Municipal Finance Assessment of 15 towns Maharashtra Application/Municipal Finance... · Municipal Finance Assessment of 15 towns ... The information to form basis of funding from

Municipal Finance Assessment of 15 towns Maharashtra

CEPT University with support from CRISIL Risk & Infrastructure Solutions

November 2014

1

Structure

2

Context

City profiles

Budgeting and accounting practice

Income and expenditure analysis

Investment capacity

Context

3

Context

Aim is to develop better information on performance

The information to form basis of funding from state and local govt. and

improvement in service

CEPT will partner with ULBs and State Governments to develop

Performance Assessment System (PAS) for

– Performance Measurement

– Performance Monitoring

– Performance Improvement

CEPT has collected information for 250 ULBs in Maharashtra

CRISIL Infrastructure Advisory appointed by CEPT to assess the financial

situation of 15 Class A ULBs in Maharashtra

4

City Profiles

5

City Profiles

6

S.No City 2011 Populationin lakhs

Decadal growth rate (%)

City size (in sq.kms)

1 Panvel 1.80 174.1% 3.632 Latur 3.83 27.6% 33.003 Ambernath 2.54 24.6% 38.004 Jalna 2.85 21.2% 81.865 Parbhani 3.07 18.5% 57.616 Barshi 1.19 13.2% 36.007 Ichalkarnji 2.88 11.6% 29.648 Satara 1.20 11.1% 8.159 Chandrapur 3.21 10.9% 56.2810 Gondia 1.33 9.9% 18.0811 Achalpur 1.12 9.8% 16.0012 Bhusaval 1.88 8.9% 13.3813 Beed 1.46 5.8% 8.2914 Yavatmal 1.17 -3.3% 10.1715 Wardha 1.06 -5.0% 7.44

Budgeting and accounting practices

7

Budgeting – Urban local bodies

8

Urban local bodies to prepare to separate budgets – Function based

– Services based

As specified in the Maharashtra Municipal Councils Act – Chapter VIII for Budgets and Accounts – a separate budget should be prepared for water supply and sewerage services

– to indicate the extent of subsidy for each of the services

– the source of the subsidy for the services

Currently no separate budget is prepared– ULBs prepare single budget, with separate heads or items for the services provided

– No provision for showing the transfer of revenue/ subsidy

– Items are incorrectly classified under the budget heads

– Capital grants classified under revenue receipts

– Capital expenditure classified under revenue expenditure

Budget classification as per Accounting Manual

9

Part I - Revenue Budget– Revenue Receipts

– Revenue Expenditure

Part II – Capital Budget– Capital Receipts and Expenditure but grouped separately under following sub-parts

• Capital Receipts and Expenditure from own sources.• Capital Receipts received in the form of new loans and the Expenditure carried out from them.• Capital Receipts received in the form of development grants and the Expenditure carried out from

them.

Part III – Extra-ordinary Budget – Receipts and Payment of extra-ordinarynature grouped under following distinct parts.– Deposits and Fund Budget – Deposits and Special Funds receipts and payment made

from them.

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

Budget classification – Urban local bodies

10

Municipal Budget

A Budget (General)

Revenue Account

Income Expenditure

Capital Account

Income Expenditure

Extra-ordinary Account

Receipts Liabilities

C- Budget (Water supply and sewerage)

Revenue Account

Capital Account

Extra-ordinary Account

Budget classification – Urban local bodies

Jalna and Beed prepare only income and expenditure statementsNo segregation for the source of income and expenditure i.e revenue and capital 11

Municipal Budget

Revenue Account

Income Expenditure

Capital Account

Income Expenditure

Extraordinary Account

Receipt Liabilities

Accounting system - existing

12

ULBs follow cash basis accounting system – which is easy to maintain

Income actually received is reflected and receivables are not known.

Payments actually made are reflected and payables are not known.

System provides only surplus/deficit in cash.– Assets and liabilities are not reflected, and consequently, financial strength cannot be

estimated

Example,– Power bills are paid partly and in most cases ULBs default on payment

– Arrears are not reflected in the financial statements

– Outstanding liabilities are not reflected in the financial statements

– Improper classification of revenue and capital expenditure distorts cost recoverycalculations and assessment of operational performance

Accounting system – Accrual based

13

Revenue is shown as both revenue received and receivable.

Expenditure is shown as both amount paid and payable

Expenses are matched with the income earned in the year

Items of ordinary nature and capital nature are differentiated

Assists in effective follow-up of receivables and payables

Costs which are not charged can be carried forward– These items can be kept under constant review

Surplus or deficit as shown at the year-end– correct financial position of the ULB.

– helps in better financial management

Income and expenditure analysis

14

Approach to the study

15

Key items of data used for the study which included – the budget books of the ULB

– PAS data

– data related to capital expenditure plan

– water tariff statement

– demand collection balance statements

– loan statements

Recasting of the budget documents as and where needed. – Recasting was done to reallocate the misreported items of income and expenditure into

revenue and capital accounts.

Develop a template for municipal finance assessment.

Assessment of the financial position carried out

Determining the investment capacity of the ULB under optimized conditions

Recasting of budget items

16

Recasting of the budget items as per source of income and type of expenditure

Recurring grants shown capital grants

Capital grants shown under revenue grants– UIDSSMT and IHSDP scheme grants

– State scheme grants for development works

Capital expenditure items shown under revenue expenditure– Purchases / procurement

– Development works

– Creation of assets under new schemes

Budget items shown as general– Items have been segregated to its source / types

– Water supply/ sewerage expenditure revenue and capital expenditure items which were shown as general

Revenue Income – trend for the 15 towns

Actual figures for the year 2009

17

Revenue Income (in Rs. Lakhs)

1621 1737 1794 1901 1934 1950 2076 2176 22982589 2678 2833

32173675

7397

0

1000

2000

3000

4000

5000

6000

7000

8000

Revenue income constitute three major components– Tax income

– Non – tax income

– Revenue grants and contributions

Revenue Income - sources

18

Revenue income constitutes tax income mainly through property tax– Under The Maharashtra Municipal Council, Nagar Panchayats and Industrial Townships

Act, Maharashtra 1965 ULBs can levy a mandatory consolidated property tax consistingof• General tax,• General water tax,• Lighting tax,• General sanitary tax,• Special latrine tax,• Fire tax and• Environment tax.

– apart from this mandatory tax, it can also levy the following taxes related to water supplyand sanitation• special sanitary tax upon private latrines, premises or compounds cleansed by municipal agency.• drainage tax• special water tax for water supplied by the council in individual cases,These charges for such supply being fixed in such modes as shall be best suited to the varying

circumstances of any class of cases i.e fixed water charges per connection depending onconnection size or volumetric tariff charges in case of metering

Revenue Income

19

Revenue income constitutes tax income through own source which include– Property tax, entertainment tax, vehicle tax etc.,

– Non tax income through charges, fees, rent, fines• Development charges and regularization charges • Permission fees• Water charges and water connection charges• Sewerage charges • Municipal property - land and building rent• License and form fees • Registration fees

– Grants and Contributions• Assigned grants Census, education, library, health, minority welfare, salary grants, finance commission grant, special

schemes, etc.,• Non assigned grants octroi compensation grants, tax compensations, development grants, stamp duty grants, etc.,

Revenue Income – trend for the 15 towns


20

Revenue Income (in Rs. Lakhs) Per capita revenue income (in Rs)

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

Per c

apita

reve

nue

inco

me

in R

s.

Tota

l rev

enue

inco

me

in R

s. La

kh

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

Except for Parbhani, Chandrapur and Latur all the ULBs have per capita revenue income more than Rs. 1000

Ichalkaranji has the highest per capita revenue income with Rs 2,611, followed by Panvel with Rs 2451 and Satara with Rs. 1943

Revenue Income – source wise break up

21

Source wise revenue income break up

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

100%

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

Yavatmal constitutes high share of tax income and Achalpur has the lowest with 5% of its revenue income coming from tax income– Most of the ULBs have lesser income through tax i.e less than 25%

– shows high dependency of ULBs on grants and other sources

Revenue Income – own sources

22


0

10

20

30

40

50

60

70

80

90

100

0

500

1000

1500

2000

2500

3000

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

Revenue Income – own sources break up

23


0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

property tax Services user charges others

Own sources income for 15 towns– Property tax

– Services user charges (Water supply charges and Sewerage and sanitation income)

– Others

Revenue Income – property tax

24

property tax/ property (in Rs) per capita property tax(in Rs)

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

Prop

erty

tax

colle

ctio

ns p

er c

apita

(in

Rs.

)

Prop

erty

tax

colle

ctio

ns p

er

pero

pert

y (in

Rs.

)

Property tax / property Per capita property tax

Per capita property tax varies among the 15 towns

Variations for the per capita property tax and average property tax – non -coverage of properties under the property tax net

– collection efficiency of the property tax

– difference in the property tax rates


25

S.No City Properties 2011 Population Per capita property tax (in Rs)

1 Wardha 18,515 105,543 2902 Achalpur 22,742 112,293 513 Yavatmal 23,791 116,714 1634 Barshi 24,469 118,573 1845 Satara 25,773 120,079 4036 Gondia 24,764 132,889 1757 Beed 25,814 146,237 1418 Panvel 26,845 180,464 3809 Bhusaval 30,454 187,750 20010 Ambernath 34,972 254,003 24611 Jalna 38,151 285,349 9812 Ichalkaranji 44,992 287,570 37313 Parbhani 62,230 307,191 6514 Chandrapur 57,830 321,036 17815 Latur 55,007 382,754 93


26

S.No Population size Highest per capita property

tax (in Rs)

Town

1 One lakh to two lakh 403 Wardha2 Two lakh to three lakh 373 Ichalkarnji3 Above three lakh 178 Chandrapur

Wardha has the highest per capita property tax among the towns with less than two lakh population– Per capita of Rs 403

Ichalakarnji collects the highest per capita property tax for towns with less than three lakh population and more than two lakh population– Per capita of Rs 373

Chandrapur has the highest per capita property tax with towns with more than three lakh population– Per capita of Rs 178

Property tax

27

As per the Maharashtra Municipalities Act, Property tax can be levied as percentage of rateable rate of the building or land– Specifies different tax rates

• A class Municipalities – Maximum of 28% and minimum of 23% of the rateable value of the property tax

• B class Municipalities – Maximum of 27% and minimum of 22% of the rateable value of the property tax

• C class Municipalities – Maximum of 26% and minimum of 21% of the rateable value of the property tax

– Special latrine tax – 0.25% to 2% of the rateable value

– Drainage tax – 5% of the rateable value

– Other fixed rates for special sanitary and special water tax

Revenue expenditure

28

Revenue expenditure (in Rs. Lakhs) Per capita revenue expenditure (in Rs)

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

Most of the cities have a per capita revenue expenditure from Rs 1000 to Rs 1400

Latur has the lowest per capita revenue expenditure with Rs. 564 and Ichalkaranji highest with Rs 2209

Loan

29

S.No City No. of Loans Loan amount (in Rs. Lakhs)

Outstanding loan (in Rs. Lakhs)

1 Achalpur 6 488 12782 Ambernath 4 940 1273 Barshi 13 772 9964 Beed 12 867 7805 Bhusaval - - 3296 Chandrapur 21 84 397 Gondia - - -8 Ichalkarnji 4 2159 7139 Jalna - - -10 Latur 6 2735 227211 Panvel - - -12 Parbhani 58 691 57813 Satara - - -14 Wardha - - 3915 Yavatmal 1 260 -

Water supply income and expenditure


30

Revenue expenditure (in Rs. Lakhs)

0100200300400500600700800900

1000

Water supply expenditure Income from water supply

Ambernath, Achalpur, Beed and Bhusaval are reporting a revenue surplus

Possible reasons for revenue deficit– Lower collection efficiency of water charges

– Inappropriate tariff rates

Water supply – Demand vs O&M expenditure


31

Demand vs O&M expenditure(in Rs. Lakhs)

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

Demand not adequate to cover O&M charges indicating– Not all consumers issued with bills; and

– Tariffs may also need to revised upwards

Water supply – production cost


32

Water production (in Rs per KL)

0.000000

1.000000

2.000000

3.000000

4.000000

5.000000

6.000000

7.000000

8.000000

Achalpur Barshi Beed Bhusaval Gondia(MJP)

Ichalkarnji Jalna Latur Panvel Parbhani Satara Wardha

Production cost (Rs per KL) Power cost (Rs per KL)

Power costs reported may not reflect the actual value of electricity cost payable by the ULB on account of the single-entry accounting system

This does not allow valid inferences to be drawn

Sewerage and sanitation


33

Revenue income and revenue expenditure (in Rs Lakhs)

There is no sewerage network in any of the towns

None of the cities have 100% cost recovery for sewerage and sanitation services

Sanitation tax collection as part of property tax but not adequate

User charges need to be collected by the towns for cost recovery of these services

Sewerage and sanitation – revenue expenditure


34

Revenue expenditure (in Rs Lakhs) - per capita revenue expenditure (in Rs)

196

347 302

417

249 251 247 313

210 256

446

123

206

687

268

-

100

200

300

400

500

600

700

800

-

200

400

600

800

1,000

1,200

Revenue expenditure on sanitation services Per capita expenditure

Average per capita expenditure is around Rs 250 for the towns.

Highest per capita expenditure incurred by Wardha with Rs 687 followed by Panvel at Rs 446

Lowest per capita incurred by Parbhani with Rs 123 and Achalpur with Rs 196

Capital account


35

Capital income utilisation (%)

0.00%

50.00%

100.00%

150.00%

200.00%

250.00%

300.00%

350.00%

400.00%

Capital income utilisation - 2009

Nine towns have 100% or more capital utilisation of its capital income

Few towns, do not utilise 100% of capital income for development of projects

Capital utilisation varies every year for the towns

Capital account

Actual figures for the year 2005-2009

36

Capital income utilisation (%) – overall for five years

43%81% 85% 95% 101% 107% 110% 110% 123% 125% 128% 136%

305% 309%

420%

0%

50%

100%

150%

200%

250%

300%

350%

400%

450%

Capital income utilization

Capital income is generally on account of grant support from the State / Central government

Higher than 100% utilization reflects spill-over from un-utilised funds from previous years

Revenue surplus/ deficit – 10 year projected

37

Revenue surplus / deficit (in Rs. Lakhs)

-10,000

-5,000

0

5,000

10,000

15,000

20,000

25,000

Overall Surplus/ Deficit Overall Surplus/ Deficit after revenue improvements

Most of the towns have a revenue deficit for a projected 10 year period

No significant revenues with ULBs for investment in additional projects– Stress on ULBs for ongoing projects

– Existing debt payment is still a concern for most ULBs

Revenue enhancement for towns

38

Revenue enhancement – critical for towns for investing in performance improvement measures

Some of the measures to be taken up – 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 existing water charges

– Water charges – improving collection efficiency (to achieved 85% to 90%) – annual increment

– Introduction sewerage tax as part of the property tax

– Additional revenues through implementation of capital projects• Increase of water supply coverage

Investment capacity

39

Investment capacity

40

Possible additional revenues (in Rs Lakhs)

768 1,246 1,539 1,588 1,750 1,9532,694

3,715 3,787 4,024

7,0257,727

9,985

12,575

15,922

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

Possible overall revenue improvement possible

Possible additional income through enhancement measures– Improved collection efficiency of taxes and charges

– Revision of tariff charges and tax rates

– Introduction of tariffs for sewerage charges and SWM

– Improving coverage of tax net and services

Investment capacity

41

Towns with capacity for additional investment– Barshi

– Chandrapur

– Jalna

– Latur

– Panvel

– Parbhani

Towns with no capacity for additional investment– Achalpur

– Ambernath

– Beed

– Bhusawal

– Gondia

– Ichalkarnji

– Satara

– Wardha

– Yavatmal

Revenue surplus – 10 year projected

42

Investible surplus for service improvement (in Rs. Lakhs) - Achalpur

1,715

515 594

136

2,961

-

500

1,000

1,500

2,000

2,500

3,000

3,500

Revenue surplus / deficit-Business as usual

Increment due toimprovement in property tax

collection

Increment due to tariffrevision and improvement in

water charges collection

Levy of Sewerage Charges Net investible surplus /deficit


43

Investible surplus for service improvement (in Rs. Lakhs) - Ambernath

4,737.00

3,148.00

567.00

8,452.00

-

1,000.00

2,000.00

3,000.00

4,000.00

5,000.00

6,000.00

7,000.00

8,000.00

9,000.00

Revenue surplus / deficit- Businessas usual

Increment due to improvement inproperty tax collection

Increment due to tariff revision andimprovement in water charges

collection

Net investible surplus / deficit


44

Investible surplus for service improvement (in Rs. Lakhs) - Barshi

4,374.00

944.00 640.00

5,958.00

-

1,000.00

2,000.00

3,000.00

4,000.00

5,000.00

6,000.00

7,000.00

Revenue surplus / deficit- Businessas usual

Increment due to levy of sewagetax through property tax

Increment due to tariff revision Net investible surplus / deficit


45

Investible surplus for service improvement (in Rs. Lakhs) - Beed

(1,684.00)

992.00

3,032.00

2,340.00

(2,000.00)

(1,000.00)

-

1,000.00

2,000.00

3,000.00

4,000.00

Investible surplus Increment due to improvement inproperty tax collection


collection

Net investible surplus


46

Investible surplus for service improvement (in Rs. Lakhs) - Bhusawal

(8,167.97)

2,254.46

4,176.12

371.78 223.07

(1,142.53)

(10,000.00)

(8,000.00)

(6,000.00)

(4,000.00)

(2,000.00)

-

2,000.00

4,000.00

6,000.00

Investible surplus/(need for external

funds)

Increase in demandand improvement incoverage of property

taxation

Increment due to tariffrevision and

improvement incollection to 90% of

user charges

Levy of SewerageCharges (5% of

property tax)

Levy of Charges -SWM services (3% of

propert tax)

Net investible surplus /deficit


47

Investible surplus for service improvement (in Rs. Lakhs) - Chandrapur

(6,536.15)

3,948.18 3,948.18 4,679.33

6,039.52

(8,000.00)

(6,000.00)

(4,000.00)

(2,000.00)

-

2,000.00

4,000.00

6,000.00

8,000.00

Revenue surplus - Businessas usual

Increment due toimprovement in property tax

collection

Increment due to tariffrevision and improvement

in collection to 90%

Levy of Sewerage Charges Investible surplus afterrevenue augmentation

measures


48

Investible surplus for service improvement (in Rs. Lakhs) - Gondia

-2739

1614

339

-786

-3000

-2500

-2000

-1500

-1000

-500

0

500

1000

1500

2000

Revenue surplus - Business asusual


Levy of Sewerage Charges Investible surplus after revenueaugmentation measures


49

Investible surplus for service improvement (in Rs. Lakhs) - Ichalkarnji

2,083.00 1,687.00

2,100.00

5,870.00

-

1,000.00

2,000.00

3,000.00

4,000.00

5,000.00

6,000.00

7,000.00



Increment due to improvement inwater charges collection


Series1


50

Investible surplus for service improvement (in Rs. Lakhs) - Jalna

412.00

8,671.00

7,251.00

16,334.00

-

2,000.00

4,000.00

6,000.00

8,000.00

10,000.00

12,000.00

14,000.00

16,000.00

18,000.00


Increment due to levy of sewagetax through property tax



51

Investible surplus for service improvement (in Rs. Lakhs) - Latur

18,116.00

541.00 998.00

19,655.00

-

5,000.00

10,000.00

15,000.00

20,000.00

25,000.00




collection



52

Investible surplus for service improvement (in Rs. Lakhs) - Panvel

7,050.00

1,102.00 1,592.00

9,744.00

-

2,000.00

4,000.00

6,000.00

8,000.00

10,000.00

12,000.00


Increment due to levy of SWMcharges through property tax



53

Investible surplus for service improvement (in Rs. Lakhs) - Parbhani

(677.00)

2,159.00

5,568.00

7,050.00

(2,000.00)

(1,000.00)

-

1,000.00

2,000.00

3,000.00

4,000.00

5,000.00

6,000.00

7,000.00

8,000.00




collection



54

Investible surplus for service improvement (in Rs. Lakhs) - Satara

4,120.00

8,308.00

1,677.00

14,105.00

-

2,000.00

4,000.00

6,000.00

8,000.00

10,000.00

12,000.00

14,000.00

16,000.00


Improvement in cost recovery ofwater supply

Improvement in cost recovery ofsanitation



55

Investible surplus for service improvement (in Rs. Lakhs) - Wardha

20,782.18

2,740.86 479.23 384.22

24,386.49

-

5,000.00

10,000.00

15,000.00

20,000.00

25,000.00

30,000.00

Revenue surplus -Business as usual

Increment due toimprovement in collection

efficiency

Increment due to tariffrevision and improvement

in collection to 90%

Levy of Sewerage Charges Net investible surplus /deficit


56

Investible surplus for service improvement (in Rs. Lakhs) - Yavatmal

2331

1645

105

4081

0

500

1000

1500

2000

2500

3000

3500

4000

4500

Balance available for investment inperformance improvement actions

Increment due to increase indemand of property taxation

Increment due to Levy of SewerageCharges


Thank you

Documents

Municipal Finance Assessment of 15 towns Maharashtra Application/Municipal Finance... · Municipal Finance Assessment of 15 towns ... The information to form basis of funding from