Medium Term Budget Policy Statement: Department of Cooperative Governance & Traditional Affairs

Standing Committee on Appropriations

03 November 2009
Chairperson: Mr E Sognoi (ANC)
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Meeting Summary

The Department of Cooperative Governance and Traditional affairs explained that the Medium Term Budget Policy Statement had allocated an additional R12.4 billion to the Department over the three year period. Of this, R8.2 billion was for the local government equitable share.

The Department outlined the adjustments that had been made to the 2009/10 budget of R35.6 billion. These adjustments included a R288 million roll-over for Municipal Investment Grant funds, R60 million to deal with flooding in the Western Cape, R4.8 million as a salary adjustment, R2.3 million transferred to the Department of Land Reform for a rural reform programme, R509 million to cover increased electricity costs and R60 million for 2010 World Cup disaster management. Overall these adjustments resulted in an increased budget of R36.5 billion for 2009/10.

The Committee discussed the Municipal Investment Grant in great detail. They asked questions about the roll-over of funding from 2008/09 to 2009/10. The Committee felt very strongly that it was not correct that funds could be stopped from one municipality because they were not being spent, and reallocated to a different municipality that could spend the money. Members also asked whether the Grant was working in general, why the Department could not remove the obstacles for municipalities to spend funds, and for details of those municipalities who were underspending. The Committee also asked questions on other aspects of the Department's presentation. They requested clarity on a number of financial figures, asked about Operation Clean Audit, the training of auditors, the ability of municipalities to claim back money owed by government departments, remuneration packages for local councillors, the position of chief whips, vacancies in the Department and the reasons for service delivery protests.

Meeting report

Medium Term Budget Policy Statement (MTBPS): Department of Cooperative Governance and Traditional Affairs (COGTA)
The Chairperson explained that the Standing Committee was a joint one between the National Assembly and the National Council of Provinces. He highlighted the areas of interest to the Committee, particularly mentioning the roll-over of the Municipal Infrastructure Grant (MIG) and where the Department might make savings.

Mr Elroy Africa, Acting Director General, Department of Cooperative Governance and Traditional Affairs, said that the Department (COGTA) would focus, in its presentation, on two time periods: the first six months of the current financial year, and the medium term of the next three years.

The Chairperson pointed out that the Committee meeting was to focus on issues of adjustments and roll-overs. It was important not to get diverted by detailed discussion of current expenditure. He urged the Department to avoid these sections of the presentation.

Mr Africa said that government needed to re-prioritise spending towards key priorities and key objectives. He said that the Department would be supporting the priorities set out by the Minister of Finance in his recent Medium Term Budget Policy Statement (MTBPS).Extra resources had been received by COGTA for the local government equitable share and the municipal infrastructure grant (MIG). Overall, this amounted to a 13.7% increase per annum for local government for the coming three years.

Mr Africa outlined a number of important initiatives that the Department had recently put in place. Operation Clean Audit was helping municipalities to produce good, clean audits and have solid financial management. The second initiative was aimed at improving revenue enhancement for municipalities. Currently municipalities were owed between R50 billion and R53 billion by residents, businesses and government. Finally, there was an initiative to focus on ensuring that value for money was achieved from infrastructure spending. It would aim to ensure that monitoring, oversight and reporting systems were in place in municipalities. Very recently a “local government indaba” had been held, which would form the basis for a “local government turnaround strategy”. This would be an overarching instrument under which many programmes would be rolled out in order to improve operations.

The Chairperson commented that the introduction had been very useful. However, these medium term plans were not “on paper” and therefore neither Mr Africa nor the Department could be held accountable to what had been said. He felt it was very important to get these details in writing immediately in order to have the Department's plans on record.

Mr Mbulelo Sigaba, Deputy Chief Financial Officer, COGTA, said that in the MTBPS, R12.4 billion had been additionally allocated to the Department. Of this, R8.2 billion was for the local government equitable share. The additional funds would be split across municipalities according to the allocation formula. However, there would be a focus on reaching households without access to services.

Mr Sigaba said that R288 million of MIG funding had been rolled-over from 2008/09 to 2009/10 because municipalities were underspending. The roll-over represented funds committed to projects but that had not been spent. He also said that the MTBPS had increased MIG by R2.5 billion over the three year period to augment municipal capital budgets.

Mr Sigaba went on to describe the adjustments in more detail. For 2009/10, the main appropriation was R35.6 billion, and there was an additional appropriation of R920 million. He gave a breakdown of the additional appropriation: R288 million was rolled-over MIG funding, R60 million was to deal with flooding in the Western Cape, R4.8 million was a salary adjustment, R2.3 million was transferred to the Department of Rural Development and Land Reform for a rural reform programme, R509 million was for increased electricity costs and R60 million was for the 2010 World Cup disaster management. Overall these adjustments resulted in an increased budget of R36.5 billion.

Mr B Mashile (ANC, Mpumalanga) asked in which financial year the R288 million was spent.

Mr Africa replied that the money had been a roll-over from 2008/09 to 2009/10, so it was reflected in the current financial year's figures.

Mr Mashile asked whether the R288 million had been returned to National Treasury, and asked, if this had not been the case, whether it had been committed for the future, and what would be the implications of this.

Mr M Swart (DA) noted that 50 municipalities would benefit from the R288 million. He wanted to know in which areas these were located, and by how much they would benefit.

The Chairperson recognised that the MIG was not a huge amount of money, but he wanted to know how it would be forecasted properly. Although the roll-over was small, it seemed that the municipalities had been unable to spend this money. He wondered if capacity was the problem

Mr Phanuel Bologo, Senior Manager: MIG, COGTA, said that in 2008/09 the MIG had received a R8.6 billion allocation towards the end of the financial year, and a number of municipalities were unable to spend these funds before the end of the year. COGTA and the National Treasury had realised this, and agreed to stop R288 million from 33 municipalities, as prescribed in the Division of Revenue Act (DORA). He argued that a major problem was the frequency of staff changes in municipalities. This often made working with the organisations very difficult. The R288 million had been made available to those municipalities who were doing well in spending their MIG funds, and for this COGTA had identified 10 municipalities who were the best spenders.

The Chairperson asked if the Department was reallocating money from non-spenders to those who were spending.

Mr Bologo replied that this was the case. However, there was a lot of work done with the 33 municipalities prior to the decision to stop the funds. Those municipalities that had been able to start spending had been awarded some funds.
Mr Mashile asked what plans were in place to unblock whatever was preventing spending and causing the roll-overs. He also asked what was meant by “funds committed”.

Mr Africa pointed out that many measures were taken before funds were stopped and reallocated. COGTA visited provinces and municipalities to try and identify problems and assist. Often the Director-General interacted with people in the provinces and the Minister raised the issue with colleagues. The Department was very reluctant to stop funds, but sometimes it was necessary.

Mr Mashile had serious reservations about this. He felt that it would merely perpetuate imbalances and underdevelopment. He felt that the Department should try as hard as possible to unblock obstacles in the municipalities. Any money not given to a municipality meant that a service was being stopped, and he said that this could not be correct.

Mr Bologo said that the DORA stated that if funds were not spent then they must be stopped. The Minister of Finance could then decide how to reallocate those funds. He felt that it was not useful to continue to give money to municipalities that would not be able to spend it, but that it made more sense to rather give the money to areas where it could be used. He said that municipalities needed to account for money that was not being spent. There were some cases where municipalities had not spent MIG funds for two or more years. He felt that some municipalities needed to be called to Parliament to account for their actions.

Mr Mashile felt that COGTA had a responsibility to municipalities to help them fulfil their functions. He felt that every possible solution to help municipalities provide services must be explored.

Mr Bologo said that it was important to think about how to help municipalities, but he felt that often politicians were not helpful, as they cancelled projects. He agreed that the key objective was to improve service delivery. In the past, funds had been allocated based on backlogs in municipalities. In the future, the Department would like to allocate additional funds to those municipalities that had lost money.

Co Chairperson Mr T Chaane felt that reallocations of this sort could not be correct. People were suffering. Stopping funds could be contributing to service delivery protests.

Mr Africa said that it was important to look at legislation and examine whether it was appropriate and helpful since COGTA had to work within the legislative framework. The DORA provided incentives and penalties. He asked what the best way was to get the balance between the “carrot” and the “stick” approach, and noted that this was something on which the Department continued to work.

The Chairperson quoted from Section 216(3) of the Constitution, and noted that funds could not be stopped for more than 120 days. He also said that the DORA did not merely say that funds should be stopped as this did not address the problem. The funds must be used for the same purpose, even if they were temporarily moved elsewhere. He also quoted Section 34 of the Municipal Finance Management Act (MFMA), which set out that national and provincial government must assist municipalities in building capacity and resolving their financial problems. He said that responsibility did not lie with municipalities alone, provincial and national government also had to take responsibility.

Mr Bologo pointed out the difference in the DORA between withholding and stopping funds. Withholding was delaying transfers.

Mr Mashile pointed out that municipalities produced annual reports and evaluations, and it was important to read these reports and see whether problems could have been predicted from the past.

Mr J Gelderblom (ANC) said that provinces should be examining the annual reports. He felt that the provinces needed to be more pro-active.

The Chairperson quoted from Section 139 of the Constitution, which stated that provinces could intervene if municipalities were not fulfilling their obligations. He could not accept the argument that national or provincial government was powerless.

Mr Africa said that at the local government indaba there had been an agreement that the failures of local government were also the failures of provincial and national government. There was a recognition that everyone “was in this together”. However, in recent years the DORA had been changed to reduce the direct role for provinces in administrating the MIG. COGTA disagreed with this at the time and the Department's view was that the role of provinces needed strengthening. He said that the turnaround strategy would include details of all pieces of current legislation that COGTA felt required amendments, in order that the Department could carry out their functions to the best of their ability.

The Chairman agreed and said that he hoped the next version of the DORA would address the issue of provinces being removed from the process.

Mr L Ramatlakane (COPE) asked whether the 33 municipalities who had had their funds stopped had poor planning capacity. He also asked if this was where the service delivery protests were occurring. If so, then talking to those municipalities may not work. He understood the restrictions of the DORA, and that the Department could not take political considerations into account, but wanted to know what plans were in place to ensure things improved in the future.

Mr Africa said that 33 municipalities had had funds stopped, but that there had been no work to determine whether these were where the service delivery protests had occurred. He said that there was probably some overlap. There were many explanations and reasons for protests, and sometimes communities were justified in protesting about the slow roll out of services. He said that there was no obvious relationship between protests and backlogs. The main problem was a lack of communication between the municipality and the community.

Mr Swart asked how many municipalities were spending their MIG funds in the areas for which these was intended, rather than covering other expenses. He also wanted to know what action was taken against municipalities who had underspent.

Mr William Ramphele, Senior Manager, COGTA, pointed out that MIG was not always used for the correct purposes. Sometimes the funds were used to pay overdrafts, salaries, bills, and other items. One of the root causes of the problem was that the MIG funds were transferred into the primary bank account of the municipality.

Mr Mashile felt that this was not a valid reason. It would be impractical to insist that a separate bank account would be needed for every conditional grant from government. The major issue was to get municipalities to function correctly.

Mr Ramatlakane asked whether the MIG funding was working.

Mr Bologo said that the MIG was doing a lot of good work on the ground. He said that it was important to retain the conditionality to ensure that there would be infrastructure development.

Mr Africa agreed that the MIG was working. The Community Survey of 2007 showed an overall positive picture in terms of access to services. There were problems, but in general MIG was doing what it was meant to be doing. He agreed that the key problem was instability in municipality management. However, when municipalities were not spending funds, this was a symptom of instability, and not a cause of the problem. He gave the example of Johannesburg municipality, the biggest and one of the best resourced municipalities in the country, yet which had had funds stopped by the Department. There was poor programme management and planning capacity in many areas of the country.

Ms B Ngcobo (ANC) asked how the Department could ensure that there was no repeat of the roll-over time after time. She asked how it would affect the most disadvantaged communities.

Mr T Harris (DA, Western Cape) asked for what purpose the additional R2.5 billion allocated for MIG in 2012/13 was intended.

The Chairperson said that when an allocation was stopped it should not be taken away altogether. It should be stopped to allow certain issues to be addressed. Funds could not be moved from one use to another use, or another municipality. He felt that COGTA was doing a lot of good work, but that there was confusion over the MIG and how the roll-over worked.

Ms Ngcobo asked whether Operation Clean Audit would result in improved service delivery.
Mr Ramphele said that Operation Clean Audit aimed to improve service delivery. However, the relationship was not straightforward as there were some municipalities with clean audits but poor services. Balancing the financial audits and performance audits was crucial. A major problem was the lack of quarterly financial statements, which were not being completed by many municipalities. It was important that these were completed to improve the audit trail.

Mr Africa emphasised that Operation Clean Audit was about encouraging strong financial management. However a clean audit was merely a means to an end, and it was a step towards improving service delivery.

The Chairperson said that the Committee supported and applauded Operation Clean Audit, but wanted to know how the Committee could contribute.

Dr P Rabie (DA) commented that the Department's submission had been short. He asked for further detail and clarity on the Department's expenses in writing.

Mr Sigaba replied that a breakdown could be provided.

Mr Harris asked for clarification of the difference between two total budget figures presented; R35.6 billion and R35.9 billion.

Mr Sigaba replied that the R35.988 billion figure represented funds for local government. The difference arose because additional funds had been listed separately in the presentation.

The Chairperson felt that this did not adequately explain the difference in the presentation between the budget figures of R35.6 billion and R35.9 billion and requested a response in writing.

Mr Chaane pointed out a difference between figures presented in Table 4.5 of the MTBPS and the COGTA presentation. He asked that these were checked and the differences explained in a written response.

Mr Ramatlakane asked about money owed to municipalities. He felt that the detail was lacking around the programme to recover money owed by government. He asked who were the main debtors in the R53 billion owed.

Ms R Mashigo (ANC) asked how good the billing system was, to claim back the money owed by government departments.

Mr Ramphele replied that methods were in place to improve the billing processes in municipalities. It was important that municipalities were able to break down bills into monthly, rather than annual, statements. He said that progress was being made and that the Department was working with provinces, who were the main drivers behind this work.

The Chairperson asked which government departments owed money, and how much they owed. He requested this information in writing.

Mr Ramatlakane commented on page 63 of the MTBPS. He asked what a reasonable remuneration package would be for local councilors, and whether there were plans for equalisation.

Mr Africa replied that the payments for councillors were essentially a policy issue and therefore there had been no pronouncement as yet. However, COGTA would be making recommendations as part of the policy review of local and provincial government. The Minister was on record as saying that this issue needed to be opened up for debate. The Minister felt that investigation was needed into how to get salaries to be more comparable across the three tiers of government.

Mr Gelderblom asked whether money used for training auditors had been well spent. He wanted to know whether there had there been any success in this approach.

Mr Ramphele replied that training had been given on finance to ensure that all staff had minimum qualifications. It was important to deal with the lower level staff members rather than merely concentrate on Chief Financial Officers. There were programmes in place through the local government sector education training authority (LGSETA) to carry out this training. He pointed out that auditors were not being trained in this way.

Ms Ngcobo asked for examples of where infrastructure spending had delivered value for money.

Mr Africa said that this was a brand new initiative and it was too soon to have any sense of the results it might produce.

Mr Mashile asked about the position of the chief whip in municipalities. This was not an institutional position. He asked whether COGTA had looked into this.

Mr Africa said that the position of whips was a gap that needed to be addressed. Additionally there was a need for a framework to organise the relationships between the offices of mayor, whip, speaker and municipal manager.

Ms Ngcobo wanted to know what scarce skills were needed in COGTA.

Mr Mashile pointed out that employees' compensation was below what he had expected. He asked whether there were serious vacancies in the Department.

Mr Sigaba said that there was no Occupation Specific Dispensation (OSD) within the Department. The general salary adjustment had been above the estimated inflation rate in the previous year.

Mr Africa replied that the Department had 532 staff and 143 vacancies, a vacancy rate of 26%. This was relatively high. However, the Department was going through transition and restructuring. A new organogram had been prepared and there had been a decision not to fill vacant posts until this had been approved by the Department of Public Service and Administration.

The Chairperson asked whether work was being delayed because of vacancies.

Mr Africa said that some programmes had been affected, and that these programmes were also being reassessed.

Ms Ngcobo asked whether there were any service level agreements outstanding between COGTA and local government.

The Chairperson said that there must be close engagement between COGTA and National Treasury, especially where legislation was hampering the functioning of the Department. He added that the Department should reply to all unanswered questions in writing within by the following day.

The meeting was adjourned.


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