Financial and Fiscal Commission Report: briefing

PUBLIC WORKS PORTFOLIO COMMITTEE
10 October 2007
FINANCIAL AND FISCAL COMMISSION REPORT: BRIEFING

Chairperson: Ms T Tobias (ANC)

Documents handed out:
Financial and Fiscal Commission Report on Division of Revenue (DoR) 2008/2009
Division of Revenue. 2008/09-Implications for Department of Public Works submission

Audio recording of meeting

SUMMARY
The Financial and Fiscal Commission briefed the committee on its observations and recommendations on the 2008 Division of Revenue, specifically in relation to the implications for the Department of Public Works. It noted that there was a rapid deterioration of the entire network of roads, at the national, provincial and municipal levels. There was also a problem with the classification of these roads, and no clarity as to who was responsible for the management and funding. FFC recommended that all provinces put in place effective road management systems in order to gather accurate data on road conditions and infrastructure maintenance requirements. It also recommended that comprehensive studies be done to obtain information for prioritising spending. Road maintenance should be included in the Provincial Equitable Share review. The Commission also made recommendations in relation to financing of school infrastructure, and said that backlogs in each province be considered when distributing the grants. There should be better coordination also with other grants. In relation to the Municipal Infrastructure Grant Local Government equitable share these should be coordinated, and various options were put forward.  The Municipal Infrastructure Grant should be wider and must take into account operational and maintenance costs. It warned that lack of funding would exacerbate the backlogs. The funding for the FIFA World Cup must examine the sustainability of built infrastructure, should take escalation of construction costs into account, and should encourage private sector collaboration. Prudent fiscal policy should be maintained. Members raised questions on the National Infrastructure Maintenance Strategy, noted lack of monitoring of the Municipal Infrastructure Grant, questioned the implementation dates for the recommendations of the Commission and noted that further investigation needed to be done into the Expanded Public Works Programme. A follow up meeting would be arranged.

MINUTES
Financial and Fiscal Commission (FFC): Report on 2008 Division of Revenue
Mr Bongani Khumalo, Manager: Fiscal Policy, FFC, noted that the Commission was mandated to report and recommend on the Division of Revenue (DoR), and this particular report would focus on the implications for the Department of Public Works (DPW). He set out the background to the FFC and noted that the Review of the FFC was a broad overview of the key focus areas, but could be broken down to focus on the mandates of specific departments.

The FFC noted, on the issue of roads and transport infrastructure, that there was a rapid deterioration of the entire network of roads, at the national, provincial and municipal levels. It also observed that there was a problem with the classification of these roads and there was no clarity as to who was responsible for the management and funding of some of them. In this regard, the FFC recommended that all provinces put in place effective road management systems in order to gather accurate data on road conditions and infrastructure maintenance requirements.

The FFC also recommended that comprehensive studies be undertaken to obtain information necessary in dealing with identified provincial road spending priorities. There was need for prioritising on funding at the provincial level because there was competition for available financial resources between social services and economic infrastructure. Unless funding for roads at the provincial level was looked at, there would be continued deterioration. The Commission therefore recommended that the road maintenance expenditure component be included in the pending Provincial Equitable Share (PES) review.

On the financing of school infrastructure, Mr Khumalo said that the Provincial Infrastructure Grant (PIG) for the provinces had received a boost, therefore the Commission recommended that the backlogs in each province be considered in distributing the grants. In other words, focus should be on areas most in need of schools and other infrastructure that was most likely to improve learner performance and education outcomes. Such other infrastructure included roads, bridges, and clinics. The infrastructure grants could not be considered in isolation from other grants for school infrastructure but should be effectively coordinated.

On the issue of the MIG and the Local Government equitable share (LES), the Commission observed that a much new legislation was currently being rolled out at the municipal level.  FFC recommended that there must be focus on how the MIG and LES could be coordinated to impact on the provision of services and infrastructure. To address the disjuncture between the formulas for the MIG and the LES, three options were identified.

The FFC had recommended, in respect of the Division of Revenue,  that the MIG must go beyond funding the B (basic residential infrastructure), P (public municipal service), and E (social institutions and micro enterprise). Also, to achieve long term sustainability of new infrastructure, there was a need to take into account operational and maintenance costs. It also recommended that there should be an explicit link between the MIG and Basic Services (BS) programmes. At the municipal level, equitable share allocations should be prioritised, and adequate funds must be set aside for maintaining and operating infrastructure projects. Lack of funding could have long term negative effects, compounding already existing backlogs.

Mr Denver Kallis, Researcher, FFC, briefed the Committee on the recommendations concerning the funding for the 2010 FIFA World Cup. He observed that the funding was crafted on the basis of requirements to meet FIFA standards of hosting cities, and that the major challenge faced by the government was the sustainability of built infrastructure. The Commission recommended that the escalation of construction costs be budgeted for, and that collaboration with the private sector should be encouraged. Furthermore, FFC recommended that a 2010 World Cup ‘Legacy Management Policy’ should be introduced, and prudent fiscal policy should be maintained leading to the World Cup.

Discussion
Mr B Radebe (ANC) noted that the Department of Public Works (DPW) had a strategy called National Infrastructure Maintenance Strategy (NIMS). He asked if the Commission supported the Department and Minister in this drive.

Mr Khumalo noted that the FFC had partnered with the University of Cape Town School Of Economics on a large project that was looking at the issue of backlogs and lack of maintenance of existing infrastructure. Initial results of the project were expected around May 2008. He continued that the Commission was in support of the DPW’s NIMS initiative, and that the problem of reclassification of roads had to be dealt with first by the transport sector. Then it would be possible to tackle other related issues such as access roads.

Ms N Ngcengwane (ANC) observed that there was not proper monitoring of the MIG. She noted that there was a lack of proper accountability and reporting regarding the grants, probably because they were from the National government.

Ms C Ramotsamai (ANC) observed that many popular buildings were deteriorating and asked what the Commission’s recommendations were on property management and maintenance.

Mr S Opperman (DA) asked what the implementation dates were for the recommendations of the Commission.

Mr Khumalo noted that the implementation period of the recommendations could sometimes be as long as five years, but that it depended on when government decided to accept the recommendations.

Mr N Magubane (ANC) observed that access roads in many areas were built and later neglected. He pointed to Kwazulu Natal examples, and noted that the relevant authorities should be attending to maintenance of access roads.

The Chairperson asked if the Commission was recommending that the LES be increased. She also asked if it was recommending that government should go beyond the 3% deficit on the budget on the legacy management problem of the World Cup.

Mr Kallis stated that in case the 3% government deficit was exceeded, the government had other tools like the stabilisation policy, to help alleviate the impact.

Mr Khumalo concluded that the recommendations covered the potential problems of the first phase of the reporting period.

Ms C Ramotsamai (ANC) suggested that the Commission should dig deeper into the affairs of the Expanded Public Works Programme and revert back to the Committee with their findings.

The Chairperson concluded that there would be a follow up meeting on these issues.

The meeting was adjourned.