1. The current relevance of ‘municipal viability’
Nico Steytler
SARChI Chair in Multilevel Government, Law and Policy University of the Western Cape
29 May 2015

2. CoGTA proposals to MDB January to April 2015
3 new metros: Disestablishment of 17 LMs and 3 DMs
Umgungundlovu DM (PMB core)
uThungulu DM (Richards Bay core)
West Rand (Krugersdorp) (15 April 2015)
3 metros enlarged: receiving rural LMs or areas
Buffalo City receiving 2 rural LMs
Mangaung receiving 1 and half rural LMs
Ethekwini receiving traditional areas
35 LMs disappear: amalgamation, or declared DMA.
In KZN 19 LMs’ boundaries affected to align with traditional authorities.

3. Underlying reasons
Back to Basics: 1/3 municipalities are “frankly dysfunctional”, 1/3 “at risk”, 1/3 managing well
Proposals underpinned by 5 new concepts:
“dysfunctionality” as criterion for demarcation
Linked to “non-viability” as criterion
Transform LMs into District Management Areas
‘Rural metros’
Major restructuring can be done quickly – before 2016 election

4. MDB’s response: s 26 notices
MDB closed applications for redemarcation in Jan 2013, finalised in Jan 2014
MDB published all proposals unaltered as s 26 notices:
Disestablish XX LM ‘through –
option 1: merge with YY LM;
option 2: establish a DMA for the LM area” (circular 1)
Amalgamations of 2 or more LMs “with the view of optimizing the financial viability of the new municipality”
Disestablishment of LMs in Limpopo “with the view to optimizing the financial viability of all the municipalities in the XX District municipality”
Subsequent circulars
DMA option abandoned
“Financial viability” only reason provided

5. MDB’s response: Circular 5, 24 March 2015: investigations
3 new metros: Disestablishment of 17 LMs and 3 DMs
Umgungundlovu DM (PMB core): NO, for 2021
uThungulu DM (Richards Bay core) NO, for 2021
West Rand (Krugersdorp) (15 April 2015) Yes
3 metros enlarged: receiving rural areas
Buffalo City receiving 2 more rural LMs: NO to one LM
Mangaung receiving 1 and 1/2 rural LMs: No to 1/2 LM (already part of Mangaung!) Yes to Naledi LM
Ethekwini receiving more traditional rural areas:
35 LMs disappear: amalgamation: Yes to all but 1
In KZN 19 LMs align with traditional authorities. 7 applications postponed (not urgent)
Comment
DMAs not mentioned as an option
Object still: “amalgamate … with the view to optimizing the financial viability of the new municipality”

6. Legal framework: Constitution
S 152(1): objects of LG are -
(a) to provide democratic and accountable government for local communities;
(b) to ensure the provision of services to communities in a sustainable manner;
(c) To promote social and economic development;
(d) To promote a safe and healthy environment; and
(e) to encourage the involvement of communities and community organisations in the matters of local government
Objects set the outer framework also for demarcation
Functioning municipality
Sustainable
Close to the people

7. Demarcation Act: s 24 objectives
Objective of the MDB is “to establish an area” that would –
(a) enable the municipality to fulfil its constitutional obligations (refers to s 152);
(b) enable effective local governance;
(c) enable integrated development;
(d) have a tax base as inclusive as possible of users of municipal services in the municipality”.
Emphasis is on “area” and “enable”: the areas must be such that a municipality in the area can fulfil constitutional obligations - not on the government or achievement of objectives

8. Demarcation Act: s 25 factors
In order to attain the s 24 objectives, the MDB must take into account –
Interdependence of people …
Need for cohesive, integrated and unfragmented areas
“the financial viability and administrative capacity of the municipality to perform municipal functions effectively and efficiently”
The need to share and redistribute financial and administrative resources
- (g) existing boundaries

9. Demarcation Act: s 25 factors (cont.)
(h) existing and expected land use, social, economic and transport planning; (i) the need for co-ordinated municipal, provincial and national programmes and services … (j) topographically, environmental and physical characteristics of the area (k) the administrative consequences of its boundary determination on (i) municipal creditworthiness ... (l) the need to rationalise the total number of municipalities within different categories … to achieve the objectives of effective and sustainable service delivery, financial viability and macro-economic stability.

10. Section 25 factors: comment
A factor is not a requirement, but a fact/condition that must be considered; may not be ignored / neglected
Factors are not qualifying criteria (compare s 2 Structures – criteria for metros)
Range of factors - 12
Most refer to conditions that exist outside the functioning of the municipalities
Where factors point in opposite directions, they must be weighed against each other
“Financial viability” mentioned, but all factors must be considered

11. Key issue 1: municipal viability (financial)
Is there a definition of ‘municipal (financial) viability’ among key stakeholders?
MDB used concept when declaring DMAs in very sparsely populated areas – no people
MDB investigates: “optimizing financial viability”.
Policy Q: What does it mean? Does it mean financial self-reliance? Is it old white municipalities’ model: only urban / built up areas with high property values for rates, serving only a small section of community, making them self-funded?
If so, how measure self-reliance?
How does the joining 2 or more transfer-dependent municipalities somehow become financially viable?
Policy Q: Is there a need for an alternative financial model for rural LMs?

12. Key issue 1: municipal viability (financial) (cont.)
Legal Q: can financial self-reliance be a requirement, more than a factor?
Legal Q: Can one factor, among 12 others, dominate, trump all others?
Constitutional Q: is financial viability a constitutional principle of multilevel government?
What about 44 DMs reliant on transfers for 90% of their revenue?
What about 9 provinces reliant on transfers for 97% of their revenue?

13. Key issue 2: dysfunctionality
CoGTA: Dysfunctionality refers to how badly a municipality operates, delivers services and accounts for the money it spends (1/3 of municipalities).
Policy Q: What is the link between functionality and boundaries? When does a boundary make a municipality dysfunctional? Or, how can redemarcating boundaries eliminate dysfunctionality?
Policy Q: Can demarcation solve a political or management problems? Should demarcation solve temporary problems?
Policy Q: Could a municipality that is at risk of becoming dysfunctional (1/3), become dysfunctional when burdened with a dysfunctional disestablished municipality?
Legal Q: Can dysfunctionality ever be a criterion?
Legal Q: Can dysfunctionality be a relevant factor? If so, what weight, if any?

14. Key issue 3: rural/ruralizing metros
CoGTA proposals:
(1) a new concept of metro: a gigantic stand-alone rural municipality with small urban core (‘Nkandla metro’)
(2) adding more rural areas to existing metros
Policy Q: Can a small urban core financially carry the surrounding rural municipalities so that they all become financially viable?
Policy Q: Will rural governance become less dysfunctional because LMs will be stripped of their political and administrative powers? Will rural areas then be governed by a skilled urban core? Or, will the same politicians control new metro?
Policy Q: What is the impact on governance of real metros when more rural areas are added?
Legal Q: Does a ‘rural metro’ meet criteria of s 2 Structures Act?

15. Key issue 4: demarcation in haste
Radical changes are to be effected in less than 6 months.
Factual and legal Q: Is it possible for MDB to get proper consultation with affected communities; proper investigations, including financial modelling and viability studies of new municipalities?
Policy Q: Does MDB have a transparent policy on the content and weight of factor ‘financial viability’?
Policy Q: Has CoGTA thought through their proposals?
Why abandon DMA option so soon after it was proposed?
Why KZN retracted on rural metros?
Policy Q: Should more thought be expected from government when embarking on such an important venture with enormous consequences? Will the process cause more problems than they seek to solve?

16. Thank you