Ruling by the Press Ombud
5 September 2018
Particulars
Lodged by: Ms Luyanda Mfeka, Director: Mayoral Communications
Date of article: 10 June 2018
Headline: Cash-Strapped Jozi is heading for a bailout
Page: Front-page lead
Online: Yes
Author of article: Hlengiwe Nhlabathi
Respondent: Dumisane Lubisi, editor
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 of Section 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