1. 2017 Division of Revenue Amendment (DORA) Bill
Select Committee
10 November 2017

2. PRESENTATION OUTLINE Purpose
CoGTA’s response to the Amendments as per 2017 DORA Bill
Brief on municipal performance high risk and high performing municipalities and interventions
Coordination strategies between CoGTA, Provinces, NT, SALGA, etc.
The effectiveness of revenue and debt collection strategies for municipalities
Other matters
Recommendations

3. PURPOSE
To brief the Standing and Select Committees on Appropriations on the 2017 Division of Revenue Bill; the status of municipal performance, the intergovernmental co-ordination between relevant entities as well as the revenue and debt collection strategies for municipalities.

4. COGTA’S RESPONSE TO THE 2017 DORA BILL IN THE
CONTEXT OF ATTAINMENT OF OUTCOME 9

5. COGTA’S RESPONSE TO THE 2017 DORA BILL
The DCoG supports the roll-over of funds for the municipal demarcation transition grant and additional allocations to support disaster relief and recovery
Roll-over of funds for the municipal demarcation transition grant
An amount of R27.9 million is rolled-over for municipal demarcation transition grant for funds originally allocated to municipalities in KwaZulu-Natal in 2015/16. These funds were initially rolled-over in 2016/17 after the funds had been converted from a direct to an indirect grant allocation at the end of 2015/16.
However, the conversion occurred very close to the end of the financial year, leaving too little time for the funds to be spent. The funds were rolled-over in 2016/17 as an indirect grant but went unspent as the modality for spending them as an indirect allocation could not be agreed on.
In 2017/18 they will now be rolled-over as a direct grant and transferred to municipalities to reimburse their expenditure incurred in line with the conditions of the grant in preparation for the municipal mergers that came into effect in August 2016.

6. COGTA’S RESPONSE TO THE 2017 DORA BILL
Additional allocations to support disaster relief and recovery
R26.1 million has been allocated for the repair of sinkholes and the damage to infrastructure resulting from sinkholes in the area of Merafong City Local Municipality.
These funds will be allocated through the municipal disaster recovery grant.
The restoration of municipal infrastructure to functionality following a disaster is an important aspect in ensuring the continued provision of basic services by municipalities.

7. COGTA’S RESPONSE TO THE 2017 DORA BILL
Additional allocations to support disaster relief and recovery
The DCoG supports measures to address the Butterworth emergency water supply scheme drought pressures through the Department of Water and Sanitation.
Additional allocation for bucket eradication programme
The DCoG supports the continuation of the bucket eradication projects that the Department of Water and Sanitation had identified and committed to implementing (i.e. for the eradication of bucket sanitation in formal areas).

8. (THE BACK TO BASICS APPROACH)
BRIEF ON MUNICIPAL PERFORMANCE HIGH RISK AND HIGH PERFORMING MUNICIPALITIES AND INTERVENTIONS
(THE BACK TO BASICS APPROACH)

9. THE BACK TO BASIC’S APPROACH:
The Back to Basics programme (B2B), was launched in September Support and intervention measures must practically respond to addressing existing weaknesses, and improve, strengthen oversight and accountability mechanisms (Holistic approach).
Based on a foundation of doing the basics right:
Putting people first by engaging with communities;
Effective delivery of services;
Good governance;
Sound financial management; and
Building institutional capabilities to ensure the living conditions of communities are improved.

10. THE IDEAL MUNICIPALITY

11. PROGRESS WITH B2B
There is an extraordinary variety of characteristics across South Africa’s municipalities, spreading from their population size (ranging from 4.4 million residents in the City of Johannesburg to just residents in Laingsburg – figures from Community Survey 2016), to their different geographical sizes.
Hantam Municipality in the Northern Cape, for example, covers km2 and has a population density of 0.6 people per km2, versus Mandeni in KZN that covers 545 km2 and has a population density of 271 people per km2.
Household growth drives the demand for service delivery in municipalities. The province with the highest household growth in local municipalities between 2011 and 2016 was Gauteng (20.9%), followed by Western Cape (18.3%). Particularly metropolitan municipalities experienced high levels of growth.

12. PROGRESS WITH B2B
In the 2015/16 period, 2135 protests were recorded by municipalities in the B2B monthly questionnaire, of which 945 protests were violent. Gauteng and the Western Cape had the largest number of violent protests.
Service delivery protests were more prevalent in metropolitan areas, with 76% of the total protests for 2015/16 recorded in metropolitan municipalities.
The increase in service delivery protests occurred irrespective of the public participatory type meetings (such as ward committee meetings) held in general as prescribed or expected.
One must be however be cautious to assume that it is merely as a result of the public participation mechanisms not being effective or functional enough.
The phenomenon of protests is complex, with many causes, of which the effectiveness of public participation mechanisms is but one.

13. PROGRESS WITH B2B
Well-maintained water and electricity distribution infrastructure is central to economic production and attracting businesses to particular localities, with the spin-offs of more jobs and a larger municipal tax base.
Challenges are still experienced across the infrastructure development life cycle in municipalities, namely from project identification, infrastructure planning, financing, construction to operations and maintenance.
Some of the root causes remain weak institutional capacity and the shortage of skills, that all impact on the ability to plan for operation and maintenance of infrastructure.

14. Progress with B2B
The two sides of the budget – revenue and expenditure – play equally important roles in municipal sustainability. On average the revenue bases of metros, secondary cities, larger towns and medium to smaller towns are dominated by own revenue (derived mainly from property rates and user charges), whereas rural municipalities and districts tend to rely heavily on intergovernmental transfers.
National Treasury identified the following common challenges in financially distressed municipalities:
An increase in the number of acting Municipal Managers and Chief Financial Officers;
Poor cash flow management and reliance on conditional grants;
Low capital spending on infrastructure and Inadequate provision for repairs and maintenance;
Increases in debtors and creditors;
Lack of credible budgeting; and
Ineffective governance structures which undermines the administration of municipalities.

15. PROGRESS WITH B2B
The on-going instability in senior municipal management positions has a negative impact on service delivery to communities. This manifests in a number of ways, including the inability to make basic managerial decisions such as the appointment of service providers. This often delays project implementation and affects the municipality’s ability to spend its capital budget.
As was observed with the previous five local government elections, this point in the electoral cycle is inherently one of strategic and administrative change.

16. PROGRESS WITH B2B
New administrations under new political leadership usually introduce revised five year strategies that are, in all probability, driven by new administrative leadership including new MMs and new CFOs.
A total of ninety (90) appointments were made during the first quarter of 2017/18 (April - June 2017). The total number of competent and suitably qualified municipal managers and managers directly accountable to municipal managers increased from eighteen (18) as at June 2016 to seventy-two (72) as at 30 June 2017 representing 80% compliance rate.

17. FINANCIAL STATUS OF MUNICIPALITIES: VIABILITY AND FINANCIAL MANAGEMENT
MUNICIPALITIES IN FINANCIAL DISTRESS (NT)
2016/17 FY BASED ON THE SECTION 71 MFMA REPORTS
MUNICIPALITIES WITH FINDINGS IN 7 OR MORE OF THE FINANCIAL HEALTH INDICATORS ASSESSED BY THE AG
(2015/16 FY)
DCoG LIST OF PRIORITY MUNICIPALITIES IDENTIFIED BY PROVINCIAL COORDINATORS IN SEPTEMBER 2017
EASTERN CAPE:
Gariep
Nxuba
Inxuba Yethemba
Makana
Buffalo City
Mnquma

18. FINANCIAL STATUS OF MUNICIPALITIES: VIABILITY AND FINANCIAL MANAGEMENT
MUNICIPALITIES IN FINANCIAL DISTRESS (NT)
2016/17 FY
MUNICIPALITIES WITH FINDINGS IN 7 OR MORE OF THE FINANCIAL HEALTH INDICATORS ASSESSED BY THE AG
(2015/16 FY)
DCoG LIST OF PRIORITY MUNICIPALITIES IDENTIFIED BY PROVINCIAL COORDINAOTRS IN SEPTEMBER 2017
NORTH WEST:
City of Matlosana
Ditsobotla
Naledi
Ventersdorp
Tswaing
Lekwa Teemane
Madibeng
Mamusa LM
Ngaka Modiri Molema
Kagisano-Molopo

19. FINANCIAL STATUS OF MUNICIPALITIES: VIABILITY AND FINANCIAL MANAGEMENT
MUNICIPALITIES IN FINANCIAL DISTRESS (NT)
2016/17 FY
MUNICIPALITIES WITH FINDINGS IN 7 OR MORE OF THE FINANCIAL HEALTH INDICATORS ASSESSED BY THE AG
(2015/16 FY)
DCoG LIST OF PRIORITY MUNICIPALITIES IDENTIFIED BY PROVINCIAL COORDINATORS IN SEPTEMBER 2017
GAUTENG
Emfuleni
Randfontein
Rand West
Mogale City
WESTERN CAPE
Kannaland
Beaufort West

20. FINANCIAL STATUS OF MUNICIPALITIES: VIABILITY AND FINANCIAL MANAGEMENT
MUNICIPALITIES IN FINANCIAL DISTRESS (NT)
2016/17 FY
MUNICIPALITIES WITH FINDINGS IN 7 OR MORE OF THE FINANCIAL HEALTH INDICATORS ASSESSED BY THE AG
(2015/16 FY)
DCoG LIST OF PRIORITY MUNICIPALITIES IDENTIFIED BY PROVINCIAL COORDINATORS IN SEPTEMBER 2017
NORTHERN CAPE
Siyathemba
Ubuntu LM
Renosterberg
Magareng
Tsantsabane LM
Ga-Segonyana
Kgatelopele LM
Dikgatlong
Phokwane

21. FINANCIAL STATUS OF MUNICIPALITIES: VIABILITY AND FINANCIAL MANAGEMENT
MUNICIPALITIES IN FINANCIAL DISTRESS (NT)
2016/17 FY
MUNICIPALITIES WITH FINDINGS IN 7 OR MORE OF THE FINANCIAL HEALTH INDICATORS ASSESSED BY THE AG
(2015/16 FY)
DCoG LIST OF PRIORITY MUNICIPALITIES IDENTIFIED BY PROVINCIAL COORDINATORS IN SEPTEMBER 2017
KZN
uMkhanyakude District
eMadlangeni
EASTERN CAPE
Gariep
Nxuba
Inxuba YeThemba
Makana
Buffalo City
Mnquma

22. FINANCIAL STATUS OF MUNICIPALITIES: VIABILITY AND FINANCIAL MANAGEMENT
MUNICIPALITIES IN FINANCIAL DISTRESS (NT)
2016/17 FY
MUNICIPALITIES WITH FINDINGS IN 7 OR MORE OF THE FINANCIAL HEALTH INDICATORS ASSESSED BY THE AG
(2015/16 FY)
DCoG LIST OF PRIORITY MUNICIPALITIES IDENTIFIED BY PROVINCIAL COORDINATORS IN SEPTEMBER 2017
FREE STATE
Matjhabeng
Maluti-a-Phofung
Nketoana
Ngwathe
Dihlabeng
Moqhaka
Nala
Masilonyana
Mafube

23. FINANCIAL STATUS OF MUNICIPALITIES: VIABILITY AND FINANCIAL MANAGEMENT
MUNICIPALITIES IN FINANCIAL DISTRESS (NT)
2016/17 FY
MUNICIPALITIES WITH FINDINGS IN 7 OR MORE OF THE FINANCIAL HEALTH INDICATORS ASSESSED BY THE AG
(2015/16 FY)
DCoG LIST OF PRIORITY MUNICIPALITIES IDENTIFIED BY PROVINCIAL COORDINATORS IN SEPTEMBER 2017
LIMPOPO
Thabazimbi
Musina
Ba Phalaborwa
Mookgophong/Modimolle
Mopani District
LIM345 (Collins Chabane)
Vhembe DM
Sekhukhune DM
Mogalakwena LM

24. PROGRESS WITH B2B / DETAILED MUNICIPAL PERFORMANCE
A detailed report that outlines the progress including the high performing and low performing municipalities in each category of municipalities and in each of the B2B pillars is has been attached to this report as an annexure.

25. INTERGOVERNMENTAL CO-ORDINATION STRATEGIES AND THEIR EFFECTIVENESS

26. INTERGOVERNMENTAL CO-ORDINATION STRATEGIES AND THEIR EFFECTIVENESS
Collaboration and co-ordination of efforts are at the centre of government’s response to the local government challenges. In this regard; we are collaborating with relevant parties in various work streams which include the following amongst others:
Collaboration with NT, PT’s, Provincial CoGTA’s, DPE, DPME, SALGA and Eskom on matters relating to Eskom debt by municipalities.
Collaboration with NT, PT’s, Provincial CoGTA’s, DPW, and SALGA and on matters relating to debt owed by government to municipalities.
Collaboration with NT, NT, PT’s, Provincial CoGTA’s on the response to municipal audit outcome and other related financial management and governance matters.

27. INTERGOVERNMENTAL CO-ORDINATION STRATEGIES AND THEIR EFFECTIVENESS
Collaboration with NT’s City Support Program on matters relating to Spatial planning and the Intergraded Urban Developlemt Framework (IUDF).
Collaboration with sector departments and treasuries on service delivery matters and the implementation of Outcome 9.
Collaboration with Provincial CoGTA’s, NT, PT’s, Auditor General and SALGA in the municipal audit outcomes improvement.

28. INTERGOVERNMENTAL CO-ORDINATION STRATEGIES AND THEIR EFFECTIVENESS
In addition; at a strategic level there is also work in progress that is currently before the Minister’s of CoGTA and Finance relating to finding solutions to a possible overlap in the functions as prescribed by the various pieces of legislation that govern Local Government; mainly the MFMA & MSA.
Provincial status currently:
There is a hybrid model that is being employed by provinces in the allocation of the functions between the two role-players at a provincial level.
In 4 provinces, all financial management including revenue and debt collection functions have been allocated to the Provincial Treasury. (WC, NC, MP & FS)
In 5 Provinces the financial management including revenue and debt collection functions responsibilities and a collaboration model is applied and formalised through a Provincial MOU. (EC, LP, KZN, GP & NW)

29. INTERGOVERNMENTAL CO-ORDINATION STRATEGIES AND THEIR EFFECTIVENESS
At a national level;
There was an MOU which was previously signed prematurely without following due consultative processes and it was subsequently retracted.
The views of both the CoGTA and Finance ministers have been sought.
There is currently a DG lead a consultative process to facilitate a conclusion and a decision by the Ministers.
CoGTA is of the view that a collaboration framework needs to be considered as an option to the legislative review and shifting of responsibilities; if this route is followed then the MOU process will be set aside and replaced by a collaborative framework to guide both the National and Provincial departments.

30. REVENUE AND DEBT COLLECTION STRATEGIES OF MUNICIPALITIES

31. REVENUE AND DEBT COLLECTION STRATEGIES OF MUNICIPALITIES
The Department (DCoG) identified a strategic intervention aimed at enhancing the municipal revenue management and debt collection system in local government.
The development and implementation of municipal-specific revenue plans was identified and is currently being rolled out in 30 selected municipalities.
Thirty (30) municipalities were identified as part of the Simplified Revenue Plan Project through the Back to Basics (B2B) programme and by assessing the level of outstanding debt of each of the municipalities.
The objective of the Simplified Revenue Plan Project (SRP) is to assist municipalities through Service Providers (SPs) to review and improve the generic replicable model of the revenue plan.
Once that is done, the reviewed model is rolled-out or implemented at each of the participating municipalities.
The successful implementation of the revenue plan will result in improved revenue management, reduced municipal consumer debt and protection of municipal revenue.

32. REVENUE AND DEBT COLLECTION STRATEGIES
The following on-going support and assistance has been provided to municipalities:
Review and update of revenue policies and by-laws
Billing (accurate reading/capturing of electricity and water meters).
Monitoring of consumer/debtors accounts (debtors management)
Data cleansing and analysis
Indigent register management
Customer relations management
Administration ( Procedure manuals and implementation thereof)
This support is informed by the initial assessment conducted by the SPs at the inception of the project; the assessment is made by testing the entire revenue management value chain of a municipalities as outlined on the attached detailed narrative.

33. REVENUE AND DEBT COLLECTION STRATEGIES OF MUNICIPALITIES
Achievements to date
Comprehensive revenue policies have been reviewed, re-drafted and submitted to councils for approval
Monthly financial reports on revenue performance are produced and submitted to management for decision-making
There is a good interface between revenue management and credit control
Revenue collection rates have increased in most municipalities
Billing systems have been improved
In most of the participating municipalities, there is Municipal Leadership commitment to this project
Data cleaning was performed in most of the municipalities

34. OTHER MATTERS

35. RECOMMENDATION
It is recommended that the Select Committee on Appropriations Local Government’s response on the 2017 DORA Bill notes; the status of municipal performance, the intergovernmental co-ordination between relevant entities as well as the revenue and debt collection strategies for municipalities.