Municipal Finance Management Bill: deliberations

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Finance Standing Committee

29 July 2002
Chairperson: Ms Hogan (ANC)
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Meeting Summary

The Committee went through the substantially revised provisions on municipal budgets contained in chapter 4. Discussion centred around clause 17 and more specifically when the rates and tariff policy should be adopted. The Committee would return to that debate. The committee will continue with chapter 4A at the next sitting.

Meeting report

Section 27 continued - Mr Glasser said that the determination whether an asset is needed for a minimum essential service in the context of chapter 5 is decided by Council. In Chapter 11 the situation is different because in a crisis it is the MFM Bill itself that will determine whether the asset is needed for the delivery of an essential service.

Ms Hogan commented that it would be helpful for the committee to have sight of an implementation plan for the Bill.

Mr Momoniat replied that after the Bill is promulgated the Treasury intends putting on a large road show. There will also be a few transitional arrangements and certain sections might only apply to certain municipalities. He was expecting at least a five year build up period.

Mr Smith pointed out that clause 27 should be applicable to entities as well.

Mr Glasser agreed with the comment and confirmed that it would be brought in.

Clause 29 - Mr Smith felt that the wording of the clause 29(a) is ambiguous.

Treasury undertook to clear up the ambiguity.

Chapter 4 - Municipal Budgets
Mr Momoniat advised that there are major changes to the tabled Bill. The new draft attempts to co-ordinate the annual review of the IDP and other budget related policies like the setting of rates and tariffs.

The substantial revision relates more to form than content. The aim of the revision is to make the chapter clearer. The Consultation around the budget process is linked to the consultation provisions in the Systems Act. Mr Momoniat said that there had been broad support for the way consultation is now dealt with, even form DPLG. He added that the draft before the committee was not a final draft.

Clauses 15, 16 and 17 Mr Momoniat referred to as the provisions that try and make it clear what a budget is. Clause 17 is headed, 'Contents of, and documents to accompany annual budgets.'

Mr Dorfling (SALGA) commented that he was happy with the way in which clause 17 was set out. He added that not every municipality would be able to comply with the provisions particularly 17(d) that requires municipalities to set out projected revenue and expenditure for the two financial years following the financial year to which the budget relates.

Ms Hogan replied that provisions like these in the PFMA were phased in.

Ms Hogan referred to clause 17(3). One requirement of the clause is that when the budget is tabled it must be accompanied by a draft resolution levying any rates and other taxes, and setting any tariffs, as may be required for the financial year to which the budget relates. Ms Hogan wanted clarity whether the revenue expectations were also adopted.

Mr Momoniat replied that there is no sanction when the revenue collected is lower than expected. All that occurs is a legislative intervention through an adjustments budget to bring down the revenue expectation to a more realistic level.

Ms Hogan asked what it meant to adopt the revenue expectations because this was not done at national level.

Mr Momoniat replied that local government should approve the revenue side as well but that there would be no sanction if actual revenue is lower.

An official from the City of Johannesburg Municipality (JHB) tried to shed light on the matter. She said that the budget and tariff approval was a separate occurrence. She said that when the change in tariff is approved a report is also attached that indicates the expected revenue due to the change in the tariff.

Ms Hogan just clarified that when council approves the rates and tariffs policy, the rise in revenue due to the change is also included. Ms Hogan's was concerned that there seems to be a budget that is not as representative as it should be because the public should be involved in the process of determining the rates and tariff policy.

Mr Momoniat said that when the annual budget is tabled it also says what the new proposals for rates and taxes are. He hoped this would serve as notice because there is 2 months before the Council passes the budget. During this time hearings can be held. Thereafter the change in policy can be approved and the estimated revenue.

The City of Johannesburg official commenting that the MFM Bill now synchronises the two separate processes.

Ms Hogan asked if the tariff policy is approved at the same time that expenditure is approved.

The City of Johannesburg replied that it is two separate processes but the Bill provides the opportunity to link up the two processes.

Ms Hogan was more comfortable with two separate processes because the power to raise taxes must be protected from the power to spend money. The chair wanted approval of the rates and tariffs before the approval of expenditure. Firstly the municipality must rightfully and justly tax and secondly spend the money appropriately.

Mr Dorfling agreed that the tariffs should be approved at least 1 month before the budget because it would provide the council with direction.

Mr Pillay explained that what is actually approved during tariff setting is the rate in Rand. Then at the budget phase there must be a linkage to the total revenue that is expected due to the change in policy.

Ms Hogan said that there should be public interaction around tariff policy.

Mr Carrim (ANC) had difficulties with the chairs view in so far as it relates to the democratic principles. Due to the skewed nature of our society taxes are predominantly collected from the privileged due to the narrow tax base. He felt that if the rights of taxpayers are overemphasised, the process is weighted in favour of the privileged. He used Cape Town as an example where the ANC and the DA has for the first item agreed on a rates policy and it is the wealthy of Camps Bay that threaten legal action over technicalities. He agreed with Ms Hogan that the principle she is advocating is something that must be strived for.

Ms Hogan said that a tariff policy can also include a policy for the indigent. The tariff policy is a mechanism to raise the revenue that is needed but at the same time the chair felt that people have a right to be protected from a predatory State.

Mr Momoniat asked if it would help to have separate processes to deal with revenue and expenditure.

Mr Uys (NNP) commented that Cape Town is only now considering the objections to the tariffs policy but the budget was already approved in June. He said that this indicates clearly that a democratic problem exists because even if the objections are accepted there is no way that the budget is going to be changed.

Ms Hanekom (ANC) felt that the chapter makes public participation possible since there is a two month period for a consultation process. He thought the chairs concern was valid but that it was catered for. He added that the requirement to make the budget and the accompanying documents available is useful because then the public can comment on the package as a whole.

Ms Hogan was arguing for two separate processes because if the tariffs are approved first then the executive knows the revenue that is available. When the budget is tabled then all Council focuses on is expenditure. The chair felt that if the council approves the tariff policy then the onus would be on the Council to come up with the correct budgetary figures.

The City of Johannesburg official tried to clear up what she though was a misunderstanding on the part of the chair, she said that clause 17 did not refer to the tariff policy but the implementation of the policy. She added that section 74 of the Systems Act deals with tariff policy and it was not an annual event.

Ms Hogan replied that clause 17 makes it an annual policy.

Mr Momoniat said that no where does it say that the policy is considered each year. Only to the extent that it changes then it comes up.

Ms Hogan reiterated that council should not be caught up in the setting of tariffs when they should be looking at expenditure. If clause 17 presumes that the tariff policy is approved prior to the budget process the provision should remain as is. The problem remained for the chair that the draft resolution to approve the tariff is part of the budget process. The chair could see people trying to block the budget on this basis. She asked if there was a way to approve the tariff policy before the budget and then be attached as a supporting document.

Ms Mahlangu asked if that would be possible since municipalities only know what they getting in terms of the division of revenue at a very late stage.

Mr Momoniat replied that there is a process in motion to get the information to the municipality earlier. Last year the Division of Revenue Bill was ready in December and amendments are in the pipeline for earlier tabling. The ideal is that departments and provinces could tell municipalities by October what they will be getting.

The committee felt that clause 17 should be revisited.

Clause 18 deals with the funding of the budget and Mr Momoniat said that this was standard.

Mr Smith said that the tabled Bill had the notion of a balanced budget and now there is no such reference. He felt that the new draft meant the same thing but a specific reference to a balanced budget would be clearer.

Mr Momoniat agreed that a balanced budget should be explained.

Ms Hogan wanted to be reminded what was meant by a balanced budget.

Mr Momoniat replied that an operating budget must be balanced and the capital budget can be in deficit to the extent that the deficit is covered by long term borrowing.

Clause 19 is a new clause on capital expenditure. The aim of the clause is to cover the bigger capital projects and therefore 19(4) states that National Treasury can exclude certain types of projects form the application of 19(1) which states that a municipality may only spend on a capital project if the project has been approved by council. Further 19(1) also refers to all capital projects no matter the size in that spending can only tale place once the money has been appropriated by the Council in the capital budget.

Ms Taljaard asked where National Treasury got the power to decide who is exempt from the application of clause 19(1). The power was not derived from section 216. She preferred that there be another mechanism to grant the exemption.

Mr Momoniat said that as long as the principle is agreed to the wording could be changed.

Mr Carrim was happy with the National Treasury giving guidance to local government, but if it was unconstitutional then the clause should provide that council must develop a policy for minor capital projects.

Mr Momoniat was happy with that suggestion.

Ms Hogan added that the policy to be developed must be in terms of National Treasury guidelines.

Clause 20 provides what National Treasury may prescribe and it relates to the format of the annual budget and draft resolutions, the number of years preceding and following the budget year that the must be shown, inflation projections, limits on the growth of total revenue and the minimum norms and standards to promote transparency and expenditure control.

Mr Smith referred to clause 29(d) that relates to the limits of the growth of total revenue. He said that surely the clause is intended to refer to the rate on increase rather than the total revenue.

Mr Momoniat agreed.

In relation to the same sub clause Ms Taljaard suggested that the wording follow that of the constitution more closely because the power is derived from section 229(2).

Mr Momoniat had no problem with that.

Ms Taljaard said that the format of the resolution could not be prescribed by Treasury because it was a legislative expression.

Mr Momoniat advised that he would check up on this and added that Treasury does want the draft resolution to deal with a minimum amount of issues.

Ms Hogan agreed with the comments of Ms Taljaard.

Mr Smith also agreed and suggested that it would be better if Treasury issues guidelines on the format for draft resolutions.

Mr Momoniat said that the reference to resolutions could be taken out.

Ms Hogan asked Treasury to think about it, and more specifically the use of the word prescribe, to make sure that it is constitutional.

Clause 21 deals with the budget process and signals how and what needs to be followed when the budget is prepared. It is the responsibility of the mayor to ensure that the IDP, budget and budget related policies are mutually consistent and credible.

Clause 21(2) provides that when the budget is being prepared the Mayo must consult the community in terms of Chapter 4 of the Municipal Systems Act.

Ms Hogan wanted more clarity on the mechanism in the Systems Act and read through the relevant provisions contained in section 16.

Mr Carrim said that the main consultation takes place after the budget is tabled.

Mr Smith felt that the consultation at this stage is an overkill because the IDP process is one of ongoing consultation. The Mayor when preparing the budget must reflect that process.

Ms Hogan posed the question whether the consultation in this clause is needed since there is consultation on the IDP. She suggested that the clause be replaced with one that states that mayor must take into account the IDP when preparing the budget.

Mr Momoniat added that an IDP is like a white paper. A good one will take into account budget constraints and a bad one will not.

Clause 22 just deals with the making available of the budget and accompanying documentation after tabling.

Clause 23 spells out the process after tabling. At this stage the community is consulted through the mechanisms in chapter 4 of the Systems Act.

Ms Hogan was concerned that the relevant provisions in the Systems Act does not provide the form of the consultation. It just provides that the community must be consulted.

Mr Carrim advised that when his committee passed the act the NGO sector was not happy with the fact that the provisions did not tell municipalities how to consult.

Mr Smith commented that it is up to council to determine the level of consultation.

Mr Carrim added that it would be unconstitutional to prescribe the form the consultation should take and for that reason the Systems Act just contains the framework.

Mr Smith pointed out a typo in clause 21(2)(b). it should read 'the local community'.

Clause 23A was flagged because it relates to the draft resolution in clause 17 that was also flagged.

Clause 23B outlines the process if the Council fails to approve the budget. It states that the Council must approve a budget. If it is not approved by the start of the financial year the province may intervene in terms of section 139 of the constitution, including dissolving the Council.

Again in clause 23BB there is a sub clause stating that the province can intervene in terms of section 139 if there is non-compliance with the chapter. Mr Momoniat said that it is again included to show provinces what powers they have.

Mr Carrim wanted to know why 23BB(1) states that the provincial executive can extend the deadline of time limits in chapter 4.

Mr Momoniat said that they wanted it to read MEC for local government but he would check with Adv Growe why it refers to the provincial executive.

Mr Smith referred to 23BB(3) that states that the speaker must inform the provincial executive of non-compliance. He said that the speaker does not report to the provincial executive. He also felt that section 139 did not apply to all the provisions in the chapter.

Mr Momoniat agreed and said that the provisions would be looked at.

Clause 23E deals with unauthorised, irregular and fruitless and wasteful expenditure. In terms of the clause the mayor as the political office bearer is fully liable for any such expenditure. The clause provides that the expenditure must be recovered. Mr Momoniat said that the clause was very draconian in nature. Often the municipal manager gets blamed for everything. An example of what use to happen is the council votes themselves a raise and it is very difficult for the municipal manager to override his bosses.

The clause further lists all the other officials that could be liable for such expenditure. The municipal manager can escape liability if the Council or mayor in writing of the unauthorised expenditure.

Ms Hogan said that there is a good and bad side of putting it in writing. The good side is that it is a check on the council but on the other hand it signals a point of rupture in the working relationship. She added that once the municipal manager puts it in writing there should be no threat of losing employment.

Mr Carrim suggested that the municipal manager should promptly inform them verbally or in writing.

Ms Maabe (ANC) asked what would happen if the municipal manager is guilty of the unauthorised expenditure.

Mr Momoniat replied that the mayor would have to act and added that something should probably be added to the Bill.

Mr Smith pointed out that sometimes the clauses refer to 'material' unauthorised expenditure and others not. he said that all the clauses should be consistent.

Mr Momoniat would clear this up.

The delegation of mayoral powers in clause 23F is straightforward.

The meeting was adjourned.

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