2022 Division of Revenue Bill: SALGA Input

Meeting report

The Standing Committee on Appropriation was briefed by the South African Local Government Association (SALGA) on its interventions to assist local municipalities. The Chairperson welcomed members of SALGA and congratulated Mr Lesetja Dikgale, who led the presentation, on recently being elected as a member of the national executive committee (NEC) of SALGA.

The purpose of the presentation was to provide the Committee on Appropriations with organised local government's comments on the 2022 Division of Revenue Bill (DoRB).  

Commenting on the local government fiscal framework analysis, SALGA found:
•Local government allocations will be increased by a total of R30.7 billion over the MTEF period
• Over the MTEF period, provisional allocations indicate that 48.8 percent of nationally raised funds are allocated to national government, 41.4 percent to provinces and 9.8 percent to local government
 • For the 2022/23 financial year, the division of revenue is 49.7 percent is allocated to national government; 41.2 percent to provinces and 9.1 percent to local government.
•Compared to the projections per the 2021 MTBPS, local government allocations for the MTEF cycle increased by R30.7 billion from the projected R 450.6 billion to R 481.2 billion.
•Since the 2021MTBPS, local government allocations have been increased by a total of R30.7 billion–R28.9billion in the local government equitable share and R1.8 billion indirect conditional grants.
•The gross allocation to local government for the 2022/23 financial year has increased by 11.3 percent to R150.6 billion.

SALGA acknowledged the country's challenging economic and fiscal environment exacerbated by July 2021 unrest and COVID-19. It welcomed the budget speech by the Minister of Finance, under the theme, “Supporting the Recovery and Building for the Future,” especially regarding holding municipalities accountable for delivering services, improving service delivery mechanisms, and getting consumers to pay for municipal services. SALGA supported the government's macroeconomic strategy, including fiscal consolidation to curb additional spending, maintaining the expenditure ceiling, and reducing the budget deficit and debt to the gross domestic product (GDP) ratio.

The presentation recommended that organised local government should support the 2022 DoRB.

(See the presentation for further information.)

Discussion
Mr A Sarupen (DA) inquired about the municipal debt to Eskom. The state paid a lot of money to municipalities in terms of the Division of Revenue Act (DoRA) to fund their operations and make sure services were delivered to communities. The Committee was aware that municipal debt had reached R35 million. What was SALGA doing to ensure that municipalities paid their debts? The money owed could be used for infrastructure or helping local service deliveries. He referred to long-term systemic debt that went back years.

He questioned how municipalities were dealing with unfunded mandates. What was the biggest problem with unfunded mandates that SALGA had identified? What should the national government avoid pushing down in terms of unfunded mandates? What had the impact been in terms of the lower allocations to municipalities? Had SALGA seen any deterioration in local service delivery because of the reduced allocations?

Mr A Shaik Emam (NFP) questioned the actual role of SALGA. The Committee highlighted the same weaknesses every year, but very little was done to close the gaps. He asked the purpose of the oversight mechanism if it did not affect any change,

He claimed that SALGA was aware of the money looted from local government, particularly on the procurement of goods and services. The private sector conspired with the public sector, and SALGA had done nothing to ensure value for money. The state was losing about R300 billion a year involving many local governments. Would SALGA be able to influence local government structures to ensure a transparent, credible procurement process and provide monthly reports on which contracts had been awarded, and the value of each contract? There was no reason why these reports should be private since taxpayers’ money was being used.

He asked what would be done differently to ensure improved oversight mechanisms and guarantee that municipalities delivered the proper services. He referred to the "shocking" situation in eThekwini, where the municipality did not even have money to pay security guards on the beaches. How could SALGA work with the people on the ground? What measures of communication did they propose? He inquired how SALGA would use their input at a national level to bring development to local municipalities, to ensure that they could become self-sufficient and less reliant on government handouts. 

He asked SALGA’s opinion on ESKOM’s statement that they would switch off the electricity when municipalities could not pay their debt. What about the municipalities that did not have the capacity? How could SALGA ensure that municipalities paid their debts? It would be the people on the ground who would suffer. He said that there was a solution -- citizens wanted prepaid meters. However, they could not provide devices to the people. There was a significant problem with revenue collection. The information technology (IT) systems in all sectors were under tremendous pressure. What role was SALGA going to play in providing sufficient revenue collection systems?

Ms N Hlonyana (EFF) welcomed the presentation but said she would not congratulate the newly elected NEC of SALGA. She criticised the appointment as biased, and not beneficial to the country.

She referred to the presentation’s statement that SALGA aimed to “return public funding to its glory.” Could this be achieved with the latest fiscal consolidation? When would one be able to see the fruits of the fiscal consolidation?

SALGA had mentioned municipal capacity building. Was it doing enough? How did it measure the success of the training provided on achieving deliverables? She asked for examples of measurements that SALGA was using.

She asked for insights on Operation Vulindlela, which aimed to modernise and transform network industries. The presentation had not mentioned this operation, but she wanted to know whether SALGA supported it. Was SALGA aware of the impact this would have on local governments? Her last question was about the rising unemployment. How did SALGA assist local municipalities?

Mr O Mathafa (ANC) also raised an issue over the capacity-building training. He had noticed a focus on empowering councillors to fulfil their oversight roles. Was this enough to challenge underspending, unfunded mandates, maladministration, corruption and fraud?

He asked whether SALGA had noticed any distortions in allocations to the local sphere of government due to unfunded mandates. What impact did unfunded mandates have on the overall objectives outlined during the State of the Nation Address (SONA)? He referred to the issue of public transportation in the presentation. Had SALGA asked the municipalities to explain why money was spent, but there was nothing to show? The system was not operational yet. How would SALGA address these issues?

His last question was regarding consulting. About R1 billion was spent on financial reporting, and this work was the core responsibility of the internal financial unit. The consultants produced inadequate financial reports. How would SALGA address these issues?

Mr X Qayiso (ANC) raised concern about the decrease in the transport infrastructure grant. Why was SALGA not more critical of this underspending? Transport needed to be affordable and accessible for the economy to be operational. He inquired about SALGA’s role in the economic recovery plan locally. He also referred to the excess spending on consultants that consumed the budget. He asked about the role of SALGA to ensure that local municipalities implemented credit control policies. Had this been implemented? Had there been any improvement in managing escalating debt?

Mr Z Mlenzana (ANC) expressed satisfaction with the presentation and congratulated the newly appointed NEC. He referred to the Municipal Infrastructure Grant (MIG), and asked what SALGA was doing to ensure that this grant was being used effectively and represented the interests of the poor? He claimed there was a tendency to use the money for human relations issues instead of what it was intended for. He observed a growing tendency of local municipalities to rely on grants. Municipalities needed to be self-sufficient and self-sustainable. He suggested that SALGA should introduce an incentive to encourage municipalities to generate their own revenue.

He recalled a session with municipal union workers in the previous year. There were allegations that certain SALGA leaderships and politicians were too egocentric and forgot the mandate of the municipalities. There were issues where political differences in a municipality affected the work being done. Had there been any interventions by SALGA?

Ms D Peters (ANC) congratulated the new leadership and thanked SALGA for their presentation. She reiterated Mr Mlenzana’s concern over instability within municipalities due to political differences. SALGA was an organised formation that was widely present on different platforms to ensure that the interest of local governments was represented. Why, then, were the number of municipalities in distress growing? Out of the 267 municipalities, 175 were in distress. What was SALGA doing? Was there value for money in the capacity training?

She asked whether SALGA supported municipal indigent registration. Pensioners and poor people could not access services while governments had interventions to prohibit this. Resources were given to municipalities so that the poor could access water and electricity. Was there value for money in this? She further inquired about the need for consultants and the underspending on infrastructure.

The Chairperson asked what interventions SALGA would make to ensure better audit outcomes. His concern was proper accountability of resources; how could SALGA ensure that there would be appropriate service delivery when money was allocated to municipalities? He also criticised the underspending of provisional grants. In some instances, this had caused National Treasury to withdraw the money.

Some municipalities had trouble registering their indigents. People who were meant to receive free services were then denied these services. How would this problem be solved? Was there a timeframe for registering all people? He asked why municipalities were not collecting money that they were owed from the government. During the SONA 2022, the need to remove red tape and attract investors had been identified. Did SALGA understand what the red tape involved? What interventions would be implemented?

SALGA's response
Mr Dikgale handed over technical questions to his colleagues, Mr Nceba Mqoqi, and Ms Thembeka Mthethwa, Chief Financial Officer

Mr Mqoqi responded to the questions around why municipalities were not collecting money owed to them. He referred to an instance, after a national conference, where Tshwane had been able to collect half a billion rand with the support of SALGA. Therefore, SALGA was aware of the issue and working on it. Municipalities needed to implement credit control policies.

SALGA recognised the need for accountability at municipalities to ensure that resources and funds were being used for what they were intended for. There would be consequences involving law enforcement authorities for those engaged in wrong-doing. The municipal audit support programme (MASP) was implemented by SALGA and other stakeholders such as the national and provincial Treasuries and the Department of Cooperative Governance (DCoG) to assist municipalities. In terms of audit outcomes, a previous resolution in June 2021 covered aspects of over-reliance on consultants. Consultants who did not provide results were requested to return funding, and municipalities were urged to take action against the consultants.

He addressed questions on municipal debt to ESKOM. SALGA participated in a multidisciplinary revenue committee whose stakeholders included ESKOM, Treasury, and the Department of Water and Sanitation. Where municipalities could not collect revenue in some instances from communities who used services, the communities were encouraged to pay so that municipalities could remit what was due to bulk suppliers such as ESKOM.

He said that SALGA supported fiscal consolidation. As indicated by the 2022 DoRB, revenue had exceeded expenditure, excluding interest payments, a year earlier than anticipated due to the fiscal consolidation. Therefore, the fiscal consolidation was bearing fruits. Over time, resources would be freed up that would be able to fund services to the communities.

The aspects of capacity training for employees had shifted. The intervention was no longer based merely on attendance but involved accredited training interventions. The training facilitators were required to provide reports on the outcomes of specific learning outcomes.  

Rising unemployment had put pressure on communities. In 2020, the budget had to be reviewed, and R11 billion had to be channelled through local government to address this issue. Municipalities’ revenues had declined by R20 billion due to unemployment and faced the risk of being unable to sustain themselves financially.

He referred to the question of growing grant dependencies. He responded that the White Paper on Local Government of 1998 provided grants from the national government to provide basic services to municipalities that could not raise the revenue. Municipalities that had an adequate revenue base were able to fund up to 70% of their own revenue,and were thus able to fund their own services. Unfortunately, a large number of municipalities had an inadequate revenue base. 

Ms Mthethwa referred to the questions on debt to ESKOM. SALGA had joined the multidisciplinary task team to find solutions to the non-payment of ESKOM debt by municipalities. The National Treasury had been tasked to follow through on government departments that owed municipalities money. They had faced several challenges, especially around property rates and taxes. The results were thus prolonged. The problems were not only involving ESKOM but other creditors as well. She stated that it was essential to resolve ESKOM’s R300 billion debts, with a large portion owed by municipalities. There had been several resolutions taken. They were looking at businesses due for tax refunds, but who owed municipalities money. The local government could leverage this. They had also looked at vehicle registration licensing, and said no licences could be issued if money was still outstanding. However, no resolution would be as successful as restrictive credit control measures.

SALGA had followed through on several issues of corruption, and they were engaging support on these issues. In certain instances, there would be a need for consultants. However, SALGA had denounced the overuse of consultants and had tried to manage wasteful expenditure. There were control measures and guidelines in place to deal with fruitless spending.

She referred to the economic recovery plan. SALGA participated in several government committees to ensure that they mobilised governments in addressing issues that local governments faced, such as problems around infrastructure. SALGA was looking at ways in which infrastructure could be funded when there was a struggle to collect revenues.

SALGA had considered red tape reductions and ensured that local governments played a meaningful role in economic recovery. Issues around zoning had proved to be the biggest challenges in assisting municipalities to prepare bankable projects in the private sector. The legislation did not allow local governments to raise money internationally. However, SALGA had partnered with sister organisations to find possible solutions that had been implemented in other parts of the world.

She addressed challenges in providing essential services to the people. The government coverage in communities with poor households was very low.  The biggest issue was the growth of informal settlements and the indigent registration process. If families were not registered, they were unable to access services. These registration policies had to be improved.

She said that SALGA was following through on recommendations to look at the district model as a shared service model around a revenue agency. This may assist municipalities that did not have the capacity to generate revenue.

Mr Dikgale addressed the remaining questions. On the issue of political differences that led to conflict, SALGA implemented a process of induction to create a widespread understanding between all office bearers of what it meant to be a capable leader. This was to ensure that all office bearers could fulfil their institutional obligations and provide good working relationships. Responsibilities were clearly delegated so there would be no unnecessary overlap that may cause conflict. The issue of corruption was also dealt with. Members who were found to participate in corruption were required to step aside until all matters were resolved.

Unfunded mandates were putting a strain on local governments in severe financial distress. SALGA disagreed that the national government could deduct money on behalf of ESKOM. There were multidisciplinary committees in place that included all stakeholders. The matter should be resolved as a consensus-based decision-making process.

The Chairperson asked for examples of where the local government had been given unfunded mandates.

Mr Dikgale gave the example of city employment opportunity programmes, responding to COVID-19 related job losses. When the programme faded away, local government would be expected to continue dealing with the issues of dealing with unemployment. There should not be programmes implemented periodically, and then local governments have to carry the burden later on. Programmes needed to be sustainable.

The Chairperson said the Committee welcomed the induction training of office bearers. However, an appropriate candidate with the necessary skills should be appointed to positions to cut back on the expensive use of consultants. He referred to SALGA’s economic recovery interventions and said inclusive economic growth was essential to combat all other issues. He asked SALGA to prepare a document stating what interventions they were undertaking and what results could be expected.

The meeting was adjourned.