SALGA Comments on LG Grants Division of Revenue Bill, 2011 March 2011

OUTLINE 2011 MTEF Local Government Equitable Share Infrastructure Grants General comments Specific Comments on different grants Capacity-building and other operating Grants

2011 MTEF General Comment The 2011 Budget provide important support for local government to sustain service delivery as the economy continues to expand over the next three years. SALGA understands that additional funding is made available to LG for: Free basic services; Expansion of city housing and public transport infrastructure; Provision of regional bulk infrastructure for water and sanitation; and Financial management support to municipalities. Main Concerns There should be a systematic review of baselines to ensure that revenue allocations to local government as a whole are congruent with its full range of developmental and service delivery responsibilities and its vertical share. This should be coupled with efforts to build the capacity of weaker municipalities to spend efficiently and effectively. Allocations to local government are not based on proper studies into the true long term costs of municipal service delivery, which can vary substantially across municipalities in different service delivery contexts. SALGA recommended to the Budget Forum for an independent commission to review the LG fiscal framework.

LGES General Comment The increased institutional support through the formula allocations for smaller municipalities will provide much needed support for governance and administration structures. SALGA will continue to work with National Treasury and other stakeholders to improve the formula as part of the review of the local government fiscal framework. Main concerns It is not yet certain whether the additional allocations for institutional capacity in smaller municipalities is enough to provide sufficient long term support. This should be investigated. Growth of 8.2% per annum in the LGES over the next three years is less than the increase of 9.3% in Infrastructure transfers. Since LGES is utilised for operating and maintaining infrastructure through which basic services is provided to the poor, its slower growth implies more pressure on municipalities to collect revenue from the poor to provide for repairs and maintenance.

Infrastructure Grants General comment Acceptable real growth of 4.5% in total infrastructure grants over the MTEF Sustains roll out of infrastructure for basic services Supports economic growth Main Concerns Increase in capital spending, but municipalities face severe challenges in collecting revenue from poor households to provide for operational and maintenance costs of infrastructure. More technical support should be provided to rural municipalities fro planning and execution of infrastructure projects.

Infrastructure Grants continue Specific comments Urban Settlements Development Grant It is noted that the Municipal Infrastructure Grant (Cities) was combined with a top slicing of the Human Settlements Development Grant to create a new grant for the metros. The consolidation and ring-fencing of the funding for cities is welcomed. It lays the foundation for the devolution of housing and public transport functions to the cities and the integration of other grants to form a proper fiscal instrument in support of city built environment projects. It is our understanding that the metros will still be receiving housing allocations from provinces and for that, SALGA would again stress the importance of timeous publication in the Government Gazette and payment according to an agreed payment schedule in terms of DoRA.

Infrastructure Grants continue Specific comments Rural Transport Services & Infrastructure Grant The additional funding to the grant will assist in improving planning for rural transport development projects The grant should however, be aligned to a clear rural development strategy Rural Household Infrastructure Grant The grant has been reduced due to poor spending. There is a need for better coordination of interventions in rural areas. Specific roll out of Comprehensive Rural Development Programme (CRDP) projects looks at pilot sites for development of key wards in municipalities, e.g. the projects in Greater Giyani Local Municipality. Support must however, be given to municipalities for infrastructure development in other wards. The Rural Household Infrastructure Grant should assist municipalities to achieve similar outputs.

Infrastructure Grants continue Specific comments Electricity Demand-Side Management Grant (EEDSM) SALGA has engaged National Treasury on the allocations and raised concern with respect to the manner in which municipalities have been selected to receive the grant. SALGA is of the view that the grant should be continued beyond 2011/12 and will work together with DoE for motivation to extend it. Neighbourhood Development Partnership Grant The grant has been continuously reduced due to under-spending. There is a need for a more fairer basis for allocating the grant between municipalities. A specific concern with the grant is that smaller municipalities are not provided support to access the grant.

Capacity-building and other operating Grants General comments Capacity-building grants grow by only 2% The increase in the financial management grant is good as it builds the in- house capacity of municipalities Main Concerns There is still no information on the impact of capacity building grants. Capacity development programmes should be targeted at different levels of municipal needs. Capacity development programs should be comprehensive and not only focus on training of personnel and deployment of experts within municipalities

Capacity-building and other operating Grants continue Specific comments Municipal Systems Improvement Grant The reduction in the Municipal Systems Improvement Grant, although small, is concerning as municipalities would need support for the following: Implementation of the MPRA – second valuation rolls Administrative systems to accommodate increasing number of Wards and Councillors Effective oversight, e.g. Implementation of MPACs Municipalities also need assistance with their billing and revenue management systems Water Services Operating Subsidy Grant The grant was scheduled to end in the current financial year, but has been extended for at least another. This is welcomed. There is however, a need to do an overall assessment of the grant. A sustainable solution is required to the challenges of municipalities who have inherited water schemes from national government. It is not clear whether the municipalities have the financial capacity to fund and maintain the schemes. Revenue streams of the recipient municipalities are limited.

Thank You