Division of Revenue 2010/11: Responses to FFC recommendations by Departments of Cooperative Governance & Traditional Affairs, Public Works, Education and SALGA

NCOP Finance

05 August 2009
Chairperson: Mr C De Beer (ANC, Northern Cape)
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Meeting Summary

The Committee continued to hear the responses from the various departments to the comments made by the Financial and Fiscal Commission (FFC) on the Division of Revenue 2010/11. The Department of Cooperative Governance and Traditional Affairs responded to issues relating to the review of the provincial equitable share for public infrastructure investment; poverty reduction; national infrastructure maintenance; financing of road infrastructure and local government skills development, and capacity building at the local level. It expressed agreement with the proposal for an intergovernmental framework was expressed. The Department emphasised a need for clear directives from the FFC regarding the way in which issues should be addressed. Members thought that this showed some reluctance by the Department to engage with the FFC and to assume responsibility for coordination, monitoring and promoting interdepartmental cooperation. The Chairperson advised that the Intergovernmental Relations Act could guide the Department, especially to coordinate establishment of a roads infrastructure.

The National Department of Public Works stated that it had limited authority to meet Expanded Public Works Programme targets. Municipalities gained access and eligibility through submission of reports. A major impediment was an inability to gather data on the Managerial Information System. The private sector had been invited to give maintenance inputs. Members, during their discussion, interrogated the National Department’s capacity to drive the programme, and also posed questions about the relationship between national and provincial departments. The Department was reminded that it had the responsibility to coordinate nine provincial departments, and exercise monitoring and oversight functions. There were questions around the existence of a credible Asset Register and the ability to monitor.

The South African Local Government Association (SALGA) emphasised service delivery challenge backlogs, especially in rural municipalities. Most rural municipalities lacked finance management capacities. Intergovernmental cooperation in service delivery had to be improved, and local revenue bases increased. Policy decisions had to take differences between municipalities into account. Issues not included in the FFC recommendations were identified, notably assessment of capacity building, and the impact of 2010 funding, especially on host cities. One Member objected to these issues being raised, but SALGA explained that it was not attempting to dictate to the FFC, but was noting the issues that it would raise again at the budget forum. Members also asked if SALGA could assist municipalities who lacked capacity to fulfill their obligations as accredited water service authorities, and share expenses.

The Department of Education dealt with funding allocation to provinces, the monitoring capacities of national departments, especially with regard to provincial spending, the need for participation of all stakeholders, increased infrastructure investment, and the need to address backlogs in educational infrastructure. Members raised questions around school closure, lack of transport and whether the Departments of Education and Transport had yet sorted out who would be responsible for scholar transport issues, the school nutrition schemes, the standard of school teachers, procurement for building schools, and the need for retraining, enquiring also whether the teacher training colleges would be reopened. Further enquiries related to the possibility of indigenous language teaching.

A representative from National Treasury finally commented on the lack of coordination at the level of local government, agreed that improved infrastructure for the building of schools was important, but pointed out the problems were not always related to lack of funding; instead monitoring and evaluation had to improve.

Meeting report

Responses to Division of Revenue 2010/11 comments by the Financial and Fiscal Commission (FFC) : Department of Cooperative Governance and Traditional Affairs (Department of DCGTA)
Mr M Manyike, Executive Manager, Department of Cooperative Governance and Traditional Affairs said that the Department had completed work on a policy review, which was presented to the extended Cabinet Lekgotla.

He then moved to giving comments on the recommendations of the Financial and Fiscal Commission (FFC) around the Division of Revenue 2010/11. He noted that FFC commented that there was a need to review the Provincial Equitable Share (PES) formula. The Department agreed about the need for public infrastructure investment, as well as the comments on poverty reduction and the development of a national infrastructure maintenance structure.

The FFC had emphasised the financing of road infrastructure and skills development. The backlog on road maintenance had to be addressed, and there had to be cost recovery. The FFC was not clear on how that had to be done. The Department needed clarity on how to implement the special conditional grant. Roads had been classified as paved, gravel or tarred, but there were practical problems around dealing with their maintenance.

Regarding skills, Mr Manyike stated that the Department supported the drive for technical and local government skills. Skills development in the fields of electricity, water and sanitation was needed. There was also a lack of skills for local government.

Funding would be through a conditional grant or reformulated equitable share. There had to be a review of the water and sanitation grant. The Department agreed that there had to be a national water regulator. The Department of Water and Environmental Affairs, and government across the board, had to rely more on local government. Universal access could be improved through funding from municipal grants. There were still areas with no infrastructure.

There had to be capacity building at the local level. The Department agreed about an intergovernmental framework. There were a variety of grants and instruments to address capacity. The framework of Development Bank of South Africa (DBSA) implementation had to be strengthened.

Mr Manyike emphasised that the Department needed clarification from the FFC as to how certain matters were to be addressed.


Mr R Lees (DA) remarked that the Department had stated its acceptance of FFC comments, but seemed hesitant. He thought it important to bear in mind that a systematic approach was needed, and suggested that the Department should identify whatever it could already implement, and proceed with it.

Ms R Mashigo (ANC) suggested that existing educational institutions be drawn into the skilling process. She emphasised that every budget provided for capacity building.

Mr B Mnguni (ANC, Free State) posed the question of how the response of different agencies involved, could be coordinated.

Mr B Mashile (ANC, Mpumalanga) asked how authoritative the Integrated Development Planning (IDP) process was. Current Municipal Infrastructure Grants (MIG) had to be checked, to see what kind of performance was obtained. Local government remained the delivery face, and more resources were needed there. He suspected that the IDP process could actually undermine development. Local communities tended to prioritise other services, and money remained unspent. He pointed out that the FFC was intended to give policy direction, yet the Department was seemingly insisting that the FFC must indicate how things had to be done. He wondered if this pointed to reluctance by the Department to implement directives.

Dr P Rabie (DA) pointed to the deterioration of rural roads. During the constitutional period he had travelled widely, and noted that some rural roads were in an appalling condition. The same often applied to water and sanitation services. Roads were needed for economic progress. Skills were lacking in local municipalities.

Mr G Mokgoro (ANC, Northern Cape) noted that the Department agreed with the FFC throughout. He would have expected to be briefed on what was being done in response to the President's promise that 500 000 jobs would be created. The Department had to define a role for itself in job creation.

The Chairperson remarked that the Department was not really visible at the grassroots level.

A Member said that the Department called for guidance from the FFC, but then the Department did not seem to engage seriously with the FFC. He was concerned about the fact that the Chief Financial Officer was not present. He alluded to Mr Mnguni's statement about the coordination of different entities, and asked who would the governing agency be in respect of the maintenance and improvement of roads.

Mr E Sogoni (ANC, Gauteng) said that concrete suggestions had to be forthcoming about the classification of roads. The Department had raised infrastructure issues, but did not define its role in that regard. He wanted to know what challenges were specific to the Department. The FFC was primarily concerned with finance issues, not with guiding the Department in broad capacity building.

Mr S Abram (ANC) asked about the Department's vision of rural development, over and above roads and local government facilities.

Mr Sogoni said that he wished to protect the Department against harsh criticism. The Department had been asked to respond to FFC recommendations, and was at least doing that.

Mr Mokgoro responded that the Department ought to be granted time to prepare better, as that was the best form of protection that the Department could obtain.

Prince M Zulu (IFP, KwaZulu-Natal) bemoaned the fact that the Accounting Officer and Head of the Department was not present.

The Chairperson insisted that if a Director General was unable to be present at a meeting, there must be a written apology. Directors General had to take committee meetings seriously.

Mr Sogoni agreed that this should not be allowed to happen again and suggested that the Committee express itself strongly on the issues.

Mr Mashile expressed his support of these comments. This was a new department, and the Committee had allowed it to respond according to the best of its ability. The Department had now had the opportunity to pick up on Committee concerns. The Committee must receive briefings from those with the authority to carry out the recommendations that the Committee would make.

Mr Pankie Matomela, Executive Manager, DCGTA said that the engagement took the form of the Department giving its response to FFC reports. The Department indeed understood its role. The responses it had presented were attempts to unpack the FFC directives.

Another representative from the Department referred to a shift in accountability that had occurred. He suggested that teams be assembled to deal with FFC concerns, most notably the complaint that municipalities did not support sport projects. Departments had to participate in IDP projects. Municipalities were saying that departments were not sufficiently present in the IDP process. IN regard to rural water and sanitation, he said that that the FFC wanted a bigger infrastructure budget. The Department in turn would ask the National Treasury who was responsible for handling money in rural municipalities. A monitoring team was needed. Municipalities had good budgets, but failed to implement them.

Mr Manyike added that something had been done regarding conditional grants and skills. There was a need for cooperation among different departments.

Mr Chyene Ramphele, Senior Manager, DCGTA, said that the Department had to engage with institutes such as the Association of Civil Engineers to take skills to the municipalities. Huge gaps existed in municipal technical services. There was a need to build human capacity. Young technical professionals had to shadow municipal members. There was a lack of training among finance staff. Some municipalities were run by only one degree-qualified person. There had to be participation and training, but programmes also had to have clear objectives. The DCGTA had invited other departments to be part of IDP reviews.

Mr Kwalethani Bologo, Senior Manager, DCGTA, said that municipalities were currently prioritising streets, but when it came to major roads, there was lack of clarity on who owned the roads, and this was clearly a matter on which some certainty and a ruling was needed.

Mr Sogoni said that the Department at least knew about the confusion regarding ownership of roads, and had to coordinate people in order to finalise the matter. The Committee would recommend a future meeting with all departments involved. Nobody seemed willing to take responsibility for the matter.

The Chairperson referred to statements by the President that things would have to be done differently, and said that this would be the ideal occasion that put that principle into practice. There was an Intergovernmental Relations Act in place. If the Department experienced problems, the Committee could give guidance. Recent meetings had also provided evidence of lack of communication between departments.

Mr Bologo noted that MIG performance over recent years had improved. The Special Investigations Unit (SIU) had investigated the quality of spending.

Mr Mashile countered that some months before, there had been reports of R500 million not spent on MIG. He continued that local municipalities could not employ engineers, and had to resort to the services of consultants. He said that the Department would have to identify and deal with the problem.

Department of Public Works (DPW) responses to FFC recommendations
Mr Solly Malebye, Acting Director General, Department of Public Works, drew attention to the Expanded Public Works Programme (EPWP). The Minister of Public Works had initiated the incentive scheme. Protocol agreements with provinces and municipalities were in place, to meet EPWP targets.

Mr Stan Henderson, Acting Director General: Expanded Public Works Programme, said that the Department of Public Works (DPW) had a limited authority to meet EPWP targets. R4,1 billion had been granted over the Medium Term Expenditure Framework (MTEF) for incentive payouts.

Provincial departments had to adhere to certain principles to gain access. There had to be reports submitted. Eligibility was established through municipal reports to the EPWP. Formal agreements were entered into regarding targets and to settle the question of what bodies would participate. Appropriation of funds proceeded on the basis of incorporating incentives into budgets. Funds were disbursed through provincial treasuries.

He noted that municipalities had to extend their footprints. Criteria were adapted for poor rural municipalities to gain access. There were 68 eligible municipalities, and a total of R201,7 million for incentive grants. After the first quarter of the current year, 8 out of 16 of those eligible had signed incentive agreements. Only Kwazulu and Eastern Cape had submitted timely reports. There were follow-ups on outstanding incentive agreements. Public bodies had to be briefed.

A major impediment was the inability to gather data on the Managerial Information System (MIS).

Mr Malebye added that the private sector had to be invited to provide maintenance inputs. More information had to be gathered into the MIS.

Mr Mashile enquired if the Department indeed had the capacity needed for the EPWP. He noted that there must be engagement with consulting firms, and capacity to monitor the outcome of projects. There had to be capacity to oversee 500000 jobs, and to develop infrastructure. The reliance of government departments on consultants could have unintended consequences. Personnel were taken from government departments, and there was also a drain to the private sector. He noted that the FFC had not raised the issue of an asset register. If a register could be in place, it could assist with housing and rural development. Unknown ownership prohibited delivery.

Mr Malebye noted that the Department was mindful of unintended consequences regarding the use of consultants. Consultants were not, however, used in the EPWP, however. The Independent Development Trust was handling the incentive grant.

Mr Malebye insisted that the DPW had capacity. A Credible Asset Register was indeed in place. There were challenges around updating it.

Mr Abram referred to the Credible Asset Register. He noted that already in 2001 the Portfolio Committee on Public Works had been calling for the register, yet this was apparently still not finalised. If indeed there was not a credible register, then he wanted to know how long it would take to create one.

Mr Malebye conceded that the asset register had to be updated, to facilitate municipal access to land. There was a programme devoted to the upgrading of government buildings, but there were funding problems.

Mr Mashile remarked on the poorly maintained condition of certain buildings owned by DPW. Elsewhere, there were DPW-owned buildings in the townships that had been converted into mansions. Although these were highly sought after as properties to buy, there were no documentary records in existence.

Mr Lees asked about the quantification of municipalities eligible for allocations. He wondered if not all of them were eligible, and, if so, asked how the allocation was done, and how the Gauteng schedule had been determined.

Mr Mokgoro enquired about the relationship between the National Department of Public Works, and provincial departments. He asked if the national Department had responsibility for the provincial departments, with regard to projects taken over by the provinces. He referred to the Convention Centre project in Kimberley that had been abandoned at the quarter level. The media alleged that the contractor had been paid before the job was completed, had sold the project, and had left. He wondered if the national Department had any authority in this instance.

Mr Lees quipped that money disappeared into the Kimberley hole.

Mr Malebye said that there was a need for feasibility studies to prevent what had happened at Kimberley. The recording of participating members had in the past been based on obtaining the ID numbers of people to whom funds were paid out. Money had to be allocated to the right person, and this had to be verified.

Mr Sogoni remarked that he had talked with Mr Henderson about the incentive issues. There were some very needy municipalities that had not qualified. He also wanted to know if the Department was on track with the creation of 500 000 jobs, how long that job creation would take,  and what had been the contribution of other departments, such as Department of Health, to create jobs. The DPW stated that municipalities had to volunteer, but it also had to make sure that everyone at least attempted to qualify.

Mr Henderson replied that in the choice of municipalities, the chief criterion was reporting. The National Department could only be informed about an EPWP project that was under way when the municipality reported on MIS. The National Treasury would provide R4,1 billion, but it desired to see data with integrity. The DPW expected contribution at national, provincial and local levels.

Mr Sogoni responded that questions around coordination remained. The President had stated on 9 May that each department should ask what it could contribute towards EPWP. There were nine provincial departments that had to be told what to do. He enquired what exactly the DPW was doing to coordinate, since this was its responsibility, and what programmes were devoted to this.

 Mr Mashile opined that municipalities had to be asked what they were doing about service delivery and job creation.

The Chairperson emphasised the monitoring and oversight role of the Department.

Mr Malebye replied that integration and coordination were achieved through MinMEC. The Department could be guided by provincial reports and interact with the provinces on that basis. The Department could provide a report on municipal interventions.

The Chairperson encouraged the Department to do so.

Mr Sogoni asked if the kind of jobs available through EPWP ran to a minimum of 3 weeks employment.

Mr Malebye replied that, strategically, that depended on the extent and degree of labour-intensiveness in relation to the jobs.

Mr Henderson added that the Department had a database and monitoring capacity. EPWP work was spread across a four-sector infrastructure. If a road took 6 months to complete, that would be the duration of the job. Length of work varied according to sector. In the cultural sector, the possibility of longer employment was greater, for instance.

Mr Mokgoro noted that at the outset of EPWP, huge numbers of people were employed to build roads, for instance. However, he was now noticing that more mechanisation was being used, such as using tractors to mow grass, which reduced the number of people who could be employed. Labour intensive strategies created more work.

Mr Henderson responded that the EPWP was in principle opposed to the use of machines, and that there was in fact a drive to get rid of them, wherever possible.

Mr Malebye said that the Department would provide adequate reports on issues raised.

South African Local Government Association (SALGA) response to Division of Revenue 2010/11
Mr Mayur Maganlal, Executive Director of Economic Development and Planning, SALGA, stated that considerable service delivery challenges and backlogs remained, especially the water backlog in rural municipalities. Income bases of rural municipalities were low, and there was little economic development. Rural municipalities had not been converted to revenue systems. Municipal finance management capacities had to be improved. In the rural municipalities, the Chief Financial Officers had an average of two years experience.

Government policy and budget allocations needed to incorporate a differentiated response. Funding from the local fiscus was not suitable for rural municipalities.

Intergovernmental cooperation in service delivery, especially in poor rural municipalities, had to improve. Local revenue bases had to be increased.

Rental housing, road infrastructure and access to water and sanitation services needed attention.

Mr Maganlal then turned to issues not dealt with in the FFC submission. These included assessments to measure the impact and return of capacity building; the impact of reformed accounting standards on municipal finances; a dedicated public transport revenue source for municipalities, and the impact of 2010 funding on municipal finances, especially host cities.

A Member objected that SALGA had raised matters that the FFC had not included in its report.

Mr Sogoni said that if SALGA believed that these were important issues that had not yet been raised, then he saw no reason why SALGA should not present them.

The Member insisted that it amounted to coming in at the Parliamentary back door.

Mr Maganlal responded that it was not a matter of entering through a back door. These issues would be raised again at the budget forum.

Mr Sogoni enquired about the structure of SALGA and its relationship with the FFC.

Mr Maganlal responded that SALGA had one member on the FFC. It was not trying to dictate to the FFC, but was only bringing other important issues to the notice of the Committee.

Mr Lees remarked that income bands that related to rental housing had to take into account recession and unemployment.

Mr Mashile stated that if categorising of municipalities amounted to unfair exclusion or inclusion then it would have to be further investigated. He asked if SALGA had ever carried out research to interrogate scales.

Mr Maganlal responded that the role of SALGA was to advocate key issues on behalf of municipalities, and represent their interests. He said that it had indeed recommended a review of the income bands for categorisation. He said that there were municipalities with strong bases, but others were poor indeed. Policy decisions had to take differences between municipalities into account. There were diverse challenges. For instance, there was a divergence as to what EPWP might mean for metros and for rural municipalities and these types of matters must be brought back into the debate.

Mr Mashile also remarked on personnel problems in the municipalities. He pointed out that in particular the financial staff would stay only a very short period in the municipality, and then resign, and he wondered where they were moving.

Mr Maganlal agreed that financial management training was urgently needed to improve skills, not only at the level of senior management. Wealthier local municipalities were drawing skills away from the poorer ones. When it came to skills retention, SALGA was not in a favourable position to suggest better pay for people like Chief Financial Officers.

Mr Mashile also expressed his concern that some rural municipalities lacked skills, yet were accredited as water service authorities. In the case of a bulk water supplier, the failure of a pump, a facility that might cost millions of rands, would have to be replaced through bureaucratic means, and local municipalities could lack the capacity to do that. He enquired if SALGA should not be assisting municipalities that were in that position.

Ms Mashigo agreed that there had been impairment of technical services, because municipalities could not afford them, and asked whether SALGA could share its expertise with municipalities.

Mr Maganlal said that SALGA was an integral water sector partner. It supported municipalities with the water authority function. It had a developmental mandate to work towards sustainable financing. It had to define the roles and functions of districts. There were models of shared responsibility. SALGA had helped set up a finance system in the Northern Cape. The Amatole model provided hope. He noted that the water backlog in the rural areas was high, and that also applied to most basic services in rural areas. However, he was confident that SALGA understood the challenges.

Department of Education (DOE) response to Division of Revenue 2010/11
Mr Theuns Tredoux, Acting Chief Financial Officer, Department of Education, noted that in the previous year, the FFC had emphasised the ranking of schools. In the current year, there was more focus on local government, and the equitable share formula.

There were questions around allocation of funds in the provinces. Educational departments in the provinces were not reached. The National Treasury allocated between provinces. The conditional grant for infrastructure had to be allocated by national departments to certain sectors. Priorities had to be clarified.

The monitoring capacities of national departments had to be improved. Provincial spending had to be monitored to check if it remained in line with original allocations. The MTEF budget was explained to the National Department in January. Monthly expenditure reports were required. After the audit report of the provinces, there had to be a report to the Minister on matters raised by the Auditor-General.

Participation by all relevant stakeholders had to be ensured. A revised way of allocation to provinces was in order. Increased infrastructure investment was required. The Department of Education (DOE) supported the call to address backlogs in educational infrastructure. However, he reiterated that education had not been singled out in the FFC report.

The Chairperson noted that monitoring of provincial department spending had brought to light that there had been overspending of R200 million in the Northern Cape in the previous year.

Mr Mashile noted that schools had closed down in rural areas, and there was lack of transport to alternative settings. He enquired what the Department was doing to enhance access to education, and whether it had the technical staff to manage projects.

Mr Tredoux replied that some of the questions were better responded to in writing. Regarding monitoring, he noted that there was self-authority in the provinces. The National department could evaluate and assess, but implementation occurred in the provinces. The provinces did not take all advice into account.

The Chairperson wondered what circuit managers were doing when they visited schools. He had recently visited a school where pupils had to bring their own water to school to use in the toilets, despite the fact that a river ran within a short distance from that school.

Mr Tredoux noted that the provision of water at schools was the responsibility of the district and circuit managers. All districts did not function properly. Funds had been requested for district development.

Mr Lees opined that the standard of schoolteachers had to be improved, and that retraining was needed. He noted that many teacher training colleges had closed down during the last decade, and enquired as to whether some of them would reopen.

Mr Tredoux answered that the teacher training colleges would not reopen. Their functions had been incorporated into higher education. Teachers were being retrained and brought up to date for the new curriculum.

Mr Abram referred to procurement practices, and asked if it was possible to procure materials rapidly for school building. He noted that there would always be somebody who profited from poor construction.

Mr Tredoux said that there was the outstanding question of whether functions of school building should have been delegated. There were funding changes. The National Department could have a greater impact on what was allocated to the maintenance responsibility of communities. Communities did not always cooperate and assist. Sometimes they bought into State building. At Mthatha, labour for building was drawn from the community. This had led to interaction between the builders, the community and the Department.

There were as yet no revised policies for procurement for school building. This would be followed up with National Treasury. The Vodacom Foundation had wanted to help build schools. It had been willing to contribute 50%, on condition that DPW not be involved. National Treasury had agreed that provinces had to be accountable in the matter. A school could be built completely in one year through a public/private partnership. Procurement policy had to be revised.

The Chairperson asked if there had been resultant saving on costs.

Mr Tredoux replied that costs had amounted to R15 million, as opposed to the provincial budget of R22 million.

Mr Abram was particularly concerned about reports of children who attended school hungry and under-dressed and he asked what was the current status of the school feeding scheme.

Mr Sogoni agreed that school nutrition remained an unresolved problem in the Eastern Cape. Service providers had not been paid since 2004.

Mr Tredoux noted that the capacity to deal with school nutrition was small, but that National Treasury had agreed to increase it. Spending on delivery had improved, but there was still the issue of late payment to service providers. This was linked to late invoice provision.

Mr Sogoni remarked that payment delayed since 2004, could not always be the fault of the service provider.

Mr Mashile added that his own experiences as a Chief Financial Officer had showed that if a person was owed a set amount, but the invoice ran to even R1 more, the Department would stall on the matter.

Mr Tredoux replied that the Treasury regulations stipulated payment within 30 days.

Mr Mokgoro referred to research that indicated the superiority of indigenous language instruction, and asked whether the Department had any plans in that regard.

Mr Tredoux said that he would prefer to answer that question in writing.

Mr Sogoni said that school transport had been included among FFC recommendations two years before, but not in the immediately preceding year. The Departments of Education and Transport had to locate the responsibility between themselves, and the Committee would like to have a report as to what had been done.

Mr Tredoux responded that transport problems to rural schools were receiving attention. There would be a written response.

Mr Sogoni noted that during 2008/09, education had been granted R7billion to deal with backlogs. The funds had not been ring fenced as a conditional grant, and were consequently misspent. He enquired whether the Department had followed up on this.

Mr Tredoux said that both the higher and lower education and training entities received equitable shares. Higher Education and Training had to receive a larger equitable share. The newly constituted Department had applied for more funding. Shared administrative functions were currently dealt with by the old department.

The Chairperson asked a representative of National Treasury to comment.

The representative from National Treasury member said that there was a notable lack of coordination at the level of local government. Improved infrastructure for the building of schools was important. Problems were not always related to a lack of money. Monitoring and evaluation had to improve.

The meeting was adjourned.

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