Division of Revenue Bill: SALGA Input and public hearings

Meeting report

The Chairperson welcomed  Members.

South African Local Government Association (SALGA) Input on 2023 Division of Revenue Bill
Mr Zamo Gwala, Portfolio Head: Economic Development , SALGA, said that SALGA was very involved with the Minister regarding the presentation of the budget. The Association expressed concern regarding the recent increases in electricity in municipalities. SALGA was pleased with the overall budget increases in local government.

Eskom – Energy Crisis
Mr James Matsie, Director: Municipal Finance, SALGA, highlighted the many negative impacts municipalities suffer from load shedding. SALGA reported that cities incurred income losses ranging from R3 million to R6 million per stage of loadshedding per day. This was on account of the unserved energy.

SALGA reported R60 000 to R80 000 in costs per day of loadshedding, spent on operation and control officers restoring the electricity supply after equipment damage, theft and vandalism. This resulted in declining economic activities.

On the solar rooftop tax incentive, SALGA said that this incentive would only benefit the middle class, while poor households remained on the grid using conventional prepaid metering. The uptake in renewable energy and changes in consumer demand was predicted to affect city finances and their capacity to cross-subsidise low-income residential consumers.  

SALGA recommended that they be consulted regarding the norms and standards to regulate surcharges on electricity.

While SALGA welcomed the additional funding to combat Eskom’s tariff increases, the tariff completely obliterated the municipalities’ ability to generate revenue from electricity services.

SALGA supported the Energy Action Plan. However, the interventions required further study to quantify the impact of load shedding on municipalities.

Macro-Economic and Fiscal Policy Outlook
SALGA recommended that the medium-term budget surplus be allocated toward local governments. SALGA further suggested that government not hurt economic growth while trying to lower debt service costs through a stricter fiscal consolidation strategy.

Organised Local Government Comments on 2023 Budget and DoR Bill
On long-term borrowing for municipalities, SALGA welcomed the approval of the Municipal Fiscal Powers and Functions Amendment Bill. This was because it allows municipalities to levy development charges without regulatory obstacles. 

SALGA expressed disappointment that the 2023 Budget did not mention government interventions on debts owed to municipalities by government departments. He further indicated that departments failed to prioritise budgeting for municipal debts.

SALGA called for horizontal budget allocations to address fiscal and service delivery challenges resulting from uncontrolled and illegal immigration.

Mr Gwala emphasised the misalignment between municipal allocations and needs demanded by their powers and functions. He further highlighted that municipalities were concerned with the impact of load shedding, increased tariffs, and debt management relating to Eskom and consumers to municipalities. SALGA felt that national and provincial departments must prioritise supporting municipalities with these payments.

Mr Gwala mentioned Tshwane municipalities which hosted offices in government buildings where the services were unpaid for. He said this would require governmental and departmental support to ensure municipalities are not pressured with these expenses.

[See the presentation for more details]

Discussion
Regarding government debt to municipalities, the Chairperson asked what percentage of the budget amounted to the government’s response to this challenge.

Mr D Ryder (DA, Gauteng) expressed disappointment regarding the absence of the SALGA Councillor [to the NCOP] in the meeting, and felt there should have been someone to represent the political position of the entity.

On the quality of the budget forum, he asked whether the matters raised in the presentation were sufficiently addressed at the budget forum. He mentioned that the Chairperson of SALGA in KwaZulu-Natal stated that the equitable share model needed to be reviewed.

He felt that concerns surrounding the equitable share had been raised before the Committee many times before. He said that this could potentially be caused by miscommunication. He raised concerns about the increases to local government which was effectively increasing indirect grants that remained under the control of national government. He felt that government was relabelling the onus of problems without determining why local governments and districts were unable to institute the grants as planned.

On Eskom’s municipal debt, he asked whether SALGA had any details on the debt relief plan for municipalities. He asked whether there were qualifying criteria, if it was a once of payment, and what the applicable conditions would be.

He asked if these discussions had happened between Eskom, SALGA, and national departments yet. He noted that the equitable share was used to subsidise delivery of basic services, although service delivery costs have increased due to increases in fuel prices and other factors. He asked what the cost of delivering basic services to communities was.

Mr M Moletsane (EFF, Free State) asked SALGA what interventions are in effect to ensure that municipalities’ offices are operational and delivering services to communities during load shedding.

He asked SALGA what immediate interventions were effected to ensure municipalities had water available for communities, while waiting for a long-term solution in the DoR Bill budget.

Mr W Aucamp (DA, Northern Cape) said that money paid for service delivery was often used for other purposes such as salaries or other municipal needs. He reiterated the need for ring-fencing funds specifically allocated towards water and electricity. He asked SALGA their opinion on this and how far they were on the matter.

On the energy crisis, he said that this resulted from a culture of non-payment for basic services. This included Eskom’s non-payment of the water board. He asked what SALGA was doing to assist in addressing this issue.

He acknowledged the takeover of Eskom’s debt, but he felt that SALGA had more to do to ensure this would not occur again. He felt this was important given that residents owed municipalities R280 billion, in conjunction with municipal non-payment for services.

He asked what was being done to address issues of theft, vandalism, and damage to infrastructure. He asked what the progress was on ensuring criminal consequences for these actions to prevent them from reoccurring.

He noted the suggestion that a medium-term budget surplus could be used to allocate more funding for local government. He questioned whether local government had established adequate measures in place to ensure greater accountability and increased capacity to achieve value for money.

He said the Auditor-General’s (AG) findings on local government should be included and addressed. Given that local governments are responsible for raising their own revenue, he said that local government staff did not have the appropriate qualifications or training to address these issues.

He said that competent staff must be appointed to run the finances of municipalities. He asked what SALGA was doing to address this issue.

Mr F Du Toit (FF+, North West) said that it seemed as though SALGA was acting as a whistle-blower in communicating these issues to Parliament. However, he felt that the reported information was not communicated to municipalities.

He asked what steps were being taken by SALGA and their representatives to ensure that fiscal dumping and underspending were not taking place.

He said that the dire status of municipalities raised great concerns. He said that national government funds would always be an issue in municipalities if they were not spent as required. He asked SALGA how they ensured that funds, specifically municipal grants, were spent correctly.

Mr T Munyai (ANC, Gauteng Legislature) said that the Minister had informed him that Gauteng should be represented in the meeting. He reaffirmed that the local government equitable share is distributed to municipalities to subsidise basic services for poor households.

He explained that the equitable share also provided a system to build administrative capacity for municipalities. This provides the strategic political and technical capacity to intervene in service delivery matters.

He said that going forward, inter-governmental relationships must be strengthened. For municipalities to succeed, he felt that they must make firm tactical policy choices to monitor audit progress. He said that risk audit plans were a fundamental necessity coupled with audit action plans.

He said that unauthorised fruitless and wasteful expenditure was not acceptable at the time nor going forward. He said that robust preventative internal controls must be determined. He said that technical support for municipalities was critical in terms of the impact on spending transfers and subsidies.  

On returning conditional grants, he said that this should be criminalised given the poor service delivery circumstances poor households suffer. He said municipalities must have the capacity to spend and fiscal dumping should be monitored.

He said that on all levels, work must be done to support municipalities. He reaffirmed that if the formula for the equitable share is undermined, basic services for poor households would also be undermined. He stressed the importance of departments on all levels must ensure that they pay municipalities for their services.

On Eskom, he said that the problem was not corruption, but it was a lack of technical capacity.

He felt that neoliberal austerity measures would affect provinces and municipalities if imposed.

Mr Ryder asked Mr Munyai in what capacity he was attending the meeting, given that he recently left National Parliament.

The Chairperson responded that Mr Munyai was the Chairperson of the Portfolio Committee in Gauteng.

She commended SALGA for the work done regarding the structural understanding of local government in alignment with the local government summit resolutions. She looked forward to the financial outcome of the exercise representing the quality of services on the ground.

On restructuring direct grants into indirect grants, she felt that the approach was problematic. She asked how the Committee was of the opinion that a blanket approach should not be used, while a clear analysis of each grant and its purpose should be at the centre of the exercise.

She said that conditions for grants and bailouts should be provided. National Treasury (NT) should implement stringent monitoring measures to ensure the allocated funds are spent on their intended purposes.

She requested that Portfolio Committees on provincial levels must work together, in conjunction with municipalities, to address these issues. She said funds should not be allocated to institutions for service delivery or infrastructure grants without a plan or the relevant capacity to execute it.

She asked whether there was a plan for the 27 municipalities unable to pay staff wages, as outlined by COSATU. She said that this contributed to the mismanagement of funds and unsatisfactory work.

She said that governmental budgets failed to factor in municipal debt, including the rendering of services.

On the District Development Model, she asked whether there was any progress on the matter.

Mr Munyai clarified that he was the Chairperson of the Portfolio Committee on Finance in Gauteng.

The Chairperson asked SALGA to clarify the state of attendance of the councillor.

SALGA responses
Mr Gwala apologised for the councillor’s absence and explained that SALGA was unsure of the reason for his absence. He said this would be clarified at a later point after consulting the councillor.

On the debt owed by government, SALGA reported that municipalities owed Eskom R56 billion in December 2022. Of the R289 billion owed to municipalities, R202 billion was owed by households. Commercial businesses owed R59 billion. Organs of state owed R23 billion.

SALGA explained that governmental debt was emphasised in the presentation because governments repaying municipal debt communicates the need for other categories of consumers to follow suit.

SALGA’s Asisho National Campaign has been communicating with residents on the need to pay for services. This campaign has been in effect since 2022 on a national media level and a municipal level in communities.

Mr Matsie said, on the budget forum, that the budget forum processes improved significantly over the years. SALGA said that, in the past five years, a technical budget forum was created to discuss issues pertinent to municipal finances and local government frameworks prior to the budget forum.

SALGA said that the budget forum was often rushed to ensure time for the budget council which is held on the same day. SALGA said that their principles previously asked for a seat in the budget council to make meaningful inputs at a national and provincial level.

SALGA said that another challenge was bilateralism between departments excluding SALGA. He made the example of the municipal emergency housing grant which was voted to be centralised, despite opposition from SALGA and MECs. SALGA felt this was due to National Treasury (NT) and the Department of Human Settlements being lobbied outside the meeting. The decision was made to make the grant an indirect grant.

On indirect grants, SALGA said that the matter was raised numerous times. He referred to a Financial and Fiscal Commission (FFC) 2019 study which proved that expenditure and grant performance did not necessarily improve when done indirectly. However, departments continue to recategorise grants to indirect grants as a first measure of support to municipalities.

Regarding the culture of non-payment, SALGA said that their current campaign aimed to address this issue by encouraging communities to pay for their services. SALGA hoped to run a 2023 campaign to approach businesses and metros to encourage them to also pay for their services.

On infrastructure challenges, SALGA observed challenges with rollovers. He said that rollover criteria were linked to governance. He explained that municipalities must have a CFO in place and demonstrate that the requested funds reflect in their funds.

SALGA said that they were encouraging MMCs through awareness campaigns and created a checklist to monitor the exponential performance of grants. This was to ensure councillors were capacitated in their oversight function.

SALGA reported that they were training municipal officials to understand the implications of grant conditions, especially when developing procurement plans.

On accountability on value for money, SALGA said that they were running a municipal support programme. This was a collaborative, multidisciplinary programme to find solutions for municipal issues raised. SALGA said that they worked closely with Cooperative Governance and Traditional Affairs (COGTA), NT, and the AGSA on the matter.  

SALGA said there were other capacity-building programmes to ensure that municipalities are able to provide excellent services. The SALGA centre for governance and leadership has many interventions to facilitate leadership conversations, executive coaching, and training sessions for blended learning programmes.

SALGA offers governmental support by strengthening inclusive governance mechanisms to increase accountability and trust in local government. SALGA said that they also looked into performance management solutions to address issues of UIF.

SALGA said they examined aspects of capacitating oversight structures, implementing ethics and integrity management, and advocated for anti-corruption campaigns. SALGA said that one of their biggest challenges was coalition governance, which they also offered support to.  

On fiscal dumping and whistleblowing, he said that this was linked to infrastructure grants and the ability of municipalities to spend grants timeously.

SALGA said they were unaware of the 27 municipalities unable to pay salaries. SALGA suspected this was closely linked to the 86 municipalities declared by the Minister of Finance to be in financial distress. SALGA strategised to allocate all available resources toward municipalities. This included capacitating councillors to provide oversight around the administration of municipalities.

He said that unanswered questions would be reported back to the Committee at a later time.

On the qualifying criteria for municipal debt, Mr Gwala said that SALGA was awaiting a circular from NT advising them on conditions and criteria for supporting municipalities to repay the Eskom debt.

Concerning costs of service delivery, SALGA said that they were in the process of conducting a cost-of-service exercise that speaks to the allocation framework. SALGA said that at the budget forum, more information would be provided on the matter.

On the impact of loadshedding, SALGA said that they communicated with three Ministries, NT, CoGTA, and the Department of Public Enterprises. SALGA hoped water treatment facilities would be excluded from loadshedding because of the grave impact of pumps not working. SALGA appealed that municipalities should be assisted if this could not be provided.

Regarding innovation, SALGA reported that they were working with entities such as Rand Water in Gauteng, Umgeni Water in KwaZulu-Natal, and JICA. These organisations were examining various technologies to identify water leaks quickly and accurately. This was as in some municipalities, water leakages lost up to 40% of water, which would be difficult to identify manually.

On the blanket approach to grants, SALGA welcomed the proposal that all grants be evaluated to identify which grants were functioning effectively or not. The entity used the example of the disaster management grant which failed to respond to emergencies as quickly as desired. SALGA said that, as a government, the process needed to be expedited.

On the state development model, SALGA said they were working closely with CoGTA – the department leading the programme. SALGA’s function was to assist municipalities with coordinating all plans at a district level. SALGA confirmed that the results had not occurred as quickly as anticipated.

The Chairperson encouraged all departments and entities to do their part in addressing the outstanding Eskom debt. He asked COSATU to comment on the 27 municipalities unable to pay staff.

COSATU Submission on the 2023 Division of Revenue Bill

Mr Matthew Parks, Parliamentary Coordinator, COSATU, said there was a need to address multiple crises simultaneously, without focusing solely on reducing debt levels.

On the public wage bill, COSATU said that government must repair the relationship with public servants and negotiate in good faith. He recommended a single-wage system for the entire state, reducing the packages of certain senior management officials who earn exorbitantly compared to municipal workers.

COSATU noted a significant increase of R225 billion in infrastructure expenditure in 2023/24. The Union said that there was a need for greater intervention measures to combat corruption and construction mafias.

On local government, COSATU reported that 90% of municipalities were in financial distress, with 27 failing to pay staff wages and transfer deductions. Great concern was given to the crises in municipalities, while COSATU noted a lack of interventions to combat these issues.

COSATU feared budget cuts in infrastructure and grants toward municipalities that are already struggling.

See attached for further details

Discussion
Mr Munyai appreciated COSATU’s detailed presentation. He expressed concern regarding the 90% of municipalities suffering from financial distress, with 27 municipalities unable to pay wages and transfer deductions. He feared that, without intervention, there would be a governance crisis in municipalities.

He said that capable candidates with the relevant skills should be elected to lead these municipalities to avoid creating further difficulties in these areas. He appreciated COSATU highlighting critical challenges and agreed with the Union on the matter.

He said that, due to the dire nature of the challenges, there was no time to devise an inter-governmental plan to work together. He felt that interventions should be put in place to assist those in municipal leadership roles or they should be removed from the role. 

Mr D Ryder noted comment regarding multiple crises being handled at once. He expressed concern regarding the many unfunded budgets which have failed to be used to pay workers. He felt NT had to account for repeatedly permitting local government unfunded budgets without being challenged.

He said that a symptom of this was that residents were not getting service delivery. This was as the workers who rendered these services were not motivated due to a lack of remuneration. He said that workers also often did not have the required tools due to lack of maintenance.

He also expressed concern regarding the migration of paying residents out of poor-performing municipalities to better-performing municipalities in pursuit of a better quality of life. He said this would create additional stress for municipalities who over-rely on the equitable share to run their day-to-day operations.

He cautioned against local procurement, as it led to the establishment of construction mafias. He said this was a major impediment to service delivery and catalytic infrastructure projects. He said that this was problematic when discussing local procurement without examining whether there is value for money for the standard of equipment.

He referred to a previous comment on the intention to collapse the Infrastructure Backlog Grant into the Infrastructure Grant. He mentioned the recent death of a child in a pit latrine at school.

He asked what the current status of the Infrastructure Backlog Grant was. He feared collapsing the grant into the Infrastructure Grant would deter the focus from addressing this issue.

On incentivising local governments, he said there were no consequences for poor performance in local government. He made the example of a municipality with nine consecutive clean audits. However, money was taken away from them in the Medium Term Expenditure Framework (MTEF).

When the census results are released, he asked about the likelihood of the MTEF undergoing serious work to keep up with the migration of people within the country’s borders.

The Chairperson said that the 27 municipalities being unable to pay staff was a serious concern. He asked for a breakdown of these municipalities within the provinces to see what interventions were required. He explained that this was to understand the role provinces play in assisting these municipalities.

COSATU responses
On local governments, Mr Parks noted that ten years ago, about 10% of municipalities were in financial distress. He said that recent reports indicated 90% of municipalities were in varying financial distress. He reported that, in 2022, 20 municipalities in four provinces were reported as being in financial distress.

In 2023, it increased to 27 municipalities in six provinces. Mr Parks noted that Ditsobotla Municipality in the North West had a monthly expenditure of R15 million. The municipal rates collection of R1 million and various conditional grants amounting to R8 million.

He reported that there was a shortfall of 50% of their budget. He said that this was unsustainable and collapse would be inevitable.

Mr Parks said that they did not get a sense from the budget from the DoR Bill what the plan would be to address these issues. COSATU said they had anticipated a greater response effort from national government and CoGTA. He questioned what SALGA was doing to prevent the collapse of local governments.

Mr Parks noted that, except for Clover Dairy, Lichtenburg’s economy was driven by SASSA grants. He said that this would condemn this town to collapse.

On the District Development Model, he expressed concern that no roadmap was in sight to address these issues. He questioned whether government was able to sustain all 257 municipalities or whether it was time to consolidate them before they collapsed.

COSATU felt more had to be done to mitigate corruption, fruitless and wasteful expenditure, and procurement management systems. COSATU said there was a greater need for the deployment and involvement of national and provincial government, and SALGA in appointing competent management. This was especially needed for key services such as utilities and engineering.

COSATU said that some municipalities required national government to take over the provisioning of basic services due to the lack of capacity. Mr Parks felt municipalities should do a headcount as he felt confident there were many ghost posts.

On electricity payment systems, he said it was unsustainable that 60% of the country was on a prepaid basis. While the other 40% could pay when they like it and if they felt inclined to do so. COSATU said that, while poverty was a contributor, many businesses chose not to pay.

COSATU called for the stop of increasing the number of councillors. COSATU said that 9 500 councillors were an unfeasible number given the dire situation in local governments.

On local procurement, COSATU supported this on the basis that it was the quickest and most sustainable way to create local jobs. COSATU reported progress on this front in the clothing sector, increasing local procurement from 40% to 60%.

Regarding the construction mafia, COSATU felt that irrespective of where the goods were sourced from, this syndicate would incite criminal behaviour. COSATU said this required a sophisticated approach from the South African Police Service (SAPS) and State Security Agency (SSA).

COSATU agreed that the growth of the construction mafia was troubling, recently infiltrating the Western Cape.

On the Infrastructure Backlog Grant, he agreed that this issue should have been addressed long ago. COSATU said there was no clear indication of when it would be eradicated. COSATU felt this was not due to a lack of capacity, but rather a lack of political priority.

The Chairperson said it should not matter who is leading the municipality. The MEC bears the responsibility for the area. She felt that CoGTA should be more concerned and ready to intervene.

The Chairperson hoped that the matters mentioned would be taken up with departments and provinces, and interventions should be made in these provinces. The NCOP was serious in their oversight role and felt that these issues could not be brought up and unaddressed again.

Committee Minutes Dated 14 March 2023
The minutes were adopted without amendment.
Committee Minutes Dated 15 March 2023
The minutes were adopted without amendment.
The meeting was adjourned.