Presentation to the Select Committee on DIVISION OF REVENUE BILL

1. Presentation to the Select Committee on DIVISION OF REVENUE BILL 24 February 2010

2. Overview • DPW deals with 4 Grants in terms of DOR Bill: • Devolution of Property Rate Funds Grant • Progress to Date • Challenges & possible interventions • EPWP Incentive Grant to Provinces (Infrastr) • EPWP Incentive Grant to Municipalities (Infrastr) • Performance of Existing Grants • EPWP Grant for the Social Sector • Way Forward

3. Devolution of Property Rates Funds Grant

4. Background • The devolution of property rate funds was introduced in the current financial year, 2008/09 with the main purpose of: Facilitating the transfer of property rates expenditure responsibility to provinces; and enable provincial accounting officers to be fully accountable for their expenditure and payment of provincial property rates.

5. Progress to Date - Devolution of Property Rates

6. Roll over made by Treasury to Provinces

7. Conditional Grants - MTEF

8. EPWP Infrastructure Incentive for the 2010/11 financial year

9. Goal of EPWP Phase II To create 2 million Full Time Equivalent (FTE) work opportunities for poor and unemployed people in South Africa so as to contribute to halving unemployment by 2014, through the delivery of public and community services. (Announced: Scale up from 210 000 FTEs in Y1 to 610 000 FTEs in Y5; Equivalent 4,5 million work 100-day work opportunities in 5 years; (EPWP Aim: 684 800 FTEs in Y5 and 4,9 million WOs in 5 years) (EPWP Phase I Performance: in the context of 1.67 million WOs created in Phase I over 5 years; of which Infrastructure created 60% or 1,011 million WOs) 9

10. Phase II Targets per sector & per year WORK OPPORTUNITY TARGETS FULL TIME EQUIVALENT TARGETS 10

11. Phase II Targets per sphere & per year WORK OPPORTUNITY TARGETS FULL TIME EQUIVALENT TARGETS 11

12. 1.0 Introduction to the EPWP Incentive Grant • EPWP Phase I had a specific stipulation attached to MIG and IGP to implement infrastructure projects using “labour intensive methods”; but it was found that the follow through on EPWP guidelines was uneven • EPWP Incentive Grant was introduced in EPWP Phase II to: • Reinforce and reward public bodies that actually implement labour intensive methods and utilise their existing infrastructure allocations effectively to increase the labour content of infrastructure delivery • ‘Encourage’ public bodies meet their targets or hold them accountable • Rapidly expand job creation 12

13. 2.0 EPWP Incentive Grant: how it works • Eligibility: In order for public bodies to be eligible for the incentive grant, must meet 2 sets of criteria: • 1. To be eligible for the grant, public bodies must have reported on EPWP performance to DPW in a prior financial year: • When proposing grant allocations in July every year, for the next financial year, reported data for the previous financial year should be available • 2. Meet minimum job creation targets – called a threshold • How do we determine the threshold? • Incentive grant is pegged onto the core funding streams for the infrastructure sector – MIG & IGP to be used in line with job creation objectives. Decision to peg the incentive grant to IGP and MIG was convenient because: • MIG & IGP already had agreed principles, transparent funding norms, known reporting mechanisms (incorporated EPWP outputs), and admin funding from that grant • MIG & IGP have important formula characteristics that we intended to enhance • Built in backlogs in infrastructure – exposes need & potential to employ more people (more work) • Poverty – potential to reach the poorest of the poor • Aligned to the share of the unemployed 13

14. 2.0 EPWP Incentive Grant: how it works cont’d • Eligibility: • How do we determine the threshold? • We determine the number of FTEs per Rand million of the (MIG/IGP) budget that should usually be created in the delivery of infrastructure projects – known as the FTE factor. • The FTE factor (shown in the table below) is the minimum number of FTEs to be created per Rand million of the infrastructure conditional grant budget. • FTE factor x Infrastructure Grant Allocation = Minimum Performance Threshold If EPWP performance in the prior determined year is: = or > Minimum Threshold; public body is eligible < Minimum Threshold; public body is not eligible • All reporting rural municipalities are eligible because they have a zero threshold. Where urban municipalities or provinces are not eligible, a nominal incentive amount is allocated. 14

15. EPWP Incentive Grant: how it works • Eligibility: • How do we determine the threshold (setting the bottom bar)? • We determine the number of FTEs per Rand million of the (MIG/IGP) budget that should usually be created in the delivery of infrastructure projects – known as an FTE factor. • This FTE factor (shown in the table below) is the minimum number of FTEs to be created per Rand million of the infrastructure conditional grant budget. • We then apply the FTE factor to a public body’s Infrastructure Grant Allocation to determine the Minimum Performance Threshold If EPWP performance in the prior determined year is: = or > Minimum Threshold; public body is eligible < Minimum Threshold; public body is not eligible • Setting performance targets (setting the upper bar) is a two step process: • Set a base target which is determined by applying a targeted FTE factor to the infrastructure grant budget – to determine what job target a public body could ideally reach • We then adjust this based on past performance 15

16. EPWP Incentive Grant: how it works • The Full Incentive Amount (for a full year) is calculated as follows: • The EPWP incentive is based on paying R50 per person day of work created above their set minimum threshold. This amounts to an incentive of R11 500 per FTE. • Incentive Allocation = (Performance Targets public body - minimum performance threshold public body) x Rx per person day of work x 230 days • For provinces • For 2009/10, the EPWP Incentive Grant DORA amount = 75% X Full incentive amount, because only 3 payouts fall into the current financial year. Q4’s payment will always fall into the next financial year. • For 2010/11, the EPWP Incentive Grant DORA amount = 75% X Full incentive amount for 2010/11 plus the Q4 allocation for 2009/10 which is only payable on 15 May 2010. Q4 allocation for 2010/11 is only payable 15 May 2011. • Where a public body’s allocation works out to be less than the nominal amount, it is adjusted upwards to the nominal amount; and the target is the equivalent no. of FTEs. • Every public body’s performance target, threshold and incentive allocation will be published in the DORA 16

17. EPWP Incentive Grant: how it works To secure participation in the incentive grant, eligible public bodies must enter into an agreement with DPW to agree to comply with the rules, conditions and obligations related to the incentive grant. Incentive Agreements: The agreement specifies: Performance Targets to be met by the public body The minimum threshold; and The incentive allocation that can be claimed for (net) EPWP work created Reporting, verification and audit requirements Reporting and disbursement process To actually receive the incentive grant, eligible public bodies must report on EPWP performance quarterly. Reporting Each public body must submit ‘signed off’ progress reports and provide the TA with the data For 2009/10, reports were due on the MIS by 7 days after the end of every quarter For 2010/11, reports will be due on the MIS by 20 days after the end of every quarter 17

18. EPWP Incentive Grant: how it works Basis for measuring EPWP performance & payment While performance targets and indicative incentive amounts are set for each eligible public body, they will only be able to claim the incentive upon reporting that work has been created The EPWP incentive is based on paying all public bodies that create work for the EPWP target group above a minimum threshold An incentive of R50 per person day of work created is paid The performance target and threshold is divided into quarters; and net performance is measured and paid for quarterly Public Works goes through a process of data validation; and confirms performance and the incentive amount qualified. Disbursement DPW Sends out a disbursement letter to provincial treasuries and departments indicating the specific amount to be disbursed to the public body based on verified performance. In 2009/10, this would go out 30 days after the end of the quarter For 2010/11, this letter and disbursement will go out 45 days after the end of the quarter 18

19. Key Process Points: View for Public Bodies

20. Disbursement Flow: Provincial Departments DPW Treasuries Provincial dept

21. 2010 Changes to the Incentive Grant (Provinces) • Inclusion of low cost housing projects funded through the Department of Human Settlements in the incentive: • All reporting Human Settlement departments were evaluated for eligibility (meeting the threshold) – none met the threshold and were therefore all given a nominal incentive allocation • This at least gives these reporting departments access to the incentive should they meet the threshold during the year • There will be discussions with provincial Human Settlement departments regarding • Date required to confirm a reliable FTE factor and threshold for Human Settlement to be able to calculate incentive allocations and FTE targets • Which projects will be eligible to be reported and which not • Updated FTE factors per portfolio, especially because of the restructuring in provinces and the new combinations of portfolios • Changed the performance growth % adjusted in line with MIG/IGP growth rates • If Past performance> Base Target then: Performance Target = Past Performance + 25% • If Past performance< Base Target then: Performance Target = Past Performance + 50% • This allows for a much higher ceiling (higher allocations) and the ability to access more funds 21

22. Incentive Grant for Provinces - Comparison • Key Characteristics of the Grant & the changes between 2009/10 and 2010/11 22

23. 2010 MTEF Allocations - Infrastructure Provinces • Overall performance improved, btw 2007/08 and 2008/09; but 3 provinces had noticeable declines in performance • Provincial roads depts are the largest contributors in all the provinces and all receive the largest share of the IGP, although this varies between 80.7% in EC to 42.5% in KZN. Based on 2008/09 performance, FS; LP & NW Transport are all well below average performance levels, but NC Transport just misses being eligible. 23

24. Calculating the Incentive Allocation for 2010/11 • The Full Incentive Amount (for a full year) is calculated as follows: • For provinces • The EPWP incentive is based on paying R50 per person day of work created above their set minimum threshold. This amounts to an incentive of R11 500 per FTE. • Incentive Allocation = (Performance Targets public body - minimum performance threshold public body) x R50 per day x 230 days (or R11500 per FTE) • For 2010/11, the EPWP Incentive Grant DORA amount = 25% X Full incentive amount for 2009/10 + 75% X Full Incentive amount for 2010/11. • Q4’s payment will always fall into the next financial year. • Example – KZN. Refer to DORA Gazette Sheet 24

25. Disbursement Flow: Municipalities • Disbursement • DPW Sends out a disbursement letter to municipalities indicating the specific amount to be disbursed to the public body based on verified performance. • In 2009/10, this would go out 30 days after the end of the quarter • For 2010/11, this letter and disbursement will go out 45 days after the end of the quarter DPW Municipality

26. EPWP Incentive Grant Allocation EG. • 2010_infrastructure_model171109(version_8).xls 26

27. Calculating the Quarterly Incentive amount earned on Incentive Grant Quarter 1 – Municipal financial year Quarter 2 27

28. 2010 Changes to the Incentive Grant (Municipalities) • Shorten the period between reporting and eligibility to access the incentive • Maintain a full previous financial year for calculating a full incentive allocation i.e. full 2008/09 performance will determine the 2010 incentive allocation • To capture newly reporting municipalities, implement an “extended Late eligibility period” (15 April to 15 October) for munis reporting in the current year to be eligible for the next year; and allocate these munis a nominal allocation. • This allows access to incentive; while performance will still dictate the size of the disbursement. • Increasing the incentive amount for rural municipalities from R50 to R60 per person day of work • In Feb, due to a small further allocation by Treasury, we were also able to increase the nominal (and minimum) amount allocated • For rural munis, those newly eligible and those who did not meet the threshold will be allocated a nominal allocation of R1.16 million for the year • For urban munis, those newly eligible and those who did not meet the threshold will be allocated a nominal allocation of R2.2 million for the year • 3. Changed the performance growth % adjusted in line with MIG/IGP growth rates • If Past performance> Base Target then: Performance Target = Past Performance + 25% • If Past performance< Base Target then: Performance Target = Past Performance + 50% • This allows for a much higher ceiling (higher allocations) and the ability to access more funds 28

29. Incentive Grant for Municipalities - Comparison • Key Characteristics of the Grant & the changes between 2009/10 and 2010/11 29

30. 2010 MTEF Allocations - Infrastructure 30 Municipalities • 2009/10 Allocation of R202m is only 2 disbursements in the national financial year VS • 2010/11 Allocation of R421m for the same period in the national financial year • 120 municipalities will be eligible to receive the incentive grant in 2010/11 and another 6 will be receiving just the Q3&4 payment carried over from 2009/10 VS the 68 municipalities eligible in 2009/10, great improvement in the no. of munis reporting • Of the 120 municipalities eligible in 2010/11, 66 municipalities receive a nominal allocation for 2010/11 (just over half).

31. Municipal Incentive Grant Allocations 31

32. Performance on the EPWP incentive grant by Provinces after 3rd Quarter 09/10 financial year

33. Performance on the EPWP incentive grant by municipalities after 3rd Quarter 09/10 financial year

34. Performance on the EPWP infrastructure Incentive as of 25th of Jan 2010 • 5 Provincial Departments will incentive payments totaling R 57,275 million considering 3rd quarter payment reports. Total payment to Provincial departments considering • payments in previous quarters is R120.2 million out of an allocation of R 151.4 million (79% of Provincial allocation). • 47 of the 68 eligible municipalities will receive their incentive payment of R 78.6 million considering the 3rd quarter report of the 09/10 financial year. Total incentive payment to municipalities after the 3rd quarter is R 114.17 million out an allocation of R 201.7 million ( 57% of Municipal allocation). • Total incentive payment to Provincial Departments and Municipalities for the 09/10 financial year will be R 234.4 million out of a total allocation of R 352.1 million (67%) for the 09/10 financial year.

35. EPWP Grant to Social Sector for the 2010/11 financial year

36. Social Sector Grant • This is an innovation to be implemented in 2010/11 • Should assist greatly to ensure that HCBC volunteers are paid – not currently getting stipends • Based on past performance in 2008/09 • 2010/11 – R56.6m • Once-off payment by June 2010 • To be paid upfront to depts published in DORA

37. Way Forward • Public bodies ( Provincial Departments and Municipalities) to be briefied about the 2010/ 11 EPWP incentive framework requirements. • Incentive agreements to be signed with Eligible Public bodies for the 10/11 financial year. • Continued Technical Support to be given to Public bodies to report on EPWP in the 10/11 financial year so that more Public bodies can be eligible for the incentive.

38. We thank you