Property Rates Bill: deliberations

Meeting report

PROVINCIAL AND LOCAL GOVERNMENT PORTFOLIO COMMITTEE
28 November 2003
MUNICIPAL PROPERTY RATES BILL: DELIBERATIONS

Chairperson: Mr Y Carim (ANC)

Relevant Documents
Working draft of Local Government: Municipal Property Rates Bill (15 November version)
Summary of public submissions
Subcommittee meeting with Professional Valuers on 18 November (Part A)
Comments as requested by the Chairperson (Part B)
Section 39 of the Bill

SUMMARY
The Department provided a report-back on issues resolved at a meeting with professional valuers and also those issues resolved with the South African Local Government Association. The Committee debated at length about the R15 000 exclusion. The matter was deferred for further consultation. Also unresolved are SALGA's concerns on Clauses 7(2)(a)(1), 27(2) and 41(2)(g) and mixed-use categories and they will be meeting with the Department on these issues.

MINUTES
The Chair said it is in the interest of the Committee to tighten up issues in the draft Bill so as to avoid pitfalls later on at the formal stage. He referred members to the report of the meeting of the Sub-Committee with valuers on November 18, 2003. The decisions that were taken at the Sub-Committee meeting are agreed to, except where there are additional comments or where there is a disagreement. He asked the Department to take members through the pertinent issues that were resolved at that meeting.

Report-back on issues resolved
Mr Vaz (Department resident advisor) said the following terminology would be removed from the definition or changed: improved value, improvements, prescribe - where the use of the word "in terms of" will be retained, public service infrastructure and register (see the written report).

Mr Dorfling (SALGA) noted that it had been agreed that all properties should be valued to determine the value of recent improvements.

The Chair asked Mr Dorfling not to delve into policy issues at this stage. The Committee would run through the entire Bill first. Parties would then meet to sue for a consensus on disputed issues. The final text of the Bill would be made available to SALGA for them to make input.

Mr Vaz said the valuers' comments on Clause 6(2)(a) would be disregarded in view of the fact that 16(2)(a) does not deal with an exhaustive list of categories. There is a policy decision to be taken on 7(2)(a)(i) as to whether or not municipalities should be obliged to levy rates on properties owned by them.

The Chair said the Committee would in due course identify issues of concern to politicians and consult the Minister accordingly.

Mr Vaz said provision for unused farm property at 8(3)(e) should be read together with 8(3)(d). The clause would be changed to read "farm property not used for any purpose". The words "used exclusively" for residential purposes under 15(2)(h) are deleted. A policy decision must however be taken in this regard. There are practical problems with implementing the clause as it stands. The definition clauses present problems with the valuation exercise. 'Residential property' may need to be defined.

The Chair said the basis of the R15 000 exclusion is problematic.

Ms Manche explained that the Department's main concern is the equitable treatment of all property owners. The same valuation principle should apply across the board. This should be the case irrespective of the financial or economic status of the owner. This is in line with the government policy in respect to rating of properties. In any case the R15 000 exclusion is too minimal to qualify as a substantial loss to the municipality. It would create a massive administrative hazard were the R15 000 exclusion covered in the valuation exercise. This administrative burden far outweighs the possible compensation that would flow from the exercise. Equity can be addressed through a separate mechanism.

Mr Dorfling raised the concern of a small rural council whose income bill is such that the R15 000 exclusion would represent a substantial part of their revenue sources. The worry is that the municipal rate base is not catered for in the proposed exclusion. It would have been understandable if the R15 000 exclusion was meant to cater for poor communities. To make a case for an across-the-board exclusion would in effect benefit the rich who do not need that type of financial reprieve.

The Chair called for caution in using the term "poor" since this could be misleading. He wondered how the Department hopes to achieve equitable treatment when the exclusion benefits both the poor and the rich at the same time. The exclusion would not seem to take away much but one could not overlook SALGA's concern for smaller rural municipalities. One does not, however, expect to find highly rated properties in rural municipalities - in which case SALGA's argument becomes irrelevant. The administrative hitch alluded to by the Department presents a sound basis for exclusion. The question of equitable share is fairly general and the Committee will pick it up in its Committee Report on the Bill.

Mr Mbongeni agreed that there is indeed a compelling argument around the administrative burden that none exclusion regime would create. It is also possible that certain councils - especially rural ones - would forego a substantial revenue base. A strategy to identify a particular deserving group and then ring fencing them for the exclusion is the preferred intervention to that of a reprieve across the board.

The Chair agreed that across-the-board exclusion would benefit the undeserving.

Mr Sithole said the question of exclusion presents one with a political dilemma. Many upcoming black middle class people are increasingly moving into affluent areas. It would be beneficial and therefore an encouragement for them if one were to apply the across-the-board yardstick.

Rev. Goosen said the RDP houses should help cater for the equity concerns. The across-the-board exclusion is preferred.

The Chair said that some costing of how much is being given away in the R15 000 exclusion would have been helpful in resolving the matter one way or the other. Most of the arguments that have been presented so far are highly debatable. A means should be explored to modify the across-the-board exclusion in order to satisfy both sides of the divide. Mr Sithole's argument is most compelling. It is not proper to discourage the upcoming black middle class from taking up residential properties in affluent areas. Municipal councils should be given the latitude to design a mechanism within the rubric of these concerns.

Ms Manche said it is important that there is a uniform system of valuation across the country. If municipal councils were allowed to decide on their own what rates to set, this would create unnecessary uncertainties and complications.

The Chair said positive discrimination happens all the time. This matter can only be resolved through empirical data and costing. The section should be left as it is for the present.

Mr Dorfling asked what happens where there is more than one owner in one unit and where there is a multiple use of the property.

The Chair said it is the property that would be valued not the individual owner.

Mr Vaz said the assumption is that an institution like a hospital or a hostel is owned by one individual and rented out to different people.

The Chair clarified that once these individual owners start owning the property then it becomes a sectional title unit.

Ms Manche added that at that stage the valuation exercise would be carried out for each of the individual units.

Mr Dorfling noted that one advantage of making provision for exclusions is that in some cases there would be no rate charged and therefore rentals would come down which would benefit the poor.

The Chair said the government has other programs to target the poor. The owner is the beneficiary of the exclusion and not the tenant.

Mr Dorfling said properties should be split into different commercial usage zones for effective valuation. Zoning refers only to agricultural properties yet some people use such properties for other commercial endeavours.

Mr Mbongeni said there is a provision in law that categorises properties into different use. One must first apply for change of user before converting the usage.

Ms Manche said these are issues that are dealt with in the municipal by-laws. It is the question of enforcement of such by-laws that comes into play here.

The Chair directed the Department and SALGA to sort out the issue between themselves. In any case this is not a political but an administrative issue.

Adv. Grove reported that the Department of Land Affairs is busy with legislation on zoning. The problem would fade away once this legislation becomes operational.

Mr Vaz said although agreement was reached that "parties" would be clarified to reflect municipalities and owner at 63(b), exclusion of valuers would imply that they can act frivolously and in bad faith. The clause will therefore be retained in its original form.

Mr Vaz said the property referred to at 15A(2)(b) will not be reflected in the valuation roll. Clause 69 does not make provision for the valuation of this "type" of property and provision should be made accordingly. This property will then become a "newly rateable property" and rates would have to be phased in. He wondered whether this would be the intention of the legislature.

The Chair noted the legal problem and flagged the matter for further consideration.

Mr Vaz noted that the property on which the scheme at 21(3) was established does not "exist" anymore and that therefore this clause is unnecessary.

At the end of the paragraph at 35A(a), the word "valuating" is used. No such word could be found in the Oxford dictionary. It is suggested that the word "valuing should be used instead. The same case applies to 35A(c).

Mr Vaz noted that an agreement was reached for properties under supplementary valuation to be rated retrospectively. Care should be taken that properties are treated fairly and equitably. The Department's comments on the Sub-Committees' minutes stipulate that a supplementary valuation roll should be compiled after the conclusion of a financial year. In the proposed Clause 69(2) the impression may have been created that the number of supplementary rolls will be limited to the number of financial years of the term for the valuation roll. There should be no link to the term of the roll. Retrospectivity should be limited to three years. Supplementary valuations could be affected up to a maximum of three years after the term of the roll has expired. The Department has amended 69(1) to accommodate the foregoing concerns.

The Chair said these issues touches on policy and should therefore be kept in abeyance for further consultation.

Afternoon session
Mr Vaz continued with his report-back.

Clause 16: Impermissible differentiation
Mr Vaz said under 16(1)(c ) the council would not levy rates for more than one year. It has been agreed that the municipality would annually review the rate in terms of the its budget. It has been agreed that at 16(1)(c ) there should be no discrimination between residential areas and at 16(1)(b) a clear distinction between residential properties is made. Clause 16(1)c sets categories of non residential properties.

Clause 17: Limits of annual increase of rates
It has been agreed to take out 'types of municipalities' in 17(2). The Committee suggested that the Minister should be in a position to impose a rate limit for a particular category of rate payers.

Ms Manche said as a policy rule it is undesirable to decrease rates in view of the fact that the budget goes up every year.

The Chair said this is a question of policy which calls for careful thought.

Ms Manche reiterated that the decision whether or not to increase rates lies with the council and that it is government policy not to interfere. There would be a serious legal challenge were the Minister to prescribe to council what rate to charge or whether or not to charge a particular group of people.

Adv. Grove agreed and said that the Department did seek a legal opinion on the matter and it became clear that such a decision would be unconstitutional.

The Chair stated that the matter should be flagged. It is important for more members to express their views on the matter before it can be brought to a close.

Mr Dorfling said the worry is the economic difficulty of such a decision especially in a predominantly agricultural locality.

Adv. Grove noted that the term "limit" may also include a decrease. It is all a question of interpretation.

The Chair said such an interpretation would sort out the problem. Mr Vaz added it should be clear that such a limit is restricted to a specific category of properties.

Ms Manche insisted that the position of government was that as a policy it does not determine the amount of rates charged on properties. This decision is the exclusive prerogative of the council.

Clause 18: Compulsory phasing in of certain rates
The phasing in period has been agreed upon. The MEC may adjust this period on request by a particular municipality as in 18(4).

The Chair said 18(1)(a) should stay but should be referred to the study group for further deliberations.

Ms Manche was of the view that two years was not enough for people to get accustomed to the idea of rate paying.

Mr Dorfling said if people were to be given a lengthy grace period they would relax and do nothing about acquainting themselves with the rating processes.

Mr Vaz said there would be a national framework where most of these things would be captured. It is not necessary to attend to the matter at present. There is too much work that still needs to be done.

The Chair said some sectors are applying for rate cuts and wondered whether the Department would consider this.

Mr. Vaz said one is not keen on opening up a flood of applications for rate cuts.

The Chair asked if there are many categories of groups that might require a rate cut.

Mr Vaz replied that there were many groups including the mining and agriculture sectors.

The Chair asked the Department to look into crafting a temporary cautious provision that would test the waters. One could give a reprieve for farmers and see whether this opens a floodgate of applications.

Mr Manyike said such an action would not go without attracting other stakeholders to sue for a similar facility.

Mr Dorfling agreed with the Chair. Agriculture is a critical sector deserving that kind of reprieve.

The Chair asked Adv Grove to apply his mind on the matter. He asked the Department to ensure that by the following week, a report on the conflict between this Bill and the Communal Land Rights Bill is made available to the Committee.

Mr Manyike said Cabinet had taken a decision on the Communal Land Rights and that the Department is bound by this decision.

The Chair said the general understanding is that Traditional Councils do not have a right to levy rates in which case in the event of a conflict between Traditional Councils and Municipalities, the latter prevails.

Ms Manche said there was no conflict in the law with regard to Communal Land Rights Bill and the Properties Rates Bill.

Mr Manyike agreed with Ms Manche but noted that the Department foresaw a problem with the implementation of the two Bills.

Mr Dorfling said there were clear categories such as state property that would be automatically exempted. Others are institutions for public benefit, small-holding agricultural farmland, welfare activities, health care and educational activities.

Mr Vaz said all the listed categories have been taken aboard. The Chair said that sounded sensible.

Clause 20: Registrar of Properties
It is not desirable to include rateable properties in terms of the register in 20(3).

Clause 23: Methods and time of payment
The subclause 23(1)(b) means that this will be revisited annually as agreed with by the owner. There will be an additional 23(1)(c) to deal with deferred cases.

In reply to the Chair asking what is meant by a "deferred case", Mr Vaz said these are special cases such as where there has been a drought.

The Chair wanted to know where the case of pensions would fall.

Mr Vaz said all relevant matters would be spelled out in the new provision.

Clause 24: Accounts to be furnished
The Chair said he was satisfied with the new 24(e) and (f) which substantially ease the finalisation of the disputed issue.

Clause 32:Municipal partnerships
Mr Vaz said it has been agreed that 32(2) should be taken out.

Clause 39: General Method of valuation
Mr Dorfling said that SALGA is happy with the retention of the licence at 39(2).