Urban Settlements Development Grant: briefing by Treasury; Devolution of Property Rates Funds Grant: briefing by Public Works

Budget Committee on Appropriation

12 September 2012
Chairperson: Mr T Chaane (ANC, North West)
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Meeting Summary

National Treasury said the purpose of the Urban Settlements Development Grant was to upgrade informal settlements, either by creating formal housing or by upgrading services to informal settlements. The focus was on metros as these were the centres of economic growth. Urbanisation was increasing as part of a global trend. Most metros were making good use of the grant. The problem of backyard dwellers would not be overlooked.

Members were concerned that developments in informal settlements did not make sufficient provision for recreational spaces. A high-rise solution would make better use of space, and a design had been put forward which would allow development without having to relocate residents during the building phase. Housing data was out of date, and the results of the latest census were eagerly awaited. A problem was that development often ran ahead of proper planning. Members were still unsure of what was meant by informalising the formal settlements.

The Department of Public Works had a responsibility to pay municipal property rates and service charges on behalf of provincial and national departments. Currently, some R3.5 billion was owed to municipalities. Some of the claims still had to be verified. A payment plan was in place. In some cases, invoices from municipalities were either in an incorrect format or not sent at all.

Members battled to make sense of the financial figures in this presentation as there was inconsistency between the figures put forward by the Department and those by Treasury. It was established that R443 million was for property rates before 2008, and R3.5 billion for subsequent bills. Problems stemmed from the incompleteness of the asset register, but the Department of Rural Development and Land Reform was working on this. In some cases private citizens were occupying properties paid for by the state. Municipalities might need assistance in forwarding invoices to provinces for payment of rates.

Meeting report

National Treasury briefing on Urban Settlements Development Grant
Ms Marissa Moore, Chief Director: Urban Development and Infrastructure, National Treasury, said that urbanisation was a continuing trend, both in South Africa and on the rest of the continent. At present, 60% of the South African population lived in urban areas and this would grow to about 70% by 2025.

Ms Moore said that there was a large number of people occupying informal dwellings in the urban areas. There was a growing trend for people to live on the property of others in backyard dwellings, many of these being shacks. There were 2 628 informal settlements in 2010, more than double the 2001 figure. The backlog in housing in 2010 was 2.1 million. The ratio of formal to informal dwellings had increased slightly in the previous three years.

Ms Moore said that there was still a major inequality in space. In the so-called leafy suburbs of Johannesburg, there were typically fewer than 25 people per hectare as compared to up to 500 in Alexandra. She illustrated the density and lack of trees in the township of Diepsloot with an aerial photograph.

Ms Moore said that the Millennium Development Goal for 2020 was to improve significantly the living conditions of 100 million slum dwellers. Where formal housing could not be provided then proper services should be provided. Large cities were economic hubs. The urban population was growing and there was an increasing number of poor people. The majority of poor people were in urban areas. Complex fiscal arrangements reinforced inequality and inefficiency.  There was a misalignment of powers and functions between the different spheres of government. While provinces were generally responsible for housing, cities were responsible for land use management. This created delays. The good news was that there was pressure on the system to devolve housing functions to metros, but these wheels were turning slowly. The grant system had morphed into different approaches. The Municipal Infrastructure Grant (MIG) provided for a managed approach to financing, with funds earmarked to specific projects. This restricted broader infrastructure planning. A more flexible approach was needed and had been provided in the form of the MIG city grant. This would be more accommodating towards bigger human settlements issues.

Ms Moore said that the Urban Settlements Development Grant (USDG) had been created under Schedule 4. This would make it more affordable for metros to acquire land. Informal settlements sprang up in both good and bad locations. Male dominated settlements were closer to city centres than female dominated ones, according to the Human Sciences Research Council (HSRC). Land would become more affordable and bulk services would also save costs.

Ms Moore said that financial monitoring of the USDG was on overall capital programmes rather than individual outputs. Performance monitoring would also focus on performance of outputs.

Ms Moore said that most metros had reported an increased capital spending over the previous three years. As a percentage of the total adjusted budget, the USDG was well spent. Most metros had spent over 80%, but Buffalo City was below 32%. Other new metros were also unable to reach these levels. Four metros had managed to spend more than 90% of the grant. One had to appreciate that existing projects had to be completed first. In terms of housing opportunities provided, 44% of the target had been achieved. The number of upgraded households in informal settlements was 60%, but there was some disagreement over what was affordable. This impacted on the accuracy of reporting. There were improvements in electricity supplies and roads.

Ms Moore said that the USDG would increase from R7.3 billion in the 2012/13 financial year to R9.1 billion in 2013/14, an increase of 18.9%. The problem of the backyard dwellers would have to be addressed. They were seen as part of formal settlements but still needed houses of their own.

Ms Moore said that Treasury still had to plan for improvements. Proper planning was needed in order to implement the upgrading of informal settlements. Better performance measures were needed. Oversight needed to be strengthened.

Mr C de Beer (ANC, Northern Cape) noted that the statistics on housing profiles were from seven years previously. The picture of Diepsloot reminded him that it would take some time to transform such settlements to what government wanted to see. Of particular concern was the lack of space for recreational facilities. Children could only play either in the streets or in the river in the picture.

Mr A Lees (DA, KwaZulu-Natal) said that the USDG was focussed on the metros. The informalisation of formal settlements fell outside this grant. He asked if the grant was specifically for upgrading informal settlements. He asked if there was no focus on high-rise buildings with surrounding open areas.

Ms Moore said that the Income and Expenditure Review of 2005 provided for dwelling information. The next survey, in 2007, had not captured housing data. Treasury was eagerly awaiting the results of the recent census. This was expected on 1 October 2012. The grant was new, but was still stuck in the old format. In the first year houses had been built with no specific focus. There should be an emphasis on informal settlements, but not to the exclusion of other areas. These areas still needed support in order to increase the densification of formal settlements. She could not comment on play areas for children, but there was some hope. There had been discussions with architects who had developed prototypes for high-rise settlements. People would have to be relocated while building was taking place. The design was to build the base of the building on the road and build over existing settlements. There would still be a problem with allocation of these units, and a rental system might be needed. Backyard dwellings were generally rented. These projects could restore energy to urban development. She had seen similar high-rise buildings in Singapore surrounded by beautiful parks.

Ms Malijeng Ngqaleni, Chief Director: Urban Development and Infrastructure, National Treasury, said that Diepsloot was an example of what happened when development ran ahead of planning. The grant would allow cities to look at different options of addressing this kind of problem. Government needed to supply land and services. Various solutions were possible.

The Chairperson said it was still not clear what was meant by formalising informal settlements. Members did now have some more clarity and could see where improvements could be made. Inputs could be made for the forthcoming financial year. It was unfortunate that this meeting had not co-incided with the meeting with the Department of Human Settlements (DHS). The Department of Public Works (DPW) delegation had still not arrived, although it was reported that they had landed. As he was about to close the meeting the delegation arrived.

Department of Public Works (DPW) presentation
Ms Mandisa Fatyela-Lindie, DPW Acting Director-General, apologised for being late. They had been detained at the local offices.

Ms Sue Mosegomi, Acting CFO, DPW, said that prior to 1994, DPW was responsible for paying the rates for public properties. In consultation with Treasury, DPW had decided to devolve the responsibility for paying rates. In managing properties, the Government Immovable Asset Management Act was followed.

Ms Mosegomi said that there was also the Division of Revenue Act. The first function was to provide timeous guidance to provincial reporting institutions. The performance had to be reported on. There was a monitoring and evaluation unit within DPW. The responsibility of the provincial department was determined beforehand, and DPW played an oversight role.

Ms Mosegomi said that Treasury, DPW and the Department of Cooperative Governance and Traditional Affairs (COGTA) had established a task team. Government owed R3.5 billion in property taxes, most of which was for rates. This needed to be verified. A study had been conducted in the nine provinces. Free State and KwaZulu-Natal (KZN) had high debt levels. Of KZN's debt of R100 million, many properties had still to be verified. In many cases the national department had transferred properties to municipalities, but the transfer had not gone through the deeds offices. Many of the properties were houses. Free State had a debt of R219 million. One municipality in particular was charging an unusually high rate.

Ms Mosegomi said that R65.9 million had been paid in the previous FY. Payments were only made on verification. Another R15 million had been paid in the current FY.

Ms Mosegomi said that there had been an increase in the quality of invoices from the municipalities. R1.9 billion would be paid to the provinces in three tranches. The first had been transferred, and the last in January 2013. Some provinces had already paid. Payments were only made against invoices. The quality of invoices was not always good. Nothing had been paid by Limpopo, but municipalities in that province had not submitted any invoices.

Ms Mosegomi listed the challenges. Some invoices were incorrect. Some properties were not on the asset register. Some invoices were submitted late. Some municipalities were unable to provide invoices. In some cases, consolidated invoices were submitted for rates and services, which made it difficult for DPW to verify the charges.

Ms Mosegomi said that there had been some interaction with the South African Local Government Association (SALGA). A workshop had been held on the issues leading to delays in payments. Transformation in local government was not synchronised with national or provincial government. There was an integration of property that was not always communicated.

Ms Mosegomi said DPW had some operational challenges. The capacity to split bills was not always present. Municipalities were not aware of changes to national and provincial government. The timing of payments was also problematic because the municipalities had a different financial year to that of national and provincial government. Asset registers were not being updated. There was a lack of co-ordination in government. There was not an effective communication system.

Ms Mosegomi said that DPW would continue to work with local government. Vacant land should all be surveyed. Housing bodies should be verified. Interaction was needed with both national and provincial offices of DPW.

Ms Mosegomi returned to the slide on debt on request of the Chairperson. The total debt as at 1 April 2008 was R443 million.

The Chairperson asked if the R443 million was both old debt and current.

Ms Fatyela-Lindie explained how the debt was made up.

Mr Lees was still battling to make sense of the presentation. He asked what the R3.5 billion of government debt was, and where the figure of R443 million came in. Perhaps this latter amount was just for property rates. Much had been said of the R293 Proclamation. This had been tabled some eighteen years previously. This issue should have been put to bed at least ten years previously. The deeds office in Ulundi was closed in 1997. On invoices, he asked how the two figures had been established if there had been no invoices. He asked over what period this debt had accumulated. Verification should have been done on receipt. This was old debt. A third of the year had gone past already, and three provinces had not paid a cent. Limpopo was in dire straits, but even in KZN the payment was way behind schedule. Invoices had not been received. Members should be told which municipalities were not providing invoices. This was astounding. DPW should be making every effort to assist struggling municipalities. There were hundreds of thousands of properties owned by individuals and companies, but they did not need special communication channels and procedures. If he did not pay his rates, his property would be sequestrated. He spoke English well and was an accountant by training, but he could not make any sense of much of what was in the presentation. He asked what was meant by the need for communication channels. Ordinary people either made a telephone call or visited the municipality to sort out problems. The way forward DPW presented was simply talk and he doubted that there would be any positive outcome.

Mr de Beer noted the mention of an oversight role. He asked how DPW did this and if there was any monitoring or evaluation unit within the DPW. There were 71 reports indicating government debts of R3.5 billion, dated December 2011. On another page there was a reference to R443 million. This came from 2008. He noted problems within his province, and would take them up with the municipalities concerned.

The Chairperson noted that the figures quoted by DPW did not coincide with those presented by Treasury. There were major differences in some cases.

Ms Fatyela-Lindie said that the R443 million was DPW's responsibility. The figures had been discussed with Treasury. DPW received invoices from source. The communication systems were imperfect. In the case of KZN there was a discrepancy of R7 million. The R443 million was for property rates and taxes.

Mr George Tembo, Director: Public Finance, National Treasury, said that the R3.5 billion included services charges such as water, electricity and sewerage. He did not have the information to hand but would advise the Committee of how the debt was made up. The R443 million was a component of that. This was for arrears on property rates not paid before the payment was devolved to provinces. If the claims were found to be true, the difference between that and the R3.5 billion would be mainly for expenses after devolution.

Mr Edgar Sishi, Acting Chief Director:
Provincial Budgets, National Treasury, said that if everything was put together, municipal debt would stand at R70 billion. Some of this was owed by private and corporate property owners. Some of this was bad debt. There was frustration in the vesting of properties and title deeds. Treasury had insisted at the time of the inception of the USDG that this problem should be sorted out. The question over the asset register should be priority one. Some provinces had completed reliable asset registers already. One of the previous Directors General at DPW had undertaken this. The issue had been raised in budget discussions with DPW. It had to enjoy a higher priority. He hoped this would change in the upcoming medium term expenditure framework (MTEF).

The Chairperson concluded that the R443 million was for property rates before 2008, and the R3.5 billion for subsequent bills.

Mr Tembo said that the R3.5 billion was for all municipal services and rates after 2008.

Mr Lees asked why rates had been separate from other services before 2008.

Mr Tembo said that it was a way of wrestling with the bigger problem.  The pre-2008 debt should be addressed first. In 2004/05, government had provided some funds to clear all debts to municipalities, who were invited to submit claims. Only a few had come forward, and a large portion of the grant had not been spent. Subsequently more claims were put forward. It was the second time DPW was trying to clear the debt. The funds would come from the budget of DPW. If it did not have the money, Treasury would be requested to provide funding.

Mr Sishi said that municipalities would have a number of debtors, including provincial and national government departments. It would not come from the grant, which was for devolved properties. Part of the problem was that assumptions had been made in the past that municipalities would rush to claim what was owing to them. Treasury was surprised that this had not happened. It might be that the municipalities could not properly account for their own numbers. A process was in place, but must be made to work better. Meetings were held, but these were not always focussed enough.

Ms Fatyela-Lindie said that the final solution to the debt was linked to the functionality of municipalities. Some properties would be transferred to municipalities. The Department of Rural Development and Land Reform (DRDLR) should have been invited. They were busy capturing data across the country. The Minister had made public pronouncements on this issue. The project could not run on its own, and was linked to DRDLR. DPW had presented to the Portfolio Committees on the status of the immovable assets register. DPW had a constitutional mandate. Municipal billings systems had to be improved. Local government had to function properly. Of the R443 million, R81 million had already been paid. Municipalities were not responding by submitting verified invoices timeously.

Mr Lees asked how the figure of R3.5 billion had been established if the documentation was so poor.

Mr Tembo said that the figures were from municipal claims.

The Chairperson said that any person could make a claim. Since the grant had been monitored, provinces had been making payments. The Chief Financial Officer in the Free State would go to municipalities that were not submitting invoices with a list of his properties. Eastern Cape was asking for money and paying off their debts. He asked if government assets were increasing at a faster pace. If so, the grant should increase at the same pace. The right picture was not emerging from the report. He could not see why DPW had not met with the other Departments before this meeting. Adequate notice of invitations to report to the Committee was given. DPW had to report to Parliament, and such reports should not be confusing. Provinces would have to be called for the following meeting. Municipal debt was a serious matter. The President had undertaken to form a committee to investigate the payment problems. The same old issues were always discussed at meetings between the Committee and DPW. Government was also paying for properties occupied by private citizens. The current Minister had made a public statement that government was cracking the whip in some provinces. The Committee needed guidance in order to table a proper report to Parliament. He would rather resolve the issue in a follow-up meeting. The figures in the report should be the same ones that were in the report to Treasury.

Ms Fatyela-Lindie, DPW Acting DG, appreciated the comments. At the core of this problem was the immovable asset register. She proposed that DPW and DRDLR should meet and prepare a joint presentation. DPW had visited some municipalities, and they were not sure what was vested under them. A holistic picture was needed on the situation. DPW was in touch with COGTA and Treasury, and was aware that there was some variation in the figures.

Mr Sishi agreed with the Acting DG. Treasury had tried to resolve the errors, and would resolve the issues. A follow-up discussion was planned with the nine provinces, Treasury and DPW, for 25 September. This issue would be on the agenda. A report could then be compiled and the Committee could determine if a further meeting was needed.

Mr Tembo asked if the Committee wanted to hear about water and electricity.

The Chairperson did want to know about all municipal charges. There was a suspicion that money set aside for paying municipal charges was not being spent for this purpose. Billing systems might need to be improved, but government could not be responsible for creating government debt. SALGA would also be invited. There would be a follow-up with the President, and he would not like to see the President being embarrassed.

The meeting was adjourned.


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