Expanded Public Works Programme incentive model: Departments of Public Works & Cooperative Governance and Traditional Affairs and South African Local Government Association follow-up

Standing Committee on Appropriations

13 February 2012
Chairperson: Mr E Sogoni (ANC)
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Meeting Summary

The Committee had in May 2011 noticed that spending on the Expanded Public Works Programme Incentive Grant was not up to scratch and requested the Department of Public Works, the South African Local Government Association and the Department of Cooperative Governance and Traditional Affairs (COGTA) to find ways in which the grant could be better spent. The Department of Public Works briefed Members on the Revised Incentive Grant Model. The presentation covered background on Expanded Public Works Programme Phase II (two) and Incentives, the recommendations from a review of the Schedule 8 Grant, a summary of the new Expanded Public Works Programme Conditional Grant and its advantages, and the differences between the old and the new grant.
The Expanded Public Works Programme Phase I was successful in creating more than one million work opportunities over five years; however, the scale of unemployment and poverty being experienced by South Africa required a much larger scale response to the problem. The Expanded Public Works Programme was seen as an opportunity to address the social welfare gap on a larger scale than before.
Key issues that needed to change in order to scale up in Phase II were to make the creation of paid work the primary objective of the Programme, and locate clear political and administrative accountability for Programme job creation targets across all spheres of Government. In addition it was necessary to provide fiscal incentives and mobilise non-state capacity to deliver additional work opportunities.

The Department of Public Works had set out to pilot a number of funding models, namely the wage subsidy, expansion incentive and performance based incentive. The wage subsidy was provided to existing non-government organisations that already created work for poor communities.

Experience in implementing Expanded Public Works Programme incentives had shown that the wage subsidy had worked well for established, capacitated non-governmental organisations able to fund all wages and use other funding for operations and materials. It had also worked well where services were in demand by society. Where it had not worked was small or new non-governmental organisations that struggled to find other funding for non-wage costs. Complications experienced were that the 'performance bonus' concept was not easily understood; small municipalities were struggling with no base funding to perform; and the incentive was not really a carrot sufficient to turn labour intensity around.

Recommendations from a review of the Schedule 8 Grant pointed out that the grant should take special cognisance of small and rural municipalities and other public bodies with smaller Municipal Infrastructure Grant allocations or limited funding, but with the potential to contribute to job creation. In addition the grant should attempt to directly incentivise or implement increased labour intensity.

The new Expanded Public Works Programme Conditional Grant was intended to provide funding to expand job creation efforts in specific focus areas, where labour intensive delivery methods could be maximised. There would be a special focus on supporting poor, rural municipalities. A structured Technical Support Programme would identify structure and agree support with public bodies, but would aim to prioritise support to those municipalities.

Job creation targets for the new model would be set by a full-time equivalent target for the grant, based on wage rate assumed at Expanded Public Works Programme minimum.  The basis of disbursement in the  new model was that 40% would be paid at the beginning of the year on approval of the public body's  business plan and a further one to two payments would take place, provided the public body was implementing its projects and spending its initial 40% towards its job creation targets.

The Financial and Fiscal Commission maintained that in terms of the Constitution it should have been consulted on the issues tabled.

 The Department of Cooperative Governance and Traditional Affairs said that one of the options being considered to increase uptake of the scheme by municipalities was to use the municipal infrastructure support agencies. This would assist municipalities with planning and expenditure and also with applications for the grant.

Members asked for clarity on the criteria for providing grants to municipalities. In addition the Committee asked what would happen to small municipalities which had never accessed the grant since the basis being used for approval was past performance. What would qualify an entity to get funding? The Committee further pointed out that parties involved in the Expanded Public Works Programme should come together and come up with a plan that would expedite job creation.

Meeting report

Chairperson's Introductory Remarks
The Chairperson welcomed officials form the Department of Public Works (DPW), the Department of Cooperative Governance and Traditional Affairs (COGTA), the South African Local Government Association (Salga) and the Financial and Fiscal Commission (FFC). When the Committee met in May 2011 it had noticed that spending was not up to scratch. A request was made to the DPW, Salga, and COGTA to come up with ways in which the Expanded Public Works Programme Grant could be better spent.

The Committee sought clarification on whether what was being presented had been consented to by all parties as had been directed. DPW advised that various meetings were held and input was given by all stakeholders, including the National Treasury. The concept being presented had input from all stakeholders and had been agreed to. 

Department of Public Works EPWP Revised Incentive Grant Model Presentation
Mr Ignatius Ariyo, Chief Director: Infrastructure Sector: Expanded Public Works Programme (EPWP), Department of Public Works (DPW), reported that the concept presented had input from all stakeholders and had been agreed to. The presentation covered background on EPWP Phase II (two) and Incentives, the recommendations from a review of the Schedule 8 Grant, a summary of the new EPWP Conditional Grant and its advantages, and the differences between the old and the new grant.

The EPWP Phase I was successful in creating more than one million work opportunities over five years; however, the scale of unemployment and poverty being experienced by South Africa required a much larger scale response to the problem. The EPWP was seen as an opportunity to address the social welfare gap on a larger scale than before.
Key Issues that needed to change in order to scale up in Phase II were to make the creation of paid work the primary objective of the EPWP, and locate clear political and administrative accountability for EPWP job creation targets across all spheres of Government. In addition it was necessary to provide fiscal incentives to accelerate the scaling up of the EPWP (allow incentives to be performance or demand driven), mainstream the EPWP criteria and outputs with the core mandates and programmes of implementing public bodies, and deliver additional Expanded Public Works Programme work opportunities and technical support to spheres of Government, sectors and implementing bodies.
The background to the EPWP incentives was that the DPW set out to pilot a number of funding models, namely the wage subsidy, expansion incentive and performance based incentive. The wage subsidy was provided to existing non-government organisations that already created work for poor communities, had programmes that could be expanded in terms of size, reach and coverage, were able to secure funding for all other programme related costs, and involved the payment of a minimum daily wage rate for every day of work created. In addition the non-governmental organisations would pay all wages (monthly) as work was created. The expansion incentive was provided to existing performing Government programmes that had a performance track record, potential to immediately expand due to demand, capacity to manage expansion, capable implementers and attached incentives efficiencies in job creation. 
The performance based incentive was provided as an incentive to provincial and local government. Allocation was based on how many jobs could be created with funds already being received by provincial departments and municipalities through grants.  The incentive was also provided in the form of a performance bonus. Performance was counted as the number of days of work created and performance each quarter was assessed. In addition a quarterly reward was earned and the reward was equal to the minimum daily wage. Once the ‘reward’ was paid, it could be used for job creation in any programme or area.
The experience in implementing EPWP incentives had shown that the wage subsidy had worked well for established, capacitated non-governmental organisations able to fund all wages and use other funding for operations and materials. It had also worked well where services were in demand by society. Where it had not worked was small or new non-governmental organisations that struggled to find other funding for non-wage costs. Complications experienced related to reporting and payments procedures that were difficult for non-governmental organisations with limited operational capacity to manage large numbers of workers and payments. The expansion incentive had worked well. Performing programmes were able to become more efficient and more labour intensive, and implementers were incentivised to expand and had been expanding quickly. Complications experienced were with reporting procedures. The performance based incentive had worked as more provincial and municipal public bodies were participating in the EPWP; there was general mobilisation to create jobs; incentivising increased reporting; and public bodies were performing better. What had not worked was that small, rural municipalities did not have sufficient grant funding to participate meaningfully; labour intensity was not yet improving; incentives were not built into contracts; and incentives earned were not being ploughed back for job creation. Complications experienced were that the 'performance bonus' concept was not easily understood; small municipalities were struggling with no base funding to perform; and the incentive was not really a carrot enough to turn labour intensity around.

Recommendations from a review of the Schedule 8 Grant pointed out that the grant should take special cognisance of small and rural municipalities and other public bodies with smaller Municipal Infrastructure Grant (MIG) allocations or limited funding, but have the potential to contribute to job creation. In addition the grant should attempt to directly incentivise or implement increased labour intensity, allow for an easier flow of funds to kick start job creation, provide more certainty in the allocation to ease appropriation difficulties and seek to have a greater oversight in the incentive being spent to further increase job creation. Also the grant should address the issue of public bodies that were not earning their allocations and enhance ‘packaged’ technical support to public bodies, particularly small and rural municipalities.
 
The new EPWP Conditional Grant was intended to provide EPWP funding to expand job creation efforts in specific focus areas, where labour intensive delivery methods could be maximised. The new EPWP Conditional Grant would operate similarly to a normal schedule 5/6 grant. The EPWP grant allocation would be determined by taking into consideration: past performance, the potential to create work, and the need to inject employment opportunities and funding into poor rural areas. Public bodies would need to mainstream the EPWP into their existing planning processes, and plan to use the grant in line with the criteria set by the DPW to maximise job creation. There would be a special focus on supporting poor, rural municipalities. A structured Technical Support Programme would identify structure and agree support with public bodies, but would aim to prioritise support to those municipalities as part of the special dispensation. Reporting would continue with enhancements to reflect baseline performance and grant performance and spending. The disbursement of the EPWP grant might occur in two to three payments. 40% of the allocation would be disbursed at the beginning of the financial year (22 May for provinces and 22 August for municipalities) while the remaining 60% would be made in one to two payments during the year provided public bodies were implementing projects as planned.

The differences between the old and new grant was that the old grant was a Schedule 8 incentive Model while the new model was an improved, simplified Schedule 5/6 Grant (Refer to attached presentation of more comparisons). The method of allocation was different in the sense that for the old model the incentive allocation was regarded as indicative only while for the new model it was certain. The planning process previously was that public bodies planned in their normal planning processes the number of jobs to be created from existing budget allocations to earn the incentive while for the new model planning for job creation would be mainstreamed within existing planning processes. In addition the DPW would implement “assisted, simplified EPWP planning” and guide planning by setting out focus areas and project selection criteria.

Job creation targets in the old model were determined by applying a threshold full-time equivalent factor to the MIG to get a threshold (floor) and applying a performance full-time equivalent factor to the MIG to get a ceiling target. In addition adjusting the ceiling target, depending on performance of the previous year and performance against the final full-time equivalent target, was assessed quarterly to determine the incentive amount earned and paid out. Job creation targets for the new model would be set by a full-time equivalent target for the grant, based on wage rate assumed at EPWP minimum. Performance against the grant target would be assessed to inform further disbursements to ensure the public body was implementing its project list or business plan. In addition performance against the baseline target and grant target would be assessed annually to inform the following year's grant allocation. The basis of disbursement in the old model was based on quarterly performance (number of jobs created above the threshold). On the other hand in the new model 40% was paid at the beginning of the year on approval of the public body's EPWP business plan and a further one to two payments would take place, provided the public body was implementing its EPWP projects and spending its initial 40% towards its job creation targets. In the old model, the EPWP performance determined the incentive earned and paid out, and performance was counted against the full-time equivalent target (based on MIG and past performance). On the contrary, with the new model, reporting would be done via the EPWP Municipal Infrastructure Support aided by DPW, implementation progress and actual work created, and spending would be monitored quarterly.
Discussion
Mr G Snell (ANC) said that the collective had come up with a new model. When the Committee appropriated, National Treasury would give the grant. Had Treasury agreed with the model the Department had presented?

Mr Ariyo replied that National Treasury had had an input and details had been given to the Financial and Fiscal Commission FFC). Treasury had the concept document. DPW had signed off and the work which had been given to Treasury. DPW also had an input in the Treasury processes in terms of the framework.  

Mr L Ramatlakane (COPE) asked for clarity on the criteria for providing grants to municipalities.

Mr Ariyo replied that, in terms of the quantum, DPW had decided that after all the calculations were done the minimum amount that would be given to a municipality was R1 million. Compared to the previous allocations this was much more. Conceptually this was what was being considered. There were 60 municipalities that would be eligible out of the 278 municipalities. Overall most of the municipalities were on board and would benefit.

Mr Bongani Khumalo, Acting Chairperson and Chief Executive Officer, Financial and Fiscal Commission (FFC), stated that in terms of the Constitution and Intergovernmental Fiscal Relations (IGFR) the issues being tabled had to be discussed with the FFC.  The FFC had only received the details from National Treasury the previous day. The FFC was due to have a meeting with Treasury in terms of the IGFR on the proposed changes before the Minister tabled the budget. FFC viewed the presentation on the Expanded Public Works Programme Conditional Grant Model as a proposal and would meet with National Treasury to make its own recommendations. The Committee would have opportunity to look at these during the budget process. It would have been useful had the FFC been involved from the beginning. The process would have thereby moved smoothly.

The Chairperson pointed out that parties involved in the EPWP should come together and come up with a plan that will expedite job creation.

Mr Ariyo replied that there was a minimum of R1 million that had been proposed through the EPWP so that this could kick start and incentivise job creation.

The Chairperson asked what would happen to small municipalities which had never accessed the grant since the basis being used for approval was past performance. What would qualify an entity to get funding?

Mr Ricardo Hansby, Deputy Director General: Economic Development, Department of Cooperative Governance and Traditional Affairs (COGTA) replied that COGTA agreed with the broad approach. Going forward there was still need to do some refinement with stakeholders in terms of rolling out the scheme. One of the options being considered to increase uptake of the scheme by municipalities was to use the municipal infrastructure support agencies. This would assist municipalities with planning and expenditure and also with applications for the grant.

The Chairperson advised that the Department of Public works and the Department of Cooperative Governance and Traditional Affairs should take up the responsibility to enhance the understanding of municipalities on the changes to the Expanded Public Works Programme. 

Mr Ariyo replied that the plan was to offer technical support in two ways. One way was to collaborate internally with COGTA as it had the infrastructure support agency. There was also a memorandum of understanding (MOU) with the Development Bank of Southern Africa (DBSA) which had technical experts who had been absorbed in the municipal infrastructure agencies. DPW had also recruited staff to do technical support and would also procure external capacity in the form of engineers to work with DPW to support municipalities. The Expanded Public Works Programme Conditional Grant Model would be intensive in that projects needed to be looked at beforehand.

Mr Ramatlakane asked how checks and balances would be ensured for the 40% initial payment so that the money transferred would be used for the intended process.

Mr Ariyo replied that municipalities would each be submitting a project lease which would be signed off by the municipal manager and the Deputy Director-General on behalf of DPW before any funding was transferred. This would ensure a record between the two public bodies. The first tranche of 40% would then be paid. The subsequent tranches would not be paid unless a report was provided with regard to the 40%. Verification would also be done to monitor to ensure that implementation was being carried out. Audits would also be done.

The meeting was adjourned.





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