Stimulus package to municipalities; with COGTA Deputy Ministers

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Cooperative Governance and Traditional Affairs

30 April 2020
Chairperson: Ms F Muthambi (ANC)
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Meeting Summary

Video: Portfolio Committee on Cooperative Governance and Traditional Affairs
Audio: Stimulus package to municipalities: Department briefing

COVID-19: Regulations and Guidelines
Disaster Management Act 57 of 2002

The R20 billion COVID-19 stimulus package for municipalities is to cover the deficit arising from depressed revenue sources and to address the delivery of basic services to households that can longer afford to pay. Other measures are the repurposing of the Municipal Infrastructure Grant (MIG) so municipalities may use the grant to mitigate the more immediate problems. They are also looking at development finance institutions to offer loans to municipalities.

COGTA is engaging with municipalities to determine the extent of the impact of COVID-19. They will be requesting that municipalities revise their Integrated Development Plans (IDPs) for the new financial year starting on 1 July 2020 as well as their service delivery and remuneration budget.

COGTA will attend a meeting with National Treasury to allocate the funding. They will look at the number of poor households and whether there had been an increase. They will look at the impact on current revenue as some municipalities are 80% reliant on municipal revenue and some are 90% reliant on transfers – thus the impact is not the same. They will look at expenditure that has not been budgeted for.

Committee members asked about relief measures for those unable to pay their municipal bills due to the lockdown. They expressed concern that municipal councils were not having or were unable to have virtual meetings to discuss budgets nor were they conducting oversight. Members expressed disappointment that the COGTA presentation lacked details on how the R20 billion allocation would be spent. Accountability and oversight for the R20 billion expenditure was a collective concern for Committee members.

Members critiqued the cooperatives solution since cooperatives have a history of failure. They said it would be more effective to get structures who have been doing this type of work and provide support to them. For the 49% of municipalities Treasury had already identified as requiring support and intervention, how would they be managed under these circumstances? How would this intervention address capacity challenges. Another concern was the R1.5 billion MIG funds spent on short-term water solutions.

Meeting report

The Chairperson thanked both Deputy Ministers Tau and Bapela for their hard work in assisting with leading the transition from Lockdown to the Risk Adjusted Strategy and going through over 70 000 public submissions on the new regulations. She welcomed the newly appointed Director General, Ms Avril Williamson, in the Department of Cooperative Governance and Traditional Affairs (COGTA).

Deputy Minister's opening remarks
Deputy Minister Parks Tau stressed that the presentation was based on a draft document of ideas for the purpose of discussion. He asked that the Committee make suggestions while talks are ongoing with other stakeholders and National Treasury. He noted the reduction in revenue flows to local government and the downgrade of the country to sub-investment grade which has in turn impacted on the cost of borrowing. The situation was being assessed in order to find sustainable solutions. Municipalities had to procure resources to create shelter for the homeless, provide food to the needy, procure personal protective equipment, sanitizers and complement national government initiatives. This has impacted on the expenditure and revenue of local government. The stimulus package is to assist local government. Resources have also been allocated from the Disaster Relief Fund to local government to help them combat COVID-19. Municipalities have also been allowed to do a post expenditure ratification of budget which should be done on the basis of expenditure that has been incurred as a result of COVID-19. Many municipalities have been unable to amend their budgets and have thus been unable to perform a mid-term review. We are currently working on directions with regard to how many municipalities have to engage with the IDP and budget processes while taking into account the lockdown. We should be coming back fairly soon with a set of directions relating to what should be done in terms of legislative requirements for the processing of integrated development plans and budgets.

Stimulus package to local government
The COGTA Director General, Ms Avril Williamson, thanked the Committee for the welcome and handed over to the Chief Director of Municipal Finance to make the presentation.

Mr Mbulelo Sigaba, COGTA Chief Director of Municipal Finance, said the briefing aimed to answer whether the R20 billion stimulus package is sufficient for municipalities to cover the deficit arising from depressed revenue sources; address delivery of basic services to households that can longer afford to pay; if COGTA has other measures in place should the R20 billion prove insufficient as well as other matters that affect municipal viability.

He outlined the local equitable share for the current municipal financial year ending in June 2020 (R134 billion) and for the upcoming financial year 2020/21 (R140 billion) to municipalities.  Municipalities have been subsidised with R54 billion for free basic services to poor households in 2020/21 at a rate of R435.04 per household per month for basic services. We have anticipated that the 10.4 million poor households allocated for subsidy will increase to between 14 and 16 million depending on the reality on the ground. This increase will result in a deficit in municipal funding and will negatively affect its financial viability thus we believe municipalities should be supported to bridge this funding gap.

Municipalities were requested to reprioritize their 2019/20 MIG allocation that would be under spent due to lockdown to address the immediate water and sanitation needs in communities. Municipalities reprioritized about  R 1.5 billion to spend from now until 30 June 2020 to attend to COVID 19 water and sanitation projects .

COGTA will attend a meeting with National Treasury to allocate the funding. The criteria used to allocate funds will be based on municipal powers and functions; number of poor households; loss of revenue due to COVID-19; additional unbudgeted operational and capital expenditure due to COVID-19 and unfunded budgets. We will see if there has been an increase in the 10.4 million poor households. We will look at the impact of the revenue as some municipalities are 80% reliant on municipal revenue and some are 90% reliant on transfers thus the impact will not be the same. We will look at expenditure that has not been budgeted for in relation to.

Unbudgeted operational expenditure includes a lot of waste management that municipalities are responsible for in terms of COVID-19 regulations. There are overtime costs and the maintenance of temporary shelters which have to be provided with water and electricity. Municipalities have to carry these costs. The capital expenditure not budgeted for relate to emergency requisition of water tankers, temporary shelter infrastructure to meet additional needs. He noted that some municipalities have unfunded budgets. The municipalities that are severely affected are those that generate revenue from their own sources such as electricity while some municipalities are 50% and 90% reliant on grants.

COGTA is engaging with municipalities and National Treasury to determine the extent of the impact of COVID-19. We will be requesting that municipalities produce informed figures by revising their Integrated Development Plans (IDPs) for 1 July together with their service delivery and remuneration plan budget. This will then be presented to the municipal councils for endorsement before being given to the COGTA for consolidation. We are looking at development finance institutions to offer loans to municipalities.

To stimulate local economic development to counter job losses as a result of COVID-19, the following immediate interventions linked to the use of the R20bn will be implemented:
- Municipalities to facilitate the establishment of Operation and Maintenance Cooperatives – train and assign minor repairs, operations and maintenance of water, sanitation and roads infrastructure.
- SMME development: Supply of goods and services for COVID 19 that have been traditionally awarded to large contractors be biased towards SMMEs and local contractors.
- Labour intensive delivery – use Expanded Public Works Programme (EPWP) and Community Work Programme (CWP) for infrastructure delivery and reduce mechanization where feasible.

The funds would only be available in August as budgets are required to be submitted to COGTA for approval first. COGTA would be sending out a joint circular with National Treasury next week to inform municipalities of the information it would require to allocate funds.

Mr M Hoosen (DA) appreciated that COGTA had provided clarity on how it would be assisting municipalities. He asked what relief measures COGTA has instructed municipalities to provide to South Africans. Millions of families have been stuck at home for the past month and will struggle to pay their municipal bills. There has been an inconsistency across municipalities in the relief they will be providing to families in arrears with rates, electricity and water bills. He asked what directives were given to municipalities to reduce unnecessary expenditure in the catering for those who are still working at municipal offices. These people should bring food from their homes. He said the presentation did not detail where and how the R20 billion would be allocated. He referred to the South African Local Government Association’s (SALGA) presentation given to the Committee on 28 April. It stated that municipalities were struggling to meet their obligations to Eskom. Given that credit control measures are being hampered and that municipalities cannot disconnect water supply, is there any funding available for municipalities to meet their obligations. He pointed out that Eskom could not provide payment holidays as it is on the brink of bankruptcy. He referred to the potential increase in poor families from 10.4 to 16 billion. That is quite a large shortfall and COGTA did not explain how it would address this. He noted that councils were not having virtual meetings and asked how they would provide their budgets.

Mr B Hadebe (ANC) welcomed the COGTA presentation and he shared Mr Hoosen’s sentiments. He asked why the R20 billion would be available to municipalities only in August. In terms of the Municipal Finance Management Act, councils are meant to adopt their budgets 30 days before the start of the new financial year which would be before the end of May. He asked why the R20 billion could not be included prior to that since South Africa was in a national state of disaster. This matter should be treated with urgency. SALGA reported that three million people do not have access to water hence the intervention of water tankers. However, this has created an expectation in communities that this will be a long-term solution. This is not sustainable as it is expensive. He asked how the stimulus package would resolve this issue.

Mr K Ceza (EFF) asked how COGTA would prevent the stimulus package from ending up in the hands of a middle man and external suppliers. He asked how funds would be allocated to rural municipalities and if the district would receive a share of it and if so, what services would this be funding. He asked why there was a long process for releasing funds to municipalities if the stimulus package was intended to relieve the consequences of COVID-19. He asked what turnaround strategies the stimulus package sought to achieve and the timeframe for this. He asked what functionalities and capabilities COGTA envisaged.

Ms H Mkhaliphi (EFF) aligned herself with Mr Ceza's sentiments and added that the presentation while detailed, did not cover how the R20 billion would be allocated. She asked which municipalities were functional and which were dysfunctional to understand how the R20 billion could be used. COGTA did not elaborate on accountability, anti-corruption and monitoring measures. Bills were not being sent during COVID-19 and each municipality should establish communication between itself and citizens. The R20 billion should also be used to assist households that cannot pay their municipal bills. She asked what the plan was to provide relief for now since municipalities can only access funding in August.

Ms P Xaba-Ntshaba (ANC) asked how much money will be allocated to each municipality. She referred to Port St Johns where people are living with sewage. She asked how much money would be allocated to that municipality. People could not still be drinking water with donkeys 26 years into a democracy. COGTA should clarify how they would monitor the billions of rand being allocated to municipalities. She referred to a man called Thulani living in bad conditions in Pinetown and asked why the councillor in that area was being paid if people are still living like this.

Ms G Opperman (DA) referred to the accountability risk and asked how the funds would be managed for municipalities with unfunded budgets. Currently we have 66 municipalities with unfunded budgets and poor audit outcomes. She asked how the funds allocated to municipalities would be managed. Due to loss of income from COVID-19, how will communities be assisted to pay their rates bills, because this has a direct impact on payment culture, credit control and cash revenue within municipalities. Food parcels have been abused by ward councillors and the President announced that some of the R20 billion would be directed toward food and shelter for the poor. She expressed concern on how to ensure that the money reaches the intended beneficiaries and is not used for campaigning and driving political agendas. Local government has a bad track record with the management of finances and corruption. She asked what the R131 million allocated in terms of the Disaster Relief Fund would be spent on. Have clear expenditure guidelines been developed by the auditor general for the COVID-19 funds.

Mr C Brink (DA) said a ministerial directive was needed to inform council to recommence its business which included governance and oversight functions using electronic tools as the ministerial directive of 30 March 2020 gave the impression that the only structures allowed to have meetings are the Disaster Management Centres. It was clear from the presentation that councils needed to make urgent budgetary and procurement decisions. Many smaller municipalities were not doing any oversight and that they were not able to connect electronically to make the decisions proposed in the COGTA presentation. He asked if the law did not already dictate that municipalities had to procure their services from SMMEs and other preferential service providers. He asked if municipalities should start co-ops, procure them and train them and asked what effect this would have on the expenditure of the funds. Details on this were vague in the COGTA presentation and asked if this expectation was realistic. National Treasury should be made aware of what was being proposed and the implications of this.

Ms M Tlou (ANC) referred to the municipal budget from 2019 and said that 127 municipalities were identified by Treasury as requiring support and intervention. Municipalities did not perform well and revenue needed to be allocated to ensure that the collection rate of municipalities was improved. Treasury needed to determine the criteria for the allocation of additional funding to local government. Monitoring and evaluation needed to take place when funds are allocated. Treasury should develop one revised Integrated Development Plan which would assist all municipalities. How much of the R20 billion will be allocated to district municipalities to assist those who cannot pay their bills and will be unemployed as a result of COVID-19.

Ms Tlou said so many people were still complaining about not receiving food parcels and asked if contact numbers could be given to people so they can contact someone who can inform them of where to collect food parcels. For the R20 billion allocation there needed to be a workshop for people in charge of project management and support so that it could be clear what the money was spent on. Revenue improvement measures need to be created to increase the allocation rate of municipalities and empower our people.

Mr M Hendricks (Al-Jama-ah) said some of the R20 billion should be directed to clinics and to improve the ambulance services and response. He was on a national TV programme the previous day and all listeners asked what Members of Parliament were going to do to ensure that the R20 billion is well spent. He struggled to answer this question. The money should also go to people in the townships where those people can be trained to supply the procurement needs of their municipality and in this way a township economy and jobs can be created. It was obvious that the nation had no confidence in how the R20 billion would be spent as the leadership was perceived to be weak. There was no assistance from Small Business Development except for loans. He noted that there were 16 000 applications from SMEs for assistance and only just over 600 had been helped so far.

The Chairperson asked Mr Hendricks to stick to COGTA related issues.

The Chairperson said that more than 50% of the report deals with the equitable share and nothing new has been presented about the stimulus package. Things should be done differently and the stimulus package should make radical advances in addressing the fault lines exposed by the COVID-19 pandemic. She was concerned about the roles of the Municipal Infrastructure Support Agent (MISA), Department of Water and Sanitation, SALGA and Eskom as these roles are not clearly defined in the stimulus package presentation. The report did not go into detail about how COVID-19 would affect new development. She asked if parts of this budget would be allocated to national and provincial government for support. Sanitizing of workplaces and other restrictions and requirements will place an extra financial burden on municipalities, in particular the smaller municipalities. What measures are in place to deal with this? On cooperatives, she asked if it was perhaps not more effective to get structures who have been doing this type of work and then provide support to them since cooperatives have a history of failure. If the cooperatives route is the preferred one, will it be more sustainable to open space for communities, for example through local leadership, to decide what is best rather than to dictate what would be correct. There was a need for local interventions that are community driven and she did not see this aspect included in the presentation. For the 49% of municipalities that Treasury had already identified as requiring support and intervention, how would they be managed under these circumstances? Are these municipalities properly staffed to lead and cope with the demands associated with the threat and magnitude of COVID-19? She asked how this intervention would address capacity challenges.

Mr Hoosen said he was disappointed that COGTA had not given the Committee an indication of how it would be spending the R20 billion which was the purpose of the meeting. COGTA simply presented what it was doing under the existing programme. During the lockdown period municipalities were not meeting and councillors were not conducting oversight even though this directive was issued by the Minister which gave the mayor and the speaker carte blanche to run the municipality. What steps was COGTA taking to monitor the emergency expenditure of municipalities during the lockdown period? He asked if COGTA would be able to give the Committee a report on the levels of expenditure and if used for its intended purpose. He asked if there would be an audit of the R20 billion allocated to municipalities to determine if it was directed at genuine relief measures.

Mr Hadebe noted the short-term utilisation of funds towards water tankers. SALGA advised that currently R306 million has been utilised and there is a further R871 million to be utilised. This totals R1.1 billion for the short-term. He suggested that part of the R20 billion be used for a long-term sustainable solution as it was not fair to spend such a large amount of money for short-term solutions. The way in which funds are used should be monitored. We have seen only the adjusted budget and not the original approved budget, and I would like to get an indication of this to see if the 2020/21 allocation is justifiable. He asked if there has been scientific research to indicate that the route of cooperatives is a viable one to take and that it will yield positive results. From his experience in local government, cooperatives do not assist at all. SALGA indicated that councillors particularly in rural areas are struggling to have virtual meetings. How is COGTA going to assist these municipalities to meet and consider the budget adjustments.

Ms H Mkhaliphi (EFF) asked if the municipal workers were receiving their salaries. Some municipal workers had called saying that their municipalities could not afford their salaries.

Deputy Minister Tau indicated that COGTA has been in constant communication with Treasury on when the allocated funds will become available to municipalities. Treasury indicated that this must be done through an appropriations process which means that it has to go to Parliament to pass an amended budget. COGTA understands the pressures faced by municipalities and has made provision for assistance such as the repurposed Urban Settlements Development Grant and the Municipal Infrastructure Grant to enable municipalities to use the grant outside of what they were provided for to mitigate the more immediate problems. We are in contact with municipalities. At this stage we cannot say what amount a particular municipality will receive as we are still considering this. COGTA was also cognisant of the issue of accountability and how the funds would be spent. The disbursement of the funds would go through a process that would involve a monthly allocation of the money to keep track of how it is spent. The Deputy Minister would be meeting with Eskom the following day and COGTA would report back to the Committee after meeting with the inter-ministerial committee for guidance.

Deputy Minister Bapela assured the Committee that progress was being made in finalising consultations on the comprehensive plan for the R20 billion. Emergency procurement of water would be a prominent feature and food and shelter for the poor will also be included in this. We will also allocate a part of the funds for sanitization of taxi ranks and public spaces. Graveyards may also be considered for sanitization. Municipalities will have to prepare landing spaces for helicopters in the event of emergencies and that this was still being discussed. Access roads for ambulances in certain communities is another issue that the fund will address to contain COVID-19. The money will also be used to assist municipalities to provide basic services and help those in financial distress.

The Chairperson made closing remarks and said that COGTA should respond to the Committee in writing by Monday 4 May 2020 at midday.

Meeting adjourned.

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