Local Government: Property Rates Amendment Bill [B33-2013]: briefing by Department of Cooperative Governance

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Cooperative Governance and Traditional Affairs

14 October 2013
Chairperson: Ms D Nlhengethwa (ANC)
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Meeting Summary

The Chairperson prefaced the meeting by noting that proper procedures had not been followed, with the Municipal Property Rates Amendment Bill being submitted to the Speaker’s office prior to its submission to the Committee.   The same thing was happening with the Traditional Affairs Bill.  For three years, the Committee had not received any legislative input from the Department. 

The Department briefed the Committee on the Municipal Property Rates Amendment Bill, indicating that the briefing would be of an explanatory nature only, covering what was being amended and why there was a need to amend the Act. The current implementation of the 2004 Act had given insights which had been incorporated into the amendments. The Department had invited provincial stake holders, state bodies, the Financial and Fiscal Commission (FFC) and community organisations to provide input. It had received 7 000 public submissions, indicative of the level of interest in the bill.

The amendments would allow transparency in property valuations, monitor the role of provinces and the regulatory environment, and allow the Minister to make regulations regarding certain exclusions, in the national interest. The amendments also sought to generate a revenue stream for municipalities and contribute to the economic viability of municipalities.
 
The Bill wanted to include game farms as agricultural property, to extend the period of validity of valuation rolls from four to five years and to enact other technical amendments. The Bill had been revised to be less prescriptive while allowing the objective -- which was to determine property categories -- to be achieved. The Bill would provide that public service infrastructure such as roads, rail and airport facilities be excluded, to encourage investment and, in turn, economic development. These exclusions would be phased in over three financial years.

The Bill was important because it would strengthen the national regulation of property rating so that the economy would not be compromised by irresponsible rating and would ensure that property ratings did not skyrocket. It would strengthen the accountability of all spheres of government through effective monitoring and reporting requirements, which would allow for the early detection of municipal failures. The Bill had been approved in June for submission to Parliament.

Members asked if churches had to pay rates. Members asked why there were no amendments to Section 52, as many municipalities and residents were unhappy with this section. The Committee expressed its dissatisfaction that everybody had been consulted except the Committee. The correct procedure had not been followed and the Committee had been asking the Department for some time about legislation in the pipeline. Members said the Committee could not be used to rubber stamp legislation, and the Bill needed to be rejected. How many of the 7 000 submissions had been in favour of the Bill and how many had been against?   Had account been taken of the high utility prices when determining property ratings?  When and where were stakeholders consulted?  Members said there had been wide consultation but this did not absolve the Department from following Parliamentary processes.

Members asked how people who just fell outside of the pension bracket were dealt with. Why had the Department not followed proper processes?   The Committee was empowered to call for further public hearings.  Members wanted clarification on the extension of valuation rolls, as metros could avoid the negative influence of a property downturn by extending the period of the roll. Did the Bill specify only the types of rates?  Did the Bill clarify the procedure to categorise rich and poor as pertaining to property rates? Members said that metros would have the potential to keep a valuation roll for seven years, which would allow them to keep property valuations artificially high if property prices were to fall. Members said municipalities could be categorised, to overcome the length of time needed to recompense smaller municipalities.  Members wanted the Department to find out from metros what the backlog of appeals was, and how many cases were before the boards. 
 

Meeting report

Opening Remarks
In the Chairperson’s opening remarks, she noted that proper procedure had not been followed in the submission of the Bill to the Speaker’s office prior to its submission to the Committee. The same thing was happening with the Traditional Affairs Bill. For three years, the Committee had not received any legislative input from the Department of Cooperative Governance.
 
Briefing by Department on Local Government: Property Rates Amendment Bill]
Mr Vusi Madonsela, Director-General, Department of Cooperative Governance, said the briefing would be of an explanatory nature only, indicating what was being amended, and why. The current implementation of the 2004 Act had given insights which had been incorporated into the amendments. The amendments would allow transparency in property valuations, monitor the role of provinces and the regulatory environment, and allow the Minister to make regulations regarding certain exclusions, in the national interest. The amendments also sought to generate a revenue stream for municipalities and contribute to the economic viability of municipalities.

Ms Veronica Mafoko, Senior Manager: Municipal Finance and Viability, Department of Cooperative Governance, said the Bill had been a long time in coming and the Department had invited provincial stake holders, state bodies, the Financial and Fiscal Commission (FFC) and community organisations to provide input. It had received 7 000 public submissions, indicative of the level of interest in the Bill. The Bill was meant to correct a number of implementation challenges. It wanted to make the Act simpler and to strengthen the regulatory, monitoring and reporting provisions of the Act. It wanted to give the regulatory authority the power to impose a uniform, transparent and fair rating system. It wanted to provide regulatory certainty and clarity which would allow effective monitoring and reporting. Currently, there was no reporting provision. It wanted to include game farms as agricultural property, to extend the period of validity of valuation rolls from four to five years, and to enact other technical amendments.

The bulk of public submissions were largely technical, but the submissions had resulted in changes to two policy positions. The Bill had been approved in June for submission to Parliament. The revisions to the Bill included the removal of certain aspects of market value so as to protect the poor.   The State was in the process, in any case, of moving to universal access to pensions.  Municipalities could currently grant rebates to the poor and disabled through their own policies. It had initially wanted to propose the categorisation of municipalities, but municipalities had felt that this was too prescriptive. The Bill had been revised to be less prescriptive while allowing the objective -- which was to determine property categories -- to be achieved.

The Bill would provide that public service infrastructure such as roads, rail and airport facilities be excluded, to encourage investment and, in turn, economic development. These exclusions would be phased in over three financial years. Public service infrastructure could still be rated, as they were not all the same.  It was estimated that municipalities received less than 1% of their municipal property rates from such infrastructure. The Bill aimed to tighten property categories to strengthen the regulation of the ratings, as the power of municipalities was being undermined by the wide ranging discretion existing currently. It wanted to strengthen the reporting provisions in the Bill. There was currently one line in the Bill dealing with monitoring, but it was not clear what should be monitored. It also called for a report from the municipality to the MEC and to the Minister, so that they could see how it was being implemented. The reporting would also allow government to catch municipal failures before they happened. It wanted to extend the valuation roll period from four to five years and for those that found it was not economically viable, for two years. This did not prevent municipalities from preparing a roll in a shorter time if they wanted to -- and if they could afford to do so.   It wanted to amend the Act to include game farms in the definition of agricultural property, as it was currently not included and could attract litigation. Some game farms included hotels and other hospitality types of property. These would be not regarded as agricultural property.

Ms Mafoko said the Bill was important because it would strengthen the national regulation of property rating, so that the economy would not be compromised by irresponsible rating and to ensure that property ratings did not skyrocket. It would strengthen the accountability of all spheres of government through effective monitoring and reporting requirements, which would allow for early detection of municipal failures.

Discussion
Mr T Bonhomme (ANC) asked if churches had to pay rates.

Mr J Steenhuizen (DA) asked why there were no amendments to Section 52, as many municipalities and residents were unhappy with Section 52. He was dissatisfied that everybody had been consulted, except the Committee.

The Chairperson said the correct procedure had not been followed and the Committee had been asking the Department for some time about legislation in the pipeline.

Mr G Boinamo (DA) said the Committee could not be used to rubber stamp legislation, and the Bill needed to be rejected. What portion of the 7 000 submissions were in favour of the Bill, and how many were against? Had account been taken of the high utility prices when determining property ratings?

Ms D Boshigo (ANC) asked when and where stakeholders had been consulted.

Ms W Nelson (ANC) said there had been wide consultation, but this did not absolve the Department from following Parliamentary processes. She asked how people who just fell outside of the pension bracket were dealt with.

Mr J Matshoba (ANC) asked why the Department had not followed proper processes.

Mr Steenhuizen said the Committee was empowered to call for further public hearings. He wanted clarification on the extension of valuation rolls, as metros could avoid the negative influence of a property downturn by extending the period of the roll.

The Chairperson added that she had asked the Department of Traditional Affairs to brief the Committee on its amendment Bill, and they had also as yet not done so. Did the Bill specify only the types of rates?  Did the Bill clarify the procedure to categorise rich and poor as pertaining to property rates?

Mr Madonsela acknowledged that they had approached the Committee very late, and said he would inform his colleagues in the Department of Traditional Affairs to start interacting with the Committee on its Bill.

Mr Mizilikazi Manyike, Executive Manager, said that the Act did not deal with the income of churches -- that was dealt with by the Income Tax Act. The Act excluded places of worship, but if a portion of church land was used for business, then it was not exempt.

Ms Mafoko said the definition of places of public worship was that they should be places that were primarily used for public worship. Other portions of church ground used for business, for example, were not exempt from valuation and rates. Another consideration was that the land had to be owned by a religious group.

Mr Manyike said that objections to property valuations were not new.   Section 52 had not been removed, because it gave property owners comfort, especially if people did not trust the valuation.   People generally had a distrust of municipal valuations.

The 7 000 submissions had been grouped into a clause-by-clause grouping for purposes of an executive summary.

Municipalities needed to adapt their rates policies via public participation and other inputs, taking into account its effect on the poor, and set appropriate rates..

Valuation rolls could not exceed four years, but the MEC could extend it for one year taking into account market fluctuation and local dynamics. The extension was to accommodate the differentiation in recompensation of the costs incurred in making the valuation

Ms Mafoko said that the Department had been monitoring how the provinces had been implementing the 2004 Act. They had engaged with provinces because of municipalities’ failures to implement the valuation roll, because this was the only way in which they could interact with municipalities. They needed to give municipalities the scope and the space to prepare valuation rolls that were credible.

Mr Manyike said that if an MEC tried to intervene, then two years were needed to implement an evaluation roll that was credible. That was why the extension in exceptional cases had been increased, from one year to two.

Mr Steenhuizen objected, and said that this would give metros the potential to keep a valuation roll for seven years, which would allow them to keep property valuations artificially high if property prices were to fall.  He said perhaps municipalities could be categorised to overcome the length of time needed to recompense smaller municipalities.

Mr Manyike said the extensions were granted by the MEC only for valid reasons in exceptional circumstances.

Mr Madonsela said that the Committee could effect any changes it deemed fit, now that the Bill was before Parliament.

Ms Mafoko said the uniform fixed rate was for residential properties only, as it did not help to have this for businesses. The amendment was to make it clear so that there was no ambiguity, and was meant mainly for low value properties, for example RDP houses or where there was a difficulty in determining market value. It was not meant for where market value could be determined. The rate would be determined on a national basisl.

An official of the Department said that the Department had followed the proper procedure, having submitted the Bill to the Cabinet initially.    It had then been approved for public participation, following which the Department had considered inputs and submitted the amendments to the executive in June, and then currently, its submission to Parliament.

He added that while public service infrastructure like airports would be exempt, this would exclude buildings where business activities took place.

The Chairperson said that the proper procedure was for the Portfolio Committee to have been consulted before the Bill was introduced to Parliament, according to Section 139 of the joint rules.

Ms Mafoko said no increase in the property rates was being considered, as municipalities determined this aspect.

The community organisations that had been consulted were civic and action groups. The Department had extended invitations to the provinces -- to legislatures and provincial stakeholders.

Mr Madonsela said the Department was now no longer in a position to make changes, and it was the Committee’s prerogative to make changes to the Bill.

Mr Steenhuizen said it was a challenge to get people to serve on valuation roll boards.  The appeals board was being flooded with residents awaiting a reply for over one year or more.   This was hampering municipal activities and preventing the appeals board from attending to real appeals. He wanted to the Department to find out from metros what the backlog of appeals was, and how many cases were before the board. 

The meeting was adjourned.
 

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