Local Government Finance: Briefing by Finance and Fiscal Commission

Meeting report

PROVINCIAL and LOCAL GOVERNMENT PORTFOLIO COMMITTEE; LOCAL GOVERNMENT and ADMINISTRATION SELECT COMMITTEE: JOINT MEETING
12 June 2001
LOCAL GOVERNMENT FINANCE: BRIEFING BY FINANCIAL and FISCAL COMMISSION

Chairperson: Mr Carrim (NA, ANC)

Relevant Document:
Local Government Finance Powerpoint presentation

SUMMARY
The Financial and Fiscal Commission briefed the Committees on local government finance, with special emphasis on issues related to funding and provision of basic municipal services. Questioning by Committee members focused on how financing of local government could be used as an instrument of transformation, and on how to make municipal structures accountable for their actions in this regard, and concerning proper use of funds.

MINUTES
Dr Hildegaard Fast proceeded with her presentation, which she supplemented with a number of explanatory comments. These were that:
- her presentation would highlight many of the matters dealt with concerning local government finance in the FFC's official recommendations/submission for fiscal 2002-3 to be tabled on 15 June 2001(which will also address provincial and national government finance).
- the FFC does not prescribe the manner of provision of basic municipal services. It merely facilitates implementing delivery of the constitutionally and legislatively mandated required services via formulae, to be phased in incrementally, that are more "redistributive" than past protocols.
- in the process, the FFC will also seek to apply the formulae to reduce the ad hoc nature of grants
- the FFC will determine what the true costs of local government operations are from information and data which are still being gathered and empiricized.

Discussion
Mr Smith (IFP) observed that while the Constitution’s Section 214 (concerning "equitable shares and allocation of revenue") calls for even, "vertical" division of allocations to provinces, there is no such requirement for allocations to local government.

The FFC officials agreed that this may appear anomalous, but also called attention to Section 227 (concerning "national sources of provincial and local government funding"), and suggested that the sections need to be read together to determine whether it was intended that local government be treated differently.

Mr Smith also questioned whether different services are necessary for different municipalities, depending on factors such as geography. In reply, Fast indicated that it was preferable that all municipalities be required to provide all necessary services, though specific emphases may differ from place to place.

Mr Sithole (ANC) expressed concern about the uniformity of advice received by municipalities from consultants, and suggested that all such guidance should conform to guidelines developed by the FFC.

Dr Fast agreed, but noted that there needs to be debate and discussion in order to develop a consensus on such "standardized" guidelines. The FFC has been attempting to facilitate, with government, this discussion on both the provincial and municipal levels. She added that an advantage of the "lifeline standards", establishing minimum levels of water and electricity delivered to each household, is their quantifiable clarity.

In response to a question from Mr van Deventer (NNP) as to what the criteria are for identifying "poor" households, Fast stated that the current standard is less than R800 monthly income per household. This will soon be raised to R1100. She noted that viewing household "expenditures" rather than "income" may be a better measure of poverty. Since the "equitable share" of funds given to local governments is "unconditional", municipalities are free to give money to households with incomes above the applicable maximum, and that some use a sliding scale in making distributions.

Mr van Deventer expressed doubt as to whether municipalities were capable of effectively administering such distribution protocols.

In response, Mr Solo (ANC) stated that such administration can and must be effected as part of transformation. In some areas communities have full infrastructure and services, while their neighbouring communities still have virtually none. In view of these disparities, he asked how much influence the FFC has on the Treasury and if it has considered adjusting the equitable share accordingly so that the past imbalances are not continued.

One of his party colleagues commented that the formulae seem to ignore conditions on the ground which lead to the "perpetuation of apartheid".

Dr Fast replied that a categorization of municipalities for transformation and development purposes is necessary.

Ms Borman (DP) asked how restructuring of electricity services will affect funding for local government.

Dr Fast replied that the FFC is working on a detailed report on the financial implications of these changes, which she would be happy to brief the Committees on in the near future.

At this point the Chair commented that the Committees must recognize the limitations of the changes that the FFC can effect, relative to what the Committee can do legislatively. He did not expect the FFC, whose efforts "had taken the processes forward", to answer today all the questions which might be posed. He reminded them that the equitable share is a constitutional creation, and is unconditional and therefore not subject to adjustment without a constitutional amendment. However, use of the equitable share can and should be monitored. He wondered whether the Department of Local Government can do so, inasmuch as national government has a responsibility to assist and ensure service delivery by local government

Dr Fast observed that a lack of funds, capacity, and political considerations combine to lead to a perceived lack of progress in service delivery. While national government has a role, local government must also be accountable, especially since, unlike the equitable share, most money provided to that sphere is conditional, with local government having to comply with conditions imposed. While "poverty" must be addressed on a national level, local government is responsible for meeting minimum service delivery requirements.

Dr Fast also agreed with Mr Smith’s assertion that application of FFC norms could lead to more "conditionality and accountability", even with regard to the unconditional equitable share. However she noted that the administrative infrastructure for monitoring compliance with any conditions imposed "could be improved".

In response to a question from the Chair as to the practical value of the FFC's work, Dr Fast said that although its role is advisory, it at least starts the dialogue and makes useful recommendations on, for example, criteria for defining and formulating levels for basic services.

Annoucements
- A closed workshop for stakeholders concerning the restructuring of municipal services has been tentatively scheduled for 9am-6pm on 19 June.
- There was brief mention of a possible Portfolio Committee study tour to Spain later in the year.
- The next session’s legislative programme would include the Disaster Management Bill.
- The Chair was hopeful that issues concerning legislation on traditional leaders, and the revised Property Rates Bill, would be resolved so that the Committee could work on those matters later this year.

Ms Fast continued with the second half of the FFC presentation. This part of the meeting was not monitored.