South African Local Government Association on its 2013/14 Annual Report

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Cooperative Governance and Traditional Affairs

20 October 2014
Chairperson: Mr M Mdakane (ANC)
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Meeting Summary

The South African Local Government Association (SALGA) gave an overview of SALGA’s mandate and its seven strategic goals. SALGA had achieved 96% of its targets and received a “clean” audit opinion from the Auditor-General. The organisation had achieved 100% of its targets in terms of planning and socio-economic development at the local government level, financially and organisationally capacitating municipalities to provide effective, responsive and accountable local governance to communities.

Achievement of goals included supporting 19 municipalities to develop climate change risk and vulnerability assessments, as well as climate change response strategies. SALGA had also supported municipalities by mainstreaming issues of women and other vulnerable groups. The launch of the SALGA Women’s Commission in provinces had fuelled the advocacy work women councillors did in their own municipalities. In the fight against collusion in the construction industry, the National Executive Committee (NEC) had resolved that SALGA would assist affected municipalities to pursue civil litigation against the construction companies to recover damages. SALGA had facilitated provincial and municipal workshops on the implementation of upper limits, the grading of municipalities, the Municipal Councillors’ Pension Fund, SARS matters and other issues affecting councillors.

To improve audit outcomes, SALGA had developed a support strategy that was based on a multi-disciplinary approach to provide hands-on support on selected focus areas to targeted municipalities, to improve audit outcomes. ALGA’s main focus was on the 79 municipalities with adverse or disclaimed opinions, as well as those municipalities whose audits had not been finalised by the legislated deadline. SALGA’s achievement of a clean audit, accompanied by high performance (84% and 96% respectively), had set the scene well for municipalities to achieve clean administrations while also delivering services to communities. The solvency ratio indicated that the organisation was solvent, with a healthy debt-to-equity ratio of 2.2%. The equitable share allocation would be significantly reduced from R26 million for 2014/15, to R9.2 million in 2015/16 and would be stopped after that.

A Member questioned the amounts SALGA charged as levies. There had been some significant increases in the past couple of years and the increase had been 17% in the last financial year. Over the last two years, surpluses of R35 million for 2012/13 and R31 million for 2013/14 had been accumulated. It effectively meant that over 10% of the budget was coming in as a surplus, and members were effectively funding a bank balance, rather than a service. Referring to councillors’ remuneration, he said the desire for remuneration at a certain level was understandable, but the reality was that different councils had different needs and the majority of councillors were part-time. They could not be compared to Members of Parliament or Members of Provincial Legislatures. Some of the smaller councils could not afford the salaries they were paying already, and it should be questioned whether it was realistically attainable. He asked how SALGA selected the list of municipalities they had been assisting and supporting, because they were not the worst performing municipalities. Municipalities that were repeat offenders, like Madibeng, Mpofana and Ngaka Molema Modiri municipalities did not appear on the list. These municipalities were in dire straits, and were not receiving support from SALGA. SALGA’s senior staff remuneration had increased by 20% year-on-year.  The salary of its CEO, which was reported to be R3.5m a year, was double that of a Director-General, higher than the President of South Africa, and higher than any Cabinet Minister. It had increased by 32% year-on-year, and other staff members had similar increases. It was unrealistic for an organisation that was promoting good governance to have staff members that were earning such exorbitant salaries.

SALGA responded by giving details on how its levies were calculated, and said the surpluses helped it to deal with unexpected expenses and would be used to fund SALGA-owned administrative buildings in the future. The entity was at the forefront of implementing cost containment measures.  Remuneration levels were based on what was appropriate in a competitive environment, and were necessary to ensure the retention of skills.

 

Meeting report

South African Local Government Association (SALGA) Annual Report

Mr Xolile George, SALGA Chief Executive Officer, gave an overview of SALGA’s mandate and the seven strategic goals. The four apex priorities of the organisation were the review of the legislative and policy framework, the review of the local government fiscal and financial management framework, improved municipal capacity and building local government knowledge, intelligence and quality. The Ministry focus also spoke to the seven strategic goals, and was a ‘back to basics’ approach to taking local government forward. The focus was on putting people first and engaging with communities, delivering basic services, good governance, sound financial management and building capacity.

SALGA had achieved 96% of its targets and received a “clean” audit opinion from the Auditor-General. The organisation had achieved 100% of its targets in terms of planning and socio-economic development at the local government level, financially and organisationally capacitating municipalities to provide effective, responsive and accountable local governance to communities.

Goal 1 was accessible, equitable and sustainable services delivered by local government. The impact of some of SALGA’s interventions included access by municipalities to a sound cost structure for operating costs that could drive benchmarking. SALGA had developed a costing structure feeding into the development of a standard chart of accounts to be developed by National Treasury. Forty municipalities had licensed and better managed waste disposal facilities, with fewer environmental impacts and health hazards. SALGA had also produced a set of national benchmarks for water and sanitation services in the rural and urban contexts. Benefits to municipalities included a peer learning network and access to a structured performance indicator management system.

Goal 2 was a safe and healthy environment and communities. Nineteen municipalities had been supported to develop climate change risk and vulnerability assessments, as well as climate change response strategies. SALGA supported municipalities by the mainstreaming the issues of women and other vulnerable groups. The launch of the SALGA Women’s Commission in provinces had fuelled the advocacy work women councillors did in their own municipalities. The Department had also introduced a Library and Information Services Bill, which had since made provision for a Municipal Support Fund to be dispersed via provincial departments to municipalities.

Goal 3 was planning and economic development. SALGA had made inputs into the National Spatial Planning and Land Use Management Bill, and the Free State Spatial Planning and Land Use Management Bill. The Bill had subsequently been passed on 2 August 2013, and reflected municipal planning as a competency of municipalities, a position which had been confirmed by the Constitutional Court. The Free State Land Use and Spatial Planning Bill would now be redrafted to incorporate SALGA’s position.

Goal 4 was effective, responsive and accountable local governance for communities. Local government was leading the fight against corruption and maladministration. Due to publicity and coverage received, the generalised view of local government as being corrupt was gradually changing, because public debate was now being contextualised. SALGA had enhanced its profile by demonstrating leadership in facilitating the commitment to address corruption and maladministration. In the fight against collusion in the construction industry, the National Executive Committee (NEC) had resolved that SALGA would assist the affected municipalities in pursuing civil litigation against the construction companies to recover damages. SALGA had facilitated provincial and municipal workshops on the implementation of upper limits, the grading of municipalities, the Municipal Councillors’ Pension Fund, SARS matters and other matters affecting councillors.

Goal 5 was human capital development. Effective legal representation by SALGA had resulted in the long-standing wage curve dispute being finalised by the Labour Appeal Court in favor of affected municipalities. SALGA had successfully developed a ground-breaking blueprint for the establishment of a Centre for Leadership and Governance, which was the first of its kind in the municipal sector.

Goal 6 was financially and organisationally capacitated municipalities. To improve audit outcomes, SALGA had developed a support strategy that was based on a multi-disciplinary approach to provide hands-on support in selected focus areas to targeted municipalities, to improve audit outcomes. There would be four pillars of support -- institutional capacity, financial management, leadership and governance support. These pillars would assist municipalities in trying to address the slow response by political leadership in addressing root causes of audit outcomes, lack of consequences for poor performance and transgressions, and officials’ lack of appropriate competencies. SALGA’s main focus was on the 79 municipalities with adverse or disclaimed opinions, as well as those municipalities whose audits had not been finalised by the legislated deadline.

Goal 7 was effective and efficient administration. SALGA’s achievement of clean audits in 2012/13 and 2013/14 made it a credible voice in leading the local government sector towards ‘clean audits’.  Achieving a clean audit accompanied by high performance (84% and 96% respectively), set the scene well for municipalities to achieve clean administrations while also delivering services to communities.

Mr George said the solvency ratio indicated that the organisation was solvent with a healthy debt-to-equity ratio of 2.2%. This meant that the organisation had an adequate asset coverage rate of 47 times, compared to the ratio of 7 times five years ago. The significant improvement of over 100% indicated an improvement in the organisation’s financial management practices. He showed a graph that illustrated the membership levy payment levels. The equitable share allocation would be significantly reduced from R26 million for 2014/15, to R9.2 million in 2015/16, and would be stopped after that. SALGA’s transformation was a deliberate process – both systematic and incremental -- from an administration under pressure, with a disclaimed audit opinion in 2007, to consolidating the success and sustaining the change, which had resulted in a clean administration in 2013 and 2014.

Discussion

Mr K Mileham (DA) congratulated SALGA on its performance and said he hoped that his comments and question would be viewed in a constructive, rather than critical manner. The target-setting mechanism was a concern, because just about every target was not specific or measurable. The targets had no objective numeric criteria, and were very vague. He referred to the slide that talked to the need for membership levies to fund the organisation. He asked if the graph was supposed the show the monthly accumulative recovery, because it started off very low at the beginning of each financial year and ended off quite high. If it was an accumulative figure, he asked why it peaked in the middle, because if it was accumulative it should climb steadily until the end and be at its highest point at the end.

He also questioned the amounts charged for the levies. There had been some significant increases in the past couple of years and the increase had been 17% in the last financial year. Over the last two years, surpluses of R35 million for 2012/13 and R31 million for 2013/14 had been accumulated. It effectively meant that over 10% of the budget was coming in as a surplus and members were effectively funding a bank balance, rather than a service.

The desire for remuneration at a certain level was understandable, but the reality was that different councils had different needs and the majority of councillors were part-time. They could not be compared to Members of Parliament or Members of Provincial Legislatures. Some of the smaller councils could not afford the salaries they were paying already, and it should be questioned whether it was realistically attainable. He asked if people should not rather be educated on what a realistic remuneration level in a specific environment was.

He referred to the graph on conciliation and arbitration, and said the low resolution rate in terms of conciliation was concerning, because more than 50% of hearings were unresolved. He asked how SALGA selected the list of municipalities they had been assisting and supporting, because they were not the worst performing municipalities. Municipalities that were repeat offenders, like Madibeng, Mpofana and Ngaka Molema Modiri municipalities did not appear on the list. These municipalities were in dire straits, and were not receiving support from SALGA.

SALGA’s senior staff remuneration had increased by 20% year-on-year. Mr George’s salary was double that of a Director-General, higher than the President of South Africa, and higher than any Cabinet Minister. He said Mr George’s salary had increased by 32% year-on-year, and other staff members had similar increases. It was unrealistic for an organisation that was promoting good governance to have staff members that were earning such exorbitant salaries and he wanted to know why the salaries were at the level they were.

Mr Mpho Nawa, SALGA Deputy Chairperson,  said SALGA had come from a long journey of improving the targets so that they could be SMART (Specific, Measurable, Achievable, Realistic and Time-bound). These targets, with the key performance Indicators (KPIs), were being managed through engagement with the Auditor-General and after the final analysis, the targets were subjected to the scrutiny of the Auditor-General. These targets were assessed by the Auditor-General in terms of auditing principles, including the principles of auditing performance and relating it to SALGA’s mandate. SALGA was open to constructive criticism and would continue to work on the targets, despite the fact that the Auditor-General was satisfied.

Mr Nceba Mqoqi, SALGA Chief Financial Officer, said due to the nature of how the membership levies were derived at the beginning of the financial year, they were based on year two of the medium term expenditure framework (MTEF) budget cycle of the municipalities. Once the municipalities had approved the budgets for the specific financial year before 31 May of the financial year, SALGA had already issued invoices. A revenue assurance exercise was done to align the membership levies within the specific budget of a municipality, and this explained the ‘not so smooth’ gradient in the graph. It reflected the accumulated percentage leading up to the financial year in terms of SALGA’s collection levels. In the Annual Report (page 206), the trajectory of the membership levy formula was aligned and had been approved by SALGA members at the December 2012 special national conference. Members had agreed to go on this trajectory, to reach the one percentage point. The one percentage point had been attained during the 2014/15 financial year, and the formula that was used to derive the membership levy amount had remained static. Besides the organic growth in terms of the budget figures, the 11% increase in the overall 25% figure had already been incorporated into the trajectory leading to the one percentage point.

In terms of the surpluses, SALGA had been in the forefront with implementing cost containment measures. Notwithstanding what had been budgeted for, and because SALGA had already been ahead of the curve in terms of travel cost containment regulations prescribed by National Treasury, SALGA had been able to ‘stretch the Rand’ with the limited resources the organisation obtained from its members. SALGA spent in the region of R10 million on office accommodation throughout the country, and this was not sustainable going forward. The surpluses were also meant to fund SALGA-owned administrative buildings in the future.

Mr Thabo Manyoni, SALGA Chairperson, said SALGA tried to plan for unforeseen circumstances, such as legal matters, with the surplus budget. SALGA had been making inputs to the Committee, as well as to the Financial and Fiscal Commission (FFC) and the Independent Remuneration Commission, that councillors should be remunerated from the national fiscus so that municipal resources could be used mainly for implementation purposes.  

Regarding remuneration, he said it was a competitive environment and SALGA had recently lost three executive directors to one metro. Mr George had been recruited from the Johannesburg City municipality and was remunerated in terms of the SALGA remuneration policy, and the independent SALGA remuneration panel that advised the national executive committee (NEC) ensured that remuneration was fairly decided on. It was not an issue that would be easily resolved, because SALGA complained that smaller municipalities could not retain skills simply because they could not afford to. At the same time, bigger municipalities could afford to pay for those skills and took capacity from the smaller municipalities. SALGA managers even serviced the bigger metros, and their remuneration needed to be on par with their managers in order to advise them on issues. Highly skilled executive directors were needed to work in the environment, to advise the smaller and bigger municipalities.

Mr Seana Nkahle, SALGA Acting Executive Manager, said the submission of SALGA was not for equal payment for councillors, but rather for equity in the remuneration region. Some small municipalities could not cover the payment of salaries because there were no equitable shares. SALGA’s submission was that the national fiscus should cover the bulk of the cost and look at the comparative remuneration levels of public office bearers, provincially and nationally, in terms of the components of the support measures. Some were not able to access medical aid, pension benefits or even a computer for their work, because of the regulations of the Public Finance Management Act.

Ms Lorette Tredoux SALGA Executive Director: Governance and Intergovernmental Relations, said some of the matters were not resolved at the conciliation level, but were actually moved up to the arbitration process. The numbers presented had been a representation of the conciliation referrals which were the first referrals to the Bargaining Council. The Bargaining Council did not always follow the combined process of conciliation and arbitration like the Commission for Conciliation, Mediation and Arbitration (CCMA).

SALGA compiled the list of municipalities eligible for support, based on information from provinces. Because SALGA did not have executive authorities, an agreement was needed with municipalities before the intervention. The support was specific to performance management systems. In three provinces, SALGA had needed to change the municipalities to support, because the municipalities were not ready for it.

Mr Manyoni said it should be kept in mind that the list of municipalities needing support was compiled based on the past performance in the previous financial year. There had been a proposal to engage with municipalities in the North West province before the NEC meeting, because some of the issues were more political than administrative. The municipalities mentioned by Mr Mileham were in the plans of SALGA, as well as the Nelson Mandela Bay municipality.

Mr M Mapulane (ANC) referred to the 2015/16 decline in funding from the national fiscus, and asked if any reasons had been given by COGTA or National Treasury for that situation.

Mr Manyoni said the basic reason given was that the national budget was being tightened. Municipalities that were functioning and performing well were not rewarded or given recognition, whereas those that were not performing received provincial and national assistance. Rewards should also be given for sustainability, to ensure that local government sustained itself. Some of the municipalities could not really afford the contributions to SALGA, and there was an expectation that the national fiscus would assist. The opposite was basically happening. From the SALGA point of view, there needed to preparation for a decline in the budget allocation, and for the possible eventuality of no funding from the national fiscus.

Mr Mileham said the highest paid municipal manger was not earning R3 million annually, and neither was the President. Director-generals were not even earning R2 million a year. He asked how a salary of R3.5 million annually could be justified. There were 54 government departments to draw from in terms of skills, as well as 3.5 million civil servants. This salary was disproportionate, because the gap between the salary for the chief executive officer and the next most senior official was 50%. It was so disproportionate to the rest of government officials that it could not be considered a normal salary. A year-on-year increase of 32% was ‘ridiculous’, and was a direct contribution to inflation. Over 50% of SALGA’s expenditure was on salaries, while the norm was about 30-35% in most government structures. The Remuneration Panel needed to take a look at what they had done. The Minister of COGTA had recently promulgated regulations that lowered the cost of municipal managers, and this needed to be addressed.

Mr Manyoni said it would be looked at.

The Chairperson urged SALGA to work on some of the issues discussed, and also congratulated them on their performance in the year under review.

The meeting was adjourned.

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