1. Local Government Budgets and Expenditure Review, 2011 Strengthening governance to improve service delivery National Treasury, 14 September 2011

2. Why a Local Government Budgets and Expenditure Review? 2

3. Data issues 3

4. Outline of presentation 4

5. Local government faces ongoing challenges 5 Percentage of population in urban areas and growth in urban population Gross value added per capita by type of municipality, 2009 Trust in government institutions, 2004 to 2009

6. There is considerable pressure for infrastructure investment and improved service delivery 6 Proxies of poverty by municipal location, 2007 Households without access to basic services, 2007 Nominal value of building plans passed and completed vs local government capital expenditure, 1998 – 2009

7. National government continues to provide significant support to local government 7 Transfers by type, 2006/07 - 2012/13

8. … and municipal challenges remain … 8

9. The 2011 LGBER offers both new and updated analysis of key issues 9

10. Key issues identified… 10

11. Potential policy responses include … 11

12. Outline of presentation 12

13. Summary of chapters 13

14. There are significant differences between municipalities 14 Average household size by type of municipality, 2001 and 2007 The Census in October 2011 is critical to updating this information Share of economic sector by type of municipality, 2009 Chapter 2 Socio-economic and fiscal context of local government

15. This requires municipalities to respond differently to their specific contexts 15 Growth by economic sector, 2006 and 2009 Proxies of poverty by type of municipality, 2007 All municipalities need to be aware of the poverty and unemployment within their jurisdictions, so they develop appropriate service delivery strategies, indigent policies and revenue strategies. Municipalities need to be aware of how the sectors of the economy represented within their areas are performing – and then tailor their spatial plans and IDPs to provide appropriate support Chapter 2 Socio-economic and fiscal context of local government

16. … while also responding to the opportunities created by national fiscal policy 16 Transfers to local government, 2006/07 – 2012/13 Transfers to LG grow by 10.4% between 2010/11 and 2013/14, compared to 7.6% for total government spending Chapter 2 Socio-economic and fiscal context of local government

17. …and learning to do things better 17 Service delivery protests, 2004 to 2010 Disputes with ratepayers in 42 towns – paying funds into trust accounts Chapter 2 Socio-economic and fiscal context of local government

18. Local government has very specific service delivery responsibilities 18 Water (potable) Electricity reticulation Sanitation Refuse removal Cemeteries Fire fighting Municipal health services Municipal planning Municipal roads Storm water Traffic and parking Building regulations Municipal public transport Chapter 3 Intergovernmental relations and the local government fiscal framework

19. Municipal own revenues Transfers and Grants Direct transfers That the WHOLE local government fiscal framework is designed to finance municipalities 19 Municipal operating budget Municipal capital budget Equitable share & RSC levy replacement grant National / provincial operating grants Operating revenues Rates and taxes Sources of capital funding Service charges Municipal borrowing National / provincial infrastructure grants Surplus / cash- backed reserves Chapter 3 Intergovernmental relations and the local government fiscal framework Indirect transfers

20. At the heart of local government is managing finances to deliver services 20

21. Summary of chapters 21

22. Municipalities are important economic actors 22 Chapter 4 Revenue and expenditure trends in local government

23. They manage a significant portion of the public budget 23 Chapter 4 Revenue and expenditure trends in local government

24. Municipalities continue to face important fiscal challenges 24 Chapter 4 Revenue and expenditure trends in local government Municipal own contribution to capital expenditure, 2006 to 2012 Municipal own contributions are now less than 50% of total capital spending

25. MFMA aims to ensure alignment in the municipal accountability cycle 25 Chapter 5 Financial management and MFMA implementation

26. Management is improving in response to financial management reform programme 26 Improving audit outcomes, off a low base More timely budget preparation Audit opinions for all municipalities, 2006/07- 2009/10 Municipalities that tabled and approved budgets on time, 2005/06- 2010/11 Chapter 5 Financial management and MFMA implementation

27. Concerns with the quality of budgeting… 27 Only 123 municipalities had budgets that were adequately funded Chapter 5 Financial management and MFMA implementation Funding compliance of municipalities’ approved 2010/11 budgets

28. Scope exists to improve access to private finance 28 Rehabilitating existing infrastructure is a priority INCA (a major private lender) has withdrawn from the municipal market Municipal infrastructure investment requirement, 2009 Trends in the municipal borrowing market Chapter 6 Leveraging private finance

29. Various sources of private finance are available 29 Chapter 6 Leveraging private finance

30. Scope exists to further develop private finance opportunities 30 Chapter 6 Leveraging private finance

31. Staff are a major municipal asset 31 Average cost per employee, 2006 and 2009 Wage agreements from 2006 to 2009 provide for a cumulative basic increase of 35.73% Chapter 7 Managing Municipal Personnel

32. Personnel policies require careful management 32 Percentage of positions vacant in key sectors, 2009 Vacant posts for section 57 managers, 2006 and 2009 Chapter 7 Managing Municipal Personnel

33. Value for money from personnel spending depends on better performance management 33 Chapter 7 Managing Municipal Personnel

34. Summary of chapters 34

35. Water services have seen significant growth in access and expenditures 35 Households receiving free basic water and sanitation Chapter 8 Water and Sanitation

36. … but sector faces important challenges 36 Chapter 8 Water and Sanitation

37. Similar trends are evident in electricity distribution 37 Consumer units access to electricity and free basic electricity Chapter 9 Electricity

38. …. but challenges are not confined to electricity generation 38 Chapter 9 Electricity

39. Municipal roads are coming under increasing pressure 39 State of paved and gravel roads, 2010 Chapter 10 Roads

40. Investments in roads increased before the World Cup, but have not been sustained 40 Chapter 10 Roads Jo’burg has budgeted to spend R2.6bn over MTREF, which is less than NMB and Cape Town Roads are essential for economic activity

41. There is expanding access to solid waste services … 41 Access to refuse removal services Chapter 11 Solid waste services 1.7m more households getting refuse services

42. … but need to take advantage of opportunities in the sector 42 Chapter 11 Solid waste services

43. Summary of chapters 43

44. Rural municipalities face particular challenges… 44 Chapter 12 Delivering municipal services in rural areas Human settlements characteristics: B3 – 52% in towns, 29% farms, 10% tribal land B4 – 7% in towns, 7% farms, 83% tribal land Share of GVA

45. Which requires rural development efforts to be strengthened 45 Chapter 12 Delivering municipal services in rural areas Distribution of service delivery backlogs, 2007 Extending and sustaining access to basic services: Agree with communities on the use of appropriate technologies Innovation in the deployment of appropriate technologies Addressing technical skills and leveraging local capacity

46. And appropriate financing for rural municipalities 46 Chapter 12 Delivering municipal services in rural areas GVA vs municipal own revenue, 2008/09 Small town municipalities 8.9% of GVA 6.8% of own revenue Mostly rural municipalities 5.6% of GVA 1.9% of own revenue

47. Cities face particular challenges… 47 Chapter 13 Cities and the management of the built environment

48. Which expenditure on the built environment seeks to address 48 Chapter 13 Cities and the management of the built environment Expenditure on housing and housing delivery, 2005- 2009 Lack of certainty in funding limits cities’ ability to plan and co-ordinate development In 2009/10: Metros - R1.2bn Secondary cities – R250m

49. And which is also being addressed through policy 49 Chapter 13 Cities and the management of the built environment

50. Outline of presentation 50

51. Uses of this Review 51

52. Thank you 52