NCOP Public hearings: Trends in Intergovernmental Finances Select Committee: Local Government 7/10/2004 Cllr M Mvoko

Introduction Trends in Intergovernmental Finances (“TIF”) is a high level review providing information, trends & some comment Assesses financial performance in service delivery across spheres Informs NCOP for its oversight function & on local government matters But important that it considers another view

Purpose of Presentation To provide a local government perspective To review certain conclusions To highlight some successes & remaining challenges To propose additional conclusions from available data

Sources SALGA input is informed by its policies as well as data from inter alia :  budget week process  analysis of budgets & the report thereon  internal data & input from municipalities  SALGA CA (August 2004)  SALGA National Conference (Sept 2004)

Format of Presentation This presentation follows the structure of the TIF, in particular:  The introduction (Key pointers-p 6)  Local government finances (Ch 3)  Some comments on Health (Ch 5), Roads (Ch 8), Housing (Ch 9), Water (Ch 10), Electricity (Ch 11).

Key pointers In addition to those set out, SALGA notes the following:  Financial sustainability of municipalities is imperative & is the responsibility of all spheres of government  Municipalities have not yet fully established themselves as constitutional governments by complying with constitutional laws

Ch 3-Budgets & Trends Total budget doubled in 8 years:  reflects progress in extending services to all  municipalities remain primarily self funding  operating expenditure is the primary instrument of delivery

Budgets & trends (cont.) Location of budgeted expenditure:  6 metros=R50.5 billion (R33 billion in big 3)  278 LMs & DMs=R35 billion  marked difference in per capita expenditure between large urban municipalities & smaller (poor) largely rural municipalities

Expenditure trends Operating expenditure:  focus on increasing capital expenditure puts pressure on operating budgets  SALGA analysis suggests consequential operating costs not adequately provided for in many municipalities  under provision for maintenance for last 10 years

Expenditure trends (cont.)  “pro-poor” infrastructure provision necessary for development of communities, but operating impact inadequately provided for (equitable share transfers not based on cost of service provision)  cost of service provision greater in more sparsely populated (poor) areas, customers less able to pay

Expenditure trends (cont.) Personnel expenditure:  SALGA is the employer representative at centralised bargaining  supports the need to control increase in expenditure  has succeeded with strategy to conclude 3 year wage agreement linked to inflation

Expenditure trends (cont.) However, misleading to generalize:  national policy is to use manpower intensive methods  municipal service provision is inherently labour intensive  indicator of 30% essentially a private sector norm-not necessarily applicable to all municipalities in all circumstances

Expenditure trends (cont.)  care must be taken to achieve economies without compromising service delivery & national policy  SALGA is implementing a robust strategy on salary bargaining  SALGA supports greater integration of the public sector

Expenditure trends (cont.) Capital expenditure:  infrastructure investment in smaller municipalities driven by national policy & availability of funds thru districts  inadequate consideration of operating & maintenance implications at planning stage  development of MIG budget should be accompanied by provision for shortfalls in operating funding in poorer municipalities

Revenue trends User charges:  profit on electricity sales a critical component of municipal financial viability  SALGA policy supports EDIR subject to municipal ownership of the EDI & protection of its financial contribution  consequential costs require careful management

Revenue trends (cont.)  SALGA budget analysis reveals a pattern of under recovery with other revenue generating services not self sustaining  aggravated by function transfers esp water where post transfer financial support will not bridge gap to sustainability

Revenue trends (cont.) Property rates:  implementation challenge of new Act (uniform national strategy for implementation needed)  recovery gap still exists (under subsidization of the indigent home owner, inadequate records, recovery structures, political pressures)

Revenue trends (cont.) Intergovernmental transfers  SALGA supports the review of LG Fiscal framework  allocation basis of equitable share & MIG funds should be linked (capital spending has operating consequences which requires to be funded in areas with no prospective income streams)

Revenue trends (cont.)  “flat rate” approach not supportable (costs more to install, operate & maintain infrastructure in sparsely populated areas)  households with equivalent income worse off in more rural areas (greater per capita spending in cities, better facilities, higher levels of economic activity)

National/Provincial functions Functions referred to as being national or provincial responsibilities (or both) all are delivered within municipal areas & all affect municipal finances in one way or another Responsibility of other spheres to comply with obligations as corporate citizens remains an issue

Education Schools in operate in municipalities  provision of services to schools (payment for services, water delivery strategy)  Fields & other (shared) facilities

Roads Determination of municipal roads a provincial responsibility Includes many roads which were not a municipal responsibility before 2000 Provinces unable to maintain provincial roads (municipal responsibility by default, affects local economic development)

Housing Housing is an integral component of social development, but is a provincial function Many municipalities have assumed responsibility, with financial consequences  provision of bridging finance before transfers  “hidden” development costs (costs of admin, financial & project management)

Housing (cont.)  inconsistent approach of SARS branches regarding input VAT on transfers  additional expense to municipalities

Water Transfers of water services poses financial challenges  adequacy of provisions for manpower costs  adequacy of provision for operation & maintenance costs  services being transferred with no income base

Water (cont.)  adequacy of equitable share transfers to cover irrecoverable costs of basic service provision in largely indigent areas when DWAF transfers cease SALGA & DWAF engaging in robust intergovernmental processes to address, but residual issues may remain

Health Certain municipalities subsidise provision of primary health care (metros)-call to continue for at least 3 years Transfer of municipal health services to DMs not implemented  LMs did not budget to continue  call to continue to provide for at least one year

Electricity SALGA supports the implementation of EDIR & agrees with the analysis of key issues  Is a highly charged political issue at local level  Implementation at national level seen as an essentially technical issue

Electricity (cont.)  SALGA opposes constitutional amendment to achieve objectives  solution is intergovernmental cooperation politically driven at all levels  outcome to be regulated by comprehensive agreements, not legislation  financial interests of municipalities not to be compromised by unilateral deadlines

Budgetary challenges Revenue collection:  complex issue, not only about debt collection  SALGA promotes the development of a national strategy Pro-poor policies:  Implementation the responsibility of all spheres

Challenges (cont.)  better integration of policies & strategies needed  review of municipal fiscal framework to provide cost-based support of free basic services & the operating consequences of infrastructure provision in largely poor communities

Challenges (cont.) Budget & financial management reform  Cannot be considered in isolation from need to fully establish municipalities to be structured, to operate, to manage their finances & fund themselves ITO 5 municipal statutes as opposed to isolated compliance

Challenges (cont.)  SALGA has adopted a comprehensive strategy to achieve this Commitment by all spheres to the continued progress of municipal development, early implementation of the IGR Bill & policy, acceptance of the local sphere as an equal partner in government are needed to take us forward