Intergovernmental Fiscal Review 2006: Financial & Fiscal Commission & Departments of Housing & Roads: briefings

NCOP Finance

14 November 2006
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Meeting report

SELECT COMMITTEE FINANCE

FINANCE SELECT COMMITTEE
15 November 2006
INTERGOVERNMENTAL FISCAL REVIEW 2006: FINANCIAL AND FISCAL COMMISSION & DEPARTMENTS OF HOUSING & ROADS: BRIEFINGS

Chairperson:
Mr T Ralane (ANC, Free State)

Documents handed out:
Performance and Capacity of Provincial Government Departments and Municipalities 2003-06
Contents of the Intergovernmental Fiscal Review 2006: Roads

Housing and Human Development
Financial and Fiscal Commission: Budget Analysis [email info@pmg.org.za]

SUMMARY
The Financial and Fiscal Commission summarized performance against stated priorities in a number of sectors, and explained the analysis of the statistics. Members asked if decline in outputs despite improved resources was due to capacity constraints. Concern was also expressed on the relevance of training by the Further Education and Training institutions, declining budgets, the lack of reporting on capacity, how backlogs would be addressed, the passing of the transport function to municipalities, whether the increase in basic services directly reflected the number of beneficiaries, why the agriculture spending focused on land issues rather than farmers, and whether primary health care figures addressed the rural areas. It was noted that no reports had been received from provinces on roads and construction and that Departments were therefore not compliant with the Public Finance Management Act. Concern was also expressed about the lack of clarity when functions were transferred, the fiscal dumping, the transfer of money, the school nutrition programme, and the decline in subsidies for the Peoples Housing Process, and changes in the delivery mandate to reflect better quality. It was noted that instability of budgets and spending was a problem and the Commission recommended progressive implementation of the increases.

The Department of Transport briefed the Committee on provincial, municipal and national roads infrastructure expenditure. It outlined the spending of R12.9 billion, and the anticipated growth of 15.9% over the Medium Term Expenditure Framework to 2009. Figures were presented for non-toll operations, and toll operations, and comparisons were tabled. The maintenance expenditure was detailed from 2002 to 2009. 890 km of roads were upgraded and 839 km rehabilitated. It was noted that Provinces spent 61% on capital expenditure and 39% on maintenance, due to the high backlog. Many of the road projects were highly labour-intensive, and best practices were being followed. Members were concerned that the accounting officer of the Department had once again not come before the Committee and therefore requested that all questions be responded to in writing. Questions included concerns about the under spending, the apparent lack of monitoring of road conditions, the limited maintenance on roads, the plans and development processes for the N12, what the Department was doing to combat fiscal dumping, and the actions taken by the Department in respect of under spending by all provinces except Mpumalanga, and in respect of lack of reporting by some provinces, and how the overlap between public transport and local government could be sorted out. The Department was also to comment on lack of capacity and the high vacancy rate.

The Department of Housing stated that the housing programme was now oriented towards holistic development. It briefed the committee on the developments in the Integrated Housing and Human Settlement Development Grant, National Housing Subsidy Scheme, the Comprehensive Plan and the “redlining” programme. NDOH had increased capacity and capability to deliver and described the monitoring programme. The municipalities prioritized for accreditation were listed, and the key challenges. The budget across all provinces was R4.8 billion, with a rollover of R385 million. As at 30 September, six months into the financial year, there had been 53% of the total budgeted funds transferred and 77% of the transferred funds had been spent. 61 000 housing units had been completed so far in this financial year. Challenges remained as the lack of suitably located land, inadequate funding for bulk infrastructure, the lack of priority alignment between departments, poor coordination, lack of capacity to deliver at all levels of government, insufficient integration with human settlement priorities, and shifting demographics. The Department was asked to respond to questions in writing. Questions were asked on the level of accountability, the lack of coordination, the new technology, the accreditation of the municipalities, the reasons for the reduction in numbers of houses built, the backlog, the poor quality of housing and the difference in spending between the rural and urban centres. The Department was also asked to explain its plans for the shift to qualitative housing.

MINUTES
Financial and Fiscal Commission (FFC
) Briefing
Mr Conrad van Gass, Manager: Budget Analysis, FFC informed the committee that the objective of the report was to enable improved measures of performance and capacity in provinces and municipalities. This would be done by proposing methods of evaluation in the analysis, and by comparing the data of 2006 to 2003 to 2005. He said that the analysis had been by comparing what was actually spent to what had been given as a priority at the time of budgeting. It would also look at under- and over-spending trends, the skills capacity in the departments, infrastructure delivery, the number of beneficiaries that were served, sub-cost norms, some socio-economic outcomes, spending and revenue assignment and unfunded mandates in particular local municipalities. However, since FFC had not gone down into the provinces themselves the report did not contain any comparative analysis.

Ms S Poggenpoel, Analyst/Researcher, FFC informed the committee that it was important to note the importance of budget analysis as a tool for measuring and assessing performance and the extent to which the budget reflect stated priorities. She summarised the performance for education, health and social development.

Ms V Cokile, Analyst/Researcher, FFC presented the figures for housing, agriculture and roads and transport.

Ms F Maseko, Researcher, FFC presented the statistics on local government.

Mr Robert Mabunda, Researcher, Data and Information, FFC summarised the measurement of norms and performance.

Discussion
Mr M Goeieman (Northern Cape, ANC) was worried about the fact that in education and social development there seemed to be a decline in improved outputs, despite the improved resources. He asked the FFC what might be the cause of this and if it could recommend some solutions.

The Chairperson agreed with Mr Goeieman, stating that the matter needed serious discussion. He also remarked that the Members of the Committee kept these questions in mind when discussing the Division of Revenue Bill for 2007. He commented that it was a thorny issue that MECs were continuously asking for more money, yet this was not being translated into outcomes. He also suggested that provincial treasuries should possibly attend during discussions of the revenue bill.

Ms Tania Ajam, Commissioner, FFC replied that there were a number of assumptions, one of which assumed that increased resources automatically translated into improved outputs. However, the information from the data proved that there was a gap between budgets and inputs. She believed that one of the reasons for declined output was that there was no tailor made infrastructure. It was important that FFC should find out from the departments how they were going to translate the funding into the required inputs that would result in the required outputs or services. To do this, she suggested that there was need to look at how the present inputs were being managed and how the departments sought to acquire new inputs.

Mr Goeieman remarked that one of the reasons for under spending and the inability for departments to expand their budgets might be lack of capacity. He then asked FFC for their suggestion.

Ms Ajam replied that unfortunately the area was outside the financial domain and since FFC were not experts in human resources it would be important for the committee to liaise with departments such as the Department of Public Service and Administration (DPSA) who might be better informed how to streamline the human resources process for recruitment. An investigation should also be made into the remuneration package to make sure that it was adequate.

Mr E Sogoni (Gauteng, ANC) asked whether the Further Education and Training (FET) Colleges and programmes might offer solutions to lack of capacity, high vacancy rates and unemployment.

Ms Ajam replied that there should be a concentration on long-term skills development and the FET system was not yet equipped to produce high quality graduates. It was beset by uncertainties, and the institutions did not know whether they fell under the Public Finance Management Act (PFMA), who was in control of their budgets. In addition there were frequent changes in the curriculum, thereby producing inconsistency and instability.

Mr van Gaas added that in their quest to find the underlying reason for the under expenditure and the high vacancy rates the FFC would visit provinces, together with National Treasury. Although the main focus area would be infrastructure they would also examine other problems. He added that it was important that departments highlight the money spent training personnel, as this was one way of building capacity. Most departments omitted to specify how much money they spent.

Mr Goeieman informed the FFC that the Committee was worried about the declining budgets, which, as the FFC suggested, might have been caused by under spending. He asked the FFC how the backlogs were going to be combated if this situation continued.

Mr P Parkies (ANC: Free State Provincial legislature) asked what the impact of passing the function of public transport to the local municipalities would be.

Mr van Gaas replied that FFC did not yet have the answer as to how this transfer of the public transport function would impact but it was one of the areas to be investigated.

Mr Parkies asked the FFC what informed the increase in the household access to basic services and whether this increase related to the actual beneficiaries.

Mr van Gaas replied that the figure came from the financial census. The increase might be a reflection of the municipalities increasing the number of beneficiaries to the free basic service. It could also mean that even the houses that had access to services may now be getting a component of the consumption free.

Mr Parkies asked why in agriculture there was an emphasis on land as opposed to extension services and asked whether FFC could provide the Committee with a demographic model of the farmers.

Mr van Gaas replied that FFC were not aware of the demographic model of the farmers and did not know why there was more emphasis on the land. He accredited the decline of the extension services to the fact that the provincial agricultural departments were utilising two new grants, the land care grant and the Comprehensive Agricultural Support Programme (CASP). Both dealt more with accessibility to land and the preparation of land for farming than the training and mentoring of the farmers. He did hope that some time down the line there would be increased extension services.

Mr Z Kolweni (North West, ANC) remarked that he was worried that primary health care prioritisation did not take into account rural areas where clinics were overloaded.

Mr van Gaas replied that FFC had general data on the utilisation of clinics and hospitals and the data did not make a distinction between urban and rural health care services. High levels of data would be needed in order to look into specific areas, which the Department of Health probably did have available.

The Chairperson remarked that as yet he had not received any report from the provinces concerning roads and construction. Mpumalanga had not reported on anything, although it had spent R400 million.

Ms Ajam replied that this was a very serious issue indeed because, in not producing reports, the departments were not complying with PFMA. She added that the Committee should seriously encourage the provinces to produce reports.

The Chairperson noted that one of the problems listed by FFC was that responsibilities were unclear when functions were transferred to municipalities. He suggested that there should be capacity building first before accreditation, which would also help to solve the problem of unfunded mandates.

The Chairperson asked how FFC were going to deal with the financial dumping that was occurring. He gave an example of the newly implemented public system grant. With the exception of Mpumalanga, where one area had already used about 48%, no other provinces had touched the grant. R 241million was deposited the previous year for this grant, plus a further R593 million deposited this year, which was simply sitting in banks.

Mr Goeieman further asked who was responsible for the transfer of money to South African National Roads Agency Ltd (SANRAL) and which department was responsible for the fiscal dumping.

Ms Cokile replied that the money was provincial money, which therefore should be used in provinces, rather than going to the national sphere of government. This was the reason why it was referred to as fiscal dumping.

Mr Sogoni informed the FFC that a provincial analysis would have been very helpful as it allowed the Committee to focus on the weaknesses and strengths.

Mr van Gassen replied that FFC were working on province-specific documents.

Mr Sogoni asked if they had looked into the national school nutrition programme, as it was missing from the report.

Ms Poggenpoel replied that although not included in the presentations, it was included in the full report. FFC had found that whilst the beneficiaries increased by 20% between 2005 and 2006 the budget showed a decline. An aspect of concern was the sustainability of the programme itself.

Mr Sogoni asked whether FFC interacted with the departments during the compilation of their data, and in particular if it was informed what the departments were planning to do in order to solve their problems.

Mr van Gaas replied that in their interviews with the various departments FFC would try to assess the root cause of the problem, and to find out whether the cause related to money, organisational or developmental skills or other issues.

Mr Sogoni asked whether FFC thought the annual reports were a good measurement of outputs.

Ms Ajam replied that they were not. She emphasised that the role of the annual report was a monitoring tool that measured what the departments had done in the year. Outcomes required more analysis and information concerning the cumulative impact of what was done.

Mr Sogoni asked the FFC for recommendations how to deal with the reduction of the People’s Housing Process (PHP) projects, which meant that people had to make an increased deposit themselves in order to acquire houses.

Mr van Gaas replied that indeed the value of the subsidies for PHP was declining, so that the own contributions of the beneficiaries had increased. This was also a result of accrediting the municipalities with the function of providing housing.

Ms Cokile added that FFC would be investigating the grey areas and would also be investigating the role and views of the emerging contractors during visits to the provinces.

Mr van Gassen added that FFC was going to look into the reason for such substantial under spending and the issue of vacancies also during the visits to the provinces that were to be held shortly. FFC and Treasury would be visiting the provinces together.

Mr Kolweni remarked that whilst it was commendable that there was a move from mere quantity to more quality housing he asked what measures had been put in place to deal with problems of transition.

Ms Cokile replied that in ensuring that the Breaking New Ground (BNG) policies were feasible, there must be investigation into what the policies entailed. One aspect was that all the houses of poor qualities delivered by the department must be rectified. The BNG would also unblock all the blocked projects, some of which dated back to 1998. The provinces might not implement the policy in the same manner but FFC should be able to identify this in the upcoming provincial visits.

Mr van Gaas added that his understanding was that there would be more focus on providing better services, such as the building of toilets, but at the moment the exact nature of the upgrades was still undefined.

Ms Poggenpoel generally remarked that the instability of budgets and spending was a problem noted in all three sectors. Increases in budget were needed, but there should be a focus on a more progressive implementation of the increases to allow departments to deal with capacity shortages and develop proper plans on spending of expanded budgets.

Department of Transport (DOT) Briefing on expenditure
Mr Lucky Gamoo, Director: Infrastructure Network Management, Department of Transport briefed the Committee on provincial, municipal and national roads infrastructure expenditure during the 2005/2006. He reported that there was total expenditure of R12.9 billion, of which R1.79 was accounted for by national, R7.57 by provinces and R3.54 by municipal expenditure. He compared this to the 2002/3 performance and the estimates for 2008/9. The growth for 2005/6 had been 9.8% and there would be growth of 15.9% over the remainder of the cycle to 2008/9.

Mr Gamoo presented the figures for SANRAL non-toll operations. He noted that the total income had exceeded budget, being R2.14 billion, while the total expenditure was R1.8 billion. This left an operating surplus. The budget would rise to R2.6 billion in the next financial year, and to R3.5 billion by the end of the Medium Term Expenditure Framework (MTEF) cycle. SANRAL toll operations showed total expenditure of R355 million, as against income of R968 million, and there was a surplus of R125 418 million. Income should increase to R1.13 billion by the end of the cycle.

A comparison of the provincial roads infrastructure expenditure for 2004/2005 and 2005/2006 was tabled, showing 98.3% spending against the adjusted budget. A table of the provincial road maintenance expenditure from 2002 to 2009 was tabled, projecting 15% growth over that period. Service delivery reported 890 km of roads upgraded and 839 km rehabilitated. It was noted that Provinces spent 61% on capital expenditure and 39% on maintenance. The high proportion of capital expenditure was due to the high backlog. A balance would be achieved in time. The Expanded Public Works Programme (EPWP) meant that many of the road projects were highly labour-intensive, and best practices were being followed.

Discussion
Mr Parkies informed the Department of Transport that he was worried about the de-privatisation of transport.

Mr Sogoni stated, on behalf of the Committee, that the Committee were reluctant to ask questions since the presenter was not the person who should be answering; the top management was accountable and should be present. He was most concerned that the Department seemed to undermine the Committee since their accounting officer rarely attended.

Mr D Botha (Limpopo, ANC), Mr Goeieman and the Chairperson agreed with Mr Sogoni, and further commented that the presentation was poorly made, lacking in the correct information and that the Committee could not properly exercise its functions of oversight on the basis of the information provided.

Mr Sogoni further remarked that information was needed on road safety, particularly in the lead-up to the holiday season.

The Chairperson then requested the Department to note the questions and to revert to the Committee within two days with written answers to the questions posed.

Mr Goeieman asked the Department about their spending, as it seemed that only about 48% of budget had been spent.

The Chairperson also commented on the spending, asking where the money was being channeled. He further asked whether the Department did any monitoring because he pointed out that the roads were in a poor condition, with many potholes.

Mr Goeieman asked what was planned for the N12, and where the new developments were.

Mr Goeieman asked the Department what it was doing to combat fiscal dumping.

The Chairperson noted that all provinces except Mpumalanga were under spending and he asked what the Department was doing about it, since this was a repeat of what had happened last year.
He asked the Department what it was doing to follow up reports. A number of provinces had not reported back, including Free State and Gauteng, and it was not clear what the provinces had achieved.

He further asked the Department to explain provincial road management and safety and what it was planning to do about it.

Mr Goeieman asked why there seemed to be little upgrading on the roads as the figure showed that they had only covered 1700 of the 30000km. He asked if this related to the Department’s assessment of the roads.

Mr Botha asked how the overlap between public transport and the local government could be sorted out.

Mr Sogoni asked the reason for the underspending, and asked especially if it was connected to lack of capacity. He requested the Department to give feedback on what it was doing to combat the high vacancy rate.

 Mr Goeieman and Mr Kolweni asked the Chairperson to schedule another meeting as more information was needed.

National Department of Housing (NDOH) Briefing
Mr Mziwonke Dlabantu, Deputy Director General: NDOH, stated that the housing programme was now oriented towards holistic development. Community needs were now the foundation, not individual households only. Integrated development plans (IDPs) were therefore the cornerstone. Provincial planning would be linked into municipal priorities.

Mr Dlabantu explained that the concept of phased development had been introduced into the Integrated Housing and Human Settlement Development Grant. There were better opportunities for black economic empowerment and quality housing as the subsidy amount could now be adjusted. The National Housing Subsidy Scheme had been improved with new housing typology, more than one design type, and alternative tenure options. The Comprehensive Plan also envisaged collapsing of the subsidy bands, linked finance schemes, additional credit linked products, land release, job creation strategies, combating crime, housing support units, urban restructuring and rural needs. Informal settlements were to be upgraded by 2014, and provincial housing departments were to submit business plans to demonstrate housing need and capability to deliver. Neighbourhoods were to be better integrated at economic and racial levels. The “redlining” programme was a finance linked housing subsidy programme geared to households earning between R3 500 and R7 000 per month. It catered for those who could afford loan finance and was not linked to certain geographic areas.

Mr Dlabantu described the way in which NDOH had increase capacity and capability to deliver and the monitoring programme. He tabled the municipalities prioritized for accreditation, and the key challenges.

Mr Dlabantu then tabled a number of statistics of performance in expenditure and housing delivery. The budget across all provinces was R 4.8 billion, with a rollover of R385 million. 96% of funds had been spent. The spending trends indicated a sharp increase in spending each year between January and March. As at 30 September, six months into the financial year, there had been 53% of the total budgeted funds transferred and 77% of the transferred funds had been spent. Housing delivery had completed or was in the process of building 2.2 million units up to 30 September 2006, and 61 000 had been completed so far in this financial year. The total subsidies for housing were around R2.9 billion. Challenges remained as the lack of suitably located land, inadequate funding for bulk infrastructure, the lack of priority alignment between departments, and little coordination. There was lack of delivery capacity at all levels of government, insufficient integration and planning with human settlement priorities, and the shift in demographics.

Discussion
The Chairperson asked the officials from the Department to note the questions and to reply in writing to the Committee.
 
Mr Parkies asked if the Department could share with the Committee the level of accountability as it seemed that the people did not know what was happening.

Mr Parkies asked why there seemed to be gaps in co-ordination and implementation of the PHP housing, and enquired exactly why there was a reduction of the budget of housing from R2 billion to about R483 million.

Mr Parkies asked the department to elaborate on the new building technology and emphasised that when this so-called new technology was first introduced it was not supported as people wanted more durable houses.

Mr Goeieman asked the Department whether the accreditation of the municipalities would lead to the municipalities being able to build quality houses within a short space of time. Mr Goeieman informed the Department that the Committee not only wanted to know in detail the format of the new housing but was also aware of the problems in Kimberley, and were still awaiting a report. He also asked when the Committee would hear what the Department was planning to do with the materials that the Department had bought a while ago, which were still to be used.

Mr Botha asked what the cost effect of the new houses would be.

Mr Botha asked why there had been a reduction in the production of houses. Between 1994 and 1998 there were about 2.2 million houses built, but after 1998 there was a significant decrease. He also asked what the Department planned to do about the backlog.

Mr Botha asked if the Department was aware that the houses built were of such poor quality that people preferred not to live in them.

Mr Botha informed the Department that the 58 units of housing referred to in Mpumalanga was too low, especially since that area had an acute housing crisis and there was much unhappiness that the housing project was moving so slowly.

Mr Kolweni informed the Department that FFC had also referred to the fact that there was going to be a move from quantitative housing to qualitative housing. He asked what measures the Department had to meet this transition.

Mr Kolweni also asked what kind of relationship the Department had with its client base.

Mr Sogoni asked for clarity on the accreditation system, as it seemed that some municipalities were delivering but had not been accredited.

Mr Sogoni asked how the Department was intending to assist in the problem of housing, especially with the difference in spending between the rural and urban centres.

Mr Sogoni commented that it was good that access was extended to people with low incomes, but there seemed to be slow transfer of ownership, and he enquired what the Department intended to do about this.

The meeting was adjourned.

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