Inter-governmental debt: progress report by Departments of Cooperative Governance and Traditional Affairs, and Public Works; Non-returning councillors' gratuity payments.

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Cooperative Governance and Traditional Affairs

21 May 2012
Chairperson: Ms D Nlhengethwa (ANC)
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Meeting Summary

The presentation summarised the work done by the task team which had been set up by a steering committee representing the National Treasury, COGTA, the Department of Performance Management and Evaluation and the Department of Public Works. The task team had piloted the first phase of the debt reduction projected by analysing outstanding Government debt owed to the eThekwini and Port St Johns municipalities, and had then moved on to the next phase, targeting 18 municipalities with the highest Government debt balances.

The Government’s overall indebtedness at December, 2011, amounted to R3.5 bn, compared to R3.9 bn at the end of September, 2011. This represented an average reduction of 14%. Figures indicated that seven of the nine provinces had shown an improvement, with only Free State and Limpopo experiencing increased debt levels. The two main challenges facing the task team had been the splitting of accounts into rates and municipal services, as they delayed the verification of municipal invoices, and the high rate of management turnover at municipalities, as the new leadership had to be informed afresh of the debt reduction initiative.

The task team’s future actions would involve providing the Committee with a breakdown of the situation at each municipality, including a debt age analysis. It would continue working with the DPW and municipalities in order to verify debts for payment, with Rural Development and Land Reform and the DPW to facilitate the vesting of properties and vacant land, and with Human Settlements to facilitate the endorsement of housing board properties and R293 townships. Reconciliation of state immovable asset registers for all three spheres of government was continuing. The task team would visit municipalities to assist them with debt collection processes.  Municipalities would be encouraged to disconnect services as a means of enforcing credit control.

Most of the debt related to rental housing stock, where there was a dispute as to whether the houses belonged to Human Settlements or to the municipalities. It had been decided it was important to meet with the provincial authorities to speed up the process of transferring the properties to the municipalities. The challenge facing Rural Development and Land Reform related to the vesting of properties. When the DPW was updating its asset register, it had found 35 000 parcels of land where they did not know who the custodians were. These properties needed to be vested to the various provincial departments, and this could take up to March 2014.

Several members expressed disappointment that the Department had presented a globular report spread over the provinces, as it would have been helpful for the presentation to have focussed on progress at the 18 targeted municipalities. The intention had been to use the lessons learned to help other municipalities.
It was agreed that the next report back on the debt reduction issue should take the form of an all-day workshop, attended by members of the task team and selected municipalities.

COGTA also updated the Committee on the payment of gratuities to non-returning councillors – those who had lost their seats in the last local government elections. There were 3 690 councillors who had to be paid, and 930 had not yet submitted the required forms. A total of 2 398 had already been paid out, but some were still awaiting a tax directive from SARS, or had been advised to contact SARS directly. SARS had become involved because some councillors were also engaged in other income-earning jobs, such as teachers, and would need to settle outstanding tax issues before becoming eligible for the gratuity. The gratuity was regarded as taxable income by SARS.

Meeting report

The Chairperson welcomed the delegation from the Department of Cooperative Governance and Traditional Affairs (COGTA), and apologised for the absence of the Minister. The Committee was looking forward to hearing what progress had been made in assisting Government departments to settle their debts with municipalities.

Mr Muthotho Sigidi, Acting Director-General (ADG), COGTA, said the presentation would summarise the work done by the task team which had been set up by a steering committee representing the National Treasury (NT), COGTA, the Department of Performance Management and Evaluation (DPME) and the Department of Public Works (DPW). The task team had piloted the first phase of the debt reduction projected by analysing outstanding Government debt owed to the eThekwini and Port St Johns municipalities, and had then moved on to the next phase, targeting 18 municipalities with the highest Government debt balances.

The Government’s overall indebtedness at December, 2011, amounted to R3,5 bn, compared to R3,9 bn at the end of September, 2011. This represented an average reduction of 14%. Figures indicated that seven of the nine provinces had shown an improvement, with only Free State and Limpopo experiencing increased debt levels. A debt “age analysis” showed that in the 0 – 30 day category, debt had dropped from R705m to R414m; in the 31 – 60 day category, it had declined from R276m to R248m, and in the 61 – 90 day category, it had reduced from R365m to R262m. However, debts of over 90 days had increased slightly, from R2 562m to R2 590m.

Mr Sigidi said the two main challenges facing the task team had been the splitting of accounts into rates and municipal services, as they delayed the verification of municipal invoices, and the high rate of management turnover at municipalities, as the new leadership had to be informed afresh of the debt reduction initiative.

The task team’s future actions would involve providing the Committee with a breakdown of the situation at each municipality, including a debt age analysis. It would continue working with the DPW and municipalities in order to verify debts for payment, with Rural Development and Land Reform and the DPW to facilitate the vesting of properties and vacant land, and with Human Settlements to facilitate the endorsement of housing board properties and R293 townships. Reconciliation of state immovable asset registers for all three spheres of government was continuing. The task team would visit municipalities to assist them with debt collection processes.  Municipalities would be encouraged to disconnect services as a means of enforcing credit control.

COGTA had identified the five priorities to focus on, in fast tracking the Local Government Turnaround Strategy (LGTAS), one of which was the promotion of sound financial management. The amendment of the Municipal Property Rates Act (MPRA) would further assist by providing proper classification of Public Service Infrastructure (PSI), such as public schools, for rates exemption purposes.

Mr Sigidi concluded his presentation by updating the Committee on the payment of gratuities to non-returning councillors – those who had lost their seats in the last local government elections. There were 3 690 councillors who had to be paid, and 930 had not yet submitted the required forms. A total of 2 398 had already been paid out, but some were still awaiting a tax directive from SARS, or been advised to contact SARS directly. SARS had become involved because some councillors were also in other income-earning jobs, such as teachers, and would need to settle outstanding tax issues before becoming eligible for the gratuity.

Discussion
Mr G Boinamo (DA) wanted to know what kind of payment the gratuities represented. Were they a form of pension?

Mr Sigidi said the money was a “salary” that was given to non-returning councillors, and it was taxable. Describing it as a “gratuity” had been problematical.

Mr Boinamo asked if churches would qualify for tax exemption under the amended MPRA.

Mr Sigidi said that if a church was classified as a PSI, it would qualify, but as the Bill was still in process, he did not know if this would eventuate.

Mr J Steenhuizen (DA) said he was disappointed that the Department had presented a globular report spread over the provinces, as a pilot project involving 18 municipalities had been initiated last November, and it would have been helpful for the presentation to have focussed on progress at each of these individual entities. The intention had been to use the lessons learned to help other municipalities. There was also no age analysis of eThekwini and Port St Johns municipalities, so one did not get a picture of how the interventions were working at those targeted municipalities.

Ms W Nelson (ANC) said the Committee needed to track progress at the 18 targeted municipalities, as the challenges put forward were the same as those that existed six months ago.

Mr Sigidi acknowledged that the figures for all 20 municipalities (including eThekwini and Port St Johns) were available, and would be included in the next report to the Committee.

Mr Steenhuizen said the outstanding debt reported at a previous meeting had stood at R2,9 bn, compared to R3,5 bn in the current presentation, and wanted to know why there was a discrepancy.

Mr Mbulelo Sigaba, of Operation Clean Audit (OPCA), COGTA, said the figure of R2,9 bn was the position as at the end of June last year. As most of the property rates were raised in the July to September period, and this distorted the position, it had been decided to use the end of September figure, which was R3,5 bn.

Mr Steenhuizen said COGTA had undertaken to convene an urgent meeting in December with the Departments of Human Settlements (to discuss issues round R293 townships and housing boards) and Rural Development and Land Reform (in connection with the transfer of assets and confirmation of ownership of assets), and with National Treasury (regarding outstanding interest, particularly on properties not yet vested).  He wanted to know the outcome of the meeting.

Mr Sigaba said what had transpired was that most of the debt related to rental housing stock, where there was a dispute as to whether the houses belonged to Human Settlements or the municipalities. It was decided it was important to meet with the provincial authorities to speed up the process of transferring the properties to the municipalities. The challenge facing Rural Development and Land Reform related to the vesting of properties. When the DPW was updating its asset register, it had found 35 000 parcels of land where they did not know who the custodians were. These properties needed to be vested to the various provincial departments, and this could take up to March 2014.

Ms M Segale-Deswai also expressed disappointment at the lack of detail in the presentation, as it had been stated previously that certain departments had owed a lot of money, but these were not identified and so the Committee still did not know where the problems existed.

Mr Sigaba said the main problems existed in the Department of Public Works, at provincial and national level, and the provincial Education, Human Settlements and Health departments, although the challenges varied from province to province.

Ms Nelson asked about the situation in the Free State and Limpopo, where the level of debt had increased. Were current accounts being settled, or was the debt merely accruing interest?

Mr Sigaba said the problem in these two provinces seemed to be related to the functioning of the debt management forums, which were led by the provincial treasury and local government. Municipalities were called in to present their debt situations to the various provincial departments, so the functioning of the forums needed to be strengthened, as the national DPW – where most of the disputes arose -- was not participating in some of them. Different municipalities had different by-laws relating to interest payable on accrued debt, and in some cases, through negotiation, the interest could be written off if the full amount was settled.

Ms Nelson said the asset verification challenges facing municipalities needed to be dealt with, and suggested that a report should be presented that the Committee could go through on a province by province and municipality by municipality basis, even if it took a full day. Municipalities could be invited to attend and explain the issues which they could not resolve.

Mr D Mavunda (ANC) commented that if the Department had not yet been able to decide which assets belonged to which of the three spheres of government, how could one expect the municipalities to deal with the issues involved?

Mr Sigaba said the PWD had been trying to update the asset register for the past two years, and had informed him it was between 90 and 95% complete. The task now was to reconcile the municipalities’ valuation rolls with the PWD asset register for all government properties, so that ownership could be confirmed and the right departments could be billed.

Mr Steenhuizen said that the pilot project had shown an 11% improvement in debt reduction across the board, which was not what one would have expected from an intensive and focussed programme. He asked whether the Department had set itself a target for the next six months.

Mr Sigaba said the target had been a 50% reduction in debt, and this would remain the target.

Mr T Bonhomme (ANC) asked whether interest was charged for the non-payment of invoices.

Mr Sigaba said municipalities did raise interest on all overdue accounts, although it might be possible to negotiate a waiver if the amount was paid in full.

Ms Nelson repeated her call for a full report from the Department, giving a written analysis of the situation in each of the pilot municipalities, including the challenges to be faced and the plans to be implemented to reduce the debt.

She was supported by Ms Segale-Deswai and the Chairperson, who felt that the matter should be dealt with at an all-day workshop, attended by members of the task team and selected municipalities.

The ADG, Mr Sigidi, agreed to this proposal, and said COGTA would bring the task team members to such a meeting, and would also ensure that the written documentation would be sent to Members of the Committee in advance.

The meeting was adjourned.

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