Expropriation Bill [B4D-2015]: adoption, with Deputy Minister present; Government debt owed to municipalities: payment progress report by DPW

Meeting report

Chairperson’s opening remarks
The Chairperson welcomed everyone and then indicated that the Committee would firstly deal with the proposed amendments that had been by made by the National Council of Provinces (NCOP) on the Expropriation Bill [B4B-2015]. The Committee would then deal with the presentation by the Department of Public Works on the verified government debt owed to municipalities and payments.

Expropriation Bill: consideration of NCOP Amendments
Clause 19
Ms Vuyokazi Ngcobozi, Parliamentary Legal Adviser, indicated that there were two amendments that were made by the NCOP to the Expropriation Bill).The two amendments dealt with the changes to clause 19(2) of the Expropriation Bill. The clause relates to the payment of municipal property rates and other charges out of compensation money. The first amendment aimed to increase the number of days in which the municipal manager must inform the expropriating authority, in writing, of charges from 20 days to 30 days, if land which had been expropriated is subject to municipal rates. The second amendment aimed to increase the number of days from 10 to 20 whereby the expropriating authority may utilise as much of the compensation money in question as is necessary for the payment, if the said amount is not disputed in writing by the expropriated owner or expropriated holder.

Ms A Dreyer (DA) mentioned that the DA had no problem with the amendments that had been effected in order to increase the number of days from 20 days to 30 days in which municipal manager should inform the expropriating authority, if the land which had been expropriated is subject to municipal rates. However, it was strange that the Committee was presented with a Bill that had already effected all the proposed amendments by NCOP without any deliberation on whether there was concurrence from Members on those amendments.

The Chairperson responded that the Committee was still to hear the views of the Members in regard to the proposed amendments by the NCOP.

Ms Dreyer wanted to know whether Members were still allowed to deliberate or even reject those proposed amendments that had been made by the NCOP.

Mr Jeremy Cronin, Deputy Minister of Public Works, responded that this was a section 76 Bill and therefore it was a must for the Committee to also receive a provincial mandates from the NCOP.  The NCOP took all the responsibility to have public hearings in all provinces with regards to the Bill and eventually, 8 of the 9 provinces agreed to the proposed amendments on clause 19(2). The Committee could either assent or reject to those changes by the NCOP. 

Ms Dreyer wanted to place it on record that she was not pleased by the process that had been followed by the NCOP-as this process was flawed and irregular, especially in terms of public participation. The DA would certainly take a legal opinion on the process that was followed in order to be reviewed and this included petitioning the President. 

Mr M Filtane (UDM) asked if there was any reason that deemed it necessary or prudent to increase the number of days from 20 days to 30 days in which municipal manager should inform the expropriating authority.

The Chairperson replied that there was general feeling that it was prudent for the municipal manager to be given a full month instead of 20 days to inform the expropriating authority, if land which had been expropriated is subject to municipal rates.

Dr C Madlopha (ANC) proposed that the Committee should accept the proposed amendments that had been made by the NCOP as these amendments were likely to impact the provinces and municipalities.
           
Ms E Masehela (ANC) also proposed that the Committee should accept the proposed amendments that had been made by NCOP as these were minor changes and again showed the good work that had been done by the Committee. 

Mr Filtane also supported the amendments that had been forwarded by the NCOP.

Ms Dreyer stated that it must be made clear that the DA was not opposed to the proposed amendments that had been made by the NCOP. However, it must also be stated that the party was still opposed to the entire Bill.

The Chairperson noted that the Committee Members had unanimously accepted and adopted the amendments to the Bill. The Committee would note the objection of the Democratic Alliance and the United Democratic Movement to the Bill. The Committee would now table the report before the National Assembly for consideration.

Briefing by the Department of Public Works
Mr Coz Mokgoro, Chief Financial Officer (CFO), DPW, indicated that the total debt that was owed to municipalities for rates, taxes and other municipal services as of 31 March 2015 was R96 billion. The portion that is owed by government as reported to the National Treasury was about R5.2 billion and this comprised of about 5.4% of the total exposure to the municipalities. The amount of monies that government departments owed to municipalities was initially reported as R5.2 billion and this resulted in contestation in terms of challenges that are experienced by municipalities and the going-concern was on the sustainability of municipalities. The resolution that was taken was that there was a need for this huge debt to be resolved. The actual stated debt that is owed by government departments was a different figure of R4.4 billion and there was a disjuncture between what had been presented in section 71 of Municipal Financial Management Act (MFMA) and what is in the record of municipalities.

The Department has tried to intervene in terms of the verification of the actual debt through the establishment of the intergovernmental forum that comprised of key stakeholders like National Treasury, Department of Co-operative and Traditional Affairs (COGTA), South African Local Government Association (SALGA). The actual figure after all the verification was done is now R3.6 billion. The total debt that was owed by national custodians was around R1.08 billion. In terms of the breakdown of the national debt per custodian, it was clear that the Department of Public Works was the one that owed the most to municipalities with a debt of R575 145 610. The total debt for provincial custodians was around R2.6 billion and the largest share of the debt was once again on the Provincial Department of Public Works.

Mr Mokgoro stated that 75% of the progress reports had been signed off and the verified debt already submitted to the responsible debtor departments for confirmation and settlement. 16% of the progress reports are still awaiting sign-off from municipalities, 4% are in progress and on target for completion while 5% of the municipalities have provided inadequate data to progress with the verification.  The Department of Public Works had already paid a total of R342 million of the total debt that is owed. The Department has not been able to settle all the debt because of lack of funding and budget constraints and engagement are ongoing with National Treasury to settle the outstanding debt. There are a number of challenges that are experienced by government departments and municipalities and these included unrealistic budget allocation to address historical debt for property rates, inadequate processes to track the government property portfolio and lack of standard naming conventions or guidelines for property management across the municipalities. There were also other additional challenges and these comprised of inconsistent property rates tariffs charged by municipalities, lack of integration of systems across the government spheres, inconsistence in the billing formats and reports across the systems used by municipalities.

Mr Mokgoro took the Committee through a number of recommendations that had been put forward and these included:

• Sourcing budgets to address historical debt
• Review the process of budget allocation for municipalities
• Improve coordination between government departments and municipalities to improve revenue collection
• Section 21 schools to consider prepaid services to avoid consumption without payment
• Custodian departments to play a more active role in ensuring complete and accurate asset registers that can link to municipal systems
• Government should consider implementing minimum standards for property management and reporting
• Foster a better relationship between government departments to avoid operating in silos

Discussion
Ms D Kohler-Barnard (DA) wanted to know the time-frame in which these debts started to accumulate as this was not mentioned in the presentation. It was also confusing to observe that these government debts suddenly started to be a problem. Why was this problem still persistent after 22 years of democracy?

Mr K Sithole (IFP) appreciated the presentation that had been made by the Department as this was an eye-opener. The Committee should be briefed on the time-frame in which the Department was planning to settle its debt to the municipalities. What is the remedy that is in place to assist those municipalities that are struggling with inconsistent billing formats and property rates tariffs charged by municipalities?

Ms P Adams (ANC) indicated that it was difficult to link the challenges that had been identified by the Department together with the recommendations that had been put in place. It would have been preferable for the Department to enlist all the key challenges in line with the recommendations that needed to be implemented. It was unclear from the presentation as to how the Intergovernmental Relations (IGR) would be strengthened to ensure efficiency. She wanted to know if the Department would be able to assist in the recommendation that section 21 schools should consider prepaid services to avoid consumption without payment. When was the Department planning to settle the outstanding debt to the municipalities?

Ms Masehela also appreciated that the Department was able to make a presentation on the verified government debt owed to municipalities and payments that had been made as this had been a long outstanding report. It was clear that a number of municipalities had been unable to exercise their legislative duties because of lack of payment from various government departments. It was also pleasing to hear that something was being done moving forward in order to ensure that the Department was able to settle the outstanding debt that was owed to municipalities unlike in the past where outstanding debts owed to municipalities were never settled. She recalled that this had been a recurring problem and was also a big problem when she was a mayor in 2001.

Ms Masehela urged that the Department should be moving towards the 30 day period for the settlement of invoices so that whatever money that was owed to municipalities could be settled within the 30 day period. The Department should be providing capacity to various municipalities that were still struggling with challenges of inconsistent property rates tariffs and inconsistent billing formats.

Dr Madlopha also appreciated the detailed presentation that had been made by the Department on the verified government debt owed to municipalities and payments that had been made. It was unclear as to the year in which the Department was starting to count the historical debt for property rates and municipal service.  Was this including the debts that had accumulated before the democratic government? The Committee should be consistently updated on the payments to municipalities by various government departments and provinces so that the monies could be followed up until they are fully settled to municipalities.   

Ms D Mathebe (ANC) expressed concern about poor relationship between the three spheres of government as this was evident in the inconsistent distribution of payment that was owed to municipalities. What was the criterion that was being used by the Department in the allocation of payments to various municipalities? It would be important to know what the Department was doing in regard to the public properties that were unoccupied. The Committee should be provided with a time-frame for the payment of the debt that is owed to municipalities.

Mr Mokgoro responded that there was indeed complexity in regard to who was actually responsible for the settlement of a particular debt and this was the main issue that needed to be resolved. The Department had to compile its own asset register in order to be able to start with a comfortable level of certainty on the outstanding debt that was to be paid. The reference point for the historical debt was on 01 April 2008 until 31 March 2015 and this was a balance that was counted by the Department. The issue around the State Land Administration and Ownership had been a main challenge, especially when it came to the settlement of debts before the democratic government. The Department had an opening balance of R1.1 billion and this was a debt that was counted from 01 April 2008 until 31 March 2015. The current payment to various municipalities was happening without any glitches or major problems and the Department was comfortable that what is due was getting paid within a reasonable timeframe.

Mr Mokgoro stated that the total verified government debt owed to municipalities for rates, taxes and other municipal services as of 31 March 2015 was R96 billion. The portion that was owed by government as reported to the National Treasury was about R5.2 billion and this comprised of about 5.4% of the total exposure to the municipalities. The allocation of the payment to various municipalities would be done by the Financial and Fiscal Commission (FFC) and not the Department. It must be highlighted that the total debt that was owed to municipalities was interdepartmental and the Department had taken a decision to verify all the outstanding debts that are owed by government departments. Therefore, it would be difficult to know the time-frame within which other government departments were planning to pay their outstanding debts to municipalities. The Department was planning to settle its payment by the end of June 2016. The Department, through the interdepartmental task team that had been set up would continue to urge various government departments to expedite the process of settlement of their outstanding debts.

Mr Mokgoro replied that the remedial actions would be developed in order to assist municipalities to avoid the recurrence of the accumulation of debts and this would be led by COGTA. There was an issue of conflict of interest between the Department and municipalities-as the Department was trying to pay as little as possible rates and taxes while municipalities were trying to charge as much as possible. There should be a delicate balance that should be reached in order to ensure fairness. 

Mr Mziwonke Dlabantu, Director-General (DG), DPW, added that there had been systematic policy changes to improve the plight of municipalities and part of that was the introduction of the Municipal Property Rates Amendment Act to deal with the rates and taxes for municipalities. It must be remembered that there were property that were previously zero rated and the introduction of the Municipal Property Rates Act wanted to ensure that all properties were rateable. However, this process did not meet the budget allocation of various government departments and this was an issue that the Department was addressing with the National Treasury. The Department believed that the introduction of the Municipal Property Rates Act should have been followed by the concomitant increase in the budget allocation.

Mr Mokgoro replied that the Department would provide a regular update in regard to the payment that is due to municipalities. 

Mr Paul Serote, Head of Property Management Trading Entity (PMTE), DPW, indicated that the Department had noted that some of the municipalities could not fully substantiate the amounts that were owed by government departments in accordance with section 71 reports. The Department was noticing an opportunistic allocation of the property categories and this was observed when the Department took a sample of 20 properties to do an evaluation and noticed an astronomical growth in the valuation of those properties. The valuation had increased from R4.9 billion to R7 billion and this resulted in an increase in taxes and rates on the custodians.

Mr Dlabantu mentioned that the Department had already informed the Director-Generals of relevant government departments that still owed the municipalities with a view of resolving this matter. The Department was also planning to inform the Cabinet on these outstanding debts in order to find a way forward. There were also interventions that were expected to be implemented by various stakeholders and these included the National Treasury, COGTA and SALGA with aim of finding a solution on the capacitation of municipalities. It was well-known that most records of municipalities were in a chaotic state and the Department was planning to resolve this matter as urgent as possible. The Department was planning to divide the categories of payments that are owed to the municipalities into two categories, those that are related to taxes and rates and the services consumption (electricity and water).

Mr Dlabantu explained that the Department was planning to avoid the situation where government departments would accumulate debts to the point where it was almost impossible for those debts to be settled. There were other municipalities like Tshwane that had introduced a prepaid system for the payment of electricity and this was to avoid consumption without payment. The Department was paying for rates and taxes and this was irrespective of whether the property was occupied or not. The Department had now come up with a strategy to identify all the unoccupied public properties in order to make them available to the general public and social institutions-so that they could also take responsibility for the daily utilisation of those properties.

Ms Kohler-Barnard wanted to know the time in which the Department started with the verification of government debt owed to municipalities.

Mr Mokgoro responded that the reference point for the historical debt was on 01 April 2008 until 31 March 2015 and this was a balance that was counted by the Department. The opening balance that was brought forward from 01 April 2008 is the balance that was owed to the municipalities as at 31 March 2015.

Ms Masehela wanted to know if there was a particular document that was being used by the Department in rural municipalities to verify that a property belonged to a particular municipality, especially in cases where there is an absence of a title deed.

Mr Mokgoro responded that the Department was using invoices in cases where there were municipalities that were without title deeds, especially those in rural areas.    

Ms Kohler-Barnard expressed concern that the opening balances had gone up massively as this was an area that the Department needed to focus on at the beginning.

The Deputy Minister clarified that the process of opening balances only started in 2015 and not in 01 April 2008. It was clear that substantial progress had been made by the Department between 2015 and now.

The meeting was adjourned.