Question NW1929 to the Minister of Public Works

Reply:

The municipal debt of March 2015 as published by National Treasury in terms of Section 71 of the Municipal Finance Management Act (MFMA) was calculated to be at a value of R 96 billion. Of this debt, National and Provincial departments owed R 5.2 billion and the difference was owed by commercial and households groups.

Following the publishing of this debt and its impact on service delivery, Government embarked on a process to verify with a view to settle it. In this regard, the National Inter-Governmental Task Team (NIGTT) was established to oversee the project. The project was spearheaded by the Department of Public Works and includes various departments such as: the Department of Performance and Monitoring in the Presidency, the Department of Cooperative Governance, National and Provincial Departments of Public Works, National Treasury, the Department of Rural Development and Land Reform and the South African Local Government Association.

The main objective of the project was to verify arrear debt (which was based on a 7 year period) for property rates and municipal service charges pertaining to immovable assets owned/vested, leased and used by National and Provincial Government Departments and make recommendation for payment.

The table below indicates the reported R 5.2 billion as per the Section 71 report and the subsequent payments made since the pushing of the Section 71 report.

 

PROVINCE	SECTION 71	VERIFIED	SIGNED-OFF	PAYMENTS POST 31 MARCH 2015
Eastern Cape	R 439,020,000	R 255,132,647	R 232,356,083	R 81,748,672
Free State	R 806,719,000	R 509,967,685	R 516,299,163	R 283,045,017
Gauteng	R 1,207,654,000	R 982,028,535	R 983,633,032	R 506,614,846
Kwazulu-Natal	R 795,855,000	R 391,792,787	R 333,095,484	R 56,343,807
Limpopo	R 254,920,000	R 353,550,025	R 252,843,667	R 288,208,696
Mpumalanga	R 647,918,000	R 539,042,992	R 534,939,846	R 98,251,890
North West	R 570,062,000	R 438,309,396	R 369,746,117	R 290,830,397
Northern Cape	R 400,360,000	R 428,801,716	R 431,706,006	R 29,362,844
Western Cape	R 118,564,000	R 101,811,335	R 101,700,081	R 48,238,106
Total	R 5,241,072,000	R 4,000,437,118	R 3,756,319,478	R 1,682,644,276

The analysis and verification process uncovered the fact that the amount published in terms of Section 71 report was overstated by about R1.2 billion as the actual verified amount was R4 billion. After the verification process, the Municipal Managers and the CFOs from 256 municipalities signed-off the verification report depicting the verified debt. The rest of municipalities were not fully cooperative in the process.

After engagements with debtor departments to settle the verified and signed-off municipal debt, there were concerns that the debt was not accurate according to their records. Departments decried the debt picture painted by municipalities and requested that a settlement process be undertaken for them to confirm the verified debt. This was as a result of a number of issues they raised which ranged from, amongst the others: the uncorroborated opening balances, misallocated payments, incorrect billings, unfair interest charges, incorrect property ownership records, etc.

Based on the concerns, a settlement process was undertaken and departments were given an opportunity to either confirm or dispute the debt with clear reasons and detailed records of the debt (i.e. account numbers and property details). By the end of the project, most departments were still struggling to sign-off reports in terms of their confirmation or disputing of the debt.

The table below further highlights challenges experienced by both municipalities and government departments:

From Municipalities Side

From Departments Side

Municipalities failing to invoice departments timeously Invoices sent to incorrect addresses (and attracting interest) Failure to allocate receipts – (recorded in suspense accounts) Overcharges by municipalities (charging more than approved tariffs) or not in line with the category of a property Municipalities billing departments on properties that should be exempted in terms of the Municipal Property Rates Act (MPRA) such as Churches, SANParks, etc) Consolidated bills which made it difficult for custodian departments and user departments to pay separately Duplicated Rates (i.e. levying two customers using one account)  Reporting incorrect debt on Section 71 of the MFMA Incorrect billing (i.e. bills sent to departments on municipal or non-state land) Declaring debt on inactive accounts Capacity constraints

Non-updated Consolidated and subdivided properties Non-payment for debt on unregistered/non-vested properties Slow or non-completion of property transfers, vesting, surveying.   Lack of policies on the treatment of debt relating to State Domestic Forums (SDFs). Misalignment of Chief Surveyor General, Deeds, Departments’ and Municipal property registers leading to unpaid accumulating debt Failure by departments/regions to submit proof of payments to municipalities to properly allocate receipts Budget constraints (leading to unpaid confirmed debt) Lack of participation by the departments during general valuation and objection period leading to unreasonable tariffs approved by municipal councils Failure to sign-off reports Capacity constraints

Unfortunately, whilst the departments are still struggling to confirm the debt owed, municipalities on the other hand continue with the practice of reporting incorrect debt to National Treasury. Currently, the debt owed to municipalities has increased to R6.5 billion and engagements are being made with various stakeholders and forums to ensure that the root causes of the spiralling debt are addressed.

The following have been agreed as root causes:

• Historical legacy (Pre and Post 1994 property ownership dispensations)
• State Properties on the Deeds Records (RSA properties)
• Vesting and Transfer process
• Facilities on non-state land (SDF’s)
• Un-surveyed properties
• Immovable Asset Registers challenges
• Agreements (MoA/Us and Lease) or lack thereof for the occupation of properties and payment of municipal charges
• Non-payment of State properties (due to unclear vesting)
• Incorrect application of tariff charges
• Incorrect reporting
• Misallocations
• Budget Constraints
• Resource capacity challenges (Insufficient skilled staff, systems, and policies)

The following are proposed as Key Practical Solutions:

• Naming conventions – Enhancing name records of State Properties to reflect Custodian names
• Fast tracking the vesting process by forming more committees and updating delegations (Formalizing Substance Over Form)
• Fast tracking the transfer process
• Signing agreements with owners of land and agreeing on clear terms and municipal charges responsibilities

• Quantifying surveying costs, requesting/reprioritizing funding and appointing surveyors
• Enhancement of Immovable Asset Registers by ensuring alignment with Deeds, MVRs and CSG.
• Applying fair values on SDFs and paying rates based thereon
• Issuing a clear policy on payment for deemed State properties
• Close oversight of municipalities by DCoG and SALGA on the compliance with MPRA
• Issuing an instruction to all municipalities who signed the verified reports to adjust their debt reports accordingly
• Issues an instruction for municipalities to clear their Suspense Accounts and properly allocate receipts from departments
• Once the Immovable Asset Register is enhanced/completed, request budget allocation on rates and municipal charges proportional to the assets owned
• Fill critical vacancies that deal with municipal payments, municipal revenue departments, and property registers
• Develop clear policies and introduce effective billing systems

Since the project has come to an end, monthly progress reports are being requested from departments on how they are addressing the root causes and settlement of arrear debt. The NIGTT and the Steering Committee continues to have meetings to record progress being made.

With specific reference to the Public Works portfolio, the Department is the custodian of, and manages an extensive property portfolio that comprises 29 070 registered and unregistered land parcels (on 5,4 million hectares of land) on which 93 928 buildings (measuring 36,8 million square meters in extent) are located across 52 client departments countrywide. Given the enormity of the portfolio, it is a complex task to determine what is rateable and non-rateable. For example: The Pollsmoor prison has different types of land (agricultural, residential, commercial), however the municipality provides its billing using one rate - the commercial rate. This happens to be the highest rate, therefore charging the Department a lot of money in the process.

The interventions by the Department to remedy the historical problems that exists includes the Due Diligence Quality Review of Departments Immovable Assets Register. The scope of work addresses identification, verification, validation and ownership of all land parcels that are and should form part of Departments Immovable Asset Register. The current scope of work extends to linking accounts in Departments Property Management Information System (PMIS) to the verified Immovable Asset Register. The linking process entails the collection of all municipal rates invoices (from 234 municipalities) associated with the National Department of Public Works. To date, invoices from 55% of the municipalities have been collected and are being analysed. The analysis entails linking the rates invoices collected from the municipality to the existing Immovable Asset Register masterfile. Once the linking reconciliation has been verified and completed the Department will be in the position to investigate and determine its complete municipal rates liability or contingent liability. This will also enable Department to conduct an in depth analysis of tariffs, valuations and land use applied in the municipal bills.