City of Joburg’s budget and mayor in crisis

President Cyril Ramaphosa has finally declared that the next local government elections will be held on 4 November 2026.

The proclamation of an election date generally triggers a frenetic campaign season, where incumbents try to plead a case for another chance to govern by trumpeting the upside of continuity and the good that comes with trusting old hands at the till, rather than experimenting with administrative novices.

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For opposition parties and new players, the crux of the message centres on highlighting how badly the incumbents have performed and why giving them another term will be fatal for affected citizens and ratepayers.

In the South African case, the Auditor-General South Africa’s (AGSA) reports reflecting on the state of municipalities is a picture of disaster that suggests that very few incumbents are worth retaining.

Of the 257 municipal structures audited in 2023/24, just 16% managed to score clean audits, with the rest languishing across the spectrum of audit findings that are material enough to prevent the graduation towards clean audit status.

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Within the 257, the eight large metropolitan municipalities command the biggest slice of the budget and are mandated to service a larger number of citizens.

Their inability to get their houses in order has the dual impact of higher budgets at the risk of squandered or suboptimal management and more citizens at risk of suffering the effects of non-delivery.

Maintenance de-prioritised

The political impulses, architecture and response mechanisms in South Africa are unfortunately not so linear that bad audit outcomes always (or ever) translate into a change in custodianship.

Rather, the poor persuasion politics of opposition and outsider parties and the scepticism citizens feel about the political system in general, result in even the most overwhelmed and underperforming incumbents standing a fair chance of securing a new mandate.

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In a system dominated by a single party, it can always buy its way into another term by simply applying cosmetic fixes to fundamental challenges and hoping for the best.

If budget allocations need to be moved around to placate discontented workers and unions, then so it shall be.

And since maintenance is an activity that is less vocal than the demand for wage adjustments or third-party payments, it occasionally falls to the bottom of the prioritisation hierarchy in crunch times.

The irony of the de-prioritisation is that it is adequately managed public infrastructure that maximises the prospects of revenue generation.

Broken water pipes and dysfunctional infrastructure do not translate to greater economic or rate-generating activities.

Yet in many municipalities, the tendency to practice placating the most vocalised rather than the most strategically important activities always looms large. Rules around what grants and allocations must be used for try to address this but largely fall short of the grand mission.

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In the case of the City of Johannesburg (CoJ), its recent tete-a-tete with National Treasury sums up the problem statement.

When confronted with resource limitations and an acute need to prioritise based on revenues realistically available, the council essentially passed an unfunded budget.

This budget would bind the city into a perpetual black financial hole that can either be funded by better revenues or cash-backed accumulated surpluses from prior years that are not committed for other purposes.

Bond crisis looms

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In the extreme alternative, the city would borrow in the bond market or wherever an appetite for lending to municipalities still exists.

As it turns out CoJ, which has a backlog of unpaid creditor bills and a revenue-collection lag, has committed itself to a R10 billion salary adjustment to settle a wage dispute.

Were such an agreement to be honoured, the city would have to achieve extraordinarily fast progress in addressing the root cause of its revenue shortfalls and under-recoveries.

At face value, there is little evidence that a recovery masterplan of any merit is in the horizon that might lend credence to this proposition. In the alternative, CoJ currently languishes at the precipice of a bond crisis, as it has failed to table its annual financial statements for the previous year.

The backlog is apparently due to disagreements with the AGSA and is currently subject to the resolution processes in place. The fact that it has taken so long suggests that a meeting of the minds remains elusive.

What makes the question of consensus with the AGSA particularly relevant is that some bond covenants may indeed require clean audits as the baseline for maintaining financial support (through not triggering immediate repayment clauses).

If an entity feels that the publication of an audit report may indeed breach this, it can seek to find resolutions rather than proceed to issue a report that triggers consequences.

Read: Auditor-General warns reform pace too slow to restore trust

The problem is that if no consensus is reached using the escalation mechanisms embedded in the current AGSA model, litigation may be the recourse.

Unfortunately – as we learned from the Road Accident Fund – such litigation immediately forces disclosure of the points of divergence and amounts to the publication of the audit report anyway.

If that happens and bondholders identify trigger clauses, the process of bond recalls will materialise much faster than the ability of the courts to ultimately resolve the dispute.

When annual financial statements and audit reports are delayed, the Johannesburg Stock Exchange – where such bonds are listed – pre-emptively suspends trading in the bonds on the basis that there is an information black hole regarding the financial capacity of the bond issuer.

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CoJ finds itself in this conundrum as its bonds (alongside other metros) were suspended earlier this year.

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This means that the city is definitely not in a position to raise new funding and actually operates at an elevated risk of a cash demand that it would not be able to honour.

The trifecta of these issues – possible cash demands from bondholders, implementation of a wage agreement, and persistent revenue shortfalls – means that something or someone has to explain how the city actually plans to function for the foreseeable future.

In yet another exercise in placation, the current mayor – Dada Morero – recently lost an internal political election that has forced him to create a space for the winner Loyiso Masuku as a deputy mayor for a city that wasn’t aware it needed a one.

National Treasury’s letter has asked Morero to explain how the city plans on resolving these intersectional issues. For some political insiders, the fact that an ANC-led ministry has taken such a step is inconceivable and should have been resolved ‘politically’.

That as it turns out, sums up the genesis of the crisis – the idea that political trade-offs can solve all problems. It is a proposition that has only persisted for so long because political solutions have always trumped hard choices.

When the bank accounts run empty, a different type of reckoning ensues – the type that Morero must now face, his internal political locus notwithstanding.

In the absence of an answer, the opposition parties and all political pretenders have been handed a campaigning gem far more valuable than Helen Zille’s blue mermaid campaign tactics.

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