Www.salga.org.za 1 Comments on the 2015 DoRB Select Committee on Appropriations 14 April 2015 1.

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Comments on the 2015 DoRB

Select Committee on Appropriations

14 April 2015

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Introduction

• Chairperson, thanks for the invitation and opportunity to once again come and present to the Select Committee on Appropriations

• We are making this presentation interestingly in a period when there has been so much in the media about the withholding of the Equitable Share (ES) to some municipalities by National Treasury and SALGA’s views on the matter

• We are also meeting just a couple of weeks after SALGA hosted a successful National Members’ Assembly (NMA) from the 23rd to 26th of March at Gallagher Estates in Midrand. The NMA took a number of resolutions which the committee would be interested in pertaining to local government (LG) finances and LG generally

• As an independent voice of organised local government, SALGA does always appreciate and welcome the opportunity to present its views to the committee and on some of the key issues entailed by the 2015/16 budget in particular 2

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SALGA notes and welcomes the 2015 budget proposals as presented by Minister Nene in Parliament on the 25th February 2015

– We note the difficult economic context and the challenges that the budget seeks to address and most of these challenges are acutely felt in the LG space

– Our collective resolve and ability to deal with these challenges would largely mitigate against the desperation that sometimes local government stakeholders feel which at times results and manifest in the form of the so called ‘service delivery protests’

– The budget is therefore not only an instrument to provide for the medium-to-long term developmental trajectory, but also a short term instrument to address the most pressing challenges that people experience

Overview and general assessmentOf DoR 2015

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• As we had previously indicated to this Committee, SALGA did extensively engage with National Treasury, the FFC, DCoG and other stakeholders on matters pertaining to the fiscal state of the country and the budget allocations proposed

• We have during these engagements made inputs pertaining to local government funding, the vertical division of revenue (the equitable share arrangement) and support going to Local Government through conditional grants

• Most pertinently, SALGA participated in the Budget Forum convened by the Minister of Finance on the 29th September 2014 where most issues related to the DoRB were discussed.


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• SALGA is cognizant of the state of our country’s finances, our debt burden, and the competing needs for our limited resources

• We are aware and mindful of the need to strategically leverage the limited resources to drive the NDP and to secure the fundamentals that will put our country on a developmental trajectory and address the trifecta of poverty, unemployment and inequality

• Within this context, we contend however that it is in everyone’s interest to ensure that LG is properly resourced and capacitated to meet her developmental challenges

• Accordingly, in this submission we highlight some pertinent matters that seek to demonstrate our take not just on the DoRB but in working with other spheres to address issues pertinent to LG resourcing


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• SALGA notes that:

• There is no baseline reduction made in the LG Equitable Share though the new formula is still being implemented over the MTEF.

• However, the work on the review of the Equitable Share has to continue so that LG gets a better share of the national fiscus, not the current 9% which falls far short in enabling LG to meet her ever growing challenges

• The inflationary adjustment of the ES also falls short compared to the increase in some of the administered prices such as water and electricity tariffs

• Given the spatial distortions in our economy, the LGES remains the main source in most municipalities to drive the developmental imperatives and meet service obligations to the poor and the indigent

• A more holistic approach to the allocation therefore remains a matter to be addressed so that LG is fully resourced and enabled

Major Changes / Additions in the 2015 DoR

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Basket of Services Adjustments

Amounts per basic service allocated through the Local Government Equitable Share – 2015/16

• The 2014 data is derived from Table W 1.22 DORB 2014 PG 92

• The 2015 data is derived from Table W 1.27 DORB 2015 PG 95

– NERSA provided municipalities with a guideline tariff increase of 12.20 % - therefore the equitable share just about covers the increase 7

Total allocation per service( R millions)

Basic Service 2014 2015 % increase

Energy 6 289,00 7 122,00 13%

Water 9 722,00 10 732,00 10%

Sanitation 7 937,00 8 651,00 9%

Refuse 6 654,00 7 252,00 9%

30 603,00 33 757,00 10%

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• We have, honourable Chairperson, conducted detailed studies on the actual costs of providing electricity, water and sanitation in various municipalities versus what is provided for in the equitable share.

• Indications are that by and large, the LGES falls far shorter of the actual cost:

– The shortfall in the 2014 ES allocation for Electricity was R 3.56 billion, or 62.2 % of the ES, with the calculated cost being R 9.3 billion

– The shortfall in the 2014 ES allocation for Water compared to the calculated cost of R 9.4 billion was R 638 million, or 7.3% of the ES

– The 2014 ES allocation for Sanitation was R 951 million (13 %) more than the calculated cost of R 6.4 billion

• These are matters that we intend taking up with Treasury and the FFC


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• SALGA notes and welcomes the support provided by the budget to the cities through the following measures:

• Modifying the infrastructure grant system by reducing the number of grants, introducing more flexible grant conditions and increasing the certainty of transfers over a longer time period

• Refocusing the Neighbourhood Development Partnership Program to support the development of economic hubs in large urban townships

• Reforming the system of development charges to improve the fairness and transparency, and reduce delays in infrastructure provision for private land developments

• Reviewing the sustainability of existing own-revenue sources for metro municipalities

• Expanding opportunities for private investment in municipal infrastructure through the DBSA increasing its origination of longer term loans

• Project preparation facility provided in partnership with DBSA


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– With all the positives noted above, as SALGA we are still not happy with the less than 10% of the fiscus going to LG compared to other spheres of government

– The as yet unresolved issue of the Human Settlements Development Grant is a matter of concern to us and should remain a matter of on-going discussion between SALGA, NT and the Human Settlements Department

– We will continue pursuing our proposal for an increased fiscal support for small rural municipalities with limited tax base

– We will again endeavour to work with both the Treasury and the FFC in investigating a more workable district revenue generation and funding model

• The issue of state, households and private business indebtedness to municipalities continues to be an albatross to us. Likewise, the issue of indebtedness of municipalities to Eskom and Water Boards does need urgent attention and resolution by all – more in this in a bit


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• As we continue to articulate the need for increased LG funding, we are equally mindful of our responsibility to ensure better management of these resources

– Accordingly, in 2015/16 SALGA will invest more in monitoring the performance and capacitation of municipal oversight structures such as MPAC Committees, Audit Committees and the Internal Audit function

– We will encourage municipalities to strive for value for money and implement the cost saving provisions recommended by Treasury

– Equally, we will continue engaging with NT and DCoG on the matter of unfunded and underfunded mandates as was agreed upon at the Budget Forum

– We do welcome as well the agreed upon arrangement of having two Budget Forums a year, one focussing specifically on LG (possibly around June)

• We intend using this for better engagement , scoping of the issues and collective resolution on matters that will find space in the DoRB in subsequent years.

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– With regards to cities, we note that:– NT will not be funding the transformation of cities’ transport logistics but would rather

assist them in deploying their own resources towards this endeavour

– This goes with the merging of the two transport grants, viz. the public transport operating grant and the public transport infrastructure grant

– This creates a positive possibility of moving funds between these two grants

• As SALGA we will endeavour to ensure that the grant funds more sustainable transport solutions

– The undertaking that NT/DBSA will assist cities to expand their borrowing instruments and assist them in making better use of their own resources

• This goes with the call that cities should make a bigger contribution to their own capital budgets

• We further note that with regard to MIG, municipalities would be henceforth allowed to use a portion of this grant for refurbishment (not maintenance) on condition that they maintain the standard of the asset over time

Assessment of direct and indirect grants

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Successes and challenges

• We note some of the strides in reforming the grants system and we will continue making our inputs in those areas that have not been finalized as yet

• SALGA welcomes the allocation of the Demarcation Transition Grant of R139m to support those municipalities affected by demarcations issues in KZN and GP

– we will lobby for continued support to these areas so that they do not suffer the negative fate experienced by Tshwane

• We will engage with NT and DBSA to ensure that the support intended for cities is well managed and coordinated

• The unresolved issues around the Housing Development Grant and other grants would be a subject of our engagement at the next LG dedicated Budget Forum

• We will continue with our work on the issue of unfunded/underfunded mandates, billing systems, review of funding instruments for district municipalities and municipal debts

• We will also continue working with NT, MISA and other entities in bringing about the requisite capacity in municipalities so as to ensure that they do spend their grant allocations accordingly

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Other Issues – the withholding of the ES by NT

• An email was sent by NT at 6.47pm on Friday 6th March to about 60 municipalities requiring them to comply with certain measures dealing with their debts to Eskom and Water Boards.

– The deadline for this compliance was stated to be the next Friday 13th March failing which NT would withhold the ES allocation due on 22 March

• SALGA wrote to the Minister of Finance on 09 March requesting that this action be held in abeyance until a meeting is held between the Minister and the Chairperson of SALGA to find amicable and sustainable solutions to the matter

– Until to date such a meeting has not been held and a letter of reminder about the request has been sent

– Another letter has also been sent to the President requesting his intervention on the matter before SALGA could formally lodge an IGR dispute

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• On 30 March SALGA was advised by the affected municipalities that they did not get their ES allocation and that they were battling to pay staff salaries, other creditors and to render general services

– A bilateral was held between SALGA and NT officials on 1 April to seek an urgent resolution and get clarity on the matter

– A special SALGA NEC was convened on 02 April to deliberate and resolve on the matter

– Amongst the resolutions taken by the NEC on the matter were the following:

• Seek legal opinion on the constitutionality of the action by NT in collaboration with the FFC

• Advise the affected municipalities to not bind themselves with unsustainable commitments

• Write to the Minister of Finance requesting an urgent meeting; to the President to request his intervention; and to the Deputy President for SALGA to be represented in all structures dealing with the energy crisis issue

• Continue to engage NT and Cogta so that viable and sustainable solutions are found to the management of creditors (not just Eskom and Water Boards) and debtors by municipalities

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• NEC Resolutions continued:

– Caution against the imposition of conditions on the ES and thus making it some sort of a conditional grant

– Acknowledge Eskom as a strategic asset and continue to work with the company based on our MoU

– Urge municipalities not to take independent legal action outside the NEC framework

– Call upon NT to take a balance approach on the matter, e.g. equally demanding of National and Provincial governments to honour their debts to municipalities

– And lastly urge municipalities to take required measures to enforce their debt management policies

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Conclusion

• SALGA notes and welcomes the DoRB 2015/16

– We equally note the ongoing work on finding solutions to local government funding and capacity building

– We are however concerned and disturbed by the knee-jerk action by NT of withholding ES to some municipalities as it undermines the performance of their functions and the delivery of basic services to the poor

• We will continue engaging with related parties in finding long term solutions to the management of municipal budgets, cash flows and revenue streams

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Www.salga.org.za 1 Comments on the 2015 DoRB Select Committee on Appropriations 14 April 2015 1.

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