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FINANCE SELECT COMMITTEE
8 June 2007
EASTERN CAPE MUNICIPALITIES OVERSIGHT: CACADU, KING SABATA DALINDYEBO, MNQUMA
Chairperson: Mr TS Ralane (ANC, Free State)
Documents handed out:
Cacadu District Municipality presentation
Mnquma Local Municipality update on Municipal Budget, IDP, Compliance and Service Delivery
King Sabata Dalindyebo (KSD) presentation on Budget and Related Issues
Cacadu District Municipality
Mnquma Local Municipality
King Sabata Dalindyebo Local Municipality
Audio Recording of the Meeting Part1 and Part2
The Cacadu District Municipality reported that the latest census had underestimated the population by almost 50%. The major challenges in the district were water and sanitation services, and roads, which were devastated by floods during 2006. There was a legacy of high salaries, and this would take years to sort out. It was a challenge to maintain the required high standards of governance.
The Mnquma Local Municipality had spent 38% of its budget to date. For the following financial year, R98 million was allocated to operational expenses and R38 million for capital expenses. Staff costs were 49% and 22% was earmarked for general expenses. Many staff members needed to be retrenched to make way for more professional people, but no money was available for this.
Members questioned the high proportion of staff costs, and the fact that the remuneration for councillors was twice the budgeted amount. Only 3% was set aside for maintenance.
In the King Sabata Dalindyebo Municipality, there had been political problems which had been solved. Funding was low due to disproportionate payments from provincial departments. Rates were being increased to boost revenue, and attempts were being made to collect outstanding rates and service fees. The debtors’ book would be sold off. Various cost-cutting measures would be applied. Staff expenses were also high, and plans were being made to reduce the staff complement but funds were needed to make packages possible.
The Committee decided that it should visit the affected municipalities between 30 August and 2 September and discuss all the issues raised during the presentations. All stakeholders should attend.
The Ukhalahlamba Municipality was invited but was not present.
Cacadu District Municipality presentation
Mr Mlungisi Mvoko (Executive Mayor, Cacadu District Municipality) said that there had been a serious error in the last census. This had indicated a population in Cacadu of 75 302 people in 18 453 households. The survey by the local municipality indicated that the figures were more in the region of 140 120 people in 16 758 households.
He said that the provision of water was one of the biggest problems facing Cacadu. A number of meetings had been held, facilitated by the Eastern Cape (EC) Member of the Executive Committee (MEC) responsible. Most problems occurred during the holiday season, especially in Port Alfred. A desalination plant was being investigated there. The figure that 172 people had no access to water was incorrect. All nine municipalities within the district were their own water authority. It was a struggle to get the situation fixed. The bucket system still existed in some areas, and was the biggest problem facing Cacadu.
The Mayor said that the budget had set funds aside for water and sanitation services. There was, however, a problem with the definition of formal and informal housing. Several houses built in the 1940’s out of mud bricks were regarded as informal. In his opinion, any properly built house should be regarded as a formal house, and an informal house would be a shack. There was a difference in interpretation. Ndlambe had gone for the minimum level of service and had no budget.
Mr Mvoko said that roads were a big problem. R187 million had been allocated to repair the damage caused by floods in 2006. Access to areas, particularly in the west of the district, was very difficult. New roads were being built in the district. R36 million had been set aside for access roads, and the rest had been allocated to regional roads. The first floods had occurred during August, and more followed in November 2006. The first instalment of this money was R11 million, and Cacadu was targeting other arrears. A high proportion of the roads in the district were gravel. The Addo road was a high priority. It would link Port Elizabeth to the Addo valley. Another priority was the R72, a coastal road which served as an alternate route to the N2.
In terms of health services, the mayor said that only five hospitals in the district were accredited to administer anti-retroviral treatment. There were never enough funds for health services. The former council had not cared about provincial issues. The metros took the bulk of health funding. Cacadu lost out on R10 million per annum, and was always in deficit in this regard. Cacadu had tried to reach an agreement to put together all resources as the District Municipality (DM) was the highest authority in the area. If there was a shortage, then all resources should be pooled. There was a disproportionate patient ratio.
Mayor Mvoko said that the former Western District employees’ salaries were too high. The DM could not match the salaries paid by the province. It would take between ten and twenty years to stabilise this situation. This was a legacy from the Western District Council, and would be addressed.
He sketched a pattern of economic growth. This was happening at different paces in the various regions. There were different activities and population densities in each area. There were five pillars to economic development. Two development agencies were active in the area.
The mayor then discussed governance in Cacadu. Performance management systems were needed in all nine municipalities in the district. They were not going for safety options. They were doing in-house monitoring using current regulations. Various policies had been adopted. A good governance survey had been carried out in four of the municipalities. A steering committee had been formed, and public relations work had been carried out. Auditing was a shared function. Most municipalities could not establish creditable audit systems and were financed. All municipalities had adopted their budgets. It was a challenge to comply with the provisions of the Municipal Funds Management Act (MFMA). There were disclaimers in place for medium municipalities. Assets were valued. It was difficult to meet with the high standards required. Some functions had been outsourced. He foresaw a huge problem in complying with regulations, especially in the smaller municipalities. The Municipal Infrastructure Grant (MIG) monitored expenditure in the municipalities. Talks had been held and direct links established. However, he felt that some priorities would not be addressed. There was an outreach program to the municipalities and assistance had been applied. There was a capacity building strategy in place, and partnerships were being put in place. The Nelson Mandela Municipality was helping.
The Chairperson asked how much money had been given to Cacadu.
Mr Mvoko replied that he was not sure of the amount. New allocations had been made. Payments had been made straight to the municipalities.
The Chairperson said that the MEC should not do his own thing. Division of Revenue Act (DORA) funding had allocated R18 million, and they had targeted various amounts to different municipalities. This was not a favour but a deliberate national action. In particular, sanitation services were funded.
The Mayor replied that this had been added.
The Chairperson said that there was a need to check on backlogs. Every facility had to be utilised. He proposed that the Committee should meet the DM in Cacadu. Issues to be addressed included sanitation, roads, health services and financial liabilities. Parties who should be included were the provincial treasury, local government and Escom. Serious engagement was needed with the province. In the last financial year (FY) R1 billion had been allocated to the municipalities. The story told by Cacadu confirmed the Committee’s suspicions of mismanagement. There were clinics, but no roads leading up to them. He wanted to follow up with Treasury. There were a whole range of capacity issues, including underperformance management. He wished to talk directly to the municipal mayors, and all other stakeholders. The matter needed urgent attention. The Committee would be fulfilling its oversight role. Some projects would be taken on nationally. It would not help to take questions from the Committee members at that stage. R5 million had been put aside, and he wanted to know what was on the table, and what was being committed to weak municipalities.
Mayor Mvoko said that he was happy with the Committee’s visit, and all issues would be discussed.
The Chairperson said that this presentation should be the basis for that meeting, and should be updated. They could then deal with the statistics. There was a big difference to the census figures, and a way had to be found to reduce the errors, particularly as revenue for the 2008/09 FY was already under discussion based on the census figures. The meeting must be held, even if it was on the weekend.
Mnguma Local Municipality presentation
The Chairperson noted that this was a process of ongoing engagement.
Mr William Duna (Executive Mayor, Mnquma Local Municipality) presented the 2006/07 budget.
Ms Nomthandazo Ntshanga (Chief Financial Officer (CFO), Mnquma Local Municipality) said that the adjusted budget had been adopted in February 2007. Sources of income included house rental. The municipality had received the FIG and MSIG, as well as the whole government grant. Expenditure estimates had been adjusted to R121 million, of which 38% had been spent to date. They were trying to reduce general expenses. Capital projects had been adjusted, as had been other projects. More details could be provided. R12.5 million of the R34.5 million allocated for this purpose had been spent. There were some pilot projects underway, and there was a need to prioritise these.
Funds from the Development Bank of South Africa (DBSA) had not been allocated. Funds from the Department of Environmental Affairs and Tourism (DEAT) could not be spent until the project got underway. Three more adjustments were expected. The budget for 2007/08 was R98 million for operational expenses and R38 million for capital expenses. The budget for personnel amounted to 49% of the total, and 22% for general expenses.
The Chairperson observed that 49% of the budget was allocated to personnel and just 3% to maintenance. He asked what the employees were being paid to do.
Ms Ntshanga said that the 49% was a result of staff being employed originally by the Transitional Local Council (TLC). They were looking to pay severance packages so that more professional staff could be appointed. She presented a breakdown of various items of expenditure and a breakdown for the R98 million in revenue received. They had reviewed tariffs and had made increases. Policies had also been reviewed. Tariffs and property rates had been adjusted and the budget adapted. Mnquma had resolved to implement a financial turn-around strategy. Drafts had been presented to all parties, and a road show had been held. Financial statements would be provided.
Ms D Robinson (DA, Western Cape) asked for more clarity on the staff budget, as it seemed bloated. The municipality lacked the funds to pay severance packages, but it seemed a good idea that this must happen eventually. However, it seemed that none of the staff were worth retaining. She felt that some of them must have some skills. She asked where Mnquma anticipated the money for severance packages would come from. She noted revenue items such as dog tax which had been stopped in other places long ago as more had been spent on administering this tax than was actually received. She also asked what the road crossing tax was.
Mr E Sogoni (ANC, Gauteng) looked at the operating costs on page 3 of the presentation. He agreed that the Finance Management Grant (FMG) and Municipal Systems Improvement Grant (MSIG) were important grants, and 100% of the funding derived from these sources had been spent. A number of issues had been raised, such as the level of professionalism amongst the staff. An amount of R1.5 million had been budgeted for refuse removal, but only R745 000 had been spent. He had travelled between East London and Umtata, and had not seen any evidence of money being spent on this service. This was one of the core functions of a local municipality. If the money could not be spent, then where was the problem. He asked how the budget was related to the Integrated Development Plan (IDP), and if this had been adopted the previous year. On page 7 of the presentation the remuneration for councillors was mentioned. Although only R6 million had been budgeted, R12 million was spent. He did not understand why this not foreseen. Negotiations had taken place over time, but it seemed that this council had made its own decisions. This amount was 212% over budget. The DBSA grant was R600 000, but only 3% had been spent. He asked if this was related to the staffing issue.
Ms Robinson noted that the housing rental received was 300% more than the budgeted amount. In many areas nothing had been spent against budget items. She asked if any national or provincial bodies owed money to the municipality, and if outstanding revenue was a problem. She asked if there were any audit fees owing to the Auditor General (AG).
Mr Sogoni said that he had not seen the turn-around strategy.
The Chairperson said that they would return to that issue.
Mr Ngamela Pakade (Municipal Manager, Mnquma Local Municipality) said that all monies had been paid to the AG. The figures for housing rental were an indication of the turn-around in collection. The budget had been based on actual payments. The municipality had received more than had been expected. The DBSA allocation had been made after the budget. However, DBSA had then decided to spend the money directly rather than give it to the municipality, which would now simply pass on invoices. Some money had been spent on a vegetable garden project, but not much progress had been made there.
The Chairperson said they would have to check with the DBSA, and ask them if this was a standard practice. He asked who was accountable for underspending.
Mr Pakade replied that the council had been elected in March 2006. There was no indication from the Minister regarding increased remuneration, but this had subsequently been published in the Government Gazette on 30 June 2006. These revised figures had to be included in the budget.
member of the Committee undertook to obtain an explanation from the Minister.
Mr Sogoni said this was a very important matter. He asked how the shortfall was funded.
The Chairperson said that the Minister had increased the grants. Municipalities had then gone for the highest notches available.
Ms Robinson said that there had been more scales to choose from. She asked if it had been the municipality’s choice to take the highest scales. She asked if this was automatic, or at the discretion of the council.
Mr Pakade replied that the remuneration budget had initially been set at R6 million. The municipality had to accommodate the shortfall. The budget adjustment made this possible. He affirmed that the budget was linked to the IDP. The presentation showed all the IDP-linked projects. There was a division of projects into clusters in terms of the IDP. Regarding the refuse removal, he said that the member had looked at the revenue rather than expenditure. It was in fact R745 000 which had been collected. This figure did not reflect payments made after May 2007. Refuse collection was not on the expenditure slide
He said there was a lot happening around personnel and equipment. There was a possibility of receiving feedback from the public. The FMG and MSIG were conditional grants. Business plans had to be in place before allocations were made. Available money was not enough to meet all the challenges, and priorities had to be set. Funds received from these grants had to be spent on the intended purpose. These included ward committees, communications and data cleansing. Correct information had to be on the database.
Mr Pakade said that the road crossing fee had arisen out of problems in dealing with parastatals and their infrastructure. Often their infrastructure interfered with that of the municipality. They were therefore charged a fee if their infrastructure crossed a municipal road, whether by wires, pipes or other means.
He said there were moves to capacitate the staff. The municipality had submitted a skills development plan and training programs, all of which were job-related. The reality was that some staff were not trainable. Interventions were working. They were dealing with the need to reduce the number of personnel, but were struggling to find the money for packages. He pointed out that the personnel budget had been 55% of the total budget in the previous FY. The replacement process was slow, and posts were frozen if they were vacated and deemed non-essential. It was also an issue of the total budget, and if this number was higher then the percentage of staff costs would be lower. There was a strategy to increase revenue. The presentation alluded to core elements of the turn-around strategy.
The Chairperson asked if the Eastern Cape (EC) treasury had participated in the budget process.
Mr G Kalumashe (General Manager, EC Treasury) said they had participated, but not to the extent they would have liked. There were three problem areas. The budget had to be balanced, and there was a risk of overstating revenue while understating expenditure. There had to be a positive attitude if a deficit budget was indicated. There were two items involved, firstly a turn-around strategy. There had been a big jump in house rentals, and he queried the figures. There were two similar items, and the process was very risky given the culture of non-payment which had arisen. They were still talking about this. There was not yet compliance with National Treasury regulations, but they were still looking into this.
The Chairperson said that there must be compliance. One of the problems he foresaw was the low amount of 3% budgeted for maintenance, while the general expenses were 14%. There was an attachment to be followed regarding the general expenses, and this would be discussed. There was a carry-over of 640 with housing.
Ms Ntshanga said that the figure of 640 was a balance of housing projects.
The Chairperson asked why these projects had been given.
Mr Sogoni accepted that these projects were needed.
The Chairperson said that financial management was the bottom line.
Ms Miranda Nyembezi (Manager, EC Local Government and Traditional Affairs) said that the process should be allowed to proceed. Local Government must be part of the process. An immediate report back was needed. They had to have the stakeholders involved, including DBSA and provincial authorities for local government, housing and health to deal with specific issues. Eskom and roads also needed to be present. Broad talks were needed, and they needed to look at turn-around strategies. They might want to talk about the question of personnel, and talking to neighbouring councils might be informative.
Ms Robinson repeated her question about national and provincial department debts.
Ms Ntshanga said she had just been to the Public Works Department (PWD). Of R1.2 million allocated to it, the municipality had received R800 000. They were still engaging on ownership questions.
The Chairperson said that PWD was then also part of the discussion. He asked if the asset register was updated.
Mr Sogoni felt that a short cut had been taken in answering the question.
The Chairperson said that all departments would be billed through PWD.
Ms Nyembezi said the national PWD was responsible for all departments. The provincial PWD was not yet ready to take over. Housing and Treasury departments would help municipalities in collection of revenue.
Mr Vincent Malope (National Treasury) said that some expectations were too ambitious to expect immediate implementation of the MFMA. Only R500 000 was granted to a municipality, and this amount was too small. Municipalities had to link their budgets to their IDP. Small municipalities did not seem to know this. Consultants were used, but they ended up taking the whole of the grant for their expenses. There was no skills transfer. The money spent on consultants should rather be used to develop own capacity building needs. He asked how municipalities could generate output.
The Chairperson said that this was a critical point. There was a need to do an audit of intentions against outcomes, and this should be reflected tin the 2008/09 budget. Some municipalities had been identified. More money could be added, but intense monitoring was needed. Municipalities should look at the kinds of outcome, and reallocate some funds as appropriate.
Mr Kalumatshe said that if the personnel budget was the norm, then it would be difficult to address. If the standard set was unreasonable, then it would become the norm not to comply.
The Chairperson said that there must be a good study done, which would feed into the budget discussion. The budget meeting would be held in September. The “one size fits all” approach was problematic. They were looking at regulations to accommodate the needs of individual municipalities.
Mr Sogoni was not sure if September was the correct time for the budget discussion. He thought that the budgets should be in place already by then. There should be engagement with National Treasury.
The Chairperson said that the budget council would meet on 18 June 2007. The legotla in September would be a bigger forum. This would be a three-day discussion. Members should start working towards this now. He asked if the districts were all on an equal footing regarding development.
Mayor Duna said that he thought it would be very good to have such a forum. It would encourage interaction to check on some other actions. There needed to be some semblance of measures to allocate resources. In the process some opportunity was needed to interact with the provincial Treasury. This was needed. It might not be helpful without interaction and assistance so that the municipality would know the right things. He could not find fault with anything the Committee had said, and there was no concept of stunting growth.
The Chairperson observed that Treasury was doing the right thing.
Mr Sogoni appreciated the words of the mayor. This was not a forum to destroy people. He was looking at the challenges faced by the municipality. Together they were looking for success. The mandate of 2004 was to deliver services.
The Chairperson said it would help if the municipality was able to raise its own revenue. They should select a salary notch applicable to their councillors. This would be discussed during the visit. A look at budgets was necessary. Some unrealistic items were included.
King Sabata Dalindyebo (KSD) Municipality
Mr Bongani Bodlani (Acting Executive Mayor, KSD) sketched a brief history of events in KSD, [one of the seven local municipalities located within the OR Tambo District Municipality. In March 2006 the then MEC had advised the municipality to improve its status. A team from the United Nations had been arranged to visit KSD. At the end of 2005, the CFO and General Manager for Budgeting had resigned. Between September and December of 2005 a number of motions had been presented to council which interfered with the administration of the municipality. It was a small town, and gossip spread quickly. The remaining officials had put their heads together, and the MEC had become involved leading up to the United Nations visit in early 2007.
He said that only R5.7 million had been allocated for the FY 2005/06, and there had been an increase of only 2% for the current FY, taking the current budget to R5.8 million. Another small increase was expected for the next FY. Service level agreements were in place. There was much history in the area, as Umtata had been declared a municipality as long ago as 1883. There should be a formula of 80/20 applied, where the Department contributed 80% of the budget and the municipality 20%. However, the situation was reversed at present. The accumulated debt was mounting, and was increasing by R25 million per annum. The government had to take heed of the Inter-Governmental Relations Act.
Mr Bodlani said that the council had approximately one thousand employees, most of whom had between twenty and thirty years service. They were only deployed in the urban areas. They could not adjust to the current ethos of service delivery. They could not be fired as there was no money for compensation.
Ms Vuyo Zitumane (Caretaker Municipal Manager, KSD) said that the IDP and the budget were aligned. This was the first time that this situation existed. They had met National Treasury deadlines. The only outstanding regulations were service delivery information. The revenue base was presented. The general valuation of property was down. Cases had been taken to court regarding property rates, and legal action was still pending. Rates would be increased by 12%, electricity provision by 5.6% and refuse collection by 12%. A new fire services levy was also being introduced. Service level agreements would be put in place to compensate for the incorrect 80/20 balance.
There were long standing debts due to the municipality, and they hoped to collect 50% of these in the short term. They also planned to sell off their debt book in order to recover income. Debt collection had been flexible, but would now be tightened up. The same approach had been applied in East London, and the result had been a 100% collection. The target in the budget was 97%.
Ms Zitumane said the total operating revenue was R305 million. This included a bad debt provision of R5 million. Grants and subsidies amounted to R88.7 million. They were looking to cut personnel costs. Voluntary severance and early retirement packages were being considered, but money was needed to implement these. Many irregular solutions had been applied in the past. Attempts to appoint a CFO had proved unsuccessful so far. A particular white man had been identified with the necessary skills, but he had made himself unavailable for the post after being threatened. There were other vacant posts.
Ms Zitumane said there were some crises in managing the turn-around, but there were some positive projections. Maintenance had never been done, with the result that infrastructure had deteriorated. What should have been maintenance was now reconstruction. There was R8.9 million allocated to maintenance, but new attitudes had to be instilled. The personnel budget was R166.7 million and general expenses R 51.3 million. This was out of a budget of R295 million. The capital budget was R138 million, of which only R 4.7 million was funded internally.
She said that the IDP and the budget were synchronised. There was a bias towards service delivery. Most resources were allocated to employment creation. There was a moratorium on recruitment in non-critical positions. Realistic plans were needed to give funds where needed. All departments had to develop a strategy for operations and maintenance by October 2007. Some institutional restructuring was needed in order to meet National Treasury requirements.
Ms Zitumane listed some measures to be taken. Attendance at conferences would be more selective. Any cases of overspending would be treated as unauthorised expenditure. Compliance to the MFMA was at about 70%. Reports were being submitted and the supply chain management process was being followed. Conditional grants were being administered.
She said that relations with the OR Thambo district were not good. There was a bias towards the smaller municipalities. There was little support for KSD, specifically regarding water and sanitation policies. Politics were a factor, but seemed to have eased a bit now that the ANC was the majority party in KSD. The quality of service was not being controlled, and KSD was experiencing capacity constraints.
Mr Sogoni said that a tight schedule was needed. The area had been prioritised by the new MEC. There was potential in the area, but challenges had to be identified. Time should be set aside for this.
The Chairperson said that this did need attention. There were glamorous plans in KwaZulu-Natal. A problem was that some things were being done in a context of chaos. Issues were being raised of political interference. The question was how to break the logjam. Another question was how to reinforce efforts, and to prevent delays. Questions should not be raised at present, but the KSD area would be included in the Committee’s visit to the Eastern Cape later in the year. Organised Local Government also needed to be present. If the will was there, then it could be done even if the meetings had to take place on weekends. The same shareholders as proposed earlier should be present, and there should be representatives of the OR Tambo district.
Mr Bodlani said that it was encouraging to notice the seriousness of the efforts being made. They had been told that KSD had the capacity to spend the grants given to it. R9.5 million had not been spent by the district municipality, and R47 million was not available. The general expenses increased due to staff members sitting idle. If people were not capable of doing their jobs they should be trained or be fired.
Mr Sogoni agreed on the issue. The sooner the visit happened, the better. By July 2007 the new FY would start, and issues needed to be addressed. Relations with Eskom should be in line with the RDP, but it seemed this was not the case at present. National Treasury should also attend the regional meeting. When the Committee returned from KSD it should be possible to see progress.
Mr Bodlani was encouraged by what he had heard. This was especially so in the month in which the incumbent mayor had resigned. It would be difficult to appoint a new mayor while confusion was still reigning.
The Chairperson said that two processes were in question. Firstly, the new MEC for local government had been appointed. Secondly, the Committee would visit the area between 30 August and 2 September to meet the various municipalities.
The meeting was adjourned.
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