Municipal Systems Amendment Bill: briefing

Meeting report

PROVINCIAL AND LOCAL GOVERNMENT; FINANCE PORTFOLIO COMMITTEES: JOINT MEETING
19 August 2003
MUNICIPAL SYSTEMS AMENDMENT BILL: BRIEFING

Chairperson: Mr Y Carrim [PC Provincial and Local Government]

Documents handed out
Department of Provincial and Local Government Presentation on Bill
Draft Municipal Systems Amendment Bill - as certified by State Law Advisors
Department of Provincial and Local Government Comments on the Bill
Ashira Consulting Memorandum on Municipal Entities
WECLOGO Comments on the Bill
Municipal Infrastructure Investment Unit (MIIU) Memorandum
Letter from North West Local Government MEC
Letter from Mpumalanga MEC for Provincial and Local Government
Letter from Ministry of Water Affairs and Forestry
Certified Memorandum to the Bill (Appendix 1)
Systems Act Regulations (Appendix 2)
Comments by Financial and Fiscal Commission (Appendix 3)
Letter from Western Cape MEC for Provincial and Local Government (Appendix 4)

SUMMARY
The Municipal Systems Amendment Bill aims to facilitate effective corporate governance systems of municipalities, streamline the execution of assigned functions and powers to municipalities and facilitate service delivery via the establishment of municipal entities.

Morning session The discussions focused primarily on Clause 2 of the Bill, and the following concerns were raised: clarity was sought on the precise meaning of the term "additional functions", whether the phrase "Act of Parliament" in not unduly restrictive and whether it should be replaced with "national legislation", whether the proposed Sections 9 and 10 include assignments to specific municipalities as well, and whether the FFC would have the capacity to respond to the financial implications of the assignment within the prescribed time period.

Afternoon session It was established that the areas of performance contracts, municipal websites and payment of municipal managers call for more work to refine these issues. The Department, National Treasury and SALGA would need to submit evidence to convince the Committee against market remuneration of municipal managers. Clause 5 raised constitutionality concerns.

MINUTES
Briefing by Department
Mr Elroy Africa, Department DDG: Governance and Development, conducted the presentation (document attached) which outlined the background to the Bill, the reasons for effecting the proposed amendments to the current Municipal Systems Act, the nature of the amendments and an overview of some of the key amendments.

Discussion
General observations
Mr M Tarr (ANC) [PC Finance] asked the Department to explain why it needs municipal entities at all. He stated that his understanding is that municipal entities are wholly-owned by the municipality, and essentially allows the municipality to create this company to provide a service that the municipality itself may not be providing adequately. Why does the municipality not do the job properly in the first place?

Rev A Goosen (ANC) [PC Provincial] asked whether the number of sections being repealed by the Bill are at all necessary to accommodate what is needed in the Municipal Finance Management Bill.

Mr B Solo (ANC) [PC Provincial] asked the Department to explain how the Bill will assist the municipalities to ensure that assignments to local government are in accordance with its empowerment interests and resource constraints.

Mr Musa (SALGA) stated that the principles outlined in the consolidation period or process seems to give mixed messages. The one message states that appropriate intervention has to be ensured to strengthen the viability of the municipality when it comes to assignments, and this is welcomed. Yet at the same time there is an increase in the extent to which national government is prescribing the substance of executive functions of municipalities, with the result that the regulatory framework of national departments seems to be expanding.

The contradiction here is that there does not seems to be any strengthening of the intergovernmental framework. There are systems in place that can provide very powerful tools to enforce guidelines, such as MinMecs. A good example of this was demonstrated in the implementation of free basic services which was done in the absence of any regulatory system, yet it achieved an 80% compliance result. This was achieved by using some of the local government structures.

These are the kinds of challenges SALGA is experiencing with some of the amendments. The idea of co-operative governance, interdependence and capacity-building is sometimes diminished by the fact that national government seeks to expand its regulatory framework during the consolidation period. Even some of the language used in the Bill seems to shy away from some of the principles enshrined in the Constitution.

Mr G Grobler (DA) [PC Provincial] questioned whether this Bill is really improving the current situation. Legislation is currently in place here, and will the amendment of the current Systems Act really enhance the present situation. Could it not be that the existing legislation is not being implemented properly?

The Chair proposed that these matters be addressed when considering the specific clauses of the Bill.

Powers of Committee to amend legislation falling within the line function of another Committee
The Chair informed Members that the Provincial and Local Government Portfolio Committee will be presenting a report to Parliament on this matter. It questions whether a Committee can change the legislation of another Committee by way of a schedule. It was originally proposed that the amendments to the Systems Bill be included as a Schedule to the Municipal Finance Management Bill, which the Provincial and Local Government Portfolio Committee opposed. Members felt that this would be fine if it relate to a few minor changes, but felt it would not be appropriate for the Finance Portfolio Committee to effect major changes to the Systems Act via a schedule to the Municipal Finance Management Bill.

After discussions with the Finance Portfolio Committee the Chairperson, Ms B Hogan (ANC), agreed that the amendments should be dealt with in a separate Bill. She is reported to have said that this move was indeed a blessing in disguise, because the amendments to the Systems Act are now about 40 pages long. This could not have been dealt with in a Schedule to the Municipal Finance Management Bill. This matter thus has to be considered by Parliament's Rules Committee as well as the precise definition of the requirement that the Committee "confer" with the other Committee, as required by the Joint Rules.

Clause by clause briefing on key amendments
Clause 2
Mr Africa explained that the thinking of the Department in this clause is really to make the overall intergovernmental system much more predictable, to allow the appropriate organ of State and spheres of government to anticipate and deal with proposed actions emanating from another sphere of government.

The Systems Act currently requires the Minister or Deputy Minister to consult with the Minister of Finance and organised local government, as well as an assessment by the Financial and Fiscal Commission (FFC). The proposed Section 9(1) in Clause 2 differs by proposing that it would probably be to late to do the appropriate planning and to prepare the enabling legislation by the time the Minister is already introducing a Bill to Parliament. It thus now requires the Minister of Deputy Minister to indicate the intended assignments and to consult all these relevant bodies 180 days before the Bill is presented to Cabinet. This is the major amendment here.

The same principle is applied to the provincial sphere in the proposed Section 9(2) in Clause 2, but this time deals with the intended introduction of legislation by an MEC. This attempts to ensure synergy between requirements placed on national and provincial government.

Clause 4
Mr Africa stated that the other fundamental amendment would be the proposed insertion of Section 10A, which aims to ensure that sufficient funding and capacity-building initiatives are available.

The Chair informed Members of the Finance Portfolio Committee that these provisions are very consistent with what the Provincial and Local Government Portfolio Committee would have wanted in the Bill. He congratulated the Finance Portfolio Committee on the provisions, as it strengthens assignments. He noted that SALGA approved of the formulation as well, and proposed that Members informally agree to the general concept behind these provisions..

Clause 2
Mr Africa stated that there are not really any major amendments in the rest of the provisions in this clause, other than those outlined above.

"additional function"
The Chair noted that this clause does differ slightly from the existing provision in the Act, and requested clarity on the reasons for these amendments. The word "additional" has been inserted in the proposed Section 9(1).

Dr P Bouwer, DPLG Director: Legal Services, responded that Adv G Grove, Treasury: Legal Drafter, has trouble with this provision. He stated that both he and Adv Grove acknowledge that the precise meaning of this term, and they have to come to an understanding of this term.

Mr Ismail Momoniat, Treasury DDG: Intergovernmental Relations, stated that the assignment of powers and functions does bedevil the entire intergovernmental system. The intention is also to put many of these proposed amendments into the PFMA as well, so that the two Acts can have similar provisions. Having said this, the aim here is to legislate against the "skelm departments", which problems can also occur in Parliament. The potential problem here is obligations that are imposed by other Committees in good faith, but they do not necessarily understand provincial and local government issues. An additional problem is that these impositions are also done without legislation, but via pronouncement by the Premier or Minister for example. Thus any amendment effected here is not necessarily fool-proof.

Having said all this, tougher provisions will be inserted into the PFMA. The FFC Bill also has an assignment clause, which is in line with this provision.

Adv Grove stated that the use of the phrase "additional function" in both the proposed Sections 9 and 10 does pose a fundamental problem. The precise meaning of this term in not certain. Does it refer to powers and functions in addition to those already granted to the municipality in Schedules 4 and 5 of the Constitution? If it means that powers are to be added to the list of current powers, then the proposed provisions will have very limited scope.

Both national and provincial has the power to regulate the exercise of these functions carried out by municipalities. In doing so additional duties are imposed on municipalities, which have enormous cost implications. He stated that he is not sure whether it is these functions that are being referred to. The scope of these provisions have to be made very clear, because it can make it very difficult for departments to regulate the exercise of the municipality's executive powers.

Mr Africa responded that the proposed Section 10A(a)-(c) in Clause 4 provides that the assignments being referred to anything that falls outside Schedules 4 and 5 of the Constitution, and this is clearly part of the intention. At the same time it is recognised that while municipalities have dual responsibility for particular functions, the manner in which that function could be regulated by national government could impose additional duties and have resource implications for the municipality. Thus the intention was to deal with powers and functions currently provided in the Schedules, as well as functions over and above those.

The Chair requested Adv Grove an Dr Bouwer to briefly and clearly summarise the discussions that have taken place on this matter, as well as the two approaches to the issue. This will then clarify the work that has to be done by the subcommittee.

"Act of Parliament"
The Chair stated that he phrase "national legislation" in the existing Act has now been replaced with "an Act of Parliament".

Dr Bouwer replied that "Act of Parliament" was introduced deliberately so that the provision can be limited to the Act itself, and not to regulations as well. This was done because "national legislation" includes subordinate legislation. When the initial discussions on this matter where held in 2000 is was correct to stipulate "national legislation" because it referred to the assignment of any function of power. It was thus deliberately broad to include regulations and Acts.

Adv Grove stated that there was indeed an error made initially in Section 9 of the Act. It is not possible to speak of "national legislation" and then to also provide for the "introduction of legislation in Parliament", because it is only a Bill that can be introduced in Parliament and not regulations. Thus this term was wrong to the extent that it extended "national legislation" to include regulations as well. Attempts were thus made to correct this in this Bill by stipulating "an Act of Parliament".

Yet the problem is that the reference to "Parliament" has now been deleted in the proposed Section 9(1) as it stipulates "submitted to Cabinet", and Cabinet also has to approve the regulations. Adv Grove proposed that if the intention is to retain the reference to Cabinet here, then "Act of Parliament" should then be replaced with "national legislation" instead.

Dr Bouwer stated that the Committees should not lose sight of the fact that regulations are not submitted to Cabinet, and it was for this reason that the new Section 9(1)(b) was proposed. Thus the phrase "an Act of Parliament" should be retained because it is a more accurate term.

Adv Grove proposed that it may be more correct to speak of "national legislation" because some regulations are submitted to Cabinet where, for instance, the President may be issuing them. It is thus not in all cases that a Cabinet Minister issues regulations.

Mr Momoniat stated that he agrees with Dr Bouwer that most regulations do not go through Cabinet again, nor do they go to Parliament again.

The Chair asked the drafters to tighten wording of the proposed Section 9(1) and return with a revised formulation tomorrow.

"municipalities generally"
The Chair stated that the Act stated "municipalities generally" yet this clause stipulates "municipalities" alone, and this does not make the proposed headings of Section 9 and 10 of the Act very clear. Is the proposed Section 10 not aimed at a specific municipality, but rather municipalities in general?

Mr Africa replied that the thinking back then was to make a clear distinction between all municipalities on the one hand, and a particular category on the other. It may be important to note that the Department is currently working on an assignment policy framework, which has matured and refined the Department's thinking on assignment. The emerging policy seeks to create a preference which is biased towards dealing with all municipalities in general. But at the same time the Department is also open to dealing with specific municipalities, but not by way of what are known as specific assignments. Instead a different instrument will be looked at, perhaps delegation. The Department has thus decided to adopt a slightly more general approach in this legislation.

The Department is also busy reviewing Schedules 4 and 5 of the Constitution, and this could result in the Department proposing that certain powers and functions be moved to a different sphere. The aim is to rely on the policy framework for assignments on the one hand, and the results of the review of the Schedules 4 and 5 on the other.

The Chair stated that he is slightly concerned by what has been said by Mr Africa. Much emphasis is placed on the assignment framework, which Members of this Committee are not familiar with, and the Bill is now being shaped in anticipation of what will be contained in that assignment policy framework. Surely there is a case to be made for assignment to a specific municipality, and Mr Africa is now saying that the only way this can be done is via delegation. The question then is whether the proposed Sections 9 and 10 together provide for the assignment to a specific municipality, as is the case in the existing Act. If it does not, why?

Mr Africa responded that the Department is still making provision for assignment to a specific municipality, but it is "couched more generally". The current amendment does not prohibit specific assignments. The policy framework has already been workshopped with the various MECs.

The Chair stated that the title of the proposed Section 10 has to be altered to "municipality", so that it is made consistent with the first line of the provision which refers to "a municipality". The heading also refers to "legislation", whereas the provision speaks about "an Act of Parliament". This has to be reconsidered.

Dr Bouwer replied that there is a contrast between the proposed Sections 9 and 10 in Clause 2. The proposed Section 9 deals with an "Act of Parliament or a provincial Act", and the general legal drafting practice is to legislate for the general situation. It is for this reason that "municipalities" in general are referred to. The proposed Section 10 is however more specific in the sense that it deals with "a power contained in an Act of Parliament or a provincial Act. The "power" referred to here can be subordinate legislation, or it can even make provision for an agreement. It can thus be individualised. In addition agreements are specifically provided for in Section 99 and 126 of the Constitution, which also allows for an individual approach. Also, plural in the heading should simply be altered to "municipality", it's singular form.

The Chair agreed, because clarifies the purpose of the provision.

"180 days"
The Chair congratulated the Finance Portfolio Committee for formulating the proposed Section 9(1). He noted that the same time period of 180 days is not stipulated in the proposed Section 9(2), which deals with the provinces.

Dr Bouwer responded that this is a constitutional issue, because national government cannot prescribe this to provincial government. Furthermore, a Premier could give permission for a Bill to be introduced into the executive council as a matter if urgency. Prescribing this time period to provincial government would amount to treading a fine line.

Mr Tarr asked whether the FFC would also be required to respond on the assignment in a certain period, and whether it has the necessary resources to comment on the assignment..

Mr Momoniat replied that Treasury has told the FFC that this is an issue on which it has to comment, because if it does not this will cause many more problems down the line. If the FFC does need extra resources Treasury will be sympathetic towards them. The FFC Bill allows the FFC 90 days to comment on the financial implications of an assignment from one sphere of government to another, and the Bill now grants them twice as much time. The FFC has to respond, even if it is a straightforward answer.

The time limits in this clause can be reconsidered and aligned with the corresponding provisions of the FFC Bill. The Finance Select Committee is looking at the FFC Bill today and they might propose certain amendments, because that Committee was unhappy with the assignment clause in the FFC Bill.

The Chair noted that there were no policy changes to the proposed Section 9 other than issues of legal clarity. He however questioned the difference between Sections 9 and 10.

Dr Bouwer said that the legal team would like to have another look at the two sections since it appears they raise some fundamental constitutional questions.

The Chair pointed out that the Municipal Systems Act has been in operation for more than three years without facing any constitutional challenge. He argued that if, therefore, the two sections overlap or replicate the Act then the sections must stay.

Proposed Section 10
Mr B Dorfling (SALGA) pointed out that in some areas the Act refers to the submissions being made to the Minister alone while in Section 10 it refers to the Minister and the National Treasury.

The Chair noted discussion on the issue has come up before and that the query had been clarified on the basis of the necessity of the provision.

Clause 5
The Chair noted that Clause 5 was not in the original Bill and sought an explanation as to who inserted it at this stage.

Adv Grove agreed with the Chair and pointed out that the provisions of the proposed Section 15A were new to him noting that were he aware of their existence he would have objected to their inclusion on the basis of their constitutionality. He explained that it would not be constitutional to give the Minister powers to bind Parliament and the Provincial Legislature.

The Chair inquired from Ms Hogan whether she was aware of the introduction of the clause during the Departmental briefing to the Finance Committee.

Ms Hogan said that she would have to check her records to confirm the position. She requested that the matter be flagged for the present.

Mr Africa cautioned the Committee against falling for each and every constitutional issue that may be apparent in the Bill noting that such approach would seriously derail the Committee's progress on the Bill.

The Chair concurred with Adv Grove that the clause raises some serious constitutional issues noting that in its present format it would practically impede Parliament's oversight role. He pointed out that Parliament had an obligation to ensure that Bills do not conflict with fundamental principles in the Constitution. He suggested that since no one is ready to own to the insertion of the offending clause, it is necessary to remove it and give time to the Finance Committee to verify its origin.

Clause 6
The Chair noted Clause 6 introduces specific additions which in his view did not raise serious policy issues.

Dr Bouwer said that the clause seeks to create consistency in the Bill by harmonising areas of potential conflict.

Mr Solo expressed concern that most Local Authorities lack capacity to post documents on its website as obligated by the law.

The Chair wondered whether changing the wording of the Bill would help to ameliorate the apparent capacity difficulty for poor Local Authorities.

Ms Hogan suggested that the Bill be reworked to clearly address the issue of capacity without necessarily detracting from the underlying principle, which is access to information - a necessary feature in the promotion of a democratic culture.

The Chair wanted to know who introduced the website clause noting that the legal unit has no mandate to alter policy issues.

Dr. Bouwer explained that the Bill came from National Treasury but that only a few things were taken out and that nothing new was added. He said that among the items taken out was the provision that municipalities should maintain websites and the reporting requirement.

The Chair sought to know whether National Treasury had endorsed the Bill to which Dr. Bouwer replied in the affirmative.

The Chair expressed surprise that the website provision had been taken out. He wanted to know the reasoning behind the removal of the said requirement.

Mr Africa explained that due to the different scales of development many municipalities would find the requirement for posting documentation on the website an onerous one.

Mr Solo pointed out that this issue has been discussed at various forums where it was decided that many municipalities lack the necessary capacity and infrastructure to be able to run and maintain a website.

Mr Tarr expressed the view that in this age and time municipalities should be seen to move towards achieving new systems of information technology. He suggested that the provision be modified to require municipalities to seek to establish a website to disseminate such public information.

The Chair wanted to know what the Finance Portfolio Committee, which had proposed the provision for a website in the first place thought about the operational and capacity concerns that have been raised.

Ms Hogan said it was not a life and death matter but that a proposition had been made for transitional measures that would allow those municipalities that do not have capacity to be given time to do so. She added that the Bill had made provision for the Minister to assist municipalities that were financially incapacitated to install and run a website.

The Chair noted that there was no question that in principal municipalities there was a need to post important information on the website for public consumption. The issue was whether or not such provision should be made mandatory.

Mr Mokoena (ANC) suggested that the provision should be redrafted to obligate local authorities to strive to introduce information on the website.

Adv Grove offered that the original Bill had been drafted in a manner that allowed handicapped municipalities to display their information on the website of the National Department.

Mr Dorfling suggested that the National Treasury meet the cost of installing the website for poor municipalities.

The Chair directed that the legal team should take another look at the provision and come up with a softer wording between mandatory and open-ended.

The Chair queried why Clause 6(1)(b) of referred to 'municipality's head and branch offices and libraries' and wondered whether there was no other appropriate term to employ in this instance.

Mr Momoniat suggested the term 'satellite' be used in place of 'branch'. The Chair agreed.

Clause 7
The Chair inquired whether the Department had received any submissions on the Performance Report to which Mr Africa replied in the affirmative.

The Chair sought to know whether members of the public had raised any queries regarding performance report to which Mr Africa replied in the negative.

Dr Bouwer explained that it was important to require Annual Performance Reports since this formed part of the broader Annual Report in the PMFA.

The Chair suggested that the provision refer to the entire Chapter instead of confining it to a section of the Act.

Adv Grove pointed out that the proposed Section 46(1)(d) should read that 'measures were taken' instead of its current form, which he said makes no sense. This suggestion was endorsed.

Mr Musa said that various service providers have not been defined under the proposed Section 46(1)(d) - a situation he feared could cause conflict.

Dr Bouwer suggested that to supply clarity to the section it should specifically provide for external service providers, which is the intention here. The Committee endorsed the suggestion.

Clause 9
Dr Bouwer explained that the amendment in this section clarifies what "other agreements" are all about.

The Chair asked why this amendment was introduced.

Dr Bouwer explained that the amendment was necessitated by the need to align the Bill with the current financial year - noting that the safest option is to keep it the way it was.

The Chair observed that indeed the amendment is a clear improvement from the original provision but asked the Department to give the Committee feedback on the necessity of the amendment.

The Chair expressed dismay that the issue of remuneration for municipal managers had been outstanding for far too long and asked the Department where the matter stands to date.

Mr Africa replied that the Department is looking at the issue in terms of the ongoing integration process noting that various commissions have been set up to explore how best to handle the matter. He added that a policy decision would be taken once the Department receives reports from these commissions.

The Chair said that the issue of remuneration had been exacerbated and that the Committee would call upon the Department to address it on the matter to enable it take a firm position once and for all. There had been no evidence to suggest that the general public mood is against a market remuneration for high calibre municipal managers. He noted that there must be an incentive to attract highly skilled managers to rural municipalities.

Mr Musa said that debate on the remuneration for municipal managers tends to be unnecessarily emotive. He argued that most of the managers are not paid more highly than Directors General and that SALGA has a policy of intervening whenever people are paid irregularly.

Mr Momoriat suggested that provision be made for termination and non-payment of performance agreements where managers fail to deliver their part of the bargain.

The Chair sought to know why provisions on performance agreements had been withdrawn.

Dr Bouwer said that the areas of performance contracts, websites and payment of municipal managers call for more work to refine these issues.

The Chair expressed concern that the remuneration issue was moving at a very slow pace and noted that serious consideration must be taken to ensure that the matter is looked at in a more holistic review. He reiterated the Committee's proposition to call upon SALGA, the Department and National Treasury to motivate their various positions on the remuneration of municipal managers. He asked the Department to prepare a compelling case against proper remuneration for municipal managers to be able to satisfy the Committee against buying into such a provision.

The meeting was adjourned.

Appendix 1 : Certified Memorandum to the Bill

MEMORANDUM ON THE OBJECTS OF THE LOCAL GOVERNMENT: MUNICIPAL SYSTEMS AMENDMENT BILL, 2003

BACKGROUND TO BILL
As a result of the nature of the provisions of the Municipal Finance Management Bill that is currently before Parliament, certain amendments to the Local Government: Municipal Systems Act, 2000 (Act No. 32 of 2000) are required. A decision has been taken that these consequential amendments should be addressed in a separate Bill, and not as part of the Municipal Finance Management Bill. The Local Government: Municipal Systems Amendment Bill, 2003 ("the Bill") contains these amendments.

CONSULTATION
The National Treasury was consulted and the Bill was published in terms of section 154(2) of the Constitution for public comment.

FINANCIAL IMPLICATIONS FOR STATE
Financial implications are not quantifiable at this stage, but will depend on the extent of the implementation of various provisions of the Bill by the three spheres of government.

IMPLICATIONS FOR PROVINCES
There are no direct implications for provinces.

IMPLICATIONS FOR MUNICIPALITIES
The implementation of the provisions of the Bill will facilitate effective corporate governance systems of municipalities and will streamline the execution of assigned functions and powers to municipalities as well as facilitating service delivery through provisions relating to matters such as service delivery agreements and the establishment of municipal entities. The implications pertaining to the implementation of these provisions will depend on the extent to which they are applicable to specific municipalities.

PARLIAMENTARY PROCEDURE
The Department of Provincial and Local Government and the State Law Advisers are of the opinion that the Bill must be dealt with in accordance with the procedure prescribed by section 75 of the Constitution. The Bill does not fall within a functional area listed in Schedule 4 to the Constitution, nor does it provide for legislation envisaged in the sections referred to in section 76(3) of the Constitution. Although the Bill provides for legislation envisaged in Chapter 13 of the Constitution, the Bill does not affect the financial interests of the provincial sphere of government.

Appendix 2 : Systems Act Regulations

DEPARTMENT OF PROVINCIAL AND LOCAL GOVERNMENT
LOCAL GOVERNMENT: MUNICIPAL SYSTEMS REGULATIONS, 2003
Under section 120 of the Local Government: Municipal Systems Act, 2000 (Act No.32 of 2000), I, Fholisani Sydney Mufamadi, after consultation with organised local government representing local government nationally, hereby make the regulations in the Schedule.

F.S. MUFAMADI
Minister for Provincial and Local Government

SCHEDULE

Definitions
1. In these regulations a word or phrase to which a meaning has been assigned in the Local Government: Municipal Systems Act, 2000 (Act No.32 of 2000) has that meaning and, unless the context otherwise indicates, "the Act" means the Local Government Municipal Systems Act, 2000.

Service delivery agreements
2. (1) Any appointment of an external service provider in terms of section 80 of the Act, must be by way of a written service delivery agreement between the municipality and the external service provider stipulating the terms and conditions of the appointment.

(2) A service delivery agreement in terms of subregulation (1) must-

(a) set out the term of the appointment of the external service provider;
(b) identify specific outputs for each year of the agreement;
(c) establish service delivery indicators, and appropriate systems for monitoring and reporting on these indicators;
(d) make provision for the circumstances under which the agreement may be terminated, and for other remedial action, if outputs, performance criteria or other terms and conditions are not met;
(e) provide for a performance review within three months after the end of each municipal financial year, and for a mid-year performance review within one month after the end of the first six months of each municipal financial year;
(f) assure that the municipality and the external service provider are able to establish and maintain effective financial management systems relating to the provision of the municipal service;
(g) bind the external service provider to furnish the municipality with all information available to the external service provider which the municipality needs to comply with the Act and the Municipal Finance Management Act;
(h) require accounting on a monthly basis to the municipality for -
(i) any fees collected for the provision of the service;
(ii) any money collected by the service provider for or on behalf of the municipality;
(iii) any expenditure by or claim against the service provider for which the municipality is or may be liable;
(iv) any funds transferred by the municipality to the external service provider, including funds referred to in section 81(2) (b) of the Act; and
(v) any assets transferred or made available by the municipality to the external service provider; and
(i) establish clear channels of communication and mechanisms to resolve disputes between the municipality and the external service provider;
(1) provide for the rights and obligations of the parties, and the distribution of assets and liabilities, when the agreement is terminated; and
(k) regulate any other matters that may be prescribed.

(3) When a municipality enters into a service delivery agreement with an external service provider, a copy of the agreement must be submitted to -
(a) the Auditor-General, the Department of Provincial and Local Government, the National Treasury and any relevant national or provincial department as may be prescribed; and
(b) the South African Revenue Service, where the agreement has tax implications, assigns tax-related responsibilities to a municipality, or imposes actual or potential tax-related liabilities on the municipality.

Management of service delivery agreements
3. The municipal manager of a municipality must -

(a) ensure that a service delivery agreement is properly enforced;
(b) monitor on a monthly basis the performance of the external service provider under the agreement;
(c) establish capacity in the municipality's administration -
(i) to assist the municipal manager in carrying out the duties set out in paragraphs (a) arid (b); and
(ii) to oversee the day-to-day management of the agreement;
(d) regularly report to the municipal council on the management of the agreement and the performance of the external service provider; and
(e) make all service delivery agreements available to the public.

Appendix 3 :
FFC Preliminary Comments
Local Government: Municipal Systems Amendment Bill, 2003
31 July 2003

The Local Government: Municipal Systems Amendment Bill, 2003 seeks to regulate the assignment of additional functions and powers to municipalities and to regulate other matters.

There are three issues of relevance to the Financial and Fiscal Commission:

1. Assignment of additional functions and powers to municipalities
Sections 9 and 10 of the Municipal Systems Act outlined a process that stakeholders need to follow when national government or provinces assign additional powers and functions to municipalities generally or to a municipality or municipalities specifically. This process included the requirement that the FFC consider the financial implications and that the assigning authority consider the FFC's assessment.

Section 2 of the Amendment Bill revises Sections 9 and 10, and the revisions provide for a more rigorous process. Assigning authorities are now required to submit a memorandum giving three-year projections of financial implications of the assignment and indicating how this will be funded. The memorandum must include the FFC's assessment of the assignment. Assigning organs of state must also indicate how the necessary capacity-building will be funded.

FFC comment:
The FFC welcomes the more rigorous assignment process. It is also positive that the amendment stipulates that government must provide three-year projections of the financial implications, as the FFC will require such information in order to assess the assignment of the function.

It should be noted that the FFC Amendment Bill 2003 outlines a similar process for function shifts, except that the FFC Amendment Bill is much broader: it applies to function shifts both to and from one organ of state to another, and it therefore applies to all three spheres of government (whereas the Systems Act applies only to assignments from national/provincial to local government).

There is no apparent contradiction between the processes described in the Systems Amendment Bill and the FFC Amendment Bill, however there may be an argument for aligning the processes more and to cross-referencing the two Bills. Given that both Amendment Bills have not yet been enacted, there is a window of opportunity to provide such alignment.

3. Performance management
The Amendment Bill adds a new Section 21A that requires all public municipal documents to be made available on websites, and a new Section 46 requires that performance reports provide information on the achievement of performance targets. In its Submission for the Division of Revenue 2004/05, the FFC called for this type of information to be generated, and it therefore welcomes these provisions.

It should be noted, however, that standardised formats for reporting such information should be developed. This will facilitate the measurement of the extent to which poverty is being eliminated and access to basic services is being progressively realised for the country as a whole. It will also provide a basis for comparison between municipal jurisdictions.

4. Regulations relating to the equitable share
Section 19 of the Municipal Systems Act Amendment Bill states that the Minister may "make regulations or issue guidelines" on a number of matters, including "(b) the subsidisation of tariffs for poor households through equitable share allocations to municipalities".

The equitable share is an unconditional allocation, and it would appear to be unconstitutional for the Minister to issue regulations relating to the use of the equitable share allocation by municipalities. The Department of Provincial and Local Government has, in the past, provided guidelines to municipalities on the use of their equitable share allocations. Even these guidelines have been problematic, as they imply that national government can stipulate how the allocations are to be used. Indeed, many municipalities have interpreted these guidelines as prescriptions by national government.

It is therefore recommended that subsection 1(b)(ii) of Section 19 of the Amendment Bill be deleted.

Appendix 4 : Letter from Western Cape MEC Provincial and Local Government

MINISTRY FOR PROVINCIAL AND LOCAL GOVERNMENT

Dear Minister Mufamadi

LOCAL GOVERNMENT: MUNICIPAL SYSTEMS AMENDMENT BILL, 2003
Your letter 3-A5/8/4 dated July 2 2003 and Government Notice 1839 of 2003 publisheed in Gazette no. 25149 dated 27 June 2003, refer.

I have studied the suggested amendments and agree in principle with the contents thereof, but offer the subjoined comments.

Definitions
Clause 1(d)(a):
The reference to section 94C(1)(a) should read 86B(1)(a).

Clause 1(i):
The reference to section 94A(1)(a) should read 86B(1)(b).

Service delivery agreements
Clause 13 section 80A(3)(a)
It should be specified that copies of the agreement should also be submitted to the Provincial Treasury and the MEC responsible for Local Government. The latter are key stakeholders in the monitoring and support of municipalities.

Part 4A: Regulations and guidelines
Clause 19 section 86A(1)
Western Cape municipalities with the assistance of this Province have made considerable progress with the implementation of tariff policies and a large number of service delivery agreements in place. The proposal that the Minister may make regulations on the subjects set out in the proposed section 86A, is regarded as over regulating, and may result in conflict with tariff policies already implemented. Whilst supporting the initiative, my recommendation is that the issues be dealt with by way of guidelines only and not regulations.

Clause 19 section 86A(2)
The MEC's for Local Government and Organised Local Government should also be consulted.

Legal status of governing bodies
Clause 24 section 90(1)
"Participating" should be replaced by "parent" for consistency purposes.

Control of multi-jurisdictional service utilities
Clause 26 section 92(1)(a)
"Participating" should be replaced by "parent" for consistency purposes.

Code of conduct for directors and staff of municipal entities
Clause 31:
The heading "SCHEDULE 3 should read "SCHEDULE 2A.

Memorandum on the objects of the local government: municipal systems amendment bill, 2003
Under the sub-head implications for provinces it is indicated that there are no direct implications for provinces. There are, however, various amendments that will result in either financial or capacity implications for provinces, for example the carrying out of a feasibility study.

The above comments are made on the assumption that the amended provisions will be phased in together with the implementation of the Municipal Finance Management Act.

Please note that due to time constraints, the matter could not be discussed at Provincial Cabinet Level. The input made must therefore be regarded as qualified in this respect.

Your faithfully

Cobus Dowry

MINISTER
Date: 17 July 2003