LOCAL GOVERNMENT INPUT TO AD-HOC COMMITTEE ON SERVICE DELIVERY OVERSIGHT

1. LOCAL GOVERNMENT INPUT TO AD-HOC COMMITTEE ON SERVICE DELIVERY OVERSIGHT CURRENT STATE OF LOCAL GOVERNMENT AND SERVICE DELIVERY CHALLENGES 3 FEBRUARY 2010

2. Outline of Presentation 1. Current State of Local Government - Powers and Functions; - Institutional Systems - Political Systems; - Administrative Systems; - Capacity Constraints; - Municipal Finance 2. Cross Cutting Issues Impacting on Local Government - Transformation and Restructuring Initiatives; - Governance Challenges - Local Government Resources - Councillor Support

3. PART 1 CURRENT STATE OF LOCAL GOVERNMENT

4. CURRENT STATE OF LOCAL GOVERNMENT In considering the current state of local government and the challenges municipalities face, it is absolutely necessary to reflect against what was envisaged by the White Paper on Local Government. In doing this the following critical areas have been identified for consideration:- • Powers and Functions; • Institutional Systems; • Political Systems; • Administrative Systems (incl. capacity constraints); and • Municipal Finance.

5. What was Envisaged? Clearly defined functional areas that are the responsibility of local government. legislative and executive powers to administer and fulfill these functions. Assignment and delegation of other (provincial and national) functions. Emerging Issues disjuncture between functions in the constitution and the developmental role of local government. current local government functions do not enable local government to make the maximum social and economic impact envisaged. uncertain which sphere is accountable for a function or service while other functions are better performed by another sphere than the one allocated the responsibility. Uncertainty undermines accountability and hampers service delivery and causes tensions Powers & Functions

6. Proposals • Powers and functions of LG as listed in Schedules 4b and 5b of the Constitution not defined in any detail leading to considerable confusion and too much space for interpretation. It would as such be necessary for these powers and functions to be clearly defined. • In addition to defining powers and functions it is also necessary for An urgent intervention to determine who is responsible for performing functions. • If we do not embark on this exercise as a matter of urgency, the situation whereby everyone is responsible for everything and no one is accountable for anything will continue to exist. • The urgent development of a clear legislative framework for the assignment of functions between spheres. • These issues are recognised in the LGTAS as hampering service delivery

7. What was Envisaged? three types of municipalities identified in the Constitution (Category A, B & C) Districts were envisaged to fulfil the following key roles: district-wide integrated development planning, infrastructure development (particularly bulk), technical assistance, capacity building to local municipalities and direct service delivery on areas of inadequate administrative capacity of locals. Emerging Issues strong district local government has not come to pass and local municipalities remain dominant Water supply and sanitation functions have been assigned to LMs in 22 districts. LMs are electricity authority with DMs nominally being authority for areas where Eskom is service provider. Misalignment between category B and C Municipalities in the IDP. Insufficient understanding of respective roles, functions and responsibilities. DMs are caught up in squabbles over powers and functions & plagued by uncertainty regarding their funding. Institutional Systems

8. Proposals • Need for a more nuanced/differentiated approach to the functions that respective LMs and DMs would need to perform. • Acknowledgement that there is a need to explore the use of shared services and that functions such as Economic Dev. and Legal & Compliance should be centralised within the DMs. 3. In the medium to long term, emphasis should be placed on increasing the capacity of category B municipalities so that they could perform those functions. 4. Instil sufficient understanding (in both district and local municipalities), of their respective roles, functions and responsibilities.

9. What was Envisaged directly elected municipal councils, comprising Ward and PR councillors. Unlike at national and provincial level, the council holds both legislative and executive powers. three modes of executive governance, namely inclusive executive committees; strong executive mayors and plenary councils.   defined roles and areas of responsibility of each political structure and political office bearer. various systems of delegation from the elected council. Emerging Issues continued uncertainty around the role of councillors (PR vs constituency) Lack of clarity around roles and responsibilities giving rise to conflict between mayors and speakers, speakers and chief whips, etc; failure to comply with the policy and legislative provisions, operational problems and blockages due to direct inability on the part of political decision-makers & officials to agree on the role to be played by each governance structure and political office bearer; Failure to implement appropriate systems of delegation; Political Systems

10. Proposals • A clearer definition of the role of councillors is required. • The role of a councillor as a voice for the community and an overseer of the municipal executive/administration need to find better expression so as to avoid unrealistic expectations. • The role definition between executive councillors and senior management must be sufficiently clarified. • The full-time/part-time nature of councillors should be reviewed with a view to reflect the realities and expectations from communities. • The two term limitation for Mayors should be reviewed, alternatively the broader retention of such experience, in whatever form, should become a matter for discussion by all political parties. • One Election for all three spheres of government, to ensure proper deployment of relevant skill and experience. • More resources should be allocated to Ward Committees to ensure that they function properly and effectively.

11. Proposals • Financial support should be provided to support and assist the office of the Speaker and Ward Committees. • Local government also remains over regulated and as such there is a need to review some of the legislation that impedes timeous service delivery. • Through the development of guidelines or a framework, provide clarity around the roles and responsibilities of municipal office-bearers, especially Municipal Chief Whips. • Explore the extension of the Section 79 Committees currently being piloted in Gauteng (City of Joburg, etc) on the separation of powers at municipal level with the view to enable effective oversight over executive responsibilities. • Develop a model policy to deal with issues of public participation beyond ward committees in order to clarify the elements that constitute public participation. • Development of guidelines to clarify the role between CDWs, Ward Councillors as well as Ward Committees. • Review the continued existence of Plenary Systems with a view to abolish this system. • The proposals above now form part of the LGTAS

12. What was Envisaged New approaches building on existing capacity, corporatisation, public-public partnerships, partnerships with CBOs and NGOs, etc. capacity requirements for developmental local government: strategic capacity, integrating capacity and community orientation. local government training system highlighting the need for a regulator (LGSETA), purchasers and providers. Labour relations, in particular the role of SALGBC and SALGA. Roles of other spheres of government in terms of building administrative systems (capacity building). Emerging Issues Municipalities have not taken up new approaches to service delivery, challenge with Section 78 and MFMA Processes; Whilst good progress has been made largely through 5 YLGSA, capacity constraints have crippled developmental local government. Administrative Systems

13. Capacity Constraints Source: MDB(2008) 42% of MM’s have been in their current positions for less than 1 year 63% of MMs have been in their current positions for less than 2 years Only 37% of current MMs have been in their current positions for more than 2 years

14. Capacity Constraints Source: MDB(2008) 36% of CFO’s have been in their current positions for less than 1 year 50% of CFOs have been in their current positions for less than 2 years 44% of CFOs have been in their current positions for more than 2 years

15. Proposals • Development of retention strategies to ensure that many experienced individuals are not lost to local government. • Whilst SALGA champions a comprehensive Capacity Building programme, much more is necessary to improve the skills required by politicians and officials in terms of governance and associated accredited programmes. Need to invest in accredited capacity building programmes for politicians and officials. • Certain municipalities are battling to recruit the requisite skills due to a lack of response either due to not being able to afford the salaries or attract those skilled individuals to their (some times rural) localities. It is necessary to provide attractive career paths and associated incentives for municipal staff. • Create strong incentives which discourage job hopping.

16. Proposals • Investigate the implications of the Single Public Service for different categories of municipalities. • SiyenzaManje support to be extended to more municipalities, especially smaller municipalities who cannot attract and retain the skill and to explore shared services – now component of LGTAS. • The need to adopt a stronger approach to regulating those who enter the municipal service ensuring that those entering the pool have the requisite skills (professionalisation) – now component of LGTAS. • Expanding existing surveys such as the MDB assessments to include a greater focus on professional, management and leadership skills. • Actively discourage political influence/interference in the appointment of staff resulting in politically accepted appointments at the expense of the necessary and relevant skills required – now component of LGTAS.

17. What was Envisaged • Constitution creates three sphere of government with different revenue raising capacities. • These capacities are complemented by intergovernmental transfers to ensure that each sphere has sufficient funds to discharge their expenditure responsibilities. • South Africa’s fiscal system is based on a revenue sharing model with 7 out of 9 of the provinces receiving more funds than they raise by way of national taxes. • Similarly, except for the major urban municipalities, most municipalities are dependent on national transfers. • Emerging Issues • A number of flaws had been recognized with the RSC levies pertaining to general principles of sound taxation, efficiency of collection, potential economic impact and utilization. • The Minister of Finance announced in his 2005 Budget speech that RSC levies would be phased out on 30 June 2006 • The National Treasury provided a transitional arrangement for the 2006 budget, R24 billion (R7 billion in 2006/07, R8 billion in 2007/08 and R9 billion in 2008/09) • Government recognises that the local government sphere faces a series of spending pressures across a number of key functions Municipal Finance

18. STATE OF MUNICIPAL FINANCE

19. Principle of differentiation • Municipalities are diverse in nature, households, service backlogs and have differing economic bases • A one-size approach is no longer appropriate • There is a need to identify different policy responses to the financing, funding and financial management of municipalities

20. Economic context • Economic activity concentrated within a small geographic area. • Many municipalities must provide services in contexts where there is little economic activity to support the financial viability of these services.

21. Settlement characteristics • Higher number of formalised households in urban areas • Municipalities with large rural populations typically have higher backlogs • Municipalities with very small populations may have specific service delivery challenges (such as the ability to attract and retain skilled staff and service standards). Formal urban households

22. Socio-economic differentiating factors

23. Financial differentiating factors

24. Recommended categorisation of municipalities

25. State of municipal finances • Cash flow is strong (on average between 10% to 37% attributable to unspent grants). Cash coverage is 3 – 4 months for S1, S2 and S3 municipalities and 7 – 10 months for S4-S5 municipalities • 12 S2 municipalities, 5 S3 municipalities and 1 S5 municipality are technically insolvent • Capital expenditure is high whilst borrowing levels are low (except S1) • Debtors’ collections remain a challenge, particularly in the S3 municipalities. Lower collections will weaken financial position going forward

26. Key financial ratios: 30 June 2008 SALGA notes that whilst the financial position as at 30 June 2008 is strong, it appears that there has been a deterioration in the year 30 June 2009 (NT quarterly press statements). Debtors’ collections in particular have declined which will weaken the financial position set out above.

27. Key conclusions • Intervention programme are necessary for the technically insolvent municipalities • Capital expenditure is high whilst borrowing levels are low (except S1). Should government grants decline, borrowings may not be an alternative financing source – infrastructure development will decline • There is a need for more detailed expenditure classifications in the AFS of S3 • Debtors’ collections remain a challenge, particularly in the S3 municipalities. Lower collections will weaken financial position going forward

28. Roles and functions - districts • S4 and S5 district municipalities have significant surpluses and strong cash flow • The expenditure classifications in the AFS do not provide an indication of operational expenditure – appear to have high “discretionary” spending • The role of S4 and S5 municipalities not clear (except the Water Service Authority role in S5)

29. Roles and functions – S3 • The level of services in S3 municipalities varies – difficult to determine from operational expenditure in the AFS • Very little is being spent on bulk purchases, depreciation and finance charges. Indicates that a different service delivery model applies in S3 municipalities compared to S1 and S2 municipalities • High reliance on government grants – the outcomes on or relationship with service delivery difficult to determine • A different financing mechanism may be required together with a more researched service delivery mandate

30. Key conclusions • There is a need to provide clarity on the role of district municipalities (particularly S4) in relation to local municipalities and service delivery – there is significant inconsistency in how S4 and S5 interact with local municipalities and/or service delivery • The role, functions and financing of S3 municipalities needs to be revisited to better articulate intended outputs

31. Self revenue raising capacity • Significant differences in GVA per capita • S1 – R39 686; S2 – R22 854 and S3 – R4 184 • Significant differences in rates revenue per household • S1 – R2 612; S2 – R1 189 and S3 – R157 • Needs to be addressed in the equitable share formula to recognise limited revenue raising capacity • Municipal Property Rates Act may not have been properly implemented from a rates revenue perspective • Debtors collections are a challenge – impacts on revenue self-sustainability

32. Conditional Grants • Reporting and accessing challenges – significant burden on municipalities • The need for provincial DORA’s to provide certainty from a resourcing and service delivery perspective • Operating and maintenance component – to ensure that the implementation of government initiatives affordable (particularly in the S2 category) • There is a need to ensure that there is a correlation between backlogs and conditional grants

33. SALGA recognises the need to encourage and support members to improve FM practices • 39% of audit reports in the SALGA database are unqualified – this needs to be improved • Audit reports in their current form are incomplete in articulating underlying challenges, such as • Financial distress and going concern difficulties: virtually all municipalities have qualified reports • High turnover of finance staff • Complexity of the GRAP accounting standards – not all the standards are appropriate (fair value and present value principles in particular are costly to implement and require high level of skills)

34. Financial Management capacity building • SALGA agrees with the FFC findings (existing programmes are too short, lack defined outcomes, and have fragmented ownership and coordination • SALGA supports the FFC recommendations • Comprehensive assessment and design • Better alignment • Wider focus • SALGA supports the establishment of local SCOPAs (oversight committees) • Dedicated funding • Appropriate training

35. Proposals • Funding of DMs must be in line with the service delivery obligations that national and provincial government place at their door. • Unfunded mandates still remains a challenge in local government and there should be a strategy to address such. • Red tape in terms LG accessing funding from National Treasury should be removed and National Treasury should play a vital role in supporting local government to access grant funding. • Tendency by Provincial government to dump funds to local government when nearing its financial year end with conditions to spend should be addressed. • The implementation of REDs must take place within the context of the current constitutional and legislative regime so as to ensure the continued financial viability of local government

36. Proposals • Need for a uniform approach to deal with Ratepayer Associations. • Principle of differentiation as a key principle for funding, financial management and support of local government be adopted. • A review of the overall municipal fiscal framework be conducted to:- • introducing a local business tax, • adjusting the local equitable share formula to make it more redistributive, • retaining the share of the fuel levy as a dedicated revenue source for local public transport, • making concomitant adjustments to the vertical split of nationally collected revenues. • ensure correlation between elimination of backlogs and the impact of government grants in general; and to incorporate an operating and maintenance financing component in conditional capital grants. • incorporate a conditional grant to rural municipalities for job creation and economic development.

37. Proposals • That programmes to improve municipal financial management capacity should be enhanced by: • Appropriate national and provincial interventions for those municipalities that are technically insolvent. • Ensuring more effective coordination of how the FMG and MSIG grants, and the SiyenzaManje and Seta programmes are targeted. • Requesting the Auditor-General to ensure that audit reports more clearly disclose the underlying causes of poor financial management.

38. PART 2 KEY ISSUES IMPACTING ON LOCAL GOVERNMENT

39. Key Issues • Transformation and Restructuring Initiatives • Local Government Legislation • EDI Restructuring • Single Public Service • Property Rates Act Implementation – Challenges • Governance Challenges • Local Government Post 2009 and 2011 Elections • Councillor Support • Local Government Resources • Outstanding Municipal Debt &Global Economic Crisis

40. LOCAL GOVERNMENT LEGISLATION

41. Challenges • In general the suite of LG legislation is welcomed.  However, the following challenges are evident:- • certain laws such as the MFMA and Systems Act and regulations framed in terms thereof, are so complex and prescriptive that municipalities have great difficulty in implementing and complying therewith.  • legislation is drafted for one fits all situations and does not take cognizance of the limited capacity of most municipalities.  • Metropolitan municipalities have the luxury of skilled technical staff, such as lawyers and accountants whereas smaller municipalities, in most instances have to rely solely on its municipal manager. • an inordinate amount of time is wasted getting to grips with legislation to the detriment of service delivery.  Municipalities have no choice, as failure to comply, can result in poor audit reports and even criminal sanction.

42. Proposals • That the complex provisions in the suite of local government legislation be simplified or alternatively made applicable on a basis of capacity. • The legislative/policy provisions that hamper service delivery, as outlined in Annexure “A”, be reviewed. • These proposals are currently being considered in the LGTAS

43. EDI RESTRUCTURING & 17TH CONSTITUTIONAL AMENDMENT

44. EDIR - Key Developments 1. RED 1 Establishment Establishment of RED 1 as a municipal entity 2. Sept 2005 / Oct 2006 Cabinet Decisions Movement from 6+1 REDs as Municipal Entities (Sept ‘05) to 6 Wall-to-Wall REDs as Public Entities (Oct ’06) • SALGA National Conference 2007 Municipalities resolve on matters of Electricity Distribution in context of 2004 National Conference Resolutions 4. Local Gov Laws Amendment Bill 2007 Exemptions to be granted to municipalities in respect of chapter 8 and 8A of the Municipal Systems Act. 5. Asset Transfer Framework To facilitate the transfer of electricity distribution assets from municipalities to the REDs as public entities. 6. REDS Establishment Bill Central to the enablers that will expedite and remove a large percentage of the restraints 7. National Electricity Emergency Wave of electricity load shedding 8. Proposed Constitutional Amendment Considerations to Amend the Constitution to ensure successful implementation of restructuring

45. Sept 2004 & April 2007 Endorse and support 25 Oct ‘06 Cabinet Decision; Ensure that municipalities are not worse off on revenue with the establishment of REDs; Fully participate and play a leading role in the establishment of REDs’ Regional Engagements Forums; Encourage all municipalities to commence with the preparatory steps towards the establishment of the REDs; Pursue DME and ESKOM to conduct an audit on electricity backlogs Engage DME in upgrading existing energy generation and distribution infrastructure in terms of 2010. Progress 2009 In excess of 140 municipalities signed the Accession Agreements; 13 municipalities 100% complete with Ring Fencing Process & 20 ongoing; 18 municipalities completed Section 78 process, with others still in the process with funding now available on application from EDI Holdings; Municipalities continuously encouraged to conduct Due Diligence Process; All Regional Engagement Forums established; Through NEDLAC Summit EDIH mandated to conduct audit on maintenance & backlogs, SALGA to support SALGA Resolutions & Progress

46. Key Considerations and Implementation Enablers for LG • REASONS FOR CONCERN • Formulae to be used for the allocation of shares to national government, Eskom and municipalities; • As executive authority on electricity municipalities to be part of decision making; • Compensation and the valuation methodology to be used for the valuation of such assets; • Service delivery agreements; • As key revenue stream for municipalities, financial incentives for municipalities to join the REDs and impact on the credit rating of municipalities; • Ownership of Key Industrial Customers (whether they should be transferred over to the REDs and the financial implications thereof); • Motivation for constitutional amendment and direct impact on municipal powers, functions & revenue CRITICAL AREAS OF CONCERN TO LG • Shareholding in the REDs; • Governance arrangements of the REDs; • Transfer of electricity undertakings; • Compensation for electricity undertakings; • Service delivery agreements; • Articles of association of REDs; and • Municipal revenue stream. • Considerations to Amend the Constitution

47. Constitutional Amendment Proposal Option to allow national government to limit municipalities’ legislative and executive authority in certain circumstances; Circumstances would include, for example, where a municipal function or service can be provided to communities more effectively, efficiently and sustainably on a regional basis than on a local basis. if this option is successfully pursued, it will mean that the current constraints preventing national government from effecting EDI restructuring will be overcome. SALGA Proposals Various other interventions are required and should be explored, including:- REDs participation must be incentivised outstanding policy issues (the “Deal” incl. shareholding, governance arrangements for REDs, compensation) must be addressed; Eskom (like municipalities) must transfer its distribution division to REDs; Enablers - EDI restructuring legislation and if necessary regulations must be promulgated to fully implement the restructuring. Considerations to Amend the Constitution

48. SINGLE PUBLIC SERVICE

49. CONSULTATIVE WORKSHOP 2007 • National Consultative Workshop that took place on 11 – 12 October 2007, municipalities resolved the following: • That SALGA: • Supports the Bill insofar as it recognizes the three (3)spheres of government; • Supports the Bill as enabling overarching/framework legislation on the three spheres of government and for regulation of employment practices, as defined in the Bill, including transfer and mobility of staff within and between the spheres; • Supports the Bill in its provision that each public administration institution i.e. national, provincial and municipalities are employers in their own right and must appoint and manage career and related incidents of their employees; • To give effect and expression to the above, SALGA should submit that, as at present the current collective bargaining as well as the determination of conditions of service, be negotiated at the SALGBC.

50. CONSULTATIVE WORKSHOP 2007 • Develop the HR norms and standards to achieve this harmonisation, in line with their mandating policy. • To ensure compliance with the Systems Act 32 of 2000, among others, the costing of the alignment must precede and inform the implementation approach as required by Section 9 of the Act. This should include the role of the Fiscal and Financial Commission per the Act • To ensure common remuneration policy the principle of equal pay for work of equal value must be upheld as that will have multiple benefits including but not limited to – ensure high staff morale and contribute to skills attraction and retention as staff would not unnecessarily leave one employer for the other because of high /attractive pay. • To protect the interests of local government by ensuring the refinement of selected clause/s in the Bill that undermines the constitutionality and uniqueness of local government (with both legislative and executive power/s).