SALGA funding model local government fiscal framework and municipal financial management: review; bulk water infrastructure, economic regulation and inter-governmental relations (IGR) approach to investment backlogs; and councillor support: SALGA briefing

NCOP Finance

20 September 2011
Chairperson: Mr C de Beer (ANC, Northern Cape)
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Meeting Summary

The South African Local Government Association told Members of the Select Committee together with chairpersons or whips of some of the provincial finance committees that municipalities depended on tariffs for water and electricity to fund social investment. It was important that investment in bulk infrastructure should not be dependent on these tariffs. One had to face the reality that the majority of South Africans were poor. It was high time to recognise local government as a Government structure. A local councillor was currently expected to bear almost all his or her own expenses. The remuneration of councillors must come from the national fiscus. Councillors should not hold any other jobs, but such a requirement should not be introduced without regard to their present conditions.

SALGA briefed Members on the background and context of its being a Schedule 3A public entity in terms of the Public Finance Management Act, on its role, key intergovernmental relations processes, mandate, and strategic priorities 2009/12 including its 10 priority outcomes, its funding model, revenue distribution by category 2010/11, overview of activities, how the budget was spent, fiscal framework, revenue management and sources, financial management and reporting, audit results, financial management challenges (complexity of compliance – accounting standards, reporting, cost of compliance, capacity for compliance, asset management, and asset maintenance), and Conference Resolutions on revenue management sources and financial management. It pointed out that SALGA continued to be a voluntary body and members paid a subscription that was not legally regulated. SALGA briefed Members on bulk water infrastructure, the economic regulation of bulk water pricing, the intergovernmental approach to infrastructure investment backlogs, and recommendations. SALGA briefed Members on councillor support, noting that the statutorily prescribed process for the determination of the salaries, benefits and allowances of municipal councillors curiously differed from that which pertained to other categories of defined public office bearers, that there was a lack of appreciation of the critical role and contribution of councillors in our democracy, and that there was a disturbing increase in the number of attacks on councillors and their property with no recourse or protection. SALGA had resolved at its National Conference that, inter alia, a total review of the system of support for councillors should be conducted urgently, and that councillors should be entitled to risk benefits including death cover, disability benefits, funeral benefits and cover for personal assets lost or damaged as a direct result of public violence.

A Member of the Inkatha Freedom Party said that the Constitution was explicit that we must support municipalities.

A Member of the Congress of the People was appalled at the level of corruption that the Select Committee had discovered on its oversight visit to Bloemfontein. Not enough was being done to address corruption and excessive expenditure in municipalities. If SALGA wanted Parliament to assist, it must give answers.

A Member of the Democratic Alliance agreed on the need to curb excessive expenditure. It was important to assess priorities. Much of the presentation had reflected SALGA as a trade union for councillors. Making membership of SALGA compulsory would raise constitutional issues. He disagreed with SALGA's proposal for a local business tax.

A Member of the African National Congress called for supporting documents. Some of the information was conclusions from other information that Members did not have. Generally what Members were hearing was the need for more funding - he hoped that SALGA was not going to launch its own airline. He called for a workshop to understand SALGA's reasoning. SALGA was obviously like a union. There must be some sort of transitional arrangement with regard to the membership fees. He was worried about SALGA's apparent request to be able to borrow - how was it proposing to service the debts that it wanted to incur? He was interested in the proposal for a local business tax. He asked if there was any real progress with SALGA's interaction with the National Energy Regulator of South Africa and with the traditional leaders, and on the audits. The Municipal Infrastructure Grant provided for refurbishment, but could only be in the form of a conditional grant. Who should manage that?

Members of the provincial financial committees found SALGA's statistics outdated. They observed that municipalities were seen as cash cows. Water boards were making profits, but this was not their role. It was unfortunate that Eskom had to charge interest after only 15 days. It had to be asked why provincial government could not be used on an agency basis, with more use of shared services. The proposed local business tax was alarming, even to those who did not often agree with the Democratic Alliance. Municipalities that were doing well should be taken as role models. Perhaps audit outcomes would improve when standing committees on public accounts were introduced at the level of municipalities.

The Chairperson said that the parliamentary constituency offices must serve the public, with Members of Parliament, Members of the Provincial Legislatures, and Councillors working together. He suggested that SALGA make its submission for compulsory membership to the Constitutional Review Committee. He thought that SALGA was hitting the ground running. The Select Committee would assist. SALGA was part and parcel of its meetings.

Meeting report

Introduction
The Chairperson welcomed the SALGA delegation: Councillor Thabo Manyoni, Chairperson, , Councillor Mpho Nawa, Deputy Chairperson, SALGA, Mr Xolile George, Chief Executive Officer (CEO), Mr Lance Joel, Chief of Operations, Mr Johann Mettler, Executive Director, Governance, and Mr Mthobeli Kolisa, Executive Director: Municipal Infrastructure and Services. He also welcomed chairpersons and chief whips of some of the finance committees of the provincial legislatures.

The Chairperson commended SALGA on its newly elected leadership. SALGA was always welcome at meetings of the Select Committee on Finance and the Select Committee on Appropriations, since the Constitution gave SALGA the opportunity to participate totally in the proceedings of Parliament, specifically in the National Council of Provinces (NCOP) - a unique House in Parliament in which national, provincial and local spheres of Government, with SALGA, came together under one roof. He wanted this message to be conveyed to constituencies. This meeting had been at the initiative of SALGA.

The Chairperson reminded Members of the turnaround strategy introduced in 2009 – specifically Outcome 9 in the 10 Point Plan which sought to eradicate all forms of maladministration, including fraud, corruption and nepotism, in order to achieve clean audits and effective service delivery to our people at grass routes level. This was where SALGA played a specific role in coordinating that action plan, with Parliament.

South African Local Government Association (SALGA) Parliamentary Programme Focal Areas
Councillor Thabo Manyoni, Chairperson, South African Local Government Association (SALGA), said that there had been criticism of SALGA that it lacked 'teeth'. Today, SALGA would focus on the review of its funding model, and the review of the local government fiscal framework and municipal financial management. Some of these issues would be tabled to the Budget Forum for consideration. It would also focus on bulk water infrastructure and intergovernmental relations processes. The main thrust of SALGA's argument was that our communities always complained about increases of electricity and water tariffs while the municipalities depended on these tariffs to fund social investment, like libraries. SALGA would highlight the use of tariffs to fund infrastructure which made it hard for municipalities not to increase tariffs. Investment in bulk infrastructure should not necessarily depend on tariffs. If this was realised, then we could resolve most of the social problems. The majority of South Africans were poor.

Councillor support was a prominent issue in SALGA's National Conference. It was high time that we recognised local government as an essential governmental structure and councillors regarded themselves as public representatives. A local councillor was expected to be almost everything. If we agreed that councillors were public office bearers, everything else would follow.

The remuneration of councillors must come from the national fiscus. At the same time, our local communities must receive delivery of services. In that environment, councillors were exposed, and their properties were at risk; there was no law or regulation that prescribed cover for them in any manner if their properties were attacked. Councillors were people who were expected to address issues. It was important to retain skills in councils. Moreover, councillors should not hold any other jobs. However, this could not be proclaimed and implemented without taking into account the  reality of the conditions under which councillors served their communities.

It was also necessary to consider what we should do and what instruments we should use to ensure that there was no corruption among councillors. SALGA sought to make South Africans proud to belong to this country, and would work hard to do so, no matter how hard this task was – this was SALGA's commitment.

Presentation outline
Mr Xolile George, Chief Executive Officer (CEO), SALGA, outlined the presentation: 1. Background and Context; 2. Review of the Funding Model of SALGA; 3. Review of the Local Government (LG) Fiscal Framework and Municipal Financial Management; 4.             Bulk Water Infrastructure, Economic Regulation and Intergovernmental Relations (IGR) Approach to Investment Backlogs; 5. Councillor Support; and 6. Conclusions (slide 2).

1. Background & Context
In order for LG to participate effectively in intergovernmental relations, it needed to act as a collective, through an organised LG structure. Section 163 of the Constitution recognised organised local government as the legitimate voice for LG and afforded it representation in key national institutions. The section further provided that an Act of Parliament must cater for the recognition of national and provincial organisations representing municipalities, and determine procedures by which LG might consult the national and provincial government, designate representatives to participate in the National Council of Provinces (NCOP) and nominate persons to the Financial & Fiscal Commission (FFC) (slide 3).

SALGA, a voluntary body representing all nine provincial LG associations (PLGAs) was established in 1996 and has been recognised by the Minister as the body representing LG.

SALGA was a schedule 3A public entity in terms of the Public Finance Management Act and was required to prepare its “Annual Budget” and “Corporate Plan” for submission to the Ministers of Cooperative Governance and Finance. SALGA’s mandate was derived from the Constitution of South Africa. This mandate defined SALGA as the voice and sole representative of the sphere of local government. SALGA was a unitary body with a membership of 278 municipalities, with its national office based in Pretoria and provincial offices in all nine provinces (slide 4).

SALGA's role was to:
Represent, promote and protect interests of LG;
Enhance Role and Status of Municipalities;
Represent municipalities in key IGR structures at both provincial and national level;
Position LG at the centre of cooperative governance and development ;
Deepen democracy and accountability at the local level;
Optimise the governance system within municipalities;
Develop common approaches for LG as a distinct sphere of Government;
Enhance co-operation, mutual assistance and sharing of resources among municipalities; and
Lead in the transformation of LG to be developmental. (Slide 5)

SALGA Key IGR Processes
Legislative process
The Organisation of Local Government (OLG) Act allowed SALGA to designate up to 10 part-time representatives to the NCOP in Parliament, as non-voting members. In the main, the NCOP was the platform on which SALGA engaged with Parliament.

Budgetary process
One of the critical tools in IGR planning was the budget cycle. LG’s input was received through SALGA’s participation in the LG Budget Forum.

The Financial and Fiscal Commission (FFC) was a critical organisation in the budget process - views of SALGA were incorporated into that process.
SALGA nominated two persons to the FCC, which advised the Finance Ministry on budget issues.
SALGA nominees often served on the FFC Local Government task group and the Audit Committee of the FFC (slide 6).

SALGA Mandate and Strategic Priorities 2009/12
SALGA's agenda for change and its 10 priority outcomes were indicated.

The 10 priority outcomes were: councillor support, service delivery, social cohesion, economic development, labour relations, sound financial management and governance system, stable municipal governance, capacity-building and institutional development, reform of organised local government, and climate change response measures at municipal level.
(See chart, slide 7)
Mr George said that one area that the members raised sharply was equity. The second aspect was around service delivery. Social cohesion was elevated as a priority of the organisation by members of SALGA. Labour relations was also a priority area together with sound financial management. Capacity-building was also raised with reference funding. However, the main point was SALGA's funding model, and the resourcing of this institution, which continued to be a voluntary body with members paying a subscription that was not legally regulated. This continued to be a limiting factor.

2. SALGA'S Funding Model and Listing as a Public Entity: Review
SALGA’s current Funding was as follows:
Membership fees
Local Municipalities = 0.5% of total salary and allowances budget
District Municipalities = 0.6% of total salary and allowances budget
Metropolitan Municipalities = a flat rate of R9.1 million
Government Grants
The annual grant received by SALGA from the Ministry of Cooperative Governance and Traditional Affairs (CoGTA)
Donors
Donor funding secured had decreased significantly since the 2001/02 financial year; further complicated by listing as a 3A public entity.
Sponsorships
SALGA held a number of constitutional events and public activities each year that drew on the support of sponsors (slide 8).

SALGA Revenue for 2010/11 : revenue distribution by category 2010/11
(Please see pie chart, slide 9)

Review of the Funding Model of SALGA
SALGA was experiencing several challenges in terms of meeting its mandate, which was to represent LG when key policy and legislative matters were proposed by the other spheres of government, as well as supporting its members to overcome implementation challenges.
However, in order to exercise its mandate and demonstrate its relevance to its key stakeholders, SALGA required finances to fund its activities. At present, SALGA was substantially reliant on subscriptions from municipalities and a grant allocated by CoGTA. There was a risk that its current financing might not be sustainable in the longer-term and if additional sources of revenue were not obtained, the activities of SALGA might have to scale down. For SALGA to perform the role outlined in the White Paper and legislation, it was critically important that the current funding model be reviewed to empower the organization to respond effectively to its mandate and stakeholder expectations. (slide 10)

Mr George noted the competing demands of service delivery. SALGA did not have the corresponding resources for the purpose. Municipalities were expected to pay a levy of a certain percentage of their wages bill. The challenge of this funding instrument was that it was largely unpredictable. If the municipalities did not have resources they could not remit to SALGA. A Government grant remained a small resource compared to SALGA's mandate as an national organisation with four distributing mandates under the Constitution. It also depended on donors but these were unreliable sources. The membership structure remained the key source of funds and other income was an unreliable stream.

Mr George noted that SALGA had to represent all members even those who did not contribute. There were inherent contradictions in the present SALGA funding model.

Overview of the Activities of SALGA: the quadrants
Undertaking internal governance activities to manage and provide oversight over the activities of SALGA
Participating in mandatory inter-governmental structures and undertaking legislated responsibilities
Providing services to members, including research and advocacy on key local government issues, and other direct support to municipalities
Supporting the transformation and restructuring of the local government sector, including research and advocacy on key local government issues (slide 11).

Mr George noted that SALGA, as regards the third area of advocacy and support, serviced its members directly.

SALGA: How the Budget was Spent
The cost of governance imposed by national legislation, in the form of the Public Finance Management Act (PFMA), was significant and required SALGA as well as other public sector organisations to be audited externally, establish and implement an internal audit function and establish an audit committee (i.e. implement good governance practices).
There were also a number of IGR structures in which SALGA was required to participate:
The NCOP (in terms of the Organised Local Government Act);
The Finance and Fiscal Commission (in terms of the Organised Local Government Act);
The Budget Forum (in terms of the Intergovernmental Fiscal Relations Act); and
Various structures (Presidential Co-ordinating Council, Premier’s Co-ordinating Forums, Ministers and Members of the Executive Councils (MinMECs), Municipalities and Members of the Executive Councils (MuniMECs), etc, in terms of the Inter-governmental Relations Framework Act)
In respect of the NCOP, there were Select Committees that SALGA must attend.
SALGA must also attend certain Portfolio Committee meetings of the National Assembly of Parliament.

It was SALGA's assertion that Government (through the National Fiscus) should fund the costs of compliance-related governance and mandatory IGR engagement.
 
In addition, SALGA was also required to participate in the Technical Structures that fed into these political structures. It was estimated that approximately 68% of activities of the governance structures of SALGA were dedicated to IGR activities. The direct costs of participating in IGR mandatory structures was approximately R76.82 million. The main reason for requesting government grant financing was that SALGA was undertaking legislated functions regarding its mandatory participation in the various IGR structures. The extent and form of such participation, and whether representation was at a national or provincial level, was effectively required in terms of legislation.

There was no opportunity for SALGA to vary its representation unless there was a change to legislation. The financing of support to members, on the other hand, must be funded by members.
These services rendered had to be relevant to members and perceived to be fundamental to the LG sector. There was a direct correlation between fees charged to members and the services provided to members, both directly and indirectly. Members had a clear understanding of the services that they would receive from SALGA and how this compared with the membership fees paid. This promoted accountability in that members would seek services that were relevant and affordable to them and which they were prepared to finance. In this way, the linkage between members and SALGA were strengthened. In the main then, members should fund governance structures of SALGA and support activities, while the grant from the National Fiscus must cover SALGA’s mandatory governance requirements and IGR participation. (Slides 12-14)

Mr George noted that the importance of SALGA's interaction with parliamentary committees. IGR participation must be assisted by the National Fiscus. There was need to review the funding model to ensure that SALGA could play its role. Similar to other departments, its financial year started from 01 April and it must produce an annual performance plan; however, the financial year of members began from 01 July so there was a misalignment. It was not guaranteed that members would pay their subscriptions, and there was a nine month period in which SALGA was required to chase subscriptions. It was a remaining anomaly and a source of weakness in the organisation.

Listing of SALGA as a Schedule 3A Public Entity: Review
The nature of SALGA’s business called listing and its implications into question. A typical Schedule 3 entity must provide to its Executive Authority (responsible Minister) for approval –
Strategic plan
Annual performance plan
Shareholders’ Compact (with Minister)

In the normal course of events, the Executive Authority would have the power to call an annual general meeting (AGM) and to appoint directors – completely contrary to how SALGA was governed.

The role and mandate of SALGA called upon the organisation to speak on behalf of Local Government in respect of, among others:
Regional Electricity Distributors (REDs)
Integrated public service
Local Government Turnaround Strategy (LGTAS)
Amendments to LG legislation
Policy review issues

It would be more appropriate to report to Parliament.

SALGA’s attempts to source additional funding had been difficult, particularly as a direct result of limitations of its listing as a public entity under Schedule 3 of the Public Finance Management Act (PFMA).

If the requested additional funding from the National Fiscus was not forthcoming, SALGA should be de-listed as a Schedule 3 public entity, allowing the organisation to raise additional external funds.

There were also other financial and reporting complications which arose as a result of the listing, some due for example to the financial year of SALGA being out of syncronisation with that of its members and the term of office of its accounting authority (National Executive Council (NEC)), as opposed to how other types of public entities functioned. Therefore the nature of SALGA’s business called listing and its implications into question. (slides 15-16)

3. Review of Fiscal Framework and Financial Management
Context:
Municipalities had different fiscal capacities and varying service delivery demands, yet they were treated the same in policy making.
Municipalities faced a significant fiscal gap between their expenditure responsibilities and revenue resources
There were challenges in the intergovernmental fiscal system that required review.
Municipalities were facing challenges in the area of revenue and debtors management (e.g. billing
and outstanding debtors).
(Slide 17)

Key Issues: fiscal framework, revenue management and sources, and financial management (slide 18)

Review of LG Fiscal Framework
SALGA recommended that the proposed comprehensive review of the Local Government Fiscal Framework (LGFF) outline a long term vision for sustainable LG finance which entailed a differentiated approach to all the main elements of the LGFF configuration, including:
Address the vertical division of revenue;
To assess the actual needs of smaller municipalities and how additional resources will be directed for institutional capacity, infrastructure funding and service maintenance;
To address issues of unfunded mandates and the costing and provision of free basic services for all municipalities;
Revenue assignment;
Conditional grant design;
Infrastructure funding; and
Borrowing powers.

A differentiated approach to revenue assignment would allocate significant own revenue instruments to municipalities so that those with sufficient fiscal capacity were able to finance investment in infrastructure to lay the foundations of economic growth and to ensure that ageing core infrastructure was maintained.

To this end, SALGA was exploring the modalities of implementing a Local Business Tax.
(For full details, please see slides 19-22)

Revenue Management Sources
Further information was provided about the proposed local business tax (LBT).
In summary, the `local business tax for economic services’, was conceived of as part of a comprehensive package of adjustments to strengthen the overall system of intergovernmental fiscal relations, and had the following objectives:
To generate more revenue for economic infrastructure and services
To strengthen fiscal governance arrangements
To improve economic and general urban efficiency

There were three possibilities for an LBT, all of which would be administered by the South African Revenue Services (SARS):
Origin-based VAT administered by SARS but where cities can vary the rate
National business tax administered by SARS but with some local characteristics
Local business tax administered by SARS
 
The choice of option would be determined by the optimal balance struck between the localisation of the tax to enhance accountability and the ease of administration together with the legal parameters set by the constitution and the scope for altering these.
(For full information please see slides 23-24.)

SALGA Conference Resolutions – Revenue Management Sources

SALGA explored alternative taxation systems in rural areas and for a local business tax to fund economic services & infrastructure in cities and towns.
Proposal to develop a municipal revenue management framework to prevent the erosion of municipal revenues.
Integrity of property data must be improved (Deeds Office and Surveyor General) as it impacts on property rates revenue.
National Treasury (NT) to lobby for the National Energy Regulator of South Africa (NERSA) to align tariffs setting process and alignment with municipal budget cycle.
Develop a framework of revenue management which would shape policy, develop norms, standards for billing and systems to enhance the ability of municipalities to collect outstanding revenue.
(Slide 25)

Financial Management and Reporting: Audit Results
Submissions of annual financial statements on-time for auditing had increased from 215 in the previous financial year to 217 in 2009-10;
The number of unqualified audits with no emphasis had increased from four to seven. This included municipalities from Mpumalanga, Northern Cape and Limpopo that were rural in nature and Cape Town;
The number of unqualified audits with findings had increased from 113 to 120. A gradual increase from 91 municipalities in this category in 2007-08 and;
The number of municipalities with qualified audit opinions remained at 50 and negative, adverse and disclaimer, audit opinions had declined from 113 to 60.

Key observations from Audit results
Auditor General (AG) report on Municipal Finance Management Act (MFMA) audit outcomes 2009/10 showed an increase from 71% to 90% on lack of necessary technical expertise although vacancies decreased from 29% to 10%.
Survey by AG showed that the use of consultants in the preparation of annual financial statements appeared to be widespread across municipalities
Lack of necessary capacity in small rural municipalities implied that there was need to consider a less onerous set of accounting standards – difficulties in retaining interns.

Financial Management challenges
Complexity of compliance – accounting standards, reporting
Cost of compliance – consulting costs for annual financial statements (AFS), asset registers and valuations (eThekwini R400 million and rising)
Capacity for compliance - high turnover of chief financial officers (CFOs) in smaller municipalities, challenges regarding training and retention of interns.
(Slides 26-27)

Review of Fiscal Framework & Financial Management
Asset management
Municipalities have had to implement various reforms over a very short time.
Asset management posed a major challenge to many municipalities.

Asset Maintenance
The huge backlog of infrastructure assets and lack of sufficient financial and personnel had posed a huge challenge post 1994.

SALGA National Conference Resolutions: Financial Management
SALGA to promote peer learning and support between municipalities and private institutions (e.g. banks) to continuously improve systems of financial management .
SALGA engage NT for a focused support programme for rural/smaller municipalities (similar to that of the City Support Programme dealing with challenges of cities on a differentiated basis).

Municipalities faced a significant fiscal gap between their expenditure responsibilities and revenue resources, which varied according to circumstances of each municipality.

Some, but not all, of this fiscal gap was the responsibility of municipalities themselves.
Municipalities must improve revenue collection & increase expenditure efficiency.
SALGA supported the rapid implementation of a more comprehensive review of all the elements of the municipal fiscal framework over the medium term.

SALGA also recommended the speedy resolution of a number of protracted national policy processes (policy review, differentiation model for LG, two-tier system of LG etc.) which were precluding the finalisation of a long term sustainable municipal fiscal framework configuration.
(Slides 28-29)

4. Bulk Water Infrastructure

The issue of bulk infrastructure for municipal services tended to focus only on funding of bulk infrastructure. This had then led to a discussion, within Government, about the need to introduce a bulk infrastructure grant.
Funding of bulk infrastructure was indeed an issue and a sustainable funding model for bulk infrastructure was required.
However the other dimension to the bulk infrastructure constraint to development was institutional.
Department of Water Affairs (DWA) capacity to develop and manage dams and inter-basin water transfers was focused on national scale projects leaving regional water resources development needs unattended to.
Development in many parts of the country was now held back because of lack of water
In cases where there were no fresh water resources and the alternative was to desalinate seawater, the costs of this national Government function (i.e. bulk water provision) was being shifted to municipalities
SALGA recommended that DWA urgently complete and address these issues through its institutional review project which it started five years ago in 2007.
(slide 30)

Economic Regulation of Bulk Water Pricing
In the past two years high increases in bulk water prices were allowed by the Minister of Water Affairs despite objections from SALGA and its member municipalities as it led to increased objection and non-payment by consumers when municipalities passed on the increases. As a result of these increases some water boards reported huge profits/ surpluses even under depressed economic conditions, e.g. after being allowed a 12.9% increase (more than twice the inflation rate for a second consecutive year) in February 2011 Rand Water reported a 51% increase in net income to R390 million for the half year ended in December 2010 . This was a consequence of poor economic regulation where DWA continued to play a conflicted role of being a:
Raw water provider to water boards (therefore interested in ensuring that water boards could afford its unregulated raw water price increases)
Shareholder of Water Boards (therefore interested in ensuring profitability of water boards); and
Regulator of Water Boards (which was in conflict with, an apparently secondary to, the above two interests)

SALGA proposed that in the intervening time, while DWA is working towards the establishment of an independent economic regulator of water pricing, bulk water price increases should be evaluated by an independent panel of experts before approval by the Minister.
(Slide 31)

IGR Approach to Infrastructure Investment Backlogs
Upon establishment, municipalities inherited old infrastructure some of which was more than 30 years old and already overdue for replacement. In a sense municipalities inherited a liability rather an asset because by taking up these functions, they accepted an unalienable responsibility of replacing and refurbishing old infrastructure that was associated with the function. This infrastructure had been servicing a minority of the population largely defined along racial lines with the majority population not having access to services. The new democratic Government correctly decided rather to prioritize extension of services to the unserviced than rehabilitating infrastructure that largely served only a minority. In a sense an infrastructure replacement liability was given to LG without a policy solution as to how this liability was to be financed. The absence of such a policy solution is now playing itself out in the public domain through spectacular collapse of infrastructure in many municipal areas (slide 32).
 
The following graphs showed that, in addition to other infrastructure investment needs, rehabilitation of infrastructure was estimated to about R20 billion a year for next 20 years.
(Bar charts, slides 33-34; and pie chart, slide 35; and slide 36)

SALGA recommended:
Establishment of a national municipal infrastructure refurbishment fund that would provide for the rehabilitation of municipal infrastructure at the required scale.
Establishment of national Geographic Information System (GIS) based databases and national programmes to collect data and manage information on an ongoing basis on the state of municipal infrastructure starting with priority sectors such as roads, water services and electricity. (Slide 37)

5. Councillor Support
Mr Lance Joel, Chief of Operations, SALGA, endorsed Councillor Manyoni's concern for the safety of councillors and emphasised the need for equity in their practical treatment.

Despite the fact that the 2005/06 review of the remuneration system for councillors was intended to improve the financial support given to councillors to fulfil their mandates, it gave rise to a number of challenges. Central to these challenges was that councillors receive a “total remuneration package” and were required to structure their own packages within the legislative prescripts.

As a result of these challenges, the 2011 National Conference of SALGA discussed the critical areas and made recommendations on how Municipal Councillor remuneration should be aligned into the total public office bearer remuneration scheme.

The Conference noted that:
1. The new system of remuneration for councillors was introduced in June 2006;
2. Within the context of five years implementation experience, the ranging challenges with the system of remuneration;
3. Lack of appreciation of the critical role of councillors vis-a-vis public office bearers at other spheres of government;
4. Lack of understanding the roles and responsibilities and more so the critical contribution councillors make in our democracy;
5.There was a disturbing increase in number of attacks on councillors and their property, with no recourse/protection.

National Conference Resolutions:
1. A total review of system of support for councillors should be conducted urgently.
2. The process to review the system of remuneration of councillors to include the principle of uniformity across the three spheres of Government. This principle to be implemented by April 2012.
3. The remuneration of Councillors should be paid out of the central National Revenue Fund instead of municipal budgets by April 2012.
4. The full-time/part-time nature of councillors should be abolished and make provision for full-time councillors only.
5. The benefits of councillors should be directly benchmarked against Public Office Bearers at a provincial legislature level by April 2012.
6. The total remuneration package should be designed for an entry level position, and that additional amounts to be added for higher positions, in accordance with increased duties.
7. The timing of the issuance of the Notice should be reviewed to be before the start of the municipal financial year.
8. A clear distinction be drawn between remuneration and tools of trade and that tools of trade be excluded from remuneration.
9. Mandatory/Compulsory membership to the Pension Fund should be introduced.
10. Identical Pension Fund benefits as those recommended for Public Office Bearers at provincial and national level be extended to councillors.
11. The Application of the non-inclusion of travel between work and ordinary place of business for ward councillors and councillors appointed to the district municipality should be reviewed and/or clarified.
12. Years of service for councillors be recognised.
13. The Section 8(1)(d) allowance to be reviewed to be beneficial and provide value-add to councillors.
14. Chairpersons of Section 79 and 80 should become full-time.
15. Councillors should be entitled to, at the cost of the state, risk benefits including death cover, disability benefits, funeral benefits and cover for personal assets lost or damaged as a direct result of public violence.
(Slides 38-44)

Councillors were being stoned - all in the context of being the face of Government at local level. We needed to look at the principle of equity. Like national and provincial office bearers, there should be a move to pay councillors through the fiscus. The current framework did not provide any safety mechanism. There was no recourse. There should be risk benefits to councillors, and some recourse to replace lost property. However, we could not replace lost lives. There was a specific proposal to extend risk benefits to councillors. We should ensure councillors could deliver on their mandate with necessary equipment by providing them with the tools of trade. They should not be expected to operate from their garages; they needed offices in order to be seen to be effective. The appropriate tools of trade should be identified and extended to councillors.

6. Conclusion
SALGA must be strengthened to perform its role and mandate as expected from its members, Government and stakeholders.
To do so, the funding model and listing of SALGA as a Schedule 3A public entity required urgent attention.
(Slides 45-46)

Discussion
The Chairperson observed that the parliamentary constituency offices must serve the public, and he looked forward to the day when Members of Parliament, Members of the Provincial Legislatures, and Councillors would work together, on a regular basis, in such offices to serve the community. He would have such a meeting on Monday morning. It was part of the turnaround strategy to improve the lives of the people.

The Chairperson suggested that SALGA make a presentation to the Select Committee on Land and Environmental Affairs on water and bulk water. Were we using the water that we had in a correct way? Desalination of sea water was a second option if borehole water was not available. The issue had arrived, and could not be left until the future.

Two provinces had improved on their audit outcomes – KwaZulu-Natal and Gauteng, according to the Auditor-General's report. If they could do it, the other seven could do so as well. What was the action plan?

Mr M Makhubela (COPE, Limpopo) asked SALGA's Chairperson 'what teeth' SALGA required to be effective. He asked about SALGA's 10 part-time representatives in the NCOP. Who were they? Also, who were the two persons nominated to serve on the Financial and Fiscal Commission (FFC)? In which financial year did they approach the Minister to advise him on financial matters? SALGA had a five-year strategic plan 2007/12. What progress had been made? He asked Mr Johann Mettler, Executive Director, SALGA, what he had done with questions asked on a previous occasion. He asked SALGA what it did with municipalities that did not submit their reports on time.

Mr D Bloem (COPE, Free State) congratulated SALGA's new executive. He noted that SALGA's Chairperson had said that SALGA had 'no teeth'. However, Mr Bloem was appalled at the level of corruption that the Select Committee had discovered on its oversight visit to Bloemfontein. Not enough was being done to address corruption and excessive expenditure in municipalities. SALGA had been silent. The Minister of Finance had said that municipalities must reduce excessive expenditure. Disclaimers, Mr Bloem noted, were a very serious matter. If SALGA wanted Parliament to assist, it must give answers. The Select Committee on Cooperative Governance and Traditional Affairs would engage with SALGA.

Mr B Mashile (ANC, Mpumalanga) called for supporting documents. Some of the information was conclusions from other information that Members did not have. Generally what Members were hearing was the need for more funding - he hoped that SALGA was not going to launch its own airline. He called for a workshop to understand SALGA's reasoning. SALGA was obviously like a union. There must be some sort of transitional arrangement with regard to the membership fees. He was worried about SALGA's apparent request to be able to borrow - how was it proposing to service the debts that it wanted to incur. He was interested in the proposal for a local business tax. He asked if there was any real progress with SALGA's interaction with the National Energy Regulator of South Africa and with the traditional leaders, and on the audits. The Municipal Infrastructure Grant provided for refurbishment, but could only be in the form of a conditional grant. Who should manage that?

Prince M Zulu (IFP, KwaZulu-Natal) said that our constitution was explicit that we must support municipalities.

Mr R Lees (KwaZulu-Natal) agreed on the need to curb excessive expenditure. It was important to assess priorities. Much of the presentation had reflected SALGA as a trade union for councillors. Making membership of SALGA compulsory would raise constitutional issues. He disagreed with SALGA's proposal for a local business tax.

Mr Neels van Rooyen, Chairperson of the Public Accounts Committee, Free State Legislature, found SALGA's statistics outdated. As to bulk supply, municipalities were seen as cash cows. The water boards were making profits but this was not their role. It was unfortunate that Eskom had to charge interest after only 15 days.

Ms Belinda Scott, Chairperson: Finance Committee, KwaZulu-Natal, asked why provincial government could not be used on an agency basis, with more use of shared services. The proposed local business tax was alarming, even to those who did not often agree with the Democratic Alliance. Also the issue of shared services had not been explored enough. The poorer municipalities belonged to a district. One should focus on the district level. It was important to give better value for money.

The Chairperson said Ms Scott had made a very valuable point.

Mr Kagiso Molusi, Chief Whip, Northern Cape Provincial Legislature, noted a clear improvement in audit outcomes but that in some areas we were doing very badly. The report said that in terms of unqualified audits, with no matters of emphasis, there had been an increase from four to seven. Unqualified audit findings had increased from 113 to 120. Municipalities that were doing well, such as some of those in the Northern Cape, should be taken to the district municipalities as role models. When we started in the early 1990s we had a similar picture, in departments as well. However, we had seen a remarkable improvement in terms of audit outcomes. What was SALGA's strategy? SALGA of Public Accounts Committees (APAC) had recommended municipal public accounts committees, and he thought it had been raised by the Honourable Member from the Free State. Perhaps performance would improve when standing committees on public accounts (scopas) were introduced at the level of municipalities. His other questions had been anticipated by other Members.

The Chairperson suggested that SALGA make its submission for compulsory membership to the Constitutional Review Committee.

Councillor Manyoni replied that it was important not to tar all municipalities with one brush. There were municipalities that were doing their level best, and SALGA wanted to highlight those so that others could learn from them. He noted the Chairperson's recommendation, since the legal framework under which SALGA was operating, in terms of the Constitution, was a difficult one, especially in terms of the Select Committee's high expectations. The reality was that SALGA was a voluntary body; the legal framework needed to be revised, if the country really needed SALGA, to empower SALGA to meet its obligations and what was expected of it.

It was difficult for rural municipalities to retain skills, and at the same time municipalities were under pressure to fill those vacancies left by staff that they could not retain. It was part of SALGA's function to represent them and lobby for them. SALGA's approach was that the issue of local government should be addressed in a meaningful way, rather than just pass the responsibility back to the municipalities. The same kind of incentives to retain medical personnel in rural areas should be given to engineers. This is what SALGA was proposing at other levels and forums. SALGA was trying to think out of the box in order to help the municipalities function better. It was important to look into the issue of conditional grants. Were we going to [continue to] have municipalities that relied on grants? The majority of municipalities still depended on grants. Was that the type of governance that we wanted? If municipalities could sustain themselves, then we would not be taxing South Africans so much at that level. We would then lessen the burden of tax in this country. Then municipalities could then look into having their own revenue. The idea of a local business tax was not an issue in isolation. It could not just be imposed. However, we might have to reduce the other forms of taxation on South Africans, when we were looking into this other option, if we wanted to have municipalities run their affairs properly and never have to depend on these handouts. If one took the example of water, more than 80% of the municipalities were getting water from Bloem Water; however, the communities would go to the municipality when they wanted water. However, there was a problem with burst pipes. There was pressure from municipalities and one could not expect them to resolve their infrastructure problems in isolation. So the appeal from 'this union of municipalities - 'yes, we are representing those municipalities; its part of our function anyway' was that SALGA needed to advocate that central Government must stop considering these municipalities as 'suspects of a crime'. SALGA was also lobbying that there were issues that needed a change in the legal framework and SALGA needed central Government and Parliament to acknowledge this in order that municipalities could deal with some of these matters properly. It was in that framework that there were specific issues that Members had raised that needed to be addressed.

Western Cape municipalities were part of SALGA. Moreover, SALGA was insisting that all municipalities, as long as the Constitution recognised that SALGA should exist, should belong to SALGA. There were issues of corruption and maladministration. Where there was money there would always be “skelms”. The main thing was how to mitigate those circumstances. The SALGA National Conference had resolved that SALGA would partner with the banks to identify certain municipalities that were experiencing many corruption allegations and work with senior managers.

Mr George said that there were 10 SALGA representatives assigned part-time to attend specific engagements at the NCOP. The composition of the delegation could change according to the topic under discussion. Consistent with SALGA's constrained resource environment, in some circumstances SALGA would send fewer than 10 people. It was up to a maximum of 10. Also, SALGA's membership in the NCOP was not adequately reflected in SALGA's resource allocations. Moreover, it had to be asked if those delegates were provided with office accommodation consistent with their status according to the Constitution. SALGA had raised these issues with the Chairperson of the NCOP. The leadership of SALGA would continue to engage on that matter. SALGA made representations through the NCOP to the Budget Forum.

At the level of the FFC, SALGA had two people who were designated to be commissioners. One of these positions was waiting to be filled. SALGA had followed due processes.

The national executive committee (NEC) of SALGA had set five priorities in the 2007/12 strategic plan. One was stabilisation of governance in municipalities, minimising the needs for interventions. The second was to explore ways to separate the powers in municipalities, and look at ways to provide oversight structures, such as audit committees. A number of municipalities in Gauteng had been at the forefront of piloting initiatives and working within the legal framework of municipalities to manage creatively the interface that sought to separate the powers. In most of the instances, such initiatives had worked relatively well. On the municipal finance management, indeed from 2007/08 there had been areas of improvement. At one time, some municipalities could not even submit financial statements. Secondly, those that could submit, could not submit on time. The picture that one saw now was one of progressive improvement since 2007. SALGA had implemented specific programmes in collaboration with the Development Bank of Southern Africa (DBSA) through the five year local government strategic agenda, where there had been specific expertise deployed in municipalities to provide hands on support to produce financial statements. Thus fruits were beginning to emerge. Those municipalities that had received disclaimers received them largely as a result of failure to manage assets. Annually SALGA ran workshops in municipalities. Although it was not enough there had been improvement in financial governance. Although it was not enough there had been improvement in financial governance. The area of capacity building was the third thrust of the SALGA five year strategy. In the past five years there had been no less than 10 000 training initiatives on capacity building. There had thus been comprehensive capacity building initiatives for councillors, but it was not enough. From 18 May there had been a national induction programme for councillors. Between July and August, almost 83% of councillors had undergone the programme, and SALGA would now be running portfolio-based training. The fourth area was an area of international profiling of the work of South African local government in the global system of local government. In this regard, SALGA was taking a lead in various areas in the Southern African Development Community (SADC), for example, in pairing municipalities in specific programmes, for example, Johannesburg with Lilongwe, Malawi, on city development strategies.

The causes of the various strikes which had taken place were explained. This year's strikes had been occasioned by inflation. However, organised local government had managed that process and the strike was called off on 30 August. The leadership of SALGA had indicated the need for continuous engagement to ensure stability.

SALGA was not intending to borrow money; all it wanted was a bank overdraft facility, which its present status did not allow. It did not want to borrow from the financial markets.

SALGA informed Members that the 2014 clean audit programme was a programme of national Government. Progress was being reported. The outcomes of the audits were being used to assist municipalities identify their problem areas.

Section 57 managers now, in terms of amended legislation, could now be employed on a permanent basis. The remuneration of those managers was still within the domain in the council. The Department of Cooperative Governance (DCOG) was currently working on a set of regulations. At a technical level SALGA was participating in the Committee concerned.

SALGA was examining energy efficiency as a replacement for investment in electricity generation plants. It took a similar approach to water.

The municipal infrastructure grant (MIG) was about extending services to those who were not served. The rules of the grant did not allow its use for investing in the refurbishment of the existing infrastructure, including electrification plant.

Thus there was the need for a fund focused on infrastructure - the municipal infrastructure refurbishment fund.

In most cases, provinces did not have in-house capacity themselves, hence they did not have sufficient capacity to be used as agencies. Government in general was using the private sector to implement projects. So shifting responsibility to provinces would not solve the problem but and would lead to decay of infrastructure. The realistic intervention was to build more capacity, and that capacity must be accompanied by responsibility.

SALGA was committed to avoiding corruption. It had to be emphasised that councillors were public office-bearers. It was important to regulate how mayors operated, by similar guidelines to the Ministerial Handbook.

Mr Makhubela asked if previously asked questions and answers were incorporated ii this presentation' in order to give the new incumbent the basis to move forward'.

Mr Mettler responded that the issues raised at Bantry Bay were centred on the report of the Auditor-General. There had been a feeling that SALGA was not doing enough. There were three provinces at the time where peer learning was used to improve the reporting of annual financial statements of municipalities.

The Chairperson said some Members were not present at the Bantry Bay meeting, since that meeting was with the Select Committee on Cooperative Governance and Traditional Affairs.

Mr Mashile said that he had not heard from the CEO about SALGA's capacity to make legislative proposals and his response to the idea of a workshop at which all partners could participate. However, he thanked SALGA for mobilising all its resources, and SALGA had done very well in assisting Members. However, supporting documents were needed.

The Chairperson thought that SALGA was hitting the ground running. This was the picture he had gained. The Select Committee would assist. When the Select Committee visited provinces, SALGA was part and parcel of its meetings. The Select Committee was also undertaking a preliminary visit to KwaZulu-Natal from 03 to 07 October 2011.

The Chairperson said that the SALGA official who had met the Select Committee in Bloemfontein was a junior member of staff who could make a presentation but could not answer the questions. It was important that senior personnel were deputed to meet the Select Committee. He thanked the leadership of SALGA.

The meeting was adjourned.

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