City of Joburg ‘looking at more debt write-offs’ – mayor

City of Johannesburg (CoJ) Mayor Dr Mpho Phalatse says the metro is looking to scrap another significant chunk of debt owed to it in the coming weeks.

Phalatse was speaking as part of a panel focusing on the urban regeneration and sustainability of African cities at the ninth annual Southern Africa Europe CEO Dialogue in Melrose Arch last week, where the availability of funding for cities came into sharp focus.

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While Phalatse did not reveal the exact value of the planned debt write-off, her comments come at a time when the city’s finances and service delivery capacity are coming under further strain.

The mayor says the city has already had to scrap “billions of rands in debt” from its book over the last two years as a result of the culture of non-payment of rates and taxes, among other reasons.

Although the culture of non-payment is a huge contributing factor to the city’s inability to meet its monthly revenue collection targets of about R4 billion more consistently, according to the mayor, there are also more politically-driven factors behind its revenue shortfalls.

“[It’s] not always due to low capacity [to] pay [rates and taxes], but just behavioural issues that need to be managed, including the culture of entitlement [and] political promises that are unrealistic that people are holding on to. Those are all the things that we are having to deal with to improve our revenue collection,” says Phalatse.

She acknowledges that the ultimate fix will be a faster growing economy that enables job creation and ultimately better positions Joburg’s residents to comply.

Criteria for debt scrapping

CoJ mayoral spokesperson Mabine Seabe tells Moneyweb the city cannot at this stage disclose the exact amount of money it has had to – and is looking to – scrap off its books, as the report containing such detail needs to be tabled before council before becoming public knowledge.

“We cannot go into the details of the write off, as the report still needs to be served before Council at the Ordinary Meeting of 23 and 24 November,” he notes in an emailed response to Moneyweb’s questions.

However, Seabe did share a list of criteria that gives the executive mayor guidelines on which debt can and cannot be written off.

According to the city, its credit control and debt collection policy allows for debt to be scrapped if it is deemed irrecoverable.

To qualify as such, one or more of the following must be true:

• No payment of outstanding debt is secured after exhausting all legal recourse;
• Long outstanding debt amount equal to or less than R500;
• The success of future legal action to recoup the outstanding debt is [believed to be] compromised;
• The costs of legal action is [likely to be] higher than the value of the outstanding debt;
• A company has been deregistered or is dormant and has no assets of value to attach;
• The debtor is untraceable or cannot be identified;
• The debtor has emigrated, leaving no assets of value to cost-effectively recover the debt;
• Insufficient funds left from an insolvent estate to recover the debt;
• The deceased estate has no liquid assets to cover the outstanding amount after the final distribution of the estate, or there are no assets of value to attach;
• On the strength of credible evidence, it appears that the debt is not due to the city;
• The debt has prescribed and is not legally due;
• It is impossible to prove the existence of the debt due to lack of evidence;
• The outstanding debt is as a result of an irreconcilable account;
• The court has ruled that the claim is not recoverable and/or there is a court order to write off the debt;
• The claim is subject to an out-of-court settlement agreement and/or the debt is subject to the settlement in terms of Section 109 of the Local Government Municipal Systems Act;
• A Nulla Bona return has been rendered on movables and the debtor has no immovable property;
• It’s uneconomical to collect the debt;
• There are metered services readings that are irreconcilable and such estimates exceed actual consumption; and
• The service charges [were] raised post request for termination of such services.

The city adds that it cannot pass a debt write-off for accounts held by state employees, councillors or staff; municipalities; accounts belonging to organs of state; or accounts with a credit balance.

Cash-strapped city

The CoJ has been battling financial troubles for some time but seem to have intensified significantly over the last year, resulting in the launch of its debt-collection campaign ‘Operation Buya Mthetho’ (bring back the law).

The campaign – which is focused on aggressively collecting monies owed to the city by government, residents and businesses – garnered much social media attention earlier this year when the city began “naming and shaming” clients alleged to be in arrears, such as popular regional mall Sandton City.

Read: City of Joburg gives property owners R2.2bn in rebates

According to previous communications by the city, the culture of non-payment has subjected other compliant residents and businesses to poor service delivery and dilapidating infrastructure.

The city has made other attempts to pump funds into its accounts, but these efforts have been largely unwelcomed by affected parties.

Earlier this year, the property industry – via the South African Property Owners Association (Sapoa) – threatened court action against the city for its plans to implement a Development Contributions Policy which sought to charge landowners a once-off fee as a condition for approving a land development application.

Read: Courts only way to resolve billing issues with CoJ, says property association

The city claimed the fee would go towards capital costs incurred by the municipality.

In another controversial event the CoJ came under fire when its alleged plan to increase rates charged to private and public schools by 10 and six times respectively, backdated to 1 July 2022, came to light.

The astronomical rates hikes also applied to universities and colleges in the metro. The city later backtracked on this, proposing 5% rates hikes instead for properties categorised as “educational”. This however is still being rejected by schools in the country and legal action to stop it is underway.

Loan proposal 

To help support the city’s revenue collection shortfall, Phalatse on Friday presented an application for a R2 billion short-term loan from the Development Bank of Southern Africa for council’s approval.

According to the city, the loan is “a short-term loan facility intended to remedy short-term cashflow mismatches, i.e. to ensure that there is sufficient liquidity to meet the City’s operational requirements”.

The loan – which would need to be paid back at the end of June 2023 – was unanimously rejected by council, with some political parties in council questioning Phalatse’s government’s competence when it comes to handling the city’s books.