Institutional Reforms and Effective City Management The South African Experience

1. Institutional Reforms and Effective City Management The South African Experience David Savage Water & Sanitation Program – South Asia Conference on Strenghtening Urban Management ASCI, Hyderabad, 20 January 2004

2. A recap of the issues … • Cities are engines of the economic growth: • Creating world class cities means improving services • Municipal service delivery cannot be seen in isolated context; • How municipal services come together to serve the city-economy; • Managing cities to be credit worthy • National economic growth and poverty reduction efforts will be increasingly determined by the productivity of cities and towns • A new approach to addressing the persistent underperformance of urban services: • Need to fix institutions that provide services, not only the service infrastructure itself • Need to focus across services, not only within them

3. Summary of presentation • Background to the South African local government reform process • Fiscal incentives for institutional restructuring • Restructuring in Johannesburg • Relevance to India

4. S.African local government reform • The apartheid city • Well established ‘white’ cities with strong tax base • Separate black towns administered from centre • 1976 – Soweto uprising • Creation of ‘black local authorities’ • Early 1980’s – mass resistance to ‘indirect rule’ built around civic associations • Rent and service charge boycotts • Slogan ‘One City One tax base!’ • A 3 phase local government transition from 1994 - 2004

5. Functional and fiscal context

6. Major challenges • Service backlogs • Inefficient service delivery • Management and leadership shortfalls • Municipalities in financial distress • unbalanced budgets and no cash reserves • increasing bank overdrafts, debtors, and loan defaults

7. Declining capital expenditure

8. Key elements of the reform agenda • Local government an independent ‘sphere’ • Widely drawn boundaries • Single tier metropolitan municipalities • Two tier non-metropolitan system • Functional and fiscal devolution • Accountable & ‘Developmental’ local government • Clear allocation of responsibility • Universal and sustainable basic service delivery • Strategic and planned response to local conditions • Requirement for substantial local consultation • More rigorous financial administration • Create conditions for private sector involvement in municipal service provision

9. The reform programme Own Source Revenue Property Rates Bill RSC Levy Municipal Finance Mgt. Bill Demarcation Constitution Capacity Building White Paper Structures Act Intergovernmental Transfers Municipal Systems Bill Capital, capacity building, restructuring & transition Structural Systems Fiscal

10. Fiscal reform goals • Overcome funding gaps and stimulate capital market access through improving: • Legibility, certainty, equity and efficiency of all transfers • Sustainability of capital investments • Revenue administration and tax powers • Consolidate and decentralise transfers: • Unconditional equalisation grant (Equitable share) • “Single pot” capital grant (Municipal Infrastructure Grant) • Capacity building funds targetted to priorities in small and large municipalities (financial management, capacity support and transition costs) • Develop and enforce a hard budget constraint

11. Equalising outcomes of transfers

12. Incentives for urban restructuring • Restructuring Grant for large urban areas whose success or failure would have an impact on the national economy • disincentive to restructure due to fiscal stress and likely expenditure spike; • cities are engines of growth: efficient service delivery critical • Intended to facilitate restructuring which • pre-empts and avoids key threats • Leads to significant enhancement of service delivery capacity • Funds the costs of transition to sustainable service delivery systems • Staff and asset restructuring • Tariff smoothing • Unfunded liabilities • Capital budget support

13. Characteristics of the grant • Amounts available are considerable: • More than offset the costs of restructuring • Finances outcomes not projects • Economic, fiscal, institutional and service delivery dimensions • Aimed at getting municipalities to develop their own coherent strategy and programme for improvement….and stick to it • Must be enhance financial sustainability and service delivery • Structural reform programme to be determined by municipality • Aimed at developing a partnership between bigger cities and Treasury • Agreed amounts are paid out on the basis of reaching pre-agreed targets and milestones • Grant was developed in response to fiscal and service delivery crisis in Johannesburg

14. Restructuring

15. Joburg’s Problems • Growth without sustainability, then sustainability without growth • Weak financial stability and sustainability • Weak budgeting, debt and revenue management • Service delivery • Inadequate info, weak strategy & wrong institutions • Frameworks of accountability • Overlapping mandates, no strategic purpose, poor definition of unit and individual responsibilities • Administrative efficiency • Excess and insufficient management capacity, disempowerment, culture problems, inefficient systems, corruption and maladministration • Political systems • Lack of strategic political focus, poor admin interfaces, internally focused Metro unresponsive to citizens

16. Goal and objectives • Overarching goal of growth and sustainability • Objectives: • Restore financial stability & sustainability by improving financial planning, management and control; • Ensure effective spending on service delivery & development; • Structure roles & responsibilities & mechanisms of accountability to make clear who is accountable to whom and for what, within an integrated planning framework that ensures all parts of the City are driven by a unified strategic purpose; • Create the basis for an efficient administration by incentivizing good management, attracting highly-skilled & motivated professional staff; & upgrading administrative systems; • Give back to councillors their proper representative & strategic leadership role, improve the decision-making system, & clarify the political-administrative interface.

17. Council Exec Mayor ContractsFinanceCorporateCommunity CM Regions X 11 MPS Peoples Centres Heritage Services EMS Health Social Services Housing Libraries Sport &Recreation Planning The People Good governance Sustainable services Social & Economic Development Healthy and Safe Environment Participatory and Inclucivity A new organisation designed • City Power • Pikitup • JHB Water • Roads Agency • City Parks • JHB Zoo • Civic • The Market • Metrobus • ProCom

18. Council Executive Mayor CEO Heritage MPS EMS Plan Contr. Mangt Corp. Service Comm. Dev Regions X 11 Health Social Services Housing Libraries Sport &Recreation Peoples Centres Internal Organisational Structure Finance

19. Exec Mayor Shareholder CEO Contract Management Unit Consultants Engineering legal Accountant Economic • Quality • Strategy • Busn’s plans • Tariffs • Pricing Policy • Service Delivery • Agreements • Governance • Financial • Analysis Contract Management & Regulation Shareholders Unit

20. Privatisation Corporat-isation Outsourcing Privatisation, Corporatisation & Outsourcing • Rand Airport (June) S197 of the LRA facilitated transfer • Employee briefings and consultations extensive • All Contracts protect employee provisions and give job guarantee • Metro gas (August) • Corporatisation (July) • IT outsourcing (September) • Fleet outsourcing (October)

21. Essence of the model • Design Principles:Economic decentralization, substantive control, internalised accountability. • Design Features:Client/contractor split, UAC’s as relatively independent companies to manage the larger service functions, administrative regions to manage social development in an integrated way, centralized distribution functions, smaller and less cumbersome core administration, and strong regulatory mechanism. • Key Assumptions:Institutional restructuring would ensure financial stability & sustainability and provide opportunities for addressing admin weaknesses • Core Programmes and Actions:Implementation evolved (“devil in the detail”). Programmes responded to objectives but key areas included Diamond project, stakeholder consultation and communication, settlement with organized labour and iGoli 2010.

22. Collective Effects • Has Joburg suceeded in achieving growth with sustainability? • “…on the threshold of getting the basics right”, but huge challenges remain • Modifications to model during implementation often necessary (eg CMU) but changes: • Have costs, which must be explicitly understood alongside anticipated benefits (eg revenue) • Can negatively affect organisational culture • Danger of ongoing institutional ‘tweaking’ with limited benefits, distracting attention from priorities in: • internal expenditure reforms • external economic and social development

23. Relevance for India • Very different contexts, but similar problems: • Chronic poor performance is the rule rather than the exception in many publicly run municipal services: • Irregular and poor quality service • Technical & commercial losses: filling the leaking bucket • Poor cost recovery through inappropriate tariffs and ltd collection • Subsidies do not reach the poor– high coping costs • Financially unsustainable

24. Policy • Define the Objectives • 24-hour supply • Clean water • Extended Access • Define the Rules Regulation Delivery • Enforce the Rules • Monitor Compliance • Regulate Pricing • Deliver the Service • Play by the Rules . The Judge, Jury and Executioner are the Same!

25. Elements of separation in water service delivery • Government ownership of some form • Public good nature of water • Sustainability as a resource: time and quality • Attacking poverty • Business approach to delivery • Private good nature of water • Demand driven; customer responsive • Independent regulation

26. City Challenge Fund • Many similarities in urban services problems and solutions • City Challenge Fund offers similar approach: • Demand driven, outcome focussed • Performance based • Partnership approach • Intergovernmental system must be robust enough to: • Create a net incentive for restructuring (remove disincentives) • Create an enabling environment for city strategies (link to URIF) • SA lessons: • Limited strategic capacity amongst municipalities • Reforms need to be nurtured and must be self-imposed • Over-prescription is unenforceable and unconstructive • Monitor outputs and risks, not inputs • Link payment to performance • Dedicated capacity with credibility amongst municipalities required to manage grant