1. NCOP Public hearings: Trends in Intergovernmental Finances Select Committee: Local Government 7/10/2004 Cllr M Mvoko

2. Introduction Trends in Intergovernmental Finances (“TIF”) is a high level review providing information, trends & some comment Assesses financial performance in service delivery across spheres Informs NCOP for its oversight function & on local government matters But important that it considers another view

3. Purpose of Presentation To provide a local government perspective To review certain conclusions To highlight some successes & remaining challenges To propose additional conclusions from available data

4. Sources SALGA input is informed by its policies as well as data from inter alia :  budget week process  analysis of budgets & the report thereon  internal data & input from municipalities  SALGA CA (August 2004)  SALGA National Conference (Sept 2004)

5. Format of Presentation This presentation follows the structure of the TIF, in particular:  The introduction (Key pointers-p 6)  Local government finances (Ch 3)  Some comments on Health (Ch 5), Roads (Ch 8), Housing (Ch 9), Water (Ch 10), Electricity (Ch 11).

6. Key pointers In addition to those set out, SALGA notes the following:  Financial sustainability of municipalities is imperative & is the responsibility of all spheres of government  Municipalities have not yet fully established themselves as constitutional governments by complying with constitutional laws

7. Ch 3-Budgets & Trends Total budget doubled in 8 years:  reflects progress in extending services to all  municipalities remain primarily self funding  operating expenditure is the primary instrument of delivery

8. Budgets & trends (cont.) Location of budgeted expenditure:  6 metros=R50.5 billion (R33 billion in big 3)  278 LMs & DMs=R35 billion  marked difference in per capita expenditure between large urban municipalities & smaller (poor) largely rural municipalities

9. Expenditure trends Operating expenditure:  focus on increasing capital expenditure puts pressure on operating budgets  SALGA analysis suggests consequential operating costs not adequately provided for in many municipalities  under provision for maintenance for last 10 years

10. Expenditure trends (cont.)  “pro-poor” infrastructure provision necessary for development of communities, but operating impact inadequately provided for (equitable share transfers not based on cost of service provision)  cost of service provision greater in more sparsely populated (poor) areas, customers less able to pay

11. Expenditure trends (cont.) Personnel expenditure:  SALGA is the employer representative at centralised bargaining  supports the need to control increase in expenditure  has succeeded with strategy to conclude 3 year wage agreement linked to inflation

12. Expenditure trends (cont.) However, misleading to generalize:  national policy is to use manpower intensive methods  municipal service provision is inherently labour intensive  indicator of 30% essentially a private sector norm-not necessarily applicable to all municipalities in all circumstances

13. Expenditure trends (cont.)  care must be taken to achieve economies without compromising service delivery & national policy  SALGA is implementing a robust strategy on salary bargaining  SALGA supports greater integration of the public sector

14. Expenditure trends (cont.) Capital expenditure:  infrastructure investment in smaller municipalities driven by national policy & availability of funds thru districts  inadequate consideration of operating & maintenance implications at planning stage  development of MIG budget should be accompanied by provision for shortfalls in operating funding in poorer municipalities

15. Revenue trends User charges:  profit on electricity sales a critical component of municipal financial viability  SALGA policy supports EDIR subject to municipal ownership of the EDI & protection of its financial contribution  consequential costs require careful management

16. Revenue trends (cont.)  SALGA budget analysis reveals a pattern of under recovery with other revenue generating services not self sustaining  aggravated by function transfers esp water where post transfer financial support will not bridge gap to sustainability

17. Revenue trends (cont.) Property rates:  implementation challenge of new Act (uniform national strategy for implementation needed)  recovery gap still exists (under subsidization of the indigent home owner, inadequate records, recovery structures, political pressures)

18. Revenue trends (cont.) Intergovernmental transfers  SALGA supports the review of LG Fiscal framework  allocation basis of equitable share & MIG funds should be linked (capital spending has operating consequences which requires to be funded in areas with no prospective income streams)

19. Revenue trends (cont.)  “flat rate” approach not supportable (costs more to install, operate & maintain infrastructure in sparsely populated areas)  households with equivalent income worse off in more rural areas (greater per capita spending in cities, better facilities, higher levels of economic activity)

20. National/Provincial functions Functions referred to as being national or provincial responsibilities (or both) all are delivered within municipal areas & all affect municipal finances in one way or another Responsibility of other spheres to comply with obligations as corporate citizens remains an issue

21. Education Schools in operate in municipalities  provision of services to schools (payment for services, water delivery strategy)  Fields & other (shared) facilities

22. Roads Determination of municipal roads a provincial responsibility Includes many roads which were not a municipal responsibility before 2000 Provinces unable to maintain provincial roads (municipal responsibility by default, affects local economic development)

23. Housing Housing is an integral component of social development, but is a provincial function Many municipalities have assumed responsibility, with financial consequences  provision of bridging finance before transfers  “hidden” development costs (costs of admin, financial & project management)

24. Housing (cont.)  inconsistent approach of SARS branches regarding input VAT on transfers  additional expense to municipalities

25. Water Transfers of water services poses financial challenges  adequacy of provisions for manpower costs  adequacy of provision for operation & maintenance costs  services being transferred with no income base

26. Water (cont.)  adequacy of equitable share transfers to cover irrecoverable costs of basic service provision in largely indigent areas when DWAF transfers cease SALGA & DWAF engaging in robust intergovernmental processes to address, but residual issues may remain

27. Health Certain municipalities subsidise provision of primary health care (metros)-call to continue for at least 3 years Transfer of municipal health services to DMs not implemented  LMs did not budget to continue  call to continue to provide for at least one year

28. Electricity SALGA supports the implementation of EDIR & agrees with the analysis of key issues  Is a highly charged political issue at local level  Implementation at national level seen as an essentially technical issue

29. Electricity (cont.)  SALGA opposes constitutional amendment to achieve objectives  solution is intergovernmental cooperation politically driven at all levels  outcome to be regulated by comprehensive agreements, not legislation  financial interests of municipalities not to be compromised by unilateral deadlines

30. Budgetary challenges Revenue collection:  complex issue, not only about debt collection  SALGA promotes the development of a national strategy Pro-poor policies:  Implementation the responsibility of all spheres

31. Challenges (cont.)  better integration of policies & strategies needed  review of municipal fiscal framework to provide cost-based support of free basic services & the operating consequences of infrastructure provision in largely poor communities

32. Challenges (cont.) Budget & financial management reform  Cannot be considered in isolation from need to fully establish municipalities to be structured, to operate, to manage their finances & fund themselves ITO 5 municipal statutes as opposed to isolated compliance

33. Challenges (cont.)  SALGA has adopted a comprehensive strategy to achieve this Commitment by all spheres to the continued progress of municipal development, early implementation of the IGR Bill & policy, acceptance of the local sphere as an equal partner in government are needed to take us forward