PRESENTATION FFC: MUNICIPAL VIABILITY COLLOQUIM Proposal to disestablish unviable municipalities 29 MAY 2015  

OUTLINE Background How we defined viability and Sustainability? The assessments of municipalities Section 22 request by Minister Some limitation Conclusion

ESSENTIAL ELEMENTS ON VIABILITY Definition of Municipal Viability: Grow in population and in economic terms Govern and democratically represent the interests of the community Satisfy the responsibilities for administration and services in accord with legislation Provide the services needed at a cost that the residents are willing to pay (i.e. cost effective) Fund services from its financial resources and with support from National Fiscus.

ESSENTIAL ELEMENTS ON VIABILITY Poverty, historical settlement patterns and limited economic potential of the municipal areas are factors beyond the control of communities. The viability debate may create false expectations that the identification of “unviable” municipalities, and their possible disestablishment or re-demarcation would solve the underlying economic reality or historical settlement patterns, while these would remain the same even within new municipal configurations.

ESSENTIAL ELEMENTS ON VIABILITY Internal factors:- performance related factors that can be attributed to leadership and management, and affected by financial and administrative capacity of municipalities External factors:- socio –economic conditions (spatial) and are outside control of municipality can be attributed to apartheid legacy and design policy issues, e.g. Wall to Wall municipalities

ESSENTIAL ELEMENTS ON VIABILITY Areas linked to performance and constituting 5 Priorities for acceleration of B2B : Sound financial management Revenue collection Debt management Good governance Unqualified audit reports The fight against corruption Supply chain management

ESSENTIAL ELEMENTS ON VIABILITY Accelerated service delivery Provision of basic municipal services Sustainable infrastructure development Quality of infrastructure Maintenance of infrastructure ALL THESE WITHSTANDING A DECISION HAD TO BE TAKEN

TAKING LOCAL GOVERNMENT FORWARD Putting people first and engaging with communities Delivering basic services Good governance Sound financial management Building capabilities We understand our tasks to take Local Government forward into the next phase of transformation as follows: Back to Basics: Setting clear benchmarks of performance in our efforts to ensure that all municipalities perform their basic responsibilities, every day, without fail; Responding vigorously to the immediate crises; Understanding and responding to the structural challenges; Continuing to build resilient local government institutions; and Collectively constructing more rigorous systems of intergovernmental relations/ planning and delivery.

SOME ANALYSIS The Back-to-Basics programme analysed municipalities across the country, and concluded that approximately one-third of all municipalities were dysfunctional. To address the challenges being experienced by municipalities around sustainability / viability, a range of options were considered, including direct interventions, strengthening district municipalities, or disestablishing and amalgamating some local municipalities. Four indicators were used to determine the sustainability / viability of municipalities: Economic viability; Tax sustainability; Financial viability; and Dependence on inter- governmental transfers.  

SUSTAINABILITY / VIABILITY INDICATORS Economic Viability: a composite index of economic viability was calculated for all municipalities (using the indicators of: economy; population/households; geographic context), and then these were organised into three groups: 1 was assigned to municipalities scoring highest (over 5%), 2 assigned to those scoring medium (between 3-5% and 3 assigned to those scoring lowest (less than 3%). Tax Sustainability: a composite index of tax base was compiled using the latest SARS information using the total assessed income per municipal area, where a score of 1 was given to municipalities with income over R4 billion per annum, 2 was given to those where assessed income was between R500 million and R4 billion and 3 was assigned to those municipalities with less than R500 million assessed income per annum.

SUSTAINABILITY / VIABILITY INDICATORS Financial viability: a composite index was created using the latest National Treasury report on municipalities in financial distress, where a score of 1 was assigned to those who have no recent record of financial distress, 2 to those who have had persistent financial distress of 1-2 years and 3 assigned to those which have persistent financial distress of 3 or more years; Dependence on intergovernmental transfers (IT): an analysis was undertaken of the degree to which municipalities are dependent on intergovernmental transfers, with a score of 1 for those least dependent with less than 40% of municipal income from IT, 2 given to those municipalities receiving 40-75% of their funds from intergovernmental transfers and 3 assigned to those who are most dependent in intergovernmental transfers receiving over 75% of their income from those sources.

Assessment of Municipalities: Functionality; Sustainability / Viability

Assessment of Municipalities: Functionality; Sustainability / Viability

Assessment of Municipalities: Functionality; Sustainability / Viability

SECTION 22(2) REQUEST MADE BY THE MINISTER After having consulted all MECs responsible for local government in the provinces, the Ministry for Cooperative Governance and Traditional Affairs requested the Municipal Demarcation Board (“the Board”) in terms of section 22(2) of the Municipal Demarcation Act, – for the Board to determine / re-determine the boundaries of various municipalities based on the above assessments that were conducted by the Department of Cooperative Governance. Further proposals were made by the Minister to the MDB between January and May 2015. There were 26 specific requests in respect of 8 provinces, with a total of 80 municipalities affected. There were also another 15 municipalities in the KwaZulu-Natal Province where the request to the MDB required adjustments to municipal boundaries to align traditional rural communities. The MDB resolved to consider 54 of the 80 affected municipalities.

LIMITATION OF THE REQUEST Financial implication of mergers not costed MTEF allocation had only considered the approved mergers identified in KZN and GP before the MDP process ended-but also not enough Impact of the mergers on viability of others No study made on other measures that may be employed to move those municipalities that were found to be unviable to be viable

Whilst awaiting the decision of the MDB CONCLUSION Whilst awaiting the decision of the MDB Continue to engage on the issue of viability and whether amalgamation is an answer Economic development options at local areas may be the answer to issues of viability Growing narrative relating to matters of revenue effort: Optimal utilization of current revenue instruments Collection rate Culture of payment Other policy questions Wall to wall municipalities Study on the cost of providing a service vs employment patterns at the local level