There were four briefings to the Select Committee on Appropriations on the progress made with the ‘Back to Basics’ programme, and the support provided to municipalities. The presentations were made by the Department of Cooperative Governance and Traditional Affairs (CoGTA), the National Treasury (NT), the South African Local Government Association (SALGA) and the Financial and Fiscal Commission (FFC),
The CoGTA presentation included the expenditure performance of the municipal infrastructure grant (MIG) since its inception in 2004, and its recent distribution across different categories; a breakdown of four components that were used to measure the municipalities when they were not performing; a diagram of the Municipal Infrastructure Support Agency’s multi-dimensional capacity-building approach; the situation regarding the appointment of senior managers in municipalities; the district technical support teams; and a breakdown of the total amount owed by municipalities to Eskom.
The intergovernmental relations branch of the National Treasury addressed three issues -- the ‘Back to Basics’ programme, the MIG performance and the stoppages of the municipal infrastructure grants that reverted to the national revenue fund. It indicated that some municipalities continued to under-spend their MIG allocations, often due to a slow start up during the course of the financial year. MIG rollovers remained the highest, compared to other grants. There was an inability to ring-fence MIG funds, but spending had improved over the years, averaging 90% annually. The stopping and reallocation of the grant had been used as an incentive for municipalities. Priority was given to the district municipality when reallocating stopped funds, to continue to benefit the losing local municipality. Stopping also reduced the amount of unspent funds at year-end. The recommendation was that there needed to be more support by sectors and provinces, and regular onsite verification.
In discussion, some of the key issues raised included the concern that even when there had been a number of interventions, municipalities still continued to under-perform. What should the next intervention be? The complaint by municipalities had been that when the money was offset, it impacted negatively on service delivery, so was there no other intervention that did not cause this problem? Members pointed out that while CoGTA had highlighted numerous projects and programmes, there had been no follow-up analysis of their successes and failures. Project after project had been implemented, so it was important to determine whether they had made an impact, and to assess what needed to be improved on.
SALGA explained what its plans were. Primarily, they concerned how best it could position itself to support municipalities. This included how to improve the system of generating information from the data that SALGA was trying to extract from local government. It hoped that the municipalities would start using SALGA’s municipal barometer for planning purposes. The challenges that characterised municipalities were an indictment of a collective failure to appreciate that South Africa was a unitary state, so there was the need for a dialectical interface between the three spheres of government. The provisions of section 154 were fundamentally meant to enable support to local spheres of government. South Africa needed a national monitoring system, as provided for in section 105 of the Municipal Systems Act.
The Financial and Fiscal Commission indicated that many stakeholders had responded to the Back to Basics programme, so municipalities had received huge financial and non-financial support from a number of stakeholders. The failures characterising many municipalities were a result of both bad behaviour and poor performance, so support for municipalities should be based on a firm understanding and a proper diagnosis of the root causes of the failures. There was a need for robust coordination of different programmes and stakeholders, and responsibilities had to be carefully defined. A long-term view should always be taken for any municipal support initiative. Support should be targeted at officials, as well as the local political leadership. Districts and provincial authorities should be targeted for capacity-building initiatives so that they were effective in assisting local municipalities. The Committee had to find a way of tackling the structural and functional issues that had been provided to change the system. It was not only about accountability. If the system did not work, it had to be changed.
The Chairperson said the objective of the meeting was a report back on the ‘Back To Basics’ programme, which was announced in 2014 and had actually commenced in 2015. During the local government meeting to discuss progress, it was agreed the programme was about the ability of government to address service delivery challenges in municipalities. It was about good planning, consistency in communication, good leadership and sound financial management; to being in alignment and ensuring clarification of the role and responsibilities between the Municipal Systems Act and the Municipal Fiance Management Act (MFMA); it was about addressing fragmentation, to look at coherent support, and to align actions to address service delivery. The question now was how to take this plan forward to deliver a better service to the South African people in the towns and rural areas. The Minister of Cooperative Governance and Traditional Affairs (COGTA), Dr Zweli Mkhize, had said on May 16 that 87municipalities were dysfunctional were required urgent intervention.
Mr Mpho Mogale, Chief Director: LGSIM, CoGTA, gave a breakdown of the five pillars of the ‘Back to Basics” programme. The first pillar was economic development. Most of the municipalities in the country were going through a lot of hardship economically. Without growing the local economy, there would be other implications downstream. CoGTA would be collaborating with all the relevant departments to really strengthen the local drive in terms of pushing the economy in those municipalities.
Ms Silvia Gelderblom, Executive Manager: CoGTA, explained that the additional three pillars which had been added, subsequent to the second phase of Back to Basics, were disaster management, spatial transformation and local economic development.
Mr Mogale about what could be termed as acceptable and unacceptable levels of performance at a municipal level, pointing out the tendencies and practices that actually bedevilled many of South Africa’s municipalities. The Department was doing its best to support the provinces to get all the municipalities to respond to the expected levels. There were various measurement tools which were used to determine unacceptable levels of performance. These included the National Treasury (NT), the Auditor General (AG), and infrastructure spending. Other critical indicators that demonstrated a poor level of performance included political and administrative instability; vacancies at senior management level; non-functional council structures; a breakdown in the delivery of services; and community protests and dissatisfaction.
The programme had been launched in 2014 and had then taken about a year to set up. After the 2014 elections, a new crop of leadership was settling into their new responsibilities. Every month, CoGTA had a template it sent to all the municipalities about all the pillars. Municipalities responded concerning the progress they had made with respect to the pillars. Over the years, not all municipalities had responded to the templates that had been sent to them. The ward committees had also not performed at the desirable level. Concerning the water connections and stoppages that had been reported to CoGTA, this ensured that CoGTA had the ability to support the provinces who were ensuring that municipalities were able to address matters around sanitation.
Mr Mogale said the law stated that council meetings should take place at least once a quarter. CoGTA had noticed that there had been an increase in special council meetings, where municipalities dealt with pressing issues that they were facing. With the municipalities starting to experience the new phenomena of coalitions, what CoGTA was picking up was that many of the leaders, the project management teams (PMTs) or even the executive committees, would have an executive committee system of local government, and were supposed to have those executive committees meetings before they went to Council. However, in many instances, only the leaders of a particular party met and, in so doing, excluded the other members of the executive committee. CoGTA, however, was trying to persuade the leaders to ensure that they complied with the law and make sure that the governance system in that municipality was functional.
Mr Mogale referred the gathering to the statistics of the number of officials accused of fraud and corruption. He also pointed out the number of vacancies which existed in the municipalities.
CoGTA had stopped some municipal infrastructure grant (MIG) funding for some of the municipalities. South Africa had a system that was participatory and democratic. CoGTA allowed municipalities to make commitments that they were going to spend. When they were not spending as they had committed, to without adequate justification, CoGTA took action because those funds should be returned to NT.
Mr Timothy Seroka, Chief Director: MIG, CoGTA, described the expenditure performance of the MIG since its inception in 2004. On average, CoGTA had been spending at 89.1% of R135.5 billion. At the beginning, the expenditure had been quite high because the measures restricting the usage of MIG were not as strong. CoGTA had improved on monitoring and evaluation. From 2009-2012, it had been very low -- below 90% -- but once municipalities started to understand the compliance to the Division of Revenue Act (DoRA), they had started improving, and CoGTA was sitting now at about 92.4%. If only the past five years were taken into account, it would be above 90%. In total, CoGTA had spent R120.8 billion since the inception of MIG. The unspent funds totalled R14.7 billion.
Mr Seroka indicated the distribution of the grant across various categories. During the 2016/17 financial year, the greater part of the MIG went to water (38%), sanitation (17%), and roads and storm water (29%). The sports and recreation grant had increased due to ring-fencing.
Non- financial performance of MIG 2012/13 – 2016/17
A breakdown of MIG expenditure as at 30 April 2018 indicated that Gauteng (58.7%) and North West (59.23%) were starting to show signs of poor performance, and the rest of the provinces were doing fairly well. KZN (74.91%) and Mpumalanga (71.24%) were leading in terms of expenditure.
Four measures could be applied municipalities when they were not performing:
- Withholding, in which the transferring officer evoked S18, whereby scheduled transfers were withheld (no longer than 120 days) and the payment schedule was amended to inform future transfers to the municipality until performance improved with regard to expenditure, reporting and commitment levels;
- Withholding, where National Treasury evoked S24, and scheduled transfers were withheld and the payment schedule was continuously amended to inform transfers for work completed;
- Stopping and reallocation, where CoGTA was trying to optimise MIG funding by reallocating stopped funds to performing municipalities as an incentive and by doing so prevent unnecessary unspent funds by the end of the municipal financial year and roll-overs; and
- Stopping and reallocation, namely, to reallocate the funding stopped from poorly performing local municipalities to their district municipalities and by doing so, fulfil its Constitutional mandate to support local municipalities. A service level agreement (SLA) was signed between the local municipalities and district municipalities.
Mr Seroka gave a breakdown of the reduction of the MIG over the 2018 medium term expenditure framework (MTEF). In total, 10.54% had been reduced from the initial baseline which was a reduction of R5.61 billion, to R47.62 billion.
Following the amendment of the Municipal Systems Act by Parliament in 2011, CoGTA had promulgated regulations that set out the appointment procedures and criteria for municipal managers. At the time of promulgation, all senior manager positions in municipalities were filled. Therefore, the implication of the regulations had to be delayed until the contracts of those senior managers lapsed between 2015 and 2016, a year after the tenure of office of the municipal councils. Since those contracts had lapsed, CoGTA had been supporting municipalities vigorously in filling the senior management positions to build the capacity to perform their functions. The vacancy rate as at the end of March 2018 was shown.
The Chairperson requested that the period of time had to be indicated on each page. It was crucial for the Committee.
The CoGTA representative explained that the statistics were informed by statutory reports that were submitted by municipal councils to the Minister, as required in terms of the Municipal Systems Act. The number decreased as one went further down, because of the municipalities’ financial constraints, as certain functions were collapsed into one.
Mr Mogale added that other issues that affected the vacancy rate were -- in the Northern Cape, for example – vast sparsely populated areas, where it was very difficult to attract people to come and settle. There were also issues of low salaries. In Mpumalanga, the tendency of late was that many of the senior positions were not filled, and the province had seconded officials to these municipalities to turn them around. When the CoGTA national Department had interrogated them, it was pointed out that municipal managers (MMs) had been appointed, only to find out that the incorrect person was appointed, and then the municipality was stuck with the MM for five years. It was therefore preferable to get second officials for a year. CoGTA had persuaded the province to fill these positions in terms of the law.
Mr Sam Ngobeni, Acting Deputy Director General (DDG): Capacity Building, COGTA said the Municipal Infrastructure Support Agency (MISA) was a government component of the Department of Cooperative Governance (DCoG). It had been established in May 2012 as a special purpose vehicle for municipal infrastructure management support. MISA was mandated to render infrastructure technical advice and support to municipalities, and strengthen the technical capacity of municipalities to perform their functions and execute their powers. It executed its mandate by supporting municipalities to plan, deliver, operate and maintain infrastructure.
The strategic support packages implemented included:
- The establishment and deployment of district technical support teams (DTSTs);
- The development of a technical skills pipeline in local government;
- The regional management support contracts (RMSCs);
- The programme management office (PMO); and
- The alignment of bulk with reticulation.
Mr Ngobeni clarified the role of the district technical support teams. In the 2018/19 financial year, MISA was supporting 81 municipalities, of which 55 would be supported through the deployment of DTSTs. These municipalities struggled to spend their MIG allocations and had other service delivery challenges. Support by the DTSTs was aimed at building permanent technical capacity in the 55 municipalities. Twelve DTSTs had been established to support 39 municipalities from May 2018. An additional six teams would be established by October 2018 to support the remaining 16 municipalities. Municipal technical capacity would be built through project management units (PMUs) in municipalities. The support would continue for a minimum of three financial years. Support focused on governance and administration, financial management and service delivery.
Mr Mogale concluded by referring to the total amount owed by municipalities to Eskom. The Committee needed to be assured that CoGTA was working with these municipalities. A structure had been set up to grapple with these particular challenges. Every year, there were tariffs that had to be imposed by the National Energy Regulator of South Africa (NERSA). CoGTA was also participating vigorously in those negotiations. CoGTA, the Department of Water and Sanitation (DWS), the SA Local Government Association (SALGA) and provincial treasuries (PTs) were working together to optimise their energies in cracking these challenges.
Concerning water debt, there was a process whereby municipalities were attending to their bills. The Ministers of Finance and CoGTA had met a month ago. They had instructed the two Directors General to develop a plan. In the midst of rising debt, the Minister had visited the Eastern Cape where he had engaged all the key stakeholders to begin to appreciate that it was not going to be business as usual. The issues in these municipalities were being vigorously being looked into to establish what needed to be done, and also to put together support packages. The leading Minister was also leading in consulting the external players who must come to the party in terms of the provision of resources and funding to deal with some of the challenges that existed in the municipalities. A memorandum of understanding (MOU) would structure operations going forward. Where one had a provincial department that was weak, the municipalities did not do well. A lot of effort needed to go into provincial departments in fulfilling their mandates.
The Chairperson said that the Committee was here to listen to the delegates’ action plans. The Committee would call the delegates back in October to measure the progress and determine whether the Department was on the right track.
National Treasury presentation
Mr Sello Mashaba, Director: National Treasury, said NT had been asked to address three issues – ‘Back to Basics’, MIG performance and the stoppage of the MIGs that reverted to the national revenue fund.
He said the Division of Revenue Act (DORA) broadly provided for two types of allocations to municipalities -- unconditional allocations (the equitable share) and purpose-specific allocations (conditional grants). Also included were clauses, which outlined the process around funds transfers, management of reporting requirements, and various duties of transferring officers (national departments) and receiving officers (provinces and municipalities) with respect to conditional grants. The April Gazette, which was published 14 days after passage of the DoRA, provided for frameworks, including conditions, for conditional grants. The purpose for the intergovernmental relations division within NT was to monitor the implementation of the DoRA. Focus by NT was given to transferring officers, as they monitored municipalities. Provincial treasuries were delegated to support NT in implementing the DoRA, and provide support to their respective municipalities.
The legislative mandate of the MIG in terms of Section 10 and 12 of DoRA required monthly reporting by both municipalities and the transferring national officer. NT issues reporting templates and facilitates payment schedule approvals. NT receives monthly spending numbers and publishes on a quarterly basis following verification as per section 71 of the MFMA. DCoG receives individual MIG reports and consolidates for NT. NT receives both DCoG and municipal monthly reports, and hence verification. Four months after year end, transferring officers submit performance reports to NT.
The Chairperson asked whether the information also went to CoGTA.
Mr Mashaba explained that the information was available on the NT’s website.
The Chairperson countered that the reason why he had posed this question was because of what had happened in Oliver Tambo municipality. There must not be discrepancies in the reporting.
Mr Mashaba clarified that the National Treasury had many discrepancies between what the NT received from CoGTA and what it received from municipalities. Some believed that the day the numbers were the same, that would be a reason to celebrate because, in principle, it was very difficult to actually reconcile the numbers on the basis that there were processes municipalities must deal with. The NT’s current challenges with municipalities was that if they could just close off their reporting period for the month with one number -- even if there were no expenditure numbers that were reflected – and let those numbers be reported in the following month. When municipalities wanted to show improvement, they reported those numbers as and when they came in to whoever, and by the time the NT published, in terms of the 45 days after the quarter, CoGTA already had another number and NT was still sticking to the requirements of the law.
Third Quarter Local Government Section 71 report for the period: 1 July 2015 – 31 March 2018
Mr Mashaba gave a snapshot of MIG in the context of other conditional infrastructure grants. In the 2017/18 financial year MIG was the best performing infrastructure grant with expenditure of R9.6 billion, or 60.1% of the adjusted MIG allocation of R15.9 billion. The other grants were:
- Integrated National Electrification Programme (INEP) 47.3 per cent;
- Neighbourhood Development Partnership Grant (NDPG) 47.9 per cent;
- Public Transport Network Grant (PTNG) 48.2 per cent;
- Water Services Infrastructure Grant (WSIG) 47.1 per cent;
- Regional Bulk Infrastructure Grant (RBIG) 47.5 per cent.
On average, these grants were performing way below the MIG.
The NT’s third quarter local government section 71 report numbers were exactly the same as those reported by COGTA. The NT was reflecting 60.75% of expenditure as at the third quarter, which was the information by 31 March 2018. This was the 2017/18 MIG allocation. In terms of expenditure as a percentage of allocation, the municipalities seemed to be performing similarly. Because these were infrastructure programmes, one would have to see how municipalities would be able to achieve the remaining 40% of their allocations.
Mr Mashaba highlighted, in terms of effective communication and consultation, what the law required of the NT before it could consider moving money between municipalities, or before it could consider stopping and reallocating the municipal infrastructure grant from one underperforming municipality to another. He explained what had led to the decision by CoGTA to stop and reallocate municipal infrastructure during the course of 2017/18. This had been done religiously for the past four years. Every year, money was stopped. In December every year, the sixth month of the municipal financial year, CoGTA writes to municipalities. Those municipalities whose half-yearly performance, in terms of MIG, was below 40%, have to come to CoGTA and explain why the money should not be taken and reallocated to other municipalities. CoGTA had opted to say that, as part of their support, they would understand that municipalities, especially following the elections, were still lagging behind in terms of their plans. The municipalities were allowed to explain why they were moving slowly, and also to explain their austerity measures, and how they could catch up to avoid losing the money.
NT also sat in those meetings as observers, because in the past NT had been accused of taking sides. NT sat and observed to see if the process was fair in terms of the law. When that process was completed at the end of January, which was the whole month, NT was formally written to with recommendations, that CoGTA would like the support of NT to stop the funds following their engagements. There would have been some municipalities that would have avoided the chop, and the NT would look into that.
From the month of February, NT begins to repeat the same exercise. This was a requirement by law. NT writes to the municipalities and to their mayors, highlighting that NT would consider stopping the municipality in question’s MIG, and any other grant. The municipality would be expected, within a period of seven days, to explain why the money should not be stopped. NT would do this at the request of CoGTA, but it would also be done at the discretion of National Treasury in terms of financial management, which NT would be driving on its side. Once the process was concluded, from the beginning of March, the NT started with reallocation and stoppages. This was where the money was effectively being moved to other municipalities. It was quite a tight timeframe, because the NT had a time cap of March, which was the year in which NT could transfer the funds. However, the NT did it through consultation.
Mr Mashaba said the NT prioritised that every time money was moved, the municipalities in that distinct would first be the recipient.. If this option was not available, the province was next considered. Failing that, the NT shared the money with fast-spending provinces. This process also took into consideration the previous years. Because the MIG was intended to deliver services, this process did not in any way suggest that NT was disregarding service delivery. The NT was just protecting the money in a particular year. Municipalities in the North West had received an additional R182.9 million reallocated to its initial R1.814 billion, but had actually lost R215 million through this process. The NT could not protect the province in this case.
There was so much money that needed to be moved and so few municipalities that could take up this money. The challenge with this process was that if the NT forced the process, it could then end up giving municipalities additional funds which they did not deserve. This could actually exaggerate their under-spending. The NT had to move. The North West had lost about R70 million from their allocation. The NT was micro-managing this province on a monthly basis. This means that a municipality received money only after they had delivered. They implemented, received invoices from contractors, then they called the NT, CoGTA and PT to come and verify that expenditure. This was as a result of previous utilisation of funds for other things. Invoices would come which were linked to the conditions of the MIG, so they would keep losing money. Section 24 of DoRa indicated that the NT could manage the payment schedule. This was the micro-management which the NT was doing.
The reason why the NT had decided to stop the R70 million was that Ngaka Modiri Molema district municipality had been left with so much money that it was not claiming. The NT could keep it there or have it transferred and subject to other conditions. Alternatively, it could be moved elsewhere. Part of the NT’s support was that once a municipality started to recuperate, which was currently the case, the municipality could get back their money. The other one was the Madibeng municipality, where the expenditure at the time of this process was sitting at 15% of the allocation, and Madibeng was a huge municipality in terms of its allocation. They were not moving as per the plan. When the NT had written to them, they had indicated that they would fully spend the money. The NT’s analysis suggested that they would not spend the money. In fact, it was safer to protect the money today and help them in the future when they were ready.
The Chairperson asked for a breakdown per province and municipality, so that the Committee got the whole picture. This was why the NT would be called back in October so that the Committee could measure what had happened in the intervening five to six months.
Mr M Chabangu (EFF, Free State) said he had not heard anything about the municipalities that owed money to Eskom.
Mr O Terblanche (DA, Western Cape) asked the Committee not to rush through these presentations.
The Chairperson said that the presentation would stick to the allotted time and that there would be enough time for questions by Members.
Mr Mashaba responded that the NT would share with the Committee a detailed list of who in each province had lost their money, and a narration would be written in terms of each of the municipalities. The NT had received their representations. There were some from which NT had not received representations. In the Free State, there were municipalities that had lost. The North West, however, was the province that had lost out.
In terms of the stopped money that reverted to the national revenue fund, if the NT stopped and reallocated to municipalities that were eligible for that process, it would be avoiding the rollover process. If the money was not stopped, by default the money was transferred. The stopping must always be viewed in that context. If the money was not released, it sits in the vote of CoGTA and constitutes an under-spending on their side. By releasing the money for municipalities that were under-spending, the NT runs the risk that this money could go to many places, so it was left with the option of stopping.
However, that was not the only solution that NT needed to be looking at. At the end of each year, the Division of Revenue Act, Section 22, provided that if there were instances where municipalities could not spend their allocated funds that had been transferred to their bank account, and these funds were committed to identifiable projects, municipalities could request permission from the NT to rollover unspent conditional grants to the next financial year. What had been an issue was the word ‘commitment’. It was the magic word. Based on whether municipalities were committed or not, the NT could give approval or not. Through the NT’s circular, Cir No. 86, the NT had shared with the municipalities what it meant by the word ‘commitment’. For the NT, the word ‘commitment’ meant “identifiable project on the ground (including appointments).” These guidelines were issued by NT. This process was a rigorous consultative process.
From 31 August to 30 September each year, NT travels to the nine provinces and spends a minimum of two days going through each and every submission of municipalities to consider rollovers. Going over submissions, NT sits in those sessions with CoGTA, PTs, and provincial departments of CoGTA and all other sector departments, such as Energy, DWS and Public Works. This was so as not to disadvantage municipalities that had a legitimate commitment. There were timeframes that were given, how the NT responded to them and the purpose for this was just to ensure that everyone that had a legitimate commitment could be supported in terms of having their rollover approved. A legitimate commitment was where, for example, it had rained the whole year and there was no way the municipality could have spent the money. This was an exaggerated example, but these were the kinds of reasons which the NT was looking for. What were not legitimate reasons were, for example, change of scope come the middle of the year, or the inability for supply chain committees to sit.
16/17 Rollover outcome (All grants)
Mr Mashaba referred to the outcome of the 2016/17 rollover considerations. About R2.251 billion had been requested as a rollover, and R992 million had been approved to be spent into the following year. NT had rejected R1.259 billion in rollover requests. Only 15% of the total amount approved had been reported as expenditure. That was a huge concern for NT. In many submissions received in August last year, the municipalities had been asking for approval, giving an assurance that the funds were as good as fully spent. However, the reports suggested that the information that had been given was not actually correct. It may also suggest that the 15% was a result of under-reporting, not under-spending. This was discernable when one looked at the CoGTA presentation on the vacancy rate. If there was no one to take accountability, the chances were that there was no one who would sign off on the report to submit to NT.
When the NT got to the end of the rollover process and decided to reject municipalities’ rollover requests, the result was that the money had to be repaid into the national revenue fund. 95% of municipalities did not do the diligent thing and pay back the money, perhaps because they did not have the money to pay back. The Act allowed that in instances where the municipalities were not able to pay the money back, the unspent money of the 2016/17 allocation could be utilised by NT as the current year’s equitable share allocation, to offset that portion against the unspent money. As the custodian of the fiscus, NT was required to explain where the money was and to show either service delivery or the money. Offset was not the default, but was the position which NT resorted to when municipalities failed to pay back. Most municipalities did not respond to the opportunity to pay back the money in instalments.
Mr Mashaba concluded that some municipalities continued to under-spend their MIG allocation. There were slow start ups during the course of the year. MIG rollovers remained the highest, compared to other grants. There was an in ability to ring-fence cash for the MIG. However, the MIG had improved over the years, averaging 90% expenditure annually. The stopping and reallocation had been used as an incentive for municipalities. Stopping also reduced the quantum of unspent funds at year end. The recommendation was that there needed to be more support by sectors and provinces, and regular onsite verification.
Mr Sipho Nkosi, (ANC) Chairperson: Finance, KwaZulu-Natal (KZN) Legislature, asked why CoGTA had not clearly communicated the implications of the changes in regulations, especially to the newly appointed managers. When would a notice from MISA be received regarding the list of those 55 municipalities to be supported, so that a mechanism in the provinces was found to assist in working together with CoGTA -- but not a “big brother” approach, which might instigate resistance? Could NT assist regarding Section 71 reports, which were supposed to be tabled by the Members of the Executive Committees (MECs) for Finance in the legislatures on a quarterly basis? How best should the legislatures deal with the interventions? What had been tabled here was exactly what was obtaining in the municipalities, based on section 71 reports. National Treasury had said nothing about what the Financial and Fiscal Commission (FFC) in 2014 had called the ‘indirect grants,’ and the performance thereof. The recommendation of the FFC was that the NT must reduce them because of the high level of under-performance of those grants, so that a way could be found of assisting where possible. Lastly, realistically as government, what was in the law regarding consequence management was not being implemented. The proposal that the performance agreements of the chief financial officers (CFOs) be linked to consequence management was important. Based on what KZN was doing, if there was an improvement on this front, there would be progress in the performance of those grants. The accounting officers’ performance agreements must include the financial management and the implementation of the Public Finance Management Act (PFMA) in totality, including performance management. The revelation in the previous financial year had indicated an improvement.
Mr Mpumelelo Saziwa (ANC), Chairperson: Finance, Eastern Cape Legisdlature, asked if the officials reported to have been dismissed for fraud and corruption included senior management, because more often than not, junior officials were targeted rather than the important ones. Apart from dismissal, had the municipalities been able to recover some of those funds from the fraudulent activities? Regarding the financial discipline measures, why had CoGTA not mentioned or qualified, in terms of stopping and reallocation, the status of those district municipalities that would gain from the failure of local municipalities? Those funds would be given to district municipalities without their having qualified for them, irrespective of their performance.
Mr Soviet Lekganyane (ANC), Chairperson: Finance, Limpopo Legislature, asked that when the stopping and reallocation option was taken, and local municipalities were unable to spend their funds or had collapsed, whether the Committee had satisfied itself that the district had the requisite capacity to provide a service report. If there were criteria, what criteria were used to satisfy it that the district had the requisite capacity? What were the qualifications of the provincial departments’ officials who were seconded to local municipalities? Did the criteria take into account whether there were no suitable candidates to be placed in an acting capacity in the municipality?
Mr Fidel Mlombo, Chairperson: Finance, Mpumalanga Legislature, confirmed the correctness of the reports regarding the municipalities in the province, especially regarding municipalities that continued to under-perform, despite the interventions by CoGTA. There had been a number of interventions, such as at Emalahleni Local Municipality, but they still continued to under-perform. The worry became what the next step should be, because there had been intervention by CoGTA and by NT and the Provincial Treasury, but these municipalities continued to under-perform. What should the next intervention be?
The Chairperson suggested that this must cut across all provinces.
Mr Mlombo confirmed this.
Mr Mlombo continued that with those municipalities where there had been some intervention with regard to the Eskom debt, agreements had been reached regarding the repayment process, but the municipalities still failed to comply with them, so the radical response by Eskom was to say that they were going to cut services. If those services were cut, it affected the people at the end of the day. How did one intervene in such a situation? He observed that National Treasury had said that the response by municipalities was that when the money was offset, they regarded it as an evil system. This was true, because it impacted negatively on service delivery. Was there no other intervention that did not entail the offsetting of the money because at the end of the day, it really affected service delivery to those municipalities at which the money had been offset?
Ms Alexandra Beukes (ANC), former provincial chairperson, Standing Committee on Public Accounts (Scopa): Northern Cape Province, commented that from the province’s perspective, there had been an improvement in the appointment of municipal managers. They had come to the Portfolio Committee to report that there was a cut-off date for the appointment of municipal managers. There was cause for concern regarding MIG spending. The monitoring measures that were in place required explanation. Municipalities got the money in transfers, and they also had to report. There were no consequences, especially where municipalities were allowed to pay back money that was not spent. What happened to the money? Municipalities knew they would be given a chance to pay money back, so why were there no monitoring measures in place? The excuse from the Northern Cape of vastness, resources and lack of capacity did not stand scrutiny, because it did have the capacity. It was just that there was not the requisite experience in most of the municipalities. Why not create shadow positions? For example, the Northern Cape was sitting with this problem but there were a lot of graduates in the Northern Cape who did not have jobs. The reasons and measures of the municipalities therefore had to be interrogated. When municipalities made the excuse that the ‘situation does not allow us’, how sure was National Treasury that this was the truth? The Auditor-General had mentioned that National Treasury helped municipalities with recovery plans. Municipalities, however, did not understand recovery plans. If the problem was measures, monitoring and evaluation, then one must acknowledge it.
Ms Motlalepula Rosho (ANC),Chairperson: Local Government & Human Settlements, North West Province, said that it had been one the Committee’s submissions that National Treasury should withdraw, as opposed to transfer, the R70 million. In addition, as stated by Ms Beukes, at a provincial level finance departments had made many interventions in municipalities, but still there was no progress because of the type of people that they deployed or contracted to intervene in these municipalities. From a financial point of view, that needed to be assessed by Treasury. Departments themselves had no capacity.
The reason why municipalities had regressed was because CoGTA at the provincial level had no capacity. They were not able to support municipalities even if they intervened, as the interventions were not sustainable. In terms of ‘Back to Basics,’ after interventions there had to be an assessment of the recommendations in the report of the intervention. It was not taken back as part of the Integrated Development Plan (IDP) plan of the municipalities. Hence, South Africa continued to face the continued challenge of the failure of municipalities to improve in terms of service delivery. The other issue that was a concern, both to CoGTA and NT, was the performance of the MIG. CoGTA had said it had performed 89.1%, while NT hadsaid it was 90%. At some point, there had to be an analysis of its impact in relation to the protest actions across the country.
The Chairperson concurred with Ms Rosho.
A representative of COGTA in the Eastern Cape followed up on the comments on the MIG off-sets. Taking that money actually caused problems for service delivery in municipalities. Some of those projects had been in the pipeline in the previous year. That was where most protests stemmed from, in that there had been on-going projects for the last two years, and these could not now be implemented. Those municipalities needed assistance. Sometimes the advice the National Department of CoGTA gave to the various ministers was uncalled for. In the Eastern Cape, the Department had gone as far as to amalgamate municipalities for effective service delivery. All the amalgamated municipalities were collapsing because those that were poor had been amalgamated. One municipality owed Eskom R50 million. Only when those municipalities became viable could one speak of amalgamation. All the amalgamated municipalities were distressed municipalities, and NT did not help when it said that there would be no bailout. Municipalities should be assisted before something bad arose in those communities.
At some point, the Minister of CoGTA had spoken about a panel of advisors that would be appointed to look at the systemic challenges that were faced by distressed municipalities. How far were the panel, because they would be of particular help in the Eastern Cape in dealing with distressed municipalities going forward. Based on the reports by CoGTA and NT, there was room for improvement in the Eastern Cape. Regarding the comments that the provincial departments did not have capacity, was there any person supporting the provinces from the point of view of ‘Back to Basics?’ Section 154 did not come with any solution to those matters. The National Department must assist the provincial department in getting out of some of these problems.
Mr T Motlashuping (ANC, North West) said it was worrying that the government’s five-year strategic plan was broken up each year into annual performance plans (APPS), but those responsible were not implementing the projects. These were the projects of the government, determined by the ruling party, which had to be implemented. While CoGTA had highlighted numerous projects and programmes, there had been no follow-up analysis of the successes and failures. Project after project had been implemented. It was now the fifth year of the Parliamentary term, and CoGTA had introduced an extra three projects. It was important for officials to be able to say the projects had made an impact, so they should be assessed to see what might need to be improved on. It seemed that the additional three projects were overloading the Department. The Department was going to the North West Province with a section 100 intervention. With the type of support that the National Department was providing in all the provinces -- for example, in Limpopo -- the Committee had spent five months dealing with fights.
Mr Motlashuping continued that if money was withdrawn from a municipality, ordinary people who had to receive services would suffer. Criteria had been used to determine for what purpose that money should be allocated to that particular municipality. If those funds were denied, the municipality would not be able to provide the services. If CoGTA was supporting that municipality, but the funds were still withheld, there would be a problem for both CoGTA and the municipality.
MISA had been established in 2012 and should be able to point to some municipalities which were shining examples of where there had been intervention. There should be discussion around where CoGTA had intervened and where there had been successes, such as where it had been able to take municipalities from a disclaimer to a clean audit. Regarding the appointment of senior managers in municipalities, why had CoGTA singled out the North West province as the worst, when it had performed better than some of the other provinces, like Mpumalanga? The state of North West did not look the way it had been presented. Furthermore, one could not take two graves, combine them, and expect life out of the two graves, regardless of the intervention. Where had CoGTA applied its ‘Solomonic wisdom’ to think that two graves would bring life? In other words, how could the Department think that something could come out of combining two distressed municipalities, if they could not make it as individual municipalities? It was interesting that coalition municipalities performed below average.
Mr Terblanche said that he had found the morning very frustrating. The Committee had heard about distressed municipalities. This meeting would be a waste of time if it was not mentioned that this gathering would need to meet again. 87 municipalities had failed, and a further third of the remaining municipalities were on the brink of the very same situation. Local government was failing. Proper attention had to be paid to what was going on here. While CoGTA was present, among others, the Minister and Deputy Minister were not available, and the DG was not available. This was the importance that CoGTA ascribed to this very important issue.
Concerning the Department’s latest survey or update on the acceptable level of performance, how many municipalities were conforming to the requirements? Why had so many posts not been filled? The Committee had been told in futuristic terms once again that people were planning to implement intervention plans. This was important. It was expected that there would be a continuous process of monitoring and evaluation, but apparently this was not happening. It may be important for the delegates to return with a proper presentation. There were places where there were no ward committees. The municipalities had to bring this about. There were places where sewage was running in the streets. This could not continue. Local government as a sphere of government was failing. The point was now being reached where provinces were starting to fail as well.
The Chairperson commented that that was why the Thuma Mina (“Send Me”) programme had been launched.
Mr F Essack (DA, Mpumalanga) asked National Treasury why, in all the presentations on funds being withheld, stopped or paid back, nothing had been said about the millions that had been invested with the VBS Mutual Bank? The Vembe District Municipality in Limpopo had a confirmed R311 million invested at that bank. There were many other examples, yet NT spoke of the stopping of payments, transfers, service delivery and MIG grants. Where were all these funds? Why had they been invested there? How much was going towards service delivery? It would have been magic if the Minister had been present to give concrete replies.
He asked CoGTA about its statement that “… one needs to be cautious to read too much into the lower overall occupancy level of 73% of municipal managers…It seems logical that the occupancy rate of the head of the administration would drop, subsequent to the forming of the new council”.
Mr Chabangu said that while the presentations had been very good, in the future the Committee would not accept the absence of the ministers.
He continued that where he came from (Free State), service providers were not paid after completing their work. How did the Department intervene in this situation? While a ‘lower number’ of 176 officials had been reported and dismissed for fraud and corruption, the Department spoke as if it was satisfied with this number. What did it do about the politicians who were corrupt? Many sporting facilities were a white elephant, whereas money for sports and recreation suggested under-spending. Lastly, the top ten municipalities that owed Eskom were mostly from the Free State. Yet, it was made to seem as if all was well in the Free State. How could a municipality owe R2 billion to Eskom, and think that all was well in the Free State? The most concerned departments that owed Eskom were the departments that fell within the national department sand provinces -- for example, education and health. That was why municipalities were collapsing.
Mr M Monakedi (ANC) recognised the need for the pillars supporting the ‘Back to Basics’ programme. It was encouraging that the Department had gone back to revise, and had added to the pillars. He said disaster management should fall under the provision of services. Concerning VBS Mutual, could National Treasury indicate what had happened, whether the funds would be recovered, what action would be taken against those involved, given the fact a circular had been issued by NT to prevent what had happened? What were NT and CoGTA doing to ensure that this matter was looked into? Regarding under-spending, was it related to the fact that some of these funds had been invested at VBS? Had the teams formed to intervene in municipalities been effective, given some of the issues that were still arising, especially in municipalities that had serious problems? What steps were being taken to ensure the situations in these municipalities were turned around? Municipalities should make sure that they planed ahead so that at the end of the financial year, they could hit the ground running to make sure that they start spending. What was the programme, and why could this not be implemented?
The Chairperson clarified that the Minister and the Deputy-Minister were currently with the Inter-ministerial Committee (IMC) engaging in the North West Province with municipalities. There was no other reason. The Committee accepted their apologies.
The Chairperson handed over to NT and CoGTA to answer questions. Those that could not be answered had to be answered in writing and submitted to the Committee within the next seven days. Vacancies were a serious issue. The other was that quality people had to be deployed who could do what they were supposed to do. According to the NT presentation on the division of revenue, R2 billion per annum was spent on capacity building.
Mr Mogale said the Department undertook that the coming performance agreements of all the senior managers, especially the municipal managers (MM), and would include spending on all the grants and not the MIG alone. It would ensure that this was communicated effectively to all the municipalities so that, with the aid of monitoring, it could step up the obligations of the senior officials in the municipalities.
Regarding Thaba Chweu local municipality in Mpumalanga, a report had been received from the MM last week about the state of that municipality, and the call by the MM and the head of department (HOD), Mpumlanga CoGTA, to the National Department had been that the forensic report had been put together and had to be implemented, but that there was resistance coming from the political arena. CoGTA was dealing with these issues as they were presented to the Department.
Regarding interventions, CoGTA was a national department and each sphere of government was independent and related to the national department. One would expect the province to act when it picked up on all the failing performances in municipalities,. However, the Department had to concede that it did not have a formula or a model in terms of which, when the province failed to act, the National Department had to intervene. The Committee could help the Department to set up a process where, when a particular stage being reached, the process had to be followed. There was no standard operating procedure to ensure that when these things happened, it would be fait accompli that the next step must kick in. CoGTA only intervened upon provinces failing. In some instance, the provinces did inform the National Department about the things that they did. The issue of intervention was a joint obligation. The provinces must lead. They always got concurrence from the Minister of CoGTA in terms of the operations that they instituted. Regarding procedures, CoGTA had to be satisfied that those particular operations would yield the necessary result.
The secondment of officials to municipalities was discouraged by the Department. There was this problem of interdependence. The Department did not have absolute authority in provinces and local municipalities, and it could come in only when things got out of hand.
Concerning the issue of district capacity, the Department had wanted to import an official to the Thabazimbi municipality, but there had been resistance from the municipality. They had wanted to appoint their own candidate, and the issue had become politicised.
He said that behind any protest, there was some politician that was involved. Behind that politician, there was a businessman who was also involved. CoGTA, as the national department, needed help to perform the oversight role. The Minister inspired confidence, because he was someone who was prepared to take these things on head-on and would receive monthly and quarterly reports on the intervention programmes that were being implemented in the municipalities. There was light at the end of the tunnel. In October, the department would share with the Committee where it was succeeding, or where it was not succeeding.
The CoGTA representative said that for the graduates who met the prescribed requirements, the legislation that the Department was administering allowed for deviations in instances where municipalities were not able to successfully recruit and appoint candidates. This had been applied especially where there had been struggles to recruit suitable candidates. Regarding the possible exodus of senior managers, it was unclear which regulations were being referred to, or whether they were due in the next months.
Regarding the material discrepancies between different Provinces, especially the North West and Mpumalanga, it bore pointing out that there were more municipalities in the North West than in Mpumalanga. Therefore, the statistics would not tally -- they had to be different.
Mr Ngobeni responded that the list of 55 municipalities was available, and would be provided through the Department’s parliamentary office. The reason why it had not been issued all this time, when the Minister had been talking about it in the media and everywhere else, was because it first had to be presented during his budget speech, which had happened only last week. 35 of them were those that had challenges with MIG stoppages. Their transfers had been stopped at least twice in the past five years. The other 20 municipalities had notable service delivery challenges which were infrastructure related.
The other issue that had been raised was how far CoGTA was in appointing the panel of experts. This was the Minister’s project. CoGTA was busy conducting the assessments. Out of the 55, CoGTA was starting with 39 municipalities. Without over-diagnosing municipalities, what was being done first was a very high level assessment of what the challenges were, so that the intervention could start. The team was led by a MISA chief engineer. There were support engineers, as well as other colleagues from provincial treasuries and the provincial CoGTA departments. The Minister would be reporting on that going forward. It was too early to say that the department was making an inroad.
It was true that MISA was failing to cite examples of where it had had made impacts since its establishment in 2012. If one looked at the manner in which MISA had been intervening all along, it had been ad hoc in the first place. Also, if a municipality had a problem with electricity, it would assist the municipality to develop an electricity master plan. It would not go and assess the financial or governance issues. These were not MISA’s areas. By sending one civil or electric engineer to a municipality, there was no way this could turn a municipality around. The intervention that was currently being conceptualised of assessing municipalities and assisting them to develop municipal capacity building plans, was to respond to the issue that had been raised that about R2 billion had been spent in capacity building, but there had been no impact. MISA would like to ensure that it consolidated all the efforts of government and other role players in the municipal space in respect of capacity. If the municipality did not have that small bible that talked about their capacity constraints and they would like to deal with them and who was going to play which role, going forward the capacity interventions would just not yield any significant results.
The IDPs and Service Delivery Improvement Plans (SDIPs) in the municipalities had capital projects in their name. For those capital projects to be implemented, it was important for internal capacity to have been analysed. After analysis, there had to be record keeping of the capacity gaps and solutions as to how those gaps would be dealt with. Without this, the IDPs and SDIPs would not be implemented successfully.
Finally, the teams that were being deployed to municipalities to give support would be led by, among others, chief engineers and financial managers in governance and administration, to deal with the challenges.
Mr Seroka referred to the financial discipline measures, and said CoGTA was aware that some district municipalities did not necessarily have capacity. Before CoGTA allowed the district to take over, it first checked whether it had its own capacity, if it had liquidity, was able to manage finances, if they had accountability in terms of an accounting officer, municipal manager or CFO, and technical personnel. Whatever gaps there were, CoGTA then provided the support to the municipality, given the fact that it was the responsibility of the district municipality to support the local municipality.
With regard to the issues around forward planning, together with the issue of the white elephant stadium, CoGTA had said in various forums where the issue of support was raised, the Department was coordinating and sector departments came on board to play an oversight role in respect of norms and standards to support the municipality to develop the master and sector plans, which should form part of the IDP process. Sectors did not participate at the municipal level in the IDP processes. That made it skew. Earlier, Mr Mashaba had indicated that the water infrastructure grant had been put aside on the basis that municipalities were not necessarily focusing on water. The same went for sports facilities. There was R300 million that had been ring-fenced. However, the reality was that if the sector departments were adequately participating at the IDP level, they would not have a situation where there was less expenditure in terms of their categories or sectors. Regarding the sporting facilities that were white elephants, infrastructure was meant to provide a service. Just building the infrastructure alone, without plans for utilising that infrastructure, created a challenge to maintain that infrastructure. CoGTA had been engaging consistently with the Department of Sport and Recreation to say they needed to engage with the various sports codes so that whenever a particular sporting facility was developed by the Department, it must be meant to deliver a particular service. This was still a challenge.
The Committee might need to assist regarding the critical issue of consequence management. CoGTA often sat with municipalities, and in some instances the mayors participated in the discussion and would come out very strongly against the officials, so that once one left it was a different ball game.
In instances where CoGTA was supporting a municipality consistently and they were not progressing, it would send a team of professionals that would assist that particular municipality. The approach that CoGTA had before was to deploy officials in the municipalities with a focus only on technical issues. However, the MIG was being affected by issues that were outside the technical component. By nature, the MIG was outsourced. If the correct consultant or contractor was sourced, they would implement.
National Treasury’s response
Mr Mashaba said he appreciated the comments and questions, some of them being helpful and eye-opening. Regarding how provincial legislatures should be assisted to have access to the monthly reports, he said the publication of section 71 reports was a requirement that was embedded in his superior’s performance agreement. It was his role to ensure that that report was published. When it got published, the Minister of Finance signed off on it. If he did not do that, then he was not delivering. The report’s information was made available to, among others, this Committee on the website. This was a requirement in law in terms of the Municipal Finance Management Act. Regarding the provinces, one had to move into section 32 the PFMA. The accounting officer of the affected department was required in terms of the law to do that. If he or she was failing, the accounting officer was failing the MEC. There was a challenge if the NT published something and it was not made available to the Chairperson. In this case, however, if a province published these section 32 reports, which the NT contributes to, and they did not make it available, then they were not delivering on their mandate. These things were crafted in the law.
Every time there were elections, the NT had a programme for would-be councillors. It would be the same thing, so that they knew what they were meant to receive. People must be held accountable in terms of the performance agreements that they had signed. However, this performance agreement must be linked with the APP of that department. All of this on a bigger scale must also be linked to the State of the Nation Address (SoNA) and also in the manifesto of the ruling party.
The NT had been trying to reduce indirect grants. The indirect element eroded the opportunities for municipalities to express themselves in the allocations that they were supposed to receive and how they should plan for their programmes, as opposed to others planning for them. The flip side of that was that one of the reasons for the introduction of the indirect grant was that when the grant was created in that manner, NT was trying to say while the municipality was grappling with delivery within a space of months, especially for an infrastructure programme, could NT not have someone from a sector department which was supposed to be responsible for the policy makeup of that grant, to assist them to deliver? That was the idea of the indirect grant. It was never supposed to be a permanent mechanism.
DoRA was an annual piece of legislation and allocated money for the year. If it was not spent within a year, it was lost. If NT could see that a municipality was grappling to move, how possible was it for MISA to assist in the rollout? When MISA assisted with a rollout, there was resistance. What was important was the ability to measure and state which municipalities had implemented the indirect grant, and that it had yielded this result.
Furthermore, part of the work of NT was required to do was research. When a research exercise was conducted, and quantitative research was carried out, fieldwork was required. In some of the fieldwork, people interviewed had said they had no interest in local government because of its unstable nature. They did not wish to compromise their careers by joining local government if there was a probability that they might not stay the course for not delivering. These were isolated cases. There were exceptional issues, where government was unable to attract some of the skills needed. As part of an initiative, NT had introduced capacity grants, together with sector departments. There was a grant that NT would like most municipalities to participate in, which was called the Infrastructure Skills Development Grant. This grant was meant for engineers, infrastructure graduates that came into the environment in the same way the Financial Management Grant (FMG) was doing for finance-driven graduates. What had not been happening with that programme was that these young people would come and be trained if they were lucky, or they were left sitting without support. However, as part of the contracts for these graduates, NT had been appealing to municipalities to include a clause that said that if the municipality was to take care of the graduate, they would be required to stay for another three years as part of paying back the government. What this achieved was that, in the interim, while the municipality was struggling with capacity, it had these people who were not allowed to leave. Municipalities were urged to apply for this programme which could begin to assist in that space.
Concerning the issue of Eskom debt, NT would like to treat this issue as an entire debt to municipalities, because previously when NT raised this matter it was regarded that NT was now collecting on behalf of Eskom. NT would like to regard the issue of Eskom debt as total debt. There was a big challenge, because the debt was increasing. It was now sitting at R40 billion, R18 billion of which was more than 90 days.
The Chairperson interjected, saying that the Committee wanted an action plan. What was being done? This engagement had taken place last year. If NT could not answer now, it could be done in writing to the Committee.
Mr Mashaba referred to the offsetting of the equitable share, and said that the transferring of the MIG did not result in MIG expenditure. When municipalities had unspent money, NT would release that money because if it was stopped, service delivery would be affected. However, when the money was ‘unspent,’ it did not mean that it was sitting there. It had actually been spent, but on other things. If they reported that expenditure, CoGTA and the AG would not recognise it. If NT then said that because they had ‘unspent’ funds, offsetting was evil and let the money be released, whatever was released would go into a hole, because there was a hole. There was a hole because the service provider, to all intents and purposes, would have delivered the invoice, but the cash was not there. If the money went to the municipality, what then happened?
Mr Essack interjected, and asked if money was given for MIG and the municipality used it for operational expenses, as far as NT was concerned, the money was unspent? What were the repercussions, and would service delivery suffer? On the other hand, if the CFO or the MM of the municipality was happy to use these funds to pay salaries or operational expenses, service delivery was already suffering. What then was NT’s recourse, and what was it doing about this in the next quarter, because it was ongoing?
The Chairperson said that the answer was the law. One should listen to the AG when he addressed South Africa today on the audit outcomes of municipalities.
Mr Mashaba responded that the Minister had tabled that a regulation would be written that would give guidance in terms of dealing with fraud and corruption. These regulations, however, would be informed by what was in the PFMA. The NT would be writing a regulation to give guidance on what should be done to address fraud and corruption.
Regarding the issue of VBS, it had come to the NT as a shock, following the fact that it had issued guidance not do this. In terms of circular 86, guidance had been issued to the effect that money should not be invested. What NT could not ascertain was whether the MIG money had been invested, because the year had not ended. The only thing that the NT could see was that municipalities were under-spending on the basis of the transfers. NT had a good sense that this might be MIG money. However, the curator was still very busy with this issue and could not as yet begin to pronounce on certain things. From NT’s point of view, it was allowing the curator to run the process. NT had been requested to assist municipalities while this was happening. The law could not be broken. Those who had been found to have flaunted the conditional grants would have find ways to replace them. One of the ways was to arrange for a repayment process, and the grants would be allowed in terms of the repayment process, for which the municipalities had to take accountability.
Mr Sonwabo Gqegqe, Acting Executive Director: Parliamentary Affairs, South African Local Government Association (SALGA) said the presentation was in two parts. Part one explained what the plans of SALGA were. Primarily, it concerned how best SALGA could position itself to support municipalities, and how best to improve the system of generating information in terms of the patterns that were flowing from the data that SALGA was trying to generate. SALGA hoped that the municipalities would start using SALGA’s municipal barometer for planning purposes.
The challenges that characterised municipalities were an indictment of a collective failure to appreciate that South Africa was a unitary state, so there was the need for a dialectical interface between the three spheres of government. The provisions of section 154 were fundamentally meant to enable that support to local spheres of government. South Africa needed a national monitoring system as provided for in section 105 of the Municipal Systems Act. It does not have this. This was why, when SALGA visited a local municipality, it was surprised.
The Chairperson asked what had to be done to have a national monitoring system.
Mr Gqegqe said that SALGA had made the suggestion to CoGTA. In terms of the law, it was their mandate to have a national monitoring system. There was a need for an early warning system. Related to this, there was a point which SALGA had raised when the VBS bank issue was discussed. There was a monthly expenditure report, and one would expect that the expenditure in that month for a municipality which had decided to invest millions of rands in the VBS bank, should be reflected in a section 71 report. Either the municipality had deliberately not reported in terms of section 71, or there needed to be more eyes than Treasury in the system to analyse section 71 reports. SALGA had made a concrete proposal in the CoGTA Portfolio Committee that the section 71 report needed amending so that municipalities submitted their reports to Treasury, as well as to CoGTA and SALGA. CoGTA and SALGA may not necessarily carry the mandate the NT carried, but at least they would have the opportunity to analyse those reports. This would assist NT in terms of the work that had to be done.
SALGA also believed that, while there was a gap in the law insofar as the relationship between municipal councils and provincial legislatures was concerned, a lot could be done when a municipality presented its annual report in terms of section 46 of the Municipal Systems Act. A lot more could be done in terms of section 47, going forward. When an MEC presented a report in the provincial legislature on the state of local government, some of the issues must be identified. Those above reports had really been reduced to being ceremonial reports.
Mr Gqegqe continued with the presentation.
He said there was a programme which SALGA had presented in various committees, namely the Municipal Audit Support Programme (MASP), where SALGA, with CoGTA, NT, as well as the provinces, identify municipalities that require support.
SALGA was outlining a reflection on many of the municipalities which it had identified as ‘red flag’ municipalities that required focused support. There was good and bad news in the details of each of the highlighted municipalities. The AG would present his report to the various structures in Parliament.
In terms of SALGA’s reports, Inxuba Yethemba municipality (formerly Cradock) was sitting on a disclaimer for the last audit of the 2015/16 financial year. The current findings, which were being presented today, suggested that there had been an improvement at that municipality, as it was unqualified with findings. Most importantly, that had been the result of the collective efforts of CoGTA, SALGA and NT to support that municipality.
Mr Gqegqe also clarified the audit outcomes of Sundays River Valley, Raymond Mhlaba and Enoch Mgijima municipalities.
He agreed with the sentiments that had been raised by Members on the questionable basis used to determine what became a municipality on a number of grounds. For example, did what was deemed to be a municipality have any potential revenue base, and was it backed up by capacity, as well as technical and financial resources? So far, it seemed financial resources were not sufficiently allocated. When municipalities were re-determined and amalgamated into one, the municipality was taken back to 1999, the establishment phase. The municipality must re-establish itself as a new institution, which would mean new policies and changes to several of its policies. That required a lot of money. The National Finance Corporation (NFC) had done research into the challenges associated with new municipalities. It appeared that it was not a short-term intervention. This was why municipalities like Enoch Mgijima were sitting on a disclaimer. South Africa had done as much clinically and technically as it could to address some of the challenges of the municipalities. It may well be that the clinical and technical solution was being administered to a complex political challenge. This may require a different approach altogether, in terms of the governance challenges.
The Chairperson thanked the presenter for capturing the problems in this way. This was what was expected from CoGTA.
Ms Fikile Tshabangu, SALGA, highlighting the work SALGA had done in support of the five pillars, and referred the gathering to the legislation which underpinned its work. High level achievements included the establishment of the Service Charter for Local Government (SCLG), the on-going development and implementation of a capacity-building programme, the on-going support on performance management systems and talent management and organisational design and development implementation, the establishment of a municipal leadership competency assessment platform, subsidised by the Local Government Sector Education and Training Authority (LGSETA), the adoption of the human resource management and development (HRM & D) framework and profiling of the then 278 human capital functions in municipalities, and the professionalisation framework.
Ms Tshabangu reflected on some of the challenges faced by South Africa with respect to the appointment and employment of senior managers as regulated by the regulations of 2014. She said that a total of 474 senior manager vacancies had been advertised from January 2017 to May 2018. Once again, these numbers did not account for vacancies that were not publicly advertised as contemplated by chapter 4, regulation 9 (2), of the LG: Regulations for the appointment and conditions of employment of senior managers (2014).
She gave some of the reasons for delays in filling vacancies, as cited by the municipalities. These included the non-finalisation of the appointment process due to internal complexities; the re-advertisement of positions emanating from council decisions; a COGTA MEC directive nullifying SALGA assessments as non-compliant with regulations; the pending council resolution on appointments; and the concurrence conundrum.
Mr Gqegqe continued that there were additional areas of support that SALGA had provided in terms of other concrete areas, such as regional economic development.
He argued that the system was seemingly self-destructive, in that to address a problem a regulation had been introduced. However, a regulation introduces new problems. One such issue had been raised. One had a municipal official whose salary dispensation is determined through the bargaining process. That official is more likely going to earn more than the entry level of senior management. Therefore, the official decides not to apply for that position because that position’s salary is determined through the regulations. The future dispensation of his or her current salary is determined through the bargaining process. In the earlier years in the implementation of this regulation, there was a situation where a municipal manager would earn less than his subordinates because a contract of an MM ended now and the contracts of other managers who were employed before the regulation, would end in approximately three years’ time.
These were some of the challenges which needed to be assessed when SALGA introduced new policies. Proper research should be done in terms of the likely implications of such policies, such as of introducing new problems. The Committee could look at the patterns where the provincial department intervened in terms of a Section 39 intervention. Part of the mandate of the administrator placed by the provincial government was to facilitate employment of the municipal manager, which meant that the provincial department was responsible for all the affairs of that municipality insofar as the appointment of the municipal manager was concerned. The administrator, following due processes, advertises. Applicants apply and processes are followed to shortlist and interview. The administrator who is a representative of the department in Makana makes a recommendation to the counsellor. The Counsel sends its preferred candidate to the MEC for concurrence. The MEC declines endorsing that particular candidate. The Department declines its very recommendation in terms of the preferred candidate (e.g. Makana). These were some of the systemic challenges. There should not be situation where an administrator in a municipality under intervention makes a recommendation to a provincial department, and that recommendation is declined. There was an inherent contradiction in that. Basically, the department was declining its own recommendation in the eyes of the people of the municipality that was under intervention.
The Chairperson responded that the point was to address that challenge now. That was why the Committee had been called.
Financial and Fiscal Commission presentation
Dr Mkhululi Ncube, Programme Manager: Financial and Fiscal Commission (FFC) said that the economy, which had been in a recession, posed a serious risk to the financial viability of a local government that was transfer dependent. The main challenges in revenue management in municipalities included asset management, supply chain management (SCM) and debt.
With asset management, evidence showed a mismatch between repair and maintenance requirements within municipalities and the resources for infrastructure rehabilitation. There was non-adherence to the level 8% of the value of assets being spent on their maintenance. Spending on new assets was prioritised. From the perspective of poor supply chain management, inefficient procurement in municipalities was a challenge, as shown by the high incidence of irregular and wasteful spending. Municipal debt was ballooning. Municipalities were owed R128 billion in 2016/17, an increase from R87 billion in 2012/13. However, they owed different creditors about R44 billion in 2016/17, an increase from R18 billion in 2012/13.
There was a lack of proper service level agreements, where municipalities performed functions on behalf of provinces and national departments which translated into unfunded -- or under-funded -- mandates, such as libraries and primary health services.
Regarding the cost of basic services, the adequacy of the local equitable share (LES) was also not clear, because no one had a good grasp of the cost of basic services in different municipalities. Ideally the LES needed to be based on a sound costing framework for basic goods and services.
From the perspective of municipal capacity, the main challenge was the lack of coordination, and the roles and responsibilities of different stakeholders were poorly defined. This had resulted in fragmented and overlapping capacity-building initiatives, and obviously a wastage of resources. Other risks included municipal expenditure appearing not to focus on the core business of service delivery; weak municipal accountability and oversight institutions; poor governance and management instability; and the frequent amalgamation of municipalities.
The misalignment of funding to district and local municipalities had remained unresolved, and this affected the viability of the district municipalities (DMs). The current funding model for DMs had received a lot of criticism, especially the regional service council (RSC) levy replacement grant allocations. Also the division of powers envisaged in section 84 of the MSA had been adjusted and re-adjusted in many provinces, making it difficult to find a fair funding model for DMs. The MEC for local government in a province may, subject to the other provisions of section 84, adjust the division of functions and powers between a district and a local municipality, allocating any of the remaining functions and powers vested in a district municipality to a local municipality, and vice versa. Finally, the exercise of these powers by the MEC had the potential effect of creating a de facto asymmetrical system of allocation across districts.
As possible solutions, the FFC recommended on revenue management that provincial governments, especially provincial treasuries, should assist municipalities to prepare credible debt management policies and strategies, improve databases and information to support correct billing, and improve credit control procedures. In all of this, municipalities should be encouraged to invest in technology to enhance billing.
To improve supply chain management, the FFC recommended that provinces should make municipalities aware of the strategic value of SCM in development and further capacitate municipalities on contract management and its potential for cost savings.
For asset management, National Treasury,should devise local government infrastructure asset management guidelines, and more technical assistance should be provided to municipalities to prepare and implement credible infrastructure asset management plans.
Mr Ncube said that to resolve the debt question, the approach to debt should be fair and not one-sided. Similar pressures should be exerted to all spheres of government to honour their debt. Compliance with the 30-day payment rule should be enforced at municipalities, national and provincial government departments and entities alike.
Other areas that were of importance to oversight pertained to the costs of basic services, the administration versus core services costs, unfunded mandates, and improving municipal capacity. Innovative revenue sources could be explored, such as pooling finance mechanisms, land value capture, and public private partnerships.
Mr Ncube suggested that there was a need for a long-term sustainable funding model for DMs, which should be based on the outcomes of the review of DM functions being undertaken by CoGTA. Furthermore, developing a sustainable funding model would require a clear specification of the powers and functions of DMs, a proper appreciation of the situational context and interrelationship with local municipalities, and a clear link between funding and functions. Clarity on the functions and powers of DMs was needed as the first key step, so the FFC would encourage CoGTA to speed up the process of reviewing the functions of DMs.
Mr Ncube said that many stakeholders had responded to the Back to Basics programme, and so municipalities had received huge financial and non-financial support from a number of stakeholders. It should be noted that failures characterising many municipalities were a result of both bad behaviour and poor performance. Thus the support for municipalities should be based on a firm understanding and a proper diagnosis of the root causes of municipal failures. There was therefore a need for robust coordination of different programmes and stakeholders, with responsibilities carefully defined. A long term view should always be taken for any municipality support initiative. Support should be targeted at officials as well as the local political leadership. Districts and provincial authorities should be targeted for capacity building initiatives so that they were effective in assisting local municipalities.
Professor Daniel Plaaitjies, Chairperson: FFC, concluded that during this year the FFC would work on a proper lens for itself on restoring public finance within municipalities. While the FFC had looked at the expenditure component, this year it would look at both the expenditure and the revenue components. Linked to that was an inquiry into the administrative component, and all the related processes and systems. The Committee had to take seriously the presentations had been made to it in the last three years. In the presentation on infrastructure, the FFC had raised a number of issues around the structural and functional deficiencies within municipalities. Issues had been raised around financial accounting and management and how infrastructure could be used to spur growth in municipalities. Issues of errors, fraud and corruption had been raised. Some were genuine errors, others were fraud or deep-seated corruption. The FFC had also looked at the urban environment and the rural development.
The FFC highlighted to the Committee that based on its own report on the feasibility and viability of municipalities, there had to be a relook at the district and local municipalities. The Committee could not come back every ten years to the recommendations of the FFC. In 2001, South Africa did not have the requisite data. However, now the data was available and the right decisions could be made.
One of the key questions remained whether South Africa still needed district and local municipalities. These were the solutions that were available in 1994 and 1996, but were those solutions still appropriate? Could one still afford a situation where a transfer from a national government goes to a municipality and they pay two debts -- the one was paying Eskom and the other salaries, because there was no fiscal capacity in those municipalities? Why was South Africa continually retaining parts of a system which was actually broken and could not be fixed the way it should because those solutions were not appropriate and responsive to the present? There was no fiscal or tax base in those communities.
The FFC had made recommendations on the feasibility and economic viability of certain municipalities. The Committee needed to look at what the interlocutor was between what the FFC presented, the law, the systems and the human resource questions, the administration, and the financials, the fiscal issues. The FFC had to be taken seriously on these issues, because South Africa had serious structural problems. The Minister of CoGTA acknowledged it openly. The Committee had to find a way of lifting the structural and functional issues that had been provided to change the system. It was not only about accountability. If the system did not work, it had to be changed. The troubles were a drain on the fiscus.
For the last couple of years, the FFC had stressed the need for a focused conversation on local and district municipalities. It hoped to return to the Committee with its initial findings on how to restore public finance. This did not have to be done only through annual reports. The same message had been taken to the provinces. It would be the same because one was still dealing with a broken car and it was the same car. There were times when the car should go to the scrap yard.
The Chairperson responded that the FFC was a monitoring tool for Parliament, dealing with municipalities. It had been an excellent contribution. This would be part of the Committee’s oversight programme. The FFC would be called back. What the Committee wanted was a plan. Interventions must be coordinated, otherwise South Africa would not move a centimetre forward. An early warning system was absolutely vital. One needed to pick the problem up in the first quarter and intervene immediately. Quarterly reports were essential. The Parliamentary Researcher needed to take the reports from the FFC and SALGA and configure a paper on the way forward so that the Committee could present the way forward to Parliament. When the patient was on the doctor’s table and he had to do the analysis, one would not always like the diagnosis one would hear. There must be a remedy. The MOU between NT and COGTA had been on-going for three years and must be completed.
There had been some progress. When his own municipality, with a small revenue base, moves from a disclaimer to a qualified and then to an unqualified report, that was progress. They had succeeded in getting qualified people. Regarding distances and the saving of time, video conferencing methods needed to be implemented to facilitate meetings. It could be done. The challenge was that legislators had to pay a fee for that facility. The same applied to municipalities. What the Committee wanted was for the various stakeholders to engage more with the Department.
The meeting was adjourned.
- FFC: Back to Basics and Challenges to Financial Sustainability of Municipalities: Possible Solutions
- Workshop on the Municipal Infrastructure Grant: Treasury presentation
- COGTA: Workshop on Progress with B2B Programme and Support provided to Municipalities
- SALGA 2018/19 Annual Performance Plan Medium Term Expenditure Framework