1. Comments on FFC Annual Submission for 2006/07

2. COMMENTS ON RECOMMENDATIONS –Local Government Equitable Share Allocation –Infrastructure Grants –Health Conditional Grants –National Housing Allocation Formula –FFC Comments on Proposals to replace RSC levies –FFC Comments on Development Component of LGES COMMENTS OTHER ISSUES –Transfer of Water Operating Schemes to LG

3. LG Equitable Share Allocation –The recommendation calling for government to consider increasing the estimated cost of basic services was long overdue and is such supported. Government should consider using this estimated cost to determine allocation to local government rather than using budget constraints as an excuse and thus having to just re-adjust allocation between municipalities of already determined funding envelope.

4. It must be noted that the Constitution states that there is a need to ensure that the municipalities are able to provide basic services and as such National Government defined basic services that should be provided for free to the poor, eg. 6kl water, 50kwt electricity etc. The committee must note that these standards are effectively imposed on local government that provides these basic services and they just have to comply with it.

5. Infrastructure Grants Recommendation for funding of maintenance costs (rehabilitation and replacement of dilapidating infrastructure) is supported and government need to work out technicalities of including this variable on MIG formula. MIG formula seems to be allocating more funds to municipalities that has potential to raise more revenue and thus there is a need to build the revenue raising capacity into the formula so that the formula addresses the MIG policy framework objectives of addressing basic infrastructure to the poor.

6. The current formula does not take into consideration issues regarding unit costs of providing basic level of infrastructure. Under practical circumstances, it is found to be expensive to put up infrastructure in sparsely populated areas than in densely populated areas due to long distances between points.

7. Health Conditional Grant Municipalities especially the metros and those with secondary cities still continue to render primary health care services and as such there is a need to determine their exact spending on this service. Provincial government should thus reimburse the municipalities affected on these cost as long as the municipalities remain rendering this service.

8. National Housing Allocation Formula Previous year FFC recommendation resulted in the provision of R50 million per year specifically allocated for municipal capacity building as part of the accreditation process. However this amount will need to be increased. The condition for municipalities to be allowed to retain a percentage of all housing subsidies in order to fund programme management and administration costs should be included in the accreditation agreements.

9. FFC Comments on Proposals to replace RSC levies Government undertook that the RSC levies replacement sources of funding would be legislatively protected before 1 July 2006. This has not happened, leaving municipalities vulnerable to the whims of Government at budget time. Instead National Treasury will be tabling Constitutional Amendment Bill proposing among others the repeal of item 21(6) of schedule 6.

10. FFC Comments on Development Component of LGES SALGA supports FFC’s views that development component be removed from the formula as it add no financial value for municipalities. As defining development and finding relevant data to use in determining allocation seems not easy this will result in a compromise to the formula principles and objectives (i.e. simple, transparent, certain).

11. Furthermore, unlike conditional grant, the unconditional transfers could not induce the municipality to spend more for services defined within the component of the formula unless additional policy framework like in the case of municipal free basic services is provided for.

12. Transfer of Water Operating Schemes to LG Funding of water operating schemes transferred to municipalities will beyond 2008/09 according to the current scheme framework be incorporated in the equitable share. Will this funds be ring-fenced like in the case of RSC levies?

13. Thank you