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Conditional Grantin respect of

Municipal Property Rates

KZN Department of Public Works

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Outline

• Legislative mandate• Background & budget allocation model• Monitoring Capacity• Conditional grant for 2009/2010• Challenges• Monitoring capacity• Monthly reporting• 2010/2011 Budget• Conditional grant allocation versus estimated

shortfall ( 2010/11; 2011/12 to 2012/13.)

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Section 24 of the Municipal Property Rates Act, 2004 (Act No. 6 of 2004) (MPRA): a tax (rate) levied by a municipality on

a property must be paid by the owner of the property.

In KwaZulu-Natal the responsibility to pay all rates levied on state

owned properties in the province is that of the custodian department, the KwaZulu-Natal Department of Public Works.

Legislative mandate

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Legislative mandate (cont...)

In the past the payment of property rates for state-owned properties was the responsibility of the National Department of Public Works.

With the advent of the devolution of municipal property rates assessment payments from National Government to Provincial Government, (effective from 1 April 2008), the responsibility for payment of

property rates for provincial properties now rests with the KZN Department of Public Works.

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Background & budget allocation model

• The Provincial Department of Public Works commenced payment of municipal property rates from 1 April 2008 utilising a conditional grant from the National Department of Public Works.

2008/09 Conditional Grant

• The budget allocation for the province was R210,846 million

• There was a shortfall of R36million which became the first charge for the 2009/10 financial year.

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Conditions resulting in the shortfall

• 20 Municipalities out of 61 in the Province had already implemented the MPRA by 2008/2009 financial year.

• More municipalities than had been anticipated were now billing the department for property rates.

• The allocated funds for the payment of these rates was based on the historical data ( what National Public Works had been paying prior to the devolution of the function).

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Conditions causing or resulting in the shortfall (cont…)

• It assumed therefore that all municipalities were charging rates which was not the case

• It also did not take into account the vesting process and unresolved disputes between the national Department of Public Works and certain Municipalities on the issue of rates.

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Conditions causing or resulting in the shortfall (cont…)

• Many municipalities were rating for the first time,

• The NDPW had previously not paid rates to these municipalities, resulting in funds not being allocated for this purpose.

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Conditional Grant 2009/2010

• R237,282m comprising the budget allocation for KwaZulu-Natal of R236,264 million plus the roll-over from 2008/2009 of R1,118 million Invoices received and payments made were to the amount of R237,204 million

• The invoices received totalled R458,510 million, resulting in a shortfall of R221 million.

• The unpaid invoices had to be held over for the new financial year (2010/2011) due to the fact that there were insufficient funds.

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Conditional Grant 2009/2010 (cont…)

• The first charge for 2010/11 is R221million - leaving a balance of R38,891 million of the R259,891m allocation for 2010/11.

• The Department has been confronted faced with service delivery challenges as municipalities have been threatening to cut services on account of the non-payment of property rates.

• Who is liable for the interest that has been levied charged on the overdue rates. Should it be the national Department of Public Works since this is a consequence of insufficient funding?

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Conditional Grant 2009/2010 (cont…)

• Due to the fact that the province assumed the responsibility of the payment of property rates from 1 April 2008, all outstanding debt prior to this date is the responsibility of National Department Public Works.

• An indication from National Public Works with respect to the payment of all outstanding debt to municipalities prior to the devolution (1 April 2008) is awaited. The debt is likely to accumulate interest.

• Additional funding of R221 million has been requested from the National Department of Public Works and the National Treasury.

• No response has been received to date.

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Conditional Grant 2009/2010 (cont…)

• The issue of new properties remains a challenge as the current model does not provide for this.

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Challenges

• Many of the provincial properties are carrying arrears from the years prior to devolution of the property rates payment function to provinces.

• There were properties where the ownership was unclear and had to be established between municipality, provincial & national custodians.

• Some municipalities disconnect services if rates are not paid or not fully paid.

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Challenges (cont…)Rates increases

• Property rates in a number of municipalities increased by between 300% to 1000% and more.

• Examples in KZN include uMngeni, Umsunduzi, Richmond, kwaSani and Kokstad.

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Challenges (cont…)

Ingonyama Trust Land

• The Ingonyama Trust Land properties have large tracts with numerous facilities on the parent property to which the municipality would attach a market value.

• The Department is only responsible for the payment of property rates on state domestic facilities.

• Market value does not value facilities individually but rather the entire property as a

whole.

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Monitoring Capacity• Staff from NDPW did not follow the

function when the payment of property rates function devolved to the province.

• This left a gap in how the conditional grant was to be implemented as this was a new function.

• There has been no funding provided for additional capacity to implement this function

• Asset Management staff are currently performing the function.

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Monthly reporting

• In the 2009/10 financial year National Public Works introduced a prescribed reporting format for Provinces to submit on a monthly basis. The Department submits these reports every month to report progress on expenditure.

• While payments are happening at the 4 Regional offices, there is central monitoring at head office to ensure that there is no overspending or underspending.

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2010/11 BudgetInsufficient allocation of funds

• The Department of Public Works in the province of KwaZulu-Natal requires additional funding. As stated before, with the first charge paid, the remaining balance for the 2010/11 will be R38,891million which is nowhere close to the budget required.

• A number of municipalities have not been apportioned rates payments due to insufficient funding.

• However all but 2 municipalities are now billing the department

• Without additional funding the Department will not be able to fulfil its mandatory obligations and there is a serious danger of the cutting of services by the municipalities.

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Municipalities that implemented theMPRA in 2007: 8

UMSHWATHI MUNICIPALITY

MNGENI MUNICIPALITY

MBONAMBI MUNICIPALITY

NTAMBANANA MUNICIPALITY

UMLALAZI MUNICIPALITY

MTHONJANENI MUNICIPALITY

NKANDLA MUNICIPALITY

KWADUKUZA MUNICIPALITY

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Municipalities that implemented theMPRA in 2008: 12

ETHEKWINI METRO

UMDONI MUNICIPALITY

EZINQOLWENI MUNICIPALITY

HIBISCUS COAST MUNICIPALITY

MOOI MPOFANA MUNICIPALITY

RICHMOND MUNICIPALITY

EMNAMBITHI-LADYSMITH MUNICIPALITY

ENDUMENI MUNICIPALITY

UMHLATHUZE MUNICIPALITY

MANDENI MUNICIPALITY

KWA SANI MUNICIPALITY

GREATER KOKSTAD MUNICIPALITY

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Municipalities that implemented theMPRA in 2009: 29

VULAMEHLO MUNICIPALITY

UMZUMBE MUNICIPALITY

UMUZIWABANTU MUNICIPALITY

IMPENDLE MUNICIPALITY

MSUNDUZI MUNICIPALITY

MKHAMBATHINI MUNICIPALITY

INDAKA MUNICIPALITY

UMTSHEZI MUNICIPALITY

OKHAHLAMBA MUNICIPALITY

IMBABAZANE MUNICIPALITY

NQUTHU MUNICIPALITY

UMVOTI MUNICIPALITY

NEWCASTLE MUNICIPALITY

EMADLAGENI (UTRECHT) MUNICIPALITY

DANNHAUSER MUNICIPALITY

ENDUMBE MUNICIPALITY

UPHONGOLO MUNICIPALITY

ABAQULUSI MUNICIPALITY

NONGOMA MUNICIPALITY

ULUNDI MUNICIPALITY

JOZINI MUNICIPALITY

THE BIG FIVE FALSE BAY MUNICIPALITY

HLABISA/IMPALA MUNICIPALITY

MTUBATUBA MUNICIPALITY

NDWEDWE MUNICIPALITY

MAPHUMULO MUNICIPALITY

INGWE MUNICIPALITY

UBHLEBEZWE MUNICIPASLITY

UMZIMKHULU MUNICIPALITY

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Municipalities that will implement the MPRA in 2010/2011: 2

• UMSINGA MUNICIPALITY• UMHLABUYALINGANA MUNICIPALITY

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Conditional Grant Allocation versus estimated shortfall

YEAR ALLOCATION

(Millions)

ESTIMATED EXPENDITURE

(Millions)

SHORTFALL

(Millions)

2010/2011 R259,891 R581,457 R321,566

2011/2012 R275,485 R872,186 R596,700

2012/2013 R289,259 R1,308,279 R1,019,020

TOTALS: R824,635 R2,761,922 R1,937,286

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Thank you