2016 Medium Term Budget Policy Statement (MTBPS): SALGA input

Standing Committee on Appropriations

02 November 2016
Chairperson: Ms Y Phosa (ANC)
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Meeting Summary

SALGA welcomed the recognition of urban planning reforms to encourage rapid growth in large cities. Municipalities had to work at making doing business easier. Member municipalities were encouraged to adhere to cost containment guidelines in Municipal Finance Management Act (MFMA) circulars. SALGA welcomed the launch of the Municipal Money website, to enable citizens to use information to participate in the municipal budget process. There were additions to the Local Government Equitable share, and small reductions in some conditional grants. SALGA was concerned about the financial health of municipalities. Intergovernmental debt was expected to be paid off by 31 December 2016. There was concern about the Urban Settlements Development Grant (USDG) being treated as solely for human settlement. SALGA was providing portfolio based and committee training to capacitate councillors for oversight roles. Changes in local government personnel after the local government elections could result in instability that could lead to challenges when it came to audit outcomes.

In discussion, interrogation was vigorous and there were a broad range of remarks and questions. A DA Member made some sharply critical remarks about the performance of SALGA itself, and an ANC Member told SALGA that it was invisible. But in general the Committee came away well pleased with SALGA responses. Members made remarks and had questions about cost containment; credit control policy; the Local Government Equitable share; the Municipal Money website and accessibility to it; consequences for overspending and unauthorised expenditure; financial health and financial management; revenue collection; the appointment of new officials after the elections; non-payment for services; the budget forum; intergovernmental debt; municipal debt levels; disputed properties; the USDG grant; training of councillors; internal auditing and risk management; the state of readiness to implement THE municipal Standard Chart of Accounts (mSCOA), and the implementation of grant money.

Meeting report

Introduction by the Chairperson

The Chairperson said the SALGA submission on the MTBPS was highly important for an open and accountable budget process. It would empower Parliament when it engaged with National Treasury and compiled its report, to make quality recommendations. The Committee had to engage and assess risks to sustainable local finances in government. The allocation of grants supported local government to provide free basic services to the poor, and to eradicate infrastructure backlogs. Access to services continued to expand thanks to grants and grant funded programmes. Citizens needed real and visible change, and to see improvement in their quality of life. It had been a promise since 1994. Parliament had to consider policy options to make use of limited resources, especially at the level of local government. A sustainable fiscus had to be available to attain National Development Plan (NDP) goals for radical transformation.

South African Local Government Association (SALGA) on the 2016 (MTBPS)

Mr Simphiwe Dzengwa, Executive Director: Municipal Finance, SALGA, said that household net wealth fell to 386 percent of disposable income in the second quarter of 2016, compared to 391 percent a year earlier. SALGA welcomed the recognition of urban planning reforms to encourage more rapid growth in large cities. Municipalities had to work to make doing business easier and more efficient. SALGA would encourage its member municipalities to adhere to the cost containment guidelines issued in MFMA circulars. SALGA welcomed the launch of the Municipal Money website and would encourage citizens to use the information to participate in municipal budget processes. Changes to local government allocations included additions to the local government equitable share, and relatively small reductions to some conditional grants. SALGA was concerned with the financial health of municipalities. The Auditor-General South Africa (AGSA) 2014/15 outcomes report stated that the financial health of 92 percent of municipalities was rated as either concerning or requiring intervention. Intergovernmental debt was expected to be paid off by 31 December 2016. R1.2 billion of the R3.9 billion was paid already. SALGA was concerned about attempts to treat the USDG grant as solely for human settlements. Portfolio based training and committee training was planned to capacitate councillors in their oversight roles. The Changes in local government personnel after the local government elections could result in some instability leading to challenges when it came to audit outcomes.


Mr L Gaehler (UDM, Eastern Cape) asked if municipal spending patterns, especially in the rural areas, were reliably reflected. He asked how the current grant system could be turned around. He personally believed that it could not be turned around, especially in the small municipalities. He referred to revenue collection. Traffic fines and tickets could contribute to revenue collection. It was stated that monies owed by government would be finalised by 31 December 2016. He asked if it was going to happen.

Dr C Madlopha (ANC) commented that she understood the challenges of slow economic growth. All had to tighten their seatbelts, and learn to do more with less, and to prevent wastage. Municipalities had to be encouraged to focus on that. The Appropriations Committee followed money, and in doing so found wastage and underexpenditure. Local government found it hard to collect money. She asked if municipalities had a credit control policy to collect money. The amount that municipalities received through the equitable share was not enough to meet their needs. She asked how many municipalities had credit control policies, and what could be done to assist municipalities with credit control. There had to be control around collection of revenue. The Municipal Money website could be a tool for communities to access how municipalities spent scarce resources. She asked when it was created and when it would be advertised. It was important for communities to be informed. She referred to the local government MTEF allocation, mentioned on slide 7. There would be a lowering of resources in 2017/18, but an increase at the outer end of the cycle. Resources had to be utilised in a way acceptable to communities. She noted the SALGA concern with spending more than available resources, resulting in net deficit. She asked what consequences there were for those who created liability through spending. Sections 38 to 41 of the Public Finances Management Act (PFMA) prescribed that local government could not spend what it did not have. In a following budget there would be challenges of deficit that was created illegally. She referred to municipalities about which there was material uncertainty with regard to their ability to continue operating in the foreseeable future (slide 8). She asked how many municipalities were deeply challenged. With respect to grants, cities were better than deep rural municipalities to collect revenue. Grants had to provide a greater boost in the deep rural areas. It had to be seen to that revenue be balanced out in favour of the rural municipalities in the equitable share. The formula had to be biased towards poor municipalities. She had concerns around the grant. The change from schedule 4 to schedule 5 constrained municipalities. Some grants were inappropriately used in places it was not intended for.

Dr M Figg (DA) noted that he had two concerns. Attention had to be given to municipalities that got away with murder. They were doing what they were not supposed to do. Municipalities were overspending. He asked why they were spending money they did not have. It could be that money was spent before funding arrived, in the hope that there would be a bailout. Municipalities needed guidance, and had to be reined in, or else they would contribute to deficit. He referred to slide 3. Financial management and revenue collection had to improve. Basic financial management required that cost of services had to be recouped. He asked about rates of revenue collection across the board. He asked which municipalities had the highest rate of revenue collection. Electricity was being stolen. Funds charged for electricity were not collected. Little was done about it. The President stated that water leaks would be addressed. Municipalities were losing out on income. He referred to slide 8, on audit outcomes. The situation was unacceptable as 92% of municipalities were rated as cause for concern or requiring intervention. He asked what remedial actions were taken to address audit issues arising from the AG outcomes report. He was concerned that in the following year it would stated that the figure was down to 91 percent, and it would be seen as improvement. SALGA had stated that the economy was growing at 1 percent, but it was closer to zero. PFMA and MFMA prescriptions had to be followed. He asked why perpetrators were not prosecuted. He referred to the statement on slide 9 that the R3.9 billion debt was expected to be paid off by 31 December 2016. He asked what gave rise to that expectation. He asked if there was a perceived trend. He referred to slide 13. He was concerned that SALGA was concerned about the state of readiness of municipalities to implement mSCOA. At election time there was the problem of appointing new officials. It did not have to be a problem. There were contracts. He himself would not re-appoint officials if current officials were doing their job.  He asked why implementation had to be such an issue. One could not operate a country in five year sections. He could not believe that new officials could be appointed every five years. He asked which municipalities were more ready to implement mSCOA.

Ms D Senokoanyane (ANC) noted that SALGA was an umbrella body. Members knew about revenue collection challenges. Allocation to municipalities was a bone of contention. Municipalities were supposed to collect their own revenue but were challenged. SALGA was not an implementing agent. It had an oversight function. She referred to non-payment. Government and residents were not paying for services. It was criminal. Government was able to pay for services. SALGA referred to poor payment. There was an element of a culture of non-payment. It was unacceptable for such high amounts to be owed.  She asked if there was a mechanism to deal with that.  She referred to the level of oversight by councillors. SALGA was not getting the necessary support. She had sat in the Standing Committee on Public Accounts (SCOPA) and knew the challenges faced. Municipalities were unable to carry out their responsibilities. She referred to the Municipal Money website. She asked how accessible it was for ordinary people. People could fall by the wayside. It had to be made sure that they participated. She referred to the level of expenditure of conditional grants, and asked if municipalities were able to spend. Some municipalities were said to be not ready for mSCOA. She asked if there were challenges of HR capacity. She asked if the budget forum could influence processes. It was important that SALGA was part of it.

Mr Neels Van Rooyen, Chairperson of the Finance Committee in the Free State provincial legislature, remarked that a cost study was done with the Financial and Fiscal Commission (FFC). The research yielded interesting results. There was a lack of access in the provinces. Research was done through the Free State University about the impact of the equitable share on small towns. The research findings were interesting. SALGA would find it interesting. Findings would be made available to the FFC, SALGA and Parliamentary committees. To ascertain the impact of the equitable share, the focus was on Gariep, one of the poorest municipalities in the country. He asked about the credibility of information in the Municipal Money website. He asked what assurance there was that the information was credible. It had to be easy for communities to access it. It was a good initiative. The Auditor-General (AG) had presented to the Free State Premier on the audit of provincial debt. The provincial government owed the municipalities. He asked if that debt fell under the payment within 30 days prescription. If so, there had to be pressure on the provincial government to pay debts. The provincial Department of Public Works was penalised for not paying within 30 days. It was mentioned that there would be a small reduction in grants. In the Free State there was a huge reduction of the water and sanitation grant. In a small town like Gariep it was a huge amount. There was drought in the Free State, and reduction in the water and sanitation grants. Grants created jobs in small rural towns. He did not understand why SALGA thought the reduction to be small. There was a huge impact on small rural towns. In terms of the Constitution provinces had to have public hearings. SALGA was invited when there were public hearings. The national situation was always presented, but there was no presentation on provincial issues. It had to be broken down according to provinces. Local issues had to be picked up on, like the reduction in water and sanitation grants. The cost of building a school library was not the same in Sasolburg as it was in Koffiefontein.

Mr A McLaughlin (DA) said that he was covered by his colleagues. He had a problem of his own. He had been part of SALGA, and its main concern seemed to be to get more money for councillors from grants. Huge levies on municipalities were demanded by SALGA. He asked if SALGA had influence in municipalities, and if it had real impact. There were huge wastages of money over long periods of time. All that was to be seen was grandiose meetings without results. Costs were rising, and municipalities were under pressure to perform, yet SALGA was raising levies. He referred to slide 3. Household net wealth fell to 386 percent of disposable income in the second quarter of 2016, compared to 391 percent a year earlier. He asked how it was possible to have four times the amount of disposable income. It was more than 100 percent. He referred to point three on slide 4. He asked if there were real plans to improve the economy. He referred to cost containment (slide4). Implications were being ignored. He asked if cost containment  guidelines in MFMA circulars were being adhered to. He asked if money was being saved, and if there were consequences for people who did not comply. The slide on audit outcomes (slide 8) brought bad news. Some time before, municipal debt levels increased. He would urge that municipalities had to get more support at the coalface. There had to be more money from national government. When things went wrong municipalities were blamed. The national government was saying that debt levels had to be increased. But it would be a downward spiral if municipalities were to spend more than they had. Municipalities were expected to fund themselves. Metros could fund themselves but small municipalities could not. They did not have the same markets. If municipalities were run professionally it was possible, but municipalities were not generating money. There was a legal system to help with revenue collection. Part of it was the debt collection process. He asked why it was not being used. Municipalities were giving services to those who did not pay.  They did not wish to or did not bother. Someone would apply for a transfer, and when it came back it would turn out that the municipality was owed R168000. It had to stop. There was intergovernmental debt. The State owed the provinces and the provinces owed local government. The result was that municipalities had to borrow money to pay for things it should have had money for. The MFMA required of municipalities to collect money owed to them. It was not optional, it was an obligation. Someone had to be prosecuted for not doing so. He referred to the debt that was expected to be paid off by 31 December. There was a deficit of R2.7 billion. He asked how old that debt was. He asked if it was still increasing, and whether there would be new debt by 31 December. He referred to bullet 5 on slide 9. It stated that a parallel process was being undertaken to address disputed properties. 55 000 properties were unresolved. He asked who initiated that process. People were claiming that they owned property or did not, and therefore did not owe. The municipality or the property owner or the Land Affairs deeds office had to have records. Unregistered and unsurveyed properties were falling through the cracks. Something had not been captured. He asked why it was a problem at the municipal level. He referred to the statement on slide 12 that the treatment of the USDG grant as solely for human settlement undermined the discretion of municipalities and arbitrarily changed the grant into a schedule 5 instead of a schedule 4 grant. Municipalities waited for grants and used it to pay debts, or were paying salaries with other monies. SALGA implied that municipalities had to be allowed to use their discretion. Grant funding had to be ring-fenced to be used for what it was intended for. It was understandable that when money came in and there were debts to be covered, it was tempting to pay with the money that arrived, but it was not ideal. He asked about progress with portfolio based training (slide 13). He asked if SALGA did the training or facilitated it, and who funded it. He asked if each municipality had to pay for its own training, or whether SALGA or Cooperative Government and Traditional Affairs (CoGTA) funded it.

Mr N Gcwabaza (ANC) noted that SALGA supported the MTBPS about the drop in the equitable share during the MTEF. He referred to the statement that municipalities had to work to ensure that doing business would be easier and more efficient (slide 4). He asked what SALGA thought municipalities had to do to achieve that, especially with regard to emerging enterprises, small and medium enterprises (SMMEs) and cooperatives. When there were attacks on foreign nationals, there was a call for municipalities to revert to by-laws to make doing business easier for locals, so that there would not be fights over business space. He asked how soon a conversation could start towards amendment of by-laws. It would contribute towards local economic development. Municipalities had to widen their revenue base. As long as there was no economic activity, it would be difficult to increase the revenue base. There was a problem of poor revenue collection. There were modern technologies that could turn itself off if there was no payment. It could be installed to solve the collection problem. It would not even have to be necessary to use the law to collect revenue. The problem of illegal connections could not be solved by municipalities alone, whether it was in informal settlements or shops.  Eskom had to get involved. There were saloons and businesses that were not paying municipalities for water and electricity. A sense of urgency and energy to address issues were lacking. Timeframes had to be given, to bring an end to the situation. He referred to disputed properties (slide 9). He asked if the dispute was between the national Department of Public Works and municipalities, or between municipalities and private owners, or both. When municipalities lost revenue, it could be Rands or services. He asked how much revenue was lost. Instability followed on local government elections. He asked if contracts for officials were term bound or contract bound in the sense that the contract was renewable and depended on the performance of officials. High turnover would result in instability. In the public service officials could serve for 20 or 30 years. He asked if contracts could not go beyond two terms. It would be a problem if officials exited every five years. The type of contract had to be looked at. He referred to overcrowding in rented buildings. An original occupant would team up with friends to squat together in a two-bedroom flat. The original occupant would pay the landlord R5000 rent, and collect the money from individuals. Properties were run down and overburdened the water and sanitation infrastructure. Free water and free electricity were linked to criminal activity. It defeated the purpose of the urban renewal programme. Some issues needed the attention of SALGA, the municipalities and CoGTA. There had to be a cleanup to strengthen urban renewal and to keep up health and human standards. The resources were there. Grants and the equitable share could serve people better. Resources could be relieved to be invested in infrastructure.

Ms S Shope-Sithole (ANC) said that she struggled to memorise SALGA. Her conclusion was that SALGA was invisible. It was a manager of local government and yet it was invisible. SALGA had to be visible. SALGA impressed her by saying that leaders were not there because they were making sure that municipalities worked better. Optimism was needed in the economic environment. There was depressing news every day. SALGA had to continue to give hope to rural women, like herself. There had to be programmes to strengthen impact. Municipalities had to be capable of internal auditing and risk management. It had to be ensured that there were audit committees. Money could be given, but with weak financial management all plans and programmes were a waste of time. It had to be ensured that municipalities had structures in place. The Appropriations Committee followed up on the usage of allocated resources. Times were bad. SALGA had to show on a next occasion that things were in place. Cooperative activity with the provinces had to be improved. She was in SCOPA in the fourth Parliament. The Minister came in to try and assist local communities. The MECs of provinces had to assist local municipalities. There was a section in the MFMA that prescribed that all other spheres had to assist local government. Skills were scarce. MECs had to be worked with, as they did not take assistance seriously. The Minister had become involved in municipalities, and the AG was having road shows. But the MECs also had to perform. Departments had to work together and not divide the Republic. All government officials had to be willing to assist local government. It was at the coalface of delivery. To her SALGA was invisible. She, as a rural woman, could not talk about SALGA. SALGA had to talk on community radios, and tell people what they could do to help. It had to monitor the delivery of rights, and not in big expensive newspapers. South Africans had to be taken on board. It had to be possible for ordinary people to phone SALGA.

Mr L Nzimande (ANC, KwaZulu Natal) asked who would be feeding the municipal money website. He asked if municipalities had the capacity to feed figures, or whether there would be sole reliance on the Treasury. He referred to the costing of basic services, and asked for an indication of the financial burden that municipalities had to carry, with respect to indigents. The economic downturn impacted on indigents. There were reductions in grants. The Back to Basics campaign was introduced in 2014. There were interventions with regard to such matters as potholes, street lighting and dilapidated infrastructure. It had carried on for too long. There had to be adjustments in grants to address the matter. He referred to refining the rules for how grant funds were used for refurbishment (slide 12). He asked what effect that would have on the Back to Basics programme. Dilapidated infrastructure and maintenance had to be dealt with. The Appropriations Committee was concerned about the state of readiness of municipalities to implement mSCOA. He felt that there was a slide missing in the presentation, that had to deal with effective financial management. He asked what work was being done to improve the efficiency of financial management, and the implementation of grant money. There had to be extensive engagement on intergovernmental debt. There were 55000 unresolved disputed properties. He asked how much money could be drawn from resolution, and what work had been done towards that. It was claimed that government debt would be resolved before the end of December. Two thirds of government debt was not yet paid. It did not tally.

Mr Gcwabaza referred to dealing with dilapidated infrastructure, including properties. He asked if there were inspectors who could properly inform about the state of "occupy-ability", both for business and for lodging. SALGA had to tell at what stage addressing the issue of maintenance of infrastructure was. If there were no inspectors, he asked if SALGA and CoGTA were considering employing such.

The Chairperson noted that many issues were being triggered.

Mr Gaehler referred to the training of councillors to do oversight. Some of them were trained by SALGA. Government was moving money to pay people who could not do the work because of the type of training they had received. Ward councillors were sitting in council and wasting taxpayer money. They were not allowed to do their work of criticising bank accounts and information. He referred to the position of SMMEs at the local government level. There were local municipalities where only one company had done work year after year.

Reply by SALGA

Mr Dzengwa noted that he would deal with the questions he could answer, and allow the Treasury to come in. The 55000 disputed properties included schools and clinics. A municipality would say that it had a government school, and would charge rates accordingly. But the DPW would say that it was not on its asset register. Updating the asset register could resolve issues between the municipalities and the DPW. It was hard to say how much was owed when the period of existence of a structure was disputed. Not all municipalities had capable treasury units. Municipalities had to buy electricity units from Eskom and sometimes did not have the cash to buy it.  SALGA intervened to tell municipalities that they were underbudgeted. There were always budgets that were not cash funded. SALGA availed itself of instruments that enabled municipalities to benchmark targets so as to be a guide to budgeting. The issue was consistently picked up and discussed with the Treasury. When SALGA did a budget review, it was asked if the budget was cash supported, and what the projections were. Other means of revenue generation had to be looked at. One such was traffic fines. He had spoken to the chief whip of the Nelson Mandela municipality the day before. There were meters, but they were not being maintained. There was no system to follow up and manage them. There was revenue loss. SALGA could do a study to enable municipalities to manage better, and to ask about cost benefits.

Mr Dzengwa noted that the debt amount to be paid by the DPW was raised with the Treasury and escalated to Cabinet. A letter was sent to Premiers. It was resolved that government had to pay municipalities by October 2015, not December. The DPW asked that documents be submitted, and in some instances there were no supporting documents, which caused delay. An amount of R3.9 Billion was agreed upon, of which the DPW had already paid R1.2 billion. There was an undertaking by the DPW to pay by 31 December. He answered about cost containment. A circular was sent out from the budget forum about guidelines. Some municipalities chose to ignore guidelines. It was advised that municipalities adopt cost containment guidelines along with their budgets. Some municipalities were adhering, but there was also deviation.

Mr Dzengwa noted that municipalities had credit control policies, but the issue was execution. Municipalities reported that they would send people to collect, and they would be chased away. When the municipality sent people to cut off electricity, they would discover illegal connections. The problem was that if strict measures were applied, it was said that business was being chased away. It was not in order to have an either/or situation. Concrete measures were needed. SALGA had piloted some interventions. It was asked if the revenue collection issue was a systems issue or whether the whole value chain was involved.

There were households headed by a grandmother who was indigent, but had five children who were working, but the house was in her name. The indigent register was not being updated. There were some who were indigent in 2000, but were no longer so, as their circumstances had changed. Systems were not talking to each other.

The Municipal Money website was a new initiative. It was announced by the Minister during the MTBPS, and was therefore only two weeks old. Anyone would be able to access it. Facilities had to be provided in municipalities so that people who did not have computers could access it. SALGA would assist in marketing the initiative, and getting people to accept it. With regard to electricity services in the townships, both municipalities and Eskom supplied services. It was not possible to cut off water, so when people did not pay for water, their electricity could be cut off. But when Eskom was asked to cut electricity, the response was that people had paid for its electricity. It could not cut off electricity because people had not paid for water. If municipalities were asked if they had internal audit, they would answer in the affirmative, but when the matter was looked into it would turn out that there was but one junior person assigned to that.

Mr Dzengwa answered with regard to training that SALGA worked with the National School of Government, the AG and CoGTA, and the local government sector. The bulk of the funding was from the SETAs, which insisted on standards. Only those who were accredited were employed for training. It was not the only arrangement. Councillors were also trained by their own municipalities. Training spoke to future leadership. SALGA was in favour of consequences for municipalities that were guilty of overspending or unauthorised expenditure. SALGA would not defend or protect those. There had to be an accountability and consequence management framework. SALGA could not compel, municipalities had to follow due process. The financial health of municipalities was flagged by the AG, and the Treasury discussed it with SALGA. The issue was the viability of municipalities if there was undercollection or underspending. There could be intervention through the municipal audit support programme. SALGA did not want a situation where a whole institution would collapse when an excellent CFO left. Everyone had to be knowledgeable about performance levels. Municipalities on the Rand and in the Western Cape were running programmes on how to engage with the budget. SALGA gave training in asset management programmes.

Mr Dzengwa continued that 23 municipalities in the North West province were not ready to implement mSCOA, and 9 in the Western Province. It was not to be postponed, those that were ready had to go ahead. It was not just training, there were also systems needed to implement mSCOA. With regard to the appointment of new officials after elections, he answered that municipal managers could be re-appointed. Some served for 10 to 15 years. Conditional grants were a perennial issue. There was centralisation at the district level to provide a one-stop service.  When municipalities could not plan, the Municipal Infrastructure Support Agency (MISA) could intervene. SALGA was worried about spending patterns, especially of the USDG. SALGA met with the AG, the Treasury, the Chief Procurement Officer and the Development Bank, and asked what alternative models could be put in place. He admitted that SALGA was not listened to at the budget forum. SALGA had become used to the fact that at the budget forum there would be ten Treasury items, and one SALGA item. A year before, SALGA began to ask for a dedicated local government day, to discuss matters of policy and finance that affected local government. There were platforms where issues could be gone through with the Treasury and CoGTA before the forum. He noted that the input about localising policy input in the Free State was well taken. Provinces asked for guidance from national, but it was not tailor-made to their needs.  Their equitable share issues was being looked at. There was a follow-up on the issue at Bloemfontein, where it turned out that the key issue was migration trends. Economic development needed support for small business. It could take many forms. When investors submitted business proposals, it could take forever if the municipality did not have a capacitated zoning unit, and a unit to look at water and transport. There had to be planning units, as business did not have time to waste. It could not wait for three years. SMMEs could go under if services were not paid for within 30 days. He answered about debt levels. Municipalities could get money from the Development Bank or commercial banks, if their revenue streams were clear. But banks were expensive in terms of rates. Clubbing or pool funding was encouraged. Small municipalities could pool their revenue streams to get money for infrastructure projects. SALGA engaged with the Treasury about unloading the Municipal Infrastructure Grant (MIG) where there were clear medium term allocations, to refurbish infrastructure. It was not just about new infrastructure but also about the maintenance of existing infrastructure.

Mr Dzengwa answered about the USDG schedule 4 grant. SALGA agreed that it was not to be used to pay salaries.  Municipalities were not allowed to use grant money to pay for other things. Municipalities would say that they were using the system to build roads and bulk services, but the counter-argument was that it was only for housing. But with reference to the USDG, it had to be recognised that houses could not be built where there was no water or roads. The SALGA position was that the Division of Revenue Act (DoRA) had to be honoured, and that changes in midstream had to be avoided. Provinces had to account about the issue. The policy for free basic services was that municipalities had to make do with allocations and within the equitable share amount. A SALGA study indicated that there was a discrepancy with regard to what municipalities could receive for services and what not. The question was how to ensure that the equitable share was updated, especially for small municipalities. He was interested in the Free State University study Mr Van Rooyen had alluded to. There was only one municipality with a clean audit in the Free State. SALGA had worked with the administration, and a clean audit was received for the first time. There were municipalities who were about to get a qualified audit opinion. There were problems around asset accounting. SALGA sent people to work with them, and better audit findings were achieved.

The Chairperson asked for an input by Treasury.

Input by the National Treasury

Mr Steven Kenyon, Intergovernmental Relations, noted that the MTBPS did not propose that the USDG grant be changed from schedule 4 to schedule 5 for the following year’s Division of Revenue Bill (DoRB). What SALGA was saying was that the transferring officer who managed the grant took actions as if it was a schedule 5 grant, not a supplementary grant. It was important for Treasury that the USDG was a supplementary grant that dealt with an integrated set of human settlement issues, which included infrastructure and water and sanitation.  The USDG only went to the metros. Metros had large balance sheets and were capable of implementation. The USDG had to be used to promote mixed use and mixed income development. When developing residential areas, infrastructure could not be provided only for the poor. The non-poor and business had to be seen to as well, so that people could work near where they lived and the Apartheid spatial geography would not be perpetuated. It was a supplementary grant, which was to be used by the metros to supplement the money it raised itself. Out of a total of R10 billion, Johannesburg received only R3 billion. The Treasury discussed grant management issues with SALGA. There was a proposal to move money from the electrification programmes grant, that was still under discussion and was not formally proposed in the MTBPS. The aim was for electricity to be planned and distributed like other services. Historical debt remained but bills currently going out were being paid. There was no growth of historical debt. Government was better than it used to be in that respect. There was a difference between property rates levied by government versus some of the private households. Household debt was a growing problem, but the government one was getting better. Further discussion of mSCOA was needed. The Committee had to be briefed. When it was in place, a lot of questions could be answered about what was going on in the accounts of municipalities, both for Parliament and Treasury.  Grant reduction in the Free State was a DoRB issue, and not within the ambit of the MTBPS discussion. A R20 million addition was granted to the Free State for drought relief. There was a reduction in the total bucket eradication grants. The Treasury agreed with SALGA about the need for municipalities to adopt costs and payment guidelines through council resolutions. It made it easier to hold municipalities to account when that was done.  The municipal money website was formatted so that it could easily be followed on a phone. One simply had to type in municipal money .gov.za. It could be accessed and one could get audited financial statements for the area one was in. Committee Members on oversight could click and view the information. There were U-tube videos that explained things. It was linked to other resources about how municipal finances worked. It was a comprehensive initiative that he hoped Parliament would use. Communities would be able to use the website. Over time, as data reliability improved, it would be expanded with further data.

The Chairperson thanked Treasury and asked SALGA to make a concluding statement.

Mr Dzengwa concluded that SALGA was willing to engage with Members, and to make documents available. Committee Members were welcome to visit SALGA units. The Committee should feel free to invite SALGA.

The Chairperson thanked members for their active participation. The Committee needed to make recommendations to assist with ensuring that there was quality service delivery and quality spending. A balance was needed between performance and compliance. The PFMA and MFMA had to be adhered to. Municipalities were at the forefront of basic service delivery. Municipalities were closer to the people. If they were not supported there could be no water and sanitation services and refuse collection. Municipal resources had to be sustainable, and viably and correctly used. There were challenges around debt collection and the reduction in net wealth. Municipalities had to improve finance management. Basic services could not be compromised on. The municipal situation had to be turned around within the context of ongoing slow economic growth. Some challenges did not require more money, but rather a different mindset geared to improvement around procurement and professional ethics. There had to be retention of people with requisite skills and experience. It would not do to throw money around without a concrete turnaround strategy. It was most important that there be full compliance with the Municipal Finances Act of 2003, which required that contractors had to be paid within 30 days. Paying contractors within 30 days was not to mean paying on the last day. It was best to pay contractors on the day they finished, with a view to igniting local economic growth. If invoices were not submitted, it had to be followed up so that there could be payment. It was all about the service provider who eventually contributed towards tax and economic growth. She emphasised the importance of infrastructure rollout programmes for infrastructure as cornerstone of job creation and local economic growth. A stable economic environment had to be built to boost municipal revenue. SALGA had to deal with systemic challenges faced by local government at its national conference, to give meaning to better management of municipal finances, and to strengthen accountability and public participation through the Integrated Development Plan (IDP) process. It had to be ensured that the needs of people were taken into account. The Committee would consider the input from SALGA, and would incorporate it into its report.

The Chairperson adjourned the meeting.


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