WC Asset Finance Reserve for Human Settlements & Funding Model for Integrated Rural Development Programmes to Municipalities; Committee Reports

Human Settlements (WCPP)

18 August 2021
Chairperson: Ms M Maseko (DA)
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Meeting Summary

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In a virtual meeting, the Committee was briefed by the Department on its Asset Finance Reserve for Human Settlements & Funding Model for Integrated Rural Development Programmes to Municipalities.

Members heard that the Asset Finance Reserve was one of the priorities identified to assist the Department to do more with less money. In this process the Department would have to show how it helped municipalities identify pieces of land, as well as how municipalities are assisted with job creation. The funding sources for the fund were detailed as follows: all revenue generated from the grant and assets to be used as seed funding; the selling of land and buildings; selling of Finance Linked Individual Subsidy Programme (FLISP) units/sites; selling of business/government sites in IRDP projects; returned subsidies/refunds from bulk funded from HSDG due to misalignment with the City of Cape Town USDG budget; all rental income and all interest accrued through investment of cash in hand. R62.439 million allocated to the fund and a Project Initiation Document was developed and shared with municipalities. The process followed when assisting a municipality to identify land was explained to the Committee. With regard to Job Creation and Training opportunities, the Committee was informed that the building industry norm is three jobs created for every R1 million spent on building, and one job for every R1 million spent on civil services.

Members noted the vast infrastructural needs in rural municipalities as there were not enough funds for all the needs. The relationship between the Department of Local Government and the French government was highlighted because this partnership has identified secondary Municipalities such as Drakenstein and Garden Route as pilot projects where donor funding is sought to unlock future infrastructure development for service delivery. Members asked Is the Department aware of this? And Has the Department reached out to the Department of Local Government to enquire about the possibility of the cooperation of initiatives? What criteria are used by the Department in order to make the available funds available to successful applicants?

As for the fund Members wanted to know how the Asset Reserve Fund would appear on the Department’s Annual Financial Statements; how was the money that will be deposited into the fund allocated originally; How will we know that the money has been spent; What does the Department expect in terms of job creation?; What if the Department finds that the local labour is not willing to work under the circumstances determined by the contract, or not delivering the necessary quality. Members were pleased to hear that the Department is open to private sector partnerships, considering the government rules and regulations. Regarding how the fund will appear in the Annual Financial Statement, the Committee was informed that it would appear as a balance sheet item and will be disclosed separately.

As far as the accreditation of training was concerned, Members heard that training was accredited and the Department had several contributors in this regard including the Construction SITA. Members asked if the fund was already available or if it would be available after the Adjustments Budget has been tabled; How does the Department plan to sustain the fund especially when the demand is more than the supply of funds; how does the rental income relate to the funds; Where does the Housing Development Agency (HDA) feature in the process of land identification for municipalities and Who is going to manage the projects related to the envisioned industrial sites. Members heard that the Department has applied to the Provincial Treasury and the funds will be available through the Adjustments Budget process; and that the rental income was R2 million versus the incurred cost of R20 million. The Department was currently reviewing the rental stock as the deficit was funded from the Equitable Share and the rental stock was for the poorest of the poor. The Chairperson noted that the funds were shrinking as opposed an increasing demand; the Department’s championing of the database was therefore paramount.

Committee Resolutions: The Committee requested the Department to bring a final outcome of the applications that have been made to the Asset Reserve Fund; The Committee resolved to track the decisions on the provision of housing for the aged in Berg Rivier; The Committee requested the PID related to the project in Berg Rivier; The Committee will request the document for all approved projects.

Meeting report

Briefing on the Western Cape Asset Finance Reserve for Human Settlements

Mr Francois de Wet, Chief Financial Officer, Western Cape Department of Human Settlements, said that the Asset Finance Reserve was one of the priorities that were identified to assist the Department to do more with less money. Furthermore, the Department would show how it helped municipalities identify pieces of land as well as how municipalities are assisted with job creation.

Funding Sources

He said that the Department has a revenue budget, and all monies generated beyond the budget are deemed excess revenue. These funds are then used by the Department for several other projects.

The Department has asked Provincial Treasury to create a separate fund for these excess funds so that they are always available for the Department of Human Settlements. The Department submitted the application in December 2020, and it was approved 14 April 2021.

The following are the funding sources for the fund: all revenue generated from the grant and assets to be used as seed funding; selling of land and buildings; selling of FLISP units/sites; selling of business/government sites in IRDP projects; returned subsidies/refunds from bulks funded from HSDG due to misalignment with the City of Cape Town USDG budget; all rental income; all interest accrued through investment of cash in hand.

He said the funds will be utilised for: bulk infrastructure in non-metro municipalities; assisting municipalities to capture value in in their strategic land and other assets; sustainable revenue (rates and municipal service charges); cover investment in bulk infrastructure; other human settlement-related projects as approved by the MEC as not covered under the Housing Code, including FLISP and open market; job creation initiatives, including developing business/ industrial hubs.

Allocations of the Asset Finance Reserve Fund

Mr de Wet said the Department will come back to the Committee in November 2021 when there is another adjustment budget.

The Department applied to the Provincial Treasury to have R62.439 million allocated to the fund and it was approved. A Project Initiation Document was developed and shared with municipalities.

He said the fund is not used to initiate projects that are not part of the municipalities’ plans. The municipalities must complete a PID as per all other Human Settlement’s projects.

Currently, the only funding that is available is excess own revenue collected. This is revenue that is more than the revenue budget of the Department (R70 million). The Department wants the R70 million to be excluded and allocated to the fund as well. He said having those excess funds is in contravention of the Housing Code which stipulates that all revenue derived from investment in human settlements projects must be allocated to a special fund created for human settlement projects.

He said the Department is in discussion with the Provincial Treasury to allocate more Provincial Equitable Share funding to make up for the shortfall of R68 million to fund the operations of the Department (only R2 million is not linked to infrastructure returns).

The Department appreciates that the whole country is suffering from budget cuts, but it is adamant that the money it allocates must be ploughed back into the Department for the people because it is money that is derived from the grant.

See attached presentation for municipalities that have applied to the Asset Reserve Fund

How the Department assists municipalities to identify land

The following process is followed when assisting a municipality to identify land: a municipality develops a credible Human Settlements Project (HSP) (between November and May); Municipal Council signs off HSP as part of the Integrated Development Plan (IDP) (June); the Department comments on the credibility of the HSP and signs off (between June and July); the Department compiles a draft Business Plan to the National Department of Human Settlements (September); the municipality accepts and signs off the Business Plan (between October and November); the Department submits a final Business Plan to the National department of Human Settlement and the National Treasury (February).

He said all housing projects (including RDP) originate from the municipalities’ Housing Pipelines, which are in turn products of their HSPs. These HSPs are aligned with the Municipality Spatial Development Framework (MSDF), and the Department ensures that the individual IRDP projects are aligned with and support the development of mixed and integrated human settlements.

He said all housing projects (including IRDP) are subject to the Department’s Project Approval Standard Operating Procedure (SOP). The SOP includes specific checks that ensure that alignment between the specific project and the MSDF relevant to that municipality are in order to ensure the development of mixed and integrated human settlements.

Job Creation and Training Opportunities

The building industry norm is three jobs created for every R1 million spent on building, and one job for every R1 million spent on civil services. He also mentioned the local content requirement on the Department’s tenders.

Currently, 5 400 are maintained with the HSDG and 300 via USDG. The Department also provides training to young people.

Regarding the Expanded Public Works Programme (EPWP), he said that the Department keeps a database of individuals employed in the infrastructure project. Additionally, all funding agreements include the EPWP condition.

See presentation for the estimated number of job and training opportunities that will be created

Discussion

Mr D America (DA) said that the provincial government is aware of the infrastructure needs in rural municipalities. It is a fact that there are not enough funds to fund all the needs. He mentioned an existing partnership between the Department of Local Government and the French government. This partnership has identified secondary Municipalities such as Drakenstein and Garden Route as pilot projects where donor funding is sought to unlock future infrastructure development for service delivery. Is the Department aware of this? Has the Department reached out to the Department of Local Government to enquire about the possibility of the cooperation of initiatives? What criteria are used by the Department in order to make the available funds available to successful applicants? Is there a possibility of involving a private sector partner?

Mr A Van der Westhuizen (DA) wanted to know how the Asset Reserve Fund would appear on the Department’s Annual Financial Statements. Regarding the money that will be deposited into the fund, how was this money originally allocated? How will we know that the money has been spent? What does the Department expect in terms of job creation? How do we ensure that quality and productivity is not forfeited in the process? What if the Department finds that the local labour is not willing to work under the circumstances determined by the contract, or not delivering the necessary quality? Is there any requirement that the training received must be accredited?

Mr de Wet said the Department works closely with the Department of Local Government, specifically the MIG unit. He said he is not sure if the Department of (human settlements) has an agreement with the French Government.

He said the Department is open to private sector partnerships, considering the government rules and regulations.

Regarding how the fund will appear in the Annual Financial Statement, he said it will appear as a balance sheet item and will be disclosed separately.

Regarding how the money was originally allocated, he said this was capital money and should be allocated to capital. He said the money must work otherwise it loses its value, so the money will be allocated among the projects.

Regarding productivity and the quality of work, he said the main contractor must deal with subcontractors.

He said the training is accredited. He highlighted that the Department has several contributors in this regard including the Construction SITA which also contributes to the stipends that are paid out.

He also said that the Department’s functionality requirement excluded new entrants into the construction business. This requirement has been removed from future tenders.

The Chairperson asked if the fund is already available or if it will be available after the Adjustments Budget has been tabled.

Mr de Wet said that the Department has applied to the Provincial Treasury and the funds will be available through the Adjustments Budget process.

The Chairperson asked about the rental income as it related to the fund. How does the Department plan to sustain the fund especially when the demand is more than the supply of funds? Where does the Housing Development Agency (HDA) feature in the process of land identification for municipalities? How does the PID fit into the whole process? Who is going to manage the projects related to the envisioned industrial sites?

Mr de Wet said the rental income was R2 million versus the incurred cost of R20 million. The units are not sustainable at all. The Department is currently relooking at the rental stock. The deficit is funded from the Equitable Share. He mentioned that the rental stock was for the poorest of the poor.

He said the HDA does not play a role in identifying land unless a municipality requested this.

He said the PID is submitted right at the beginning when a municipality wants to initiate a project.

He also said that the jobs mentioned in the presentation represent the whole construction sector including suppliers. Municipalities will not be managing the industrial sites.

The Chairperson asked about an issue that arose on an oversight visit to a social housing site. One of the challenges that were highlighted by the management company was the issue of the list of beneficiaries of the rental stock. How does the management company align the list they have developed themselves with the one from the City of Cape Town? She said they had to wait a very long time to get the list of beneficiaries in order to vet them and ensure that the rental flats are occupied. How do we ensure that the database is a true reflection of the demand in municipalities?

Mr Brian Denton, Director: Project Administration, Western Cape Department of Human Settlements, said the Department has made strides to improve the Western Cape Housing Demand Database.  He said the Department is currently having trouble with the City of Cape Town. Many of the people are not updating their information.

He said that the Department has launched an app and is currently undertaking customer education initiatives.

The Chairperson said she understands that people do not update their details, but it remains the Department’s responsibility to champion the database. She said the funds are shrinking but the demand is increasing, so it becomes very important to ensure the accuracy of the list.

The Department was excused.

Resolutions

The Committee requested the Department to bring a final outcome of the applications that have been made to the Asset Reserve Fund.

The Committee resolved to track the decisions on the provision of housing for the aged in Berg Rivier.

The Committee requested the PID related to the project in Berg Rivier.

The Committee will request the document for all approved projects.

Minutes

The following minutes were considered and adopted:  02 June 2021 and18 June 2021. .

The Draft Committee Oversight Report to the Langeberg Municipality was considered and adopted.

The Draft Committee Quarterly Report for the period April 2021 – June 2021 was considered and adopted

 The Chairperson thanked everyone and the meeting was adjourned.

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