City of Johannesburg vs City Press

 

Complainant: City of Johannesburg vs City Press

Lodged by: Ms Luyanda Mfeka, Director: Mayorail Communications

Article: Cash-Strapped Jozi is heading for a bailout

Author of article: Hlengiwe Nhabathi

Date: 05 Sept 2018

Respondent: Dumisane Lubisi

Complaint               

 

The City of Johannesburg (CoJ)
complains the article falsely stated the allegation as fact that it had:

·
experienced financial distress (details below);

·
been at risk of not being able to pay salaries, creating unnecessary panic
amongst employees;

·
spent an amount of R127-million, instead of R80-million on investigations
against corruption; and

·
increased tariffs set within the City’s proposed budget as a means of closing
the alleged budget deficit – without asking it for its comment.

Mfeka adds that City Press published
the first three statements despite its denials.

The text

The article said the financial health
of the City of Johannesburg (CoJ) was on life support and could require a
bailout, unless something drastic was done.

The situation was reportedly so bad
that the CoJ had a bank balance of R1.2-billion at the end of April, and that a
shortfall of R3.5-billion was projected for May and June.

Nhlabathi wrote there was “anxiety”
about whether salaries (which marked the end of the CoJ’s financial year) would
be paid at the end of June.

The journalist reported that, because
of its dire financial situation, the CoJ had to dip into its reserves to
compensate for the shortfall. This, coupled with a worrying R2-billion
shortfall in revenue collection, “has contributed to fears that the
situation could have a ripple effect if it doesn’t change fast enough, because
the CoJ might need an intervention from provincial government and a bailout
from Treasury
”.

The CoJ reportedly denied these
allegations, saying that its cash balances at the end of April stood at
R3.279-billion, “excluding the ring-fenced reserve for debt redemption,
capital grants and the debt redemption fund
”.

The arguments

Financial distress

The introductory sentence to the
story summarised the gist of its content. It read, “The financial health of
the City of Johannesburg … is on life support and could require a bailout
unless something drastic is done. The situation is so bad that the country’s
economic hub’s financials show that the CoJ had a bank balance of R1.2bn at the
end of April, and that a shortfall of R3.5bn was projected for last month and
this month
.”

The CoJ denies
these statements, adding that the newspaper has published these as fact,
despite its categorical denial thereof.

Mfeka says this reportage was the
result of inaccurate information provided by “sources”. She says that, as
indicated to the publication, the City’s Cash Management Report stipulated that
the CoJ’s cash remained in a healthy state at over R3.2-billion. “Yet, the
publication sought to represent this as R1.2-billion in order to privilege a
particular narrative,” she submits.

Providing some statistics, she says
that the CoJ’s financial position actually continued to improve.

Lubisi says the
story was based on:

·
the CoJ’s own bank statements (which, he says, showed there was R1.2-billion in
the account as at the end of April this year);

·
projections from the City’s Treasury department; and

·
several sources within the employ of the City and councillors.

He submits that City Press took
reasonable steps to verify its information, and also afforded the CoJ a right
of reply – which was published in full. He argues that, even though the CoJ
denied the allegations, documentary proof and interviews proved
otherwise.

The editor adds that the CoJ fails to
show for which period of assessment of the Cash Management Report it relies
on.  “In the Redemption account, the City had R2.033 billion and interest
accrued stood at R14.2 million. If one were to add these figures [and others],
they amount to R3.2 billion which is the capital which the City claimed to have
in its bank account when responding to City Press,” he argues. However, he
adds, the City did not indicate that these amounts included the capital,
interest and redemption account.

He says the newspaper’s sources
indicated that the redemption account was used to pay off debts.

Analysis

The first questions are if the
newspaper was correct / justified in reporting that the CoJ’s bank balance was
R1.2-billion at the end of April, and that a shortfall of R3.5-billion was
projected for May and June.

Bank balance: Lubisi has
provided me with a bank accounts reconciliation statement from the Treasury
Department for April 2018, which shows that the total amount of cash at the
bank stood at R1.252-billion. However, another R14.2-million was indicated as
“interest”, and an amount of R2.133-billion was specified as “redemption” –
this brought the total cash available at the bank to R3,300,479,984.81 (rounded
off to R3.3-billion).

I therefore agree with Mfeka that the
CoJ’s available cash stood “at over R3.2-billion” – which is a far cry from the
R1.2-billion, as reported.

Projected shortfall: According to a
summary of the projected cash position for May and June 2018, the respective
amounts were in the red with R570-million and R2.944-billion respectively.

The opening balance of the statement
for May stood at R2,334,410,150, and it ended in an amount of R570,016,806 in
the red. If one subtracts the latter amount from the former, the opening
balance for June should stand at R1,764,393,244 – which is the exact amount
indicated in that statement.

This means that the shortfall of
R570-million was already incorporated into the June account, which
in turn means that the two shortfalls of R2.334-million and R570-million cannot
be added up to indicate a total shortfall – the total projected shortfall
R2.334-billion, and not R3.5-billion, as reported.

In short, the:

·
bank balance stood at approximately R3.3-billion, and not at R1.2-billion; and

·
projected shortfall for “May and June” was not R3.5-billion, but R2.3-billion.

The conclusion reached by the
journalist, namely that the financial health of the CoJ was on life support and
could require a bailout unless something drastic was done, was therefore based
on the wrong figures.

It needs to be said, though, that the
projected shortfall for June (R2.3-billion) could indeed have been construed as
a matter of concern – probably still big enough to qualify for stating that
something drastic should be done.

Not being able to pay salaries

The statement in dispute read: “There
is already anxiety about whether June salaries will be paid. June marks the end
of the CoJ’s financial year
.”

The CoJ complains
the newspaper omitted to publish its denial that it had been at risk of not
being able to pay salaries – creating unnecessary panic amongst City employees.
Tabane says the City continues to meet its salary commitments, without any risk
of not being able to do so.

Lubisi replies the
story did state that the City had denied this allegation.

He says: “We reported that there were
fears that salaries, if the situation continued, could not be paid and never
said that salaries were not paid. These fears of salaries were raised by
employees who were aware of the finances and were raising these fears to show
that something needed to be done quite urgently to address the situation.”

The editor adds the City’s financial
projections were clear that the income for May and June were lower than the
expenditure during the same period. Therefore, he argues, it was fair to show
that this financial distress could have had dire consequences. “Employees were
already in panic mode before publication and it is far-fetched to say that the
publication has caused panic,” he submits.

Analysis

The newspaper was justified in
reporting that some people had expressed their anxiety about the payment of
salaries, but that is not the complaint – the issue is that its denial to this
effect has not been published.

Lubisi does not challenge Mfeka’s
assertion that the CoJ has denied that it was at risk of not being able to pay
salaries – in fact, he submits that the article did contain that denial.

It is noticeable that the journalist
reported that the CoJ had denied that its administration was in the red – but
that was a general denial, and did not specifically address people’s anxiety
about the payment of salaries. This issue was, understandably, a cause for
concern for at least some employees – and therefore, if the City did deny this
(which the newspaper does not contest), it should have reported it.

Spending R127-million on investigations against corruption

The article said, “While the CoJ
buckles under pressure, expenditure for forensic investigations has grown to
R127m
.”

The CoJ complains
this amount was R80-million, and not R127-million.Mfeka adds that the newspaper
was provided with the correct information, but says that it has chosen not to
report this fact.

Lubisi says the CoJ
indeed provided it with piles of documents in this regard.  However, the
City’s figure of R80-million is for the end of October 2018 (for fraud and
corruption specifically related to infrastructure).

He argues, though: “Even when you
consider the entire department’s expenditure stated in the city’s performance
report of R63,7 million, it raises red flags as to whether this is the true account
of the cost of investigations.  The performance report, which is a public
document, shows R9 million alone has been on contracted services for
investigations. City insiders including those in treasury with access to this
sensitive internal information/documents insisted the figure, in actual fact,
stands at R127million.”

He adds that the CoJ was said to have
doctored the figures to mislead members of Council and residents in a desperate
attempt to cover up its financial woes.

The editor concludes, “If the city is
so adamant through this baseless complaint that it is in a financially healthy
position, then it must explain why it has been reluctant to submit
critical reports on Billing and Revenue Collection and the Cash Management one
for the period ending 31 March 2018. The last time these reports were submitted
to Council was for the period ending 31 December 2017.”

Analysis

Lubisi’s argument, if carefully
considered, boils down to the defence that the figure of R127-million was
obtained from sources.

In that case, though, the sentence in
question should have indicated such, and not have stated that amount as fact
(which it did).

Closing deficit by increasing tariffs

The article stated, “City Press
understands that the decision to increase tariffs was an attempt to ‘fill the
cash hole
’.”

The CoJ says
this statement incorrectly suggested that increasing tariffs set within its
proposed budget were a means of closing the alleged budget deficit. Mfeka adds
that City Press did not put this claim to the City – had it done so, the CoJ
would have provided the newspaper with the correct information.

Giving some examples, she adds that
the CoJ has made every effort to minimize tariff increases and reduce pressure
on stressed household income, while safeguarding the City’s ability to deliver
services.

Lubisi says it is
public knowledge that the CoJ’s budget was rejected and that the Council was
forced to revise the budget (which was only approved on 12 June 2018).

He submits that the increase of
tariffs was linked to increasing revenue “which we have proof of”. He also
refers to a “well-placed source with insight into the workings of the
municipality and plans thereof, particularly finance”, who told the newspaper
the strategy was to hike rates since not enough revenue was being collected.

This information, he adds, is
supported by documents that also show the city was unable to bring in enough
revenue to cover for its expenses.

The editor says the newspaper could
not carry the CoJ’s full response, but asserts that it took reasonable steps to
ensure that most of the response was carried in full. Additional information
was also included for context, fairness and balance, he adds.

Analysis

Even if the statement in question was
wrong, the newspaper was justified to publish it as clearly, it was derived
from a source, or sources.

However, I have not been provided
with evidence that City Press asked the CoJ for its response on this issue, as
it should have.

Finding

Financial distress

City Press was in breach of Section
1.1 of the Press Code for wrongly reporting that the CoJ’s:

·
bank balance for April 2018 stood at approximately R1.2-billion, while the real
figure was approximately R3.3-billion; and

·
projected shortfall for “May and June” was R3.5-billion, instead of
R2.3-billion.

This section reads: “The media
shall take care to report news truthfully, accurately and fairly
.”

The complaint about the conclusion
reached by the journalist, namely that the financial health of the CoJ was on
life support and could require a bailout unless something drastic was done,
is dismissed.

Not being able to pay salaries

The journalist did not report the
CoJ’s denial that there was a risk that it would not be able to pay salaries.
This was in breach of Section 1.8 of the Press Code that
states: “The media shall seek the views of the subject of critical reportage
in advance of publication…
” The intent of “seek”, obviously, is to publish
the information.

Spending R127-million on investigations against corruption

The statement (of fact) that the
CoJ’s expenditure for forensic investigations had grown to R127-million should
have been attributed to a source. This was in breach ofSection 1.3
of the Press Code which states: “…Where a report is not based on facts or is
founded on opinion, allegation, rumour or supposition, it shall be presented in
such manner as to indicate this clearly
.”

Closing deficit by increasing tariffs

City Press did not ask the CoJ for
its comment on the allegation that its decision to increase tariffs was an attempt
to “fill the cash hole”. This was in breach of Section 1.8 of
the Press Code (as quoted above).

Seriousness of breaches

Under the headline Hierarchy
of sanctions
, Section 8 of the Complaints Procedures distinguishes between
minor breaches (Tier 1 – minor errors which do not change the thrust of the
story), serious breaches (Tier 2), and serious misconduct (Tier 3).

The breaches of the Press Code as
indicated above are all Tier 2 offences.

Sanction

City Press is directed to
apologise 
to the CoJ for:

·
wrongly reporting that its:

o   bank
balance for April 2018 stood at approximately R1.2-billion, while the real
figure was approximately R3.3-billion; and

o
projected shortfall for “May and June” was R3.5-billion, instead of
R2.3-billion;

·
not reporting its denial that there was a risk that it would not be able to pay
salaries;

·
stating as fact that the CoJ’s expenditure for forensic investigations had
grown to R127-million, instead of attributing it to a source; and

·
reporting the allegation that its decision to increase tariffs was an attempt
to “fill the cash hole” without giving it a right of reply on this issue.

The newspaper is directed to
publish
:

·
the apology, as outlined directly above:

o   at
the top of either page 2 or 3, with a headline containing the words “apology”
or “apologises”, and “the CoJ”; and

o
online (at the top of that page), and to link the two articles

·
a kicker on its front page above the fold, containing the words “apology” or
“apologises” and “the CoJ”, and referring to the text on the inside page.

The text should:

·
be published at the earliest opportunity after the time for an application for
leave to appeal has lapsed or, in the event of such an application, after that
ruling;

·
refer to the complaint that was lodged with this office;

·
end with the sentence, “Visit www.presscouncil.org.za for
the full finding”;

·
be published with the logo of the Press Council (attached); and

·
be prepared by the publication and be approved by me.

Appeal

The Complaints Procedures lay down
that within seven working days of receipt of this decision, either party may
apply for leave to appeal to the Chairperson of the SA Press Appeals Panel,
Judge Bernard Ngoepe, fully setting out the grounds of appeal. He can be
contacted at Khanyim@ombudsman.org.za.

Johan Retief

Press Ombud