Presentation of the Performance of the Devolution of the Property Rates Grant to the Standing Committee on Appropriation

1. 1 Presentation of the Performance of the Devolution of the Property Rates Grant to the Standing Committee on Appropriations24 May 2011 Presented by: Cathy Motsisi Chief Financial Officer

2. 2 Purpose The purpose of this presentation is to present the performance of the property rates grant, to explain the reason for the under spending and to present the interventions strategies going forward.

3. 3 BACKGROUND Prior to 1994, DPW was deemed the custodian of most state-owned properties and therefore took the responsibility for payment of some property rates. This practice continued notwithstanding the separation of ownership of state land between national and provincial government as determined by the Constitution (1993). During the year 2006, the Department of Public Works together with the National Treasury devolved the budgets to the provinces as a grant effectively from the 1st April 2008. The reason for the devolution was to facilitate the transfer of property rates expenditure responsibility to provinces; and to enable provincial accounting officers to be fully accountable for their expenditure and payment of provincial property rates

4. 4 Responsibilities of the National Department of Public Works The national Department of Public Works will oversee the transfer of the function to the provincial departments. Together with the Regional offices, provide support and training as needed to the provincial departments of public works. Monitor performance of provinces Support the Department of Rural Development of Land Reform in vesting of relevant properties in provinces' name Transfer payments to provincial departments of public works Monitor and evaluate the transfer of function into the relevant provinces Submit quarterly performance reports to National Treasury Submit the allocation criteria, and the final conditional grant framework that relate to this grant to National Treasury as requested by National Treasury

5. 5 Responsibilities of the Provincial Department of Public Works As part of the report required in terms of sec 71 of the MFMA and sec 40(4)(c) of the PFMA report to the relevant Report to the relevant Provincial Treasury, the National Treasury and National Public Works spending and financial performance of the grant Submit quarterly reports within 30 days after the end of the third quarter, non-financial performance reports to NDPW and National Treasury The receiving officer must, within two months after the end of the financial year, and where relevant the municipal financial year, evaluate its performance in respect of the grant and submit such evaluation to the transferring national officer.

6. 6 Expenditure Growth Over a Three Year Period

7. 7 Devolution of Property Rates Grant

8. 8 Explanations for the Under spending Eastern Cape – 78% The province’s allocation was increased by the requested rollover of R101 million. The requested amount was informed by the projected properties which and arrears which were not unpaid during the 2009/10 financial year. The unspent funds amounting to R63 million are due to various complex matters such as: Timing difference between the financial years of the municipalities and provinces Incomplete asset registers Verification of properties Late invoices The province started an asset verification process last year which enabled the them to improve spending from 52% in 2009/10 to 78% in the current year. The project is now reaching its finality and the province will be in better position to have a reconciled asset base that can be used for projecting expenditure. Gauteng- 73% Spending The 27% under spending is attributable to the following municipalities not submitting claims in the 4th quarter: Lesedi, Kungwini, Nokeng Tsa Taemane and Westonaria Municipalities did not submit claims in the fourth quarter. The other contributing factor was the municipal valuation rolls for some of the municipalities which are still incomplete. The province is working very closely with the affected municipalities to find better solutions of managing the payments.

9. 9 Explanations for the Under spending Kwa Zulu Natal – 63% Spending The 37% under spending is attributable to the following: Some Municipalities submitted their invoices late. Verification of Public Sector Infrastructure properties still underway before payment could be processed. Northern Cape – 93,6% Spending The under spending of 6,4%( R2,5 million) is attributable to late submission of invoices. The province is working very closely with the municipalities assisting to speed up the invoicing. Western Cape – 94% Spending The 6% under spending(R18,3 million) is attributable to the uncertainty regarding the liability for the payment of rates related to isolated cases” Groote Schuur Hospital / UCT. The land belongs to UCT but the improvement (Hospital Building) belong to provincial government Western Cape. The province has already commenced with the process to appraise the land and building in order to assign the rates proportionately. Roll-over request will be submitted.

10. 10 Challenges Municipalities Delays in municipalities to generate invoices/ property rates schedules Municipalities with inefficient billing system (payment schedules) No valuation rolls Delay in issuing invoices on properties affected by Municipal Demarcation of boundaries Inaccurate verification and reconciliation of invoices from other municipalities (discrepancies of invoices presented to DPW by municipalities) Municipalities billing DPW for properties which are not registered either in National or Provincial competency Provinces Under/over allocation of budget devolved Expectation by the provinces that DPW would have additional funding to sort out under allocation Expectation by the provinces that DPW would pay arrears of provincial properties that were never on our register. Lack of cooperation with regard to reporting according to the conditional grants framework Lack of support & guidance to Municipalities Inadequate participation in the Provincial Debt Management forums/ CFO Forums

11. 11 Intervention Strategies Establish credible Asset Register – Asset verification projects- (Work in progress) Fast tracking of the vesting process- Work in progress, the task team is comprised of DPW, PDPW, DRDLR, Deeds, Surveyor General Improved billing systems by municipalities – Working closely with Salga to assist low capacity municipalities. Some of the challenges have been escalated to the MINMEC meetings. Eg retrospective billing, interest charges, unfair rates. Provinces to declare over allocations - Ongoing Improve Reporting to National DPW in line with DORA - Ongoing Active participation in Provincial/ Municipal Debt Management Forum -Ongoing

12. 12 Conclusion Although notable improvement has been made with regards to the performance of the grant, significant results will only be visible when the asset verification and vesting processes are completed.

13. 13 I Thank You !