NCOP Public hearings: Trends in Intergovernmental Finances

1. NCOP Public hearings:Trends in Intergovernmental Finances Select Committee: Local Government 7/10/2004 Cllr M Mvoko

2. Introduction • Trends in Intergovernmental Finances (“TIF”) is a high level review providing information, trends & some comment • Assesses financial performance in service delivery across spheres • Informs NCOP for its oversight function & on local government matters • But important that it considers another view

3. Purpose of Presentation • To provide a local government perspective • To review certain conclusions • To highlight some successes & remaining challenges • To propose additional conclusions from available data

4. Sources • SALGA input is informed by its policies as well as data from inter alia : • budget week process • analysis of budgets & the report thereon • internal data & input from municipalities • SALGA CA (August 2004) • SALGA National Conference (Sept 2004)

5. Format of Presentation • This presentation follows the structure of the TIF, in particular: • The introduction (Key pointers-p 6) • Local government finances (Ch 3) • Some comments on Health (Ch 5), Roads (Ch 8), Housing (Ch 9), Water (Ch 10), Electricity (Ch 11).

6. Key pointers • In addition to those set out, SALGA notes the following: • Financial sustainability of municipalities is imperative & is the responsibility of all spheres of government • Municipalities have not yet fully established themselves as constitutional governments by complying with constitutional laws

7. Ch 3-Budgets & Trends • Total budget doubled in 8 years: • reflects progress in extending services to all • municipalities remain primarily self funding • operating expenditure is the primary instrument of delivery

8. Budgets & trends (cont.) • Location of budgeted expenditure: • 6 metros=R50.5 billion (R33 billion in big 3) • 278 LMs & DMs=R35 billion • marked difference in per capita expenditure between large urban municipalities & smaller (poor) largely rural municipalities

9. Expenditure trends • Operating expenditure: • focus on increasing capital expenditure puts pressure on operating budgets • SALGA analysis suggests consequential operating costs not adequately provided for in many municipalities • under provision for maintenance for last 10 years

10. Expenditure trends (cont.) • “pro-poor” infrastructure provision necessary for development of communities, but operating impact inadequately provided for (equitable share transfers not based on cost of service provision) • cost of service provision greater in more sparsely populated (poor) areas, customers less able to pay

11. Expenditure trends (cont.) • Personnel expenditure: • SALGA is the employer representative at centralised bargaining • supports the need to control increase in expenditure • has succeeded with strategy to conclude 3 year wage agreement linked to inflation

12. Expenditure trends (cont.) • However, misleading to generalize: • national policy is to use manpower intensive methods • municipal service provision is inherently labour intensive • indicator of 30% essentially a private sector norm-not necessarily applicable to all municipalities in all circumstances

13. Expenditure trends (cont.) • care must be taken to achieve economies without compromising service delivery & national policy • SALGA is implementing a robust strategy on salary bargaining • SALGA supports greater integration of the public sector

14. Expenditure trends (cont.) • Capital expenditure: • infrastructure investment in smaller municipalities driven by national policy & availability of funds thru districts • inadequate consideration of operating & maintenance implications at planning stage • development of MIG budget should be accompanied by provision for shortfalls in operating funding in poorer municipalities

15. Revenue trends • User charges: • profit on electricity sales a critical component of municipal financial viability • SALGA policy supports EDIR subject to municipal ownership of the EDI & protection of its financial contribution • consequential costs require careful management

16. Revenue trends (cont.) • SALGA budget analysis reveals a pattern of under recovery with other revenue generating services not self sustaining • aggravated by function transfers esp water where post transfer financial support will not bridge gap to sustainability

17. Revenue trends (cont.) • Property rates: • implementation challenge of new Act (uniform national strategy for implementation needed) • recovery gap still exists (under subsidization of the indigent home owner, inadequate records, recovery structures, political pressures)

18. Revenue trends (cont.) • Intergovernmental transfers • SALGA supports the review of LG Fiscal framework • allocation basis of equitable share & MIG funds should be linked (capital spending has operating consequences which requires to be funded in areas with no prospective income streams)

19. Revenue trends (cont.) • “flat rate” approach not supportable (costs more to install, operate & maintain infrastructure in sparsely populated areas) • households with equivalent income worse off in more rural areas (greater per capita spending in cities, better facilities, higher levels of economic activity)

20. National/Provincial functions • Functions referred to as being national or provincial responsibilities (or both) all are delivered within municipal areas & all affect municipal finances in one way or another • Responsibility of other spheres to comply with obligations as corporate citizens remains an issue

21. Education • Schools in operate in municipalities • provision of services to schools (payment for services, water delivery strategy) • Fields & other (shared) facilities

22. Roads • Determination of municipal roads a provincial responsibility • Includes many roads which were not a municipal responsibility before 2000 • Provinces unable to maintain provincial roads (municipal responsibility by default, affects local economic development)

23. Housing • Housing is an integral component of social development, but is a provincial function • Many municipalities have assumed responsibility, with financial consequences • provision of bridging finance before transfers • “hidden” development costs (costs of admin, financial & project management)

24. Housing (cont.) • inconsistent approach of SARS branches regarding input VAT on transfers • additional expense to municipalities

25. Water • Transfers of water services poses financial challenges • adequacy of provisions for manpower costs • adequacy of provision for operation & maintenance costs • services being transferred with no income base

26. Water (cont.) • adequacy of equitable share transfers to cover irrecoverable costs of basic service provision in largely indigent areas when DWAF transfers cease • SALGA & DWAF engaging in robust intergovernmental processes to address, but residual issues may remain

27. Health • Certain municipalities subsidise provision of primary health care (metros)-call to continue for at least 3 years • Transfer of municipal health services to DMs not implemented • LMs did not budget to continue • call to continue to provide for at least one year

28. Electricity • SALGA supports the implementation of EDIR & agrees with the analysis of key issues • Is a highly charged political issue at local level • Implementation at national level seen as an essentially technical issue

29. Electricity (cont.) • SALGA opposes constitutional amendment to achieve objectives • solution is intergovernmental cooperation politically driven at all levels • outcome to be regulated by comprehensive agreements, not legislation • financial interests of municipalities not to be compromised by unilateral deadlines

30. Budgetary challenges • Revenue collection: • complex issue, not only about debt collection • SALGA promotes the development of a national strategy • Pro-poor policies: • Implementation the responsibility of all spheres

31. Challenges (cont.) • better integration of policies & strategies needed • review of municipal fiscal framework to provide cost-based support of free basic services & the operating consequences of infrastructure provision in largely poor communities

32. Challenges (cont.) • Budget & financial management reform • Cannot be considered in isolation from need to fully establish municipalities to be structured, to operate, to manage their finances & fund themselves ITO 5 municipal statutes as opposed to isolated compliance

33. Challenges (cont.) • SALGA has adopted a comprehensive strategy to achieve this • Commitment by all spheres to the continued progress of municipal development, early implementation of the IGR Bill & policy, acceptance of the local sphere as an equal partner in government are needed to take us forward