SALGA Comments on 2010 MTBPS Standing and Select Committee on Appropriations 2 November 2010

Overview Introduction General remarks Vertical division of revenue Local Government Equitable Share Conditional Grants Infrastructure funding Devolution of Property Rates Fund Grant Local Economic Development Concluding Comments

Introduction Salga presentation to the NCOP Appropriations Committee focuses on local government context. Our inputs are based on key themes covered in the MTBPS as mentioned in the overview.

General remarks Economic recovery is welcome sign for local government Demand for quality municipal services will increase Municipal services need to support expansion of productivity in local industries and sustainability of key economic sectors operating within municipal boundaries Municipalities need to improve revenue collection and maintain effective debtors and credit management controls as household consumption increase over the medium term Local government sphere should contribute towards the ongoing search for efficiency in public spending

Vertical DoR SALGA recommended to the Budget Forum for a comprehensive review of the LG fiscal framework to address amongst other things the vertical share of the budget. 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; the vertical share of local government meets the increasing demand for municipal services. This should be coupled with efforts to build the capacity of weaker municipalities to spend efficiently and effectively. The increase from 7.9 per cent in 2010/11 to 8.6 per cent in 2013/14 is a step in the right direction, but more needs to be done to achieve a responsive, accountable, effective and efficient local government system as envisaged in outcome 9 and in terms of a fiscal review. Medium term adjustment - R67 billion more than the baseline tabled in February this year, of which R40 billion goes to provinces, R24 billion to national departments and R3 billion to municipalities – does this represent the constitutional spirit of equity?

LGES The proposed minor adjustments to the equitable share formula to allocate more funding towards poorer municipalities must be substantive enough to address the institutional challenges those municipalities are experiencing. The magnitude of the funding should be such that it will enable the municipalities to appoint the relevant skilled personnel to manage their finances, human resources, service delivery functions, and core administration. This will address one of the key priorities of the Local Government Turnaround Strategy that municipalities are currently implementing. Availability of credible data on key variables relating to the socio-economic, demographic and spatial profiles of municipalities need to be addressed not only to update the data underpinning the formula, but also a more fundamental review of the structure of the formula itself.

Conditional Grants While funding through local government conditional grants are welcomed as an important source of funding for municipalities, the way in which it is managed needs to be reviewed. Conditional grants should be re-assessed as part of the comprehensive review of the local government fiscal framework, with a view to analysing past performance and improving their operational effectiveness. A conditional grant to rural municipalities for job creation and economic development should be introduced. Its design should be simple and impose minimum administrative burden. Disaster management funding should reach municipalities earlier. Electricity Demand Side Management funding must be effectively targeted. Funding for water services operating subsidy grant should be increased to assist municipalities struggling with refurbishment and maintenance. There is no coordinated monitoring and reporting against outcomes of conditional grants. More attention is needed to allow municipalities to access conditional grants.

Infrastructure Funding The extent of rehabilitation backlogs should be quantified. Funding should be set aside through MIG (or other grants) to upgrade of existing infrastructure in smaller, poorer municipalities. There should be an explicit link between MIG allocations and LGES allocations, especially in smaller municipalities. The envisaged devolvement of the housing and public transport functions to cities is welcomed. This is in line with SALGA’s recommendations to the recent Budget Forum in recognition of the demonstrated ability of the cities to perform these functions and the need to better coordinate infrastructure funding for the built environment. Assignment of own-revenue instruments to municipalities (such as the Local Business Tax) is essential to allow them to borrow on capital markets. A clear implementation strategy must be developed for the support that the DBSA is required to provide to municipalities for infrastructure and services. The recapitalization of the DBSA was announced in the 2010 Budget, but no update was given on what impact was made over the mid-year period.

Devolution of Property Rates Funds Grant The increase in the Devolution of Property Rates Grant is welcomed. Of the R3 billion outstanding government debt approximately 60% or R1.8 billion is for property rates component of municipal bills. Municipalities were unaware of transformation of national and provincial government post elections and changes are not effected into billing systems. Asset registers not updated within government and therefore not aligned to municipal property valuation rolls. No effective system of communication between National/Provincial and Local Government on property rates and service charges. SALGA agrees that municipal billing systems needs to be improved – support is required for especially smaller municipalities. SALGA and DPW have established a forum with metros to improve arrangements around billing and payment of government property rates accounts.

Local Economic Development Minister outlined key initiatives to accelerate job creation in terms of the new growth path: expanded further education and training; greater participation of our development finance institutions; support for small enterprises and local economic development ; greater investment and competition needed in the electricity, transport and communications sectors and; ensuring better financial management, good governance. These initiatives take place within a local environment. Therefore the spatial impact of economic development programmes will require more effective coordination with municipal LED and service delivery implementation between spheres of government. The committee also highlighted the need for better coordination and support for EPWP implementation at a municipal level. More direct support is required for municipalities in this regard currently there are not more then 100 municipalities reporting and accessing the grant.

Concluding Comments Very unequal distribution of income, and too few South Africans have jobs. We support reforms proposed on supply chain and procurement to improve efficiencies in service delivery Ensure fair pricing In line with international best practice, transparent public disclosure Manage some procurement centrally Stiffer penalties Successful service delivery requires: Effective coordination of service delivery implementation and expenditure Effective management of finances (revenue collection and financial management) Capacity building of municipalities