1. Select Committee on Finance 03 February 2009

2. MIG created out of consolidation of grants
Background
Intended to eliminate fragmentation and enhance municipal ability to coordinate and integrate planning for infrastructure
Flow of the grant enhanced certainty but challenges still remain…
MIG created out of consolidation of grants
Profile of municipalities differ – capacity (technical +financial, migration patterns, drivers of backlogs)
Cities need to balance economic & basic services, new infrastructure with rehabilitation
Capacity in poorly resourced municipalities to support delivery
Another phase of reform of MIG is needed to accelerate backlog eradication and foster improved “real world” impacts through greater integration at the local level

3. Households: Without access to basic services-2007
There are large demographic, economic and infrastructure differences between LGs
Municipal types and share of economic sector
Migration
Households: Without access to basic services-2007 3 3

4. This creates very different investment challenges
For cities: balance needs of poverty reduction, growth and asset replacement in an integrated way
Capital expenditure as a percentage of the total value of buildings completed
Maintenance expenditure by year against expected expenditure
National and municipal capital expenditure in the built environment

7. The challenges are different for rural municipalities
Capacity to design, built and operate services
Sustainable levels of service
Management of subsidies
Expand access in fiscally and operationally sustainable way

8. LGs have very different capacity, grant and expenditure profiles
Most capex occurs in metros
But they receive the least in grants

9. Most city capex is from own revenues
And expenditure performance is good
Though some are better than others

10. A differentiated approach to funding municipal infrastructure is needed to recognise
Support and strengthen healthy and sustainable communities
Focus on real world outcomes, not just projects
Growing urban problem of access to basic services that requires cities to coordinate and integrate investment to achieve built environment outcomes
Need for government to increase capacity to support these municipalities with delivery through new forms of partnership with experts and with communities
Growing rural poverty without access to basic services - funding for rural areas not properly targeted to respond to rural problems 10

11. Proposed allocation mechanism to recognise municipal differences
flow differently in response to their challenges and conditions linked to outcomes associated with the built environment – greater need for integration across sectors and programmes
Infrastructure grants for big cities
Focus on unlocking rural development and capacity challenges
Infrastructure grant for smaller and rural municipalities 11

12. The focus for rural municipalities
Greater role for sectors
Possible ringfencing of water and sanitation funding
Greater rural development bias
Target basic services
Skills partnerships for design, construction and management of infrastructure
Leveraging community capabilities, in managing small scale water schemes, etc
Step up infrastructure delivery capacity 12

13. MIG for intermediate municipalities
Encourages evolution of investment strategy
Regulates projects at the input level
Allows for intensive oversight
Continue current approach that:
Allow high performing municipalities the ability to access more discretionary funding (ie join MIG Cities)
But … 13

14. Focus on outputs and outcomes of entire capital budget, not just grant
MIG for Cities
Support cities to integrate built environment investments
Allow locally appropriate trade-offs between new infrastructure and replacements, growth and poverty reduction
Recognise considerable capacity of large urban LGs :
Capacity to spend and to do so responsibly
Ability to respond to local needs and contexts
Established commitment to poverty reduction
Focus on outputs and outcomes of entire capital budget, not just grant
Beyond arms length “reports” to ongoing strategic engagement with major cities on areas of shared interest through City Budget Forums
Build new partnerships to scale up urban infrastructure investments, within a “real world” performance framework 14

15. Targeted generic outputs and outcomes (1)
Impact area
Outcome
Intermediate output indicator
1. Combating poverty
Universalizing basic services
Number of new households receiving supporting basic municipal services per annum over a three year period, including water and sanitation, solid waste and electricity services and bulk & connector infrastructure.
Job creation
Number of jobs created using expanded public works guidelines for above outputs
Labour intensity of construction process
Investment coordination in the built environment
Number of community and sports facilities developed
No of households benefiting from the infrastructure linked to housing programmes.
Extent of integration of poor people with wealthier communities within the city
Lead times for capital project implementation (declining)
Extent of success of efforts to identify land within strategically located areas for mixed use residential purposes
2. Supporting growth
Reduced supply-side constraints to urban economic growth
Rising capital spending relative to value of private fixed investment
Number of kilometres’ roads developed, by type of road
Increased self-financing of investment
Increased own revenue as source of capital finance

16. Targeted generic outputs and outcomes (2)
Impact area
Outcome
Intermediate output indicator
3. Sustainable
service delivery
Rehabilitating infrastructure
Progressive improvement of good practices in asset management (ie. Asset registers ) reflecting declining asset ages and condition improvements
Sustainable enhancement to expenditure capacity
Declining variance between budgeted and actual capital expenditures, or specific revenue source improvements (debt, tariffs, development charges)
Rising expenditures targeted at maintenance, refurbishment and renewal of infrastructure
Reduction of leakages and network interruptions
4. Accountable governance
Responsiveness to need
Satisfaction survey results, project lead times
Transparency for citizen oversight
Regular reporting, published locally
Good governance
Audit opinion on capital programme (stable or improving, without adverse or disclaimed opinion)

17. Eligibility Conditions
eventually be open to all that can show sustained performance in capital programmes and achievement of developmental outcomes
Initially only largest 21 cities by budget size but opened to all from 20011/12 based on demand
Approach
Tests
Test
Entry Year
Subsequent Years
Expenditure capacity
Expenditure of at least 87% of budgeted capital expenditure as revised in the annual adjustment budget in the previous financial year
Expenditure of at least 92% of budgeted capital expenditure as revised in the annual adjustment budget in the previous financial year
Good governance
No disclaimer or adverse audit opinion for capital expenditures in the previous financial year
No disclaimed, adverse or repeated qualification of audit opinion for capital expenditures in the previous financial year
Partnership
Performance matrix and targets/conditions agreed by not less 3 months of the start of the municipal financial year (i.e. 1 May of the preceding FY)
Evidence of ratification by full council of matrix and performance conditions for the forthcoming year by not less than 2 months before the start of the municipal financial year (i.e. 1 June of the FY
Evidence of ratification by full council of the matrix and performance targets/conditions for the forthcoming year by not less than 2 months before the start of the municipal financial year (i.e. 1 June of the preceding financial year) 17 17

18. MIG for Cities What are we looking for? What will this deliver?
Pro-poor capital budgets (not just MIG)
Strategic investment selection that delivers integrated developmental outcomes
What are we looking for?
Ongoing strategic engagement with major cities
Stronger, more integrated investment pipelines that can deliver at scale
Shorter project lead times
Improved developmental outcomes
What will this deliver? 18

19. Implementation of the differentiated approach to funding
Ensure that no municipality loses as a result of changes
2 separate allocation frameworks
Vertical split of current MIG allocation
Reforms phased in from 1 April 2009, starting with 6 metros
preparing and phasing in to the rest of big cities over 2 years
Phased implementation
Dplg continues administering both MIG windows
Coordination of processes through existing structures: City Budget Forum, Social Cluster etc.
Administration and coordination

20. Policy and implementation arrangements
The way forward
Noted the need to differentiate between different categories of municipalities
Agreed to split municipal infrastructure grant
Large urban and other municipalities from 1 April 2009
Agreed that the focus on large cities be on integrated built environment outcomes
Agreed that the rural focus be on infrastructure that supports rural development and to step up service delivery capacity
Cabinet has
At advanced stage after extensive consultation with national departments and cities
Strong support from cities
Outstanding issues on reporting arrangements being resolved
Policy and implementation arrangements 20