1.                  Municipal Finances

                        NWCMC follows a cash based system of accounting, wherein the revenue realizations to the fund and expenditures are recorded on the basis of actual realizations and expenditures.  The assessment of the municipal fund is based on the annual accounts for the financial years 2000-01 to 2004-05.  A summary of the actual income and expenditures of the municipal fund is presented in “Annexure III – Summary of Municipal Finances”, which presents the actual figures, sectoral contribution and growth rates of key items of income and expenditure.

1.1.            Summary of the Municipal Fund

                        The municipal fund of NWCMC as per the annual accounts demonstrates a substantial operating surplus during the period of review.  The average operating ratio during the review period is 0.74.  As evident from the following table, substantial sums from the revenue account (operating) surplus have been utilized for capital works, which is demonstrated by the negative status of the capital account.

                        The total income of the corporation has increased at a modest CAGR of about 3.6 per cent, as against a 6.4 per cent CAGR in total expenditure. 

                        Over 93 per cent of the operating income (revenue account income) is from own sources, including octroi, taxes and other charges and fees levied by the Corporation, with minimal reliance on revenue grants.  The share of revenue grants in the total revenue income of the Corporation is likely to reduce further, since substantial revenue grants from the State Government, like DA grant have been discontinued since 2003-04 – 5 years after upgradation of the local body from a Municipal Council to a Municipal Corporation.  This would call for substantial efforts from NWCMC to enhance the revenue base and improve collection efficiencies on taxes and user charges. 

                        The collection efficiency of property tax is about 34 per cent and that of user charges for water supply and sewerage are as low as 54 per cent and 42 per cent respectively.  There is a felt need and scope for enhancing the property tax base by correcting the low ratable values to reflect market rates; enhancing the water charges (special water tax) base by auditing and covering the several unauthorized / illegal connections; and increasing sewerage charges and number of assessments through proper enforcement and ensuring efficient functioning of the sewerage system.

View PDF Table 21: Summary of Municipal Fund

                        With regards revenue expenditure, about 60 per cent of the expenditure is on establishment related items, including salaries of regular and temporary employees and pensions & terminal benefits of retired/retiring employees.  The remaining 40 per cent is constituted by operation and maintenance & contingency expenses (38 per cent) and debt servicing (2 per cent).

                        While the operating status (on a cash-basis) reflect a sound performance of the municipal fund, and the municipal fund represents a comfortable closing balance of Rs. 14.78 crore, there are substantial sums of outstanding liabilities – in the form of electricity dues, salary arrears, overdue loans and transfers to State Government, of Education Cess and Employment Guarantee Cess, that the Corporation needs to service.

                        The following table presents a summary of the assets and liability statement of NWCMC as on 31^st March 2006.

Table 22: Summary of Assets & Liabilities as of 31^st March 2005

                        It may be noted that the closing balance of Rs. 14.77 crore is largely constituted by unspent government loans and grants amounting to Rs. 14.08 crore that are meant for specific capital works and cannot be applied for other uses.  The outstanding electricity dues of Rs. 6.95 crore are disputed and the Corporation is negotiating with the MSEB in squaring it off against Octroi and receivables from MSEB and paying the balance amount.  The other outstanding amounts need to be addressed at the earliest from revenue accruals.

                        NWCMC has recently paid off the outstanding loan amount of Rs. 50.81 crore (all of which is through the State Government from public financial institutions like HUDCO and LIC) as of December 2005 through a short term borrowing from a private financial institution in order to avail of a discount of 70 per cent on the penal interest under the Nirbhay Yojana of the Government of Maharashtra.  Under this scheme, NWCMC got a rebate to the tune of Rs. 14.66 crore (70 per cent of the penal interest of Rs. 20.95 crore).

                        The Corporation is keen on cleaning up its balance sheet and making it a more robust one with improved revenue realization and financial management.  This is demonstrated by its action to avail of the benefits under the Nirbhay Yojana (which only about 5 ULBs in the state have availed of), and other measures for revenue enhancement like, increasing the property tax base in terms of number of assessments and revising the ratable values (by about 60 per cent) to reflect market rates, setting up of zonal tax collection centers, increasing Octroi rates (by an average of about 30 per cent), transit fees (by 42 per cent), water charges by 10 per cent) and sewerage charges (by 100 per cent).  All these measures are likely to see a 40 per cent jump in the total revenue income in the FY 2006-07 and a sustainable 8 per cent CAGR thereafter for the next 25 years.  The Municipal Corporation also has other plans for additional revenue realization, including promoting a scheme for regularization of plots unauthorizedly sub-divided and sold under the “Gunthevaari” scheme by private developers and land owners.

                        In addition, the proposed investments under the Guru-ta-Gadddi event and the JNNURM scheme are likely enhance the revenue base and realizations of the Corporation substantially.

1.2.            Review of Municipal Finances

6.2.1    Revenue Account

                        The revenue account of the municipal corporation, constituted by recurring / operating income and expenditures, has maintained a substantial surplus to the tune of Rs. 8.16 crore on an average during the last five years.  A substantial portion of this revenue surplus has been utilized for capital works in the city.

                        A. Revenue Income

                        The total revenue income of NWCMC has grown from Rs. 28 crore in 2000-01 to about Rs. 34 crore in 2004-05 – a CAGR of just about 5 per cent.  This low growth is primarily due to a stagnation in realizations at about Rs. 19 crore from Octroi during the last four years.

a.       Income from Own Sources: The composition of revenue income includes revenues primarily from own sources, which account for about 93 per cent of the total revenue income, with the rest coming in the form of revenue grants.  The key revenue income sources of the Corporation are:

i.                  Octroi & Transit Fee (62 per cent): NWCMC levies Octroi on goods an commodities brought into the city for commercial transactions as per a schedule of rates fixed by it for different items.  In addition a transit fee is levied by it on commercial goods vehicles passing through the city at the rate of Rs. 35 per vehicle.  NWCMC has recently revised its Octroi rates substantially (by a weighted average of about 30 per cent) and the transit fee from Rs. 35 per vehicle to Rs. 50 per vehicle.  These rates will be effective from FY 2006-07 onward.

ii.                 Consolidated Property Tax (7.7 per cent): NWCMC levies a property tax of 29 per cent of the annual ratable value (ARV) of properties.  There are a total of about 62,619 property tax assessments in NWCMC limits which together account for a total ARV of Rs. 11.18 crore.  The average ARV per assessment is 1,785, which is very low and indicates substantial under-assessment.  The ARV was last revised in FY 1996-98.  NWCMC is carrying out a fresh assessment of all properties in the city and estimates that the number of assessments would increase to about 65,750 for FY 2005-06.  The ARV is proposed to be revised to increase by about 60 per cent in the current financial year, which would result in a total ARV of 18.78 crore (an increase of about 68 per cent).

The collection efficiency of property tax is on the lower side at about 34 per cent (56 per cent on the current demand and 24 per cent on arrear demand).

iii.               Other Property-based taxes (2.5 per cent): These include

·         Special Education Tax (2% of ARV for residential assessments and 4 %  of ARV for non-residential assessments)

·         Road Tax (2% of ARV)

·         Water Benefit Tax (3% of ARV)

·         Sewerage Benefit Tax (3% of ARV)

·         Fire Services Tax (3% of ARV)

·         Tree Cess (1% of ARV)

iv.               Other taxes (0.5 per cent), including advertisement tax and miscellaneous taxes.  The realization from advertisement tax is in the range of Rs. 7 to 8 lakh per annum, which the corporation proposes to enhance upto Rs. 25 lakh from 2007-08 onward through revision of tax rates.

v.                Income from water supply (8.56 per cent): NWCMC realizes water charge by way of a Special Water Tax at the rate of Rs. 1,500 per annum per domestic connection (with built-up area of upto 2,000 sq.ft), Rs. 3,000 per annum per domestic connection (with built-up area of over 2,000 sq.ft), and Rs. 6,600 per annum per commercial connection.  These rates were revised with effect from FY 2005-06 onward, prior to which they were Rs. 1,320, Rs. 2,640 and Rs. 5,370 respectively.  The total number of connections for FY 2004-05 were 18,524 (18,205 domestic connections and 319 commercial connections).  The number of assessments in the prior two years was 17,513, including 17,257 domestic and 256 commercial connections.  The number of water connections in NWCMC’s purview is expected to increase by an additional 11,000 connections, with the CIDCO colony in South Nanded being transferred to NWCMC for maintenance.

The collection performance on the special water tax is 54 per cent (68 per cent on the current demand and 47 per cent on the arrear demand).

In addition to special water tax, NWCMC realizes income from sale of water through tankers, as well.  It also levies and collects a water supply connection fee at the rate of Rs. 2,000 per connection.  There are about 100 connections serviced through bore-wells installed at different fringe areas in the city.  NWCMC levies a flat Rs. 300 per annum from such assessments.

vi.               Income from sewerage services (0.83 per cent): NWCMC levies a special sanitation tax as sewerage charge on the properties that have a sewerage connection.  The rate of special sanitation tax is a flat Rs. 200 per annum per toilet seat for domestic connections and Rs. 200 per annum per seat for non-domestic connections.  These rates have been doubled w.e.f FY 2005-06.  The Special Sanitation tax levied by NWCMC is very low and the administration and collection of this charge is also very poor.  This is attributed to the non-functional sewerage system.  NWCMC intends to bring in substantial improvements in the existing sewerage system and to cover a large uncovered area through fresh capital investments, following which it proposes to levy higher user charges aimed at recovering full O&M costs.  There are currently about 23,120 toilet seats (21,490 domestic and 1,630 non-domestic) connected to the sewerage system.  The number of assessments has remained around this range for the last three years (22,977 assessments in 2002-03 and 22,949 assessments in 2003-04).

The collection performance of special sanitation tax is about 42 per cent (61 per cent on the current demand and 26 per cent on the arrear demand)

vii.             Income from other own sources (11.10 per cent):  The other own income sources of the corporation include:

·         Rent on municipal lands, markets, commercial buildings and marriage hall

·         Income from gardens, medical institutions and other health related income

·         Road restoration charges

·         Development charges and building permission fees

·         Other fees and charges including D&O trade license fee, birth & death registration fee, etc.

·         Interest on investments (it may be noted that substantial amounts of upto Rs. 12 crore of government grants are un-utilized, all of which are parked in different bank accounts, which constitute for most of the interest income)

b.       Revenue Grants: About 6 to 7 per cent of the revenue income comes in the form of grants from the State Government.  The major items of revenue grant during the last five years are:

i.                  Per Capita Road Grant (about Rs. 75 lakh per annum)

ii.                 Dearness Allowance Grant (discontinued since 2003-04, as it is not applicable to Municipal Corporations - NWCMC was given a DA grant for five years from the date of it’s being upgraded from a municipal council to a municipal corporation in 1997-98)

iii.               Teachers’ Salary Grant (50% of the actual salary payable to teachers in municipal schools)

iv.               Library Grant at a flat rate of Rs. 4.75 lakh per annum

v.                Other revenue grants as may be decided by the state government for specific purposes, including the likes of census grant, professional tax grant, vehicle grant, etc.

The revenue grants of NWCMC have fallen from Rs. 5.23 crore in 2000-01 to Rs. 68 lakh in 2004-05.

                        B. Revenue Expenditure

                        The revenue expenditure of NWCMC has grown from Rs. 20.5 crore in 2000-01 to Rs. 26.5 crore in 2004-05.  The revenue expenditure is constituted primarily by three broad categories of expenditure, viz.

a.       Establishment Expenditure (59.3 per cent)

i.                  Salaries of regular employees, including honorarium of elected representatives (53.6 per cent)

ii.                 Salaries of temporary staff (2.43 per cent)

iii.               Terminal benefits and pensions (3.3 per cent)

The Municipal Corporation employs about 2,200 regular staff.  It also pays terminal benefits and pensions from its revenue account, out of the municipal fund, rather than building up a pension fund.  The Corporation proposes to establish a contributory pension/provident fund for all new employees that join from FY 2006-07 onward.

While the establishment expenditure at 59 percent may appear to be on the higher side, it may be noted that this is primarily due to the manpower intensive service-oriented nature of select municipal functions such as conservancy, water supply, sewerage, education, etc.  The Maharashtra Municipal Accounts Code, 1971 has prescribed a formula to ascertain the actual extent of expenditure on administration and management and has recommended a ceiling of 42 percent of the total municipal income for establishment.

As per Form XXV of the Maharashtra Municipal Accounts Code, 1971, the computation of percentage of establishment expenditure to total municipal income is as follows:

According to the above formula, the average percentage of establishment expenditure to the municipal income during the last five years is about 23 per cent – well within the recommended 42 percent ceiling.  Table 23 presents the computation of the percentage of establishment expenditure to the municipal income as per the formula prescribed by the Maharashtra Municipal Accounts code, 1971.

 View Table 23: Computation of % Establishment Expenditure to Municipal Income

b.       Operation & Maintenance Expenditure and Contingencies (38.35 per cent), comprising expenditure on operation and maintenance of services and other expenses, like stationery and printing expenses, fuel and routine maintenance expenses for vehicles and equipment, power charges, etc.

c.       Debt Servicing Expenditure (2.33 per cent): NWCMC has an outstanding debt of about Rs. 50 crore as on year ending 2005.  This includes about Rs. 48.6 crore of old loans from HUDCO and LIC for its water supply and sewerage works executed by MJP and about Rs. 2.3 crore of loans under IDSMT Scheme.  NWCMC has been servicing only the latter loan to the tune of Rs. 40 lakh per annum from 2000-01 to 2003-04.  NWCMC has recently (February 2006) borrowed a sum of Rs. 50 crore to settle the outstanding old loans including overdue and penal interest so as to avail a rebate to the tune of Rs. 14.66 crore (70 per cent of the penal interest of Rs. 20.95 crore) under the Nirbhay Yojana (Scheme) floated by the Government of Maharashtra.

                        Department-wise, water supply (25 per cent) and conservancy (20 per cent) account for bulk of the revenue expenditure, followed by medical and health (10 per cent), general administration and revenue collection (9 per cent each), education, public works and street lighting (6 per cent each), sanitation (2 per cent) and others/miscellaneous 5 per cent).  Table 24 presents the sector-wise establishment and O&M expenditure of NWCMC for the last five years.

                        C. Status of Revenue Account

                        The revenue account has maintained a healthy surplus to the tune of an average Rs. 8.15 crore during the last five years.  The operating ratio during this period has been in the range of 0.72 to 0.78, with an average of 0.74.  Almost all of the revenue surplus has been applied to capital works.

 View Table 24: Department-wise Revenue Expenditure of NWCMC

6.2.2        Capital Account

                        A. Capital Income

                        The capital income of NWCMC during the review period has been solely in the form of grants for specific schemes, including the Central Finance Commission Grant, Special State Government Grant for infrastructure development, small & medium city development grant, MLA / MP development grants, backward area development grant, slum development grant, etc.  A detailed list of capital grant receipts during the last five years is presented in “Annexure III – Summary of Municipal Finances”.  The total capital income during the last five years was Rs. 21.7 crore, at an average of Rs. 4.34 crore per annum.

                        B. Capital Expenditure

                        The total capital expenditure during the last five years was to the tune of Rs. 55 crore at an average of Rs. 11 crore per annum.  Bulk of this expenditure has been on small assorted works in the city, with the bulk of the expenditure having been on public works (including city beautification) at 44 per cent, roads (24 per cent) and water supply & sanitation (6 per cent each).  About 11 per cent of the capital expenditure was against specific scheme-based grants.

                        C. Status of Capital Account

                        The capital account has maintained an accumulated negative status to the tune of Rs. 33 crore during the last five years, at an average of Rs. 6.73 crore per annum, which is essentially funded from revenue surpluses.

6.2.3        Overall Status of the Municipal Fund

                        The overall status of the municipal fund has been between Rs.90 lakh and Rs. 5.15 crore during the last five years, except for 2004-05, when it was a negative Rs. 3.25 crore. This is primarily due to a substantial capital investment in 2004-05, which was essentially funded out of cash reserves.  The closing balance of the municipal fund at the close of FY 2004-05 was Rs. 14.78 crore, most of which was unspent capital grants (Rs. 11.78 crore) and loans (Rs. 2.31 crore).