Property Rates Grant: National and Provincial Departments of Public Works spending

Standing Committee on Appropriations

11 October 2010
Chairperson: Mr E Sogoni (ANC)
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Meeting Summary

The Standing Committee on Appropriations and the Portfolio Committee on Public Works sat jointly to discuss the spending of the National and Provincial Departments of Public Works on the Property Rates Grant. The National Department reported that it had transferred most of the R1 billion allocated for the Property Rates Grant to the provinces, which were in turn responsible for the transfer of funds to municipalities. Most provinces had received their full allocations, but the Free State and Mpumalanga had not, due to poor financial performance. Costs had increased significantly since the introduction of the grant, mainly due to inflation. There were some challenges, particularly in the capacity of the municipalities to produce accurate and timeous invoices. There was still some confusion over the ownership of certain properties. In addition, there was a difference in approach from one municipality to another.

National Treasury reported that less than half of the funds allocated to provinces had been spent. Some provinces had made more progress than others. Some projections had changed. There were several factors influencing the financial performance. A major factor was the efficiency and method of billing employed by municipalities. There were some dramatic inflation-driven increases.

Brief reports were then given by the provincial departments. The Western Cape was expecting to experience a shortfall despite spending all its allocated funds. The asset register was being completed. Municipalities were expressing problems with billing. The Northern Cape experienced similar problems. The province suggested that National Treasury should assist provinces in developing their capacity. Assistance should also be given in regards to administration costs. Having to bear these costs impacted on other programmes run by the province. Mpumalanga also experienced problems with municipalities being unable to invoice provincial authorities. One municipality had also exempted certain categories of building from property tax. Limpopo had spent almost all of its budget but still had outstanding bills. Many properties still had to be verified. The Free State had already spent most of its budget and its projected spending was almost double the allocation granted. One municipality charged very high rates, although it was apparently legally entitled to do so. The Eastern Cape was making attempts to reach out to the community. A major challenge was the outstanding debt at the time of devolution. The province of Gauteng had been taken to court by some municipalities. There were also problems with billing.

Members were concerned about all the issues and difficulties raised, commenting that the payment of property taxes was a serious matter. Municipalities had to be assisted to develop the capacity to deliver invoices accurately and in good time, and they noted that this had already been a matter of contention for some time. The asset register, including that of the National Department, had to be accurate and complete. It was acceptable that private companies could sponsor the property rates of institutions such as schools and hospitals, but these rates could not just be written off. Members took note of comments that the provinces were hampered by the fact that the municipalities had different financial year ends to those of national and provincial government departments. They also noted comments about the possibility for and actual corruption, including problems at the Deeds Office, vested interests and misuse of State property. There were also problems around lack of information contained in the invoices, and inconsistent or inadequate billing, the absence of valuation rolls, and outstanding debts prior to 2008, which affected the initial balances.

Members suggested that good lessons could be learned from the way in which the Free State had approached the problem, particularly with the setting up of forums to discuss matters, and that time frames should be put in place. The Department of Cooperative Governance and Traditional Affairs must also be involved in the processes. There was a need to decide whether the funding should be paid in lump sums or by instalments. It was also necessary to reconcile the figures, so that the DPW and National Treasury were working with the same figures. The Committee would need to engage further on capacity issues.


Meeting report

Property Rates Grant: National and Provincial Departments of Public Works spending
Co Chairpersons’ opening remarks

Co Chairperson Mr E Sogoni welcomed delegates and Members, and noted that Members from the Portfolio Committee on Public Works were attending the meeting, but they would have to leave the meeting early in order to attend another meeting.

He noted that the Committee had met with officials from KwaZulu-Natal (KZN) earlier. It might seem that the Committee was harping on the issue, but the matters had still not been resolved. Parliament was not in the business of saving money. It appropriated funds to enable lower levels of government to deliver services to the community. If provinces kept rolling over funds, then their allocations could be taken away.

He also commented that, through oversight, the South African Local Government Association (SALGA) had not been invited to the meeting.

Co-Chairperson Mr G Oliphant said that the issue of property rights kept cropping up in various ways. Municipalities did not send invoices to the provincial authorities. They were not always aware of the asset profile under their jurisdiction. He had recently attended a summit on this matter in Durban.

Mr Sogoni noted that all provinces faced the same broad challenges although the details might vary. He suggested that the National Department of Public Works (DPW) be allowed to address the meeting first, followed by the provincial departments. He noted an apology from the Director General of the DPW. He also noted the absence of a delegation from the North West.

National Department of Public Works presentation
Ms Cathy Motsisi, Chief Financial Officer, Department of Public Works, said that R1 billion had been allocated for the Property Rates Conditional Grant over the Medium Term Expenditure Framework (MTEF). Of this, R768 million had been transferred to the provinces, and the balance would be transferred during October 2010. Provinces would in turn transfer funds to the municipalities.

There had been a huge improvement in the situation in the Limpopo province. KwaZulu Natal (KZN) had received its full allocation already. The Eastern Cape (EC) had been granted an additional R34 million, even though it had not forwarded a request, as it was already over budget. This figure was based on the projection submitted by the province. The Free State had received R68 million and Gauteng had received R108 million. In KZN there had been an increase to the baseline of 173%. Limpopo could not give its figures as the municipalities in the province had not submitted invoices in time. However, there were indications that Limpopo's costs would exceed the budget. The Free State had requested an additional R186 million of which R68 million had already been allocated. Similarly, Mpumalanga had requested an additional R26 million, of which R13 million had been allocated. This allocation was based on the province's spending in the previous year. The other provinces had received the full amounts requested.

Ms Motsisi said that the allocation of R1 billion in this financial year represented an increase of 70%. This was based on the previously devolved budget of the 2006/07 financial year (FY). There were huge increases due to inflation. Provinces needed to complete their property audits quickly. The DPW needed to look at provincial requests, and to correct the alignment. Ms Motsisi said that a team had been put in place that would assist municipalities with their billing. There was a need for proactive engagement in the determination of proper valuations. The challenges facing municipalities were delays in issuing invoices, inaccurate billing systems, inaccurate verification and reconciliation of invoices, the impact of the new Property Rates Act and unreasonable interest rates. The DPW was working closely with SALGA to resolve these challenges.

National Treasury (NT) Presentation
Mr Edgar Sishi, Director, National Treasury, said that it was difficult for National Treasury (NT) to keep track of funds due to the different configurations of the Provincial Departments of Public Works in the different provinces. In terms of Section 40 of the Public Finance Management Act (PFMA), financial reports had to be signed off by the Chief Financial Officer or Head of Department (HoD) of a provincial department. NT would then double check that all the figures were correct. NT's numbers should agree with those presented by the DPW.

Mr Sishi said that during the current FY, R427 million of the grant had been spent, equating to 39%. He realised that provinces’ spending was affected by the municipalities. The amount due in rates varied from municipality to municipality, and some municipalities were quicker to submit invoices than others. Some of the provinces, such as the Western Cape, Free State and Limpopo, had made good progress. The figures were not as good in other provinces. The Eastern Cape had only spent 9.2 % of its grant to date, Northern Cape had spent 1.6 %, Gauteng less than 1%, and Mpumalanga nothing.

Mr Sishi said that the Chief Financial Officer of a province was responsible for the spending projections to the end of the FY. He listed the current spending and projections for each province. These projections had changed since the compilation of the first quarter reports. The most dramatic turnaround had been in the Free State. Spending in that province had been low but a major turnaround had taken place. At the end of June 2010 the estimated overspending had been R68 million, but this had now grown to R187 million.

Mr Sishi said that there had been a dramatic increase in the year-on-year figures. The current figures showed an increase of 197% on those for the previous FY. The biggest increases were in the Western Cape, Free State and KZN. Gauteng was showing a decline. Unspent funds would be distributed into the provincial revenue fund. R862 million had already been deposited into the bank accounts of the provinces, but to date only R427 million had been spent.

Mr Sishi listed some of the factors that affected spending of the grant funds. Billing was spread over 283 municipalities. These municipalities invoiced the provinces, but at different times. The Municipality of Tshwane tended to send out one massive bill that covered rates for the year, and which might be as much as R220 million. Many invoices were now coming through in the Free State. Municipalities faced difficulties with their billing systems, capacity and staff turnover. In Limpopo many municipalities did not know what to charge. This made it very difficult for provincial government to budget correctly. Broadly speaking, the situation was improving, but there were still some challenges.

Mr Sishi said that in Gauteng there were disputes over the accuracy of invoices. There were different types of property to be considered. For example, a school might belong to the province but it could be standing on private or municipal land. In some cases provinces had internal issues. Inflation had led to dramatic increases in the value of properties, particularly in the Free State. Another challenge arose from the opening balances that had been in place when the properties had been devolved. The accounts had been opened with outstanding rates. In some cases municipalities were levelling rates on public service infrastructure such as roads, railways and dams. He was not sure that this was allowed. It was never the intention of the Act that government should bill government. An amendment to the Property Rates Act was being prepared.

Mr Sishi said that properties were still being transferred to provinces. The audit had still to be finalised. Provinces were being billed for properties which they did not even know existed.

Mr Sishi said that inter-government forums were being created, with. KZN and the Western Cape taking the lead. He expected to see an improvement in future. The Auditor-General (AG) took note of payments that were not made on time. Any payments that were more than 30 days in arrears had to be resolved. The estimate was that municipalities were owed R56 billion by national and provincial departments. In Tshwane the municipality had gone so far as to disconnect the water and electricity from schools that were in arrears.

Western Cape Provincial Department presentation
Mr Joey Pillay, Acting Head, Property Management, Western Cape Department of Transport and Public Works, said that the main budget for property rates in the Western Cape was R181.3 million. There had been a roll-over of approximately R18 million. Western Cape was facing a shortfall of R64 million. The total requirement was R262 million. To date R199.9 million had been paid, comprising both the main budget and roll-over funds. He expected that the entire allocated grant would be spent.

Mr Pillay said that the risks had not been quantified. Many invoices were still to be submitted by municipalities. Some funding issues had to be confirmed. Some properties had recently been upgraded but were not yet being billed accordingly. New properties were being acquired. Rates had to be determined regarding lease agreements, for example with farm schools on private property. A project had been launched to ensure that the asset register was completed. There was a need to verify the information contained in the asset register.

Mr Pillay said that there were challenges but the province was making headway in dealing with them. In some cases rates accounts were not being split into property rates and services. Payments made were set off against older debts. This process was being managed. Some municipalities did not have the correct information in their billing systems. Invoices were still being sent to the wrong addresses. This matter was being dealt with. Another challenge was the transfer of sites for purposes of health and education. On the reporting side, the deadlines had been met for the current FY.

Northern Cape Provincial Department presentation

Mr D van Heerden, Head of Department, Northern Cape Provincial Department of Roads and Public Works, said that most issues of concern to this province had been covered. There was a challenge in paying rates. This arose from the lack of capacity of municipalities to bill the province. All of the allocation in the previous FY had been spent. The biggest problem was that the baseline was not correct. The register maintained by DPW dated back to the 2008/09 FY.

Mr van Heerden said that one major challenge was the increase in rates. This increase was in excess of the regulations of the Division of Revenue Act (DORA). Rates being charged did not correspond with the agreed rates. Nothing had been spent during the first quarter of the current FY. There had been an increase in the number of invoices, but many were sent to the wrong addresses or the bank details were incorrect.

Mr van Heerden said that the projected shortfall was R9.9 million. This number would still be confirmed by the provincial treasury. The DORA allocation for 2010/11 was R29.7 million while the projected expenditure was R39.6 million. The payment of rates had been devolved but not the administration costs. The grant was for rates. If the payment function was to be devolved to provincial level then it could not only be for the rates. Administrative costs had to be included. It was important that NT should discuss the matter with DPW. The provinces had to be funded and capacitated. Other programmes were being compromised as a result of the current situation. There was also an issue where state property was situated on municipal or private land.

Mr David Rooi, MEC for Roads and Public Works, Northern Cape, said that some issues had been raised with the Committee. The opening balances at the time of devolution were a problem. This was a recurring issue together with some of the issues already raised. Solutions were needed. He did not want to use these issues as an excuse, as NC would pay its bills and then try to correct any discrepancies later.

Mpumalanga Provincial Department presentation

Mr K Mohlasedi, Head of Department, Mpumulanga Provincial Department of Public Works, Roads and Transport, said that Mpumalanga had spent 97% of its budget for the 2009/10 FY. There had been a roll-over of R1.9 million. Nothing had been spent in the current FY. R44.3 million had been allocated for 2010/11. The province had already received invoices to the tune of R51.2 million. This was already more than the annual budget. Six municipalities had not yet submitted any invoices.

Mr Mohlasedi said that one of the challenges facing the provinces was that municipalities had outsourced printing services. New financial systems were being introduced. The predominantly rural municipalities in the province were particularly challenged. In some cases there were no valuation rolls. Municipalities could not differentiate between the national and provincial public works departments. One municipality, Mafalene, had exempted certain properties such as hospitals, clinics and schools from property taxes. This led to under-expenditure. The province had sent teams to the municipalities to discuss the issues.

Limpopo Provincial Department presentation
Mr P Kekana, Chief Financial Officer, Limpopo Provincial Department of Public Works, said that Limpopo had not been able to spend its budget for the 2008/09 FY and 2009/10 FY fully. He presented figures to the Committee that had been prepared on 11 October 2010. The budget for the current FY was R15.1 million, of which R15.0 million had been expended to date. The province still had R5 million in unpaid bills, but had only R68 000 left in the bank from the grant. The province had started with 3 557 properties on the asset register, of which 2 800 still had to be verified.

Mr G Phadagi, MEC for Public Works, Limpopo, said that some municipalities had not billed the province at all in previous years. Billing now stood at 99%.

Presentation by Free State
Ms M Anthony, Head of Department, Free State Provincial Department of Public Works and Roads said that the Free State had already exceeded its allocation for the 2010/11 FY of R154 million. Its projected spending for the year was now R341 million, creating a shortfall of R186.8 million. The province was doing well with the grant. So far R154 million had been received from NT.

Ms Anthony said that the Free State provincial government had formed a forum to bring the district municipalities and the provincial treasury together. By the end of September, 77% of the budget had been spent. A particular municipality was charging particularly high rates, but these were apparently legal and had been passed by the council. She told the Chairperson that the rates there were much higher than in other municipalities.

Ms Anthony said that the province was busy with a verification programme. It had gone to the municipalities to assist with the invoicing process. A task team had been established on 22 September 2010. A high turnover of officials affected the continuity of the administration.

Eastern Cape Provincial Department presentation
Ms Pemmy Magadima, MEC for Roads and Public Works, Eastern Cape, said that the challenges facing the province were on record. More interaction was needed. The EC had formed a municipal finances unit. Three managers and assistants had been appointed. The challenge lay in finding ways to make contact with the people. The province had exceeded 50% expenditure to date, but there were still difficulties. One of these was the outstanding debt, which was a municipal process, which had been outstanding from years prior to the introduction of the devolution process in 2008. These debts were denting the image of the province. Otherwise, the Eastern Cape was on track.

Mr E Jooste, Chief Financial Officer, Eastern Cape Provincial Department of Roads and Public Works, said that R147 million had been allocated to the province. The figures submitted by NT had been compiled at the end of August. The Eastern Cape had spent a lot of money during September. The province had worked on the asset register. It now had a better understanding of the situation and was making a serious attempt to catch up.

Gauteng Provincial Department presentation
Ms Faith Mazibuko, MEC for Infrastructure Development, Gauteng, said that the Gauteng Province was committed to paying its rates and taxes. The province included three metros, three district municipalities and nine local municipalities. There was a Chief Director dedicated to administering property taxes. However, municipalities were taking the province to court. R106 million was allocated to the province, but this was not enough. Every day a new school was being completed. Schools received donations that enable them to extend their buildings. As a result some schools were now liable for a rates bill exceeding R1 million. She felt that there should be regulations to determine minimum and maximum property rates. Schools were not profit-making bodies and nor were State clinics.

Ms Mazibuko said that the billing system was a mess. Monthly statements were not issued. Government was seen as a cash cow. Municipalities charged interest on outstanding accounts. There was some confusion regarding national and provincial properties. This was being sorted out, even though there was no asset register. A forum had been created and this met monthly. The provincial government could only pay against invoices. To do otherwise would increase the potential for corruption.

Ms M Modipa, Head of Department, Gauteng Provincial Department of Infrastructure Development (DID), said that the MEC had articulated part of the problem.  Gauteng had overspent on its budget by R100 million in the previous FY. This had been due to administrative bungling on the part of both provincial government and municipalities. In 2009 there had been an allocation of R173 million, with R17 million being contained in a roll-over. The current FY saw Gauteng in a dire financial situation. Money not spent had to be surrendered to NT. There was a disturbing situation in the current year. The province had met with the Johannesburg metro and hoped to see some improvement. Claims were being made incorrectly and were not sent in on time.

Ms Modipa said that there were current interventions that aimed to address the problems. The province had met with the Chief Financial Officers and Executives of the province's municipalities and had urged the municipalities to improve the standard of their billing. There had not been much reaction.

Ms Modipa said that some of the challenges were the late submission of claims and incorrect details on claims. One of the problem areas was Westonaria. She had a sense that the situation would be turned around.

Discussion
Mr Oliphant said that unfortunately Members of the Portfolio Committee on Public Works were already due to attend another meeting, so could not engage further on the issues. He said that it was disappointing that so many MECs were absent. There was a clear pattern of under-expenditure in the provinces. Members had gone to the municipalities and had been told that provinces were raising endless disputes over the bills. There were issues related to the Extended Public Works Programme (EPWP). In KZN the projected over-expenditure was much less than the figure that had been raised at this meeting. Parliament would have to be asked to approve extra funding. The question that was always raised was why money should be given to provinces that had been unable to spend money efficiently in the previous years. The establishment of forums was a good move. Non-performing areas should be cut out. If the system was not working it had to be fixed.

Mr Sogoni said that the purpose of this meeting was to solve problems. There were best practices that could be followed. Those provinces with challenges should learn from the others. Parliament had to be convinced that the resources it appropriated would be utilised. Parliament had to interrogate the plans. He asked what the way forward should be.

Mr M Swart (DA) said that the grant was a serious matter. Service delivery had to be conducted at the lowest level. He asked why roll-overs were approved if the money was not getting to the municipalities. He commended the efforts of the Free State. The Northern Cape needed both funds and additional staff, as did the municipalities. Members needed to know who owed what. These problems were the subject of audit reports. There were faults on the part of municipalities.

Mr Mohlasedi said that Mpumalanga had a budget of R44 million but had already received bills for R51 million. This province had noted the lessons from the Free State regarding the forums. The Mpumalanga government had sent out teams to investigate the situation. The Free State provided a good lead to follow.

Dr P Rabie (DA) agreed with the MEC from Gauteng that there was reason for grave concern. Bills were questionable. It was wrong for local government to charge interest on outstanding dues. A discussion was needed on billing. Officials could not be allowed to play “legal games”.

Mr J Gelderblom (ANC) said he had detected a common theme. During the previous two years the NT had worked with provinces and municipalities. He wanted to know what was on the table. Time frames needed to be put in place. Emphasis must be placed on the huge importance of meetings. Admittedly some progress had been made. It was not good enough for the various parties to blame each other.

Ms B Ngcobo (ANC) was not clear about the asset register. The DPW did not seem to have such a document, and therefore must pay attention to this.

The Chairperson asked that if there was no bill for the property tax, then who would pay. He understood that the municipalities might have sympathy for some institutions. It was acceptable if a mine or some other company made a donation in this regard, but it was illegal to exempt an institution from paying property tax, no matter how generous the municipality was trying to be. He asked where the money came from. He had attended a conference with municipal Chief Financial Officers in the previous week. He had raised with them whether there was full understanding of the Municipal Finance Management Act (MFMA), and had asked that, assuming there was such understanding, why then they were not complying with the law. The issue must be resolved within the following 21 days. He asked if the provincial HoD for local government was engaged with the issue.

Mr Mohlasedi noted that the province had been given 21 days to deal with the matter.

The Chairperson extended this time period to thirty days.

Mr Mohlasedi said that this fell within the sphere of local government. He would engage with the HoD of that department.

The Chairperson said that there was also a need to engage with provincial treasury and the NT. The Committee would monitor progress.

Ms Morongoa Ramphele, Head of Department, Limpopo Department of Public Works, said that the Limpopo province had visited the Free State and had learned a lot. The Chief Financial Officer was engaging with mayors. The province would have to put forward motivations for additional funding. The province had met with SALGA the previous week. The previous meeting had been in March.

Ms Motsisi said that the DPW had noted the shortfall faced by Limpopo. Submissions were due at the end of July.

Mr Sogoni asked what the problem could be with bank details. The requirements of the PFMA and MFMA were very clear in this regard. Municipalities and provinces were required to have a primary bank account that was known to NT. He asked why municipalities should be allowed to open separate accounts, Money that had still to be spent was being invested, and this was incorrect.  

The Chairperson appreciated the Eastern Cape initiative regarding asset management. This was the only province that was finding solutions. A task team was dealing with the issue.

The Chairperson asked the MEC from Gauteng what was happening. He had met with the Johannesburg Mayor. He gave an example that a dilapidated building had been found, which was thought to belong to the DPW, but was not on the register. If there was no focus on the asset register then this kind of problem would continue.

Ms Motsisi said that the DPW would provide a complete presentation for the next session. The asset register should be finalised by 2014. The DPW did have an asset register, but accepted that it might be incomplete. She could report on progress. The current register was based on what properties were registered at the deeds office.

Mr Sishi said that the inadequate register made it difficult to determine the budget. In essence, this meant that the parties were working with moving targets.  The situation changed as more matters came to light. The amount allocated to the Free State was based on the province's own projections.

The Chief Financial Officer from the Free State Provincial Department of Public Works and Rural Development disputed this statement. The Free State had requested R68 million. They had moved from R167 million to R186 million. They had never projected a shortfall of R68 million.

Mr Sishi said that this was not what he had said. He confirmed that the projection was R68 million. There were different issues at play.

The Chairperson understood the projection. He asked if the figures related to the first or the second quarter, and commented that something must have gone wrong in the calculations.

Mr Sishi accepted that the budget must be fixed. There was no question but that NT wanted to do this.

The Chairperson asked what SALGA was doing about the question of billing. The Free State had indicated that the provincial treasury had established a forum to deal with the matter. The Department of Cooperative Government and Traditional Affairs (COGTA) must also be involved. The municipalities named certainly had a right, in terms of the law, to set their own tariffs. It was, however, not correct to charge excessive tariffs. He asked what the solution was. There was legislation regarding fiscal powers of municipalities, and there was a need to ensure that municipalities were not disadvantaged. There were some guidelines in the legislation. Municipalities could not ignore their neighbours.

Mr Sishi said that the Maluti a Phofung municipal issue should be addressed with COGTA. The Minister had to issue regulations. He did not know why the rates were so high. An investigation was needed.

The Chairperson said that NT should address the financial issues. He asked if funding should be paid in tranches, as suggested by MEC Mazibuko, or in a single upfront payment. He asked how NT could intervene to improve billing systems. Since the institution of DORA, a percentage of the grant had been set aside for capacity building, but the NT was saying that this was not so. It was now at the discretion of the province, whereas it had previously been a requirement.

MEC Mazibuko confirmed that the funds did not go onto the books of the DID,  but remained in the custody of the provincial treasury. The funds only existed on paper. The provincial treasury did not pay out the full amounts. An accrual system was being created. The DID was being told that it had underspent, but it was being hindered by the provincial treasury. The budget was never enough and provinces could not implement programmes fully as a result. Malicious officials were taking the money. Outsourcing was a problem. People were trying to loot government.

The Chairperson asked how the situation could be turned around.

MEC Mazibuko said that invoices had to be analysed in depth. There were twenty government buildings within the Johannesburg central business district (CBD). The provincial government was also charged for other things. Municipalities came with a letter of demand but with no breakdown of the costs. The DID had met with municipalities and was hoping for the best in future. The Johannesburg municipality had now allocated one person to deal with this issue. She hoped to see an improvement in the chain of payment.

Ms Motsisi said that where provinces had done an audit on opening balances they could approach the DPW in respect of  monies owed from prior to 2008. The DPW would pay what was owing. Some municipalities had never billed before. The issue of capacity building was discussed and resolved at previous meetings. There was a clause regarding the 4% allocation for capacity building.

Ms Sarah Muthivhi, Director, National DPW, noted many discrepancies regarding the NT figures. The DPW should receive the same reports as the NT. It was difficult to comply with DORA.

The Chairperson said that the Free State was spending its budget. He asked why this province should be punished for that. The DORA allocations were based upon the premise of “use it or lose it”.

Mr Sishi said that, with reference to the spending in Limpopo, these issues could happen. This was more likely where billing was on an irregular basis. The process of claims and payment between provincial treasuries and departments was an internal issue. R150 million had been transferred to Gauteng but only 1.5% of this had been spent. It was up to the province to resolve this. DORA was catering for the requirements of provinces in the correct way. There were now 52 conditional grants, twice the number that there had been before. Some grants had no attached requirements for internal capacity. The conditional grant associated with housing stipulated that 5% should be allocated to capacity building and 6% should be allocated to sport. There were various dynamics at play with the capacity issue. Limpopo spent 63% of the grant on compensation while Gauteng's costs in this regard were lower. It was difficult to gauge if the provinces had the people to do the job.

The Chairperson said that the Committee would engage further on capacity issues as Members had strong feelings in this regard.

Mr G Tembu, Director, National Treasury, said that at the beginning of the process it had been up to the DPW to explain the process of devolution to the provinces and what the implications would be regarding resources. Meetings had been held and the budget allocations reflected the resource implications. National Treasury was trying to monitor if the capacity requirements were being met. It had asked for costs to be itemised. It had asked the provinces about emerging requirements but there had been no answers. NT was open to requests. If the requests were not being met then they would be reconsidered.

MEC Magadima said that a major problem was that the FY for municipalities ran from July to June. This did not coincide with provincial and national governments’ FY ends, and this was an issue that did need to be addressed. NT had been asked to make transfers on time. The first transfer had only been at the end of September, and the second was expected at the end of February. There were capacity issues. The Eastern Cape had no staff dedicated to processing invoices and matching such invoices to the asset register. The backlog had to be cleared before effective administration could take place.

Mr Pillay said that provinces had been sent a comprehensive memorandum regarding devolution. However, they could not be expected to act without a budget flow. The Western Cape government would continue with its roadshow to inform municipalities of requirements. It was fine to spend money, but consensus was needed on the credit baseline. Provinces needed consensus on what was needed.

Mr van Heerden noted that he had only been in office for three months. He had not yet found any evidence that administrative costs were covered. Provision should be made for those bodies attempting to pay their debts. The problem lay in the municipalities that had to improve their efficiency. The Northern Cape had spent all of its allocation in the previous FY but had been unable to spend any of the grant funding to date in the current FY. Dedicated staff were needed to verify invoices. Nothing had been done at a national level. There was no norm or coherent formula. He supported the MEC from the Eastern Cape. The disjunction in the dates of the FY for provinces and municipalities was a problem.

The Chairperson said that the Committee was not in a position to respond to the question of differences in the FY. The Heads of Department should work on this.

MEC Rooi said he was worried at times. Government officials were not talking to each other. Politicians did not always know what was going on. He was very worried on the question of accountability. There was doubt whether the hospital revitalisation grant would be channelled through the DPW or the Department of Health. It should not be a contest. He was very uncomfortable with the situation. Some issues had already been raised during May 2010. Authorities must work together to get the asset register right. He said that people should not be hiding behind issues of language. The assets of the state must be protected. There was a register in place at present but some assets were being alienated. He asked if something was being hidden. Those who had stolen from the State should be brought to book. In the Northern Cape, the State had maintained a hospital since 1927, but it had only recently been discovered that in fact this hospital belonged to the Dutch Reformed Church.

MEC Mazibuko appreciated the opportunity to address the Committee, which was responsible for oversight. There was a need to interrogate other institutions. There were certain people who were dodging the issues. There had been occasions where State property had been hijacked. Prime land was being built on. There were problems at the Deeds Office. There was a lot of corruption involved, and it was distressing to see how people were operating. She highlighted that road reserves were sold off, that Government officials were responsible, and that there were issues regarding vested interests. The rental charged on same State residences was inadequate.

The Chairperson said that there was a clear need to support municipalities. The issue of capacity was critical. The asset register held by DPW was incomplete. He hoped that the funding would remain in the form of a conditional grant for some time.

The meeting was adjourned.


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