National Treasury, Financial and Fiscal Commission & South African Local Government Association briefings

Meeting report

South African Local Government Association (SALGA)
Mr Thabo Manyoni, the Chairperson of the South African Local Government Association (SALGA), introduced the delegation and said that SALGA would strive very hard to make sure that SALGA’s presence is felt in the Committee. He recognized that some of the previous Members were back, and that some Members were new.

The Chairperson acknowledged that there were new Members, and asked them to introduce themselves.

Mr Manyoni introduced the presentation by saying that according to the constitution, there should be organized local government. SALGA is an advocacy body and lobbyist for local government. The organization deals with matters of legislation and local government.  SALGA also assists municipalities. Furthermore, SALGA is part of the NCOP, and they delve into matters pertaining to local government and finance. He said that SALGA would make presentations before the Committee on issues that they feel strongly about, and things that affect municipalities and local government.

Mr Subesh Pillay, a Member of the National Executive Committee (NEC) delivered the presentation.

Introduction and Mandate
Mr Pillay said SALGA has full representation in the NCOP. It received its official status through legislation and is the officially employed body for counselling the government. It provides support and advice to member municipalities and raises the profile image of the local government. SALGA collects membership fees from municipalities and so it works hard to provide value for money for their members. Its key goals are: responsiveness, innovation, dynamism, and portrayal of excellence as the organization representing the sector.

Goals
SALGA wants to be substantially engaged with the Committee, especially on three priorities: review of legislative & policy frameworks impacting negatively on local government, review of local government’s fiscal & financial management framework, and improved municipal capacity. However, they will be focusing on the review of local government’s fiscal and financial management.

Flagship Projects
One of the more important projects will be the implementation of the SALGA Centre for Leadership and governance. This centre is SALGA’s effort to professionalise the sector. Mr Pillay also highlighted the initiation of the small town regeneration programme. This programme is important because there is a peril that government support focuses on big urban areas, and so SALGA wants to focus on small town development.  Finally they want to rebrand SALGA as an organization, and want to make the point that they were the only organization that had received a clean audit.

Relevant Outcomes of NCOP Local Government Week
Mr Pillay highlighted the creation of a Bulk Infrastructure Fund to fill the vertical fiscal gap relating to capital expenditure and rehabilitation. However, he did not go over specifics because SALGA had provided detailed discussion documents to the Committee, and so the presentation was there only to make the point. He wanted to emphasize that one of the focal points is to capacitate municipalities, and the government should be looking at why there is under-spending instead of doing what they do now, and that is to take the money away.

Appropriation Matters
The main concern was the funding for functions that are either under-funded or not funded at all. Some of these functions include: housing, health care services, libraries and museums, ambulance services and roads. The under-funding of these functions is a problem because the burden for funding those projects often falls on the municipalities’ shoulders.

Mr Manyoni thanked the Chairperson of the Committee.  He highlighted the fact that SALGA is part of the World Association of Local Governments.   In the past two years, it assisted to make sure that all municipalities and cities work together across the African continent.  SALGA is involved with matters such as climate change, migration because of war or poverty, and matters of gender.  In many places around the world, issues of gender are at the back of the agenda, and so SALGA makes sure that those issues are addressed throughout different areas.  Furthermore, there is a week when SALGA meets with the NCOP.  It does oversight, but also helps the NCOP to focus on issues and matters pertaining to local government. It is during this time that Members can really concentrate on matters that affect the government at the local level. This afternoon, SALGA will have a meeting with the Chairperson of the NCOP to discuss various issues.

The Chairperson asked whether Mr Manyoni is President of the Southern African Development Community (SADC) local government, as well as Chairperson of SALGA.

Mr Thabo Manyoni said he is President of SADC local government and cities.  What they are doing in SADC is to put matters dealing with local government on the agenda of the African Union (AU). They are also working with the United Nations (UN) committees on habitat, and similar bodies. They are also working very hard to make sure that they help with local government matters represented by the AU generally. They deal with issues like those arising in Southern Sudan.

The Chairperson told the members that SALGA is very powerful, outside South Africa, in the continent and in the world.  That is very important, because South African development can not happen in isolation from the rest of the world. SALGA can learn from others.

Discussion
Mr C De Beer (ANC, Northern Cape) thanked the Chairperson.  He said he was very excited about the Centre for Leadership and Governance. When was that happening?   He was also curious about a crucial point -- the status of the delivery order from the municipality. That was deployed prior to 10 May.  His question was that on the delivery order, it was amazing what happened since 2011. People would like to know what happened. There is a formal marriage between SALGA and the NCOP, and both parties must strengthen the marriage. The really serious part is the withholding of large funds by the National Treasury, and without a doubt, in the first quarter, this is something that SALGA must take note of.  The law is very specific on the process for the release of large funds. He asked if the SALGA Chairperson could intervene, because he was concerned that the municipal managers do not follow the rules that dictate procedures, and they must comply with the rules. When the municipalities take a shortcut, it gets them into trouble. What was SALGA doing from its side to fix that problem? Each municipality knows what it will get in the next three years, but it seems that they do not take the rules seriously. From both SALGA’s and the Committee’s point of view, they must be made aware of the rules.

Mr V Mtileni (EFF, Limpopo) said that when it came to municipal audits, the Committee had seen only eleven results. He asked about the books of other municipalities.  Secondly, he wanted to know what SALGA was doing about corrupt officials.  He asked how the Committee could help to solve the problem of over-spending. He also asked if SALGA could give an outline of the oversight visits.

Mr E von Brandis (DA, Western Cape) asked about SALGA’s mandate. According to the information he had received, the Western Cape is more affected by provincial matters than local government. As such, he wanted to know how SALGA was going to affect the Western Cape. On the issue of roads, he said the provincial government is helping local government, so he asked for clarification on SALGA’s mandate for the Western Cape.

The Chairperson asked for clarification on what SALGA meant by cities – if it referred to metropolitan areas only, or all cities.  He assumed that SALGA is content with rural municipalities, but issues of equitable share remain critical, so he wants clarification on how the government can improve services.

Mr Manyoni said that for a lot of the questions, SALGA could make a presentation to the Committee on the outstanding issues.  For instance, on the issue of unfunded functions, finding solutions will depend on how they work within municipalities. Some issues, such as roads that are provincial but are in municipal territory, are difficult to deal with. For example, when there is an accident, even if the road is provincial, the municipality will end up taking care of the problem.  On the question of the oversight visits, there are reports that the NCOP receives after oversight visits, and they should be available to Members. The Committee can use these reports to follow up on issues that have been raised.  Moreover, the new audit outcomes will be coming out soon.

The Committee should keep in mind that in some instances, even where there have been improvements, there is a higher risk of regression because certain mechanisms have not been put in place.  Every citizenry barometer is different, so there is the issue of citizens trusting the municipality. This is important, because the way that the citizens view the municipality really matters. SALGA is meeting and receiving input from the minister of the Co-operative Government and Traditional Affairs (COPTA). They will be working together to strengthen local government.

On the issue of knowledge and local government, the government has been spending billions of rands over the years on certain programmes, because they considered certain training was necessary. SALGA is working together with the National Institute for Higher Education and COPTA on matters of knowledge and local government. If one has strong leadership at local government level, administrative performance will follow. If one does not have leadership, then administration becomes a problem. As such, SALGA will be working with the Department of Higher Education to make sure that the Institute focuses on leadership training, instead of other training that is not giving value for money.

Mr Joshua Matlou, Councillor Representative for SALGA in the NCOP, said that SALGA would be hosting anti-corruption programmes to deal with problems of corruption in local government. As for roads, they will find that in many places, the problem is access to roads. Municipalities spend money on this matter, and that is not their function, which also affects the audit outcomes.  In terms of Departmental interventions with SALGA members, SALGA believes there needs to be a procedure and not just a “willy-nilly” process, where the government interferes with local government without following procedure. They are giving support to the municipalities but they do not want to be giving support that duplicates that of other organizations. Their attitude is to give support to member municipalities if there is an issue. SALGA wants to know what the issues are and find solutions for them.

Mr Pillay thanked the Committee and asked that SALGA be given a chance to do a presentation that painted the full picture.  There had been a significant increase in municipalities that have fallen into the clean audits category. Most municipalities have their documents and affairs in order. On equitable share, the new process does allow for smaller local municipalities to benefit from the new equitable share formula. The issue is that there is a question about funding.  There are about 18 municipalities that account for almost 80% of economic output, so what is required is not so much a review of the equitable share formula, but  rather a more refined formula so that there can be more accurate analysis.  The bigger issue is the horizontal division of money. Unlike provinces, municipalities can raise their own funds, but they have to strengthen their ability to levy their own revenue, as well as their capacity to spend money efficiently.

The Chairperson said the Committee has great interest in the key issues that SALGA had raised, and they will impact on the Committee’s plans for the next five years. The Committee will take the recommendations into consideration and will not discard what has been achieved by the previous Committee.

National Treasury Presentation
Ms Wendy Fanoe, Chief Director of Intergovernmental Policy and Planning for National Treasury, delivered the presentation on the Division of Revenue to provinces and local government.

She said that the fiscal framework is the first key decision made in the budget process. The fiscal framework was approved and it comes hand in hand with the Division of Revenue Bill.  The Financial and Fiscal Commission (FFC) recommendations are related to Annual Division of Revenue.  The focus is the legal mandate on how to get things done. The Money Bill is something that the Committee should talk about, as new policy priorities will need new funding.

It was important to determine what the blockages are that result in under spending.  In the national share of resources, the provinces get the largest share. However, municipalities have their own funding, whereas the provinces’ revenue depends on the government.  Provinces say that they do not get sufficient money because they have inner migration, and rural provinces say that they do not have enough funding because they have massive backlogs. Treasury takes these statements into consideration and tries to allocate money as equitably as possible.  The National Treasury will be reviewing the local government infrastructure grant system, and will hope to meet with the Committee on the results.

Mr Edgar Sishi, Chief Director of Provincial Budget Analysis, National Treasury, delivered the presentation on provincial budgeting and financial management.

He said that a useful starting point is that in the previous presentation, the slide on the division of revenue showed that of the money given to provinces, 20% is from conditional grants, and 80% is given through equitable share. The equitable share is not a budgeting tool, but an allocation mechanism used by national government to distribute the funds available to the nine provinces in the country. This means you will not expect to find a provincial budget is divided the way that an allocation mechanism is divided, because it is the responsibility of the government and the province.  What is important is that when the Treasury is involved, it ensures that it prioritises the functions that they are assigned by the constitution, to ensure that we live in one country as opposed to nine countries.

The reporting structure is such that provinces report annually, and quarterly on their expenditure.

Mr Sishi presented a slide that explains how the budget process is run and highlighted that the guidelines are guided by policies and budgets. He emphasized that formulas do not create money, but just show that one has moved the allocation of the money that is available.  

Explaining provincial budget documents, he said that for each tabling there is a speech and overview on expenditure. There are estimates on national expenditure as well as provincial expenditure. Something to consider while looking at the documents, is that provinces raise about 3% of their revenue, unlike municipalities, who raise most of their budget on their own.  97% of a province’s budget comes from fiscal transfers from the national fund.  Other documents include the requirement that provinces must publish the allocation of money to any public entity, such as schools and hospitals.

The Treasury looks at how provinces benchmark their budgets, and more specifically how they use the resources that they have. Provinces are required to adhere to a particular structure that is uniform, and the Treasury has developed a system where all the spending numbers in every programme must be captured by the provinces and sent to the National Treasury on a monthly basis. There are also on-site visits and on-site reports.

When Parliament receives the reports of the provinces, they will be able to see what the National Treasury withheld, and what it did not withhold, from the budgets. There are key indicators that the provinces must report on, such as how many children they have fed in school programmes or how many oversight visits they have done to schools. Most of the liaison between Parliament and the provincial legislatures will happen through the Presidency.

Mr Carl Stroud, Local Government Finance Specialist, National Treasury, delivered the presentation on municipal budgeting and financial management.

He said the aim of the Municipal Finance Management Act (MFMA) is to improve financial governance, but more importantly, it is meant to improve the accountability of government.  One of the key issues is that local government has a very complex financial network, since local governments not only deal with cash flow but with asset management as well. The key question is local government’s priorities and how they manage their assets.

In Executing Intergovernmental Relations’ (IGR’s) mandates, one of the major findings is that the municipalities are becoming grant dependent, and becoming weak in raising their own revenue. This trend shows that it is easy for municipalities to knock on the national government’s door and say that they need more money.  There must be a long-term strategy for appropriating the budget, because if one fails to plan, one plans to fail.  The National Treasury impacted on the local government sphere by having an early warning system that tells them when intervention is needed before it is actually needed. It is about being proactive, instead of reactive.

At the heart of local government is managing finance to deliver services.  The plan starts with community needs and wants, such as the right to access basic services. The plan is designed to fund local government while considering national priorities. The National Treasury is able to gauge where local governments position themselves and how they spend the money. The analysis starts at a high level, and tapers down to a small level. Equitable share needs to fund local government, so the National Treasury must influence other organizations on how they manage money, because leakages in the process taper down the governmental structure.  

Discussion
A SALGA representative said the question is whether the formula that Treasury presented is still used. He was sure that most municipalities did not have the Municipal Fiscal Powers Act in place.

Ms Malijeng Ngqaleni, Deputy Director General for Intergovernmental Relations, National Treasury, said that the formula is part of a comprehensive plan that is meant to allocate funds and help the municipalities. As for the Municipal Fiscal Powers Act, it has been in place for a while.

Ms Wendy Fanoe, said that the Municipal Fiscal Powers Act deals only with taxes, and there other pieces of legislation that deal with tariffs. The Act deals with municipal taxes and municipal surcharges. Municipal surcharges are when consumers pay more than they should for the service provided.  For example, in many municipalities there has been an increase in electricity charges, which are counted as surcharges. It does not make sense for the municipalities to under-collect, and then introduce a new tax structure. The National Treasury is in the process of reviewing the Act, and considering better ways for municipalities to collect funds. Part of the considerations are development charges, which are unusual in that they are neither taxes nor tariffs. Once the Act is amended, it will go to the Finance Committee, but Treasury might bring it to the Appropriations Committee as well, seeing how it is relevant for the Committee.

Financial and Fiscal Commission
Mr Bongani Khumalo, Chairperson and Acting Chief Financial Officer (CFO) of the Financial & Fiscal Commission (FFC), began with the apology for some absences.  One of the commissioners was supposed to be at the meeting, but his term had expired in June. There are supposed to be nine commissioners, but sometimes their attendance becomes a complicated exercise to manage.  However, he has been assured by the Minister of Finance that the vacancies will be filled by the end of July. He introduced the delegation, and began with the presentation.

Describing the role and function of the FFC, he said it plays a central role in Inter-Governmental Relations.  The issues that SALGA and the Treasury deal with are at the centre of what the FFC does. As such, there are problems where the FFC must be consulted, because normally decisions that are made from the top are not supported by the required resources. The FFC looks at the policies from the top and analyses how the policies trickle down. They look at things like fiscal externalities. However, in most cases the Commission has not consulted the FFC. There are important stakeholders that should be consulted when there are decisions that affect Inter-Governmental Fiscal Relations (IGFR). The FFC helps identify and understand the issues that the Committee must address. The FFC also looks at weaknesses that exist in the system.

With regard to policy, the FFC can not just work on hearsay-type of issues.  They must look at the evidence.  If one looks at the FFC, there is always data on this and data on that, so when organs of state approach the FFC, the Commission must be able to access the information that it needs to make its recommendation. Without the information, they cannot make recommendations.

The duty on enforcement lies mainly with Parliament, because Parliament is the principal receiver of the Commission’s recommendations. Parliament must engage with the Executive and work on the implementation.

Ms Sasha Peters, Manager of National Budget Analysis, spoke about the key issues that came out of public hearings.  One dealt with differentiation.  Dealing with urban and rural municipalities, the difference can be based on exogenous factors -- factors that are not under their control -- such as climate change. A problem that must be addressed is that the system is still weak at rewarding good performance and sanctioning poor performance.

There is concern over conditional grants.  The Commission’s view is that there has been a growth in the conditional grants given to municipalities.  In 2004, they did see a consolidation of the grants, but in 2007 the system went back to a trend of unconsolidated grants.

Mr Khumalo said that because of the time constraints, he would not go over the recommendations from the FFC’s submission on the Division of Revenue.

Referring to the IGFR in support of national development, he said there was a need to assess if the FFC can rely on the information that they have, or if they need innovation. They have a decent allocation for resources, if they innovate, they would have to see how efficiently those resources were being used. This was complicated, because they would have to delve into processes that are out of the Commission’s job description. They are tryng to align the work of the Commission with the National Development Plan (NDP).

Mr Khumalo concluded by saying that Parliament changes every five years, and he hopes that the institutional memory does not change with the change of Members.  A conference will be hosted in Cape Town from 11 to 13 August and the theme will be an African Perspective on Decentralisation.

Concluding Remarks
The Chairperson thanked the FFC for the presentation. The FFC had flagged a few issues which the Committee must address. The National Treasury had also raised some important areas that were critical for oversight.  Many times it was a problem of inefficiency, and SALGA had raised the issue that they needed to recruit legislative support. The Committee really needs to agree that they must facilitate the dialogue as a Committee and serve as a guide, and use their own research and be useful in their oversight.

To the extent that the country has a huge services backlog, and how resources are allocated, the debate will be useful -- not adversarial, but a national debate in the interests of national development. He thanked the stakeholders for the reports.  The Committee will be reading the reports and extending invitations to discuss specific points.

He asked the Members to look at the minutes from the previous meeting.  The minutes were adopted and the meeting was adjourned.