FINANCIAL & FISCAL COMMISSION RESEARCH CHAIR IN MULTI GOVERNMENT MUNICIPAL VIABILITY QOLLOQUIUM 29 MAY 2015 FINANCIAL & FISCAL COMMISSION RESEARCH CHAIR IN MULTI GOVERNMENT FFC MIDRAND

THE MUNICIPAL DEMARCATION BOARD Mandate Local Government Municipal Demarcation Act, 1998 (Act No. 27 of 1998) In terms of section 4 of the act as amended, The Board functions to determine municipal boundaries; And provides advice on matters included in and pertaining to the act itself.

THE MUNICIPAL DEMARCATION BOARD DIRECTIVE SECTIONS Local Government: Municipal Demarcation Act, 1998 (Act No. 27 of 1998) SECTION Section 21 Section 22 Section 23 Section 24 Section 25 Section 26 Section 27 Section 28 Section 29 Section 30 Section 21 Guidelines Section 22 Notices Section 23 Notices Section 24 Criteria Section 25 Factors Section 26 Public Notices Section 27 Ex-Post Written Representations Section 28 Notices   Section 29 Formal Investigations Section 30 Power To Summons PURPOSE Determining Municipal Boundaries Specific Requests For Determinations or Re-Determinations Ex-Post Section 21 and 22 Notices Criteria to Determine Municipal Boundaries Factors To Be Taken Into Account When Determining Municipal Boundaries Public Notification To Stakeholders Ex-Post Expiration Dates For Written Representations Ad-Hoc Public Meetings Conducting Formal Investigations to Make Recommendation s to The Board To Give Testimony/ Evidence To The Board/ Investigations Committee BRIEF DESCRIPTION Process for determining municipal boundaries. Determining municipal boundaries on its own initiative, on request of the Minister or MEC or municipality. Informing the IEC of the Board’s decision on determining municipal boundaries. States the criteria to be used when determining municipal boundaries. States the factors to be taken into account when determining municipal boundaries. Publish notifications in newspapers and broadcast contents of notice on the radio. All other media is optional. After cut-off date of date for written views and representations, Board decides to have public meetings, or formal investigations, or both after considering representation and views received. Requirements for conducting public meetings Requirements for formal investigations Powers of the investigating committee Slide Prepared by Andile Mhlongo

THE MUNICIPAL DEMARCATION BOARD Pesonalia It’s not just about boundary demarcation; it’s about what we do for the people. We are all touched by The Board, one way or another. Source: Bulelwa Mbali-Khoele

FINANCIAL VIABILITY THE MFMA & LIQUIDITY Capable of Success; Continuous Effectiveness; Capable of Normal Growth FINANCIAL VIABILITY Ability of entity to continue to achieve its operating objectives and fulfil its mission over the long term. The ability of an organization to pay its bills, to secure reliable and diverse sources of funding.

FINANCIAL VIABILITY Financial Viability Economic Viability Site by Site Viability: Property Assessments   Civic Viability Short Term Economic Viability Long Term Economic Derived From Viability Testing: http://www.rudient/node/62256 Other Types of Viability: OTV OTV

FINANCIAL VIABILITY Financial Viability In doing analysis, should a short term or long term perspective be considered? Financial Viability is one of several “viability” components that shape the discussion on viability on the whole

THE MUNICIPAL FINANCE MANAGEMENT ACT Financial Viability & Relevance of The Act The MFMA should be used as a framework for determining financial viability – especially in the short term. Relevant Chapters: Chapter 3: Municipal Revenue – Banking, Investment and Asset Management Chapter 4: Budgeting Chapter 5: Co-operative Government Chapter 6: Debt Management Chapter 11: SCM Capacity v. Capability

THE MFMA – BACK TO BASICS Chapter 3: Municipal Revenue – Banking, Investment and Asset Management Chapter 4: Budgeting Chapter 5: Co-operative Government Chapter 6: Debt Management Chapter 11: SCM Back to Basics: Sound Financial Management Revenue Collection: Functional Financial Management & Internal Controls Cash Backed Budgets National Government Programmes of Support & Enforcement Servicing Debt & Culture of Payment for Services Efficient & Effective SCM Structures, Control Oversight

FINANCIAL VIABILITY THE MFMA & LIQUIDITY Short Term Financial Viability Focuses on Liquidity: Managing investments so that cash will be available when needed. Implications for Local Government Managing assets that can generate cash or be converted into cash. Managing Cash flows: Its Equitable Share distributed Debt management in terms of not exceeding cash inflows; in terms of using debt to augment revenues; use of short term and long term debt – the bond market. Should CFOs, municipalities be concerned with being liquid? See: Financial Planning and Management in Public Organizations by Alan Walter Steiss and Chukwuemeka

COVERAGE & RATIOS TO MEASURE LIQUIDITY THE MDB DEMARCATION INDEX Calculating the Demarcation Index (DI): A Short Term Analysis for Financial Viability DI = W1 . (X1) + W2 . (X2) + W3 . (X3) + . . . (Wn) . (Xn) Where: W = An applied weighting ranging from .01 to .99 for each (X) (1) Where: X = The value of a calculated ratio, index or indicator (2)

COVERAGE & RATIOS TO MEASURE LIQUIDITY Ten Ratios for Consideration Per-capita Municipal Expenditure Ratio: Total population divided by the Average of total municipal expenditures over three years - (X1). Coverage Ratio (1) for Municipal Expenditures: The average of total tax receipts over three years over (divided by) the average of total expenditures over three years - (X2). Coverage Ratio (2) for Municipal Expenditures: The average of total revenue over three years over (divided by) the average of total expenditures over three years - (X3). Year-to-year Assets Growth Ratio: Average of five years growth or decline in assets – i.e., calculate the percentage change in assets from year to year and calculate the average - (X4). Year-to-year Liabilities Growth Ratio: Average of five years growth or decline in Liabilities – i.e., calculate the percentage change in liabilities from year to year and calculate the average - (X5).

COVERAGE & RATIOS TO MEASURE LIQUIDITY Ten Ratios for Consideration: Employment Rate: The average of three years, representing the percent of the population employed and individuals employed (need not be employed in the municipality) – e.g., migrant workers - (X6). Small Size Business Indicator: Of the total number of all formally registered businesses, the percentage of those businesses having turnover less than 250,000 Rands - (X7). Medium Size Business Indicator: Of the total number of all formally registered businesses, the percentage of those businesses having turnover of more than 250,000 Rands - (X8). Efficiency Indicator (1) for Sewage and Waste Removal: The average percentage over five years, indicating the sewage and waste expenditure as a percentage of total expenditures - (X9). Efficiency Indicator (2) for Sewage and Waste Removal: The average percentage over five years, indicating the year-to-year increase in sewage and waste expenditure - (X10).

CONCLUSION Financial Viability is but one of several “viability” factors to be considered. Financial Viability should be considered over the short term and the long term. Short term viability may be concerned with liquidity. The MFMA is concerned with the most critical aspects of municipal finance and therefore has relevance for Financial Viability

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