Local Government: Municipal Property Rates Amendment Bill [B33-2013]: Department response to public submissions

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Cooperative Governance and Traditional Affairs

03 February 2014
Chairperson: Ms D Nhlengethwa (ANC)
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Meeting Summary

Deliberations on the Local Government: Municipal Property Rates Amendment Bill were guided by a summary of submissions prepared by the Department of Cooperative Government (COGTA) which outlined all the proposals made to the Portfolio Committee.

Definitions
The Department responded to proposals on the definitions of Agricultural property, Official residence in relation to places of worship, Residential property, and Ratio. During public hearings the week before, the inclusion of game farms under agricultural property was accepted by unions but challenged by others. It was argued that food security was a national priority, and that inclusion of game farming could take resources away from that. The COGTA proposed that ecotourism, game farming and hospitality be excluded from the definition. A Committee Member argued that it was not yet a satisfactory definition, as the production of biofuels would not be accommodated in it. Another member agreed with the exclusion of game farming, which was easier than livestock and crop farming, and could contribute to the abandonment of food security farming, which was unsubsidised already.

The matter of official residence in relation to places of public worship was discussed. The Committee was interested in problems around church properties besides the residence of the presiding officer, that could be considered eligible for rates exemption. The position with regard to a monastery, for instance, came under question.

With regard to residential property, the amendment to section 8 had been challenged by some stakeholders on the grounds that businesses like guesthouses and blocks of flats would be classed as residential. The COGTA argued that the definition of residential property was simple, and that section 9 of the Act would allow municipalities to apply different rates to the different uses of a property where the dominant use was not residential. The Committee was interested in the treatment of such examples as a residential property used by a doctor for consultation.

The definition of ratio was discussed. Subsections that could grant agricultural property an additional rebate besides the 75% already secured by the residential to agricultural property ratio, had been removed. A Member objected that fixed ratios did not take local conditions into account. Proposals to section 3 and 6 were noted.

Section 14, the rates policy was discussed. A Member felt that rates policy had to reflect the law. It had to be clear how exemption from rates was legally created.

Section 32, dealing with the extension of the period of validity of the valuation roll, was discussed. Stakeholders were concerned about extension of the period for valuation rolls because the property market in metropolitan municipalities was very active. The COGTA proposed that a four year period be retained, and that the extension to five years apply to category B municipalities. Members were concerned about lack of capacity in municipalities to prepare new valuation rolls.

Section 58, dealing with the inclusion of a professional associate valuer as a member of the valuation appeal board, was discussed. An Emeritus Member of Parliament had proposed that the provision be deleted, as the South African Council for the Professional Valuers Profession had given notice that professional associate valuers would be given a limited opportunity to apply to the council for their qualification to be converted to that of professional valuer. Members were concerned about the scarcity of professional valuers, and how they were supposed to acquire the 10 years experience required. There was also concern about the quality of professional valuers. A situation could arise where valuers would sit on boards to review decisions made by better qualified people.

In the afternoon session, the Committee dealt with the submissions on sections 58, 80, 82, 93, the short title and section 46.

Section 80: Limitation of condonation of non-compliance with timeframes to municipalities
The Committee argued that the amendment of section 80 to include timeframes, for the lodging of objections was the reason there were problems in the first place. In the past there had never been cut off dates for objections. COGTA replied that it had been the municipalities themselves that had wanted such, because they did not want to continually deal with objections.

Section 82A and section 82B
The Committee found the term 'partial' problematic in section 82 as it confused the matter of rebates and reductions, and exemptions.

The Department replied that section 82 had two separate elements, one was exclusions which were nationally mandated and two, were reductions and rebates which lay within the ambit of municipalities. Partial exclusions were also nationally mandated, but municipalities had certain discretion on the sections that were not excluded.

Section 90: Transitional arrangements for redetermination of municipal boundaries: existing rates policies
The Department proposed that the transitional time for valuation rolls and rating policies between two municipalities, that were being merged be allowed to coexist for two financial years, because the alignment of rating policies probably would take longer.

The Committee felt that there was enough time between successive local government elections, for the alignment of rating policies without adding an additional financial year for transition.

The Department reminded the Committee that municipalities only could be incorporated during the following election, after the decision to merge them had been taken.

The exclusion of certain PSI from rating and the related phasing in provisions contained in section 93A
The Committee immediately found this submission problematic because it had been informed by municipalities that the revenue those exclusions took away, had to be found somewhere else within their budgets. Additionally there was some confusion over Public Service Infrastructure (PSI), State Owned Enterprise and Public Service Properties.

The Department replied that it felt that it would have accommodated municipalities by increasing the number of transitional years for merging of municipalities, so that PSI revenue could be phased out gradually. It said that the big municipalities were in favour of that.

The valuation and rating of mining property: definitions and section 46
All that the Department was proposing was to remove an insertion it had added at the time of amending the Principal Act. That was because it had been informed that the insertion was causing more chaos and confusion than there had been before.

The Committee asked who was to be assigned a rates bill, between a property owner and a mining right holder, if both parties were occupying and utilizing the same piece of land.

The treatment of grain silos from a valuation perspective
The Department said that because it had never engaged the grain silo industry it did not want to comment too much on whether the legislation should be amended, because it feared a similar situation as happened with the valuation and rating of mining property.

The Committee accepted that and asked what the Departments perspective was on property rates and traditional authorities. The Department responded by linking the land tenure right to the provisions under the definition of' owner' in the principal Act, as amended in section 1 of Act 6 of 2004 and section 24 of Act 19 of 2008. COGTA was to assist municipalities with rating when they had decided to do so, for commercial interests which were on communal land.

Meeting report

Municipal Property Rates Amendment Bill [B33-2013]: Department response to submissions
Ms Veronica Mafoko, COGTA Senior Manager: : Municipal Finance and Viability, noted that valuable comments were made in the submissions. There were new submissions on mining, with valuable new positions taken. Not every single comment had been considered, as more than one stakeholder were often saying the same thing. Submissions were collated into themes. Departmental thinking about clauses were expressed as propositions to the Portfolio Committee in the document.

Definitions
Agricultural property
Ms Mafoko said that submissions about agricultural property varied from full support to rejection of the inclusion of game farming in the definition. Those opposed to inclusion were concerned that game farming did not contribute to food production, and that there would be a shift of resources towards game farming, away from conventional farming. Unions supported game farming. The exclusion of “ecotourism” could lead to a small portion of a farm being used for hospitality, with the whole farm then categorised as business. From a fairness perspective it would seem that game farming used the same resources as conventional farming, but the Department was willing to concede that game farming, ecotourism and hospitality be excluded from the definition of agricultural property.

Mr Mzilikazi Manyike, COGTA Executive Manager, added that the Act was currently correct with regard to ecotourism. There were areas were ecotourism was minimally present.

Mr P Smith (IFP) indicated that he was in favour of including game farming in the agriculture definition. It could avoid the complexities that would enter when biofuel production would become prominent.

Mr G Boinamo (DA) agreed that the inclusion of game farming be opposed. Agriculture was essentially food production. Game farms were used for trophy hunting. Including game farms in the definition could lead to the abandonment of conventional farming, because it was in many ways inexpensive, no fertilizer or treatment for animal and plant diseases was required. Game farms could be maintained at low cost, once the animals had been acquired. Game farming was easy.

Ms W Nelson (ANC) asked about a situation where a farm was used both for agriculture and gaming. She asked if there would be zoning per hectare.

Mr Manyike replied that section 9 covered multiple use of property. It allowed for a definition of dominant purpose on a complex property. Use was the criterion.

Mr Smith asked if there was a definition of “game”.

Mr Manyike replied that the intention was to try not to over define. A traditional understanding of game farming would be worked with. Stakeholders had been listened to. The Act was geared to food production. The Department of Environmental Affairs had numerous provisions related to protected areas. Protected areas could apply for the same status as publicly controlled conservation areas.

Mr Smith asked about the relation to other legislation.

Mr Manyike replied that the definition of agriculture was related to ecotourism. It had not thus far been an issue. There would be no changes related to ecotourism, only to game farming.

Ms Mafoko added that the definition of “game” was based on the dictionary meaning. The Committee had to decide if the inclusion of game farming in the definition of agricultural property would compromise food security.

Mr Smith asked what the position would be if he kept springbok for the purpose of meat production. He could sell it as food. The definition was not based on purpose. He said that he did not understand the sentence on ecotourism.

Ms Mafoko replied that it was a drafting issue. “Portion thereof” intended to make clear that a lodge was not included in the game farm. A hospitality section was viewed as being a business.

The Chairperson asked for comment about the production of meat from springbok.

Ms Nelson remarked that game farms did not waste meat. It was eaten. But they were primarily for purposes of hunting.

Ms Mafoko replied that that was the reason why game farming had been included in the definition. But game was not slaughtered in an abattoir.

Mr Boinamo maintained that springbok farming was game farming. There were different breeds of cattle like Bonsmara and Brahman, but all domestic animals were edible. The same could not be said about game. Zebra and elephant were not eaten. Their hides were sold. Game farms were not to be confused with agriculture. The country had an interest in food security. Food security could be undermined. As it was, government was not subsidising farming.

Mr J Steenhuizen (DA) offered that it might be best to just leave game farming out.

The Chairperson said that politicians had to deliberate on such matters.

Mr Smith cited the example of biofuels, and asked where that would fit in.

Official residence in relation to places of worship
Ms Mafoko noted that the part about the registrar of deeds would be removed from the section on public worship. Some properties were on communal land.

Mr Smith asked if a free standing church and residents were seen as one property.

Ms Mafoko replied that some churches had residential property attached to them, and some were separated. It was the residence of the primary office bearer.

The Chairperson asked if church and residence would be categorised as one on missions, where they were sometimes far apart.

Ms Mafoko replied that it was up to the municipality. The church and the pastor’s residence were excluded from rates. The valuation roll would indicate if it was registered as one or two properties. But both were excluded from rates.

Mr J Matshoba (ANC) asked why they were exempt from rates.

The Chairperson remarked that she agreed with the sentiments expressed by Mr T Bonhomme (ANC) the week before. She asked if congregations were ever asked an audit of their books. NGOs were often accommodated by congregations, as well as old age homes and shelters. She asked how that would be categorised.

Ms Mafoko replied that section 17 of the Act excluded churches or places of worship from rates. Municipalities could not levy on the place of public worship and the official residence occupied by the office bearer. That had already been in the Act. There were challenges. A religious community could own hundreds of properties which they expected to be excluded from rates. The financial viability of a municipality had to be considered. The Department wanted official residence defined. The stipulation of a single residential property protected municipalities. An office bearer was also defined. Municipalities had been pressurised to recognise many office bearers.

Mr Smith asked how a monastery with hundreds of nuns would be categorised.

Mr Manyike replied that only the religious official presiding was recognised, but he agreed that Mr Smith had raised a valid point.

The Chairperson said that together or not, official residence and place of worship were one for the Act. An explanation of office bearer was needed.

Mr Smith said that a monastery was a congregation of nuns. He asked if that was excluded from the definition.

Ms Nelson opined that it was the prerogative of the municipality. Churches had to apply for exemption. The municipality could decide about church properties other than the office bearer residence.

Mr Boinamo noted that if the church had registered property it would fall into the church register. He asked about the position of priests with wives living far away.

Mr Manyike replied that the office bearer residence and place of worship had always been regarded as one. But clarity of drafting was needed.

Ms Kassan said that if it was “a” or “an” office bearer, it could be read as one of many. It had to be changed to “the” office bearer.

Residential property
Ms Mafoko said that the driver was always use and permitted use. Primary use of residential property had been added. If that was not known, it was categorised according to dominant use.

The Chairperson asked what happened when someone bought a house, knocked it down and then built flats, or rented out back rooms in the townships.

Ms Mafoko replied that ideally the municipal inspector would determine the primary use.

Mr Smith referred to residential purpose. If a property was used as a guest house, it was zoned as business. The purpose was then no longer residential. He asked what had been added with regard to that.

Ms Mafoko replied that a block of flats was residential. Sometimes there were sectional titles that were separately valued. But municipalities wanted the discretion to define a block of flats as business. Section 8 of the current Act was open ended. Municipalities could determine any kind of property. That situation was difficult to monitor. Section 8 was amended to define property categories.

Mr Smith asked if a doctor with consulting rooms at his house would be categorised as residential. Where he was from, it was seen as business. Municipalities were now compelled to charge residential rates.

Ms Mafoko replied that section 9 could apply if a property was used for multiple purposes. Municipalities had to apportion market value.

Mr Smith asked if primary purpose could refer to something that was not supposed to be done.

Ratio
Ms Mafoko noted that section 19 empowered the Minister to determine regulation of rates. There were rate ratios between residential and agricultural, residential and public benefit organisations, and between residential and public service infrastructure. The residential to agricultural ratio could not be more than 1/0.25. That implied a 75% rebate for agricultural property. Ratios under section 3(4)(a) and 9(b) had been taken out so as not to give agriculture double benefit. Strong unions had pressurised municipalities.

Mr Steenhuizen asked if (c) and (d) could also be removed.

Ms Mafoko replied that the ones studied would be retained. There was an outcry from municipalities that they were being constrained. Rebates were passed on to the residential category, the most basic one. Business would be monitored, if there was abuse the Minister would consider regulations. Section 8 had been amended to make it possible to see how business was rated.

Mr Smith noted that Durban had the highest rates, double that of some other cities. He asked why that was not regulated.

Ms Mafoko replied that it was up to municipalities to determine the residential base rates. Communities could complain about residential rates.

Mr Steenhuizen remarked that closing the loophole against the agriculture rebate opened the door for the other two.

Mr Manyike referred to Constitutional Court decisions about whether residents could refuse to pay rates because service was bad. The court decision was that rates were not linked to service. The municipality had to have a consolidating by-law. The Bill promoted transparency. Some municipalities did not have footprints. Some municipalities gave rebates to all categories. It had to be possible to compare Ethekwini with Johannesburg.

Ms Vuyo Ndah, COGTA Executive Manager: Legal, added that the court decision was that it could not be left to the people to decide what they would pay and what not.

Section 3(4)
Ms Mafoko explained why the proposed deletion of this provision would be retained (see document).

Mr Steenhuizen asked if agricultural land would be better served by the ratio in legislation.

Ms Mafoko replied that it would. But there was also protection for municipalities against agricultural lobbyists.

Mr Smith remarked that it would be acceptable if the agriculture ratio was the upper limit. Fixed ratios did not take local conditions into account.

Ms Mafoko replied that as it stood, it could be less than the established ratio.

Section 6
Ms Mafoko said section 6 required of a municipality to publish by-laws in the Provincial Gazette.

Mr Manyike added that municipalities had to be open to public scrutiny.

Section 14
Ms Mafoko said municipalities had to be guided to be more open about cent in Rand. The Office of the Premier wanted the 30 day period for publishing extended to 60 days. Provincial printers were simply inundated, as municipalities tended to want to publish all at once. That proposal was accepted.

Mr Smith insisted that rates policy also had to be reflected. Promulgation of rates policy had a legal effect. It had to reflect what the law was, not the policy.

Ms Mafoko replied that rates policy was given effect in by-laws. But rates policy was not always specific about the cent amount in the Rand. Rebates and exclusions had to be set out in rates policy.

Mr Manyike added that cents in the Rand were established as municipalities worked through the budget process.

Mr Smith suggested that the rates policy did not have to be linked to cents in the Rand. Exemptions had to be expressed that way. The question was how exemption was legally created.

Ms Mafoko replied that policy had to determine exemption upfront. Numbers in rates policy would state cents in the Rand for residential property, which was to be reviewed every year.

Mr Manyike referred to section 16. The Act did not have a cutoff date for approaching the Minister. It was not possible to deal with things that happened long ago. Six months was too long.

Mr Smith submitted that if there was a forward looking approach, it might be unnecessary to have a timeframe.

Ms Mafoko agreed that the Minister’s office had not exactly been inundated with applications. It could be removed.

Mr Manyike added that the 24 months could be withdrawn.

Section 32  Extension of the period of validity of the valuation roll
Ms Mafoko said some municipalities could not prepare a new valuation roll every four years. An extension was made. There was concern about the long time needed to prepare a new valuation roll. In the metros the property market was active and property values changed. The status quo for metros had to be retained. Metros had the capacity to prepare a new valuation roll every four years.

The Chairperson asked what had previously been done to those who had been unable to prepare a valuation roll during term of office of five years.

Ms Segale asked if there was an issue of capacity. She asked if it was correct to extend the period because people were not doing their work.

Mr Steenhuizen said that he was uncomfortable. People were paying the same rates for seven years while property values were changing. Municipalities could stage jamboree events but they could not prepare valuation rolls. There was a blank cheque for seven years to tax people.

Mr Smith added that the validity of performance contracts could be questioned. Municipalities failed to produce valuation rolls, yet received performance bonuses.

Mr Manyike replied that differentiation was conceded to. The Act set an upper threshold. Valuation could be done more often. There was not a lack of capacity. Some municipalities completed the valuation roll for the benefit of revenue. Monitoring mechanisms were early warning systems. The terms of the valuation roll and that of the council, were not linked.

The Chairperson asked how it worked, if there was no link.

Mr Manyike replied that municipalities worked to a three year cycle. The council had to come in.

Section 58 Inclusion of professional associate valuer as member of valuation appeal board
Ms Mafoko noted that there were difficulties with professional valuers. There was only a small pool in the country. Valuers did not want to sit on boards, as it did not pay well enough. There had to be engagement with valuers.

The submission by Pierre Jean Joubert asked if implications of the scarcity had been taken into account. CoGTA was saying that the status quo had to be retained. The provinces advertised and professional valuers applied. The chief applicants were professional valuers. The market would adjust itself.

The Chairperson noted that the status quo prescribed the inclusion of professional valuers. She asked who had proposed the inclusion of professional valuers.

Ms Mafoko and Mr Manyike answered that it had been CoGTA.

The Chairperson said that professional valuers had experience.

Ms Mafoko responded that 10 years experience was required.

The Chairperson remarked that valuers had to gain practical experience after training. She asked where they got the 10 years' experience.

Ms Mafoko said that inexperienced valuers could not be considered. The profession and the Council had to move valuers through the ranks. Government was a client of the profession. Council had to deal with and equip valuers.

Mr Matshoba reiterated the question of where the 10 years' experience would come from.

Ms Nelson asked why associate valuers who were not completely qualified, were on the Appeal Board.

Mr Steenhuizen suggested that it was because there was such a backlog of appeals. There was the possibility that valuers would be sitting on boards looking at decisions made by more highly qualified people.

Mr Manyike responded that there were qualified top notch valuers, and then professional associated valuers. The 10 years had been decided upon in liaison with the profession. The profession had said that professional associate valuers needed 10 years' experience.

Mr Smith suggested that it had to be asked how many people the profession could deliver.

Ms Mafoko said that more professional valuers were needed.

Mr Steenhuizen insisted that strong people were needed. For many residents the appeal boards were the last port of call. It would not do to have a situation that resembled magistrates presiding over supreme court judges.

The Chairperson remarked that professional associate valuers had to be given the opportunity to gain practical experience.

Ms Mafoko responded that Council elevated the valuers of their choice. Valuers had to undergo continuous training. Council tried to push them into the valuer realm. Elevated professional associate valuers would become part of the valuer pool. The Portfolio Committee had to decide about the feasibility of the system, against the background of valuation appeal boards being the last port of call.

Ms Daksha Kassan, Parliamentary Law Adviser, added that the appeal boards needed qualified people, but in the rural areas they were not to be found. An appeal board had to have one professional valuer. Lacking that, there had to be an association valuer.

Mr Steenhuizen remarked that there was a problem with the quality of people who had not been accelerated.

Mr Smith asked if it was a problem of too few valuers, or of too few valuers prepared to sit on boards.

The Chairperson asked if valuers could sit on more than one board.

Mr Manyike said that valuers knew that they could earn better money as independents.

Mr Steenhuizen said that there were not enough people familiar with valuation.

Afternoon Session
Mr Manyike announced that due to the debate that had gone on earlier, COGTA was withdrawing its proposal on the amendment of Section 58, but it was appealing to the Committee to assist in future in calling the Department of Public Works (DPW) to task over the South African Council for Professional Valuers' Profession (SACPVP) which was dealing with all the issues involved in Section 58.

Mr Smith said that if COGTA withdrew then there were two hurdles and the lesser hurdle would be applicable then, if the first hurdle did not kick in. Having one hurdle then as the other would have been removed, was Mr Manyike speaking on the basis that certain people would be promoted. He asked whether that was strategically the wiser approach?

The Chairperson suggested that the Committee flag that proposal for the following day.

Ms Nelson wanted to know why Mr Manyike was saying the DPW should be taken to task.

Mr Manyike replied that the SACPVP reported to the Minister of Public Works, therefore whatever the SACPVP did in terms of looking at that profession. The appropriate Department to put pressure on, whether one was speaking about transformation or the valuers profession, was DPW since the Minister was responsible for appointing the SACPVP.

Section 80: Limitation of condonation of non-compliance with timeframes to municipalities
Ms Mafoko said that what COGTA was proposing was that only municipalities should be allowed to make applications to the MEC. As, practically, what was happening was that property owners who had failed to comply with the timeframes in terms of when to object and when to appeal against the valuation of their properties used the clause, to submit letters and submissions to MECs requesting them to condone the fact that they did not comply with those provisions. Municipalities generally gave generous amounts of time for members of the public to view the valuation roll and to submit objections. Therefore, property owners were essentially abusing the system by going to the MEC, when in fact that official did not have the capacity to deal with objections, as all he or she could do, was to refer those objections back to the municipalities which eventually were the decision-making body.

She said that the submissions gave the impression that those aggrieved property owners were not been given a fair chance to appeal or object. COGTA, having engaged with municipalities on the issue, felt that municipalities did grant an extension in terms of their rates policies and to left room for submission of objections. It was beneficial for municipalities to grant those extensions as they assisted municipalities with avoiding having a large group of aggrieved property owners. Therefore property owners used that clause to have that leeway to get extensions, but additionally there was the general valuation roll, which was the valuation of all property in a municipality at a certain time to which property owners could object and appeal. If that period was missed, a property owner could still submit and that submission could be considered in terms of the supplementary valuation roll, as provided for in section 78.

Mr Smith commented that the examples of COGTA were for the objections process, even though the clause went beyond the objections process, that is, it applied to non-compliance with any provision requiring a timeframe. He asked if there was any provision in the Act condoning municipalities billing owners, so that owners only received relief after settling the bill first, even if they had objected to incorrect billing in the process as well.

Ms Harriet Mekwa, Principal State Law Advisor, assisted by reading section 50(6) of the Local Government: Municipal Property Rates Act, 2004.

Mr Smith said that applied to rates only, but he thought there was such an issue elsewhere in the law.

Mr Steenhuizen said that what Mr Smith was saying was under the Municipal Finance Management Act (MFMA) or the Municipal Systems or Structures Acts, which dealt with disputes about a specific amount. They allowed one to declare a dispute with a municipality, but that was specified for a particular amount. It could not be thought, that a lot of the ratepayers crowds were using that to declare a dispute with the municipality and then not pay rates on that basis. If that was the clause that would protect the consumer. The consumer could lodge a dispute with the municipality about that specific amount, then they would be protected from having their services disconnected while the dispute was unresolved.

The Chairperson asked to be reminded about another clause, if section 58 was about handling late objections?

Ms Mafoko replied that it was not, but happened to be linked. What Rates Watch had been saying was that they wanted to continually submit objections and that there should not be a timeframe where there was a cut off. COGTA had objected to that because it felt that the door could never be closed on objections if that were to be allowed. That was a separate thing, but the reason she had raised objections there, was that when members of the public where submitting requests for condonation to the MEC, they were always objecting.

Mr Smith said that the issue of a cut off or a continuously open period had came up when the principal Act was made, but his point was that in the past one could object at any time, and that was never a problem. If one bought a property currently and the valuation had been done two years ago, and one wanted to object, the amended Act stopped that. He thought that that was part of the reason why there was such a flood of problems, because when it was a continuous process there was not the kind of criteria and limitations that were currently present. Additionally what was happening currently was that, because people knew there was a closed window, and even if they knew there was not much of a chance, they still submitted objections. Mr Smith himself did that every time he received a valuation, and always received a judgement favouring him. He did not know whether COGTA was creating an unsustainable situation by inserting a timeframe in that clause as there had been no timeframe in that clause in the past.

Ms Mafoko said that municipalities actually were the ones that had wanted a cut-off date as they did not want to continuously look at objections.

Mr Manyike said part of the problem originated from the provisions of the current Act. The valuation roll had to expire at some stage, whereas that had not been an issue in the past. Probably those were some of the dynamics that were coming into the picture as the two frameworks were completely different and as such the Act impacted on people differently.

Mr Smith suggested that if it was a policy issue and it was up for discussion, he would motivate that the Committee park that.

Section 82A and section 82B
Mr Manyike said that in section 82A and 82B, COGTA was making recommendations having considered the previous week’s public submissions. What COGTA was suggesting there, through sections 82A, was more about reporting requirements. Therefore COGTA was recommending that section 82A subsections (f) to (k) be deleted. Linked to that, going to 82B, COGTA discovered that there was confusion arising from its own drafting. Moreover 82B(1) would be migrated to 81(1D) where it would become a new (f), as it was linked to those particular issues. That clause was to enable the MEC, if there was certain critical information other than that already outlined, that could be added for effective monitoring to occur. What then remained under 82B was subsection (2) which dealt with the relationship between the MEC and the Minister.

Mr Manyike said that some of the information required in 82A between subsections (a) to (e) needed to be submitted once, and not every term and as such the reporting burden would be limited. Where constant reporting and interaction were required were in section 81, especially when one dealt with the implementation of the valuation roll to deal with the failures, which earlier on the Committee had been concerned about. Specifically the issues which impacted on the validity of the roll, came from the failures of municipalities.

Mr Smith said that he had not understood one word of what Mr Manyike had just said.

Mr Steenhuizen assisted, saying that COGTA was regularising the channels. That is, from the municipality the first port of call would be the MEC’s office and that reporting oversight relationship, and then the MEC would report to the Minister so that the Minister could be able to exercise oversight and pick up problems during the year rather than at the end of the year.

Mr Manyike said that that was the reason COGTA had decided to leave the subsections that it had left in 82A, which were limited. However, looking at subsections (a) to (e) one would see that they dealt with issues where the Minister was the authority that was better placed to deal with all problems and difficulties arising through the application of clause 82. That would of course assist with the monitoring if there was a need.

Mr Smith said that in section 82A (e) the word 'partial' was problematic as that would exclude full exemptions. He asked why it had been included there whereas in (a) there had been no 'partial' there.

Mr Manyike replied that that section had two components. One was the notion of exclusion, which was a separate thing. The other portion dealt with rebates and reductions. Therefore when one spoke about exclusions, municipalities had no prerogative on those as those were determined nationally which also referred back to section 17; that was impermissible differentiation. There were certain property categories which were excluded fully. Therefore in section 82A(a) COGTA was saying in respect of section 17, as in any way it would be the municipalities. For example, national legislation dictated that municipalities should not rate places of public worship. Therefore to expect municipalities to quantify rates for excluded properties, did not serve any purpose as the decision did not lie with them. Alternatively with partial exclusions, the state had not prevented municipalities 100% so everything that remained lay within municipal responsibility as part of the rating policy decisions and deliberations. So that the municipality could be aware of its discretion, the word 'partial' was retained.

Mr Smith asked if there could be no full rebate, exclusions or reduction on anything?

Mr Manyike replied in the affirmative. Since one was a full exclusion, no rate should be levied. Therefore the issue of giving exemptions or a rebate did not arise.

Mr Smith noted that any property up to the value of R250 000, was exempt from rates. Was that full or partial exclusion? If a property is valued at R100 000, that would be a full exemption.

Mr Manyike replied that that notion was, for example, what the City of Johannesburg was doing, and that was their own decision because that was an exemption. It was not something that had been nationally mandated. A partial exclusion was nationally mandated. For example on residential property the first R15 000 was not rated. Therefore from R15 000 to R250 000, as in Johannesburg, was the municipality’s prerogative.

Section 90: Transitional arrangements: municipal boundaries redetermination; existing rates policies
Ms Mafoko said that this was a newly inserted section as COGTA had found that when the Municipal Demarcation Board (MDB) redetermined municipal boundaries, if there were any incoming municipalities: such as when Tshwane was re-demarcated, Kungwini and another local municipality were included in the new Tshwane municipality. But what one found then, was that Kungwini and the other municipality had their own valuation rolls and rates policies in place. When in fact after they had moved into Tshwane there had had to have been a period where those rates policies, between Tshwane and its two new municipalities, had to coexist. There was that clash as the rates policies and the valuation rolls of all the relevant municipalities could not be immediately merged. That was the challenge that COGTA was trying to deal with, as there was no provision in any legislation that dealt with valuation and rating specifically for this. COGTA felt it important to insert both provisions there, to assist municipalities so that they did not find themselves in a vacuum.

The provisions had been welcomed by municipalities and Institute of Municipal Financial Officers (IMFO), even though the latter had felt that COGTA needed to make a slight amendment which COGTA agreed to. IMFO indicated that the municipal rating policies that were in force in an area needed to continue for two financial years, rather than the one, which COGTA was providing for. That was because the incorporation of the rating policies would probably take longer to be revised, whereas with valuation rolls, it possibly would not take as long because all that was needed was the preparation of a supplementary valuation and to then incorporate that into the existing municipalities roll. COGTA agreed to the suggestion of two financial years for the rating policies to coexist whilst all the other issues were being dealt with. COGTA was proposing that the Committee accept the IMFO suggestion of two financial years. Additionally COGTA had added 'by-law' as suggested by the South African Local Government Association (SALGA), because of an earlier discussion COGTA and the Committee had had, where there was consensus that a by-law gave effect to a rates policy. So if a rates policy continued to be in force, the by-law as a consequence continued to be in force, since it gave effect to that rates policy. All of that was to assist with the transition without being in a vacuum.

Mr Smith said that after the local government elections of 2011, the MDB started considering the re-demarcation of outer boundaries and that process had been concluded in 2013, with effect from 2016. Already there was a period of two and a half years where municipality A and B both knew that their boundaries were being changed. Surely then there was plenty of time for them to make arrangements within that two and a half years? If COGTA’s proposed timeframe was added, then municipalities could sit for a possible five or six years after the change of the demarcation of the outer boundary by MDB, without doing anything.

Ms Mafoko said that she understood Mr Smith but the municipality could only incorporate those properties when the re-demarcation became effective. Legally, municipalities could not incorporate the valuation roll of another municipality into theirs before the following local government elections.

Mr Smith said he realised that, but he had been thinking in terms of whether municipalities could not have a harmonization process before that.

Mr Manyike replied that there were two things to consider. One was the legislation that Ms Mafoko had alluded to which bound municipalities to incorporate only when elections were taking place. Whatever happened before that time would be a gentleman’s or gentle ladies agreement, which would also depend on the personalities in the municipalities. Therefore when one chose to use that route, there were complexities there. Tshwane had done that as well at the beginning, but again there were no legislative teeth to force things as that area was not within municipal jurisdiction. Therefore COGTA thought it should limit itself to what was legislated, but if everything was harmonious in terms of planning and relations, that would cut the time of implementation.

Section 93A Exclusion of certain PSI from rating and related phasing-in provisions
Ms Mafoko said COGTA felt that there had been quite lengthy debates over why certain Public Service Infrastructure (PSI) should be excluded. COGTA had also indicated that it had conducted a survey that had found that PSI did not contribute extensively to municipal revenue. However, in COGTA discussions with municipalities, following the above mentioned debates, the City of Johannesburg had indicated that if COGTA went ahead with excluding PSI, then to soften the blow, it suggested that COGTA extend the transition period. If it was done that way, Johannesburg would accept the proposal. COGTA felt it could accommodate municipalities in that respect. Therefore in section 93A, COGTA was providing for a phasing out period for the rating of PSI, which was three municipal financial years. COGTA proposed that the Committee accept the City of Johannesburg suggestion and extend the three years to five years for the transitional period. Therefore all that had been done was to provide for two additional years, and to change the percentage numbers of the rate for each financial year as municipalities were phasing out the rating of PSI. COGTA thought it should accommodate the municipalities.

Mr Steenhuizen said he thought there should be debate on phasing out PSI as he was not in favour of it. Municipalities had indicated very clearly to the Committee that if the one took money from one section of the budget, it had to be made up somewhere else. The only way that municipalities could recover that money would be either by cutting services or by passing it on to residents and ratepayers. Given the current economic climate and what was coming soon with interest rates, he was loathe to do anything that would shifted this onto residential ratepayers. In many of the municipalities, the rates basis were very small, and the burden of that small rate-paying group was increasing every year. He did not buy into Government cutting itself out of its obligations. There had been a very good argument on whether the state was shifting money around, but that exclusion would cause massive challenges. Phasing in this provision slowly was certainly welcomed, but that would still leave that hole, because those properties values would have gone up on an annual basis. At the end of the transitional period, that missing potential rates income would have to be plugged from somewhere else in the budget.

Mr Smith agreed with Mr Steenhuizen, but first he wanted to know what the problem was? Did the state having to pay such an insignificant amount on rates require that it be legislated away? There would also possibly be unnecessary confusion between the categories of PSI that were in and those that were out. For example, airport aprons, dams and breakwaters would be out, but that would result in an unfair advantage against the state. This included energy and telecommunications, and interestingly rail was out. That meant: rail against road freight, state versus private sector, therefore rail should actually be in. He asked whether the impetus for that came from the DPW.

Mr Steenhuizen said the Committee had discussed the previous week, and COGTA was to go away and return with a response about the dispute between the municipalities and COGTA, over what was used. Municipalities were saying that it was 1% was on the current definition in the Act. However, using the expanded definition COGTA was proposing, then it would be more like 4%. He wanted to know whether modelling had been done, and which definition was to be used?

Ms Mafoko replied that the confusion over the 1% was based on modelling in terms of PSI as currently defined. What the Johannesburg municipality had come up with was an 8% deficit. That deficit had not been about PSI, the City of Johannesburg had explained that at a later stage to COGTA. That 8% came from its modelling, over what it believed COGTA meant about the definition for Public Service Purpose (PSP). COGTA was proposing in section 8, a new category of property called PSP. That included state properties like clinics and hospitals. Therefore Johannesburg took that PSP category and did some modelling, but then it had based that modelling on the assumption that that property category would be zero rated. COGTA was not proposing a zero rating of state owned property. It was simply proposing a new category of property called PSP. That had not been related to PSI at all and Johannesburg conceded to that as well.

Mr Manyike said that it had been quite clear that if one wanted to zero rate anything, it should be in section 17 as COGTA was doing on PSI. Therefore for state-owned properties to be used for PSP, that was not being added to section 17. Those could not be regarded as prohibitions. For anyone who did that, it could be there was a lack of understanding. Concerning the impetus, that proposal was a collective state approach, National Treasury (NT), COGTA and the relevant sectoral departments involved were all on board. As COGTA had explained, in 2008 when COGTA and the affected departments tried to look at how to deal with this, no country in the entire world was rating, for example, roads. That indicated the kind of socio-political ideologies and policies that were prevalent at that time, globally.

Then looking at South Africa, in terms of section 228 of the Constitution, which dealt with the mobility of goods and services across municipal boundaries. The infrastructure that were the enablers for those things to happen, were the five that COGTA was putting in, before dealing with whether there were other players or not. One needed roads and the infrastructure mentioned there, and that was where the state had come from collectively. Taking the N1 from Cape Town to Musina, one had municipalities each levying a rate where the road passed through them. But when returning to section 229 of the Constitution, the state was saying it wanted free movement of goods, capital and labour across municipal boundaries.

Mr Manyike said that there was an absurdity there, which was why the state collective was saying there should not have been rating of certain PSI in the first place. COGTA understood all of that hence it was not going into the issue of the chicken and the egg. The fact was that some of the municipalities which were struggling, were primarily dependent on the rating of some PSI. Therefore when one looked at equitable share and conditional grants as well, there was that disjuncture because the state was not only funding municipalities on the basis of Local Government Equitable Share (LGES), to deal with operations.

All the money that COGTA was ploughing in as conditional grants, was to simply assist. But then the issue was the justification, for example if one looked at a water-related infrastructure. As Government, it was talking about the state having to play a bigger part, for example to enable, the economic conditions to take place for development to happen. A real example would be Nandoni Dam in Vhembe, which was in another District municipality, but serving an additional jurisdiction apart from its own. Then the municipality where the dam was situated would be levying a rate, and those were some of the absurdities that the state was saying to level the playing field, the PSI should just be taken out of being rated. So that when the state was rolling out the Massive Infrastructure Program (MIP) there should not be considerations of possible stumbling blocks. Considering energy and telecommunications, COGTA also had considered the concession that for example in telecommunications there was not only Telkom, there were other players like Cell C, Vodacom and MTN. Therefore there was an element of pressure and competition already existing and there was an opportunity in future for others to come in when one looked at the energy sector.

The competition existent there, made one to start levying and looking at that globally, in terms of the countries' strategy to retain its domestic investment; and more importantly to get foreign direct investment into the country as well. One would not want a player tomorrow, when the state said let the Canadians or the Australians into the energy sector, to say SA wants us to come in but the playing field is unequal. COGTA conceded that certain municipalities would have revenue shortfalls, but it felt that the benefits to the country outweighed those disadvantages, because there would be much more certainty about what needed to happen. So that there should not be considerations of whether or not free movement of goods or capital was being hindered between municipalities in terms of integrating the economy across all aspects. COGTA had had a global overview on that issue with a collective impetus from the state, to service the citizens of SA, that was the primary consideration.

Mr Smith said that although there was a lot of logic in that, alternatively the rational of simply taking with the one hand without recompensing with the other was problematic. To the extent municipalities were to forego income as a consequence of the current legislative framework, were they to be would recompensed by NT to make up for it, that would sweeten the pill. Where was the new section 17(1) (aA) definition? Were State Owned Enterprises (SOE) under the ambit of PSI as well?

Mr Steenhuizen said that it would be a useful exercise to take the resources of SALGA, to take the definition as COGTA saw it, and to do some modelling over two or four metropolitan areas, and then to see the outcomes of that. Because he understood that perhaps there had been double counting or misunderstanding, but he would be more comfortable as a legislator knowing what the unintended consequences would be.

Ms Nelson asked whether the stated categories of PSI were the only ones, because besides the impact on the bigger municipalities, what about smaller municipalities that were possibly dependent on the levying of rates on PSI to supplement their smaller revenues.

Ms Mafoko replied that section 17(1) (aA) was under Amendment of section 17 of Act 6 of 2004, as amended by section 29 of Act 19 of 2008 which was clause 13 (b) was where PSI was dealt with. What COGTA was saying there, where the exclusion was inserted, was that the municipality may not levy a rate on any property referred to in those paragraphs specified there. Reading the Principal Act, one could see those paragraphs and (aA) in the transitional arrangement was referring to that very clause. The only PSI that was being excluded was that referred to in the transitional arrangement as well. On the PSI definition in the Act, there was contained the PSI that COGTA was proposing to exclude, as well as other categories of PSI, namely; power stations and substations and others as referred to in (c) under the PSI definition of the Principal Act. Those were not being excluded from rates as well as those in(d) and (f).

COGTA was not excluding all PSI, and contextually there were only 71 municipalities that were rating PSI: and having indicated that COGTA had had to do quantitative work to show what the financial impact was in terms of section 229 of the Constitution, because it had had to indicate to the Financial and Fiscal Commission (FFC) the impact. The Committee had been informed on these figures in earlier interactions with COGTA, when it had indicated the number of municipalities that were valuing and rating PSI, and those municipalities had been consulted by it and the figures had come directly from them. COGTA had been working on the Bill for the past four to five years with SALGA, the municipalities and all relevant stakeholders. Having requested them to give COGTA any revenue loss analysis they had completed, the only analytical revenue loss submission COGTA had received was related to a proposal it had prior to the Amendment Bill. Where COGTA had been proposing to have a new category of property called State Owned Property (SOP), which had been withdrawn since. Those analyses were only done for two municipalities, for that purpose, and there had been no analysis on the PSI COGTA was referring to. Importantly though, was that other PSI were still rateable and if municipalities wanted to continue valuing and rating all other PSI, that was fine.

Mr Manyike said that considering offsets, as COGTA dealt with the allocations of revenue to municipalities through the LGES. One element that was accounted for, was the potential of a municipality to raise revenue. For some of those municipalities, for example if COGTA came with that particular prohibition as it was suggested by the State: that would mean, when looking at the potential of a particular municipality, revenue generation would decrease, which in turn meant that that municipality would need more state funds injection.

Those issues could not be isolated from the rest of the Local Government Fiscal system. Even municipal property ratings could not increase the potential of certain municipalities to raise revenue, and that was the reality. Certain municipalities would continue depending on the state. The Minister of Finance had announced in 2013 that there had been a new formula to deal with those disparities. Those formulas would have to always consider those things as well. But if then the Committee decided that the only way for certain municipalities to generate revenue was for them to levy rates against the state on those PSI that were to be excluded, for the reasons outlined above, then that was absurd. The new formulas were the ones that had to consider those disparities, and to compensate so that there would be no disparities to begin with.

Mr Smith understood the logic of all the included paragraphs for PSI exclusion, but it was interesting that fuel pipelines were included there. Was COGTA saying fuel pipelines were rateable then?

Ms Mafoko said those had not been included.

Mr Smith said at that moment they were rateable.

Ms Mafoko conceded that indeed they were.

Mr Manyike said that his delegation was not so certain. The whole notion of PSI justified itself. He said pipelines were rateable because they were part of the energy sector. COGTA had taken care to look at sectors holistically.

Ms Mafoko said COGTA was not aware of any municipality valuing and rating a pipeline in any event.

Mr Smith said that the LGES punished municipalities for not levying underground fuel pipelines.

Mr Manyike returning to the absurdities point said Tshwane, for example, had said the legislation forced it to levy rates on some of those PSI whether it intended to or not. That was what had created problems because municipalities had to spend on valuations for that PSI and there had to be a return from that valuation.

Short title
Ms Mafoko said that COGTA was simply changing 2013 to 2014. COGTA anticipated that should the Bill be adopted, it would cause chaos in terms of municipal budgets if it became effective in 2014,hence the proposal for it to come into effect only in 2015.

Section 46 and Definitions: Valuation and rating of mining property
Ms Mafoko said that there had been a number of submissions around that valuation and rating of mining property issue. COGTA had revisited that issue to check, with mining property specialist valuers, so that it could fully understand what the imperatives there were. As there had been a suggestion that the Amendment COGTA was making, in section 46 of the Act, was part of subsection(2)(a)should not be considered. The submissions were that if the mining permit or right was not considered, one would not be able to account for the fact that indeed, that property was for mining. Additionally it would be unfair, in terms of other licences and permits for other properties, such as liquor licences which could be attached to properties which were not mining properties, but in fact business or commercial properties. After checking with valuers, COGTA had come to understand that the mining licence was of no consequence when valuing a property, and that the valuation was guided by the use or permitted use of the property; which was what COGTA had said in section 8, in determining a property category. COGTA thought that the submission by the company of attorney's on the last day of public hearings should be considered.

Mr Manyike said that the definition of mining right as defined in section 17, the attorney's conceded that was not an issue and what COGTA wanted to know was what was so offensive around section 17.

Mr Smith asked why the amended section 46 was up for discussion, when in the Principal Act of section 46 there had been no reference directly to mining only.

Ms Mafoko replied that there was indeed nothing referring to mining in the Act and as such COGTA was adding it. That addition was in dealing with certain challenges that were arising from the valuation and rating of mining properties. COGTA had believed that that insertion would address some of those challenges, but had been informed that it would not be as helpful.
COGTA had received submissions from a number of rural municipalities that had mining properties in their jurisdiction. When they valued those properties, it was not clear, as to what could be valued and rateable as the Act was ambiguous on that. The difficulties came when a property was owned by one party and there was a mining right assigned to a different party on the same property. When the municipality had valued that property it had not been clear whether the above surface improvements were rateable, as the Act said nothing about those. Additionally the Act was not clear as to who, between the mining right holder and the owner of the property, must pay rates.

To deal with all of those ambiguities, COGTA had included the specific provisions, one of which were that the above surface improvements were rateable. That was inserted in section 17, and COGTA had also wanted to clarify whom, between the property owner and the mining right holder was responsible for rates, as far as the mining part of the property was concerned. The mining right holder, it was made clear was responsible for rates on the mining portion of the property. In trying to fix all of that in section 46, COGTA had been informed that its insertion was more problematic and was causing more confusion. So that all that had been needed to address the legal challenges that had arisen, was the removal of what had been proposed in section 46 in the first place.

Ms Nelson also needed more clarification as to who was liable for rates.

Ms Mafoko replied that as far as property rating was concerned, there would be a portion of land that largely was agricultural, with a piece where mining took place. Where the mining right was being exercised, that piece when the valuer approached that property, was where the mining right holder was liable for rates.

Mr Smith commented that he would assume then that offshore oil fields for example would be excluded as well from rating.

Mr Manyike replied that from the notion of wall to wall municipalities, would not someone know that that belonged to particular municipality?

Mr Steenhuizen said that it would be an admiralty reserve under National Government.

Treatment of grain silos from a valuation perspective
COGTA said that it had never engaged with the Grain Silo sector before and that that was the first time it had been made aware of those issues. Therefore it felt that that area was to complex for it to decide at that stage. It needed time for consideration, before a proposal to amend the Act could be made. Ms Mafoko said that even the mining issues that were being dealt with, COGTA had been working on them for two years. Even after COGTA proposal, there had still been questions, therefore it did not believe that it would serve the submission well at that stage.

The Chairperson said that in an earlier presentation the Committee had asked about property rates for exemption and traditional authorities. What was COGTA perspective on those?

Mr Manyike said that if COGTA considered the definition of property in the Act subsection (c). Communal areas were subject to rating, however it was municipalities that needed to make those decisions. The practice was that, because of the realities on the ground, those areas had not been subjected to rating. Because at the time of amending the Act, there had been a Communal Land Right Act, which had been meant to deal with some of those issues. The Act had been discarded, because there had been no movement in dealing with some of those issues. The problems were arising because of that, which was also why municipalities were not rating those particular areas. As the law stood though, COGTA did not feel it could exclude anything, because that started creating problems.

Mr Smith said that one drove around communal areas, especially in the south of Durban, where there were complete suburban homes, where there were no rates being paid. He wanted to know whether in terms of the provisions, municipalities were rewarded for effort and punished for not exerting themselves, levying rates where they were allowed to do so.

Mr Manyike said that he could not be certain on that issue, because some of the provisions became refined and the legislation looked at those issues globally, as to what was subject to rating. He could not be authoritative on that one.

Mr Smith said that there was a view in the public that it was very convenient for a municipality to exclude those areas because it suited political agendas.

Ms Mafoko replied that in assisting municipalities levy rates in communal areas, when they had to decided to do so. And when it is not clear to the municipality who it should go and assign the rates Bill to, after valuation. COGTA had inserted something in the Bill, in the definition of owner to deal with the issues of who the owner is in a communal area.

Mr Manyike read from the Principal Act, under the definition of owner subsection (d) and linked it with
Amendment of section 1 of Act 6 of 2004, as amended by section 24 of Act 19 of 2008 subsection (i) (II) in the Amended Act. He said that was to deal precisely with some of the issues that Mr Smith was raising, that one would find there were petrol filling stations and other commercial activities in communal areas. Those provisions had emanated primarily because of those issues particularly regarding KwaZulu Natal, that Mr Smith had raised. Where there were those big commercial operators in communal areas, the distinctions for the exclusion of levying rates fell away.

Mr Smith said he thought there was a distinction somewhere else in legislation where there was contrast between beneficial ownership versus statutory ownership. Because he was not certain whether the word 'lease' was just referring to business undertakings as opposed to residential occupation, where there was a Permit to Occupy (PTO).

Ms Mafoko said that the lease referred to in the amended Act was mainly for business purposes, which probably would be agricultural as well, where one found that there were leases. But for residential purposes it would be challenging to make a provision for that because PTOs, had to found first. Therefore she thought it quite difficult to locate PTOs, and to assign them to individuals. COGTA therefore recognized the difficulties as far as residential areas were concerned, and as such it was saying, possibly municipalities as far as properties to which a lease was applicable and businesses were agricultural; it should put that provision there so that municipalities could levy rates because those were easier to deal with.

Mr Manyike said that also under the definition of owner paragraph (c) dealt with the issue of land tenure right. Therefore before invoking the provisions as amended, land tenure right was already included, but COGTA was trying to simplify things where there were commercial activities happening. Because arguments could be made that those activities were part of the land tenure right.

The Chairperson then asked the Committee to read up on the submission documents so that the following morning the meeting could proceed faster, and the meeting was adjourned.

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