Municipal finance and resilience lessons for urban infrastructure management: a case study from the Cape Town drought

ABSTRACT

At a time when flows of both water and finances were severely curtailed, this article explores the public and private adaptation actions which played out during Cape Town’s drought which produced a ‘shock within a shock’ on the municipality’s budget (2016–2018), this article provides a detailed and embedded account of the severity, urgency and complexity of the challenges that decision makers are faced with during such unanticipated events. Shifts in approaches are identified and traced through budget allocations to display uncharted governance arrangements which, although stabilising, present novel finance and governance challenges amidst altered resource and operating conditions. Reflecting on observed shifts and shock to the municipal budget, the article highlights the challenge of an uncoordinated response between public and private actors that aim to secure high-reliability service delivery. Reflecting on the findings, recommendations outline resilience qualities necessary to municipal budgets through sketching contextually reflective questions for municipal financing models.

KEYWORDS:

• Municipal finance
• resilience financing
• Cape Town drought
• resilience qualities

1 Introduction

Worldwide, both public and private utility scale service providers, are struggling to keep up with the task of delivering public good services in rapidly growing cities (Anguelovski et al. 2014). This is particularly true in emerging cities that are currently seeing unprecedented population growth rates without realising corresponding increases in capital and operational funding for requisite infrastructure development and extension (Rusca and Schwartz 2016; UN-Habitat 2017).

The challenges related to providing urban services, in particular, utility services such as electricity, water and sanitation services, are compounded by climate risks, changes and variability which threaten the environmental resource base of utilities as well as pose significant physical risks to physical infrastructure networks (World Bank 2014). Climate risks have the potential to cause significant social harm, in particular in urban areas where people and businesses depend on public service delivery (Godschalk 2003; Whitmee et al. 2015; Diao et al. 2016; Kirbyshire et al. 2017). A range of emerging public and private responses highlight the perceived severity of such risks (Baleta and Winter 2017). New actions have emerged together with calls for revision of conventional governance approaches which might accommodate the anticipated disruptions of the coming century (Gupta et al. 2013; Rockström et al. 2014; Biermann 2016). In complement with potentially scalable advances in private and public/private approaches to investments in climate resilience (Trabacchi and Mazza 2015), at the new core of such practice challenges lies planning and operating a financially robust municipality which plans, allocates and manages funding at scales commensurate with anticipated shocks and stressors of the twenty-first century and in a manner that safeguards against the potential harms of such events.

One way scholars, practitioners, governors and private entities have selected as an approach to this mandate has been through the notion of ‘resilience’ (Coaffee and Wood 2006; Sharifi and Yamagata 2016; Luker and Harris 2018). The gaining prominence of resilience in urban policy specifically has meant that decision makers are increasingly required to exhibit foresight and preparedness in how the urban system is planned and managed (Tanner et al. 2009; Ahern 2011; Welle and Birkmann 2016). Discussions of resilience in the context of urban governance, often involve examination of resource flows in the city – seeking out ways to ensure the resources that the city relies on and the infrastructure necessary to deliver it to households and businesses are safeguarded from shocks (Ahern 2011; Ziervogel et al. 2017). Literature on infrastructural and community resilience have drawn much scholarly attention focussed on cities (Sharifi and Yamagata 2016; World Bank 2017). Resilience is an approach adopted by the City of Cape Town (hereafter ‘City’), and many other city governments around the world, to ensure that the natural resources that the city relies on and the infrastructure that distribute these resources are safeguarded from shocks (Ziervogel et al. 2017).

In the framing of urban resilience, however, little attention has been given to the importance of finance. Notable exceptions exist (for some examples, Brugmann 2012; World Bank 2014; CCFLA 2015; Clos 2015; Rusca and Schwartz 2016; MacMaster and Fourie 2017). However, the majority of this work focusses on how to finance new infrastructure. There is significant need for deeper engagement with the interface between the everyday fiscal operations of cities and the flows of resources through them. The ability of the state to source, allocate and manage funds is critical to its continued functioning and therefore resilience. Scholars have suggested a financially robust city is one that anticipates the shocks and stresses of the twenty-first century and puts in place a financial model that is able to withstand these changes (Clarvis et al. 2015). The lock-in of resources within an established infrastructure system means that transformation of that system to one which is more resilient becomes more difficult (Walker and Salt 2012). It is for this reason that utility services in particular are difficult to plan, allocate and manage funds in a way that ensures reliable and sufficient utility services under unforeseen arrangements.

In this paper, we bring together the urban resilience debates, on the one hand, and the sustainable city finance debates, on the other. Our lens is the Cape Town 2015–2018 drought. In this case, the South African National Government is responsible for the provision of bulk water infrastructure, whereas the City’s Water and Sanitation Department has the constitutional and the operational responsibility to provide water and sanitation services and acts as sole water utility for Cape Town. The paper explores how the City frames resilience and how this framing shaped the fiscal response to the drought. This relates both to city budgeting processes and the practices of demand responses of households. According to the City’s self-assessed Preliminary Resilience Assessment (CoCT 2018a), conducted throughout 2018, the drought ‘has shone a spotlight on the sensitivity of the exiting revenue model for the municipality during shock events’. The assessment identifies a tension between the resilience-building activities taking place within households and businesses in response to a resource-constrained environment, and the consequent impact on the municipal budget and the associated funds required for the resilience-building activities of the municipal government (CoCT 2018a).

The drought disrupted the status quo on both the expenditure and revenue side of the municipal budget. One the revenue side, a paradox emerged where sustainable household level practices compromised sub-national steams of money. Core to this is the tariffing model of the City which is based on a progressive stepped tariff linked to service usage. On the expenditure side, the drought has drawn attention to the question of decentralization and the distribution mandate for water services across various levels of government.

These actions, including innovative water supply measures in sometimes decentralised and off-grid arrangements, have underscored choices by private entities to moderate their dependence on the public system and its infrastructure. At times, this has amounted to selective, partial or even wholesale detachment from the public ‘water grid’, in pursuit of water security (CoCT 2018k; Robins 2019; Simpson 2019). These decentralisation moves are demonstrated in this case study to have particular effect when linked to municipal finances as they are shown to compound the stresses associated service delivery disruptions. The link between off-grid moves in electricity and water are demonstrated in this case study to further present stress on municipal finance wherein the steady decrease in electricity revenue prior to and during the drought, provided the backdrop for this more extreme, yet coupled, revenue uncertainty brought about by the water crisis.

The story of how the municipal budget system was affected by and reacted to the 2015–2018 Cape Town drought provides an opportunity to observe how useful the City’s understanding of resilience is when applied to a complex system, where many actors undertake simultaneous and independent activities, and the impact of these activities is evident at multiple levels and across multiple systems and sub-systems. The notion of a ‘shock within a shock’ – wherein the shock of the drought was compounded by the shock of revenue decline brought about by off-grid actions – epitomises the challenging realities of incoordination, inflexibility and decision constraints under conditions of major disruption. It considers what adaptation lessons – for municipal financing models – can be learnt through the City’s drought experience of 2015–2018. In order to elaborate these observations, this article describes the shifts evident in the municipality’s budgeting process during the drought event and the intersection between the municipality’s understanding of resilience and decision-making around its municipal financing model. The article concludes with a series of questions regarding the appropriateness of the Cape Town municipal budget structure and process in responding to times of crisis, continued resource scarcity and therefore the capability of urban governors to adopt the principles of resilience.

2 Cities and the resilience agenda

Since the 1990s, the concept of resilience has increasingly gained traction in urban planning and policymaking discourse (UN-Habitat 2017). It is increasingly seen as an important ‘organizing principle of government action’ in cities around the world (Coaffee 2013, p. 242).

In the context of disasters, resilience is understood as the ‘ability of a community or society to resist, absorb, accommodate and recover from disasters timely and efficiently’ (UNISDR 2009 quoted in, Djalante 2012, p. 2110).

The notion of urban resilience has since evolved. In contemporary literature, resilience is framed as both a process and an outcome. Rather than focussing on the preparation for recovery from specific disaster events, emergent thinking on resilience explores broader disaster risk reduction efforts (Spaans and Waterhout 2017) and the roles multiple actors play in potentially securing against the range of harms associated with such disruptions (Mutongwizo et al. 2019). At any one time, a city faces a multitude of stresses and shocks and the urban system as a whole must be able to cope with a wide range of disruptive events (The Rockefeller Foundation and ARUP 2014). In May 2016, Cape Town was selected to join the 100 Resilient Cities (100RCs), which is a global network of cities who are committed to resilience in the urban context (De Lille 2018). 100RC defines resilience as ‘the ongoing capacity of individuals, communities, institutions, businesses and systems within a city to survive, adapt and grow no matter what kind of chronic stresses and acute shocks they experience’ (De Lille 2018, p. 4).

The dominance of governments as the audience for resilience literature is of concern to some, including Coaffee (2013), as this perhaps over-emphasises the role of the state as the primary custodian of city resilience (Simpson et al. 2019). Cretney (2014) argues that resilience literature, both in academic and in popular uses of the concept, has not grappled with the elements of power, agency and inequality which are at play within an urban system. The municipal finance focus of this article makes this question of resilience ‘for whom’ and ‘by whom’ inescapable. Resilience needs to be considered in terms of not just scalable actors and actions but also in terms of who benefits, by whom and for what reasons or purposes (Cretney 2014). There is a need to consider in the context of a particular city; to what extent the activities associated with resilience building can be effectively undertaken by a range of actors, including non-governmental organisations as well as individuals (Spaans and Waterhout 2017; CoCT 2018a), while appreciating in particular contexts, like Cape Town, large proportions of the population rely on the municipality for basic services, particularly in times of disruption (Ziervogel et al. 2010, 2017). Illustrating the effect of such a disruption, the Cape Town drought offers an opportunity to interrogate how the concept of resilience is interpreted and negotiated between different actors during a shock event.

3 Financing a resilient city

A key, but underappreciated aspect of urban resilience is urban public finance. The flows of money through cities, in particular through urban public institutions, are fundamental for ensuring that cities are responsive, adaptive, and resilient. Djalante et al. (2013, p. 2122) urge urban governments to seek the diversification of their financial resources if they are to adequately, ‘deal with complexities and to anticipate uncertain impacts from hazards and climate change’. This has particular implications in the context of utility provision. Underfunded, and poorly managed utilities – be they within or outside local governments – often lack the capacity to deal with growing climate risks. Failure to adequately integrate climate risk into utility business plans is considered to lead to significant financial risks for a company or local government (World Bank 2014).

Muller (2007, p. 101) has argued that ‘building resilience to manage the impacts of variable climates on human activity is the day-to-day business of water managers, whether in planning for weather extremes or optimizing long-term resource utilization’. More recently, Muller (2018, p. 111) has narrowed in on water service financing and argues, ‘water could become a lead sector in the process of developing appropriate models for financing the implementation of adaptation’. Unprecedented shifts in climate variability and unpredictability are increasingly recognised to pose significant financial risks to sunk investments, such pipes and dams, and their ability to successfully perform under altered climate regimes (Allan et al. 2013; Rockström et al. 2014; Welle and Birkmann 2016; Shanmugasundaram et al. 2017; Varrani and Nones 2017; Muller 2018). The understanding of risk among water managers associated with climate variability will determine water managers, and other stakeholders’, appetites to pursue more expensive options which might deliver climate-independent water sources (Crookes 2018). However, it is important to note that decisions are tied to the financial model linked with each option (Crookes 2018), for example, what percentage of supply should come from desalination or groundwater, and the perception of risks and harms associated with failure (de Bruijne and van Eeten 2007; Yazdani et al. 2011; Kolers 2016).

Financing water requires engagement with the various components of water infrastructure. Water investments/costs include capital and operating investments in the system. Capital investments include bulk infrastructure for water production; distributor networks; on-site connections and rehabilitation costs. Recurrent investments include investments in the operations and management of the system (Ying et al. 2010). Grants and tariffs are the key sources of water financing. Grants are subsidies for the infrastructural development of water systems. Grants are often given to utility companies (or to government bodies which develop the bulk infrastructure which the utility company then manages), by higher spheres of government or by donors. Grants tend to be used to cover the capital costs of infrastructure development, however, in many cases these grants are also used to subsidize operations and maintenance also (Van Den Berg and Danilenko 2017).

Tariffs are the most common way for utility companies to cover their operational/recurrent costs (Ying et al. 2010). The aim is to create a tariffing system which covers both the operation and maintained cost of the infrastructure. Due to the high-cost environment which characterises African water utility sectors, tariffs tend to be higher in Africa than in other regions of the world (Ying et al. 2010). Tariffs can be designed in several ways. Most tariffs are broken down into two parts. These include a fixed charge for the connection (this might also be a minimum usage charge) and a volumetric charge which is based on consumption. As per connection, the fixed charge is meant to cover the production and administration costs while the volumetric is designed to cover operational and maintenance costs. For volumetric usage, there are three predominate calculation methods (Ying et al. 2010):

• Uniform: Uniform tariffing is a flat rate which does not vary depending on the amount of water used. This can be used in areas where there is no metering. This approach benefits the large users over small users.

• Block tariffs: A block tariff means that a variable amount is paid for each cubic meter of water depending on the usage. In this model, the amount paid per cubic meter can increase or decrease with usage; however, it is most common that the price increases with usage producing a progressive payment system. Block 1 tends to be the welfare or lifeline block.

• Increasing linear tariffs: A linear tariff is essentially a single block. Water costs the same amount per cubic meter no matter how much is used.

One of the key debates within water utility discussions relates to the design of water tariffs and the extent to which this design allows the utility to cover its costs. Notably, cost recovery is a major challenge in African utilities. In South Africa, this is further complicated by the need to balance payment for consumption with a free basic water policy (Muller 2008). As Torres (2012) points out, many urban service providers are unable to cover their operational costs – let alone provide a surplus to support capital financing. Full cost recovery is often only possible for the higher tariff blocks (if block tariffs are used) and only around 50% cover their operational costs (Ying et al. 2010). Introduction of ‘stepped tariffs’ was promoted in South African cities like Cape Town to address this where it was possible for high-volume users to cross-subsidize low-volume users while incentivising high-volume users to constrain their consumption (Muller 2008).

Rusca and Schwartz (2016) interrogate how inclusive urban water services, such as those spelled out in the SDGs and New Urban Agenda can be achieved in the context of sub-Saharan Africa where extensive socio-economic inequalities exist and where there are significant gaps in the available resources for water services. They argue that attempts at implementing full cost-recovery water utilities exacerbates rather than reduce access to safe water supply, particularly for low-income households. This aligns with many of the critiques of privatization and corporatization of the water utilities sectors in urban Africa (Magdahl 2012; McDonald 2016).

Rusca and Schwartz (2016, p. 107) argue that the ‘financial performance of a water provider should not only be measured by the level of cost recovery, but also by its ability to access other sustainable sources of funding’. They have observed that the ‘existing institutional framework regulating water production and associated tariffs is still geared toward a single utility with a mandate to provide water access to all’ (Rusca and Schwartz 2016, p. 107). However, practices relating to water pricing of these institutional frameworks struggle to adapt to the realities of the heterogeneous municipal water systems at play within cities in sub-Saharan Africa and the multitude of ways people meet their water needs within these complex urban environments, in response to their own resource constraints, as well as water supply constraints.

In South Africa, the powers and functions of local government are entrenched in its constitution, making it one of the most advanced local government systems in the world (Cameron 2001). Municipalities fund basic services including water, electricity, refuse removal, fire-fighting and emergency services, selected social services and amenities, as well as a host of urban management services (South African National Treasury 2017). In the case of Cape Town, the city government is also the water service provider, both for the city and for some of the surrounding towns. While the water services functions are decentralized to the local level, water resource management and supply creation are a centralised function and mandate of national government (Muller 2008).

Water services require both capital expenditure and operating expenditure to ensure their continued functioning and the efficiency and effectiveness thereof. The fiscal instruments that are available to municipalities, Cape Town included, to fund their expenditure responsibilities include a combination of own source revenue, mainly from property taxation and service charges, and grants from national governments, which come with various levels of conditionality (SACN 2017). Revenue from electricity sales are the main source of revenue for South African municipalities, accounting for approximately 50% of all city own revenue (SACN 2017). This is followed by property rates contributing roughly 20% and thirdly revenue from water sales contributing approximately 15% (SACN 2017). Local governments can also borrow to meet their capital expenditure requirements, allowing lump upfront investments to be paid for over longer periods.

The Local Government Fiscal Framework is based on the recognition that certain municipalities have less own revenue raising potential than others (South African National Treasury 2017). In 2017, Metropolitan cities were allocated only 4.29% of the total national tax base, the assumption being that cities have the potential to raise considerably more revenue than other government institutions and are expected to be largely self-financing (SACN 2017). While this is undeniably true, and horizontal equity is important, urbanization continues and the demand in the major metros for infrastructure and services continues to outstrip the local governments’ ability to provide.

Even more important than a simple question of supply (or money) and demand (for services), is the deeper question of the long-term viability and sustainability of a city’s revenue models (CCFLA 2015). In particular, the dependence on service charges as a key source of revenue. Recently, the South African Cities Network (SACN 2017) has argued that the current financing model of cities contradicts the objectives of building more sustainable and resilient cities (SACN 2017). They query whether alternative revenue raising opportunities associated with more environmentally sustainable growth can be developed (SACN 2017). However, despite the recognition of the impact of disruptive events, like climate change, might have on municipal finances, new investment strategies and initiatives to encourage investment in public water infrastructure (Ruiters and Matji 2015), to date, no substantive provision has been specified for South African cities to effectively adapt their financial model to better reflect the realities of natural resource availability and to better withstand greater uncertainties and flux within the natural, socio-economic and political environments.

4 Materials and methods

Adopting a pragmatic approach, this article explores what the Cape Town drought can reveal about the impact of a severe shock on the municipal fiscus. It explores the extent to which principles or qualities of resilience feature within the city’s financing model and drought response budgetary adaptation allocations. In order to do so, research investigated how the term resilience has been used to support decision-making of municipal authorities in responding to unanticipated events, such as drought. It examined the activities undertaken by actors, public and private, focussing on the resulting and unintended consequences on the municipal budget. Information gathered through public records was checked against the first-hand accounts gained through interviews and experience. Interviews were conducted with key officials involved in the municipal budgeting process, from City’s Resilience Unit and Strategic Policy Unit. These interviews were in-depth, semi-structured interviews with the intention of gaining a detailed perspective of the interviewees’ perspective on the decision-making tensions and priorities in City’s budget development process.

A Historical Research Methodology was used to establish a systematic and objective location, evaluation and synthesis of evidence in order to establish facts and draw conclusions about past events (Clarke 2005). This approach was invoked to explore the documentation relating to the City’s budgeting process for both the 2017/18 and 2018/19 financial years as well as planning being conducted for the 2019/20 budget cycle. The evidence reviewed included official media releases, policies, presentations, meeting minutes and studies which featured quotes from key decision makers within the municipality. This documentation was reviewed in order to gain understanding as to the impact of the 2015–2018 drought event on the municipal budget development process within the 2017/18 and 2018/19 financial years. Findings were informed by and validated through the researcher’s embedded participation in the City of Cape Town Workshop on the Budget Policies for 2018/19, the Built Environment Performance Plan 2019/20 planning meetings, Urban Growth Management Meetings August 2018, Informal Settlement Engagement, and a Work Session with UN-Habitat, National Treasury’s City Support Programme and the City of Cape Town on scenario planning around the financial sustainability of the municipality. The embeddedness of one of the authors within the City meant that the identification of the underlying causes and possible interventions relating to the research question could be collaboratively constructed between researcher and practitioners, with the shared objective of improving the practice and service delivery of the practitioner (Berg 2004). That authors were able to work with practitioners to reflect on the underlying assumptions impacting on the decisions taken during the shock event and challenge these assumptions in light of the City’s understanding of resilience (Berg 2004).

5 Results

5.1 Cape Town budget context

For the current financial year, 2018/19, the total municipal budget is R47,7 billion with R8.4 billion for capital expenditure and R39,3 billion for operating expenditure (CoCT 2018l). Electricity charges bring in by far the most revenue for the municipality at almost R12.6 billion per annum, which accounts for 32% of the City’s total revenue. This is followed by property rates (R9.3 billion) which accounts for 23.8% of total revenue. Water service charges generate a revenue of at R3.5 billion per annum, and together with revenue from sanitation charges (R1.8billion), water service related revenue contributes 13.7% of total revenue, making it the third largest source of ‘own’ revenue for the City.

Both the water and electricity utilities and their associated tariff models have been built on a cost-recovery basis, whereby the costs of operations in providing these services is expected to be recouped via service charges, with a degree of cross-subsidisation built in to accommodate the provision of free or subsidised services to the ‘indigent’ population. Therefore, the willingness and ability of households and businesses to pay utility charges is a very important factor in ensuring that the Cape Town municipality is able to generate the revenue it needs to meet its commitments. The revenue generation model is also premised on the consumption of services by households and businesses, as the revenue gained from electricity and water services are linked to the volumetric consumption of these services rather than availability thereof. A household or business pays according to the amount of water or electricity they have consumed in the past month. This is an important factor which underpins this revenue model and is built upon assumptions that the demand for these services would remain constant or at least be predictable over time.

Although many water managers still rely on historic climate data to design water infrastructure, Muller (2007) has observed that over time, assumptions built on climate information have been embedded in how urban infrastructure is designed and operated. In the Cape Town context, capturing rainfall was the means by which the city serviced 88% of its water resource needs before the drought. The City is part of the Western Cape Water Supply System (WCWSS), which comprises six dams supplying agriculture and a number of urban areas. It was assumed before the drought that these dams could provide adequate buffer against variability. However, this case illustrates how difficult it can be to confidently know what proportion of a supply source, such as a dam, helps to manage ‘normal’ variability and what proportion of the ‘new’ variability is ‘created’ by climate change (Muller 2007, p. 106), and then plan, spend and budget accordingly. Cape Town’s water supply was severely depleted after the region experienced three consecutive dry years (2015–2018) with drastically lower rainfall than the average (CoCT 2018a). From being 97% full at the end of the rainy season in 2014, water levels in supply dams dropped to 71% in 2015, 60.3% in 2016 and finally 38.4% in 2017. The 2017 rainy season was the driest of the three years. Various levels of water restrictions were imposed by the City on its residents, culminating in Level 6B, which came into effect in February 2018, and limited water use to 50 l per person per day (CoCT 2018b; Booysen et al. 2019), a number proposed by Gleick (1996) to be the minimum for human survival (The Lancet Planetary Health 2018).

It is, however, important to note that additional finance for enhanced supply was available prior to the drought. In 2007, it was identified that the additional costs for supply creation for South Africa’s adaptation plans for urban water resilience, estimated to be roughly US$ 2–5 billion annually, although expensive, could potentially be met though a complement of national sources and development assistance (Muller 2007, p. 108). At a more local level, the National Department of Water Affairs’ WCWSS Reconciliation Strategy conducted in 2007, took ‘a traditional approach to water supply planning’ and recommended supply augmentation for Cape Town would be needed by 2015 (Muller 2017, p. 12). The 6-year delay in building the Berg River Dam is one example of this where, as Muller (2018, p. 175) observes, the City were ‘happy to delay big capital investments and spend the money elsewhere’. Madonsela et al.’s (2019, p. 10) analysis concludes there were no signs that these long-term plans were being supported by specific or incremental targets prior to 2017, which ‘resulted in the city being forced to implement plans for augmentation in a short time span of six to eighteen months’. These recommendations for increased supply that were not acted on were based on world-class models run by the national government (Muller 2018). The failure of the City to recognise and harness this additional supply, and the associated finance, presents as a failure in what was factored into planning calculations independent of and prior to climate variability considerations.

Simpson et al. (2019) have observed that prior to the drought such planning around water was patterned by conventional techno-managerial approaches which placed great confidence in the City’s resourcefulness and ability to manage itself out of crisis. One reason for such confidence can be attributed to the City’s endeavours in leakage control, in 2016 only 9% of water was lost through system leakages in Cape Town, the national South African average is 25% (CoCT 2016a; Madonsela et al. 2019). Muller (2017) notes the dominance of demand management as an influencer on decisions around whether to increase bulk water supply options prior to the drought. However, the severe lessons learnt during the drought has challenged the assumptions in such an approach to be more reflexive and adaptive (Simpson et al. 2019).

5.2 Revenue sustainability concerns for electricity, water and sanitation utilities

The City of Cape Town’s financial model is referred to as the Medium-Term Revenue and Expenditure Framework (MTREF). The intention of this model is to determine ‘the appropriate mix of financial parameters and assumptions within which the City should operate to facilitate budgets that are affordable and sustainable at least 10 years into the future’ (CoCT 2018c, p. 1). In reviewing the MTREF’s for the past four years, it is evident that shifts are occurring in both the electricity and water sectors, with regards to how much of these services are being consumed by residents, and consequently how much revenue the City can raise from the sale of these services. These transitions are due in large part to extreme landscape pressures come in the form of load shedding in the electricity sector and severe water restrictions linked to the recent drought.

In the case of electricity, limitations have been reached in manufactured capital/infrastructure, where power generation plant capacity was rendered insufficient to meet demand. As a result, many households and businesses have invested in embedded electricity generating technologies, mainly in the form of Solar PV Panels, in order to secure their supply of electricity during these times. This trend, together with increasing energy efficiencies, has meant that residents are buying less of their electricity from the state, resulting in a persistent decline in revenue being realised from electricity sales by the City (CoCT 2018k). The Medium-Term Revenue and Expenditure Framework (MTREF) depict a persistent 1% or 1.5% decline in the consumption of electricity over the past four years up until the 2017/18 MTREF (CoCT 2018c). The current MTREF depicts the rate of shrinkage in electricity consumption doubling to 2.68% for the 2018/19 financial year, and a predicted shrinkage of 2% for the following two financial years (CoCT 2018c). This persistent decline in electricity consumption is a trend that the CCT has recognised and incorporated into its long-term budget planning. The City’s Integrated Development Plan (IDP) recognises the need to develop a revenue model for the City that reduces its reliance on electricity sales as a key revenue stream (CoCT 2017).

This slow decline in consumption within the electricity sector provides the backdrop for the revenue predicament brought on by the recent Cape Town drought. Limitations have been reached in natural/environmental capital in the case of water, where rainfall and resulting surface water has been insufficient to meet the city’s water needs due to the recent drought. The drought has given rise to a decline in water consumption being much sharper than that for electricity due to the progressively more stringent water restrictions put in place by the City (CoCT 2018k). These restrictions together with aggressive water-saving communication campaigns have meant that water consumption has decreased by over 50% compared with pre-drought consumption levels (CoCT 2018k; Booysen et al. 2019). The following sections will offer an in depth description of the water service in Cape Town and how the assumptions underpinning its financing were challenged during this climatic shock event.

5.3 Municipal response to the drought

Building on their experiences from 2015–2018, rainfall scenarios developed by the City depict dam capacity have ranged from 100% to just over 30% by the end of the 2019 rainy season, making planning and budgeting for the water supply for Cape Town very challenging. In response to this unprecedented level of uncertainty, the Mayor of Cape Town, Alderman Patricia De Lille, referred to the need for Cape Town to accept its ‘new normal’ as a water scarce area instead of taking up short-term measures with the expectation that rainfall would return to average patterns in future.

The New Normal is an opportunity for us to significantly change our approach to water. It is about building resilience, which is the capacity of individuals, communities, institutions, businesses and systems to survive, adapt and grow no matter what kind of stresses and acute shocks they experience … . We need improved design and innovation with regard to water use and reuse in both public infrastructure, and private households and businesses. (De Lille 2017a, p. 3)

Resilience was used as a means of explaining and justifying the City’s water augmentation efforts and the need for a decrease in water consumption across all sectors of society. However, in these communications, the decrease in water consumption was framed as a way of stretching the water supply in order to allow time for the municipality’s augmentation efforts to deliver the shortfall of water needed. Changing households’ and business’ relationship with water and consequently, their consumption patterns formed part of the communication messaging at the time, but the major shift towards ‘water resilience’ was viewed by the municipality to be the diversification of the municipal water supply system through expenditure on large capital projects.

The City’s Water Resilience Plan (CoCT 2018d), outlining a new approach to diversifying Cape Town’s water supply, was founded on the assumption that it would never rain again, in order to account for the levels of extreme uncertainty regarding the region’s rainfall patterns. This original version of this plan motivated for 500 mega-litres extra capacity to be developed, which would supply almost all of Cape Town’s water needs without drawing on rain-fed dams. The plan focused on desalination as the only truly climate-independent water supply option. The assumption that it would never rain again was later revised as it was regarded as unrealistic to assume the need to transition Cape Town’s water supply mix to one which does not include surface water, which is currently the most affordable means of sourcing water for the city (CoCT 2018e). The current plan delineating the City’s approach to diversifying its water supply mix is called the New Water Programme (CoCT 2018d), and it outlines how the City will ensure that approximately 50% (300 Million litres per day) of its current water requirements will be provided through a combination of desalination, groundwater and water reuse sources. The Draft City Water Strategy, released in February 2019, articulates commitments to increasing available supply by over 300 million litres per day over the next 10 years at a cost of approximately R5,7 billion (2018 rand value) (CoCT 2019a, p. 2). The cost of the infrastructure transitions which form part of the New Water Plan was calculated to result in a budgets deficit of R7.296 billion over the 2017/18; 18/19 and 19/20 financial years compared to an R1.732 billion shortfall without the New Water Plan (CoCT 2018f).

5.4 Impact of the drought on the municipal budget of Cape Town

At the end of 2017 and the beginning of 2018, after the third and driest rainy season, it was apparent that the City was not going to be able to ‘build itself out of the problem’ (Personal communication, Acting Manager Strategic Policy Unit of the City of Cape Town, 2018), as the water augmentation efforts were not going to deliver the water required to meet demand. This is when the communication campaign to reduce water consumption escalated considerably.

However, even during this time when the demand side management efforts were being recognized as the key determinant in overcoming the drought, the overall concept of ‘water resilience’ centred around a diversified supply of municipal water and not long-term changes in water consumption behaviour. Cape Town’s residents succeeded in dramatically reducing their water consumption, making Cape Town the first city in the world to reduce its water consumption by 50% in just three years, falling from 1.1 billion litres per day before the drought to about 600 million litres a day (Neilson 2018). Cape Town recently was awarded a certificate by the International Water Association acknowledging this accomplishment.

The drought was essentially a shock within a shock. The drought caused an escalation of the use of off-grid approaches and technologies (shock one), which in turn caused a sharp decline in the revenue gained by the municipality from water consumption (shock two). Revenue from the sale of water is an important source of revenue for the Cape Town municipality and accounted for 15.8% of total revenue for the City in 2017/18 financial year (CoCT 2018g, p. 17).

This substantial decrease in consumption was most strongly evident amongst high-level water consumers. In December 2016 there were roughly 117,000 households using more than 20,000 l of municipal water per month. By February 2018, this number had reduced by 90% to 12,300 households (CoCT 2018l). Many of these households and businesses supplemented their water supply requirements with alternative water sources to the municipal supply, with households and business investing in rainwater harvesting, boreholes and grey water systems. Rainwater harvesting tanks were selected as an affordable and accessible means of achieving water security and resilience at the household level and therefore the most common option (Simpson 2019).

The decreased consumption of both the water and sanitation services by high-level water consumers has considerable implications for the cross-subsidization model of the municipality. High consumer households would previously have provided the revenue required by the City to provide for indigent households who cannot afford to pay for electricity and water. For indigent households, the municipality currently provides a 100% subsidy on 6 kl of water per household per month and where the electricity received does not exceed 250 kWh per month, customers will receive a free basic allocation of up to 69 kWh (CoCT 2018g).

The City had originally budgeted on revenue from tariffs relating to the water and sanitation services being in the region of R6.02 billion for the 2017/18 financial year (CoCT 2018e). This estimate was made at the beginning of 2017 when dam levels were above 40%, and the demand for water was 900 Million Litres per Day (MLD). At this time the City had imposed Level 4 water restrictions only (De Lille 2017b). However, with the 2017 rainy season bringing less than half the expected rainfall, the volume of water present in the water supply system was insufficient to raise R6.02 billion under the water flows of Level 4 restrictions. December 2017 is the point at which there was the largest variance between the Year to Date (YTD) actual revenue gained versus YTD planned revenue for water and sanitation services. The City had received 24.8% less revenue from water service charges which amounted to a shortfall of R483 million and 30.8% less revenue from sanitation service charges, amounting to a shortfall of R316 million (CoCT 2018l). This is an unprecedented level of variance within this revenue source which resulted in an exceptional adjustment to the predicted revenue from these service charges.

The accordingly adjusted budget in January 2018, revised the revenue expected from water and sanitation services down from R6.02 billion to R4.17 billion to bring the budget in line with the under-recovery at the time and the projected impact of Level 6 restrictions (CoCT 2018e, 2018g). This meant that the predicted revenue gained from the sale of water and sanitation services decreased by 31% and would only be able to contribute 9.6% of the total revenue required by the municipality for the 2017/18 financial year instead of the originally predicted 15.8% (CoCT 2018l). This decreased revenue ‘necessitated budget reprioritization and immediate internal cost-cutting directives on various expenditure items to soften the likely rates and tariff increases in the short to medium term’ (CoCT 2018g, p. 14).

However, the decrease in the actual revenue received at the end of the 2017/18 financial year (June 2018) was not as dramatic as was anticipated in January 2018 adjustment budget. The final-audited revenue received for water and sanitation services for the 2017/18 financial year was R5.316 billion, which is only a 12% shortfall on the originally predicted revenue from these services, rather than the 31% shortfall predicted in January (CoCT, 2018c). This discrepancy highlights the complexity of the shifts in consumption and payment behaviour brought about by the drought and the consequent establishment of water restrictions and what came to be called ‘punitive’ tariffs (CoCT 2016b; Visser 2018, p. 3). The reason for this recovery in the revenue generated despite the volumetric consumption of water decreasing by 50% is the escalation of the billed revenue on account of the tariffs put in place for households and businesses with higher than permitted water consumption (CoCT 2018l).

This trend has continued through to the 2018/19 financial year, with the current over-recovery on the water and sanitation service charges for December 2018 (mid-financial year) of R1.1billion on a planned revenue recovery of R5.37billion for the entire year (CoCT 2019b). The City’s Chief Financial Officer has explained that these figures reflect the billed revenue rather than the cash-backed revenue and that due to lower than normal collection rates, it is likely that the actual cash-backed revenue will more closely reflect the budgeted cash-backed revenue amounts (CoCT 2019b). This explanation highlights another shift which has come about as a result of the drought period. The collection rate for water services has decreased from 86% in 2016/17 to 70.1% in the current 2018/19 financial year (CoCT 2018l). This lower collection rate is attributed by City to, ‘non-paying high-water users during the period of water restrictions where tariffs are much higher than the standard tariff’ (CoCT 2018l, p. 17).

The multiple and interdependent shifts evident within the City’s Medium-Term Revenue and Expenditure Framework (MTREF) for the 2017/18 and 2018/19 financial years indicates the levels of uncertainty wrought on the budget planning processes on account of the drought. Household consumption and payment behaviours have undergone substantial changes as consumers reacted to the water restrictions and tariffs put in place during the drought period (Robins 2019).

5.5 Challenging assumptions which underpin water pricing

As a result of the ‘shock within a shock’ outlined above, the City undertook to rapidly overhaul its tariff structure in an attempt to mitigate the impact of reduced consumption on the municipal account. Cape Town’s Deputy Mayor Ian Neilson provides the following rationale for the approach taken by the City in its tariff restructuring:

The City has reached a point where it can no longer afford to supply water at tariffs that are unsustainable … up until now, tariffs have been adjusted to recover the revenue deficit primarily from the higher usage consumers. However, given how few people are now entering the higher steps of the tariff where the price per kilolitre goes up, this methodology is no longer functioning effectively, and the city must therefore adjust water pricing more drastically in the lower steps of the tariff (Van Der Merwe 2018 Feb 16, p. 2).

Cameron and Katzschner (2017, p. 201) highlight an important assumption underlying the Cape Town municipality’s budgeting; they note, ‘the structure and pricing of our water system is based on the assumption that there will be a constant supply of available and easily accessible freshwater’. The City therefore did not apply conventional approaches such as ‘contingency reserve’ in order to provide buffering capacity to scarcity shocks (Grigg and Vlachos 1994; Bruins 2000). The City of Cape Town’s 2018/19 Tariff Policy (CoCT 2018h) still holds the following assumptions with regards to the setting of water and electricity tariffs:

• Consumptive tariffs will be set at levels that facilitate the financial sustainability of the service (CoCT 2018i).

• Reasonable and appropriate cross-subsidization may be applied between consumer categories (CoCT 2018i).

• The calculation of all tariffs is based on the general principles of full cost recovery, to protect the basic level of service and to ensure long-term sustainability of the service (CoCT 2018i).

The City’s MTREF considers what level of tariff increases are required to ensure the financial sustainability of the municipality (CoCT 2018j). One of the informants for how the MTREF is approached, is the guidance provided by the South African National Treasury to municipalities on the setting of tariffs and charges in the form of Municipal Finance Management Act (MFMA) Circulars. Circulars 89 and 91 state that, ‘National Treasury encourages municipalities to maintain tariff increases at levels that reflect an appropriate balance between the affordability to poorer households and other customers while ensuring the financial sustainability of the municipality’ (CoCT 2018j). The circular further acknowledged that ‘municipal own revenue sources are shrinking due to widespread drought and households opting for alternative sources of energy’ (CoCT 2018j), however maintains that electricity services must pursue fully cost-reflective tariffs and water services should pursue tariffs that cover the cost of bulk purchases, ongoing operations as well as provision for future infrastructure. Circular 91 also emphasizes that the full costs of new schemes to expand water service networks will need to be recovered from water users through tariffs (CoCT 2018j).

It is this requirement for cost-recovery that has informed the substantial increases in tariffs for water and sanitation services for CoCT residents. Figure 1 depicts the proposed revenue increases of 19.9% for the 2018/19 financial year with 39.7% and 16.8% proposed for the 2019/20 and 2020/21 years, respectively (CoCT 2018j). Justification for these increases is the current and anticipated negative volumetric growth in water consumption which means that if the City is to safeguard current levels of water revenue, the water which is consumed is required to be more expensive per unit. Additional factors cited in the MTREF include the spending required to ensure the sustainability and resilience of Cape Town’s water supply, the continued roll out of water demand management initiatives and the lower collection rate (CoCT 2018j).

Figure 1. Average revenue increases per revenue type (2017–2021) (CoCT 2018j, p. 8).

The 2018/19 budget depicts a restructured water tariff, with a revision from the six-step tariff to a four-step tariff structure, which allows for a higher rate of recovery at the lower usage levels given that the higher usage levels are no longer a viable source of revenue (CoCT 2018g, p. 7). In addition, Cape Town City Council agreed upon the introduction of a ‘fixed service charge’ for both electricity and water and sanitation services, which is independent of consumption levels (CoCT 2018j). The intention behind this fixed service charge is to recover the cost of maintaining the service connection and the grid infrastructure necessary to deliver the service. Previously this cost was built into the unit price per unit for electricity and water, with the assumption that those using less units of these services were more vulnerable and those consuming more were higher-income households who can afford to contribute more to the upkeep of the infrastructure (CoCT 2018j). However, it is now evident that the consumption of electricity and water is no longer closely aligned to income, as more affluent households and businesses are able to leave ‘the grid’, by making the capital investments necessary to generate their own electricity and secure their own water supply (Simpson 2019). Therefore, this assumption cannot underpin the tariffing structure and a more equitable means of recouping the costs of service delivery is required. The introduction of a fixed service charge is an attempt at creating a more equitable means of distributing the costs of infrastructure maintenance.

This change in how City’s revenue is structured shows the impact of the decreases in consumption, either due to more efficient and restrained use of the resource or the adoption of embedded disruptive technologies. This is an important shift if the institutional regime is not to stand in the way of new ways of basic services like energy and water being provided. It recognizes the technological hybridization occurring at the household and business scale with regards to water and electricity provision, whereby residents do not meet all their energy and water needs through disruptive technologies but rather gain these through a mix of embedded generation technologies and the traditional grid infrastructure. In fact, their connection to the grid offers a convenient service to augment redundancy. This shift in how electricity and water tariffs are structured requires a shift in how residents think about their payments for these services, as the service that consumers are paying for is less directly linked to the resource being consumed, e.g. water or electricity, and rather a charge linked to the connection to the grid, with the service being paid for being a back-up supply of basic services should your alternative means of providing these services fail. However, questions still remain as to whether this choice of tariff structure and the introduction of the ‘availability charge’ will bring about the revenue required to augment Cape Town’s water supply as per the requirements in the New Water Plan (2018).

6 Discussion

Resilience was used by the City of Cape Town as a concept behind which all facets of local government and society at large were called upon to unite behind, with resilience being expressed as a shared objective for all residents of Cape Town. It was used by the City as a means of building shared understanding and action in the face of a climate shock. It was useful in motivating for a more diversified water supply and in motivating for reduced consumption of water. However, behind the rhetoric of resilience, failures in planning, management and implementation substantially increased the costs and thus the financial burden of water on the City and its citizens.

Although the concept of resilience offers a useful lens through which to consider the sustainability of cities, the literature base needs to develop further in its consideration of the trade-offs, interdependencies, unintended consequences and conflicting interests inherent in a complex urban system if it is going to better inform and influence decision-making in this space. The Cape Town drought has displayed how responses to disruption played out, as different actors selected divergent and uncoordinated pathways that, when viewed through the lens of municipal finance, were at odds with each other. Reduction in revenues, associated with off-grid resilience building activities at business and household levels compromised the municipality’s adaptation capability – its ability to transition the city’s infrastructure to a more resilient mix of water supply. The New Water Programme assumed that it was up to the municipality to bring about resilience in the water supply to Cape Town, and that the associated costs would be paid for by consumers. These dynamics uncover an evident lack of coordination between water demand management and the assumptions underlying water augmentation schemes and the City’s budgeting structure. Although it is widely recognised that ‘soft measures’ like demand management are one important component of the suite of approaches to water management (Muller 2007, p. 103), this case illustrates the dangers of relying on demand management to the detriment of new supply creation.

This tension points to a wider debate around resilience and how this can be practically achieved within a complex urban system. In the case of energy and water, shocks in both of these sectors has led to actions which have brought about concerns on the ability of the municipality to maintain its functions due to revenue reductions. What happens when resilience of the state is put into question by the actions of those it governs who are themselves trying to build their own resilience? How this tension plays out is crucial to understanding how cities can progress in a coordinated way towards greater urban resilience. The OECD warns that any actions of the state which may reward or penalize a sector of society in relation to resilience indicators should be carefully considered in case it encourages any unintended behaviour or lead to unintended consequences (Figueiredo et al. 2018, p. 43). A concern highlighted by the Cape Town drought case study is that disruptive technologies which might fill a sustainability niche will not be sufficiently incentivized or supported by municipal governments due to the impact these technologies are having on the municipal fiscus. If left unresolved, the actions of government in trying to maintain the control and funding necessary to continue its functions may result in undermining the resilience of those it governs. Therefore, the entanglement of unintended consequences of how households, communities, organizations and governments adapt in relation to a shock or stress must form part of assessment of urban resilience.

Reflecting on the findings here, when considering the development of a resilience lens for a municipal budgeting process, it is important that the municipal budget structure, particularly what revenue streams are relied upon, adapts to withstand the effects of both primary and secondary shocks. This process also needs to demonstrate cognizance of a future where consumption of services and resources is not assumed to remain static (Mitchell 2013). At present, commitments made in the Water Strategy, indicate greater attentiveness to, and justification for, enhanced redundancy as the municipality acknowledges,

… it is also possible, and even likely, that the additional more expensive supplies of water (such as re-use and desalination) will not be used all of the time. This will not have been wasteful expenditure. The future is uncertain and the cost of very severe restrictions is much higher than the cost of insuring against this likelihood by providing additional water supply capacity.

The drought has highlighted the requirement for sound technical management. The significant shift from citing financial reasons for not enhancing supply, to considering potential commitment to costly augmentation sources which enhance reserve capacity, displays a learned recognition of the financial impact of variability and the cost of managing it that was previously absent in the City’s approach. It also demonstrates a professed shift in the empirical foundation of management decisions. Simpson et al. (2019) have chronologically outlined when public documents and decisions indicate this learning can be observed. They trace this shift in understanding from May 2017 onwards, 18 months into the drought, to where use of operation under ‘New Normal’ climate conditions demanded a change in the City’s governance approach (Simpson et al. 2019, p. 4). While rigorous technical and managerial skill have historically been considered important, this case advances the notion to harnesses a reflective and adaptive approach in order to avoid blind spots which might result from overconfidence approaches and patterns of how things have worked in the past or over a run of a few good years.

Such a transition for water professionals to an Anthropocene-aware approach, however, cannot, without good reason, discard the value of conventional approaches. For example, the failure to timeously increase supply, as conventional supply modelling recommended regarding the Berg River Dam, is not novel. As Muller (2018) has argued, this failure of conventional management cannot use climate variability as an excuse for ignoring conventional models and technical recommendations and subordination of decision-making to populists agendas (Muller 2009). These observations caution the notion of water resilience, therefore, although embedded within social constructions of sustainability (Elmqvist et al. 2019), and influenced by political imperatives (Pahl-Wostl et al. 2013), cannot be divorced from best-practice management and technical approaches which are themselves contested and continually evolving.

One of the qualities of a resilient city is reflectiveness, which is the ability of a system to, ‘examine and systematically learn from past experiences, to inform future decision-making that will enable adaptation and change’ (The Rockefeller Foundation and ARUP 2014, p. 17). This case demonstrates the importance for municipal budget processes to iteratively learn from shocks, whether fast or slow onset disruptions such as drought, in ways that accommodate new resilience characteristics, such as the ability to withstand disruptions due to built-in spare capacity – or redundancy, rather than entrench conventional framings and approaches. A key characteristic of resilience is that it is by nature realized through disruption of existing equilibriums, which means that in becoming more resilient, a city may be required to shed its more poorly adapted systems in favour of more resilient ones (Spaans and Waterhout 2017) and let go of aspects which stabilise pathological resilience in the system (de Bruijne and van Eeten 2007). It is therefore important to identify the assumptions and drivers pertaining to the municipal finance model which need to be challenged and reformed in order to build resilience into municipal financing. If this is not done appropriately, transformation and learning cannot take place.

On the expenditure side, the Cape Town drought event disrupted assumptions around how much capital expenditure was required to ensure the ongoing functioning of the water service. On the revenue side, the drought disrupted assumptions around how reliant residents are on the municipal water supply system to serve their water needs and consequently assumptions around the degree to which water service charges linked to water consumption are a fair, equitable and sustainable means of funding the service.

Although the revenue gained from water sales is not as deficient as anticipated in December 2017, despite the dramatic decrease in the volume of water consumed, the tariffs imposed and the restructuring of the tariff bands ensured that revenue recovery from the water service did not reflect the full consequence of this decrease in consumption. However, since the drought event the degree of uncertainty with respects to water service revenue is far higher. This uncertainty is evident the much lower collection rates anticipated and in the lack of accuracy in water revenue predictions since the drought began. Further research which explores historical shifts in tariff approaches and their impact on a city’s revenue and cross subsidization model can clarify these findings. For example, it would be valuable to ascertain the historical and emerging rationales behind decisions relating to these models at particular points in time in the City of Cape Town and elsewhere, such as those marking a shift from fixed to a volumetric charge for sanitation, and potentially track their longitudinal effects on municipal financial sustainability.

7 Conclusion

Brugmann (2012) alerted urban infrastructure managers to the need for a finance lens when addressing questions of city resilience. This paper highlighted the importance of resilience cost accounting not solely focusing on infrastructure design, but also the dynamic and interdependent sub-systems that inform municipal finance. These findings highlight that cities need to recognize and address the major uncertainties relating to its financial model for fundamental services such as water and electricity.

It is clear that cities facing disruptive events like Cape Town’s drought can no longer wholly rely on historic rainfall records and conventional approaches to planning and managing water infrastructure (Muller 2018). There is a need to acknowledge a lack of predictability (Bond et al. 2015; Bathiany et al. 2018) and the assumptions underpinning established ways of doing things (Simpson et al. 2019). Further, in light of such unpredictability and the increasing likelihood of such future events (Vörösmarty et al. 2013; Solecki et al. 2016; Welle and Birkmann 2016), there is a need to enhance abilities to maintain function despite climatic variability. For areas traditionally dependent on rainfall for water supply, like Cape Town, this may take new forms of supply which might afford greater climate independence. This includes not just water scarcity but also the likelihood of extreme water flows due to storm events in order that water infrastructure can be designed to cope with such events (Baleta and Winter 2017). Furthermore, there is a need for more and better data to inform understanding around the potential changes to groundwater yields linked to rainfall variability (Muller 2018). With increasing environmental resource constraints and uncertainty, the sustainability of municipal reliance on consumptive resources, in the form of electricity and water as a major revenue stream, needs to be questioned. It is evident that the extent to which the municipality is the only player in providing electricity and water supply to households and businesses is changing and therefore the extent to which the municipality can extract revenue from these services cannot remain the same.

The further area of significant uncertainty is the extent to which water consumption shifts under novel behavioural arrangements under conditions of disruption, such as consumption rebounding after drought (Beal et al. 2014), or remaining at a new normal of lower consumption levels which, over one year later, seems to be the case in Cape Town (CoCT 2019a). This is a key factor in the municipality’s ability to budget for the service going forward. Similarly, the associated rate of decline in electricity consumption, exhibited in the Cape Town case, may also impact the degree to which this service is able to be self-sustaining. Traditionally, how a municipality structures its budget and finance model is still governed by a system of rules and assumptions, reliant on a relatively stable environment where residents pay and where the rule of law is upheld. Finance officials are used to making decisions from a distance, whereby tariffs are set at the city-scale and only take into account the lived experience of households and their decision-making in very general terms as it relates to their willingness and ability to pay. But this approach is only sustainable when households have no other option but to buy municipal-supplied services. Governors are now being forced to take into account actors, uncoordinated actions and decisions at the household and business level as key assumptions around how they choose to access services are tested. Such shifts have been anticipated and observed elsewhere (Ostrom 2010; Djalante et al. 2011; Jordan et al. 2018), and may to amount to more permeant and novel governance arrangements, which take into account off-grid, decentralised and emergent actors seeking to secure essential public goods (Robins 2019, p. 5).

The story of the Cape Town drought as viewed through the lens of the municipal finance system highlights how the cost-recovery assumption, which underpins how the municipal water service is funded, managed and delivered, needs to be reviewed in light of increasing resource constraints. The South African Cities Network (2017) motivates for the development alternative financing models which do not undermine the environmental sustainability of the city. Rusca and Schwartz (2016) highlight how the necessary assumption of the cost-recovery logic of water services, is that plentiful and cheap water sources will be available. However, as seen in the Cape Town drought example, with increasing climate uncertainty municipalities are having to consider more expensive water supply options such as desalination which is pushing up the price per unit of water considerably.

As municipal water resources both become less plentiful and therefore more expensive, high usage consumers are moving to off-grid technologies which disrupts the current cross-subsidization model underpinning the water service. The concept of adaptive resilience and the ability of a system to not only ‘bounce back’ but also ‘bounce forward’ (Sharifi and Yamagata 2016) is an important aspect of resilience within the context of this research. In order for the municipal finance system to successfully navigate the drought, it needed to exhibit both ‘short term coping’ and ‘long term adaptation’ if the functioning of the municipal water service is to be safeguarded going forward (Sharifi and Yamagata 2016). It is questionable, however, whether the City’s understanding of resilience assisted it in coping with both the immediate disruption of the municipal finance system whilst still safeguarding the functionality of the system.

The usefulness of resilience as a framing and objective now that the immediate threat of running out of water has passed is questionable. It is now that the municipality must face the reality that the ‘new normal’ and the strive for resilience to drought has followed different paths for the City and for individual households and businesses. The municipality is still pursuing an expensive capital expenditure programme in order to diversify the water supply of Cape Town, whereas households and businesses have sought alternatives to the municipal water supply system in order to safeguard themselves from similar shocks in the future. The cost-recovery principles embedded in the municipal financing model for water services means that these activities are eroding the financial sustainability of the service. What this ‘new normal’ means for the cross-subsidization model associated with the water service, and consequently what the poor pay for water going forward, will need to be considered. It is not believed that the City’s understanding of resilience, nor the resilience literature and guidelines available, provides an adequate framing to guide the City in navigating this tension.

8 Recommendations

Concerning expenditure, the Cape Town case highlights the need for the Medium-Term Infrastructure Investment Framework (CoCT 2012), and the Water and Energy sector plans to be agile enough to navigate these shifts in customer preference and play a new role in regulating and incentivizing good practice around on-site power generation and water capture/extraction and storage? For this to be realisable and for cities facing disruptive events such as that experienced by the City of Cape Town to attain to its stated goal of resilience, the following resilience principles and qualities need to be embedded in resource allocation:

• Reflective: the ability to continuously evolve and modify according to emerging evidence.

• Inclusive: the ability to consult and engage with a broad range of stakeholders.

• Integrated: the ability to ensure alignment between city systems and decisions towards a common outcome.

• Flexible: the ability to change, evolve and adapt in response to changing circumstances (The Rockefeller Foundation and ARUP 2014, p. 5).

Finally, regarding revenue, cities need to ask whether the fiscal model of a city able to cope with these transitions affecting infrastructure and their implications for revenue collection and the degrees of subsidisation required to deliver these services? Providing a defence to such questions requires clear demonstration that budget allocations have considered and operationalised the following resilience principles and qualities which are particularly challenging under conditions of scarcity and constraint:

• Redundancy: the ability to withstand disruptions and extreme pressure due to built-in spare capacity.

• Robustness: the ability to anticipate and design for potential failures in systems.

• Resourcefulness: the ability to, rapidly find different ways to achieve their goals or meet their needs during a shock or when under stress (The Rockefeller Foundation and ARUP 2014, p. 5).

Disclosure statement

No potential conflict of interest was reported by the authors.

Additional information

Funding

This work was supported by the Social Sciences and Humanities Research Council of Canada (SSHRC) - the Art of Resilience, Mistra Urban Futures, PEAK-Urban, and the BRICS multilateral joint science and technology research collaboration Programme: Coastal Communities Adaptive and Resilient at the Edge.

Notes on contributors

Nicholas Philip Simpson

Nicholas Philip Simpson is a postdoctoral fellow at the University of Cape Town. With the Global Risk Governance Programme, he has been exploring the governance of Anthropocene harms through the lens of resilience. One example of this has been exploring how and why resilience has been employed as a means of understanding and responding to the unanticipated and severely disruptive Cape Town drought. Nick’s research also concentrates on climate risk and vulnerability, socio-technical transitions, human capabilities, impact assessment and project appraisal, and participatory environmental decision-making.

Kayleen Jeanne Simpson

Kayleen Jeanne Simpson works in the Strategic Policy Unit at City of Cape Town. She holds two Masters degrees, one in Social Science in the field of urban food security and food access and a second concentrating on Urban Infrastructure Design and Management, both through the University of Cape Town.

Clifford D. Shearing

Clifford D. Shearing holds positions at the Universities of Cape Town, Griffith, and Montreal. A principal focus of his academic work has been on widening criminology’s boundaries, with a primary focus on ‘security governance’. His policy and applied work has been concerned with enhancing safety. Shearing’s research and writing has become increasingly centred on criminology’s responses to the challenges of the Anthropocene.

Liza Rose Cirolia

Liza Rose Cirolia is a researcher at the African Centre for Cities. Her work is largely focused on the social, political, technical and institutional dimensions of urban infrastructure, decentralization, and human settlements in African cities. Liza Rose has worked extensively on housing and land in South African cities. She has conducted in-depth research and policy development on the Emergency Housing Programme and temporary relocation areas, the Finance Linked Individual Subsidy Programme and the Gap Market, township residential market development, and the upgrading of informal settlements. In 2018, working with the Western Cape government, she co-wrote a guiding document for the Western Cape government entitled, ‘The Living Cape: A Human Settlements Framework’.