Local Government issues: Financial and Fiscal Commission recommendations & research

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Cooperative Governance and Traditional Affairs

08 November 2010
Chairperson: Mr S Tsenoli (ANC)
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Meeting Summary

The Financial and Fiscal Commission (FFC) briefed the Committee on its research and recommendations on local government issues. The role of the FFC was briefly outlined, and it was noted that it made annual submissions on the Division of Revenue Bill and Mid Term Budget Policy Statement. The previous recommendations were highlighted, together with the FFC’s comment on the Local Government Equitable Share, as well as recommendations in regard to transport, housing, electricity and capacity, across the years 2006 to 2011. It also addressed the Municipal Fiscal Powers and Functions Act (MFPFA), the Property Rates Amendment Bill, the Local Government Turnaround Strategy (LGTAS) and the response from government regarding data issues. FFC had addressed the conditional fiscal transfers and issues relating to local government revenue enhancement programmes, and recommended that government should adopt a standard early warning system for the detection of fiscal stress in municipalities, as well as recommending support of efforts for the estimation of fiscal capacity and efforts of communities. FFC further made recommendations on regionalisation of municipal services and the six Regional Electricity Distributors (REDs). It asked that the Department of Transport should regularly update the South African National Household Travel Survey. The current research projects of the FFC were then outlined. It needed to define unfunded mandates, and their implications for health, housing and library services. FFC was evaluating problems within the current urban housing delivery system, and was also researching the efficiency of local government expenditure, municipal consumer debt, environmental sustainability and climate change, as well as assessing what impacted upon municipal expenditure, local government fiscal performance and the fiscal and economic costs of inappropriate land usage.

Members asked about duplication of municipal activities, the constraints on the turnaround strategy, and commented that it was disappointing that recommendations on some municipal needs had not been accepted, and asked why there was no programme for housing. They commented on the need for a proper analysis before the Property Rates Bill was implemented. Members asked about the taxes and wondered if the demographics were properly taken into account, as well as enquiring about the authorisation process. They enquired about the RED systems and implementation, and said it was vital that accurate data be collected. Members also enquired about the status of the South African Local Government Association nominees, interaction with the Municipal Demarcation Board, and urged that all stakeholders should meet to discuss these recommendations urgently. Members enquired about the shifting of municipal boundaries and whether there were advantages to this. They wanted more details on the Local Government Turnaround Strategy, and the link between the Municipal Infrastructure Grant and human settlement projects. They enquired how the FFC was doing its research, and asked what recommendations were made on corruption, and whether there was capacity in the municipalities on Information and Communication Technology.


Meeting report

Local Government issues: Financial and Fiscal Commission (FFC) recommendations and research
Mr Bongani Khumalo, Acting Chairperson, Financial and Fiscal Commission, and Ms Sasha Peters, Senior Researcher: Local Government, Financial and Fiscal Commission, outlined the research and recommendations of the Commission (FFC) on local government issues.

Mr Khumalo outlined to the role and function of the FFC, which was a permanent statutory body that had been established in terms of Section 20 of the Constitution. It was independent, subject only to the Constitution and the law. The FFC was mandated by legislation, and made its primary outputs in relation to Section 221 of the Constitution was also tabled. It would make an annual submission on the Division of Revenue (DoR) Bill, submissions on the DoR Bill and Mid Term Budget Policy Statement (MTBPS).

Mr Khumalo noted that the FFC's composition was set out in terms of Section 221(1) of the Constitution. It comprised a chairperson and a deputy chairperson and seven members as well as two national nominees, two provincial nominees and two local government nominees. At present, it had three vacancies at present,

He highlighted the FFC's general principles to the Committee and tabled a summary of the FFC's cycle to the Committee (see attached presentation for details).

He then highlighted previous recommendations made in respect of local government by the FFC, and its comment on the Local Government Equitable Share (LES). The recommendations were noted in terms of specific areas, the year, recommendations and government's response. Areas pertaining to the LES, transport, housing, electricity and capacity were set out, from 2006 to 2011.

The FFC had also made recommendations on the Municipal Fiscal Powers and Functions Act (MFPFA), the Property Rates Amendment Bill, the Local Government Turnaround Strategy (LGTAS) as well as the response from government regarding data issues.

Ms Peters tabled the second part of the presentation to the committee, which spoke to the FFC's recommendations for the Division of Revenue (DoR) for 2011/12. By way of background, she tabled an outline of the 2010 annual submission. She noted the re-forming of conditional fiscal transfers, as well as issues relating to local government revenue enhancement programmes and fiscal stress. FFC had recommended that government should adopt a standard early warning system for the detection of fiscal stress in municipalities. Consensus also had to be attained. It had further recommended the support of efforts for the estimation of fiscal capacity and efforts of communities.

She tabled the Local Government Formula to the Committee. The presentation also set out issues on the regionalising of municipal services. Issues revolving around the six Regional Electricity Distributors (REDs) were also noted, as well as the recommendations of the FFC in that regard (see attached presentation)..

Turning to issues of transport, Ms Peters emphasised intergovernmental fiscal issues in relation to urban public transport as well as the FFC recommendations. One of these was that the Department of Transport needed to regularly update the South African National Household Travel Survey.

Dr
Mkhululi Ncube, Programme Manager: Budget Analysis, Local Government, Financial and Fiscal Commission,  tabled and presented the final section of the findings to the Committee. He described the FFC's current local government research projects. He said that the FFC needed to define unfunded mandates, as well as to investigate the legal and financial implications of those mandates in relation to health, housing and library services. In regard to human settlements, the FFC was evaluating problems within the current urban housing delivery system. He too noted the FFC’s objections with regard to public transport. He noted that the FFC was currently researching the efficiency of local government expenditure, municipal consumer debt, environmental sustainability and climate change. Other research projects were assessing what factors were impacting upon municipal expenditure, local government fiscal performance, and the fiscal and economic costs of inappropriate land usage.

Dr Ncube said that the FFC wanted to build a strong relationship with the Committee. He concluded that the committee could use the FFC's recommendations to influence policy and also for its oversight.

Discussion
Ms D Nlhengethwa (ANC) noted that the FFC had mentioned the duplication of activities by municipalities in the presentation. She sought clarity on what those activities were. She also sought clarity on constraints in relation to the turnaround strategy.

Ms M Wenger (DA) sought clarity on the equitable share. She said that it was distressing that the recommendations regarding municipal needs had not been accepted, and emphasised the importance of roads as being a top priority within municipalities, as well as a factor that the Committee attached priority to during its oversight.

Ms Wenger was pleased that the recommendations on housing had been accepted, but wanted to know what the reasons were why there was no programme attached to housing.

Ms Wenger noted that there were many municipalities whose powers and functions had not been sorted out as yet.

Ms Wenger noted the importance of a proper analysis before the implementation of the Property Rates Bill. She added that there were many problems in regard to the taxes that were being raised that were not realistic when considered against the demographics of municipalities.

Mr T Botha (COPE) wanted to know if the relevant stakeholders were taking the recommendations of the FFC seriously. He sought clarity on the current framework for municipal taxes and the authorisation processes. He enquired, in regard to the grouping of municipalities and taxation, if the FFC was referring to vertical grouping or groupings according to geographical area. He also enquired what comment the FFC had on the Regional Electricity Distributors (REDs). He noted its remark that in regard to the restructuring the FFC had not been consulted in crucial processes, which had had an adverse effect on local government revenue, but had only come in at the tail end of the process.

Mr Khumalo said that the FFC had made a direct submission raising some of the concerns that needed to be addressed, and whilst some of the issues had been taken into consideration, others had not.

Ms Peters noted that the concept of the REDs had been based on regionalisation and it was assumed that the bigger the entity, the more efficiently it could perform. This, however, had not turned out to be the reality.

Ms Nlhengethwa sought clarity on the process of accurate data collection, saying that accurate collection was imperative.

The Chairperson noted that Parliament was working towards considering the rest of the recommendations on the report of the Committee chaired by Kader Asmal. He said that Parliament wanted a more inclusive stakeholder management process.

The Chairperson asked about the current status of the South African Local Government Association (SALGA) nominees.

Mr Khumalo said that the SALGA nominee was Mr Krish Kumar from Durban.

The Chairperson asked Committee Members to bear in mind that Budget Review and Recommendations Report (BRRR) was on the agenda for the Committee later that day, and noted that the BRRR had a number of recommendations that were relevant to what the FFC had presented. He emphasised that all the stakeholders, including the FFC, SALGA and Statistics South Africa (Stats SA) should meet to discuss the recommendations as a matter of urgency.

The Chairperson wanted to know if the FFC ever interacted with the Municipal Demarcation Board (MDB).

Mr Khumalo said that the FFC had interacted with the MDB and that the formula had been based on population. 97% of the transfers had been driven by population and he stressed that where there had been re-demarcation, the money needed to move with the people. Demarcation was of a vertical nature.

With regards to demarcation, it was of a vertical nature.

The Chairperson said that it would make better sense if the MDB was familiar with the law so that it could make informed recommendations.

Mr Botha sought clarity on the shifting of municipal boundaries and whether or not there were disadvantages to such shift.

Mr Botha also sought further clarity on the Local Government Turnaround Strategy (LGTS).

The Chairperson enquired why the FFC had been averse to the use of the Development Bank of Southern Africa (DBSA).

Mr Khumalo said that the recommendations by the FFC were non-binding recommendations, in terms of the Constitution, and that it was necessary to look at the definition of “consultation” in the legal sense. He added that in the past Parliament did not have any power in terms of enabling legislation even though the Constitution had empowered Parliament to amend Money Bills. With effect from 2009, however, Parliament was able to amend Division of Revenue Bills.

The Chairperson sought stronger reasoning from the FFC regarding municipalities and their authority to tax.

Mr Khumalo clarified that the way in which the Equitable Share Formula was drafted was supposed to recognise that money was needed for operations and also should make provision for money for maintenance. If a municipality did not, however, have the infrastructure for basic services, then the municipal structure would have to be linked. Up to the present, this had not happened. In terms of the LES, a municipality that did not have access to a structure for water distribution would not receive the full subsidy for water. However, as the infrastructure was rolled out, so would the equitable share be added. This was still not happening. People needed to take a stand and make it clear where certain infrastructures had been added to municipalities. More of the equitable share then would have to be added to those municipalities in accordance with its new or acquired infrastructure. Mr Khumalo, said that the approach in the past had been very subjective and that the FFC's reasoning for the formula was to remove that type of approach. The formula had been applied on pre-determined pool of resources, and the formula itself did not give out any money.

Mr Botha wanted to know what the link was between housing and the Municipal Infrastructure Grant (MIG) and housing.

Mr Khumalo noted that the FFC no longer considered “housing” alone but placed these issues in the broader concept of “human settlements”. This “bundle” of services could be linked to the accreditation process, and was linked to the rollout of housing. He added that it would be necessary to think about the repositioning of the fund and whether or not it should stay in the cooperative governance area or move to human settlements. If that were to happen, then the implications must be carefully considered.

Ms Nlhengethwa wanted to know what type of research methodology the FFC was using, enquiring if it was desktop-based, or if the FFC was actually interacting with the community.

Mr Khumalo confirmed that all the FFC's research was based on evidence and that it was multi-faceted, comprising field research as well as desktop research.

Ms Nlhengethwa noted that the FFC had not made any recommendations regarding corruption.

Mr Khumalo noted the significance of Operation Clean Audit and said that the FFC generally agreed with that approach. However, he added that the FFC needed to first focus on smaller aspects like the timeous submission of annual financial statements.

The Chairperson noted that gender needed to be taken into account when making recommendations and imperative decisions.

Mr Khumalo noted the importance of gender-based decisions and equity.

Committee members displayed concern for municipal Information and Communication Technology (ICT) capacity.

Mr Khumalo noted that there was a huge ICT municipal project underway. The Division of Revenue Bill did not regard issues like ICT as basic infrastructure.

The meeting was adjourned.

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