Property Rates Funds Grant devolutions: Provincial Department of Public Works hearings

Meeting report

Devolution of Property Rates Funds Grant: public hearings
National Treasury Presentation
Mr Edgar Sishi, Director, National Treasury, said that, as at 31 December 2009, the provinces’ total adjusted budget stood at R37.6 billion, with their total projected spend at R38 billion. The actual payments made totalled R25.6 billion (68.7% of adjusted budget). Although provinces were, on average, spending 4.2% more than for the same period in the previous financial year, certain provinces (the Eastern Cape, Gauteng and the Northern Cape) had noted slower spending. Provinces had, as at 31 March 2010, spent 97.6% of their adjusted budgets with the most notable under-expenditure being in Limpopo (89.7%) and the Western Cape (92.7%). There had been a 12% increase in expenditure as compared to the same time in the previous financial year.
Spending in terms of the Devolution of Property Rates Funds Grant at 31 December 2009 stood at R841 million (56.6% of adjusted budget). Three provinces (Gauteng, Limpopo and Mpumalanga) had projected to under-spend while Free State and Western Cape had projected to over-spend. At the end of the fourth quarter the majority of provinces had under-spent on this grant by a total of R309 million – a significant increase from the previous financial year. The year-on-year growth in spend had however increased by 71.5%.  

Provincial Departments of Public Works (PDPW) were responsible for the payment of municipal property rates for all departments in a province. Failure to do so may lead to the termination or disruption of services such as water and electricity. As spending on this grant was highly reliant on the rating and billing capacities of municipalities, poor municipal property management, billing systems or late billing influenced a province’s ability to meet its obligations negatively. Provinces with former homeland government structures within their jurisdiction were particularly negatively affected, owing to the incomplete rating of properties in those areas. The budget of this grant was adjusted by R353.2 million in 2009/10 due to the under-funding of certain provinces. Reasonably accurate baselines were essential before the devolution process could be completed.
 
Discussion
Mr S Mazosiwe (ANC, Eastern Cape) asked whether the property rates covered rural and outlying areas.

Mr Sishi answered that this depended largely on the demarcation of the land in question.
 
Mr Robin Carlisle (MEC, Western Cape Department of Public Works) queried the difference of the figures of his Department to those noted by National Treasury in terms of the province’s projected outcome as at 31 December 2009.

Mr Sishi answered that the projected outcome figures were provided by the Chief Financial Officer of the Western Cape Department of Public Works, Roads and Transport.

Mr A Lees (DA, KwaZulu-Natal) said that it was not merely the adjusted budgets that were under-spent and that there were other factors at play too. He asked how baselines were established.
 
Mr Sishi answered that the greatest amounts were given to Gauteng and this province was the biggest contributor to under-spending. Had National Treasury not given the additional funds, the figures would have been closer to the budget. In terms of the baselines, it was possible to make a reasonable estimate of what costs in this regard should be.
 
Western Cape Presentation
Mr Robin Carlisle, MEC, Western Cape Department of Transport and Public Works, said the Department took responsibility for the payment of municipal property rates accounts from 1 April 2008. During 2008/09 a total of 1881 accounts payable to the value of R184.7 million were received from municipalities, though only R147.1 was paid, resulting in a shortfall of R37.6 million.  
The Property Rates Grant was in its third year of implementation and the data trends would be developed over time. As the province was currently in the process of acquiring additional sites for health and educational purposes, there would be additional property rates expenditure.

Factors that contributed to its apparent under-spending included the late submission of accounts from the City of Cape Town, due to the process of splitting rates and utility accounts, 2009/10 accounts received after financial closure, and delays in the finalisation of transfer of new sites for education and health purposes.
 
Discussion
Mr M Makhubela (COPE, Limpopo) asked whether the additional hours worked would necessitate overtime being paid.
  
Mr C Ismay, Chief Financial Officer, Western Cape Department of Transport and Public Works, answered that overtime was not paid in this regard as it was considered ‘voluntary overtime’.

Limpopo Presentation
Mr P Kekana, Chief Financial Officer, Limpopo Department of Public Works, said that there were 3 557 properties devolved to the province. The province’s allocation grew from R12 million in 20089/09 to R13.7 million in 2009/10. The province’s Exco Decision No. 59/2001 had compelled various departments to be responsible for the payment of rates, water and electricity of a building if the department alone occupied the building. If, however, more than one department occupied the building, the Department of Public Works would be responsible for these payments.
  
The province’s expenditure percentage for 2009/10 stood at 59.17%, which was an improvement on the previous financial year. This improvement was a result of departmental initiatives, which were both political and administrative in nature.
 
The Department experienced challenges in the form of municipalities not excluding consumption and areas from the bills they were providing, a lack of capacity in the property unit which managed the payment of rates and taxes, and a lack of adequate monitoring capacity.
 
Discussion
Mr Makhubela asked what had been the cause of the noted under-expenditure. He also questioned whether the money paid out twice through the double-payments was recovered.
 
Mr Kekana answered that 2 698 were not paid initially. This had contributed significantly to under-expenditure. Double payment was a potential risk and not the actual occurrence. The new process of verification would assist in picking this problem up while the new organisational restructure would help reduce the risk of this happening.
 
The Chairperson asked whether the Department had measures in place to identify risk controls.

Mr Kekana answered that the organisational restructuring would help boost the monitoring capacity of the Department.
 
Eastern Cape Presentation
Mr Eugene Jooste, Chief Financial Officer, Eastern Cape Department of Roads and Public Works, said that some of the factors that had contributed to under-spending in relation to the grant included institutional capacity issues, and discrepancies between municipalities and the Department around outstanding amounts and un-invoiced municipalities. As the list of properties devolved from the National Department of Public Works (DPW) had not been verified or audited, the asset base for the payment of rates and taxes was not complete. This had made it difficult to determine the rates and taxes liability of the province for the 2008/09 baseline. The Rates and Taxes Project initiated by the Department was proving that the liability for rates and taxes was increasing due to the identification of additional properties as well as increases in tariffs above the Consumer Price Index. The Department was increasing its spending on the Devolution of Property Rates Grant (from R60 million in 2008/09 to R113.6 million in 2009/10). Under-spending amounts would be offset by amounts the Department had discovered were owing to it by municipalities and the National Department of Public Works.
 
Discussion
The Chairperson asked whether the Rates and Taxes Project would assist in capacity building.

Ms Pemmy Majodina, MEC, Eastern Cape Department of Roads and Public Works, answered that the Project would address capacity issues. There was a dedicated team which had assisted in updating the asset register.

KwaZulu-Natal Presentation
Ms Maggie Govender, MEC, KwaZulu-Natal Department of Human Settlements and Public Works, said that, in terms of the Devolution of Property Rates Funds Grant, the budget allocation for the province for the 2008/09 financial year was R210.8 million. There had been a shortfall of R36 million which became the first charge for the 2009/10 financial year. The budget allocation for the 2009/10 financial year was R237.282 million (including the rollover from 2008/09 of R1.118 million). Although the Department had made payments to the amount of R237.204 million, the total amount for invoices it had received stood at R458.510 million. This resulted in a shortfall of R221 million. The unpaid invoices had to be held over for the new financial year due to the fact that there had been insufficient funds. The Department had made application for the adjusted estimates to include the increased amount. As a result of apparent miscommunication between the National Department and National Treasury, this amount had not to date been provided. Challenges that this provincial Department faced included the fact that many of the provincial properties were carrying arrears from the years prior to the devolution of the property rates payment function to provinces, that there were properties where the ownership was unclear and had to be established between municipality, provincial and national custodians, that some municipalities disconnected services if rates were unpaid or not fully paid, and the fact that property rates in a number of municipalities had increased by between 100% and 300%.

Discussion
Mr C De Beer (ANC, Northern Cape) asked why the department’s allocation figure differed from that noted by National Treasury.
 
Ms Govender said that the National Treasury figures were indeed the correct ones.

The Chairperson asked what progress had been made in terms of disputes over land ownership.  

Ms Govender answered that a forum comprising Provincial Treasury, the national DPW, the provincial department, the office of the MEC as well as municipalities had been set up to address this issue. This forum had seen significant successes.

Northern Cape Presentation
Mr Dawid Rooi, MEC, Northern Cape Department of Public Works, said that, in terms of the Devolution of Property Rates Funds Grant, the Department’s total budget allocation for 2009/10 was R37.3 million (including an adjusted budget allocation of R10.3 million). Of this amount it had spent R32.3 million (99% of its allocation). In terms of monitoring, it had not received any funding to accommodate the posts to perform this function. In terms of reporting, monthly spending reports were submitted to the NDPW though only capacitated municipalities submitted monthly statements reflecting payments received. Challenges the province experienced included that there were properties where the land belonged to the municipalities, although the buildings belonged to provincial or national government, that the client departments had to budget for rates and taxes for all new infrastructure developments, and that some properties that were transferred from the previous NW province also had to be vested.
 
Discussion
Mr Makhubela asked whether those municipalities that were poorly capacitated submitted invoices. He also asked the Department to expand upon what plans it had in place to address the challenges it mentioned.
  
Mr Rooi answered that municipalities that did not have adequate capacity were assisted through cooperative governance. The department’s organisational restructuring was one way it intended to deal with its challenges.
 
Gauteng Presentation
Mr M Selepe, Representative of Gauteng Department of Infrastructure Development, said that some of the challenges his province experienced from the outset in terms of the grant included that certain properties were continually moving from one council to another, and that since municipalities did not have all the necessary information, town planners had to be consulted. Further challenges included personnel capacity constraints, and municipalities not being able to identify ownership due to properties belonging to other provinces, institutions or national government. For the 2009/10 financial year, the budget allocation in terms of this grant was R401 million, of which the Department spent R231.3 million. Some of the mechanisms the Department had put in place to address its under-expenditure on this grant included having regular meetings with the municipalities, the training of more staff around utilisation of iE-Works system, and developing a service level agreement in order to enhance relationship management. In terms of monitoring, the Department had ensured that payments were based on asset register verified data, there was joint payment allocation and reconciliation with municipalities, and that it held Debt Committee meetings with the Department of Finance with municipalities also in attendance.
 
Discussion
Mr Makhubela asked how effective the Department’s internal controls were, and what plans it had in place to ensure invoices were submitted on time.
  
Mr Selepe answered that the Department did a verification of its asset register and did not make any payments until it had verified that it did indeed own the property. A lack of interface between systems created weaknesses. Although its internal controls were adequate there was room for improvement.

Mr De Beer asked why some of the figures presented by the Department had differed from those presented by the National Treasury.  
Mr Selepe agreed that the figures provided by the National Treasury were the correct ones.
 
The Chairperson asked how many of the properties’ bills the Department was able to attend to every month.
 
Mr Selepe replied that the Department would have to give a written response to this question.
 
The meeting was adjourned.