SALGA & DPLG Input on Financial & Fiscal Commission Recommendations for Division of Revenue 2008/09

FINANCE SELECT COMMITTEE
23 August 2007
SALGA & DPLG INPUT ON FINANCIAL AND FISCAL COMMISSION RECOMMENDATIONS FOR DIVISION OF REVENUE 2008/09

Chairperson: Mr T Ralane (ANC)

Documents handed out:
DPLG on the FFC Submission for Division of Revenue 2008/09
SALGA Comments on FFC Submission for 2008/09
Financial and Fiscal Commission Submission for Division of Revenue 2008/09 (available at www.ffc.co.za)

Audio recording of meeting

SUMMARY
Representatives from the Department of Provincial and Local Government (DPLG) and the South African Local Government Association (SALGA) appeared before the Select Committee to discuss relevant aspects of the Financial and Fiscal Commission (FFC) submission for the division of revenue for 2008/09. The DPLG presentation focused on several issues, including the economic impact of the 2010 FIFA World Cup, the financing of school infrastructure, the financing of roads and transport infrastructure, environmental fiscal reform in SA, and the fiscal implications of the re-demarcation of provincial boundaries.

SALGA, currently undergoing a major internal overhaul, sent representatives to provide brief comments on the FFC Submission, supporting most FFC recommendations, while providing certain caveats regarding equitable distribution of financing and the localized economic benefits of the 2010 World Cup.

The Select Committee discussed the practical implications of re-demarcation in terms of both financing and voting and asked for clarification on issues relating to transport infrastructure, while noting the necessity for characterizing ownership – municipality versus provincial – of specific roadways.

MINUTES
Department of Provincial and Local Government (DPLG) input
Mr Errol Africa, Deputy Director General, noted the FFC recommended that, because host cities will feel the primary “Legacy Benefits” of the 2010 World Cup, those host cities should be responsible for all excess funding required. The DPLG noted that this recommendation was already causing some host cities – Johannesburg in particular – to increase rates, surcharges and tariffs to counter fund expenditure requirements. The DPLG therefore does not agree with FFC recommendations that legacy benefits be exclusively funded from host cities’ own budgets. The DPLG holds that no municipality should be subjected to weakened capacity for service delivery because of the 2010 World Cup.

The FFC recommended urgent institution of various municipal and provincial grants to ensure optimal outcomes for school infrastructure investment. The DPLG agreed with this recommendation noting that planning for school infrastructure should ideally be a part of the municipal IDP process. Furthermore, because room for improvement exists, the DPLG proposes the FFC advise the government on how to effectively coordinate these services.

The FFC found that the municipal access road system was extremely poorly maintained. With one of the worst maintained systems in the world, SA’s communities are being robbed of various opportunities and denied economic viability. The DPLG agreed with this finding but was concerned that the FFC offered no recommendations along with their analysis. Clearly, resource allocation for road maintenance is poorly conceived. The DPLG proposes that the FFC offer concrete proposals – particularly regarding those municipalities with low fiscal capacity and no ability to fund road maintenance from their own budgets.

The FFC suggested a case could be made for earmarking environmental revenues/royalties to lower levels of government where environmental damage is most likely to take place. The DPLG agreed with this recommendation.

Regarding the re-demarcation of provincial boundaries, the FFC indicated that affected municipalities were not receiving appropriate compensation. It suggests that such realignments should occur in alignment with provincial/local government financial calendars. The DPLG agreed that a once-off allocation of funds – a transitional fund – should be considered to alleviate compensation issues between municipalities.

The DPLG looks forward to more firm recommendations on many of these issues.

Discussion
Ms D Robinson (DA) asked about the once-off allocations. When are these to take place?

Mr Africa responded that currently allocations have been growing over time and the once-off allocation is a new DPLG recommendation. In this way, provinces will provide a real-time list of financial needs of affected municipalities – not wants, but needs – to the DPLG and National Treasury who will then come to a consensus. The motivation for the once-off allocation is to put municipalities in the best possible financial situation after absorbing the shock of additional communities.

Mr M Goeieman (ANC) also asked about the re-demarcation specifically relating to voting. He noted that after a municipality re-damarcation, people often still cast votes in their old municipality. This leads to imbalances. The North West is stealing services from the Northern Cape because of people voting in the wrong province.

The Chair noted the frequency of these debates between laws and popular sentiment.

Mr Africa responded that determining funding for municipalities is part of the demarcation process. After the Twelfth Constitutional Amendment and resulting Repeal Act, there were many funding requests from interested provinces and municipalities, but no consensus can be reached because of consistent claims of poverty. The Government is adjusting equitable shares based on population shifts.

Regarding voting, Mr Africa suggested the issue presented a tricky legal question, but the DPLG had been assured of provincial oversight on jurisdictional issues. Given that population shifts are taken into account when new equitable financing recommendations are made, it is in the interest of local governments to regulate voting.

The Chair suggested that while it seems the DPLG is trying to resolve the matter, the Department should further re-examine realities regarding laws versus the wishes of the voters. 

Mr E Sogoni (ANC) said that he agreed with many DPLG comments but wanted to hear more concrete proposals and recommendations.

Mr B Tolo (ANC) suggested that the road infrastructure was of great significance to the 2010 World Cup. A fully integrated transport system is vital. Unfortunately there are no integrated Integrated Development Plans (IDPs)

Mr Goeieman asked why the DPLG was so soft on road maintenance recommendations. Agreeing with FFC findings was not sufficient. There must be specific recommendations.

Mr Africa responded that the DPLG agreed with FFC recommendations on road maintenance, but had not made its own explicit recommendations because its scope cuts across several departments while the FFC remains an independent body.

Regarding road maintenance as it relates to the World Cup, Mr Africa noted the situation presented a catch-22 because the government committed specific localised funding for roads and stadiums, but then host cities universally argue that additional funding is necessary. There are many sides to the issue and the DPLG cannot comment further without more review of all relevant information. As is, the DPLG agrees with FFC findings that avenues to fix these problems need to be sought. Ideally IDP planning should be holistic and coordination must be approved.

Mr Africa cited the importance of road classification because maintenance cannot be done without first establishing municipal ownership as a means of outlines where funding should come from. That being said, as this relates to the World Cup, the DPLG did not hold that host cities should exclusively bear costs because the World Cup is a national priority. The national government needs to step to the plate and contribute. If the executive gives more attention to the challenges of access roads, there will be huge economic benefits to local communities and governments.

The Chair asked about coordination mechanisms to assure development activity occurs within the framework of IDPs. Any work done outside this framework constitutes wasteful and irregular spending and should be criminalised.

Mr Africa responded that the DPLG policy is national and adopts the IDP as an instrument of state-wide planning – not just local municipal. In this way, provincial priorities need to align with municipal priorities.

The Chair noted that when the Committee meets with local municipal governments, it must be mindful of their tendency to plead poverty. Public transport funding is in place. Stadium funding is in place. The national government cannot allow local government to waste money and thereby hinder service delivery. That being said, supplementary recommendations from the FFC would be helpful.

Mr Sogoni asked if equitable shares for transport maintenance are increased, is there any way to ensure proper spending? Do municipal governments have the discretion to prioritise spending? There needs to be increased accountability and transparency to ensure proper spending.

Mr Africa said the DPLG will take those recommendations into account and see how they can be best applied.

South African Local Government Association (SALGA) Comments on FFC Submission 2008/09
Mr Lance Joel, SALGA Executive Director, noted that SALGA is currently undergoing a major institutional overhaul and that the presentation represented a very basic draft of SALGA notes.

Local Government is uniquely placed to analyse and understand the dynamics of communities, marginalized or otherwise, and their basic needs.

Regarding the World Cup, SALGA supports FFC recommendations to locate specific legacy benefits in the hands of host cities, but SALGA does not agree these benefits should be limited to host cities.

Regarding the National School Nutrition Programme (NSNP) SALGA supports increased budgetary allocations for the NSNP in primary schools in order to cover students who are not currently covered.

SALGA supports the coordination of specific localised school infrastructure grants to ensure optimal outcomes and investment.

SALGA thinks further review is needed to determine the advisability of extending services covered under the local government equitable share to include road maintenance. Because municipal roads are just as important as free basic services of water, sanitation, and electricity, there is an argument for them to be similarly subsidised.

Regarding the financing of housing delivery, SALGA supports including data on homelessness as an indicator in the housing formula. Furthermore the definition of homelessness needs to be clarified.

Of the re-demarcation of provincial boundaries, SALGA supports FFC recommendations that the formula for determining Local Government Equitable Shares should be revaluated. SALGA agrees that changes to the boundaries of sub-national authorities should be aligned with the financial years of applicable municipalities.

Ms Sophie Molokoane of the SALGA delegation added that SALGA believes IDPs should include funding for roads. SALGA supports a holistic approach to road classification.

Discussion
Mr M Robertson (ANC) referred to the suggestion that road maintenance should be included among other basic free services. How is this possible when municipalities often cannot perform the other basic tasks to serve their communities?

Mr Joel replied that currently roads are not included, but SALGA holds they should be because of their vital importance to local economic development.

The Chair noted several problems regarding municipalities and funding, including perpetual claims of poverty and rampant corruption and mismanagement. Often money is invested instead of being used for basic services and other pressing financial concerns. The issue is all about service delivery, but so often budgets are skewed against it.

Mr Robertson agreed and noted that often, municipal government salaries represent more than 50% of local government expenditures.

Mr Joel noted the Chair’s comments and suggested his analysis was nothing new. His concerns represent one of the major current challenges for SALGA. A recent national conference was held to look for solutions to these issues and develop a strategic plan. The conference resulted in a five-year plan (2007-12), which is currently being implemented. This plan will include oversight over all municipal spending to ensure that they do not have final discretionary authority. SALGA is not ignoring these issues.

Mr Robertson suggested that the SALGA presentation was inadequate and that far more information and analysis was required.

The Chair responded to Mr Robertson’s concerns noting the current changes taking place at SALGA. New leadership is in place and this report is just a draft. SALGA will reappear before the Committee soon enough with a more comprehensive report. Meanwhile it is useful to hear about their revamping structures. These issues should be finalised by March 2008.

The Chair reminded committee members of a 14 September trip to the Free State where meetings with various municipalities should provide ample opportunity to address many of these issues.

The meeting was adjourned.