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This presentation discusses the need for the Municipal Viability Indaba, the current issues affecting municipal finances and leadership, and the Municipal Revenue Enhancement Programme. It also analyzes the debt trends, causes of the problem, and objectives of the Indaba.
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Structure of Presentation • Why the need for the Indaba • The Municipal Viability Indaba • After the Indaba: The Municipal Revenue Enhancement Programme
Why the Need for the Indaba • Based on on-going monitoring, two issues of greatest concern are: • municipal finances and • quality of leadership • Both issues have direct correlation to ability to deliver services
Why the Need for the Indaba • Continuous reports of municipalities in financial difficulties (default or near default) – particularly with bulk suppliers of water and electricity • Discovery of “creative accounting” as a means by which municipalities are making it through the financial year – but receiving qualified audits • Running overdrafts • Use of cash set aside for other purposes – capital expenditures, provisions for claims and reserves • Deductions from employee salaries • Non-payment of creditors – including statutory obligations
Why the Need for the Indaba • Minister commissioned an investigation whose mandate was: • To determine the true extent of the problem • To gain a thorough understanding of the causes of the problem • To recommend a realistic way forward – highlighting the role that should be played by the National government
Trend Analysis:Debt by Province Total Outstanding: R24,348,987,796 As at September 2002
Trend Analysis:Debt Growth Rate • 31% of municipalities’ service debt is growing at a rate of less than 5% per year • 37% of municipalities’ services debt is growing at a rate of greater than 10% per year • 32% of municipalities’ services debt is growing at a rate of greater than 20% per year
Only 40% of Category B municipalities have audit committees that meet at least twice a year 60% of Category B and 40% of Category C municipalities do not have an internal audit function 2 metros can bring their financial records up to date in the following month Only 6% of Category B municipalities are able to bring their financial records up to date in the following month – and 10% of Category C Alarming increase of use of overdraft facilities (or bridge financing) – and equally alarming recalling of these facilities Trend Analysis: Other Factors of Concern
Aggregate capital expenditure of budgeted amounts, by category of municipality: Category A 9.1% Category B 6.2% Category C 9.9% Trend Analysis: Other Factors of Concern
Inappropriate taxes and tariffs Problems with the implementation of Free Basic Services Problems with the identification of indigent households Addressing existing high arrears Lack of credibility based on ongoing shortcomings Ineffective municipal revenue administration Reorganisations Under-resourcing Adopting to new circumstances Poor metering systems Unreliable data Inadequate billing systems Difficult accounts Unreliable postal service Inaccessible payment points Trend Analysis:Causes of the Problem
Political opportunism Charging of interest Lack of effective and creative incentives and sanctions Lack of clarity around responsibility for revenue administration High government arrears Uncertainty relating to the establishment of the Regional Electricity Distributors (REDs) Trend Analysis:Causes of the Problem
The Municipal Viability Indaba • Reasons for the Indaba: • Municipal services debt fundamentally affects the overall viability of municipalities and therefore lays at the crux of government’s efforts and ability to improve the quality of life for all • The growth rate of municipal services debt reports on the condition of the compact between municipal governments and the communities that they serve • The issue provides some important insight into the complexity and fragility of the local government transformation process • The issue fundamentally relates to all the strategic objectives of the Presidential Coordinating Council (PCC)
The Municipal Viability Indaba • Reasons for the Indaba: • All municipalities are experiencing the problem of service arrears • Several municipalities are making concerted efforts to address the problem – with varying degrees of success – evidenced by the escalating growth rate • The Indaba created a forum through which the issue can be discussed comprehensively – and through which experiences can be shared and lessons learned • The Indaba also created the opportunity to place the issue squarely before all those affected by it – so as to achieve a common appreciation and understanding of its implications • The Indaba created a platform to highlight National government policies, objectives and programmes that adversely impact municipal viability
The Municipal Viability Indaba • Objectives of the Indaba: • To share the facts, panic and opportunities around the issue of municipal viability • To adopt strategic targets that will guide municipal efforts to improve revenue management • To develop and adopt collective resolutions on a way forward • To agree on mechanisms through which to manage and monitor the implementation of the resolutions • To inform delegates of the findings and implications of the commissioned investigation
The Municipal Viability Indaba • Audience for the Indaba: • Mayors • Speakers • Chairs of Council Finance and/or Audit Committees • Local Government MECs • Local Government HODs • Municipal Managers • Municipal Chief Financial Officers • Related entities: • DBSA • Eskom • Financial institutions
The Municipal Viability Indaba • A total of 1,700 delegates were invited. 1,414 attended • Representatives from National government departments all gave presentations and delegates were given an opportunity to debate issues raised in their presentations • 24 exhibitors participated in the Indaba – ranging from financial institutions to government departments to technology vendors
The Municipal Viability Indaba • Based on surveyed assessment of Indaba: • Implementation requirements for solutions presented included: • Partnerships • Funding • Technical ‘know-how’ • Project management capability • Support from DPLG • Training
The Municipal Viability Indaba • Based on surveyed assessment of Indaba: • Positive aspects of the Indaba included: • Appreciation that all municipalities are experiencing the same issues • “Issues that matter the most were discussed” • Involving and assembling municipalities made them feel recognised • Learning opportunity – information sharing • Involvement of National departments in single forum • Innovative solutions presented
The Municipal Viability Indaba • Based on surveyed assessment of Indaba: • Negative aspects of the Indaba included: • Time management and availability of time for further discussions • Perceived focus on urban/large versus rural/small municipalities • Focus on developed/established municipalities • Suggestions: • 95% of surveyed delegates would like to annualise the Indaba – mainly to gauge collective and individual progress • Make Indabas Province-based
Outcome of the Indaba: The Municipal Revenue Enhancement Programme • Intended Outcomes • Improved and sustained revenue collection • Alleviation of causes of services debt • Extension of services – particularly free basic services to the poor • Strategically pool resources aimed to enhance service delivery and streamline access to these resources • Clarify national policies pertaining to service delivery in order to make them implementable
The Municipal Revenue Enhancement Programme • Approach • Seeks to reinforce and accelerate the effective implementation of existing policies and ongoing support programmes • Strategically involves affected parties – provinces and municipalities – to ensure more focused solution development and ease of implementation • Seeks to provide just-in-time assistance and support to municipal efforts to ensure success • Seeks to involve new partners – particularly national sector departments and the business sector – in order to broaden spectrum of solutions
The Municipal Revenue Enhancement Programme Public Communication/ Education Initiatives Revenue Enhancement Fund Appropriate Technology Initiatives Institutional Responsibility Initiatives Sustainable Delivery Initiatives
Guiding Principles for the Programme • Programme must be about “delivery” – i.e. geared toward constant, visible and measurable movement/progress • Programme should provide leadership to enable movement • Programme should create and implement new and sustainable options • Programme must frame a strong message – that speaks to government’s intentions, movement and impact • Programme must continuously involve those whom it is created to benefit
Progress to Date • Developing a “Delivery Calendar” – comprising of projects/initiatives and anticipated roll-out dates • Developing “Programme Message” • Research and analysis have begun • Trend analysis of Auditor General reports • Trend analysis of Project Viability reports • Will engage Provincial Departments, Provincial Organised Local Government, ILGM and IMFO • Appointing a “Reference Group” • Establishing programme management capability within DPLG