Municipal Systems Bill; Municipal Structures Amendment Bill; Municipal Finance Management Bill

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Cooperative Governance and Traditional Affairs

12 September 2000
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Meeting Summary

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Meeting report

PROVINCIAL AND LOCAL GOVERNMENT PORTFOLIO COMMITTEE
13 September 2000
MUNICIPAL STRUCTURES AMENDMENT BILL; MUNICIPAL FINANCE MANAGEMENT BILL; MUNICIPAL SYSTEMS BILL

Documents handed out:
Municipal Structures Amendment Bill: Working Document
Municipal Systems Bill: Working Document (updated to 8 September 2000)
Municipal Finance Management Bill: National Treasury Presentation (see Appendix 1)


SUMMARY
Much of the deliberations on the Municipal Structures Amendment Bill revolved around Clauses 6 and 7 that deal with the powers of district municipalities and the delegation of such powers.

Deliberations on the Municipal Systems Bill clarified issues that the committee had already dealt with in previous meetings. During a late night session, the Committee checked the entire Bill in preparation for voting on 15 September.

The National Treasury briefed the committee on the Municipal Finance Management Bill. The presenter placed emphasis on the budgetary process from the national to the local level, touching briefly on the Bill's objectives, content and benefits. One of the aims of the presentation was to see if the Municipal Finance Management Bill is in harmony with the Municipal Systems Bill. The Chair felt that the committee would only be able to make a comparison once they are better informed on the Finance Bill. There will be a proper discussion with the Committee once the Finance Bill comes before Parliament.

MINUTES
Municipal Structures Amendment Bill

Clause 5: Amendment of Section 81 of Act 117 of 1998
The committee agreed to the proposed amendment to this section.

Clause 6: Amendment of Section 84
Mr Fanie Louw from the National Treasury stated that the clause deals with the powers and functions of a district municipality.

The Chair, Mr Carrim, asked the Department whether they had met with the Departments of Health and WaterAffairs as this clause affects them. Mr Louw indicated they had already consulted them.

Mr Bhabha (ANC) stated that Schedule 4 and 5 of Part B affects both these departments. He added that he did not wish to do something that would impede on their strategies and plans. Thus far the committee has tried to be as flexible as possible.

The committee agreed to the proposed amendments in Subclause (a)(1)(a), (c)-(h) and from (j)-(p). The committee agreed to change the wording of (b) to, "supply of potable water". Ms Verwoerd (ANC) was concerned over (i) as she felt that municipalities might decide not to perform their function relating to municipal health. What will then happen? The Chair recommended that she and Mr Bhabha look at it and come up with a solution.

The committee agreed to leave Subclause (b) as is.

Clause 7: Substitution of Section 85 (Authorisation to perform function or exercise power)
Mr Bhabha stated that in the original Act, the powers and functions of a district municipality in Section 84 would be subject to the Demarcation Board. If the MEC feels that the district municipality lacks capacity, the MEC can transfer such power from them to the local municipality in terms of Section 85. He added that there no provision made for concurrent holding of powers, it is taken away from the district municipality. However in the amendment version of Section 85, authority can now be given to a local municipality to perform those functions of the district municipality without taking such powers away from them.

The Chair felt that of the three criteria that the Demarcation Board must consider in giving powers to district and local municipalities, more emphasis should be placed on the requirement of their capacity. He asked the Department whether all three have equal weight. Mr Louw answered that they are weighted equally.

Mr Smith (IFP) agreed with the Chair and stated that in the amendment, capacity has been diminished.

Mr Bhabha disagreed with both of them. He felt that all three criteria should have equal weight because circumstances might require one of them to be more relevant than the other. He felt that the new Section 85(3) gives the Minister unfettered powers.

The committee agreed to accept Section 85(1), (2)(a)-(c) but that they would still have to consider 85(2)(d) and 85(3).

Clause 8: Amendment of Section 90 of Act 117
The committee accepted the amendment.

Clause 9: Amendment of Section 91 of Act 117
Many of the committee members had concerns over this clause, but the Chair ruled that he would not waste time and referred it to the technical sub-committee.

Clause 10: Amendment of Section 93 of Act 117
The committee agreed to accept (b) and (c) but would have to reconsider (a).

The Chair stated that they would place further deliberations on the Municipal Structures Amendment Bill on hold and continue with the Municipal Systems Bill.

Municipal Systems Bill
The Chair felt that the committee had done its duty in considering the issues raised by the various stakeholders. He did however feel disappointed that most of them had not come back to the committee to give feedback on the proposed amendments that were presented to them. He congratulated the committee on the work that they are doing as he felt that the task of passing this Bill has been arduous.

Mr Carrim stated that it would be unrealistic to believe that the Municipal Systems Bill could be implemented overnight. The Department stated that they believe it would take between 3-10 years to implement. Mr Carrim personally felt that if half the Bill could be implemented within 5 years, it would be a job well done.

The Chair instructed Mr Smith and Department to draft a preamble. He added that constitutional issues relating to the Bill should be finalised by 2pm the following day.

Chapter 1: Interpretation
Clause 1: Definitions
The committee accepted most of the definitions in the Working Document except the following:
" development" - The Department themselves asked if they could amend the existing definition and the committee agreed.

"functionary"- The Chair stated that the definition as is does not refer to the specific categories of persons it refers to. He instructed the Department to make it more specific.

"local community" or "community"- The committee agreed to the categories which form part of them in (a) and (b). However the Department wished to make changes to (c) and (d). The committee agreed.

Chapter 2: Legal Nature of Municipalities
Clause 2: Legal nature
The committee agreed that 2(a) and (b)(ii) would be discussed later by them. They did however accept 2(b)(i), (c) and (d).

Clause 3: Co-operative government
The committee accepted it.

Clause 4: Rights and duties of municipal councils
The committee accepted 4(1)(a) and (b) but felt that 4(1)(d) should become 4(1)(c).
Furthermore, 4(2)(a)-(i) was accepted but they agreed to look at 4(2)(j) later.

Clause 5: Rights and duties of members of local community
The committee members were concerned with the provisions in 5(1)(a)(i). The Chair suggested replacing the existing provision with: "contribute to the decision making processes of the municipality". However, Mr Smith wanted to replace it with, "participate in consultative processes of the municipality". The committee agreed to deal with it later, but accepted 5(1)(b)-(g).

The committee agreed to swap the provisions of 5(2)(a) and 5(2)(b) around for reasons of hierarchy. They accepted 5(2)(c), (d) and (e).

Clause 5A: Rights and duties of municipal administrations
The committee felt it appropriate to omit "rights" from the heading. They accepted 5A(1) but agreed to deal with 5A(2) later.

Clause 6: Exercise of rights and performance of duties
The Department stated that they have an amended version that they will present to the committee later. The committee agreed.

Chapter 3: Community participation
Clause 7: Development of community participation
The committee agreed that the heading should read, "Development of culture of public community participation".

They agreed to the amendments in 7(1)(a), but felt that the start of (1)(b) should read, "constitute to build the capacity" as opposed to, "build the capacity of".
Members of the ANC were not content with 7(1)(c) as is. The Chair decided to refer it to their ANC study group and the committee agreed. Clause 7(2) was accepted.

Clause 8: Mechanisms, processes and procedures for community participation
The committee accepted the proposed amendments to 8(1), (2)(a), (b) and that (c) should remain unchanged. However the Department suggested that the existing 8(2)(d) be replaced with, "consultative sessions with locally recognised community organisations and where appropriate traditional leaders". The committee agreed. They also accepted 8(3) and 8(4).

Clauses 9 and 10: Communication of information concerning community participation; Public notice of meetings of municipal councils
The committee agreed to the proposed changes to these Clauses.

Clause 11: Admission to public meetings
The committee had concerns over 11(1)(b). The Chair referred it Mr Bhabha and the Department to solve. They accepted 11(1)(a) and (c).

Furthermore, the committee accepted 11(2)(a), (b), 11(3) and 11(4). They did however agree to add the words, "tabled in the council" into 11(2)(c) and (d) as is provided for in 11(2)(a) and (b).

Clause 11A: Communications to local community
Dr Bauer suggested that "in" be inserted at the beginning of 11(A)(1)(a) and (b). The Chair referred the matter to Mr Bhabha and Dr Bauer. The committee accepted the amendments to 11(A)(2)-11(A)(5).

Clause 12: Regulations and guidelines
The committee accepted 12(1)(b) but agreed to look at 12(1)(a) and 12(2) later.

The committee decided to stop deliberations on the Bill for the afternoon and agreed to continue later that evening [Note: the evening deliberations were not minuted].

The National and International Treasury (Department of Finance) made a presentation on the Municipal Finance Bill and how it impacts on the Municipal Systems Bill.

Municipal Finance Management Bill
Mr Ismail Momoniat of the National Treasury stated that the Bill has not been finalised as yet and does require constitutional amendments to be made to it.

Mr Momoniat commented that budgeting provides certain challenges as South Africa has complex intergovernmental systems. The gaps between policy and the budget itself should be closed. Three-year budgets have been achieved at national and provincial level and this needs to be achieved at local municipality level too. He stated that there is a lack of transparency about how the budget is divided amongst municipalities. This he feels makes the auditing process very difficult. He stated that the budgeting process at municipalities is no better. Mr Momoniat emphasised the need to broaden participation in the budgetary process and councillors should get involved. Mr Momoniat stated that this Bill is very similar to the Public Finance Management Act. Both aim to get managers to use the information at their disposal. This information must in turn be provided to councillors who do the budget. Mr Momoniat stated that municipalities at present do not have a proper budget process. He added that at every council meeting they tend to change their budget. This makes it difficult for his Department to assess their performance. Ideally he feels that the budget should be linked to the Financial Management and Accounting System.

Mr Momoniat proceeded to go through the primary aims of the Bill as well as giving the committee a run down of the contents and benefits of the Bill (see document). He identified areas of potential variances between the Municipal Systems Bill and the Municipal Finance Management Bill. These are as follows:
· Regulation of municipal budgets
· Earmarking of funds through national legislation (eg. the Integrated Development Plan)
· Accounting Standards Board: Financial statements and annual report take into account performance measures - why is detail legislated, rather than regulated.
· Regulations: tariff regulations, procurement policy and process
· Governance of entities which is dealt with by both Bills

Discussion
The Chair stated that he would have liked to have dealt with the Bills simultaneously. He added that the majority of the committee welcomes the Municipal Finance Management Bill but there are concepts and terms that they do not understand. When the Bill comes before Parliament, Mr Momoniat would be invited once again so that they can have a meaningful discussion on the issues. The Chair felt that at present the committee would not be able to give much input on how the Finance Bill affects the Municipal Systems Bill as they are too uninformed about it.

Mr Smith suggested to Mr Momoniat to include the words, "Local Government" in the title of the Bill. Mr Momoniat stated that if it would make the Bill consistent, he would consider it.

Mr Smith asked if the budgetary process is linked with their Integrated Development Plan process. Mr Momoniat answered that they could have also had a 5-year budget, but that it should not open up the municipalities to legal challenges.

A member of the ANC asked what earmarking entails. Mr Momoniat said that national legislation could not tell a municipality how it should budget.

Rev Goosen (ANC) asked whether the Finance Department keeps tabs on municipal spending. Mr Momoniat stated that there are too many small municipalities that are inefficient.

In conclusion, the Chair felt that the issues had not been resolved adequately and suggested that they meet with Mr Momoniat again to have a proper discussion.

Evening session:
The committee deliberated over the remainder of the proposed amendments to the Municipal Systems Bill in the evening session. The Chair instructed the Department to formulate a final draft by 6 pm the following day. The committee would be using this final draft to vote on the Bill.

 

Appendix 1:
PRESENTATION TO LOCAL GOVERNMENT PORTFOLIO COMMITTEE
SYSTEMS BILL


FINANCE MANAGEMENT BILL

BUDGET CHALLENGES
Complex intergovt system
Closing gaps
Policy and budgets
Planning and budgets
Accountability loop
Budgeting not a bean-counting process
Broadening participation
Earmarking undermines priority-setting, efficiency considerations

NATIONAL BUDGET PRINCIPLES
Comprehensive budgeting process
Councillor and public participation
Three-year budgets in all spheres
Transparency over division and data
Timeous preparation of grants
All grants on budget of beneficiary govt
Clear accountability arrangements
Monitoring to focus on performance
Compliance with DoR Act

MFMB BACKGROUND
Gives effect to sections 215, 216, 217, 218, and 230 of the Constitution
Similar to PFMA
Other legislation for local govt
Municipal Structures Act
Municipal Systems Bill
Property Rates Bill
Demarcation

PRIMARY AIMS OF MFMB
Extend principles of the Public Finance Management Act to municipalities
Allow managers to manage
Provide councillors the financial information they need to set policies and priorities.
Create clear accountability for municipal financial management
Foster transparency in municipal revenues, accounting, budget process, etc.
Create an environment to encourage an active municipal bond market

CONTENTS OF THE BILL
Municipal borrowing (5)
Financial crises and emergencies (10)
Entities owned by municipalities (8)
Budget process (4)
Control & usage of revenues (3)
Financial reporting (9)
Financial responsibilities of officials and financial misconduct (6 & 12)
National and provincial supervision (2 & 11)

BORROWING FRAMEWORK
Current Situation
Long term debt market has stagnated
Actual borrowing in 1998/99 of R1.8 bn
80% of the growth in municipal debt from 1998 to 1999 was short term debt
R6.2 billion need gap between demand and actual private sector funding

IMPORTANCE OF MUNICIPAL BOND MARKET
National government does not have the resources to meet municipal infrastructure backlog - private sector capital is critical
As major municipalities become credit worthy, limited national infrastructure funds (e.g., CMIP, Water) can be focused on projects unlikely to receive private capital
Bond market can promote accountability and fiscal discipline in municipalities

MUNICIPAL BORROWING PRINCIPLES
Municipalities need access to financial markets
No national government guarantees (proper pricing of risk)
Borrowing decisions of municipalities are determined by local accountability and market dynamics
National government role through regulatory and legal environment
A municipality may incur long term debt only for purposes of capital investment in property, plant or equipment to be used for achieving objectives of local government as set out in section 152 of the Constitution

MUNICIPAL ENTITIES
Compliments MSPs/PPPs
Enables creation of municipal entities for improved service delivery
Prohibits creation of entities for speculation or to avoid regulations
Promotes transparency and accountability

PROPER BUDGET PROCESS
Promotes transparency and citizen involvement
Budget must be balanced
Facilitates good financial management and sound decision-making
Minimum standards for budget documents and in-year reporting
Adjustments and virements allowed, but regulated

FINANCIAL REPORTING
Must have financial statements within two months of year end
Must prepare in accordance with generally recognised accounting practice (Accounting Standards Board)
Entities created by municipalities must submit audited financial statements to the municipal manager

RESPONSIBILITIES
Municipal manager = accounting officer
Accounting officer assigned financial management and reporting responsibilities
Accounting officer liable to penalties for not complying with certain sections
Member of Council can be sanctioned for influencing manager to contravene a provision of the Act.

NATIONAL & PROVINCIAL SUPERVISION
National Treasury may...
monitor municipal budgets
monitor expenditure and revenue
prescribe uniform treasury norms and standards
establish budget growth factor
monitor municipal entities
assist municipalities in capacity building
review financial management systems
withhold funds

TREASURY REGULATIONS
Treasury regulations, instructions and guidelines for
financial management and internal control
framework for procurement
establishment and control over trading entities
transfer and disposal of assets - to and from entities
appointment, functioning of audit committees
costing framework
disclosure of information, etc

BENEFITS OF THIS BILL
To encourage improved financial management in municipalities
To ensure citizens are informed and councillors have the information necessary to set policy and priorities
To develop an environment for a municipal bond market
To build a strong financial foundation on which municipal services can be improved and extended to unserved citizens.

POTENTIAL VARIANCES BETWEEN BILLS
Regulation of municipal budgets
Earmarking of funds through national legislation (eg IDP)
Acct Stds Board: Financial statements and annual report
Regulations
Tariff regulations
Procurement policy and process
Governance of entities

FINANCIAL EMERGENCIES
Workable strategy necessary to create environment for municipal debt market
Builds on existing local government support programmes
Judicial authorisation
National government authority to intervene and help municipality back to financial health.
Only invoked when all else has failed.

FINANCIAL EMERGENCIES

-SYSTEMS FOR MUNICIPALITIES IN FINANCIAL DISTRESS
-MUNICIPAL FINANCIAL EMERGENCY AUTHORITY

[PMG Editor's Note - Diagrams not included]

CONSTITUTIONAL AMENDMENT
National legislation must -
establish structures and procedures to deal with financial emergencies in municipalities; and
provide for these structures to exercise legislative and executive authority on behalf of a municipality to the extent necessary to deal effectively with the emergency.

UNINTENDED CONSEQUENCES
May stifle innovation (PPPs, iGoli 2002, etc.)
Detailed legislation curbs scope for evolution of systems (e.g., performance management)
May require vast national monitoring bureaucracy
May further stifle municipal bond market -- worsening infrastructure backlog

 

 

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