Municipal Finance Management Bill: deliberations; Financial & Fiscal Commission Amendment Bill: adoption

Meeting report

FINANCE PORTFOLIO COMMITTEE
30 May 2003
MUNICIPAL FINANCE MANAGEMENT BILL: DELIBERATIONS; FINANCIAL AND FISCAL COMMISSION AMENDMENT BILL: ADOPTION

Chairperson: Ms B Hogan (ANC)

Relevant documents
Financial and Fiscal Commission Amendment Bill [B21-2003]
Municipal Finance Management Bill - 29 April 2003 Draft
Revised Chapter 12 of Municipal Finance Management Bill - 30 May 2003 Draft
Legal Opinion on Municipal Finance Management Bill
Proposed Schedule for Introduction of Municipal Systems Amendment Bill (Appendix 1)
Final Amendments to Financial and Fiscal Commission Amendment Bill (Appendix 2)

SUMMARY
Financial and Fiscal Commission Amendment Bill
Before adopting the Bill, Members effected amendments to Clause 1 to provide for Treasury to be consulted in the assignment process.

Municipal Finance Management Bill
The following matters arose for discussion:
- Multi-Jurisdictional Service Districts will be renamed and dealt with via an amendment to the Systems Act,
- Members considered the Legal Opinion on the Bill which decided on the constitutionality of Clauses 20, 23, 26, 31, 84, 122, 134, 136 and 171of the Bill,
- A new Clause 89A has been added to deal fully with Public Private Partnerships.
The outstanding issues in the Bill will be dealt with in the meeting on 3 June 2003.

MINUTES
Financial and Fiscal Commission Amendment Bill
Clause 1
Mr Vuyo Kahla, Treasury Chief Director: Legal Services, took Members through the Draft Amendments to the Financial and Fiscal Commission Amendment Bill (see Appendix 2 for final amendments). These were the amendments put together by Treasury after the 23 May committee meeting on this Bill. These amendments best reflect those proposed during that meeting, and they have been agreed to by the Financial and Fiscal Commission (FFC).

Mr Ismail Momoniat (Deputy Director General: Intergovernmental Relations, Treasury) stated that the problem with Sub clause 2A(d) is that if the FFC does not respond, it cannot be led to believe that it has carte blanche just because the FFC has not responded. Thus the organ of State can clearly go ahead without the recommendations of the FFC but only to the extent that this is allowed by other national legislation, such as the Municipal Systems Act, the PFMA etc., and even with the approval of Treasury. This is important because it affects division of revenue and other matters.

Mr Kahla proposed that ", in consultation with the National Treasury," be added after "may" in Sub clause 2A(d).

Mr N Nene (ANC) asked how this would affect the agreement reached between the FFC and Treasury on these amendments.

Mr Kahla responded that it would not adversely the FFC. In any event once the 90 day period lapses, as is currently agreed to by the FFC, the organ of State "would just go carte blanche and do what ever". Thus this point is already beyond the stage at which the FFC would interact, because it would not have responded. It has to be made clear that even in this case the power of the organ of State's power has to be constrained, to ensure that all the necessary checks are done.

Ms R Joemat (ANC) proposed that the organ of State must consult with Treasury, if financial implications are involved here. The current formulation of the clause does not make this consultation necessary.

The Chair agreed with Mr Kahla that the insertion of ", in consultation with the National Treasury," resolves the ambiguity in the provision.

Mr Momoniat this phrase should be included in Sub clause 2A(c) as well, for the same reason.

The Chair asked whether Treasury has the authority to approve the transferral of functions, merely on the basis that financial implications are involved?

Mr Kahla replied that these kinds of assignments would presently be done by the President via proclamation. This amendment does not serve to introduce this power to assign functions, but is merely aimed at ensuring that the FFC is consulted on the financial implications before the assignment in effected. Thus in Sub clause 2A(c) as well this consultation would have to be carried out.

Mr Momoniat stated that it has to be clarified that in Sub clauses 2A(c) and (d) the organ of State cannot simply proceed with the assignment. It has to first consult Treasury, and also has to do it in accordance with other national legislation. This should be sufficient as a check. From a policy angle these things should generally come through Parliament, otherwise problems could be experienced with unfunded mandates.

The Chair stated that the problem in Sub clause 2A(c) is that the organ of State is made to respond the FFC, but the provision places no duty on it to respond to Treasury as well. The role of Treasury here has to be clarified.

Mr Kahla responded that Treasury presently is not involved in assignments at all.

The Chair stated that Cabinet must have sight of the FFC recommendations and the Department's responses thereto. This would remedy the shortcoming.

Mr Kahla proposed that a new Sub clause 2A(e) be inserted which would essentially provide that "the assignment can proceed after consultation with Treasury and other national legislation".

The Chair requested Mr Kahla to work on this and return with a concrete formulation.

Mr Kahla returned with the Revised Amendments to the FFC Bill (Appendix 2), and took Members through them.

The Chair stated that the amendments are excellent, and noted that Dr Hildegarde Fast, FFC Manager: Parliamentary Office, agrees with these amendments.

Mr Tarr proposed that the phrase "after consultation with" be inserted after "National Treasury," in Clauses 2A(d) and (e).

The Chair agreed.

Clause 2 and the Schedule
The Chair noted that Members agreed to these provisions.

The Chair read the Motion of Desirability, and noted that Members agreed to it. She read the report on the Bill, to which the Committee agreed. The FFC Amendment Bill was passed by the Committee.

Municipal Finance Management Bill
Adv Gerrit Grové, Legal Drafter: Treasury, stated that all the outstanding matter from this Committee's last meeting on the Bill have now been incorporated into the 29 April 2003 Draft.

Mr Momoniat stated that the outstanding issues that have been effected by Adv Grove are:
- Chapters on municipal entities, procurement, financial misconduct and Clauses 31, 39 and 40;
- multi-jurisdictional service districts;
- the Constitutional opinion;
- the timetable for the processing of the amendments to the Systems Act;
- some minor technical issues; and
- Chapter 12.

Multi-jurisdictional service districts
Mr Momoniat stated that Treasury has reached an agreement with Department of Provincial and Local Government (DPLG) that this will now be governed through a municipal entity. In fact, this structure will be renamed a Municipal Jurisdictional Service Utility (MJSU), to move away from a geographical definition. The provisions in the Systems Act dealing with municipal entities will have to be amended to allow a MJSU which would be across two or three municipalities. The governance arrangements would then be as per municipal entity, and some of the issues relating to the Board will follow.

Adv Grove stated that much of the work on these amendments to the Systems Act could be done by Monday 2 June 2003.

Definition of "unauthorised expenditure"
Mr Momoniat proposed that the amendments to this definition be effect at this stage rather than waiting. There is sufficient consensus on this to proceed.

These are the only changes.

Proposed schedule for introduction of Systems Bill
Dr Petra Bouwer, DPLG Director: Legal Services, took the Committee through the Schedule (Appendix 1). Time is of the essence in passing the Systems Bill.

The Chair stated that Mr Y Carrim, Chairperson of the Department of Provincial and Local Government Portfolio Committee, has assured her that he would prioritise the passage of the Systems Bill.

Legal Opinion
(a) Chapter 13
Mr Momoniat stated that he would be highlighting the salient points in the Legal Opinion (document attached). In Point 8 of the Opinion Adv Trengove concludes that Chapter 13 of the Bill is generally consistent with the Constitution. He proposes that the three forms of intervention be dealt with in different provisions of the chapter.

Adv Grove stated that Adv Trengove's conclusions are to be found in Points 12 and 13. They provide that Chapter 13 is consistent with the Constitution. He suggests that Clause136(2)(b)(iv) and (v), which deals with the contents of financial recovery plans for both discretionary and mandatory interventions, may be unconstitutional. He argues that the contents of a recovery plan for a mandatory intervention are dealt with by a municipality in terms of its legislative powers. Yet in a discretionary intervention the provincial MEC is not allowed to interfere in the legislative powers of a municipality. Thus in a discretionary intervention these powers of a recovery plan may be unconstitutional. Adv Grove stated that he in fact agrees with this argument.

Adv Trengove suggested that Clause 136(2)(b) should be split to indicate that (v) and (vi) would only apply to the mandatory interventions. This could be remedied by simply adding a Sub clause 3 which would isolate these provisions and make them applicable to mandatory interventions only. Yet Clause 136(2)(b)(iv) should also be dealt with in a separate sub clause, because "spending limits and revenue targets" also relate to the legislative powers of a municipality.

In Point 13 Adv Trengove does suggest that the three forms of intervention could be dealt with in three separate provisions of the chapter. But this does not seem necessary. The discretionary intervention should be kept where it is, and only the second kind of mandatory intervention should be retained in Chapter 13. The first mandatory intervention should be left in Clause 26, where it is currently located.

Mr Matthew Glasser, Treasury: Consultant, proposed that one possibility would be the splitting (iv), (v) and (vi) into the two kinds of recovery plans. For the discretionary recovery plan these would be indicated as suggestions, and that they are not binding on the council. They would then be made mandatory and binding on the mandatory recovery plan.

The Chair agreed with this formulation, so that there is a clear understanding that a discretionary recovery plan is different from a discretionary recovery plan. This amendment has to be effected, and (iv), (v) and (vi) now become guidelines or recommendations. Furthermore, the Chair stated that she agrees with Adv Grove that the separating of the three forms of interventions into different chapters would not be necessary, as the current formulation is "very neat and compact". Trying to separate them would create enormous confusion.

Adv Grove stated that Clause 130 is in any event a roadmap, which makes the scheme of things clear. The title of Clause 133 should be amended to "Mandatory provincial interventions arising from financial crises", because there are currently two types of provincial interventions. This amendment clarifies that this intervention does not deal with the failure to pass a municipal budget.

The Chair agreed.

(b) Clause 134(2)
In Point 18 Adv Trengove also concludes that Option 2 in Clause 134(2) of the Bill is unconstitutional.

Adv Grove stated that the list in Clause 134(2) is in any event not an exhaustive list. It is a principle of administrative justice in South African common law that one has to apply one's mind in exercising statutory discretion. If this is not done, the decision reached will be invalid. Thus even though it is a financial crisis not specified in Clause 134(2), it would be taken into account in determining whether a financial crisis does indeed exist. The conditions set in the Constitution would have to be satisfied.

(c) Regulation of Municipal Budgets
(i) Clause 23
Mr Momoniat stated that in Points 27 and 28 Adv Trengove points out that Clauses 23(1) and (3) are just guidelines, and he concludes that these two provisions are constitutional.

The Chair asked what the implications would be for Treasury if the municipality decides not to agree to the guidelines set by Treasury. It would have to have strong reasons for radically differ from a uniform guideline that most municipalities adhere to.

The Chair stated that she agrees with Adv Trengove's conclusion in Point 29.

(ii) Clause 122
Adv Grove stated that there is a case in which the Constitutional Court held that an internal committee of the Council cannot be established, but Adv Trengove did not consider this case. Adv Grove stated that he would have felt more comfortable if Adv Trengove had considered this case.

The Chair stated that Clause 122(2) is not saying that an internal committee has to be established. It is merely saying that the tabling of a report has to be held in public. Adv Trengove is therefore saying that this is fine, because it refers back to the Section 155(7) regulatory power of Parliament.

Adv Grove stated that he is satisfied with the provision, because Clause 122(6) in the Revised Chapter 12 (Appendix ) has now been inserted which states that the council "may" adopt the guidelines. Thus it is not made mandatory.

Mr Zam Titus, DPLG DG, asked whether Clause 122(6) will be repeated throughout to reflect the fact that it is not binding. This is important because matters of interpretation cannot be left to councillors.

The Chair agreed that this has to be looked at when dealing with guidelines. She stated that in Points 40.4-40.6 Adv Trengove states that he is satisfied that Treasury has the authority to design regulations, and that he disagrees with the Western Cape Constitutional Court judgment.

Adv Grove stated that he agrees with Adv Trengove's conclusion here. In Point 43 and in each and every case throughout this opinion, Adv Trengove would look for a provision in the Constitution which would authorise a particular section. He found this in most cases, but he failed to find it in one or two cases. In those cases in which he could not find an authorising Constitutional provision, he concluded that it is probably non constitutional. In this case he is saying that because one can trace the power of Treasury to grant uniform norms and standards to Section 216 of the Constitution, it is constitutional. He was thus not relying on the general competence of Parliament to make laws, but was instead looking for a specific enabling provision in the Constitution.

(d) Regulation of contractual powers of municipalities
The Chair noted that Members are satisfied with Adv Trengove's conclusion that this Clause 31 is constitutional.

(e) Capping powers
(i) Clause 20(b)(iv)
Adv Grove stated that in Point 61 Adv Trengove concludes that this clause unconstitutional, because the capping the rate of total revenue generate by the municipality restricts its legislative powers to pass a budget.

Mr M Tarr (ANC) asked how this would affect the Property Rates Bill currently being dealt with by the Provincial and Local Government Portfolio Committee.

Adv Grove responded that Adv Trengove did not exactly deal with this issue. Mr Tarr is correct that that Bill does deal with the capping of rates of a municipality. According to Adv Trengove's argument that would also probably be constitutional, because Section 229 of the Constitution specifically empowers Parliament to regulate the exercise of these kinds of powers by the municipality, which are legislative by nature.

However, Adv Trengove did not deal with Section 94 in the Systems Act and Section 10 in the Water Services Act, because this would have provided a better understanding of the legal issues. Adv Grove stated that there may be a difference of opinion in the Systems Act. He stated that his opinion is that Section 94 is constitutional, because the imposition of fees for services is not a legislative act. The municipality simply determines the fees it will charge for providing services to the community, unlike taxes which are legislative.

Mr Glasser stated that Adv Trengove has in fact given two contradictory opinions on this issue. In the opinion he delivered on the Municipal Demarcation Board he stated that "in practice National Treasury may exercise its power to determine a growth factor in a manner which encroaches on local government. In fact the growth factor may be so small that a burgeoning municipality is disempowered from performing its constitutional functions. Whether or not a constitutional violation occurs would have to be determined if and when National Treasury determines a growth factor". There is thus no black or white on this, it is simply a view on what a court might say.

Mr Titus stated that this matter is arguable, but it is actually constitutional.

The Chair agreed that it is constitutional, on the balance of opinions in this Committee. Yet this matter will be referred back to Adv Trengove for reconsideration. The opinion on Clause 40(2) should be left out of today's deliberations until Adv Trengove has reconsidered it.

(f) Municipal Supply Chain Management
(i) Clause 84
Mr Momoniat stated that for some reason Adv Trengove has decided in Point 75 that procurement does not form part of "norms and standards".

Adv Grove stated that nothing really turns on the phrase "norms and standards". The words "setting uniform treasury norms and standards for municipal supply chain management" can simply be deleted, so that only a framework is referred to.

The Chair agreed.

(g) Does the Bill trench on the powers of the provinces?
Adv Grove stated that again these are only guidelines and are not binding on provincial legislatures. Treasury agrees with Adv Trengove that if they were binding they would be unconstitutional.

(h) Clause 171(2)
Mr Momoniat stated that this deals with the Swartbooi judgment was handed down about one month ago, and held that the councilors could not be made personally liable.

Adv Grove requested some time to consider this judgment.

The Chair stated that this then deals with the Constitutional opinion on the Bill.

Revised Chapter 12
Mr Momoniat stated that Adv Grove has simply clarified the budget votes in Chapter 12, and has improved the language.

Adv Grove stated that he has clarified matters that would relate to municipalities, has distinguished these from those relating to municipal entities. This is important because not all provisions relating to municipality necessarily relate to municipal entities as well. These are thus not substantive changes, but merely ties up the language.

Mr Momoniat stated that Adv Grove has split the old Clause 114(3) into the new Clauses 114(3) and (4), with (3) applying to the municipality and (4) to the municipal entity. There are no substantial changes in Clause 114(2).

The Chair expressed her problem with this document, because it is not a consolidated draft that includes the older provisions reflects the new amendments. This is a problem that has bedeviled the passage of this Bill.

The Chair stated that those were the only amendments to Chapter 12. The rest of the issues have been covered by Adv Trengove's legal opinion, and have been included in the 29 April 2003 Draft Bill..

Chapter 11: Municipal Entities
Adv Grove stated that DPLG and Treasury have agreed that the MJSD would now be known as MJSU's, via an amendment to the Systems Act. All the provisions in the Bill and the Systems Act would now automatically apply to MJSU's as well. This would necessitate changes in the Bill as well. These amendments to the Systems Act could probably be provided by Monday 2 June 2003.

The Chair noted that Members would have to consider the revised MJSD framework at that time.

Chapter 10: Municipal Supply Chain Management and Public Private Partnerships
Mr Momoniat stated that Clause 89A reflects the newly inserted clause as requested by Members during the previous meeting. Adv Grove has merely tried to summarise the Treasury's regulations on Public Private Partnerships (PPP's) in the national and provincial spheres of government.

Adv Grove stated that the uncertainty here lies in the definitions of terms such as "value for money" and "affordability". It may be difficult to try and provide definitions here.

The Chair "value for money" is not a precise accounting term, and stated that she is not sure whether it can be defined. Perhaps Treasury should consult the Accountant-General on this matter.

The Chair called for Sub clause 1 to be deleted, because Sub clause 3 lists all the requirements for a PPP here.

Adv Grove stated that it should not be removed, because it places a limitation on municipalities to enter into contracts. This is important, especially Sub clause(c) .

Dr Bouwer that the substitution of Sub clauses 1(a) - (c) with the phrase "indicate a demonstratable advantage for the municipality" might be useful. This marries both the subjective and objective elements.

The Chair stated that she agrees. The parameters of this "demonstratable advantage" would then be spelt out in Sub clause 3. The outstanding matters will be discussed in the meeting on Tuesday 3 June 2003.

The meeting was adjourned.

Appendix : Proposed Schedule for Municipal Systems Amendment Bill
PROPOSED SCHEDULE FOR INTRODUCTION OF THE LOCAL GOVERNMENT: MUNICIPAL SYSTEMS AMENDMENT BILL, 2003
Legislation to be considered in 2003 must be submitted to Parliament by August 2003.

The following are applicable Cabinet dates:
GA committee: 3 June 2003
Cabinet: 11 June20O3
GA committee: 17 June 2003: reports on Cabinet Lekgotla preparations
Cabinet: 25 June 2003
GA committee: 15 July 2003
Cabinet: 23 July 2003: Lekgotla

LOCAL GOVERNMENT: MUNICIPAL SYSTEMS AMENDMENT BILL
This Bill will amend the Local Government: Municipal Systems Act resultant to the adoption of the Municipal Finance Management Act.

Draft Cabinet and Parliamentary Programme
(i) Publication for comments 6 June 2003
(ii) Distribution of documents for GA Committee meeting 12 June 2003
(iii) Submission to GA Cabinet Committee 17 June 2003
(iv) Submission to Cabinet 25 June 2003
(v) Submission to State Law Advisers July 2003
(vi) Publication of Rule 159 Notice July 2003
(vii) Introduction into Parliament August 2003

Appendix 2 : Revised Amendments to Financial and Fiscal Commission Bill
FINAL AMENDMENTS OF THE PORTFOLIO COMMITTEE ON FINANCE ON THE FINANCIAL AND FISCAL COMMISSION AMENDMENT BILL, 2003 [B21-2003]

CLAUSE 1
1. On page 2, from line 7 to line 14, subsection (2A) is substituted with the following subsections:

"(2A) (a) An organ of state in one sphere of government which seeks to assign any power or function to an organ of state in another sphere of government, in accordance with any law, must notify the Commission of the financial and fiscal implications of such assignment and request the recommendation or advice of the Commission regarding such assignment.

(b) The Commission must, not later than 90 days from the date of its receipt of the notification and request contemplated in paragraph (a) or such other period agreed with the relevant organ of state, make such recommendation or give such advice on the intended assignment as may be appropriate.

(c) An assignment contemplated in paragraph (a) has no legal force unless the organ of state making such assignment has given consideration to the Commission's recommendation or advice contemplated in paragraph (b) and must take into account measures established in terms of national legislation to promote and enforce transparency and effective financial and fiscal management.

(d) The organ of state assigning any power or function to another organ of state must indicate to the Commission, the organ of state to which a power or function is being assigned, the National Treasury, and such other functionary responsible for authorising such assignment, the extent to which it has considered the Commission's recommendation or advice.

(e) Despite paragraph (c), if the Commission does not make a recommendation or give advice within the period contemplated in paragraph (b), the relevant organ of state may, after consultation with the National Treasury, proceed to assign a power or function to another organ of state if such assignment takes into account the measures established in terms of national legislation referred to in paragraph (c).

(2B) An organ of state must notify the Commission or request the Commission to perform a function in the form prescribed by the Commission."

CLAUSE 2
1. On page 3, after line 23, insert the following subsection:

"(3) An appointment to any vacancy on the Commission must be made not later than 90 days from the date when such vacancy occurs."

SCHEDULE
1. On page 5, in the column marked "Extent of amendment", substitute subsection (2) with the following:

"(2) (a) If there is one vacancy, the executive committee of the national organisation must compile a list consisting of no more than four and no less than two nominees from the nominees contemplated in subsection (1).

(b) If there are two vacancies, the executive committee of the national organisation must compile a list consisting of no more than six and no less than four nominees from the nominees contemplated in subsection (1).".