Tuesday, 8 th March 2005 Cape Town

Tuesday, 8th March 2005

Cape Town

By the Director-General of the

Department of Provincial & Local

Government (dplg),

Ms Lindiwe Msengana-Ndlela

Presentation to the Select Committee on Finance

1. Introduction

2. Context

3. Local Government Equitable Share (LGES)

4. Municipal Systems Improvement Grant (MSIG)

5. Municipal Infrastructure Grant (MIG)

6. Conclusion

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Contents

Introduction

Purpose of the Presentation:

• To provide an overview of the Division of Revenue Bill, as it pertains to the dplg

The dplg has worked closely with National Treasury on

the local government matters of the Bill. The dplg is of the

view that some areas of the Bill require greater

refinement.

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Context

• An amount of R48,8 billion has been added to the baseline allocations of provinces and municipalities.

• This means that national transfers to provinces will be growing at a rate of 10,2% a year over the MTEF period while local government allocations increase by13,3%.

• Allocation to municipalities, in relation to the budget, is the fastest growing component of the three components (national, provincial & local).

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Context …

• After the introduction of the new system of local government in 2000, the total national transfers to local government amounted to R6,5 billion in the 2001/02 financial year.

• This amount increased to R19,7 billion and R21,4 billion in the 2006/07 and 2007/08 financial years respectively.

• Over the next three years, from 2005 to 2008, local government will receive total transfers of approximately R58,3 billion from national government.

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3. Local Government Equitable Share (LGES)

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LGES - Constitutional Basis• Chapter 13 of the Constitution makes provision for an equitable

division of nationally raised revenue between the three spheres of government; clause 214 (1)(a).

• Constitution states that nationally raised revenue sharing must take into account the following aspects:

Need for municipalities to be able to provide basic services and perform functions allocated to them

Fiscal capacity and efficiency of municipalities

Developmental and other needs

Obligations of municipalities in terms of national legislation

Desirability of stable and predictable allocations of revenue shares,

etc.

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• The components of this formula seek to provide for the consideration of :-

Basic Service Provision

Development needs, in a majority of cases as a result of economic disadvantage and structural deprivation

Institutional support and investing in efficient and effective municipal administrations

The Revenue Raising Capacity of each municipality

A stabilization component which will guarantee allocations that were published in 2004.

LGES - Components of the Formula

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• The LGES formula has been under review as per the President’s announcement at his State of the Nation Address in May 2004.

• Why the Review? Formula has been revised to one with a simpler structure that

will facilitate transparency A significant inclusion in the revised formula is an explicit

revenue raising capacity correction The services component now recognizes the progress

municipalities make in accelerating basic services delivery by rewarding those that invest in basic services infrastructure.

• Formula will be phased in over three years, from 2005.

LGES - Overview and Background

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Comparison of the Previous And New LGES Formula

Previous Formula (Window Based)

Grant =S + I + FBS + FBE + R293 + Nodal Allocation + Top up

• 2005-07 allocations are 100% guaranteed to limit any unintended consequences.

New Formula (Component Based)

Grant= BS + D + I – R C

• Takes 2001 census figures into account

• New formula to be phased in over three years

• Currently only the increases in the baseline are subjected to the formula

• Development component is currently set at zero.

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• In the medium term, significant LGES increases –

R9,64 billion for 2005/06, increasing to R10,54 billion in 2006/07, and reaching R11,37 billion in the outer year.

• The impact of introducing a new formula will be fully realised once the formula is completely phased in 2007.

• Generally an upward trend throughout, however some Districts will experience a downward trend, largely due to the fact that some Districts do not provide basic services.

LGES - General Expenditure Trends


• The high increases noted in urban areas are attributed to high population migration and the concentration of poor people in these areas.

• Municipalities making significant gains are largely those that have extended basic services infrastructure, suggesting that more indigent households will gain from increases arising from the basic component of the formula.

• MIG will play a very important complementary role in providing resources to rural areas.

LGES - General Expenditure Trends …


Further areas of engagement in 2005:

• The development component which has been has been set at zero. More work needs to be done to take into account variations in development across municipalities. This is particularly important in addressing service backlogs in rural areas.

• The constitutionality of nodal allocations. More work still needs to be done to ensure that this is not lost in the next three years as the new formula is phased in. The same will apply for Free Basic Services.

LGES - Future Work on the Formula


Further areas of engagement in 2005:

• Another area that requires further work will be in responding to the question of funding for operations and maintenance in Local Government.

• Arriving at a broad and acceptable definition and criteria for indigents that is consistent within government.

• Improving data and the quality of information.

LGES - Future Work on the Formula …


4. Municipal Systems Improvement Grant (MSIG)


MSIG - Background

• Capacity development in municipalities and improved systems with regard to community participation, planning, finance and performance management systems through the MSIG totaling R600 million over the 2005 MTEF.

• The allocation to SALGA over the 2005 MTEF is also intended to increase the capacity of organized local government.


MSIG – Background …

• Purpose of MSIG is to assist municipalities in building in-house capacity to build core systems and perform their functions.

• MSG is a conditional grant directed to local municipalities through Districts.

• Outputs of the grant: Capacity improvement for stability and governance systems Institutional systems aligned to IDPs Implementation of powers and functions Implementation of municipal legislation Participation of communities as required in terms of Municipal

Systems Act.


MSIG - Conditions of the grant

• Development and implementation of a District-wide Capacity Development Plan in consultation with Local Municipalities. This plan must address the outputs as specified.

• Each district to show the allocations for supporting local municipalities, both as transfers or direct expenditure.


2005/8 MTEF Allocation

• Total grant allocation over the period 2005-08 is R600,0 million, allocated yearly as follows:

2005/06 (R200,0 million)

2006/07 (R200,0 million)

2007/08 (R200,0 million)

• Review of the Grant will be undertaken by 2007.


Key Challenges & Future Action

• Late submission of the MSIG Business Plans.

• Poor spending by district municipalities.

• Roll-overs at the end of the financial year.

• Non-compliance with the DORA by some

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Key Challenges & Future Action …

• Lack or little consultative processes with local

municipalities by districts in the compilation of

business plans and in the implementation of

projects.

In response to these challenges, a Programme of

Support to municipalities has been developed and is

being implemented within the context of Project

Consolidate.


5. Municipal Infrastructure Grant (MIG)


MIG - Background• An amount of R5,4 billion in 2005/06 has been allocated

through the MIG for this purpose.

• Total amount over the MTEF period will be approximately R21,19 billion.

• The increased resources will ensure that municipalities are able to plan over the medium term and increase capacity to implement the programmes of government.

• Infrastructure development and maintenance services: water, sanitation, electricity, municipal roads, community halls, sports and recreation facilities and utilizing labour intensive methods of infrastructure development.


MIG – Background …• Purpose of MIG is to supplement municipal capital

budgets to eradicate backlogs in basic municipal infrastructure utilised in providing basic services for the benefit of poor people; and to eradicate the bucket system.

• MIG is a conditional grant directed to Metropolitan, District and selected Local Municipalities.

• Measurable outputs of the grant (examples): Number of new households receiving water and sanitation and

electricity connections Number of additional kilometres roads developed Number of jobs created through the EPWP guidelines Number of households where the bucket system has been

replaced.


MIG - Conditions of the grant

Key conditions include:

• Prioritisation of residential infrastructure

• Adherence to labour intensive construction guidelines

• Finalisation and complete expenditure of previous CMIP and DWAF allocations

• Prioritisation of eradication of the bucket system

• Adherence to reporting requirements.


• Department of Provincial and Local Government (dplg): Administers the MIG and convenes Municipal Infrastructure Task Team meetings.

• Other key Departments:a) Department of Water Affairs and Forestry (DWAF)b) Department of Public Works (DPW)c) Department of Minerals and Energy (DME)d) Department of Transport (DoT)e) Department of Housing (DoH)f) Sport and Recreation South Africa (SRSA).

• Sector Departments and their provincial counter parts retain the policy making and regulatory functions and retain the constitutional role to support municipalities. They also need to provide oversight and monitor sector outcomes.

MIG - Roles and Responsibilities


• Provincial Departments responsible for Local Government:

Ensure that municipal IDPs are vertically integrated with the PGDS & ensure that IDPs give priority to the basic

needs of communities Promote the development of local government capacity Monitor the financial status of municipalities.

• Municipalities are to:

Structure and manage municipal administration, budgeting and planning processes Participate in national and provincial programmes Manage MIG funding for specific projects.

MIG - Provincial and Municipal Roles and Responsibilities


a) Need to improve transitional arrangements b) Effective co-ordination with all key stakeholdersc) Coordination and support roles by provinces to

municipalitiesd) Poor capital investment planning by and poor project

management implementation capacity of municipalitiese) Municipal compliance with DORA and the reporting

mechanismsf) Improve the patterns and quality of:

• Spending;• Project management; and• Visible impact of programmes.

Key Challenges


MIG (2004/5) Transfers & Expenditure as at 28 February 2005

Summary by province

Allocated (R'000)

Transferred to date (R'000)

Transfers as %

allocation

Exp.to date (R'000)

Exp.as % allocation

Exp.as % transferred

Eastern Cape 884,620 773,914 87.5% 515 940 58.3% 66.7%

Free State 313,971 232,295 74.0% 155 010 49.4% 66.7%

Gauteng 699,221 583,765 83.5% 376 509 53.8% 64.5%

KwaZulu Natal 943,017 857,157 90.9% 626 519 66.4% 73.1%

Limpopo 592,423 499,586 84.3% 237 134 40.0% 47.5%

Mpumalanga 276,693 245,280 88.6% 103 461 37.4% 42.2%

Northern Cape 131,800 119,080 90.3% 58 099 44.1% 48.8%

North West 334,865 265,745 79.4% 126 795 37.9% 47.7%

Western Cape 263,334 205,382 78.0% 114 237 43.4% 55.6%

TOTAL 4,439,942 3,782,204 85.2% 2313 704 52% 61.2%


Strategic Objective: To consolidate local government’s capability and impact to achieve sustainable development.

Specific Strategic Milestones (2005-2010)

1. Utilise MIG resources as a contribution towards poverty alleviation and job creation (2013).

2. Build and strengthen the project management capacity of

municipalities (2004-2006).

3. Implement the MIG monitoring system and meet targets

as confirmed in the State of the Nation Address.

Interventions to Address Challenges


Specific Operational Milestones and Tasks – 1. Spending of MIG funds within determined timeframes (2013)2. Transfer funds to additional municipalities in 2005/6 and over the

MTEF period.3. Establish project management units in the municipalities (2004-

2006).4. Build the project management capacity of municipalities (2004-

2006).5. Build the capacity of municipalities to undertake multi-year

infrastructure planning (2004-2007).6. Undertake workshops on administrative processes and procedures

on the municipal infrastructure implementation.7. Implement the MIG monitoring system (2005-2007).

Interventions to Address Challenges


a) Funding to local government has consistently increased since 1994, this is set to continue in future.

b) The intergovernmental fiscal relations system has largely stabilized. The process of ongoing refinement will be enhanced by: Greater certainty provided to municipalities regarding future

allocations; Rationalization of key conditional grants to local government Enactment of principles and provisions as contained in the

Intergovernmental Relations Framework Bill.

“The work to create a new South Africa has begun. That work

will continue during our Second Decade of Freedom.”

Thank you

Conclusion


Tuesday, 8 th March 2005 Cape Town

Documents

Transcript of Tuesday, 8 th March 2005 Cape Town