Intergovernmental Fiscal Review 2001 Local Government NCOP T Pillay (National Treasury)

1. Intergovernmental Fiscal Review 2001 Local Government NCOP T Pillay (National Treasury) 18 October 2001

2. Background • Municipalities have significant fiscal power • Two thirds from user charges business activity • (electricity and water) • One third from tax funded services • (local decisions and discretion) • Direct transfers from national government • Equitable share, CMIP, capacity (What more does national need to do?) (Focus on sequenced capacity building?) • Provincial Transfers (How can provinces support Local government?) (Can provinces afford to transfer more?)

3. Purpose and evolution • Review of intergovernmental trends to support budget and policy processes • 2000 IGFR • made first attempt to cover local government • but data weak or non-existent • 2001 IGFR • though information sketchy due to new structures - progress noted • attempts to depict trends and highlight challenges going forward

4. Objective • Allows for comparisons and benchmarks • Assists legislatures in understanding different pressures and dynamics at local government • Informs policy-making process • sharing of analysis and dissemination of information • Promotes co-operative governance • Aligning policy, budget, planning processes • Tool for NCOP to strengthen oversight

5. Local Government Chapters 8.Transformation challenges 9. Overview of municipal budgets 10. Transfers to local government 11. Capital investment Annexure D (trends, budget income and expenditure, levies, employee numbers)

6. Introduction • Overview of intergovernmental system • 3 distinct, but interdependent spheres • national role largely policy formulation & setting of norms and standards • provinces & local government mainly responsible for implementation • System premised on cooperative governance

7. Local GovernmentTransformation Challenges • amalgamation and establishment of new munis • re-alignment and re-assignment of powers and functions (between cat B and C) • integrating over 200 000 employees without raising costs • co-ordinating activities of cross border munis • re-prioritisation of service delivery and expansion of infrastructure to service all citizens • introduction and implementation of new legislative environment (Structures Act, Systems Act, MFMB, Prop Rates)

8. Personnel Expenditure • PE case study: real increases over past 10 years (Table 8.2 page 126) • Minimum salary in some metros R4000 pm • Pension variation (Table 8.3) • Up to 35%, with 27% from employer • Shifting of functions involves shifting personnel • risk of significant cost increases without any improvement in service delivery

9. Restructuring/Amalgamation • Shifting functions between district and local munis • What does it mean for effective service delivery and accountability? • Restructuring of services, e.g. Regional Electricity Distributors • How does this affect service quality and equity? • Funding gap and impact on cash flows • Funding implications • Financial effects when moving personnel • What does this do for affordability and sustainability of services? • Impact on tariffs and incidence of taxes • Tshwane case study on page 136

10. Restructuring and Support • Decentralisation or devolution of functions • Is this the right time to devolve functions to munis? e.g. primary health care, water services, public transport • Free basic services • How do we make this possible? • What mechanisms do we use? • How do we allocate subsidies efficiently? • Local Government transformation plan • Support by government • Institutional and fiscal support • Equitable share, Consolidation of grants (infrastructure and capacity) • Reforms • budget reforms, revenue reforms, planning reforms

11. Local Govt Budgets • Budgets • Reforms required • formats, classification, presentation, understandable information, build linkages with planning, etc • Budget trends • overall local budgets now at R 61,8 bn • need to improve on capital and infrastructure spending now at R 13,7 bn • growth in personnel expenditure to 31 % and lack of revenue collection impacts on infrastructure spending • wide differences between municipalities

12. Local Govt Budgets • Sources of income • Property rates 21 % • Utilities (electr, water) 32 % • Intergov transfers 8 % • RSC levies 7 % • Expenditure • Salaries 31 % • Bulk (electr, water) 30 % • Capital charges 13 % • Repairs and Maint 8 %

13. Sample Metro budgets • New classification - sector / functions • Electricity 30 % • Water & Sanitation 19 % • Administration 8,8 % • Public safety 7,5 % • Roads and Stormwater 6,3 % • Refuse 5,1 % • Need to implement country-wide, develop, improve reporting formats & system

14. Local Govt Transfers • National Transfers • responsibilities & functions of local gov. • subsidy to assist poor households for basic services • expansion and rehabilitation of infrastructure • skills training and development to assist in service delivery • Proportion of allocation • Equitable share 57 % • Infrastructure 35 % • Capacity 8 %

15. Local Govt Transfers • Equitable share (unconditional) • efficacy of usage/local discretion • access to basic services • policy directed towards poor households • overall average ES per household • Smaller category B munis from 2001/02 to 2003/04 - R 510 to R 611 • Metros category A munis from 2001/02 to 2003/04 - R 151 to R 194

16. Capital • Capital / Infrastructure grants • R2,7 bn in 2001/02 • facilitates expansion of services to all citizens faster (basic services) • improve standards and level of services • provide economic and other infrastructure unlock and stimulate country’s growth potential • upgrade and update infrastructure (township/R293 areas) • Borrowing inability for infrastructure • means higher grants from national and province • less infrastructure funds spread more thinly

17. Capital • How do we address service backlogs? • Who will build infrastructure? • Private Public Partnerships • Examples Table 11.1 • Municipal borrowing • leveraging of grants and revenue • short term loans - expensive • longer term loans - cheaper • municipal bonds • Stagnant borrowing at R20 bn • Two large players - INCA provides new lending in private sector, DBSA in public sector • How do we attract new money and participants?

18. Conclusions • Efficient and cost effective service delivery to all our citizens • Focus on better targeting equitable share • Focus on infrastructure grant consolidation • Focus on strategic management capacity building initiatives • Enhance and leverage new infrastructure money to address backlogs • Improve reporting and information flows • Continue to deepen and improve budget process • Move toward measuring service delivery indicators

19. THANK YOU!