Road development 199.99 158.61 90.00 100.00 100.00

11th finance commission 0.00 0.00 0.00 0.00 0.00


Motor vehicle grant 38.07 0.14 108.57 50.00 55.00

Slum improvement programme 0.01 0.00 0.00 0.01 0.01

Zilla Legal penalty charges 0.22 0.32 0.17 0.35 0.35

Nonagricultural tax compensation 0.20 15.59 0.00 15.00 15.00

Police law 0.00 0.00 0.00 10.00 10.00

special schemes 50.00 165.00 10.00 50.00 100.00

Vaidhanik Vikas Mandal 0.00 0.00 5.00 10.00 10.00

SJSRY 0.00 0.00 0.00 56.14 60.00

Thakkarbapa Tribal development fund 21.92 0.00 0.00 0.00 25.00

MP / MLA Fund 39.62 41.33 27.93 50.00 50.00

Rebate on SJSRY 0.07 0.13 0.14 0.20 0.25

Grants for promotion of Micro-savings 0.04 0.06 0.00 0.10 0.10

Minority group Fund 0.00 0.00 215.25 296.35 4.00

Other grants 3.97 0.00 0.00 0.00 0.00

Other Income Revenue other than taxes from

sanitation works 1.07 1.15 1.21 2.00 2.50

Tank cleaning charges 2.76 2.36 2.08 3.00 4.00

Copy / photocopy charges 0.31 0.50 0.40 0.50 0.50

Sale of scrap 0.00 0.00 0.00 0.50 0.50

voters list 0.00 0.00 0.00 5.00 5.00

Lake fee 0.00 0.00 0.00 0.00 2.00

City buildings 10.71 4.60 5.50 5.00 5.00

[34]


2008-09 (Actuals)

2009-10 (Actuals)

2010-11 (Budgeted)

2011-12 (Budgeted)

Total Other Income 18.50 11.32 14.70 21.00 25.50

Total Revenue Income 1870.27 1686.55 1806.92 2966.80 2392.01

Items reclassified into Capital Income:



Road development 199.99 158.61 90.00 100.00 100.00

11th Five year plan 0.00 0.00 0.00 0.00 0.00


special schemes 50.00 165.00 10.00 50.00 100.00

Minority group Fund 0.00 0.00 215.25 296.35 4.00

SJSRY 0.00 0.00 0.00 56.14 60.00

Thakkarbapa Tribal development fund 21.92 0.00 0.00 0.00 25.00

MP / MLA Fund 39.62 41.33 27.93 50.00 50.00



Revised Total Revenue Income 1866.30 1686.55 1591.67 2670.45 2388.01

[35]

Annexure 2: Trend of increase in revenue surplus

after revenue augmentation measures

Revenue Surplus 2014-15 2017-18 2021-22

Achalpur 154.15 284.51 598.03

Ambernath 519.00 1,000.00 1,171.00

Barshi (162.00) 577.00 2,131.00

Beed (209.00) 335.00 907.00

Bhusawal (632.03) (94.69) 990.43

Chandrapur 671.54 710.16 747.15

Gondia (440.00) (39.00) 568.00

Ichalkaranji 56.00 588.00 1,586.00

Jalna 1,715.00 1,789.00 1,015.00

Latur 1,678.00 1,998.00 2,649.00

Panvel 1,122.00 944.00 743.00

Parbhani 266.00 895.00 1,214.00

Satara 788.00 1,470.00 2,423.00

Wardha 1,610.62 2,396.56 4,565.48

Yavatmal 6.00 409.00 1,296.00

The ‘Performance Assessment System – PAS’ Project supports development of appropriate tools and

methods to measure, monitor and improve delivery of urban water and sanitation services in the

states of Gujarat and Maharashtra. The PAS Project includes three major components of

performance measurement, performance monitoring and performance improvement. It covers all

the 400+ urban local governments in Gujarat and Maharashtra.

CEPT University has received a grant from the Bill and Melinda Gates Foundation for the PAS

Project. It is being implemented by CEPT University with support of Urban Management Centre

(UMC) in Gujarat and All India Institute of Local Self-Government (AIILSG) in Maharashtra.

PAS Project

CEPT University

Kasturbhai Lalbhai Campus, University Road, Navrangpura,

Ahmedabad - 380 009

Gujarat, India

Tel: +91-79-26302470

Fax: 91-79-26302075

www.pas.org.in

http://www.pas.org.in/

assessment of municipal finances of 15 municipalities … application/municipal finance... ·...

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