Municipal Budget & Reporting Regulations: National Treasury briefing

NCOP Finance

02 February 2009
Chairperson: Mr T Ralane (ANC; Free State)
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Meeting Summary

National Treasury tabled and presented on the Municipal Budget and Reporting Regulations (MBRR). Officials explained the background and rationale behind the approach to the Municipal Budget and Reporting Regulations and the general management of municipal funds and allocations. Members noted, in respect of this presentation, that it would have been useful to start with an audit on the extent to which there was compliance with Section of 39 of the Division of Revenue Act. The overall approach was queried as to whether the intention was to use punitive measures to coerce municipalities to plan more effectively for growth. Members commented that a “one size fits all” approach would be problematic. The Committee preferred to unlock the Municipal Infrastructure Grant and equitable share to the rural municipalities, and was of the opinion that the metros’ large budgets should allow for increased efficiency and the use of borrowing power. There should be clearing of the backlogs in rural areas. They considered how to balance economic objectives, basic services, new infrastructure and rehabilitation, and stressed the need for partnerships in the integrated approach. Further discussions centred upon how the regulations would be matched by the monitoring and evaluation of sectoral roles, the lack of definition of powers in the proposed partnerships, and migration trends where people sought to settle closer to work opportunities and the informal settlements that then arose. Members commented that in respect of the problems in municipalities, it was necessary to consider how best to develop the skills and competence of administrators, how to combat spending of grant funds on projects other than their core business, and discussed cases where grants had been decreased or remained unchanged despite utilization of grants by municipalities, as well as accreditation.
 
National Treasury then evaluated the MBRR according to the problem statement, underlying principals, the accountability cycle, the legal framework, legislative requirements, early reform and the latest developments that culminated in the publication of the MBRR on 23 January 2009. The public comment period would end on 5 March 2009. The most immediate target date was 1 July 2009 for the 27 non-delegated municipalities (six metros and 21 secondary cities). The various regulations were discussed. The new approach was to have a unified system of reporting to draw a link from policy priorities, planning, budgeting, implementation and the eventual reporting through a series of prescribed reporting documents for all municipalities. The purpose of the MBRR was to bring accountability and transparency into local government reporting. By placing the information in the public domain it would address some of the issues raised and curb undesirable financial management practices.

Members discussed what would happen if a municipality had no accumulated reserves or cash-backed surplus, whether there was provision for diverted funds, how to deal with the practice that amounts might be gazetted, but then revised in-year, the chairing of the steering committee, and the possibility of adding consultation with communities on shifting of funds. They questioned whether the same regulations were applicable to infrastructure projects at provincial level, whether budgets would increase to support the administrative work required to implement the regulations, whether the application of co-operative governance was ongoing, and how donor funding would be dealt with in Integrated Development Planning (IDP). They commented that there might be a danger that the steering committee open up personal influence. A review of the MFMA might be a useful step. Overall, however, Members congratulated National Treasury on the comprehensive regulatory package, and, although they would still need to go through the regulations in detail, they were generally of the view that the regulations looked to be acceptable and implementable. Any gaps that arose in the initial implementation would have to be addressed in the next five to six years.

 

Meeting report

Functions and responsibilities of Municipalities: National Treasury (NT) briefing
Mr Kenneth Brown, Acting Deputy Director: Inter-Governmental Relations, National Treasury, gave the Committee some background on the functions and responsibilities of municipalities. He said that the main questions to be examined were what municipalities did and how they were to be financed. Municipalities delivered basic services and were the engines of the growth of the economy. If municipalities did not function optimally, there would be a failure in the economy. They needed infrastructure to fulfil that role. This was pertinent to every basic service provided at local government level. It was also necessary businesses, in order to function, depended on the infrastructure and services provided by local government. Planning in terms of the Integrated Development Plan (IDP) must encompass strategic plans and coherent budgets to support the municipalities' objectives. This would also be beneficial to the oversight function of the legislatures, and this was only possible if they had the correct information. The National Treasury currently had 283 municipalities running on 283 different reporting systems, and reaching an accurate aggregate picture was therefore a protracted process. The Treasury had succeeded in improving the quality of information over the past few years and could still go beyond that. The regulations now proposed were the tool that would be used. He noted that the National Treasury would be briefing the Committee on the infrastructure plan in greater depth in the coming weeks.

Ms M Ncquleni, Chief Director: Infrastructure, National Treasury, stated that the biggest issue was how to use fiscal instruments to expand service delivery and fast-track the eradication of backlogs. The main problem was the less-than-optimal output at local government level. A popular assumption was that municipalities were all the same. This was not the case, as their profile differed greatly. The instruments used to support them were the same but the contexts often differed. That was why National Treasury had to strike the right balance. The differences between the municipalities came out most sharply at the local government review. A major contributing factor was increased migration to the metros, driving backlogs. These metro cities were key to economic growth. Cities needed to balance economic and basic services, new infrastructure and rehabilitation. Poorly resourced municipalities were unable to support delivery.

Mr Brown then tabled Slide 5 on Spatial Distribution of Gauteng Population seen from the South West – and pointed out the different population densification patterns in areas of Gauteng. The poor mainly lived in Mabopane, Mamelodi and Attridgeville and had to commute long distances to work. A similar picture was seen when other metro cities were analysed. Cities were clearly not planned to foster economic activity. People had to spend a third of their income to get to work. This was bulk inefficiency caused by the distance between communities and economic opportunities, which was an added burden for the State and the taxpayer. The aim of the National Treasury was to differentiate, in order to influence those spatial distributions. He pointed out that South Africa had housed 2.5 million people but due to apartheid spatial planning economic growth was still being hampered. These patterns needed to be broken. He compared this to the spatial planning of major international cities, such as London and Paris, shown on the next slide. This showed that the most densification happened in the centres of economic activity. The most notable feature of these cities, compared to those in South Africa, was the well developed transport system. He noted that Government needed to change how it was financing infrastructure. The expenditure patterns revealed that most of the capital expenditure took place in the cities despite the fact that cities received the least in Municipal Infrastructure Grants (MIG). This created a precedent that grants would possibly not be the major source of funding, and cities should rely on their own funds and leveraging to eradicate backlogs.

The motivation for the differential approach was that in urban areas the need for access to services was growing. There was a need to co-ordinate investment better. In rural municipalities, strengthening of partnerships would lead to an increase in capacity.
The National Treasury (NT) proposal was therefore for a different allocation mechanism in the metro cities with a greater development bias and a higher level of integration to deliver services faster.

There were various categories for the groups under the MIG for intermediate municipalities. He noted the increase in rural municipalities to allow them to grow into the big cities. The focus would be on the output of the entire budget and how it was prioritized, as well as to integrate built-environment investment.

Ms Ncquleni reported that the cities did have considerable capacity to deliver and once they were accountable, they would be better able to respond to local needs. National Treasury would ensure all this, in partnership with cities, to achieve an understanding of the context and the issues.

Targeted generic outputs and outcomes were based on the capital budget of the municipalities and the development of an integrated transport grant. The four measured outcomes were: to combat poverty, support growth, and achieve sustainable service delivery and accountable governance; with a view to the provision of basic services and job creation.

The eligibility conditions examined the balance between spending and maintenance and the issues around budget reforms and audit outcomes. The approach followed would eventually be open to all municipalities that could show sustained performance in capital programmes and achievement of development outcomes. The MIG for cities tended to show spending on the chasing of projects. NT wanted to see development outcomes, and was thus in ongoing strategic engagement with major cities to develop stronger investment pipelines, shorter project times and improved development outcomes. The implementation of the differentiated approach to funding covered the vertical split of current MIG allocation, phased implementation and administration and co-ordination. This approach had been approved by Cabinet and the issues have been captured in the Division of Revenue Bill.  She reiterated that the major problem was that the multiple reporting requirements made it difficult to form the right picture for analysis.

Discussion
The Chairperson agreed with the principles presented, and commented that a “one size fits all” approach was problematic. The major issue, which the Committee was intent upon addressing, was the special MIG package for metros. Metros had huge budgets as well as borrowing power, and they should become more efficient and use that power.  The Committee preferred to unlock the MIG and equitable share for the rural municipalities and the poor.

Mr Brown responded that if National Treasury did not put into place this differentiated approach, the formula would have allocated the money in exactly the same way. The purpose of differentiation was not to add more money to the Metro budgets at the expense of the smaller municipalities. In fact, this approach favoured the smaller municipalities. The formula used was demographically driven and took into account the various backlogs. Most of these backlogs were in urban areas. If the formula was updated according to the concentrations of backlogs, much of the MIG money would go to the urban areas. The next step would be a special formula for the cities, so that redistribution would take place within the cities only. There would be a special formula for the rest of the rural municipalities. The Committee should not lose sight of the fact that this was the second year when there would be the minimum allocation for municipalities on MIG. Some of the municipalities received R 200 000 for MIG two years ago. They were currently at R 4 million and they expected that allocation to grow to R 7 million to address some of the issues raised. Splitting the formula up was a way to deal with the equity issues.

Mr Brown commented that whilst it was easy to suggest that municipalities had to borrow, consideration should be given to the inter-temporal nature of borrowing. If this was not done correctly, it could create problems for future generations. The world economy, in view of the global economic crisis, was also currently restrictive in terms of entry to the debt market, and this would apply to the next three to five years. There was, however, the possibility of calling upon the Development Bank of Southern Africa (DBSA) to assist. He said that it was necessary to consider the profile of the municipalities along with their revenue bases to determine if they had a large proportion of indigents and thus were already likely to be cross-subsidising. He referred to the relationship between tax rate, tax revenue and tax burden.
Managing the tax system was key to attracting skilled people and business to promote economic growth.

Ms D Robinson (DA; Western Cape), agreed that a “one size fits all” approach was a major stumbling block. She asked if there was anything being done about developing the skills and competence of administrators and their adherence to proper governance. This was also stumbling block as it led to mismanagement of allocated funds.

Mr Brown recalled a case where there had been a shark attack because of sewerage spillage. This could have been prevented if the person responsible for the sewerage had been doing the job properly. He agreed that some of the issues were not purely about money, but about people doing the jobs they were paid to do.

Ms Ncquleni thought the comments on skills and competencies were vital. The current system had lost the proper focus in capacity creation. The differentiated approach to capacity would be able to look at the needs of a particular municipality and look at what specific capacities and skills were needed.

Mr E Sogoni (ANC; Gauteng), referred to slide 2, relating to the need for cities to balance economic objectives, basic services, new infrastructure and rehabilitation. The simple interpretation seemed to be that these were needs exclusively for cities, and that rural municipalities did not need to worry about economic growth, despite their high levels of unemployment. He noted the earlier point how apartheid spatial planning had arrested development. He felt that the way the statement was crafted was not sending the intended message and that the approach was also needed at local government level.

Mr Brown responded that National Treasury could provide additional policy framework documents to explain this point. Approximately 80% of economic activity in South Africa took place in 26 municipalities (6 Metros and 20 secondary metros). If those 6 Metros and 20 secondary metros failed this would cause a big economic problem for the country. The smaller municipalities also did not put in much for maintenance. They had only been able to pick this up because of improvements in information. Once the municipal reporting regulations were in place, the quality of information would improve further. There was risk in not getting that balance right. This meant providing the resources to ensure that the smaller municipalities became more viable.

Mr Sogoni agreed that skills were another important challenge, as was the accompanying under spending arising from the lack of skills to spend efficiently. There was a dire need for improving skills in these areas.

Mr Sogoni asked how National Treasury could ensure that a person in Mamelodi or Mabopane did not spend so much on transport when bus subsidies were cut.

Ms Robinson also sought clarity on the bus subsidies cut. She asked if they had been cut or if this was a matter of inefficiency.

Mr Sogoni responded that the subsidies had not been paid to the bus companies. They had not been cut.

Mr Sogoni pointed that the budget of Johannesburg Metro was bigger than some of the provinces. He was pleased that the National Treasury and government had taken cognisance of the need for partnerships in the integrated approach. Mr Sogoni noted that the integrated approach was set for implementation in April. He asked what the level of planning was in the municipalities.

Ms A Mchunu (IFP; Kwazulu-Natal) referred to the planned programme to fast-track delivery. She noted the huge backlog in the rural areas. She questioned the effectiveness of the rationale that it would be better to assign the MIG to the cities to ensure better access to the poor. She was of the opinion that attempts should be made to clear the backlogs in rural areas and to provide water for basic sanitation and food gardens.

Mr Sogoni stated that he appreciated the focus on rural areas. He asked if the MIG was consolidated in terms of sectoral inputs. He asked how this was matched by monitoring and evaluation of sectoral roles. The Department of Water Affairs and Forestry, for instance, seemed very active, but other departments were not. He asked what the view was on commitments by certain departments that were not upheld because other sectors failed to play their roles.

Mr Brown responded that NT was not suggesting that rural areas should be left alone, but rather that a way should be found to channel resources and manage capacities so that those rural municipalities could become viable.

The Chairperson noted that it was interesting that the powers in the proposed partnerships were not defined. In many of the partnerships currently in operation, Government had stronger power as it had the money. The same lack of economic parity applied to partnerships between big business and communities. Informal settlements were, by and large, efforts by communities to overcome apartheid planning, and people were clearly settling closer to work opportunities. He pointed out that despite the noble intention, these communities would be dealt with brutally by the law. He asked how communities invading land could be legally defended against the consequences.

Mr Brown responded that such migration was an international trend that had to be accepted. The question was whether the cities were ready to welcome those people, so that people were not forced to establish informal settlements. Cities must have space for people to be placed. All the issues raised by members would be dealt with at the Division of Revenue Bill presentation.

The Chairperson suggested that it would have been useful to start with an audit on the extent to which everyone complied with Section of 39 of the Division of Revenue Act (DORA). He had, for example, been told that the Eastern Cape was far behind in this compliance process.
A problem with the municipalities was that they were all violating investment provisions. There was money sitting in banks. The Committee sought to unlock these funds. Investment was a feature of many Metros, along with the additional MIG incentive, plus the borrowing power. Even a smaller municipality like Rustenburg could use borrowing power, based on their invested funds, if matters were run properly.

The Chairperson asked how to align infrastructure development between the communities, Government, private entities and the municipalities.

The Chairperson also asked if the intention was to use punitive measures to coerce municipalities to plan more effectively for growth.

He noted that the City of Cape Town was financially healthy, yet the only land it had been able to procure for development was in Atlantis – far from the city centre. National and Provincial Government encountered resistance from municipalities, as they were seen to be infringing on municipal terrain. Politics also played a role in this issue. He asked how the Treasury proposed to deal with that problem. He also commented that both National and Provincial government would sometimes send junior officials to Section 39 talks and IDP engagements, and only oral, not written comments, were made, so that commitments could not be upheld.

Mr Brown responded that Tshwane, Johannesburg and Cape Town had all doubled in size over the last ten years. The tax base of people to support this had accordingly increased. The failure had mainly been in respect of the indigent, as some of the functions that needed to be managed by the municipalities were instead vested at provincial or national level. The Department of Provincial and Local Government was reviewing this. The indigent must be taken into account when the next phase of doubling happened in the cities. There was capacity but they needed to bring the poor into the stream.

Mr Sogoni mentioned that some municipalities have shown that they had utilised grants, yet their grants had either not been increased or had been lowered.

The Chairperson pointed out that there were cases where municipalities did not use the grants as intended and used grant funds to do something other than core business.

Mr Brown responded that National Treasury would respond to the issues on infrastructure when it returned to discuss the Division of Revenue Bill later in the month. From the remarks made, it seemed that the real issue was that municipalities had been left alone to act as they wished, and the question was how Government could intervene and influence practices. Part of the regulations that had been put forward started to provide solutions for many of the problems in finances raised by members. However, at the heart of most issues lay the question of how to deal with non-performance. Within National Treasury, officials who under performed would be demoted, or, in serious cases, dismissed. National Treasury prided itself on following the right procedure. Transparency in financial reporting and budget documentation was recently internationally ranked. He wondered how it would be ranked if one looked at the performance side.

Mr Brown noted that there were certain things that Treasury could do and there were certain things that oversight bodies should do. Both the Public Finance Management Act (PFMA) and the Municipal Finance Management Act (MFMA) were clear on the sanctions to be used when there was contravention of provisions, or non-performance. Those sanctions were a matter of oversight. The Committee had visited a number of municipalities and invited a number of departments to attend, and in many cases there were issues of non-performance. He asked the Committee if it had taken the next step.

Ms Ncquleni thought the point about channelling capacity and resources was essential because no new money was being added. National Treasury was attempting to repackage the existing funds to leverage for maximum benefit.

The Chairperson asked if there would be accreditation of municipalities in the near future.

The Chairperson queried the extent of the National Treasury’s discussions with the other sectors.

Mr T V Pillay, Chief Director: Inter-Government Relations, National Treasury, stated that the National Treasury had concentrated on improving financial management over the last few years. The regulatory side was in place now, but challenges at municipal level lay with the compliance with the regulation, and accountability for managerial appointments to municipalities. National Treasury had been trying to promote internal capacity building through an internship programme and the updating of training providers. It had started a capacity survey of the budget and treasury offices in municipalities to identify the gaps, and this should be completed by end March. A timeline for MFMA implementation had been distributed to all the municipalities.

Mr Jan Hattingh, Chief Director: Local Government Budget Analysis, National Treasury, noted that the local government expenditure review revealed a host of challenges. The National Treasury was faced with two possible solutions. The first was to review how resources were allocated. The second was to develop regulations. Experience had taught National Treasury that they could only fix the service delivery challenges if they fixed the budgets. It took a number of years to reach this point but that was the rationale used to determine this package of regulations.

Municipal Budget & Reporting Regulations
Mr Conrad Barberton, Director: Local Government Budget Analysis, National Treasury, tabled and discussed the problem statement of the Municipal Budget and Reporting Regulations (MBRR). The 283 different municipal budgets made the aggregation of budget and other information very difficult. The quality of municipal information was compromised by lack of uniform classifications for revenue and expenditure items. Most municipal budgets did not contain narrative information and there was a lack of consistency across the reporting documents. This compromised monitoring and oversight and government’s ability to formulate coherent policies.  There was no overarching picture of spending on infrastructure, with the consequence that municipal councils probably, in the absence of credible information, and on poor advice by officials,  made uninformed decisions. 

The underlying principals were guided by the Constitution and the Municipal Finance Management Act (MFMA), to promote transparency and accountability. This was an attempt to draw “a golden thread” linking policy priorities, planning, budgeting, implementation and the eventual reporting. This process, and the information generated from it, formed the basis for the Medium Term Revenue and Expenditure Framework (MTREF) for municipalities to promote the integrated planning of infrastructure, maintenance and operational expenditure. The new regulations were meant to facilitate comparisons between local governments and consistent budget and reporting formats.

He noted that the budget and all in-year reporting were taken into account in the MBRR. Its legal framework was based upon the requirements of the Constitution’s Sections 215(1) and (2) and Section 216(1). The legislative requirements were fulfilled according to Sections 17, 121, 122 and 125 and 168 of the MFMA.

Mr Barberton said that the early reform had begun in 2000 with advance pilot testing of budget formats and continued through to 2005. Circular 28, issued in December 2005, gave further guidance on budget formats. While the formats were encouraged, municipalities only had to comply if they were adopted by their Municipal Council. Circular 42, issued in March 2007, gave guidance on the funding of the budget and set out the Funding Compliance Test.
The latest developments included Budget and Reporting Regulations drafted and consulted in 2007. There had been consultations with technical reference group, the MFMA panel advisors, and selected municipal and entity Chief Financial Officers. National Treasury also consulted provincial treasuries, the Office of the Accountant General, the Department of Provincial and Local Government (DPLG), the South African Local Government Association (SALGA), the South African Reserve Bank (SARB) and Statistics SA and the Office of the Auditor-General. This was followed by Joint Meetings, three workshops and several information sessions where 27 written submissions were received. Formats were tested using the 2007/08 budget information from four municipalities, and piloted live by e-Thekweni Metro for the 2008/09 Budget. The Minister of Finance approved the Municipal Budget and Reporting Regulations for consultation on 5 December 2008. The Regulations were published for public comment on 23 January 2009. The period for public comments would close on 5 March 2009.

Mr Barberton indicated that the regulations were contained in six chapters and seven schedules to the MBRR. He indicated the scope of these regulations and took the Committee through the detailed references outlined in the presentation (see attached document). Members raised queries as the presentation proceeded.

The Chairperson asked what would happen if a municipality had no accumulated reserves or cash-backed surplus, and what would then be asked for in the budget summary.

Mr Pillay responded that this was provided for in the financial statements.

Ms Mchunu asked if there was a provision for diverted funds.

Mr Hattingh responded that this indicated a failure to deliver. A supporting document was introduced. There was a table that municipalities must introduce to track these projects and National Treasury had also designed a specific schedule to address that.

Mr Barberton noted that the MFMA did not indicate who should constitute the budget steering Committee. National Treasury had provided a list of constituents in the MBRR.

He noted that Regulation 12 required that municipalities should have sound methodology on the funding and reserves policy. This concerned the formulas they used to make projections and how assumptions of future growth in revenue and salaries were made. This methodology should be stated publicly so that anyone may be able to reproduce the same results.

Regulation 10(2) dealt with verbal commitment for funds that did not materialise. National Treasury had prescribed very formal documentation for the transfer of funds for municipalities.

The Chairperson noted the practice where amounts were properly gazetted and then revised down in-year

Mr Hattingh responded that the monitoring section was developed to track that.

The Chairperson asked who would chair the Steering Committee.

Mr Pillay responded that this would ideally be the Mayor.

The Chairperson said that the provision should be made more clear.

Mr Hattingh replied that he supported the suggestion and that it would be considered.

Mr Sogoni suggested that if the Mayor was to establish the Committee, it automatically meant that the Mayor would chair the Steering Committee. He asked if there was somewhere to record the interest if the transfer of funds was delayed.

Mr Barberton reviewed Regulations 13 and 23. He felt that the greatest impact of these two provisions would be to force municipalities to plan better as they would not have the flexibility to change budgets whenever the initial plans did not work out. In-year report regulations provided for an application for an extension if municipalities did foresee that they would not be able to comply with the deadline. They also provided for notifications of non-compliance and a framework for consideration of the application by the MEC.

The unforeseen and unavoidable expenditure regulation provided for a very important definition. This definition had two parts: the expenditure had to be both unforeseen and unavoidable. If the expenditure could not comply with those criteria, it would be classified as irregular, unauthorised, wasteful or fruitless expenditure.

Mr Barberton proceeded to review Regulations 71(2), and 72. He highlighted that Regulation 72 was similar to Regulation 13 as it set thresholds for unforeseen and unavoidable expenditure, but provided for the steps to be taken if municipalities did not meet the requirements of the definition, when the expenditure would become irregular, unauthorised, wasteful or fruitless. This needed to be investigated by the Council. The aim was to make the requirements stricter, so that better justification would be needed for such expenditure.

Regulation 74 was similar to the national approach to the interrogation of unforeseen and unavoidable expenditure by the Standing Committee on Public Accounts (SCOPA), which could then decide whether to condone such expenditure or not.

Regulations 75 and 76 were similar to the approach in the public entity environment.

He highlighted table B-9 on the shifting of funds in-year, dealing with infrastructure. This provided for the multi-year approval of capital projects. Municipalities could bring funding forward, with the consequential adjustments to the outer years of the MTEF.

Ms Mchunu asked if it was possible to add consultation with communities on this shifting of funds.

Mr Barberton responded that Council processes were open processes and they must communicate with communities through the Ward Committees. The timeframe was limited on the Adjustments budget and it was a difficult dimension to provide for this as well as National Treasury would have liked.

The three main tables were supporting tables. Their relationship to the budgets and annual reports was similar to that of the Estimates of National Expenditure (ENE) and the Appropriations Bill on a national budget level. The ENE was not tabled and discussed in the same way as the Appropriations Bill but was a necessary input to arrive at the Appropriations Bill.

Mr Sogoni asked how the MBRR related to infrastructure projects at provincial level, and whether the same requirements were applicable.

The Chairperson said that essentially all infrastructure development had to happen at local government level, whether the initial planning started at national or provincial level.

Mr Hattingh responded that the budget documentation of provinces also had to list all projects in a prescribed format. It did not, however, make provision for a mechanism for reporting whether a planned project was actually delivered. Nothing stopped replication. Such a provision could be explored if the MBRR worked at local government level. He felt that this was an excellent idea for provinces. Kwazulu-Natal, Western Cape and Gauteng had already done very well on this score. Putting that in place would, however, take time.

Mr Barberton reviewed the implementation strategy. The MBRR was gazetted for public comment on 23 January 2009. The public consultation processes and the Parliamentary scrutiny process would run concurrently and the public comment period would end on 5 March 2009. Following the conclusion of both these processes, a final version of the MBRR and formats would be prepared and submitted to the Minister for final approval before promulgation towards the end of March 2009.

The target dates for implementation were envisaged as 1 July 2009 (2009 Budget) for the 27 non-delegated municipalities (six metros and 21 secondary cities) and 1July 2010 (2010 Budget) for all other municipalities. Advanced implementation by all municipalities was encouraged. The message was already communicated to all municipalities on 27 June 2008 and they had embarked on a programme of support.

Mr Sogoni congratulated the National Treasury officials on a very comprehensive report. He referred to the DORA and asked whether budgets would increase to support the administrative work required. He asked how they could ensure that the objectives of the MBRR were achieved.

Ms Robinson remarked that it was a great step forward.

The Chairperson commented that the main issues lay in the detail. He asked what the relevance was of Section 34 and if the application of co-operative governance was ongoing.

Mr Pillay responded that some provinces had a model of support. Some of the regional offices of the Provincial Treasuries were lagging behind and the National Treasury was working to manage that.

Mr Brown said that there would have to be deadlines for provincial Treasuries as well, pending taking that up at a political level.

Mr Hattingh noted, in relation to capacity issues, that the MFMA was now in its fifth year of implementation. It took eight to nine years to implement at provincial level. The regulations would probably take twelve to fifteen years to implement fully. The National Treasury would push very hard and would not accept convenient excuses. It was committed to a joint effort with Parliament. If this worked, other things would fall into place, but it was to be expected that not everything might work according to plan.

The Chairperson asked how they proposed to deal with donor funding in IDP, as there were no clear cut guidelines.

Mr Barberton responded that all the funding received by municipalities needed to be reflected on the budget and this was provided for in Statement SA 20 (Reconciliation of transfers, grant receipts and unspent funds). The planning for the use of revenue needed to be comprehensively set out in this statement. This included donor funded projects. Section 12 of the MFMA dealt with the establishment of funds for charity or relief purposes. The potential for abuse lay in the fact that there was no requirement for the use of such funds to be approved by  Council. There should not be such an informal flow of funding.

Mr Sogoni commented that the regulations were good. He queried the timelines on finalising reports. The fact was that many municipalities were not worried if they did not submit their financial statements to the Auditor-General in time, and the latter was then powerless. Reports had even been withdrawn. He hoped that the regulations would be tightened.

The Chairperson responded that the regulations did not tighten up the timeframes, but were instead giving leeway to the MEC.

The Chairperson thought the Steering Committee could be problematic in the sense of a massive support programme. He asked how the curbing of spending in mayoral offices would affect the funding of special programmes. He had not seen this covered in the Regulations and the political issues were problematic. He felt that the Steering Committee had the potential to open gaps of personal influence, and this was problematic as the IDP was often a political process.

Mr Pillay responded that the role of the Mayor in the Steering Committee was to give political guidance and to be able to deal with strategic issues. National Treasury had looked carefully at the people on the steering committee.

Mr Barberton commented that there was scope to regulate who managed the projects. All information around projects needed to be transparently reported and reflected in Table A9. The National Treasury was confined by the legal requirement that it could not regulate anything not already regulated by the MFMA. They had explored other matters to regulate, but legal advice indicated that this would be open to challenge.

The Chairperson responded that the Committee had noted the review of the PFMA and that perhaps a review of the MFMA would be useful. Municipalities did engage in activities that were not their core business, which compromised service delivery. There was a need to look at an intervention to nudge spending back into the right direction.

Mr Hattingh commented that he found the Committee’s recommendations interesting.

Mr Barberton said that the purpose of the MBRR was to bring accountability and transparency into local government reporting. Placing the information in the public domain would address some of the issues raised and curb undesirable financial management practices. 

Mr Brown added that National Treasury would continue to look at the issues raised. However, it was necessary to be cautious, as it was impossible to regulate everything. National Treasury had a particular responsibility to build up the local government unit so that when money was spent in an irregular fashion, it would be able to take action.

Mr Sogoni stated that he liked the challenge posed by Mr Brown to the Committee on their oversight role. He added that the PFMA was not really much help. The MFMA was, in his opinion, a much better tool for oversight.

The Chairperson commented that there had been assertions that service delivery was inefficient because Parliamentary Committees were not doing what they should. He thought the intention of the regulations was noble. However, it was not possible to assume good faith, as that was not always present, and he agreed that people should be compelled to do the right thing and that officials should be prevented from “taking chances”. He concluded that the members would have to go through the regulations thoroughly. However, speaking generally, he thought the regulations were acceptable and that they should be implemented. There may be gaps that arise in the initial implementation that would be addressed in the next five to six years.

The meeting was adjourned.

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