A Call for Fresh Thinking
on City Financing
With a nett asset balance of about R40bn, and a R4bn surplus of revenue, local government must use its own assets more innovatively to leverage funding for necessary infrastructure.
Our city has advertised the intention to take up a R1.4 billion loan from the German Government owned, non-profit, development bank KfW. The loan is repayable over 15 years at an interest rate of about 8.5%. The current lending rate in Germany is about 2%.
This loan will fund much needed upgrades to our waste water plants and the
need to address pressure on our existing infrastructure is non-negotiable.
But our funding mechanisms need some fresh thinking.
The financial sustainability of our city is one of the big challenges that our next Mayor must lead on.
We cannot become a city that only the rich will be able to afford to call home. We have already seen massive hikes, of more than 500%, in water costs over the last 18 months. This is because our current model of funding is almost exclusively focused on revenue derived from ratepayers and residents, with additional capital expenditure reliant on grant funding.
National grants are declining and financially stressed ratepayers and residents are expected to fund the operating and borrowing costs of the city through rates and tariffs All income households: low, middle and high are buckling under the financial pressures of our increasing city tariffs.
And it is not only households that are struggling for survival - we cannot afford to lose struggling businesses and the jobs they provide. My office recently met with a local dairy business that employs hundreds of Cape Town residents. The nature of the industry requires large volumes of water and this is a significant cost item for the business.
Due to the rapid tariff increases their costs rose by more than 400% within a single year, adding unbudgeted millions to their production costs, risking the financial sustainability of the business.
Sustained high costs would favour imports that could collapse the entire national dairy industry, meaning that when water prices drop, we would still have to deal with high dairy costs.
Unless we are willing to change our approach to structuring finance and using state assets more optimally, our city – its residents and the economy - will collapse under the strain of unaffordability.
Cape Town, the highest ranked Opportunity City in Africa, will be nothing more than a lost opportunity.
We are a city with a healthy balance sheet with a nett asset balance of about R40bn.
In the last financial year we achieved a R4bn surplus of revenue over expenditure. Our strong balance sheet provides us with alternatives to using traditional interest loans to address our funding requirements. We must move away from solely relying on ratepayers to fund service delivery and infrastructure investments. We learn from international cities in other parts of the world that have faced the same financial challenges we face.
In an era of low economic growth, high unemployment, a volatile and weak currency, we cannot continue with a business as usual approach. We must protect our citizens from burdensome, unaffordable costs.
If I am elected Mayor, I commit to a fresh approach to funding our city’s capital and operating needs. By way of example, I recently launched two affordable housing projects, in Woodstock/Salt River and Parow, that leverage city owned assets to provide 10 000 affordable housing units.
These housing opportunities will be developed using public-private partnerships and by releasing, vacant parking lots, for example, for these developments, will be achieved without any cost burden on our ratepayers.
We can use similar mechanisms to fund much of the City’s infrastructure requirements.
Our City government must move from a “take” to “make” approach – using our own assets for the benefit of our city and its citizens.