Local Government Week: Briefing On Local Government Recommendations

1. Local Government Week:Briefing On Local Government Recommendations For an Equitable Sharing of National Revenue 2 August 2012

2. Local Government Issues Briefing on Recommendations Relating to Local Government • Inadequate service delivery • Backlogs • Under-spending, poor planning • Inadequate human, organisational or institutional capacity • Inadequate repair maintenance • Poverty, unemployment • Governance challenges • Recent Events • Ongoing Local Equitable Share Formula Review of LES formula • FFC public hearings on sustaining municipal finance

3. LGES Recommendations Briefing on Recommendations Relating to Local Government

4. LGES Recommendations Briefing on Recommendations Relating to Local Government

5. Rural Development and Unfunded Mandates Briefing on Recommendations Relating to Local Government

6. Financial Management Issues (Revenue Enhancement, Municipal Debt, Oversight) Briefing on Recommendations Relating to Local Government

7. Financial Management Issues (Revenue Enhancement, Municipal Debt, Oversight) Briefing on Recommendations Relating to Local Government

8. Financial Management Issues (Revenue Enhancement, Municipal Debt, Oversight) Briefing on Recommendations Relating to Local Government

9. Financial Management Issues (Revenue Enhancement, Municipal Debt, Oversight) NCOP:LOCAL GOVERNMENT WEEK 31 JULY TO 3 AUGUST 2012

10. Environment (Climate Change and Disaster Management) Briefing on Recommendations Relating to Local Government

11. Housing and Land Use Briefing on Recommendations Relating to Local Government

12. Infrastructure/Repairs and Maintenance Briefing on Recommendations Relating to Local Government

13. Capacity Building Initiatives Briefing on Recommendations Relating to Local Government

14. Data Issues Briefing on Recommendations Relating to Local Government

15. Progress on the Review of the LES Formula Briefing on Recommendations Relating to Local Government • Task team established to review LES formula • National Treasury • DCoG • SALGA • FFC Secretariat • StatsSA • Revised principles and objectives of formula • Compiled two discussion documents for comments • Principles more focused and objectives more tangible • Opportunity given to all municipalities to comment on process and discussion documents

16. Progress on the Review of the LES Formula Briefing on Recommendations Relating to Local Government • All written municipal comments received in June • Team currently working on new formula based on principles, objectives and municipal/stakeholder input • Proposed new formula to be taken to department and organisation heads by end August • Consultation on proposed new formula to be undertaken with municipalities and other stakeholders in September • Final proposed formula will be presented at Budget Forum in October

17. LGES-General Comment Briefing on Recommendations Relating to Local Government The LGES review suggested by government has only focussed on the formula What is needed is a broad review of the Local Government Equitable Share or the entire Local Government Fiscal Framework The FFC through the Public hearings is in the process of doing this and will advise Government on this when work is complete

18. FFC Public Hearings on Sustaining Municipal Finance Briefing on Recommendations Relating to Local Government • FFC undertook a set of public hearings to understand and propose options for the problems inherent in Local Government Fiscal Framework • Two sets of public hearings took place • First public hearing identified the problem statement and issues hindering sustainable financing of LG • Second public hearing provided a set of options for problem statement identified • Input from process driven largely by stakeholder perspectives • Identified issues from various stakeholders in LG

19. Emerging Consensus: Differentiation and Demarcation Briefing on Recommendations Relating to Local Government • Differentiation • Principle of differentiation agreed upon • Common system of differentiation is required • Context (fiscal capacity, cost efficiency…) vs performance (i.e. fiscal effort, spending efficiency and effectiveness …) • Any demarcation framework to conform to constitutional framework • Demarcation • Develop a system that ensures fiscally sustainable municipalities are created

20. Emerging Consensus: LGFF and Function Assignment Briefing on Recommendations Relating to Local Government • Stakeholders proposed a broader definition and criteria for the LGFF • Should include not only transfers, but also own revenue, borrowing and transfers • Cautioned against expecting too much from a redesigned LGFF • A lot of other work (e.g. capacity building and support) is required to improve local government functionality. • Future devolution of fiscal powers should be informed by functional assignments • Functions (of, for example, district municipalities) must be clarified before making any changes to grants

21. Emerging Consensus: Options For LGFF Briefing on Recommendations Relating to Local Government • Three primary options for the LGFF: • Gap-filling: A system based on gap filling with a primary emphasis on transfers, much as exists currently • Performance based system: with emphasis on incentives, which implies a major shift towards expenditure-side interventions, incentivising own source revenue and capital finance, complemented with conditional transfers. • Range of hybrid options in between • Approaches were discussed as options for the LGFF structure • FFC to finalise a set of recommendations emanating from process and undertake further engagements

22. Thank You. Financial and Fiscal Commission Montrose Place (2nd Floor), Bekker Street, Waterfall Park, Vorna Valley, Midrand, Private Bag X69, Halfway House 1685 www.ffc.co.za Tel: +27 11 207 2300 Fax: +27 86 589 1038