Division of Revenue Bill: Kagiso Trust & Equal Education submissions & Treasury response

Meeting report

Introduction by Chairperson
The Chairperson welcomed all to the second term, which would stretch over 11 weeks. A new addition to the Committee was Ms Jubuli Makalina, apppointed as researcher. Ms Tanya Ajam had been appointed as head of the research unit. She was formerly employed by the FFC. The Committee had received a briefing by the Financial and Fiscal Commission (FFC) on the DORB, and had hearings in the provinces. There had been five public hearings in the Northern Cape. The agenda for the day included submissions from Kagiso Trust and Equal Education. There was also a handwritten submission by Mr Matlala. The Select Committee welcomed the appointment by the President of the new investment envoys, who would seek to draw a hundred million dollars of investment to South Africa. It would enhance trust in the economy. The envoys would be led by Ms Trudi Makhaya. It was a highly important role. The responsibility of the Appropriations Select Committee was to see that money was spent wisely. But there also had to be concern about creation of revenue. There had to be revenue to divide by means of the DORB.

Kagiso Trust submission on the Division of Revenue Bill
Ms Modjadji Seabi, Kagiso Trust Researcher. said the Kagiso Trust programme pillars were education; socio-economic development; institutional support, and financial sustainability. Key areas of interest in the DORB included support for ECD and emerging farmers, and emerging businesses in construction, real estate and agriculture. Kagiso Trust motivated for ease of state partnerships with non profit organizations (NPOs), as it related to opportunities for access to grants for co-funding partnerships with the state for development initiatives, and provision for NPOs in service level agreements (SLAs) between provinces and municipalities. Kagiso called for a provision in the Division of Revenue Bill (DORB) that would provide for stakeholder partnerships within budget votes, co-funding with NPOs and the private sector, relaxation of laws and regulations to include stakeholder partnerships with NPOs and the private sector, and for access to grants for co-funding partnerships. Relevant grants were the Comprehensive Agricultural Support Programme Grant; the Ilima/Letsema Grant; the Land Care Programme Grant; the Community Library Services Grant, and the Early Childhood Development Grant. Kagiso also called for the establishment of centres to promote the fourth industrial revolution, and co-funding with NPOs and the private sector for sports and arts facilities for use by schools and surrounding communities.

Discussion
Mr L Gaehler (UDM, Eastern Cape) referred to the statement that Kagiso Trust gave local government institutional support in the form of help with billing. He asked which municipalities were assisted. There was a problem of municipalities being owed money by national and provincial departments. Departments were claiming that municipal billing was faulty. He asked if all municipalities were assisted, or only the ailing ones. He asked about agricultural assistance, whether it was given to subsistence farmers, as well as “real” farmers. He asked if people in the emerging real estate sector were aware of Kagiso Trust in all provinces.

Mr O Terblanche (DA, Western Cape) remarked that it was a high level submission. His party was keen to allow such participation and co-funding, and would come out in support of that. Still he found it difficult to understand what Kagiso wanted to do. Interest was shown, but to facilitate direct support, he would like more detailed information and clarity.

Mr M Monakedi (ANC, Free State) asked how the Kagiso board was appointed, and who appointed it. He asked how accountable Kagiso was to the community it was supposed to serve. Accountability had to be demonstrated for government to render support in a partnership. Partnership between Kagiso and related NPOs was emphasised. To be allowed to work at the government level, Kagiso should not go through tender processes. It should not be paid for work within municipalities and government departments.

Mr T Motlashuping (ANC, North West) noted that Kagiso Trust had contributed to his education. There was a growing interest in ECD centres. Government was spending on it through a special grant. He asked if Kagiso efforts collaborated with those of government. He referred to scholarships. Premiers and municipalities also awarded scholarships. There had to be linkage between Kagiso and government.

Mr Gaehler referred to ECD and said there were rural areas that were neglected. He asked if Kagiso was venturing into that. There were children with disabilities that were neglected, especially those with autism.

Mr M Shabangu (EFF, Free State) asked how emerging farmers were being supported. He was from a former homeland. People there were given farms and utensils, but were not provided with knowledge. They ended up fighting amongst themselves. He asked what Kagiso was doing to assist with that. Slide 7 mentioned co-funding with NPOs and the private sector for arts facilities for use by both schools and surrounding communities. He asked if farming and rural communities were made aware of such facilities. Close to where he lived there was a Kagiso facility that had computers and a library, but people from the area were not using it.

Ms Seabi answered about assistance to municipalities with billing. It was the only programme where Kagiso did tendering. Support was rendered in Gauteng through the Department of Cooperative Governmence and Traditional Affairs (CoGTA). Kagiso tendered to help municipalities clean up their systems. The top 100 highly billed users were identified. Wrong billing by municipalities was also identified. It was paid for by municipalities. It would be extended to the North West province. Agricultural support was a new programme. There was support for emerging farmers. A social development model was created that stakeholders could adopt for best practice tools. The model looked at three things: business skills and support, access to funds, and access to markets. It would assist emerging businesses in agriculture, construction and real estate. Funding would be supplied, and there would be terms for businesses to pay back as they grew, so that funds could be reinvested. The aim was to grow emerging farmers to the commercial level. Partnerships with banks and big players in the industry were negotiated to establish a fund. Real estate had been placed on hold, and farmers had not been approached yet. There was an allocation, but there were negotiations to pool a bigger fund. Smallholders and SMMEs were to be included. In co-funding, both parties had to have a say and had to make contributions to legitimise their role in programmes. Without co-funding, Kagiso had to tender. Government did not tender for laboratories and such within government, but there was an urgent need for infrastructure in schools. It could be done in partnership with government, especially in rural areas, where services were not delivered speedily where needed. There was co-funding in Limpopo province, working with the Department through the National Education Collaboration Trust (NECT) agency. Funds were already allocated to the education agency, and Kagiso co-funded that. She could not answer about the Kagiso board, as she was a new appointment, but details could be furnished. On accountability, Kagiso reported where funds came from, and what was done with the funds as an NPO. There was reporting to community forums, for feedback about implementation and utilisation of programmes.

Ms Zandile Magutywa, Kagiso Trust Researcher, added that until 2016 Kagiso was mostly involved with education. Since 2016 it was asked how Kagiso could contribute to socio-economic development. There was a strategic review to contribute to institutional capacity and ECD. Both were new developments. Bursaries were awarded before, but currently it was only to children from high schools where Kagiso had done interventions. Bursaries were minimal in number, there were currently only 15, but the goal was to increase that to 50 or 100.

She answered about accountability, that Kagiso was audited by PriceWaterhouseCooper. Monies invested were accounted for, also to the Auditor-General in partnership with the Department. Kagiso tendered to assist municipalities, but as a development agency. It did not want to take money from government. In tendering, consultants responded to particular programmes and then walked away. Kagiso wanted to partner to make a difference in the community, without the motivation to gain from the partnership. Kagiso did work with the disabled and autistic. The Kagiso Trust board was asking for a reviewed strategy that was more innovative. Kagiso was piloting to identify gaps in ECD.

Equal Education submission on the Division of Revenue Bill
Ms Philile Ntombela-Masson, Researcher said that the lack of learner transport in KZN had been raised as a serious barrier to education. EE advocated effective funding mechanisms for learner transport, including a conditional grant. Provincial education departments (PEDs) cited inadequate funds as the main reason for not providing transport to learners. Budgets for scholar transport were often the first to be cut under budgetary pressures.

She referred to the deep cuts in the budget to fund school infrastructure. The Department of Basic Education (DBE) and PEDs had consistently underspent on grant allocations, and Treasury had slashed grants by R7 billion over the MTEF. There were massive school infrastructure backlogs. Government allocated construction projects to implementing agents (IAs), who often performed poorly. EE recommended that provincial treasuries make information public about underperforming IAs.

EE called for a review of the equitable share formula, as it failed to cater for the high cost of delivering education in rural provinces. The formula could be improved by adjusting provincial shares by a geographical factor that favoured rurality, and by adjusting the provincial share by a factor that took distribution of schools across the five quintiles into account, in each province. It had to be recognised that rural schooling required more resources, due to the historical underfunding of rural provinces. EE requested that Treasury be encouraged to add a rurality factor to the ES formula review.
 
Discussion
Mr Gaehler welcomed the submission. It was in accord with what had been said in Parliament, and he agreed with it one hundred percent. He agreed that most of the money went to IAs due to the problem of lack of capacity in the DPW which was mandated to build government infrastructure.

Mr Shabangu asked about criteria for EE membership. His province, the Free State, was not included, and it was the most vulnerable. President Mbeki had declared it a node, but it did not appear on the list. Still the Free State had obtained the best results. There had to be adequate funds for learner transport, especially for black learners in the Free State. The government used to buy bicycles for children, who had to cycle as much as 10 km to school. The bicycles were currently gone, and children had to travel such distances on foot.

Mr Terblanche commended the submission. A sizable chunk of state income was spent on education. It was an important focus area. He was concerned that government was unable to spend the allocated budget amounts. He referred to the inequality between rural and urban education. Provision for schools had to be revisited, and a working model had to be developed. Maintenance money was not spent, which led to a shortage of basic services. The DA was concerned about the inability to spend money.

The Chairperson remarked that it was imperative that the Committee visit schools three times per year, for monitoring and evaluation. There had to be engagement with Education MECs and the Chairpersons of portfolio committees for education in the provincial legislatures. He himself was from a rural area, Namaqua, which had been the top region in the Northern Cape for the seventh year.

Mr Gaehler agreed about the need for regular visits, but protested that the opposition was not respected. MECs would not listen to what the opposition was saying.

The Chairperson advised Mr Gaehler to bring the issue to the Committee.

Mr Monakedi asked if Treasury was moving on the issues that EE had highlighted. Rural areas had to be favoured. There was the critical challenge of capacity in the relevant departments. Infrastructure budgets had to be spent. The problem was not so much with the IAs, but with those who had to hold them accountable. People were not doing the work, and there were no consequences for that. MECs had to see to it that the work got done.

The Chairperson asked if EE was represented in every province. There would be public hearings in all nine provinces, and he advised that EE attend those in the provinces in which it was deployed.

Ms Ntombela-Masson replied that EE was represented in five of the nine provinces. She would tell her superiors to send Equalisers to the hearings. She answered about criteria for membership. As long as there was an issue identified in a school, classmates or community members could be mobilised, and EE would deploy a researcher and a national council member to do field research and to report. As EE was a democratic structure, there would have to be voting. That was how advocacy in KZN and Limpopo started. Initiatives had to come from schools and parents, as EE could not enter an environment without being asked.

She answered Mr Terblanche about education getting the lion’s share of budget allocation. There were misconceptions concerning that. SA was a young country, and there were high goals set for education. The amount allocated was good, but there had been downward adjustments to the baseline allocations. There was a lack of spending of grants. Treasury had to intervene, as it was responsible for giving the grant and for adjusting it downwards. It had to be ensured that people who were hired were adequately trained, and that IAs did not overcharge, and use up grants meant to fix schools.

Mr Shabangu remarked that he was not hearing about learner transport. It left much to be desired. Even taxis used for learner transport sometimes did not have petrol.

Ms Ntombela-Masson replied that she agreed with that. Conditional grants had to reflect the scope of need across the country. There had to be government funding where learners had to be transported over distances of five to ten kilokmetres.

The Chairperson asked National Treasury to respond.

National Treasury response
Mr Steven Kenyon, Director: Local Government Budget Process, appreciated all the inputs. He understood the challenge that Kagiso had highlighted, namely that there were obstacles to NPOs collaborating on government projects. There were procurement rules in government that made it hard for charitable organisations to be part of projects. The main obstacle was not the DORB, but rather the Municipal Finance Management Act (MFMA) and the Municipal Systems Act. Still it was not impossible to achieve collaboration. Treasury had told the Finance Standing Committee that it would look into how Human Settlements projects worked, and would supply information to upgrade the process. It worked better when communities cooperated on projects. There was sometimes disjuncture, and municipalities had to find practical ways to deal with knowledge sharing. Treasury would support a move towards a co-funding model based on a broader social commitment to infrastructure development. Communities had to be involved in management and maintenance.

Mr Kenyon responded to three matters raised in the EE submission. The first was learner transport grants. The DPME was conducting a performance and expenditure review across provinces. It was outcome based, and would provide knowledge about what changes had to be made to the funding model. The Conditional Grant was not to be seen as a silver bullet. It did not automatically make more resources available. There were problems with conditional grant implementation, especially in the first year, when people were tied up in new rules.

Secondly, he did not disagree with the diagnosis about the performance of infrastructure grants. But the remedies that EE suggested were tweaks to what the Treasury and the provincial treasuries were already doing. He shared in the frustration about interventions not yet delivering. Further tweaks had to be explored. Accountability of IAs was a problem.

Thirdly, there was an ongoing review of the provincial equitable share (PES) formula. Treasury had engaged with EE about it, and it was good to see attention granted to the instrument. It was difficult to make changes to PES funding, as it was directed at the whole of provincial government, and had to fund all the various aspects such as health, transport and the like. The PES covered a broad range, and it could not be changed on account of a single issue. Changes made to education funding could cause a health department in a province to be underfunded, for instance. There was a comprehensive review of the formula as a whole, together with the nine provinces through the Technical Committee on Finance. EE was aware of that process and would contribute to it. Rural issues would be addressed in a colloquium on rural issues, hosted by the FFC. It was not to be assumed that the Treasury was pushing rural issues down the road by having a review. It was commonly thought that rural areas were underfunded. But slides displayed by the Treasury over the last two years showed that in terms of per capita allocations, rural areas received more per person. The Northern Cape, a rural province, received 70 percent more per person than Gauteng.

The Chairperson remarked that spending of conditional grants would be dealt with as part of the Committee second term programme.

He said a handwritten submission was received from Mr Matlala. It had to be noted in the minutes.

Minutes of 20, 22 and 27 February, and 20 March 2018 were adopted without amendment. The staff will prepare the draft report on a joint oversight visit to Oliver Tambo district municipality. The next meeting was scheduled for 24 April, when negotiating mandates would be dealt with.

The Chairperson adjourned the meeting.