South African Local Government Association, National House of Traditional Leaders & Municipal Demarcation Board :Budget Review

Meeting report

South African Local Government Association (SALGA): Budget
The South African Local Government Association delegation included Mr Xolile George, Chief Executive Officer: SALGA, Ms Josephine Meyer, Chief Financial Officer, SALGA, Ms Sophie Mozokoane-Machira, Chairperson: SALGA Finance Working Group and Mr Sakhumzi Somyo, National Executive Committee member.

Mr Xolile George tabled the budget summary of the 2008/09, 2009/10 and 2010/11 financial years. He outlined the programme purposes, objectives and measures for the main programme areas of SALGA.  He noted that challenges to the current funding model had been identified and would have to be addressed.

SALGA was premised on certain functions. It undertook strategic profiling to build the profile and image of local government within South Africa as well as internationally. It provided support and advice including policy analysis, research, monitoring and knowledge sharing. It represented members and implemented internal programmes directed at strengthening SALGA’s corporate governance. Based on the strategic objectives of SALGA and the national conference resolutions, an institutional scorecard had been developed to optimise SALGA’s representational, support and advisory role in response to its external environment. It would also cover municipal transformation and organisational development, effective and sustainable delivery of municipal services, stimulation of local economies and poverty alleviation, strengthening of municipal financial capacity, improving public participation and the functioning of ward committees and good governance.

SALGA was primarily funded by its members, who were charged membership levies, calculated at different rates according to the distinction between local, district and metropolitan municipalities. Membership levies constituted over 70 percent of SALGA’s budget for the 2007/08 year and still made up the major revenue stream for SALGA in the 2008/09 budget (66%). SALGA’s share from the national fiscus, via a transfer from Department of Provincial and Local Government (DPLG) was R22 million in the 2008/09 financial year, representing 14% of total revenue. This amount was growing by a rate of 6.4% and 6% for each of the subsequent Medium Term Expenditure Framework (MTEF) years, to R23. 4 million by 2011. 

Although the appropriation for the 2007/08 financial year was R19 million, an amount of R6.8 million had been pre-paid to alleviate SALGA’s cash flow problems in the 2006/07 financial year. The other sources of income were meagre and unreliable, and comprised 10% of total income in the 2007/08 financial year. This revenue stream included monies from the course facilitation fees, registration fees for National Members’ Assembly (NMA) and sponsorships. The budget for the 2008/09 financial year included an amount of R19 million for bad debts recovered from old provincial associations. As at 29 February 2008 the collection levels for total debt were at 65%, whilst the collection levels for the current year were at 81%. Poor collection levels impacted negatively on the implementation of programmes in that some programmes had to be curtailed during the year to enable the organisation to stay afloat.

Various reasons had been cited by the members for not paying timeously, such as cash flow problems, purported resignations from SALGA and unrealistic settlement terms often going over various financial years for arrear debt. The effect of an unreliable funding source on working capital management meant that SALGA had to operate an overdraft to be used as bridging finance whilst awaiting for collections to materialise. The budget requests from provincial offices and directorates, as informed by SALGA’s Strategic Plan, amounted to over R70 million, of which only R37 million could be funded from current resources.

SALGA had identified measures to mitigate the effect of poor collection levels. These included levying interest on outstanding levies, intensifying the vigorous implementation of debt collection procedures, re-looking at the funding mechanism and increasing the fiscal allocation that SALGA received from National Government. SALGA’s obligations had increased and their scope had widened. SALGA must discharge a role in realising the 5 year Local Government Strategic Agenda (5YLGSA), implement the Gender Equity Framework for Local Government, intervene and assist members in achieving equity targets in municipal transformation and organisational development, and lead the functionality of Ward Committees through targeted training. These imperatives were supported by the January 2008 Cabinet Lekgotla and the State of the Nation Address of 8 February 2008.

SALGA intended to embark on a business process re-modelling so as to address some of the shortcomings raised by the Auditor-General. This would include the roll-out of a performance management system, and roll-out of an enterprise resource plan so as to streamline business process. It planned also to enhance internal control mechanisms, eliminate inefficiencies,  improve the support to members and implement a monitoring and evaluation system for efficient and reliable reporting.

The total revenue for the 2008/09 financial year was projected at R1.7 billion, while the anticipated expenses were R1.69 billion, leaving a surplus. Based on the sensitivity analysis, the existing funding model was inadequate to satisfy all of SALGA’s funding requirements, and therefore a process was currently unfolding to revisit the Membership levy formula and to lobby the national government for additional funding. The projected revenue growth rate for the 2008/09 financial year was 31.3%. Expenditure growth of R47.8 million in the 2008/09 financial year was expected, due to increases in employee related costs and administrative expenses, increases in  depreciation and amortization, repairs and maintenance, programme costs and consultancy (Auditor General) fees. 

SALGA had operationalised all governance structures both at provincial and national levels. All provinces had their own provincial member assemblies and vacant positions from the outcome of the March elections were filled. It was very active in all intergovernmental bodies such as the President’s Coordinating Council, MinMECs and the National Council of Provinces.
 
Mr George stressed that in order to secure SALGA’s future financial sustainability, it would be critical to find alternative mechanisms to diversify SALGA’s funding model. Huge increases in membership levies may destabilise the members, hence the interim measure was to lobby the DPLG for more equitable share transfer.

Discussion
The Chairperson asked why the membership levies had been increased in the 2008/09 financial year.

Mr S Mshudulu (ANC) asked SALGA to highlight areas of convergence with the DPLG and to state how the two were cooperating in addressing the municipal transformation agenda. He also questioned the kind of help SALGA had received from DPLG.

Mr Sakhumzi Somyo, National Executive Committee member, SALGA, characterised the relationship between SALGA and DPLG as mutual and complementary, although there was minimum support from the latter. He added that SALGA relied heavily on the National Treasury for their funding requirements. He said despite the dynamic nature of their accountability to DPLG, their support was minimum. He emphasized the unit for coexistence and unit of purpose and direction for the two entities to fulfill their mandates.

Mr M Phadagi (ANC) expressed concern at the magnitude of municipalities that were resigning from SALGA. He asked for the reason behind the spate of resignations and also any remedial action being taken by SALGA. He questioned the efficacy of SALGA’s debt recovery strategy in light of many bad debts.

Ms Mozokoane-Machira, Chairperson, Finance working group, SALGA, commented that SALGA would continue to engage DPLG. She said they were now charging 1% for failure to meet membership fees payment deadline.

Mr Mshudulu asked for the response of SALGA to calls by DPLG for them at account.

Mr M Swart (DA) questioned SALGA whether they had any funding proposal on the table to change the old one. He asked for the response of National Treasury to their earlier plea for more funding.

Mr George revealed that nothing had been done to address concerns raised by the AG. He said that in regard to the funding model, SALGA had raised concerns on both the viability and sustainability of the current system. SALGA was drawing up a business case to revise the current funding model. He emphasized the need to sensitise the National Treasury on the loopholes of the current funding model.

Mr W Doman (DA) asked why consultancy fees to the Auditor General (AG) were escalating and for information on partners that were helping SALGA to roll-out their programmes. He also queried allegations that SALGA had lost donor funding due to problems at the Association.

Mr George said the AG’s  fees were being reviewed every year thereby using up a substantial proportion of their budget. Corrective measures were being instituted to refine SALGA’s business operations through installing up to date financial management systems, pay roll systems and capacity building programmes. He agreed that there had been donor flight resulting from numerous problems at SALGA, but noted that some donors were still providing funding. He added that building confidence in their donors was one of the major priorities for the current financial year.

The Chairperson commented that there had been reports that some municipalities had tried to manipulate SALGA into writing off bad debts under suspicious circumstances, but that SALGA had finally managed to get the municipalities to pay off their debts.

Mr Somyo said that as part of the regional initiative, SALGA had been at the forefront of refining municipal structures and local government administration in the Southern African Development Community (SADC) region. He said this wide scope of their operations justified their budget estimates for 2008/09. He added that their effectiveness was premised on the amount of support they received from the National Treasury and DPLG. He said engagements with DPLG would continue to address issues of concern.

Ms Mozokoane-Machira commented that broad programmes had added burden to the already tight budget.

National House of Traditional Leaders (NHTL): Briefing
The National House of Traditional Leaders delegation included Khosi Phumulani Kutama (Chairperson) and Mr Abram Sithole (Chief Executive Officer)

Khosi Kutama, Chairperson, NHTL, briefed the Committee on the mandate, vision, mission, programme areas and strategic goals. He outlined the objectives and measures for each programme area, highlighting the anticipated expenditure projections for the various provinces.

He pointed out that the NHTL was a statutory body established by the National House of Traditional Leaders Act No 10 of 1997 (the Act).  Its main objectives were to represent and advance the aspirations of traditional leaders and their rural communities at national level. The objects and functions of the House, were to promote the role of traditional leadership within a democratic constitutional dispensation, to enhance unity and understanding amongst traditional communities, to enhance cooperation between the National Houses with a view to addressing matters of common interest, to advise the National Government and make recommendations relating to traditional leadership, the role of traditional leaders, customary law and the customs of communities observing a system of customary law. It should also investigate and make information available on traditional leadership, traditional authorities, customary law and customs and advise the President, on request, in connection with any matter around traditional leadership.

The House’s mandate was further described in and derived from other pieces of legislation and policies.

The programmes of the House lay in the areas of advancement of service delivery, custodianship of cultures, traditions and values, and pro-active communication and capacity. The activities under Programme 1 were described. These included reconstitution of the NHTL, Committee meetings, policy processes on the system of provincial and local government and input into various Bills. Also under discussion were crime prevention, allocation of land owned by foreigners, Presidential questions, languages, stakeholder partnerships, HIV and AIDS, the Health Policy Initiative (HPI), poverty alleviation and moral regeneration issues.

Programme 2 was aimed at preserving cultures, indigenous knowledge and languages. In this regard various activities had commenced on skills development, training on domestic violence, and the training of traditional leaders at Justice College.

On programme 3 various outreach programs had been done in Vhembe District in Mutale Municipality to promote culture as a source of employment through cultural tourism and to consider services rendered by government on social services, self development skills, raising awareness of HIV and AIDS, education (focusing on mathematics and sciences), and the Qwaqwa outreach.

Mr Abram Sithole, CEO, NHTL outlined the organisation’s plan for 2008/09, highlighting the importance of involving all key stakeholders, and ensuring that the whole institution share the same vision and monitoring, and evaluating the successes of the programmes. A number of activities were planned for the 2008/09 financial year. They included holding an indaba on poverty alleviation and sustainable development, promotion of cultural tourism, promotion of diverse languages and services, Executive Committee Lekgotla, outreach programmes and exchange programmes. It would also be addressing  capacity building, unifying traditional leaders of South Africa, restoring and upholding dignity, pride and culture of traditional leadership, SADC Khotla, facilitating the proper usage of land in areas of traditional leaders, and facilitating the implementation of laws and policies. It would undertake international visits to Norway, Denmark, New Zealand, Egypt, Botswana, Austria and Libya, and promote the role of traditional leadership structures in Governance.

Discussion
Ms L Mashiane (ANC) wanted to know the challenges that the House was facing in setting up local and provincial traditional leaders structures. She urged the House to take seriously the issue of poverty given its gendered nature in Africa, and also address issues of children and women’s rights in rural communities.

Mr Mshudulu praised the House for the work done so far but was worried that only a one-page summary of the budget had been presented. He suggested that the DPLG must assist the House in coming up with standardised financial records as required by the Public Finance Management Act (PMFA). He bemoaned the number of cross-cutting programme areas that the House had presented as stand-alone areas. He questioned the basis for the budgeting, given that they had not provided a detailed financial forecast.

Mr Swart wanted to know the House’s total financial needs to cover the four programme areas. He suggested that instead of four strategic goals, there should be another added, which would be contributing to national development and government policy and legislation formulation. He added that under service delivery there was a need to include the promotion of agriculture, improving rural livelihoods and housing development. He asked the House what they were doing to address these challenges in rural areas.

Mr B Solo (ANC) expressed concern at the deterioration of facilities and rural livelihoods in rural areas and wanted to know what the House was doing to address that. He advised the House to quantify the budget for travel and accommodation and explicitly outline the remedial actions being done to lower the costs. He questioned the activities that were being done by Traditional Courts. He urged the House to furnish the Committee with itemised budget estimates to justify funding. He also asked the House to explain how the 2010 Soccer World Cup was accommodated in their activities.

Mr M Nonkonyana (ANC) advised the House that during budget hearings the Committee required detailed financial break downs, key performance areas and other indicators to justify expenditure. He said such information would enable the Committee to make informed decisions and help them to monitor state resources. He urged the House to cite recommendations submitted on various pieces of legislation, instead of simply mentioning the legislation. He wanted to know the future of their partnership on transformation. He referred to the Communal Land Rights Act (CLaRA), in which the House had apparently participated, and noted that it had been challenged in Mpumalanga. He asked for the current details surrounding the whole litigation process.

Ms M Gumede (ANC) asked the House to explain the streamlining of meetings from five to three.

Ms Gumede noted that the list of activities on HIV and AIDS had not made mention of drug-abuse campaigns despite high incidences of drug abuse by youths. She added that youths in South Africa had mistaken democracy with indiscipline. She also wanted to know what the House was doing to preserve customs, values and languages in light of mass migration and massive urbanisation.

The Chairperson advised the House that the role of the Committee was to hold public entities to account on their expenditure of state funds. He added that expenditure patterns should be supported by empirical evidence. He wanted to know the House’s views on the debate on poverty as raised by the President.

Khosi Kutama, Chairperson, NHTL responded generally to the issues raised. He said that urbanisation and migration were thorny issues requiring concerted efforts from various role players. He bemoaned ‘enclave development’ in the country as contributing to uneven development of rural and urban areas. He said such a situation had the tendency to milk rural areas of natural resources and skilled personnel. He urged the Parliament and Traditional Leaders to rethink rural development. He noted that although agriculture was still predominantly the backbone of the rural economies, brain drain had continued because of the underdeveloped state of most rural areas. He castigated institutions such as the Land Bank for helping the rich at the expense of the poor. He added that foreigners were also trooping into the country from countries experiencing economic decline such as Zimbabwe, thereby distorting the values and cultures of the people. He urged the Departments of Home Affairs and Foreign Affairs and parliament to urgently address mass migration of foreigners into the country.

He said concerted efforts were already under way to train traditional leaders on HIV and AIDS after their research revealed that there were knowledge gaps.

He emphasised the need for cooperation between DPLG and the House to address issues around budgeting and financial transfers. He bemoaned the criteria used by the DPLG to award them R10 million without submissions from the House. He highlighted that there were problems requiring urgent joint sessions in which concerns could be addressed.

He added that the NHTL’s interaction with the President was two-way in terms of advising each other on matters of common interest. He said their participation in municipalities had been boosted by the signing of Memorandums of Understanding (MOUs) with SALGA, accommodating the active participation of traditional leaders in municipal governance. However there was a need to amend the Constitution and the municipal legislation to accommodate this partnership.

He commented that on the litigation case in Mpumalanga, the House had been advised by the DPLG to drop the charges but they had instead chosen to press ahead.

Mr Abram Sithole, CEO, NHTL agreed with the advice of the Committee that there was a need to qualify the programme areas financially. He promised to do that in future. He added that donors had funded training workshops coordinated by NHTL. He said that the House was working in partnership with the Moral Regeneration Movement to address drug abuse amongst the youth although they were targeting adults as role models. They had developed a programme on behaviour and morality change to arrest moral decay. He added that the House’s Committee on Social Development was working in collaboration with the Local Organising Committee for the 2010 Soccer World Cup to stimulate interest in sports in rural areas, talent scouting and referral to established academies.

The Chairperson cautioned the House to avoid protecting wayward provinces, which were not forthcoming on financial reports.

Mr Sithole responded that most provincial houses had hired staff and operating, except for the KwaZulu Natal province

Mr Mshudulu urged the Committee to pressurise the House to provide the Committee with all relevant information on a set timeline.

Mr Sithole promised to provide the information on programme costings as soon as possible.

The Chairperson reminded members to look at both the negative and positive aspects of migration and urbanisation. He noted that migration had benefited South Africa immensely by bringing in skilled personnel and cultural exchanges.

Municipal Demarcation Board  (MDB): Briefing
The Municipal Demarcation Board delegation included Dr Vuyo Mlokoti, Chairman: MDB, Mr Nick Liege, Chief Financial Officer, MDB, and Mr Happy Monere, Chief Executive Officer, MDB.

Mr Happy Monere, Chief Executive Officer, MDB, reported that the MDB currently had nine members on its board. It had a staff complement of a full-time CEO and 27 members of staff operating in four clusters. Eight staff positions were vacant as at 31 January 2008. He highlighted the concerns and reservations raised by the Committee in the last briefing as including excessive expenditure on professional fees, office expenses, staff remuneration, Board members remuneration and travel and accommodation, justification on consultants fees, inappropriate salaries, and misplaced expenditure.

He pointed out that scaling down on consultants for the sake of reducing numbers would mean employing additional staff at the Board and this would have a net effect of increasing costs rather than reducing them. The annual escalations on office expenses and staff salaries were perfectly normal and there was nothing excessive about them. He said that Board members’ remuneration was determined by the Minister, as well as reimbursement of their out of pocket expenses while in the course of their duties as Board Members. Through its Audit Committee, the Board was monitoring implementation of recommendations from the 2006/07 report, and significant progress had been made in addressing those issues. The Board had outsourced the internal audit function and was pursuing a strategy to ensure that the Auditor-General would be provided with everything required for his 2007/08 external audit.

Mr Monere tabled the financial statements for 2007/08, together with a breakdown of the expenses. 38% of the expenses were related to staff costs. The 2007/08 MTEF allocation increased by 22.8% per cent to R20.6 million compared to R16.8 million in the previous year.  The deficit noted in the presentation was due to a delay in the transfer for the government grant. Funds were subsequently received during February.

Mr Monere then detailed some of the outputs in the 2007/08 determination and re-determination of municipal boundaries, assessments of municipal capacity and recommendations to MECs, review of District Management Areas, assistance to all government departments, enhancement of quality engagements with stakeholders, promotion of good governance and improving organisational capacity and capability.

The Board had approved a strategic plan for the period 2008/09 to 2011/12, which would become effective on 1 April 2008. The plan identified strategic themes to focus and guide the organisation over the next five financial years. The strategic themes responded to the key areas in which the organisation should continue to excel and those areas where the organisation needed to improve performance to expected levels. Strategic themes 1 and 2 related to the determination and re-determination of municipal boundaries in accordance with relevant legal provisions and the delimitation of wards, strategic theme 3 provided for the collection of relevant information and maintenance and update of data sets to render advisory services on capacity and division of powers and functions, strategic theme 4 dealt with the reviewing of the declaration of district management areas, strategic theme 5 related to the assistance rendered to departments in aligning service delivery boundaries with municipal boundaries, strategic theme 6 intended to strengthen relations and interaction with key stakeholders, strategic theme 7 aimed to strengthen the board’s organisational capacity and capability and strategic theme 8 set out to ensure good governance.

Discussion
Mr Nonkonyana praised the Board on its presentation. He wanted to know why the Board had chosen consultancy over an internal audit unit. He wanted to know on the way forward in the demarcation of wards in Gauteng. He questioned the Board’s position on threats by the Merafong municipality. He sought clarity on why the Board was over-budgeting in a climate of financial constraints.

Mr Mshudulu asked whether there were terms of references spelt out for consultants and their capacity to produce quality reports.

Dr Vuyo Mlokoti, Chairperson, MDB responded that the Board used to had an internal audit function, however due to massive labour turnover they had been left with no option but to re-engage consultants. He added that cost benefit analysis had shown that outsourcing was cost effective.

Mr Doman wanted to know to whom were communities to apply for municipal demarcation. He also asked whether the Board was satisfied with the outputs from outsourced quality annual assessments.

 Ms Mashiane wanted to know what had been done to fill the vacant posts, why there was gender imbalance amongst the delegation and why there were no disabled persons in the Board.

Dr Mlokoti confirmed that there was high labour turnover at the Board coupled with delays in recruitment. He assured members of the Committee that the Board subscribed to Employment Equity requirements in terms of gender balance and issues of transformation. However, the Board had failed to identify a disabled person to appoint on the Board. He clarified that section 21 meant that the Board had decided but gives 30 delays for public opinion before being publishing the determination notice.

Ms Mashiane referred to the invocation of section 21 in Limpopo province and sought clarity on the social impact of boundary changes to communities.

Dr Mlokoti commented that in upgrading municipalities into metros, the Board had a lot of requirements, including financial sustainability, revenue base, and population size. The delimitation exercise would be put on hold until February 2009 to allow for the Electoral Delimitation exercise and the certification of the voters’ roll data set.

The Chairperson wanted to know whether there were timelines for the demarcation process of O R Tambo.

Dr Mlokoti said that the Board had four months in which to publish Section 21 and consult the Minister on the way forward.

The Chairperson asked the Board what would happen if the Minister disagreed with the Board’s decision to change boundaries.

Dr Mlokoti commented that the Minister had to furnish the Board with a detailed report on why he/she objected to their decision. He said the Merafong issue was in court, however they had since received a letter from the NA and NCOP advising the Board to abide by the court decision. He added that there was need to upgrade secondary cities into metros due to the sprouting of informal settlements, research findings pointing to 65% urbanisation of the globe by 2025, the need to tap into exclusive competencies and material impacts of secondary cities.

Dr Mlokoti said that problems of provincial boundaries were no longer within their jurisdiction, but the preserve of the Ministry of Home Affairs and the DPLG.

The Chairperson wanted to know whether the secondary cities met the criteria to be upgraded into metros.

Dr Mlokoti confirmed that most secondary cities met the criteria. He added that most provinces did not make use of quality assessments as evidenced by their silence on the issues raised in the report. He cited the case of six districts in Free State province, which had consistently under preformed. The districts had not approached the Board to adjust their capacity. He said according to the Municipalities Structures Act, municipal capacity was defined as the capacity or ability to perform administrative functions.

Mr Monere added that the reviewed board structure had been approved. He highlighted that the Board had once employed a disabled person, who later resigned. He defended over-budgeting on the premise that the process of ward delimitation was historically expensive. He remained positive that the National Treasury would avail the funds to cover for the shortfall.

Mr Mshudulu wanted the Board to highlight the capacity problems facing Emfuleni and highlight the progress on the Gauteng City Region (GCR).

Dr Mlokoti said the Board had expressed reservations on the project without adequate inter-governmental support. He feared that would be tantamount to wasting resources if boundaries were to change. He added the GCR project entailed collapsing three districts and three metros into one to create a mega city. He confirmed that Emfuleni had made a submission to be upgraded into a metro. He expressed concern that once the Board approved such submissions, 25 other secondary cities would follow suit. He said it was not in the best interest of the country to turn it into ‘country of metros’.

A member wanted to know why since independence the Board had not upgraded a single municipality into a city.

Dr Mlokoti said since 1999 the Board had identified many informal settlements that had been upgraded to municipalities. He noted that upgrading municipalities into cities was not their mandate. Furthermore, the current legislation only recognized three categories, A-metro, B-District and C-Municipalities.

The meeting was adjourned.