1. T Pillay (National Treasury)
Intergovernmental
Fiscal Review 2001
Local Government
NCOP
T Pillay (National Treasury)
18 October 2001

2. Background Municipalities have significant fiscal power
Two thirds from user charges business activity
(electricity and water)
One third from tax funded services
(local decisions and discretion)
Direct transfers from national government
Equitable share, CMIP, capacity
(What more does national need to do?)
(Focus on sequenced capacity building?)
Provincial Transfers
(How can provinces support Local government?)
(Can provinces afford to transfer more?)

3. Purpose and evolution
Review of intergovernmental trends to support budget and policy processes
2000 IGFR
made first attempt to cover local government
but data weak or non-existent
2001 IGFR
though information sketchy due to new structures - progress noted
attempts to depict trends and highlight challenges going forward

4. Objective Allows for comparisons and benchmarks
Assists legislatures in understanding different pressures and dynamics at local government
Informs policy-making process
sharing of analysis and dissemination of information
Promotes co-operative governance
Aligning policy, budget, planning processes
Tool for NCOP to strengthen oversight

5. Local Government Chapters
8. Transformation challenges
9. Overview of municipal budgets
10. Transfers to local government
11. Capital investment
Annexure D (trends, budget income and expenditure, levies, employee numbers)

6. Introduction Overview of intergovernmental system
3 distinct, but interdependent spheres
national role largely policy formulation & setting of norms and standards
provinces & local government mainly responsible for implementation
System premised on cooperative governance

7. Local Government Transformation Challenges
amalgamation and establishment of new munis
re-alignment and re-assignment of powers and functions (between cat B and C)
integrating over employees without raising costs
co-ordinating activities of cross border munis
re-prioritisation of service delivery and expansion of infrastructure to service all citizens
introduction and implementation of new legislative environment (Structures Act, Systems Act, MFMB, Prop Rates)

8. Personnel Expenditure
PE case study: real increases over past 10 years (Table 8.2 page 126)
Minimum salary in some metros R4000 pm
Pension variation (Table 8.3)
Up to 35%, with 27% from employer
Shifting of functions involves shifting personnel
risk of significant cost increases without any improvement in service delivery

9. Restructuring/Amalgamation
Shifting functions between district and local munis
What does it mean for effective service delivery and accountability?
Restructuring of services, e.g. Regional Electricity Distributors
How does this affect service quality and equity?
Funding gap and impact on cash flows
Funding implications
Financial effects when moving personnel
What does this do for affordability and sustainability of services?
Impact on tariffs and incidence of taxes
Tshwane case study on page 136

10. Restructuring and Support
Decentralisation or devolution of functions
Is this the right time to devolve functions to munis? e.g. primary health care, water services, public transport
Free basic services
How do we make this possible?
What mechanisms do we use?
How do we allocate subsidies efficiently?
Local Government transformation plan
Support by government
Institutional and fiscal support
Equitable share, Consolidation of grants (infrastructure and capacity)
Reforms
budget reforms, revenue reforms, planning reforms

11. Local Govt Budgets Budgets Reforms required Budget trends
formats, classification, presentation, understandable information, build linkages with planning, etc
Budget trends
overall local budgets now at R 61,8 bn
need to improve on capital and infrastructure spending now at R 13,7 bn
growth in personnel expenditure to 31 % and lack of revenue collection impacts on infrastructure spending
wide differences between municipalities

12. Local Govt Budgets Sources of income Expenditure Property rates 21 %
Utilities (electr, water) 32 %
Intergov transfers 8 %
RSC levies %
Expenditure
Salaries %
Bulk (electr, water) 30 %
Capital charges 13 %
Repairs and Maint 8 %

13. Sample Metro budgets New classification - sector / functions
Electricity %
Water & Sanitation %
Administration ,8 %
Public safety ,5 %
Roads and Stormwater ,3 %
Refuse ,1 %
Need to implement country-wide, develop, improve reporting formats & system

14. Local Govt Transfers National Transfers Proportion of allocation
responsibilities & functions of local gov.
subsidy to assist poor households for basic services
expansion and rehabilitation of infrastructure
skills training and development to assist in service delivery
Proportion of allocation
Equitable share 57 %
Infrastructure 35 %
Capacity %

15. Local Govt Transfers Equitable share (unconditional)
efficacy of usage/local discretion
access to basic services
policy directed towards poor households
overall average ES per household
Smaller category B munis from 2001/02 to 2003/ R 510 to R 611
Metros category A munis from /02 to 2003/04 - R 151 to R 194

16. Capital Capital / Infrastructure grants
R2,7 bn in 2001/02
facilitates expansion of services to all citizens faster (basic services)
improve standards and level of services
provide economic and other infrastructure unlock and stimulate country’s growth potential
upgrade and update infrastructure (township/R293 areas)
Borrowing inability for infrastructure
means higher grants from national and province
less infrastructure funds spread more thinly

17. Capital How do we address service backlogs?
Who will build infrastructure?
Private Public Partnerships
Examples Table 11.1
Municipal borrowing
leveraging of grants and revenue
short term loans - expensive
longer term loans - cheaper
municipal bonds
Stagnant borrowing at R20 bn
Two large players - INCA provides new lending in private sector, DBSA in public sector
How do we attract new money and participants?

18. Conclusions
Efficient and cost effective service delivery to all our citizens
Focus on better targeting equitable share
Focus on infrastructure grant consolidation
Focus on strategic management capacity building initiatives
Enhance and leverage new infrastructure money to address backlogs
Improve reporting and information flows
Continue to deepen and improve budget process
Move toward measuring service delivery indicators

19. THANK YOU!