LONG TERM FINANCIAL PLANNING IN LOCAL GOVERNMENTSOUTH AFRICA

Beryl GalantFebruary 2016Digital QuotientPGDIPBMA13705903

PRESENTATION CONTENT1. Current State of Affairs in Local Government2. Background: Purpose and Key Outcomes3. Long Term Financial Plan Concept 4. Key Elements of a Long Term Financial Plan5. Gap Analysis6. Failure to plan

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Current State Of Affairs In Municipalities Regarding Long Term Financial Planning

•Most municipalities only plan and budget for 3-5 years according to the prescribed Budget period of three years and the Integrated Development Plan (Strategic Document of municipalities) which is for five years.

•92% of municipalities are in financial trouble according to the Auditor-General.

•Numerous service delivery strikes.

•Exorbitant debt that municipalities cannot collect.

•Breakdown of service due to aging infrastructure and inadequate repairs and maintenance thereof.

•Electricity surpluses decreasing due to ESKOM price hikes and introduction of green energy.

•NO LONG TERM PLANNNING (LONG TERM FINANCIAL PLANS).

PURPOSE AND KEY OUTCOMES OF THE LTFP•Legislative requirement to have a policy terms of Municipal Budget

Reporting Regulations 7•The nature of local government business requires longer term planning

E.g infrastructure with life spans in excess of 10 years.•identify financial imbalances or opportunities and to develop strategies

to counteract the imbalances.•Meet the current and future service delivery needs of the community

whilst remaining financial sustainable over the long term•Long Term Financial Plan is a all-inclusive plan that sets out the financial forecasting over a long term period based on the current realities/status quo using assumptions, future spending and other salient variables.

•Therefore essentially positioning the municipality on a financial sustainable trajectory for the future. 4

LONG TERM FINANCIAL PLAN CONCEPT

LT F

INAN

CIAL

PL

AN

Buy-in from all Internal

Stakeholders

Workshop with Councillors

Adopt by Council

Socio-Eco Realities

SDF & LED

StrategyInfrastructur

e Master Plans

Financial Overview

Risk Management

Strategic Alignment

10 –

15

YEAR

- IM

PLEM

ENTA

TIO

N P

LAN

Consider with compilation of Budget and IDP

KEY ELEMENTS OF THE DOCUMENT

GAP ANALYSIS OF EXISTING LONG TERM FINANCIAL PLANS • Development of a strategy to achieve outcomes of the LTFP outlining the following:

• Timelines/activity schedule.• Responsible directorate• Project plans for infrastructure planning• Budgeting implication/ Funding mix• The plan has the “what” that needs to be done the strategy will focus on the “how” by who by when.• Ensure performance management• Owner of the governance process (Accounting Officer owns the strategy; project manager in charge of the planning document, organise reviews, effective follow-ups etc.)• Institutionalised (dynamics between running the municipality vs improving the municipality)

• A number of recommendation however the municipality should focus their limited time and resources on the items that would bring them the most value (80/20). A number of feasibility study must be embarked on.

• Coherent alignment: Align the whole organisation (Council, Departments and other stakeholders):• New Council: Current LTFP serve as a base• Aligned to the IDP and beyond.• Policy alignment• Process of reviewing the LTFP and strategy (build in flexibility but speaks to overall vision of the LTFP)

GAP ANALYSIS OF EXISTING LONG TERM FINANCIAL PLANS Financial modelling :

↖ Ensure built-in flexibility; using assumptions about economic conditions, future spending scenarios, and other salient variables;

↖ Municipality can test strategic decision (scenario planning);↖ Revenue forecasting ( Growth in revenue base, grants and subsidies,

development charges etc.);↖ Costing (understand your cost/management accounting; efficiency

gains, service options);↖ Infrastructure planning link to masterplans;↖ Funding mix of capital (borrowing, CRR and transfers and grants

etc.);↖ Tariff modelling (what consumers can expect to pay for assessment

rates and services, given income levels/ affordability, service levels and expected consumption, basket of FBS etc.);

↖ Cash management; stay within the norms and limits in the LTFP↖ Integrated Asset Management: asset register an be a strategic

finance tool (investment properties, land availably, buildings etc.) schedule versus reactive maintenance, optimising expenditure on new, replacement or renewal of assets.

↖ Development charges.

GAP ANALYSIS OF EXISTING LONG TERM FINANCIAL PLANS • Long term capital investment estimates linked to

future growth, development and optimal capital funding mix.

• SDF linkages:• No or little spatial information that sets out the development path of the

municipality – how and where the municipality will grow in the future?• Linkage between the SDF and infrastructure planning and the revenue

base;• Spatial overlay with reference to land availability (service or not),

investment properties (as per the Asset register) , housing needs and service delivery needs  link to asset register. Important to avoid white elephants or under estimating capacity costing more on the long term.

• Leverage of the asset register as a strategic tool and spatial guidance will assist in this regard.

• Land use planning and zoning.

EPIC FAILURE TO PLAN https://youtu.be/rn3iw0eY_BE

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021 – 483 9199 021 – 483 4411 Berylg83@gail.com