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Tuesday, 8 th March 2005 Cape Town

Presentation to the Select Committee on Finance. By the Director-General of the Department of Provincial & Local Government (dplg), Ms Lindiwe Msengana-Ndlela. Tuesday, 8 th March 2005 Cape Town. dplg 8 March 2005 2. Contents. 1. Introduction 2. Context

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Tuesday, 8 th March 2005 Cape Town

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  1. Presentation to the Select Committee on Finance By the Director-General of the Department of Provincial & Local Government (dplg), Ms Lindiwe Msengana-Ndlela Tuesday, 8th March 2005 Cape Town

  2. dplg 8 March 2005 2 Contents • 1. Introduction • 2. Context • 3. Local Government Equitable Share (LGES) • 4. Municipal Systems Improvement Grant (MSIG) • 5. Municipal Infrastructure Grant (MIG) • 6. Conclusion

  3. dplg 8 March 2005 3 Introduction Purpose of the Presentation: • To provide an overview of the Division of Revenue Bill, as it pertains to the dplg The dplg has worked closely with National Treasury on the local government matters of the Bill. The dplg is of the view that some areas of the Bill require greater refinement.

  4. dplg 8 March 2005 4 Context • An amount of R48,8 billion has been added to the baseline allocations of provinces and municipalities. • This means that national transfers to provinces will be growing at a rate of 10,2% a year over the MTEF period while local government allocations increase by13,3%. • Allocation to municipalities, in relation to the budget, is the fastest growing component of the three components (national, provincial & local).

  5. dplg 8 March 2005 5 Context … • After the introduction of the new system of local government in 2000, the total national transfers to local government amounted to R6,5 billion in the 2001/02 financial year. • This amount increased to R19,7 billion and R21,4 billion in the 2006/07 and 2007/08 financial years respectively. • Over the next three years, from 2005 to 2008, local government will receive total transfers of approximately R58,3 billion from national government.

  6. dplg 8 March 2005 6 3. Local Government Equitable Share (LGES)

  7. dplg 8 March 2005 7 LGES - Constitutional Basis • Chapter 13 of the Constitution makes provision for an equitable division of nationally raised revenue between the three spheres of government; clause 214 (1)(a). • Constitution states that nationally raised revenue sharing must take into account the following aspects: • Need for municipalities to be able to provide basic services and perform functions allocated to them • Fiscal capacity and efficiency of municipalities • Developmental and other needs • Obligations of municipalities in terms of national legislation • Desirability of stable and predictable allocations of revenue shares, etc.

  8. dplg 8 March 2005 8 LGES - Components of the Formula • The components of this formula seek to provide for the consideration of :- • Basic Service Provision • Development needs, in a majority of cases as a result of economic disadvantage and structural deprivation • Institutional support and investing in efficient and effective municipal administrations • The Revenue Raising Capacity of each municipality • A stabilization component which will guarantee allocations that were published in 2004.

  9. dplg 8 March 2005 9 LGES - Overview and Background • The LGES formula has been under review as per the President’s announcement at his State of the Nation Address in May 2004. • Why the Review? • Formula has been revised to one with a simpler structure that will facilitate transparency • A significant inclusion in the revised formula is an explicit revenue raising capacity correction • The services component now recognizes the progress municipalities make in accelerating basic services delivery by rewarding those that invest in basic services infrastructure. • Formula will be phased in over three years, from 2005.

  10. Previous Formula (Window Based) Grant =S + I + FBS + FBE + R293 + Nodal Allocation + Top up 2005-07 allocations are 100% guaranteed to limit any unintended consequences. New Formula (Component Based) Grant= BS + D + I – R C Takes 2001 census figures into account New formula to be phased in over three years Currently only the increases in the baseline are subjected to the formula Development component is currently set at zero. dplg 8 March 2005 10 Comparison of the Previous And New LGES Formula

  11. dplg 8 March 2005 11 LGES - General Expenditure Trends • In the medium term, significant LGES increases – R9,64 billion for 2005/06, increasing to R10,54 billion in 2006/07, and reaching R11,37 billion in the outer year. • The impact of introducing a new formula will be fully realised once the formula is completely phased in 2007. • Generally an upward trend throughout, however some Districts will experience a downward trend, largely due to the fact that some Districts do not provide basic services.

  12. dplg 8 March 2005 12 LGES - General Expenditure Trends … • The high increases noted in urban areas are attributed to high population migration and the concentration of poor people in these areas. • Municipalities making significant gains are largely those that have extended basic services infrastructure, suggesting that more indigent households will gain from increases arising from the basic component of the formula. • MIG will play a very important complementary role in providing resources to rural areas.

  13. dplg 8 March 2005 13 LGES - Future Work on the Formula Further areas of engagement in 2005: • The development component which has been has been set at zero. More work needs to be done to take into account variations in development across municipalities. This is particularly important in addressing service backlogs in rural areas. • The constitutionality of nodal allocations. More work still needs to be done to ensure that this is not lost in the next three years as the new formula is phased in. The same will apply for Free Basic Services.

  14. dplg 8 March 2005 14 LGES - Future Work on the Formula … Further areas of engagement in 2005: • Another area that requires further work will be in responding to the question of funding for operations and maintenance in Local Government. • Arriving at a broad and acceptable definition and criteria for indigents that is consistent within government. • Improving data and the quality of information.

  15. dplg 8 March 2005 15 4. Municipal Systems Improvement Grant (MSIG)

  16. dplg 8 March 2005 16 MSIG - Background • Capacity development in municipalities and improved systems with regard to community participation, planning, finance and performance management systems through the MSIG totaling R600 million over the 2005 MTEF. • The allocation to SALGA over the 2005 MTEF is also intended to increase the capacity of organized local government.

  17. dplg 8 March 2005 17 MSIG – Background … • Purpose of MSIG is to assist municipalities in building in-house capacity to build core systems and perform their functions. • MSG is a conditional grant directed to local municipalities through Districts. • Outputs of the grant: • Capacity improvement for stability and governance systems • Institutional systems aligned to IDPs • Implementation of powers and functions • Implementation of municipal legislation • Participation of communities as required in terms of Municipal Systems Act.

  18. dplg 8 March 2005 18 MSIG - Conditions of the grant • Development and implementation of a District-wide Capacity Development Plan in consultation with Local Municipalities. This plan must address the outputs as specified. • Each district to show the allocations for supporting local municipalities, both as transfers or direct expenditure.

  19. Total grant allocation over the period 2005-08 is R600,0 million, allocated yearly as follows: 2005/06 (R200,0 million) 2006/07 (R200,0 million) 2007/08 (R200,0 million) Review of the Grant will be undertaken by 2007. dplg 8 March 2005 19 2005/8 MTEF Allocation

  20. dplg 8 March 2005 20 Key Challenges & Future Action • Late submission of the MSIG Business Plans. • Poor spending by district municipalities. • Roll-overs at the end of the financial year. • Non-compliance with the DORA by some municipalities, especially reporting requirements.

  21. dplg 8 March 2005 21 Key Challenges & Future Action … • Lack or little consultative processes with local municipalities by districts in the compilation of business plans and in the implementation of projects. In response to these challenges, a Programme of Support to municipalities has been developed and is being implemented within the context of Project Consolidate.

  22. dplg 8 March 2005 22 5. Municipal Infrastructure Grant (MIG)

  23. dplg 8 March 2005 23 MIG - Background • An amount of R5,4 billion in 2005/06 has been allocated through the MIG for this purpose. • Total amount over the MTEF period will be approximately R21,19 billion. • The increased resources will ensure that municipalities are able to plan over the medium term and increase capacity to implement the programmes of government. • Infrastructure development and maintenance services: water, sanitation, electricity, municipal roads, community halls, sports and recreation facilities and utilizing labour intensive methods of infrastructure development.

  24. dplg 8 March 2005 24 MIG – Background … • Purpose of MIG is to supplement municipal capital budgets to eradicate backlogs in basic municipal infrastructure utilised in providing basic services for the benefit of poor people; and to eradicate the bucket system. • MIG is a conditional grant directed to Metropolitan, District and selected Local Municipalities. • Measurable outputs of the grant(examples): • Number of new households receiving water and sanitation and electricity connections • Number of additional kilometres roads developed • Number of jobs created through the EPWP guidelines • Number of households where the bucket system has been replaced.

  25. dplg 8 March 2005 25 MIG - Conditions of the grant Key conditions include: • Prioritisation of residential infrastructure • Adherence to labour intensive construction guidelines • Finalisation and complete expenditure of previous CMIP and DWAF allocations • Prioritisation of eradication of the bucket system • Adherence to reporting requirements.

  26. dplg 8 March 2005 26 MIG - Roles and Responsibilities • Department of Provincial and Local Government (dplg): Administers the MIG and convenes Municipal Infrastructure Task Team meetings. • Other key Departments: • Department of Water Affairs and Forestry (DWAF) • Department of Public Works (DPW) • Department of Minerals and Energy (DME) • Department of Transport (DoT) • Department of Housing (DoH) • Sport and Recreation South Africa (SRSA). • Sector Departments and their provincial counter parts retain the policy making and regulatory functions and retain the constitutional role to support municipalities. They also need to provide oversight and monitor sector outcomes.

  27. dplg 8 March 2005 27 MIG - Provincial and Municipal Roles and Responsibilities • Provincial Departments responsible for Local Government: • Ensure that municipal IDPs are vertically integrated with thePGDS & ensure that IDPs give priority to the basic needs ofcommunities • Promote the development of local government capacity • Monitor the financial status of municipalities. • Municipalities are to: • Structure and manage municipal administration, budgeting and planning processes • Participate in national and provincial programmes • Manage MIG funding for specific projects.

  28. dplg 8 March 2005 28 Key Challenges • Need to improve transitional arrangements • Effective co-ordination with all key stakeholders • Coordination and support roles by provinces to municipalities • Poor capital investment planning by and poor project management implementation capacity of municipalities • Municipal compliance with DORA and the reporting mechanisms • Improve the patterns and quality of: • Spending; • Project management; and • Visible impact of programmes.

  29. dplg 8 March 2005 29 MIG (2004/5) Transfers & Expenditure as at 28 February 2005

  30. dplg 8 March 2005 30 Interventions to Address Challenges Strategic Objective:To consolidate local government’s capability and impact to achieve sustainable development. Specific Strategic Milestones (2005-2010) • Utilise MIG resources as a contribution towards poverty alleviation and job creation (2013). • Build and strengthen the project management capacity of municipalities (2004-2006). • Implement the MIG monitoring system and meet targets as confirmed in the State of the Nation Address.

  31. dplg 8 March 2005 31 Interventions to Address Challenges Specific Operational Milestones and Tasks – • Spending of MIG funds within determined timeframes (2013) • Transfer funds to additional municipalities in 2005/6 and over the MTEF period. • Establish project management units in the municipalities (2004-2006). • Build the project management capacity of municipalities (2004-2006). • Build the capacity of municipalities to undertake multi-year infrastructure planning (2004-2007). • Undertake workshops on administrative processes and procedures on the municipal infrastructure implementation. • Implement the MIG monitoring system (2005-2007).

  32. dplg 8 March 2005 32 Conclusion • Funding to local government has consistently increased since 1994, this is set to continue in future. • The intergovernmental fiscal relations system has largely stabilized. The process of ongoing refinement will be enhanced by: • Greater certainty provided to municipalities regarding future allocations; • Rationalization of key conditional grants to local government • Enactment of principles and provisions as contained in the Intergovernmental Relations Framework Bill. “The work to create a new South Africa has begun. That work will continue during our Second Decade of Freedom.” Thank you

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