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PROVINCIAL AND LOCAL GOVERNMENT PORTFOLIO COMMITTEE
13 November 2001
SOUTH AFRICAN LOCAL GOVERNMENT ASSOCIATION: BRIEFING
Chairperson: Mr Y Carrim
South African Local Government Finance: Analysis and Recommendations
South African Local Government Association briefed the Committee on finances. Institutional arrangements, the need for proper financial planning, budgeting and finding alternative sources for income generation were discussed. Problems in expenditure trends were identified as SALGA's operations are currently financed through a deficit. Key decisions need to be implemented in order to stabilise the institution.
The Committee discussed the powers and functions of municipalities and how the process would progress. It became clear that neither the Committee nor SALGA had concrete solutions to the problem.
The Chairperson, Mr Carrim asked South African Local Government Association to give their view on the issue of the powers and functions of municipalities after the briefing was complete.
South African Local Government Association (SALGA)
Ms Hazel Jenkins, Deputy Chairperson and Mr Thabo Mokwena comprised the delegation from SALGA. Mr Mokwena however made a presentation on the finances of SALGA to the Committee.
The key SALGA financial parameters were institutional arrangements; financial planning; budgeting; income; expenditure; compliance and control; reporting and systems.
Key Financial Parameters
Even though SALGA is linked to nine provincial associations autonomy is maintained by the various organisations. It also has a national office and members, which make up the provincial associations. Its target group is municipalities and part of its financing is derived through donor funding.
In April and June 2001 SALGA adopted a national strategy and identified key issues that needed to be addressed. Income stability and sustainability, compliance with the PFMA as well as income generation was identified as priorities.
This is performed on a three-year incremental basis. The budget is not however a reflection of current expenditure patterns and decisions. A shortfall in the current budget was that there was no systematic monitoring. SALGA however wishes to revise the budget and to develop a medium term financial plan and budget. The aim is therefore for the budget to be in line with the requirements of the PFMA.
SALGA essentially has three sources of income - government grants, subscriptions from provincial associations and donor funding. The amount of the government grant is determined on the basis that government matches whatever SALGA is able to raise on their own therefore if SALGA raises R3m, then government allocates R3m to them.
Income from provincial association subscriptions has been steadily decreasing, as more of them are unable to afford the subscription fees.A substantial source of SALGA's income from subscription levies was reduced from about 46% of its income to 0,3%, resulting in a dependency on grants from government and donors.
Municipalities pay levies directly to provincial associations and not to SALGA. There was a misconception that these levies are payable to SALGA. SALGA wants to introduce new sources of finance that are sustainable and stable.
SALGA's expenditure is mainly based on its day to day operations such as salaries and running costs. Money is not expended on key projects. Its operations are currently financed through a deficit. The expenditure levels grew substantially in the 1999-2000 financial years precipitating both the deficit and the cash-flow crisis. Mr Mokwena noted that SALGA's expenditure trend is a problem that needs to be addressed.
Compliance and control
SALGA aims to finalise and approve policies. The organisation needs to implement a system for internal auditing. Key risk areas have to be identified and risk management strategies implemented. A system must be developed to deal with fraud and corruption as well.
Reporting and systems
One of SALGA's objectives is to finalise outstanding audits. Mr Mokwena reiterated SALGA's goal to comply with the PFMA requirements.
Guidelines need to be set for donor reporting and for the drafting of statutory reports.
For a detailed look at SALGA's key financial parameters please refer to the attached document.
Mr S E Pheko (PACA) asked if it was correct that even though SALGA is primarily funded at present by government grants and donor funding it would prefer to be funded by contributions from provincial associations.
Mr Mokwena confirmed Mr Pheko's understanding to be correct.
Ms G Borman (DP) asked what role does SALGA play in assisting struggling municipalities.
Mr Mokwena noted that municipalities struggle in different ways. He stated that municipalities often participate in SALGA's working Committees. SALGA has helped Category B municipalities in capacity building.
Mr D Dlali (ANC) asked why expenditure trends relating to transfers to provinces had changed for the period 1999-2000.
Mr Mokwena pointed out that SALGA realised that many of the transfers to provinces were unnecessary. It was decided to only transfer funds to provinces where needed.
Powers and functions of municipalities
Mr Mokwena noted that this was a highly contentious issue. Allocations by National Treasury on the equitable share impacted on the powers and functions of municipalities. The Municipal Systems Act apparently gave municipalities six months within which to finalise their five-year Integrated Development Plans (IDP's). Mr Mokwena felt it impossible for municipalities to finalise their IDP's without having resolved the issue of powers and functions.
Mr Ackerman (NNP) stated that he got the impression that SALGA is not using the NCOP to interact more with local government. SALGA should accompany NCOP members on provincial visits to get a better sense of what the powers and functions of municipalities should be.
The Chair shared the same sentiments. SALGA should engage in closer co-operation with the NCOP.
Mr Mokwena reacted that SALGA is working with category B municipalities. Consensus has already been reached that district councils are to be instrumental in the formation of new metros. SALGA was working on the issue of powers and functions of municipalities.
Mr Mokwena conceded that SALGA needs to work more closely with the NCOP.
It would be useful to know how municipalities and the Committee itself felt about the issue.
Mr Carrim said that the Committee is of the opinion that district councils should have sufficient capacity and should receive the appropriate funding. District councils should be strong so as to assist smaller municipalities in capacity building.
SALGA supports the idea that more funding should be made available to district councils. Their concern is however that if the provision of essential services is to be taken away from category B municipalities, what is their relationship to be with communities.
The Chair noted that similar concerns over category B municipalities had been raised when amendments had been made to the Municipal Structures Act.
The Chair asked the following questions as well:
(i) Is local government transformation progressing?
(ii) What progress is taking place in the provision of free basic services?
(iii) What is SALGA's response to the Medium Term Budget Policy Statement and the impact that it has on the transition process?
Mr Mokwena responded in the following manner:
(i) He was confident that the process was well on track. A good legislative framework has been put in place. Problems at the initial stage would be resolved timeously. Integrated Development Plans (IDP's) are the cornerstones of transforming municipalities.
(ii) The provision of free electricity has yet to be implemented. The Department of Minerals and Energy has earmarked pilot projects on the provision of free electricity in predominantly rural areas. SALGA has raised questions as to why big metropolitan areas like Soweto have not been identified as one of the areas earmarked for a pilot project. Electricity in Soweto is apparently supplied by Eskom and not by a municipality. The problem thus arises as to who would fund the provision of free electricity in Soweto if it was to take place. There have been concerns by the public that the provision of free electricity to certain communities would have to be subsidised by them meaning higher electricity charges.
On the provision of free water services it was realised that 60% of municipalities would be able to implement this. The rest lacked the capacity.
(iii) An audit done by Deloitte and Touche provided that R1, 6bn would have to be set aside for the transitional process of municipalities. The Department however only made R500m available, local government themselves would have to come up with the shortfall. SALGA had on many occasions raised concerns that if the transition of municipalities was not conducted effectively, the process would not succeed.
The meeting was adjourned.
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