Municipal Finance Management Bill: deliberations

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Finance Standing Committee

17 June 2003
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Meeting report

FINANCE PORTFOLIO COMMITTEE
18 June 2003
MUNICIPAL FINANCE MANAGEMENT BILL: DELIBERATIONS


Chairperson: Ms B Hogan (ANC)

Documents handed out
Municipal Finance Management Bill - 18 June 2003 Draft
Municipal Systems Amendment Bill - 2 June 2003 Draft
South African Human Rights Commission Report on Public Finance

Trengove Initial Opinion - circulated at meeting on 30 May 2003

SUMMARY
During the discussion on multi-jurisdictional service districts (MJSDs) the Chair voiced her disapproval at the lack of co-operation this Committee is receiving from the Departments. Agreement had been reached with DPLG and Treasury that the chapters in the Bill dealing with municipal entities and MJSDs would be removed from the Bill and dealt with in the Systems Amendment Bill. DPLG assured the Committee that the chapter on MJSDs would be finalised by today's meeting, but this was not the case.

The Committee went through the amended provisions in the MFM Bill, and primarily technical amendments have been effected to many of these clauses. The focus fell on: certain definitions in Clause 1, especially "unauthorised expenditure", Clause 50 has been amended to prevent municipalities from changing their targets when they cannot be reached, further discussions on Chapter 10 and Clause 162 will be postponed until the legal opinion has been finalised, public-public partnerships should be included in Clause 89A and Chapter 11 on "municipal entities" will be considered once the issues have been finalised.

The Committee then considered the way forward in processing both this Bill and the Systems Amendment Bill which the DPLG assured the Committee would be ready by the 1 August 2003 legislation tabling deadline. Due to this drafting delay, this Committee will not be able to jointly deliberate on the Systems Amendment Bill with the Provincial and Local Government Portfolio Committee due to other obligations. The Committee will set aside two days in September 2003 for this Committee to consider the Trengove Second Opinion and approve the Municipal Finance Management Bill.

MINUTES
Municipal Finance Management Bill
The Chair stated that the outstanding matters in the Bill that still have to be discussed are the Trengove Opinion, the multi-jurisdictional service districts (MJSD) and technical amendments.

Mr Ismail Momoniat, Treasury DDG: Intergovernmental Relations, stated that the MJSD amendments is the big issue that remains. The amendments are contained in the Systems Amendment Bill, and it will be brought forward by the Department of Provincial and Local Government (DPLG).

The Chair asked Ms Jackie Manche, DPLG DDG: Institutional Reform and Support, to indicate the progress DPLG has made with regard to MJSDs.

Multi Jurisdictional Service Districts
Ms Manche replied that DPLG was only informed yesterday that it will have to discuss this matter during this meeting.

The Chair stated that at the meetings on 2 and 3 June 2003 a DPLG representative said clearly that the MJSD would be available for discussion. This was also the message from DPLG during this Committee's last meetings towards the end of May 2003. It is thus not clear how Ms Manche can say that DPLG only received notice of this yesterday.

Ms Manche replied that she herself had only received notification yesterday. DPLG has done work on MJSDs, but it has not been finalised.

The Chair stated that during the meeting on 3 June 2003 a schedule for the introduction of the Systems Amendment Bill was handed out. It lists the procedure as follows:
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

He said that an agreement had been reached with DPLG that this Bill would be finalised by the end of this term. What were the problems here?

Ms Manche replied that the meeting scheduled to take place between DPLG and Treasury could not take place because Treasury was not available, and it thus had to be postponed. She reiterated that work has been done on the MJSDs, but she is not in a position to speak authoritatively on them because it has not yet been finalised. The MJSD issue was handed to DPLG's legal section during last week, but it could not be properly addressed because the Minister of Provincial and Local Government's Budget matters took place at the same time.

The Chair asked Treasury to explain the current state of affairs.

Mr Momoniat stated that the provisions on MJSDs were done by Adv Gerrit Grove, Treasury Legal Drafter, and the idea was that those provisions are to be included in the Systems Amendment Bill. Adv Grove has been working on the further adjustments discussed by the Committee on the Systems Amendment Bill.

The Chair asked whether there is a latest draft.

Mr Momoniat responded that there is a draft document, but the issue here is that the Systems Amendment Bill is really DPLG's piece of legislation. It also has to be decided whether Adv Grove's draft should be made available.

The Chair stated the purpose of today's meeting is to discuss and finalise MJSDs. She could not believe that the departments are not able to provide a final Bill. She was "extremely alarmed at what is going on" because DPLG had made a commitment that the Systems Amendment Bill would be before this Committee, so that it can be put through in tandem with the Bill. Once again this is not happening. The Committee was thus meeting for no purpose today. She stated that she had no alternative but to approach the Speaker on this matter, because she cannot continue with this Bill in this manner anymore. She is no longer receiving the co-operation she needs on this matter, as the commitments made have consistently not been honoured. The position is becoming untenable.

The Bill will now be delayed even further into the Third Term of Parliament with outstanding matters, and she has not even been assured that the Systems Amendment Bill will be tabled in Parliament by the August deadline. Perhaps the provisions in the Systems Amendment Bill have to be included in the Schedule to the Bill. This matter will also be discussed with Minister Manuel.

The Chair ruled that on this basis she did not want to entertain any further discussion on this matter. She requested Mr Momoniat to take the Committee through the final amendments to the Bill as contained in the document entitled "Municipal Finance Management Bill - 18 June 2003 Draft" (document attached). She asked if this was the final draft of the Bill.

Mr Momoniat answered that essentially it is the final Bill. He explained that Adv Grove would have to make consequential changes to the Bill if any changes were made to the Systems Amendment Bill during deliberations on it.

Chapter 1: Interpretation, Object, Application and Amendment of Act
Clause 1: Definitions
"approved budget"
Mr Momoniat stated that this definition has been amended to bring it in line with the amendments proposed to Clause 28 of the Bill. Adv Grove will however be looking at this formulation again.

"creditor"
Ms R Joemat (ANC) asked whether "person" here includes any institution as well.

The Chair replied that it is included.

"irregular expenditure"
The Committee did have quite a long discussion on this issue in the previous meeting, and Adv Grove has effected those amendments proposed in this revised definition. Sub clause (d) has now been added to accommodate the amendment proposed by Mayor Leeuw, from the South African Local Government Association (SALGA), that by-laws be included.

"month" and "quarter"
Mr Momoniat stated that these are trivial amendments, but Adv Grove believes they have to be included for clarity.

"service delivery and budget implementation plan"
Mr Momoniat stated that the whole aim here is that a municipal council cannot be allowed to change its delivery plan, although adjustments will be effected via the adjustments budget. This has to be factored in. This will be returned to when considering Clause 51 of the Bill at a later stage of this meeting.

The Chair agreed.

"unauthorised expenditure"
Mr Momoniat stated that this was also the topic of lengthy discussion during the last meeting, and those proposed amendments have been included in this definition. An interesting question is whether "unauthorised expenditure" should include cases in which it is clear that a municipality will not be collecting revenue that it has budgeted for.

The Chair stated that an adjustments budget would however have to be processed here, rather than making it part of an unauthorised expenditure process.

Mr Momoniat stated that this was Adv Grove's thinking. The second issue is whether unauthorised expenditure in fact is a post-financial year measure.

The Chair stated that the definition of "budget" includes an adjustments budget. Therefore it is only when it is found that someone has overspent once the adjustments budget has been approved, that charges can then be instituted.

Mr Momoniat stated that these provisions are quite important for accountability. Perhaps Dr G Woods (IFP) could shed some light on the matter.

Dr Woods stated the essential two motivations for unauthorised expenditure have been retained viz. overspending against the budget and overspending not in terms of purpose. The former would in most cases be a post-budget year issue, as correctly stated by Mr Momoniat, and it would hopefully be taken care of in an adjustments budget, as stated by the Chair. In a long term view budget management should require budgets to ultimately be planned on a monthly basis, so that the issue of over- or under-spending on a budget would become apparent before the year's end. This situation is however some years down the road. The essential issues have been captured in the revised definition.

Mr M Tarr (ANC) asked where the funds from adjustments budget would come from. Perhaps it would be better to opt for a balanced budget here.

The Chair disagreed.

Mr Momoniat suggested that this is dealt with in the new proposed Clauses 29A and 29B. He proposed that this matter would have to be resolved via consequential amendments to those clauses.

The Chair agreed.

Mr Momoniat stated that a definition for "capital" has to be inserted as well, because there is currently an accounting and Government Financial Statistics definition.

The Chair agreed.

Clause 2: Object of Act
Mr Momoniat stated that Sub clause (f) has been added.

The Chair agreed.

Chapter 3: Municipal Revenue
Clause 8: Primary bank account
Mr Momoniat stated that Sub clause 2(b) has been amended to include "dividends from a municipal entity".

Chapter 4: Municipal Budgets
Clause 16: Annual budgets
Mr Momoniat stated that there is no substantive change to this clause. Sub clause 3 has only been added for clarity.

The Chair agreed.

Clause 17: Contents of annual budgets and supporting documents
Mr Momoniat stated that Sub clause 3(k) clarifies that the remuneration issues of each of the political office-bearers would be stated.

Dr G Koornhof (ANC) sought clarification on the amendment in Sub clause 3(j).

Mr Momoniat responded that this is a technical amendment. Section 214 of the Constitution refers to "allocations". The term "transfers" is used for division of revenue allocations, and because this clause deals with non-division of revenue allocations it has been changed to "grants".

Clause 19: Capital projects
Mr Momoniat stated that there has been no substantive change to Sub clause 1(c), except that the old (c) has now become the new (a). Sub clause 3 has also been amended by the substitution of "long term" with "consolidated".

Clause 21: Budget preparation process
The Chair asked whether the amendment to Sub clause 2(c) has been proposed by Treasury.

Mr Momoniat answered in the affirmative. This provision does not impose an obligation, but merely requires the mayor to "take account" of the national budget.

The Chair stated that the mayor is obliged to do this constitutionally anyway.

Clause 29: Unforeseen and unavoidable expenditure
The Chair stated that Mr Momoniat does not have to go through Clauses 29, 29A and 29B again, as he has already covered it under the earlier discussion on the definition of "unauthorised expenditure".

Clause 28: Municipal adjustments budgets
Mr Momoniat stated that the second "annual" in Sub clause 5(c) has to be removed.

The Chair agreed.

Chapter 5: Co-operative Government
Clause 40: Decisions to increase cost of bulk services
Mr Momoniat proposed that discussions on this clause be held over until Adv Trengove finalises his opinion on this matter.

The Chair agreed.

Mr Momoniat stated that it was agreed that this clause would be split into the cost of bulk services and the increases in municipal revenue. It has been split up, and it is for this reason that Sub clause 2 has been removed. Sub clause 1(b) has now also been added so that an organ of State is required to table its proposed increases in Parliament. It is hoped that Parliament will then hold public hearings on the increase, because the department cannot instruct Parliament to do so.

The Chair proposed that this has to be run by the Chairpersons of the Water Affairs and Minerals and Energy Portfolio Committees.

Mr Momoniat agreed. The Departments of Minerals and Energy and Water Affairs and Forestry have been alerted to these changes. They will be brought fully up to speed once the Trengove Opinion has been submitted.

Chapter 7: Responsibilities of Mayors
Clause 49: General responsibilities of mayors
Mr Momoniat proposed that the word "fiscal and" be inserted before "financial" in Sub clause (a), to be consistent.

The Chair agreed.

Clause 50: Budget processes and related matters
The Chair asked whether this amendment has been proposed by Treasury.

Mr Momoniat answered in the affirmative. Some of the changes are merely technical. Treasury did not view the service delivery agreement and budget plan as public documents, because it only apply between the mayor and the municipal manager. A performance contract does however arise from this agreement, and this would be published via the Systems Act.

Only two issues arise here. The first is that municipalities cannot be allowed to change their implementation plan or quarterly targets in the middle of the year when it believes it is not performing according to plan. However when an adjustments budget is provided which makes more funds available, this mechanism might have to be strengthened rather than weakened. Treasury did not believe that this was accurately captured in the provision, and the proposed amendment seeks to address this. The second issue is that the timelines have been tightened, so that Sub clauses 2 and 3 do not really change much.

Mr Tarr proposed that the word "or" in Sub clause 2 be replaced with "and".

Mr Momoniat stated that Adv Grove will have to look at this, because the provision does refer to three different documents.

Clause 51: Budgetary control and early identification of financial problems
The Chair stated that Sub clause 3 is not really tough because if the service delivery plan is not implementable, it is not implementable. Surely the mayor would have to explain any change in the service delivery plan, and would have to take the political consequences.

Mr Momoniat replied that the detailed service delivery plan can be revised, but not the targets and quarterly performance indicators. If these are changed the performance contracts have to be revised. Mr Momoniat stated that he has a niggling concern that an adjustments budget that provides more money is one thing, but weakening it would create a major concession that the municipality will not deliver. He stated that he is not sure whether this route should again be followed in this provision, because at the end of the year the municipality would still have to show that it has failed against its original targets in the annual budget.

Mr D Hanekom (ANC) disagreed with Mr Momoniat. The targets have to be retained as they were, even if the municipality does not have the funds and it has an adjustments estimate.

The Chair agreed.

Mr Tarr proposed that the word "in" be deleted from Sub clause 3.

The Chair agreed.

Chapter 8: Responsibilities of Municipal Officers
Clauses 62 and 63
Mr Momoniat noted the small amendments effected to these two clauses.

Clause 64: Funds transferred to organisations and bodies outside government
Mr Momoniat stated that Sub clause 1(a)(iv) clarifies the specific financial year being dealt with for institutions outside the municipality.

The Chair agreed.

Clause 68: Monthly budget reports
The Chair noted that a grammatical amendment has been effected to Sub clause 1(f)(ii).

Clause 79: Role of chief financial officer
Mr Momoniat stated that the amendment in Sub clause 1(c) seeks to incorporate the amended provisions in Chapter 3 dealing with municipal bank accounts. Sub clause 1(d) has been amended to include the supply chain management responsibilities of the chief financial officer.

The Chair agreed.

Chapter 10: Municipal Supply Chain Management and Public Private Partnerships
Mr Momoniat all the changes in this chapter would have arisen from this Committee's discussion on it and from the Constitutional Opinion. Treasury has asked Adv Trengrove to motivate his view, because in the previous meeting the Committee decided not to follow the approach in his initial opinion. Perhaps the Committee should wait for Adv Trengrove's Second Opinion before considering this matter further.

Mr Momoniat stated that the changes that have been effected to this chapter are those matters that arose from Adv Trengrove's initial opinion, and the Committee's discussion on it.

The Chair agreed that the Committee should wait for the Opinion on Treasury's regulatory norms and standards.

Clause 89A: Conditions and process for public-private partnerships
Mr Momoniat wondered how public-public partnerships would fit in here, because many municipalities have such partnerships. Perhaps the same approach should be followed as with Public-Private Partnerships (PPP), via a separate clause even.

The Chair stated that this matter has to be looked into. She stated that she has discovered that the Treasury regulations of its PPP unit does in fact define "value for money" as contained in Sub clause 1(a).

Mr Momoniat agreed. He reminded the Chair that the Committee had agreed that this provision then has to include the condition that the municipality would have to demonstrate this.

Mr Tarr noted that there are two 89A's.

Mr Momoniat stated that the numbering would be sorted out by Adv Grove.

Chapter 11: Municipal Entities
Mr Momoniat stated that there is no point in discussing this chapter, because there could be one or two consequential issues arising from the provisions dealing with MJSDs.

The Chair agreed.

Chapter 12: Financial Reporting and Auditing
Mr Momoniat stated that Adv Grove has really just effected the changes that were discussed by the Committee. The major changes were made to those provisions dealing with the oversight report viz. Clauses 120 to Clause 122.

Clause 122: Oversight reports on annual report
Mr Momoniat reminded Members of the long discussion on this Committee in this matter during the previous meeting.

Clause 125: Submissions to provincial legislatures
The Chair sought clarity on the last sentence added to the proposed Sub clause 5.

Mr Momoniat reminded the Chair that the Committee agreed that this would be stipulated throughout the Bill, so that the guidelines are only recommendations and are not binding.

Chapter 13: Resolution of Financial Problems
Clause 133: Mandatory provincial interventions arising from financial crises
Mr Momoniat stated that a technical amendment has been effected to the heading of this clause.

Clause 134: Criteria for determining serious or persistent material breach of financial commitments
Mr Momoniat stated that Option 2 falls away because of the position in Adv Trengrove's opinion.

The Chair agreed.

Clause 136: Criteria for financial recovery plan
Mr Momoniat stated that Sub clause 2 has been split into mandatory and discretionary interventions, as recommended by Adv Trengrove's opinion.

The Chair agreed. She requested the committee's researcher to check that the amendments in this chapter are in accordance with the issues raised in Adv Trengrove's opinion.

Chapter 14: General Treasury Matters
Clause 158: Forbidden activities
Mr Momoniat stated that Adv Grove has changed the heading to this provision, because the clause does not apply to financial activities alone.

Clause 160: Audit committees
Mr Momoniat stated that Sub clause 2(b) has been amended to ensure that the audit committee reports to the Board of Directors. This was not previously provided for.

The Chair agreed.

Clause 162: Treasury regulations and guidelines
Mr Momoniat stated that this is the clause dealt with by Adv Trengrove's opinion. A new Sub clause 3 has been inserted to deal with the guidelines.

Chapter 16: Miscellaneous
Clause 172: Transitional provisions
Mr Momoniat stated that Sub clauses 2 and 3 have been amended subject to the Committee's discussion on this provision.

Ms Joemat proposed that Sub clause 2(b)(i) should include the physical address as well.

The Chair agreed.

Clause 174: Short title and commencement
Mr Momoniat stated that the date in this clause has been clarified.

The Chair noted that the Committee has now gone through the entire Bill again with the amendments arising from the last meeting. Adv Grove is busy finalising amendments that would make certain provisions technically more elegant.

The way forward
The Chair asked Mr Shahid Khan, Treasury: Parliamentary Office, to explain the way forward in processing this Bill.

Mr Khan stated that the deadline is 1 August 2003 for a Bill to have been approved by Cabinet, certified by the State Law Advisor, Gazetted and tabled in Parliament. If this deadline is not met Parliament's Programming Committee will not prioritise the particular Bill for consideration if there is a squeeze for time.

The Chair stated that the MFM Bill is not subject to the 1 August requirement as it was tabled in 2002. However the Systems Amendment Bill will fall under this deadline. If that Bill is not passed by Cabinet by 1 August 2003, Parliament will probably not look at that Bill till 2004.

Mr Khan advised that the Systems Amendment Bill should be considered by Cabinet within the next two weeks, because Cabinet will also be going into recess soon.

The Chair stated that the problem here is that Parliament was supposed to have finalised that Bill before it goes to Cabinet. This was promised in good faith by DPLG, but it has not materialised. This Committee thus cannot impact on the Systems Amendment Bill. The Chair asked Ms Manche when DPLG expects to see the Systems Amendment Bill, and whether it will meet the 1 August deadline.

Ms Manche replied that a Draft Systems Amendment Bill is ready, but due to delays not caused by DPLG, it has not been able to meet the initial deadlines. A further factor is that the Minister of Provincial and Local Government was out of the country at the time, and DPLG's budget speech was taking place. The initial deadline was to publish the Systems Amendment Bill on 6 June 2003, but it was impossible for DPLG to do so because it only received the Bill on 2 June 2003. The Systems Amendment Bill could not be published without the authority of the Minister of Provincial and Local Government, who happened to be out of the country at that time.

The Chair stated that she would now have to approach the Speaker and the Leader of Government Business and report that the Bill cannot be put through because the Systems Amendment Bill cannot be finalised in time. Will the Systems Amendment Bill at least get to Cabinet in time to meet the 1 August 2003 deadline, even though this Committee will now not be able to participate in the deliberations on that Bill?

Ms Manche responded that it can meet the deadline. DPLG has drafted a Systems Amendment Bill that contains the discussions that were held between DPLG and Treasury. This document has however not been signed off by the DPLG DG or the Minister of Provincial and Local Government. This document can be taken to be processed through the Cabinet cycle.

The Chair ruled that this Committee would have to rely on the good faith of DPLG that the Systems Amendment Bill will be processed within the time frames revised, so that it can be a companion amendment Bill for the Municipal Finance Management Bill. Either way, this Committee will not have the oversight it would have wished to exercise over the Systems Amendment Bill.

The Chair stated that Adv Trengrove's opinion will be available in mid- to the end of July 2003, and the Committee will discuss it then. She proposed that the Committee Clerks pencil in two days in September 2003 for this Committee to consider the opinion and approve the Municipal Finance Management Bill.

Mr Khan noted that the Systems Amendment Bill is a Section 76 Bill, and it therefore has to go through the whole provincial process.

The Chair asked Mr Henry Eksteen, Finance Select Committee Secretary, to indicate how long it usually takes the NCOP to pass a Bill.

Mr Eksteen replied that this could take approximately three weeks.

The Chair reiterated that it is clear that this Committee is facing a very real problem here.

South African Human Rights Commission Report on Public Finance
The Chair stated that this Report for 2000/2002 has to be considered by this Committee. This has to be fit into the Committee's programme.

Anti-Terrorism Bill
The Chair noted that the Chair of the Safety and Security Portfolio Committee has been asked to confer with this Committee on the financial clauses in that Bill. When this Committee visited the Financial Intelligence Centre (FIC) last week, it informed Members that the measures contained in the Financial Intelligence Centre Bill do not cover the financial measures required for the Anti-Terrorism Bill. The FIC has made proposals on the clauses that should be included in the Anti-Terrorism Bill to cover the financial measures. This will be made available to Members. Does the Safety and Security Portfolio Committee expect this Committee to sit jointly with them when considering the Anti-Terrorism Bill.

Mr K Moloto (ANC) stated that that Committee had indicated that it would prefer one or two Members from this Committee attending the hearings on the Anti-Terrorism Bill.

The Chair agreed.

The meeting was adjourned.

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