2018 MTBPS: SALGA input

Standing Committee on Appropriations

31 October 2018
Chairperson: Ms Y Phosa (ANC)
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Meeting Summary

The South African Local Government Association (SALGA) briefed the Committee on their response to the 2018 Medium Term Budget Policy Statement (MTBPS). It focused on the macro economic climate and said that the MTBPS had three key priorities.

The first one was implementing the economic stimulus and recovery plan launched by President Cyril Ramaphosa in September, with particular focus on infrastructure spending. A planned Infrastructure Fund, details of which would be revealed in February 2019, was looking for innovative and blended financing options, including private sector money and support from development finance institutions.

The second key priority area was to improve governance and financial management at all levels of government. National Treasury’s (NT) efforts to improve financial management included collaboration with the Auditor General (AG) to reduce irregular expenditure, enhancing public sector management capacity at a local government level, the introduction of a framework for more efficient procurement, and development of a framework for the financial recovery of non-performing state departments.

The third area was to reform state-owned enterprises (SOEs) and to improve their financial health. Reforms included the appointment of new boards at several troubled public enterprises, work by the AG to unearth previously unreported irregular expenditure, forensic investigations into corruption, and a long-term turnaround strategy for Eskom to be revealed in November.

SALGA said the reality was that South Africa (SA) was in an economic crisis and this could only be understood by looking at the root causes in a holistic way. The solution to the country’s economic problems lay in bold measures of transformation. Rating agencies would likely look out for three priority areas that could trigger changes to the country’s sovereign credit rating in the months after the MTBPS. These were  the pace of fiscal consolidation, reforms to the SOEs, and measures to lift economic growth.

Based on these three factors, rating agencies would probably not be too enthusiastic about the MTBPS. It did not suggest any improvement in sovereign creditworthiness. On the contrary, the languishing economy was keeping the government from implementing any real fiscal austerity. This was resulting in rising debt for the state which future generations of South Africans would need to pay for.

The Members were concerned about the irregular expenditure which had ballooned instead of decreasing. They also raised concerns about how many municipalities did not have tax bases, were not sustainable and were debt trapped. The Committee questioned what balancing act SALGA had to employ, because they had major financial concerns yet were requesting more money. Members also raised the matter of government departments owing serious amounts of money to municipalities and suggested that they be invited to appear before the Committee to engage on how this problem could be resolved. This invitation should also be extended to private sector entities which owed municipalities money as well. The Committee’s general feeling was that there had been a regression at the local government level which was negatively affecting residents.

Meeting report

Opening remarks

The Chairperson said that the main objective of the meeting was to receive the South African Local Government Association’s (SALGA’s) response to the 2018 Medium Term Budget Policy Statement (MTBPS). The response was in relation to the extent to which the statement responded to local government issues. In respect of the Money Bills Act, SALGA was an important stakeholder in the budget process. The discussion about the MTBPS in relation to local government was important because it was the face of government at the service delivery point. That was why SALGA’s response to MTBPS became critical. South Africans look to local government for basic services and local government withstands the worst of people’s frustrations when service delivery falls below expectations. Unemployment often means an extra demand for services, but lesser revenue for municipal services. Unemployment had risen from 27.2% to 27.8%, which means more South Africans were unemployed, and this puts more pressure on municipalities.

South African Local Government Association

Mr Mohamed Lorgat, SALGA Director: Audit Support, said the MTBPS had three key priority areas.

The first was implementing the economic stimulus and recovery plan launched by President Cyril Ramaphosa in September, with particular focus on infrastructure spending. Efforts were being made to improve existing infrastructure spending, including work on a project preparation facility and the planned online publication of expenditure reports on current infrastructure projects. A planned Infrastructure Fund, details of which would be revealed in February 2019, was looking for innovative and blended financing options, including private sector money and support from development finance institutions.

The second key priority area was to improve governance and financial management at all levels of government. National Treasury’s (NT’s) efforts to improve financial management included collaboration with the Auditor General (AG) to reduce irregular expenditure, enhancing public sector management capacity at a local government level, the introduction of a framework for more efficient procurement, and development of a framework for the financial recovery of non-performing state departments.
 

The third key priority area was to reform state-owned enterprises (SOEs) and improve their financial health. Reforms include the appointment of new boards at several troubled public enterprises, work by the AG to unearth previously unreported irregular expenditure, forensic investigations into corruption, and a long-term turnaround strategy for Eskom to be revealed in November.
 

Mr Lorgat commented that considering the fiscal, revenue, corruption and expenditure crisis facing the nation, this statement was very underwhelming. The reality was that South Africa (SA) was in an economic crisis and this could be understood only by looking at the root causes in a holistic way. The solution to the country’s economic problems lay in bold measures of transformation.

Rating agencies would likely look out for three priority areas that could trigger changes to the country’s sovereign credit rating in the months after the MTBPS. These were the pace of fiscal consolidation, reforms to SOEs, and measures to lift economic growth.
 

On the first point, the message was quite clear: the trajectory of the fiscal balance was not narrowing as previously expected. The peak in public debt – as a percentage of the gross domestic product (GDP) -- was also being pushed out further. The deterioration in deficit and debt numbers had been seen frequently over the past five years, and rating agencies would have to ask the question as to how this may influence SA’s credit worthiness going forward.

Regarding reforms to SOEs, there was certainly some positive momentum of late under Minister of Public Enterprises, Pravin Gordhan. This included increased profitability of international route services by South African Airways (SAA), work on turnaround plans for SAA and South African Express, and the appointment of new boards at several troubled public enterprises.

Economic growth remained a thorny issue. Forecasts for growth in the MTBPS were underpinned by the success of the economic recovery and stimulus plan. Rating agencies would need to make their own projections based on their perspective on the extent to which the stimulus plan would be successful.

Based on these three factors, rating agencies would probably not be too enthusiastic about the MTBPS. It did not suggest any improvement in sovereign creditworthiness. On the contrary, the languishing economy was keeping the government from implementing any real fiscal austerity. As could be seen in the projected figures, this would result in rising debt for the state that future generations of South Africa would need to pay for. The fact was that it was the deceleration of fiscal spending since 2014, and the outright reduction of spending, that had plunged the economy into the doldrums at a time of depressed private sector investment and household spending.
 

Discussion

Mr B Martins (ANC) said that a fundamental challenge for a number of municipalities had been an inadequate tax base, resulting in a number of municipalities not being financially stable, viable and sustainable. That was a fundamental problem. Municipalities could not achieve their tax targets, or communities that derived services from municipalities were unable to pay. That remained a fundamental challenge. SALGA had said in their presentation that ultimately what the Finance Minister had said was underwhelming, and they spoke about a need for fundamental change in a number of areas. They needed to articulate this more clearly. What was meant by fundamental change? They could not just say that there was a need for fundamental change -- what were they referring to specifically? 

Ms D Senokoanyane (ANC) said that regarding the challenges at Eskom, SALGA had mentioned the management of Eskom in regard to municipalities. What sort of system did they think would work better? There were also challenges in terms of prepaid electricity that Eskom adopted, as people steal the electricity and bypass the meters.

With regard to infrastructure, SALGA had raised a very important point about the lack of maintenance, which was a very big challenge.  More infrastructure was being erected at the expense of maintenance. Did municipalities have the capacity to run this infrastructure? This was because there were serious problems even with the new infrastructure. There were incomplete projects and a lot of fruitless and wasteful expenditure, and some of them were related to capacity issues.

Government departments owing municipalities had always been a sore point, because if government departments did not pay, they had a serious problem. SALGA had stated that there had been a lot of discussion around this matter and it had been going on for many years. What was the progress and how would they rate the percentage debt across the country by government departments?

The municipal public accounts committees, as SALGA had said, had no support. The last time she heard about them was that they were just not taken seriously, let alone not being supported. There would be situations where the municipal public accounts committees’ chairperson and the Speaker were at loggerheads because they did not agree on oversight being imposed over them.

Ms M Manana (ANC) asked how many of the 277 municipalities were financially stable and sustainable.

Referring to unfunded mandates, she said that she knew that there were libraries and clinics that were still under municipalities, but according to the Constitution some of the municipalities were not supposed to do that and some of the libraries were unfunded mandates for the municipalities. When would this matter be resolved?

On the subject of revenue collection by municipalities, she said that she lived in Witbank, and residents were not receiving their accounts at all. How were people expected to pay for services when they were not receiving their accounts? They did not know what they owed. She was not sure whether SALGA was aware of this. She had gone find out why people were not receiving their accounts and was told that people must go on a website to find out about their accounts. Fortunately for her, she had the equipment to go on the website, but how many of the people that they were leading could use that website? There were still uneducated people in this country. The Minister of Finance had spoken about an action committee which had taken a municipality to court and won the case. There were so many people who had wanted to join the action committee because they were dissatisfied about the services. SALGA would come to the Committee representing municipalities, and lament to them that people did not want to pay.

At Mosua Lekoe, people were expected to pay on the first of every month but they received their accounts after the seventh, and after the fifteenth they were going to be charged for late payment, yet their accounts were not delivered on time. SALGA needed to internally interrogate themselves before complaining about the communities. What she was talking about she experienced every month. When she went to the municipality to ask how much she was owing, the municipal officials had been happy to see her as a Member of Parliament, and had raised many concerns.

In respect of capacity building, people had been trained many a times and then replaced with people who knew nothing, such as in the SA Revenue Service (SARS) saga where a manager who knew nothing about SARS matters had been appointed. The same thing was happening at municipalities. There was always an issue raised about capacity building, but some of the challenges were being done deliberately.

Dr C Madlopha (ANC) said that there were numerous challenges faced by their municipalities. She asked about the VBS matter and the investments of grants, and whether that was actually how things should be done? It sounded ominous to them that grants were also invested.

Regarding the amount owed by government departments, they would also be a need to find out the amounts owed by government departments as compared to other entities, such as the private sector. What exactly was being done with these government departments, because many of them were retarding progress regarding local resources? Most of the municipalities were bankrupt due to non-payment by Government departments. What was being done?

What was being done about the Public Accounts Committee matter, because that Committee needed teeth for it to actually work? They needed to be given a lot of powers so that they could implement their work.

Mr A McLoughlin (DA) said he agreed with his colleague that the Committee needed to have some teeth so that they could actually do their jobs.

He said that they had been talking about how the debt ceiling was going to be set at 60% by 2023. He had looked back at some figures and in 2012 Budget they had been told that the debt would stabilise at 38% in 2014, and they were now at 60%, which was almost double. 2012 was almost six years ago, so if they projected six years ahead they were going to be in serious trouble unless they could turn this around. So far, all counter-cyclical attempts had had no real effect other than just get them further into the hole. Professor Plaatjies had told them that 87 municipalities were in a debt trap -- in other words, they did not have the ability to pay their debts back. What about the poor citizens who lived there, what about the residents? They had had no hand in this. Ordinary South Africans pay their rates and taxes and they get less and less for their money all the time. It becomes a huge frustration, and the effect of it is that people no longer want to pay. They now had unwilling people who were not prepared to contribute to municipalities anymore because they were getting nothing for their money. Did SALGA have any kind of suggestion as to how they could address this?

The Portfolio Committee had attended a conference a short while ago which encouraged municipalities to look at different ways of raising money. On the one hand, they were telling the municipalities to go out and borrow as much as they could, and when they did that they get into a debt trap and now they were stuck. Where do they draw the line? There had to be a balance found somewhere. Seemingly, municipalities were either unable or unwilling to get in the money that was due to them from their own residents. In his constituency it was a huge problem -- there was a large community that owed the municipality nearly R3 billion in unpaid taxes and rates. There was no attempt whatsoever to recover that money and it was not written off, so it was carried from year to year and did nobody any good. As a result of that, there was just no service delivery -- they could not afford anything. There was a municipality with one million people in it, and they have one refuse truck. How were they ever going to service the people, and that was in breach of the law. The Municipal Manager and Mayor were now guilty of criminal offences because they were unable to comply with the requirements of the law in terms of environmental protection and things like that. Surely the Municipal Managers and the Mayors should be finding a way out of this, because it was just a spiral. There must be a turnaround at some stage.

He said that ever since he had been a Member of the Committee, he had been an advocate for increasing what was paid to municipalities. It had always been 9%, and he thought this was too little. He had been a voice in the wilderness, because everybody had said that municipalities had the ability to recover the money themselves, and that was what they should do. However, if the municipality itself was not capacitated, it did not have the ability to do that. They could not then punish the citizens for the fact that municipalities could not do their job. That was in effect what happened. Was SALGA in favour of an increase in what municipalities got, because they were not lobbying the Committee for that and he thought they should be doing that? They just refer to it as a fact, but they do not say that they were in need of a certain percentage increase. It was not going to happen in a hurry, but it would happen if they pushed for it.

Was there any kind of standardisation across the municipalities where they had a municipal employee to resident ratio, how many employees they had per resident, how many refuse trucks per 100 000 residents, how many of this to how many of that? This was because in some municipalities there was huge wastage of money and they have far more expenditure on things that they did not need and no expenditure on things that they did need. There was a municipality with one operating vehicle, and 40 vehicles in the garage waiting to be repaired. It made no sense.

The matter concerning the failure to maintain infrastructure was a huge issue. National Treasury (NT) had said in the past that 8% of the budget must go towards maintenance, and then it had been changed to 8% of the value of municipal assets should be allocated for maintenance, but there was no money to do it. How could they find a middle path there?

Mr N Gcwabaza (ANC) said that in the most recent report of the Auditor General (AG), it had been noted that in terms of financial performance and accounting, municipalities had generally regressed from what they had achieved in previous financial years. How was SALGA going to address this issue and assist municipalities to perform better, and better account and minimise irregular, wasteful and fruitless expenditure in the municipalities?

SALGA had mentioned that about 133 municipalities had adopted unfunded mandates. What could be the issue that persuades these municipalities to adopt such unfunded mandates, knowing that they do not have the funds? How could they be assisted?

Regarding infrastructure, was SALGA proposing any concrete percentage that municipalities must allocate towards the maintenance of existing infrastructure? He raised this question because it had been a problem for some time that existing infrastructure was not maintained, and that had been noted in the presentation.

To what extent was SALGA cooperating or working with the Office of the Chief Procurement Officer to ensure value for money when it came to either building new infrastructure or maintaining existing infrastructure? This was so that they ensured quality and value for money. He raised these concerns because he had always wondered why was it that in black townships and semi urban areas which had tarred roads, there was normally very poor maintenance of infrastructure, whereas in previously white areas, infrastructure was generally maintained. Matters of water leaks, potholes, etc, were immediately fixed in formerly white areas. He had seen a very huge pothole which could drown a child if filled with water, and he had asked the people on the street the question of why, particularly in black areas, they were failing to maintain infrastructure. Two matters came up in the course of the informal talks. One was that the water leaks there were not attended to by the municipalities. Water flows into the road, cars drive on it and eventually potholes are created. Someone had remarked about the big pothole that he had referred to and said that the water pipe had been damaged from inside the yard of a particular household and it was fenced, so clearly repairing the water pipe was the responsibility of the homeowner, because it was inside the yard. What the homeowner did instead was to dig a trench and redirect the pipe into the road, causing damage. Therefore there needed to be awareness in the communities about the damage they were causing. It was important that they knew that as long as the water pipe put into the house by the municipality was inside the yard, the responsibility of repairing it lay with the homeowner -- the municipality could not be blamed for that. He was not sure the extent to which SALGA was educating the communities on such matters and attending to them.

On the matter of revenue collection, he said he was in a rural area outside Pietermaritzburg and had seen a cluster of water meters near the dirt road which were new, and already leaking on to the dirt road. There were about five or six of them and he was not sure whether the workers that read the meters would be able to tell which meter belonged to which house because it was a cluster of them. In such a situation, it would be difficult to collect the revenue for the water consumed in that rural area. It was not clear which meter was linked to which house, and water was leaking from the water meters themselves, not from the pipes inside the yards. This raised very serious questions about the quality of work done by the companies contracted to install the infrastructure. When there was a pothole, a contract was given to small, emerging enterprises and the stories they heard when they conversed with communities was that there was no monitoring of the work that these contractors do. As a result they deliberately did shoddy work so that there was a pothole a couple months down the line, and they would get the contract to fix that. How were the small contractors and the quality of their work monitored?

An issue raised repeatedly in this Committee, and probably other relevant Committees, was one of the specific challenges raised was population density in relation to the cost of service delivery. He wanted to raise the matter of illegal connections again. Some of the illegal connections were not the responsibility of SALGA, but perhaps of Eskom. Illegal connections of electricity and illegal connections of water were not only being made in the informal settlements, but to informal businesses as well, and foreign nationals were notorious for this -- whether they were African or Chinese foreign nationals, they did the same thing. The Committee had not heard how SALGA and the municipalities were vigorously following up on illegal connections, so part of improving revenue collection included that as well. Unless they addressed this as part of their revenue package, it would be like the illicit flows repeatedly spoken about in the relevant departments and got neglected, and they needed to attend to it that if they wanted to improve their revenue collection. 

Could they explain the administrative cost value? He was not sure whether they were suggesting that their administrative structures were too cumbersome and therefore costly, or if it was a lack of skills in some instances that necessitated the use of consultants. How did SALGA propose to address that question?

The Chairperson referred to the expenditure of the budgets, the lack of capacity and continuously receiving audit outcomes that talked about irregular, fruitless and wasteful expenditure every year -- and every time it was ballooning. It had increased by more than 70% in the 2016/17 financial year, and irregular expenditure specifically increased by 75% from R16 billion in 2015/16, to R28.4 billion in 2016/17 up to. She was pointing out the extent of the challenge.

SALGA had stated that service delivery received an inadequate distribution of nationally-raised revenue, and had then gone on to say that there had been a joint meeting between them and the Financial and Fiscal Commission (FFC) to look at what they considered adequate allocations for nationally-raised revenue. What had been their findings and recommendations? Had they shared this information with NT, and what had been the outcome of the meeting with NT on this proposed increase of service delivery equity distribution from the nationally-raised revenue?  However, did SALGA realise that the 9% that was allocated, because some municipalities had correctly said they could not afford service delivery because of the poverty in that municipality, was not assisting them to provide the quality service that was expected of them?

SALGA would have to come up with a balancing act, because they could not keep putting money in a hole, and that money was not benefiting the community. They had also heard that about 80 municipalities were debt trapped, and that immediately indicated that they were dysfunctional. What intervention strategy were they proposing? SALGA’s other role, if she was correct, was to monitor, to provide oversight over municipalities, and also the serious intervention of capacity building so that they could achieve according to their service delivery mandate, and infrastructure development as well. Could SALGA tell the Committee about their oversight and how they could make it effective, because it was seemingly ineffective? That was why they were continuously getting these negative audit outcomes from the AG, and there was no improvement. Regardless of there being no movement, SALGA still wanted more money and to her, that meant that they were going to increase the wasteful expenditure.

She said Mr McLoughlin had said that SALGA needed to lobby the Committee, and asked what increase they had in mind. They could lobby the Committee --  she knew that this was the Member’s point, but if they did not prepare the ground then they were putting money into a hole and that money could disappear without people benefiting from quality services. There was money allocated to the capacity building of municipalities, and if they were indeed using it, why were they still experiencing these challenges? This was because it was categorically known that these municipalities needed to be capacitated so that they could be in a better position to provide quality service delivery, and also in a position to manage their finances better and to improve the governance matters within the municipalities.

She commended SALGA on their invention with the consequence management framework, but when they came up with it and the process was unfolded, had they consulted all their stakeholders so that there was buy-in and support? There must be movement from talking to actual change on the ground -- there must be an impact. The Committee’s role was to follow the money and as they followed it, there must be impact. Right now, they did not see an impact and municipalities were in fact regressing, as stated by the AG. That then became their concern because how could the Committee support them when they say they want more money when they could not use the very limited 9% that they were getting now? It could not be best used in the best interest of the beneficiaries.

SALGA’s response

Mr Charles Stofile, SALGA Chairperson, said that the first question was a deep question -- the inadequate tax base. If one ran a business, one depended on the investment acquired from shareholders, and the shareholders in this case become the taxpayers. He would return to this question because he would raise other issues connected to it. It was a fundamental question to SALGA.

He acknowledged the Minister’s reference to the community that had taken its municipality to court, and that the court had made certain findings on the inability of government to support each other as a sector. In terms of the Municipal Systems Act, the community was a shareholder in the business and that was why they were required by law to have public participation in whatever they did -- the budget, Integrated Development Plan (IDP), and so on. Therefore when shareholders were unhappy they could use other instruments such as the instrument of going to court, and it had been a very good lesson that they had learnt as local government practitioners regarding how they interacted and engaged with their shareholders. In their environment, the community were shareholders as well as recipients of service delivery, so they wore two caps interchangeably.

SALGA had done a lot of work and the Committee would recall that there were many comments about Municipal Public Accounts Committees (MPACs), and knew that MPACs was a gentlemen’s agreement. That was why SALGA, together with The Department of Cooperative Governance and Traditional Affairs (COGTA), was amending the Municipal Structures’ Act so that they give teeth to MPACs to play what was expected in terms of their oversight role. That was why they were interacting with the Portfolio Committee that dealt with COGTA on 6 November. The issue of MPACs going into the future might not be in the same as it was in today with the amendments that they were putting together regarding that matter.

SALGA was also raising at COGTA and other platforms, the government’s inability to use section 154 of the Constitution that supported local government, and this was coming at a point where they were discussing the instrument of the section 139 intervention in the Constitution. The requirements, in terms of that instrument, were to make one’s own assessment as another level of Government in terms of the assessments and reports regarding weaknesses found. The bigger concern and challenge was the inability of the three spheres of government to share notes in identifying weaknesses in local governments and to interact swiftly in the local governments in respect of the challenges faced. That was one weakness they had picked up as SALGA, and they had raised it with the relevant Ministries and the President.

On the Eskom matter, he said he did not think it was known that in Gauteng, Alexandra township subsidised the suburb of Sandton. Alexandra subsidised Sandton in that in Sandton, the allocation of electricity was located in Eskom, while in Alexandra, the electricity was from a municipality. When a municipality charges individuals, it includes the street lighting whereas the street lighting in the town was not paid for by those individuals and was cross-subsidised by the township. The question was how far in the last 20 years of democracy and freedom they had significantly transformed the country.

Ms Manana asked if Mr Stofile could repeat the matter of Alexandra subsidising Sandton, as she had not heard it properly.

Mr Stofile said that what he had been saying was that Alexandra was historically a black township and Sandton was a historically rich area. The township subsidised the historically wealthy area because in the wealthy area the electricity was provided by another entity which was not charging what was being charged in the township. For example, in the township they charged R12, while in town and in Sandton they charged R7. There was a disjuncture, and that was the argument they had every day with Eskom because it affected the revenue base of a municipality. That was why they and Ministerial Intervention Task Team (MITT) was investigating the matter. This went back to the issue that Mr Martins had spoken about -- the revenue base. That was the concern he was raising regarding the broader agenda concerning services. That was what SALGA was arguing, in terms of a Constitutional ruling, that water could not be used as a pusher for individual services but electricity could, because water was a human rights issue, as resolved by the Constitutional Court in the case in KwaZulu-Natal.

Mr Gcwabaza commented that this issue was not a new issue, and he knew he had given the example of Alexandra and Sandton, but it was all over the country. Black townships had over the years been subsidising affluent white areas. He had heard the story back in 1985/6 from a person who was working in the Durban municipality, in the electricity department. He could not understand what he was being told, that black townships were subsidising white affluent areas with electricity. That also applied to white-owned businesses that were located in urban areas as well. When one saw huge charges for electricity in townships, part of that was because they were subsidising the formerly white areas and businesses. That issue had not been resolved till today.

Mr Stofile responded that it had been resolved, and that the SALGA national executive committee (NEC) had taken a decision to challenge the matter through the Constitutional Court. President Ramaphosa hadrequested them not to, and had put together an Inter-Ministerial Task Team which was chaired by Minister Zweli Mkhize, and SALGA participated as an association. They had agreed to put together an advisory team which was drawn from different walks of life to provide expertise, and had completed and submitted their report. It just needed to follow certain procedural processes. The matter had received attention, as SALGA had raised it, because its responsibility was to lobby, represent and advocate for the interests of local government.

The Chairperson said that they were happy that the matter was receiving attention now, but why had it taken them so long? In terms of the Constitution, they had to be responsive and their response had to be timeous. Why had they left their people to suffer for so long? That was why she had spoken about SALGA’s oversight function and its effectiveness.

Mr Stofile responded that that question could be addressed to Parliament, because SALGA had been raising this matter for the last 15 years. That was why they had taken a decision to go to court to ask for a declaratory order on the matter, and many other matters in Emalahleni which Ms Manana had referred to.

He said that with the erosion of a tax base, one could not even think about a sustainable local government system, because a tax base was supposed to the support the functionality of the system. For a business to operate, it had to have certain resources injected into it for it to succeed. That was why SALGA had been continually engaging with government over the past 15 years.  

SALGA’s argument on the Municipal Standard Chart of Accounts (MSCOA) was that they did not think that it could be used in a deep rural area in the North West, for example, where the attraction of skill was nowhere to be found. That was why SALGA had told NT that in its view, it should be introduced in a phased approach. That was why big metros like Tshwane were saying that MSCOA did not work, because it required them to go and get consultants. The creators of the MSCOA had left the NT which was why SALGA anticipated that in the coming period there would be another regime, because the MSCOA creators had left and have gone to an entity that used to train municipalities on its usage.

SALGA was saying that they had not been quiet on these matters. They had been raising them right in the faces of the authorities, saying that the trend they were following was not right and was not to the benefit of the people in the municipalities where they operated. Linked to that was capacity building, and the most unfortunate thing was that when people referred to capacity building, they referred to regulatory compliance. This was the challenge municipalities were facing -- that if one did not comply with the regulation, then one was not capacitated. That was why they had engaged on this matter.

On the VBS matter, it was known that SALGA had not encouraged their member municipalities to participate in instruments that were not beneficial. It was on record, it had been their view, and they had expressed this view in Parliament and were expressing it to the Committee, that there were witnesses in the instruments that they were using in terms of oversight. If one read section 71 of the Municipal Finance Management Act (MFMA), municipalities had to report to NT and COGTA, not to SALGA. That was why SALGA had developed instruments to participate actively in engaging their member municipalities on challenges that they faced, but by law municipalities were required to report to COGTA and NT.

Mr Lorgat said that the last point raised was an important one. One of the challenges SALGA faced in respect of its monitoring and oversight role was that it did not have the power to amend or change legislation or regulations such as the MFMA or the Municipal Systems Act, etc, which were in the ambit of NT and COGTA. One of the biggest challenges SALGA faces when it comes to monitoring municipalities was section 71 reporting. A municipality needed to report in terms of section 71 of the MFMA on a monthly basis, and they submitted that report to NT and COGTA. SALGA does not get that report -- the only time it sees that report was when NT has done a consolidation on a quarterly basis and they put it out in the public. That was the first time SALGA sees it and what it means for the municipalities. What SALGA had been doing over the last couple of months was to lobby COGTA and NT, and their members as well, to say that when they were sending their section 71 reports, they should add one more recipient -- a SALGA representative -- to that email so that they could also get it at the same time as the other bodies, and then they could also start doing proactive monitoring and oversight etc. This was because from a NT and COGTA perspective, the issues would be different from a SALGA perspective. SALGA’s perspective would not be punitive in nature but rather to see where the gaps were and where they could support the municipalities.

The unfunded mandate matter was raised on a regular basis, year in and year out. Before this Medium Term Budget Policy Statement was presented by the Minister of Finance, there was a lot of work that happened behind the scenes, such as a budget forum that takes place. There was a technical budget forum where SALGA, the FFC, COGTA etc, sit and thrash out some of the technical issues. From there, when they have consensus on matters, there was a budget forum where the principals discuss the matters. Therefore they had a sense of what was going to be in the Budget Speech before the Minister presented it because they had already been taken through it and know what the issues were and had had an input on them.

The fundamental point raised about the unfunded mandate was that there had been work in the pipeline for a while now regarding the powers and functions. COGTA had been tasked to deal with this, and unfortunately they had been dragging their heels. They had stated vociferously that until that document was done and they had clarity on the functions and powers, the matter of unfunded mandates was going to continue for a while. Unfortunately, the funding did not always follow the function, and sometimes they allocated a function to local government but the requisite funding did not come through. This was why one found situations where libraries and clinics were being administered by local government but it had not been budgeted for, or there was no funding for it.

On the challenges faced by Eskom, the subsidisation matter was one, while the other was that electricity supply agreements between Eskom and municipalities had not finalised in many instances, with the result that in Gauteng it was known that one of the biggest townships, Soweto, was supplied by Eskom but revenue collection was quite poor. So whenever Eskom state that they want to take over and supply electricity in other areas, SALGA asks them how they were going to improve collection rates compared to what the municipality was doing, and they usually do not have a response. The electricity supply matter had been made very clear from a Constitutional point of view -- that electricity supply was the responsibility of the municipality, and not Eskom. It was a matter that had been looked at -- the IMTT had looked at it, and there had been a legal judgment or legal opinions that were sought on it. The point was for them to now act on those two legal opinions.

On the debt trap concern, and looking at the summary of their section 71 report, of the R143 billion that was owed to municipalities, only R27 billion was realistically collectable. It was highly unlikely that they would be able to collect the remaining R120 billion, and the challenge was how to write it off. One would understand that when one was a municipal councillor, one would be reluctant to write off a huge chunk of money that was owed to one’s municipality. On the one hand, it sends the wrong message to say that if there was non-payment, it would be written off. One of the key pieces of research SALGA was currently undertaking was developing a Historical Debt Bill. This would look at how historical debt could be repealed, what the merits of it would be, and how effective it would be. If they did it, they would propose that debts be written off with the proviso that municipalities were allowed to install a prepaid meter or something similar, so that in future they would be able to provide services. It was not a perfect system, but it would be a way to ensure that if one did not pay then they would not get, and if they did pay, then they would receive their services.

The question on norms, ratios, and standards regarding staff to residents and different service capabilities to residents etc., was an important point, and SALGA had not done much work in this regard, but they had noted it and it would be helpful for them. Regarding performance parameters, there was an exercise that had been done early in the year by COGTA on identifying what an ideal municipality would look like, but unfortunately it focused on financial aspects and not so much on service delivery aspects. Perhaps bringing in some of these parameters would give it a holistic view in terms of the ratios and standards, and would be very useful. There was also the municipal performance barometer in terms of norms and standards, and it was something SALGA would take up with the municipalities to focus on in the future.

The following point was a contentious one that comes up year in and year out. Every year when the AG issues his audit report, irregular expenditure was always noted. Even though it had gone up by 75% and ultimately it was high, it was a negative indication. However, it did not mean billions of Rands had gone down the drain and into a black hole. SALGA raises this issue with the AG all the time, pointing out that 95% of irregular expenditure was related to regulatory non-compliance with supply chain policies or regulations. What it meant was that if the supply chain regulations say that a tender must be advertised for 30 days and for whatever reason they could not advertise for 30 days and advertised for 28 days, it was automatically indicated as a non-compliance. The may have ended up getting the right supplier, with the right quality and at the right price, but the mere fact that they were unable to comply with that one regulation, meant it was taken as an irregular expenditure. Context was always important when it comes to these things and unfortunately the public perception was that when people see irregular expenditure, they think that money was stolen etc. SALGA’s view was that prevention was better than cure, so there should not be any irregular expenditure. However, in life things happen. In the municipal environment, the laws were strict, with good reason, but they would not be able to follow all of it perfectly. They had therefore been requesting the AG, going forward, to indicate the categories of irregular expenditure that they had picked up. What they were trying to pick up from that was to see where goods and services and value for money was received and where it was not, and instances where goods and services were received and value for money received, but there had not been 100% compliance with the regulations. That would give a better perspective to the public, to oversight and to Parliament as well.  That was something that SALGA was pushing very hard for, because context was important.

The question asked on how they balance the need for more money and how much the increase should be, involved what they called the “Horizontal Split” and “Vertical Split” of the equitable share. The one part was looking at the overall quantum and in terms of that, they had done a study of what the numbers should be, and could share the results with the Committee. They had engaged with NT and COGTA on what they had reported.

The NT response was that there were financial constraints and there was no additional money available, so they had to do more with what they currently had in the fiscus. They understood that and they understood that if one was to give more to a sphere of government, they had to take from another sphere of government, so there had to had to be some balancing and counter-measures regarding that, and they acknowledged that. However, the point they had been raising with NT was that by leaving the regime as it currently was now, it was not serving its intended purpose. What was happening in many cases -- and they also know that there were a number of actors -- if an indigent register in a municipal environment was not up to date or incomplete, for instance, then the number of people that one was providing basic goods and services to in reality may be more than what was on the books, so there would never be a balance between what one was getting and what one was providing. There were a number of factors and the study addressed that as well.

Further discussion

The Chairperson said the Committee’s approach was to establish what SALGA’s impact was, and SALGA had to come back to inform the Committee what this was.

Ms Manana said that she had asked about the matter of accounts in Emalahleni, and whether they were aware that the community was not receiving their accounts. She even had proof of a notice from SALGA on how to go to their website. The majority of the people did not have the necessary gadgets to download this website. How could they do that? Were they aware of this?

They had indicated that the VBS matter had been reported to COGTA and NT. In other words, they were saying that they had been fully aware.

SALGA had argued that the money they received from the national revenue was not adequate, but NT had counter-argued this, stating that municipalities received money in the form of grants and got additional revenue by charging for their services. What was SALGA’s view?  In Cape Town, wherever one went into town, there was paid parking and most municipalities did not have that. If municipalities had paid parking that could assist them to increase their revenue.

On the proposed Infrastructure Fund, most municipalities were not ready or geared for it according to the AG’s reports, as they were not using their allocated budgets accordingly. Did SALGA think municipalities were ready for this?

Ms Senokoanyane said that she heard the explanation of irregular expenditure, but it did not hold any water. Irregular expenditure was irregular. It means non-compliance with applicable legislation, and for it to balloon like that was concerning. Unauthorised expenditure was not allowed, but at least one could live with it, but once it was irregular it was irregular, and it could not be condoned. She just wanted to put that to rest.

She also wanted to find out about the informal settlements they were upgrading. What was the extent of the land invasion problem, because most of the land used for informal settlements was not meant for residential dwellings.

She commented that they need to be commended on their consequence management because it had been a challenge for a while. It was good that they had come up with some points regarding the consequence management framework, but some offences were so serious that more drastic steps needed to be taken. They may need to look beyond the punitive measures they had for instances where the offences were serious.

The Chairperson said they had to do training according to the legislation so that there was a balance between compliance and performance. What informed SALGA’s training programmes? Their training needed to address good governance and leadership etc. With every new policy, the municipalities had to be trained because they were implementing policy. SALGA had also said in their response that the newly introduced reforms by NT slow ed down delivery because municipalities needed to learn, adjust to them and focus on them instead of fast-tracking service delivery. Was it not SALGA’s role, after the reforms were introduced, to develop a programme and run it so that all the management could familiarise themselves with it and implement it without any problems?

SALGA had stated that there was no maintenance on infrastructure, and instead they were looking at the new NT target. Her understanding was that every municipality had two programmes under infrastructure -- the new NT targets, and also maintenance. They needed to have a maintenance plan because maintenance was included under infrastructure development, and it should be included in training. Municipalities needed to be made aware in training that infrastructure development was important, and that maintenance may even be more cost effective that erecting new buildings. She was emphasising this because infrastructure development helped alleviate poverty. There was also an emphasis on fast tracking infrastructure development in the National Development Plan (NDP), and if SALGA was not assisting municipalities with this, then it would remain a pipe dream and the money would have to be surrendered, because there were no plans. Indeed, the Minister had stated that there needed to be improvements in terms of planning, assessments and implementation, as well the monitoring of implementation. SALGA had to adapt their training so that it assisted in sharpening the municipalities’ thinking along the lines of infrastructure development, because that assisted with exclusive economic growth.

There was ageing infrastructure related to ageing pipes underground, and no was speaking about that. It was like they were waiting for there to be sewage spillages before resolving the matter, and that was a reactionary response instead of forward planning. Who was sensitising municipalities about this to a point where there were plans to unbundle the infrastructure so that they could fix it before it was broken?

Ms Manana said that regarding the departments owing money to municipalities, it was time for the Committee to call them, together with SALGA, to come and clarify the matter, and to determine what the problem with paying municipalities was.

On the matter of ageing infrastructure, she had heard the Chairperson speak about the pipes but now there was a new syndicate which was removing the steel in the drains. As a result of this and the climate change, there would be floods and the drains would collapse. This would be a disastrous matter. SALGA needed to talk to the municipalities and raise these matters seriously, because most of the drains were broken and this would cause serious damage.

Mr Stofile said that this was linked to what SALGA referred to as collective planning. Local government in South Africa operates in a location, and what was adopted by Parliament had been wall-to-wall type of municipalities. Therefore, the municipality had to be involved in any planning that took place in a municipal area. National government also had to be involved, however, because the challenge with NT was bringing MSCOA into the deep rural municipalities with no technical capabilities. What did they do? They needed to factor that into their planning. That was why they encouraged member municipalities about the importance of planning through their Integrated Development Plan (IDP) processes. According to the law, municipalities had to develop IDPs in which certain departments were supposed to play certain roles, and they were not playing those roles. Planning was a collective concern, because they were a unitary government and therefore planning became important regarding different role players. Unfortunately, they could go to any municipality in the country, and when they had their IDPs, the lead departments were not there. That was fiscal dumping occurred -- when departments were not performing and expanding money, the easiest way was to dump it on to a municipality while it was not factored into the plans.

Planning was an important matter affecting different role players including provincial, national and local bodies. That was a weakness they had in the country, as they were not really performing well on it. To SALGA, capacity evolved -- it would never end because there were those trained for MSCOA, and there would be new challenges that the municipality would face, and as new challenges come out, a different technique of training was needed.

He said that he could not answer Ms Manana’s specific question on Emalahleni because the law stated that municipalities planned according the views that they had, and then they must engage. Then SALGA becomes aware of such issues and then SALGA assists them on their plans. They were going to follow-up on the matter concerning the accounts and the website issue.

On their engagement with the departments owing money to municipalities, they had categorically been told that departments collectively were owed by the Department of Public Works (DPW), which needed to settle and make payments to municipalities. That was what they understood. They knew that in various areas there was land used for magistrates’ courts, and that they fell under the Ministry of Constitutional Development. Collectively there were hospitals and so on and they were told that the DPW was responsible and was the one that interacted with the municipalities that they owed. This was why in the presentation they had gone further to say that the debt trap was the money owed to them, and had even said that they were thinking of establishing a particular law to manage write offs because they believed, as an Association, that they could not point fingers. They had to take responsibility, and part of that responsibility was to craft something and lobby something based on what they had crafted. That was their position on the matter.

They agreed that capacity building was evolving, so as he had said earlier, the kernel of the question was whether or not they think that they could run a sustainable business if there was no adequate tax base. At a business level, one’s business was not sustainable when the tax base had eroded, and they were relating that to the financial capacity of the municipality to perform its duty and the capability of training those with insufficient capability. That was why they were lobbying COGTA, NT etc. to play the roles that they were supposed to be playing in terms of section 154 of the Constitution.

Mr Lorgat said that the matter of infrastructure maintenance was of real concern. When the Minister presented the Budget, he had spoke about the game changers, and one of the game changers was that 8% of each municipalities’ budget should be allocated to infrastructure maintenance. The challenge that they had -- and this was what they had tried to raise -- was that when municipalities received infrastructure grants from NT those grants were specifically for new projects to build, and not for maintenance. Almost all municipalities had maintenance plans, but the problem was the money -- the money was not there and maintenance needed money. That was where the challenge was.

One of the things they were looking at in Gauteng was called the Gauteng City Vision, where they were looking at a study specifically on the infrastructure maintenance backlog, and what the gap was. Gauteng was a limited example, and once the results came out they would do something on a wider scale. He foresaw that it was going to be quite a large number and was not sure where they were going to get funding, because these things needed funding. It addressed the matter of ageing infrastructure, such as the pipes, because all of that falls under infrastructure maintenance, and if the money was not there then it could not be dealt with appropriately.

Mr Gcwabaza said that he heard the point that when new money was allocated it was allocated for new infrastructure projects and not for maintenance, and if that was the case then it was a problem. He asked whether SALGA engaged those who allocate the money – NT, or even themselves as the Committee dealing with the division of revenue -- so that they could identify that 8% from allocated funds. It did not make sense that at a national level they were told that only a particular amount was allocated for new infrastructure but then the same national level says only 8% is for maintenance. That 8% could not be dependent on the amount of revenue they were able to collect. If that was the case, then they had a serious problem that had to be addressed.

Ms Manana said the Committee had once received a list of many departments owing municipalities. The answer from Mr Stofile was now different, as he was saying that Public Works was responsible. Even so, they still wanted to engage those departments and Public Works. They had been talking about this as if they did not want to resolve it. They needed to stop talking about it and resolve it. There were also private sector bodies owing municipalities, and the Committee needed to know them as well, so that they could engage them on how they were going to pay the municipalities.

The Chairperson referred to the informal settlement upgrades, and aksed what was being done to prepare municipalities for this, because in terms of the MTBPS there was money that had been redirected towards it. If nothing was being done to prepare municipalities and there was no close monitoring of the implementation and usage of this money, at the end of the financial year NT might cut the budget due to poor performance, and the implication would be that they did not need the money, and then it would be redirected to other activities.

SALGA was proposing that NT separated the Urban Settlement Development Grant (USDG) and the Human Settlement Upgrading Grant (HSDG). If this was correct, were they not worried that this would increase the proliferation of conditional grants? This was something that the FFC had cautioned against.

Mr Lorgat said that the point raised on the maintenance of infrastructure was the crux of the matter. Currently, the 8% requirement was just a norm. The way that the fiscal architecture was set up was that NT would not fund the maintenance of infrastructure. That had to come from operations, so it was dependent on revenue. SALGA agreed that it was a challenge because raising revenue was not always possible. They had proposed to NT that instead of giving a full 100% grant for new infrastructure projects, that they have a portion of those grants for maintenance and then the rest for new projects. NT’s argument had been to say no, they would assist with the building of the infrastructure but then the municipality had to maintain the structure from normal operations. They needed to interrogate that matter further.

Where the DPW got involved in the municipalities owing money was when NT, together with COGTA, requested the Department to undertake an exercise where they engaged departments throughout the country to verify the amount owing to them, because in most cases they were the custodians of public buildings in the provinces. There had been a task team and one of the things they had done very well was to take the amounts that were reflected as being owed by government departments to municipalities, and to verify them. They were able to determine, from the amount reflected, how much of it was verified and correspondence from relevant departments stating how much they owed. They now had figures and they had been verified. What had to happen now was for payment to take place.

When SALGA had engaged with NT, they had been told that there was no funding available. One of the things that they had been saying was that municipalities owes Eskom and the water boards, and they make payment agreements -- whether they agree to pay it off over three years or whatever the case may be. They pay it off according to their affordability and settle their debt. Why was it that they could not have the same arrangement for government departments, because they understand that they could not pay it all at once because it may have accumulated over a number of years, and they may have money allocated for other things. Surely they could have a payment plan like that? Over the last six months, there had been very little activity in terms of getting departments to pay the money they owed. The verification had been done and they now needed to move on to the next step.

The challenge faced by SALGA was that the government acknowledges that there is money owed to municipalities, but there is a reluctance to find suitable ways to pay the money, and that is something that they had to work on. They had the details of the amounts owed per province, and they would share that with the Committee. They agreed that if a business operated within a municipal environment, they should be paying for municipal services. However, in some cases there were issues where there were disputes, so the one thing that they always emphasise to municipalities was that they should get the basics right so that they did not give people the chance not to pay. As long as they were doing what they were meant to do on the side of the municipalities, then there should be payment and if there was no payment then control measures needed to be exercised, especially for businesses. If they operated within a municipal environment and were making a profit, then surely they should contribute towards the municipality.

With regard to the Informal Settlement Upgrade Grant and the proposal of a new grant, he agreed it did sound a bit counter-productive, because there was a rationalisation of grants under way at NT. Even so, there was still a need for certain grants, specifically like the one in question. There was always a requirement for a portion of the USDG to be used for informal settlement upgrades, but unfortunately because it was not set up as a separate requirement or did not standout in many cases, municipalities never fulfilled that obligation. They would do other settlement upgrades but did not always fulfil the requirement of the informal settlement upgrades.

He could not give the Committee a definite response regarding getting the municipalities ready for this. The SALGA Infrastructure Development Unit dealt with this specifically and informed the municipalities regarding infrastructure development, the USDG and human settlement matters. They would be better placed to respond to that, as he was not sure.

Adoption of Minutes

Mr McLaughlin moved to adopt the minutes. Ms Senokoanyane seconded. The minutes were adopted with all corrections.


The meeting was adjourned.

 

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