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ROLE OF PROVINCES IN SUPPORTING MUNICIPALITIES WITH THE PREPARATION OF THEIR BUDGETS

ROLE OF PROVINCES IN SUPPORTING MUNICIPALITIES WITH THE PREPARATION OF THEIR BUDGETS. Presenter: Thulani Mandiriza | Director: Local Government Budget Analysis, National Treasury | 24 January 2011. Purpose of the Presentation. Context: the Municipal Accountability Cycle

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ROLE OF PROVINCES IN SUPPORTING MUNICIPALITIES WITH THE PREPARATION OF THEIR BUDGETS

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  1. ROLE OF PROVINCES IN SUPPORTING MUNICIPALITIES WITH THE PREPARATION OF THEIR BUDGETS Presenter: Thulani Mandiriza | Director: Local Government Budget Analysis, National Treasury| 24 January 2011

  2. Purpose of the Presentation Context: the Municipal Accountability Cycle To briefly outline the roles and responsibilities of National Treasury and national Department of Cooperative Governance in relation to the municipal budget process To highlight the role of provincial departments in supporting municipalities in the budget process Provincial treasuries Departments of local government Other provincial sector departments To recommend a format for budget engagements with municipalities

  3. Municipal Accountability Cycle

  4. Roles of National Treasury in relation to LG (1) • Section 216(1) of the Constitution reads as follows: 216. Treasury control (1) National legislation must establish a national treasury and prescribe measures to ensure both transparency and expenditure control in eachsphere of government, by introducing ­ (a) generally recognised accounting practice; (b) uniform expenditure classifications; and (c) uniform treasury norms and standards. (2) The national treasury must enforce compliance with the measures established in terms of subsection (1), and may stop the transfer of funds to an organ of state if that organ of state commits a serious or persistent material breach of those measures. • National Treasury is the only government department that the Constitution requires to be established, and then mandates to perform specific functions

  5. Roles of National Treasury in relation to LG (2) • In relation to local government, the national legislation referred to in section 216 of the Constitution includes the following: • The Municipal Finance Management Act; • The sections of the annual Division of Revenue Act that set treasury norms and standards; • The Municipal Fiscal Powers and Functions Act • The Preferential Procurement Policy Framework Act • National Treasury’s role with regards to municipal budgeting • Co-ordinate the development of the LG fiscal framework, within the context of the DOR Bill • Manage the development of the Local Government Equitable Share formula • Ensure compliance with the MFMA, including: • Adherence to the time-lines for tabling and approval of municipal budgets • Implementation of the Municipal Budget and Reporting Regulations, especially the new budget formats • Application of the funding compliance assessment • Overall evaluation of municipal budgets • Publication of consolidated local government budget information • Provide guidance to municipalities through the MFMA Budget Circulars • Provide budget related training to provincial treasuries and municipalities • Exercise direct oversight of the 17 non-delegated municipalities

  6. Roles of DCoG in relation to LG (1) • DCoG is responsible for the following local government legislation: • Municipal Structures Act • Municipal Systems Act • Municipal Property Rates Act • Plays important role in relation to interventions in terms of the MFMA • DCoG’s role with regards to municipal budgeting • Provide guidance and oversee the production of IDPs • Ensure compliance with the MPRA • Manage communications in relation to two municipal conditional grants (MIG and MSIG) • If a municipality fails to approve its budget by the start of the new financial year DCoG (through its provincial counterparts) has a role to play in co-ordinating the prescribed interventions

  7. Role of provinces: Provincial Treasuries • National Treasury has delegated responsibility for 266 municipalities to the respective provincial treasuries • Provincial treasuries take lead from National Treasury • Provincial treasuries’ role with regards to municipal budgeting • Ensure compliance with the MFMA, including: • Adherence to the time-lines for tabling and approval of municipal budgets • Implementation of the Municipal Budget and Reporting Regulations, especially the new budget formats • Application of the funding compliance assessment • Overall evaluation of municipal budgets • Provide budget related training to municipalities • Assist municipalities with implementation of budget related reforms • Work with Depts. of LG and provincial sector departments to ensure proper co-ordination of provincial and municipal plans and budgets

  8. Role of provinces: Depts. of local government • Take lead from DCoG’s role • Provincial depts. of local governments’ role with regards to municipal budgeting • Support and guide the municipal IDP process through IDP forums (feed into the budget process) • Review IDPs to ensure that they are strategic and aligned to national and provincial goals • avoid wish-lists • Facilitate sector involvement in IDP processes • ensure provincial sector departments plans are integrated and aligned to municipal plans • ensure that necessary funding is secured from provincial sector departments so that municipalities are not landed with unfunded mandates • Support alignment of the Performance Management System with the IDP and budget • Support implementation of the MPRA • Ensure compliance with the MPRA • Work with provincial treasuries and provincial sector departments to ensure proper co-ordination of provincial and municipal plans and budgets

  9. Role of provinces: sector departments • Sector departments’ role with regards to municipal budgeting • Participate in IDP forums to ensure their infrastructure plans feed into municipal IDP processes • Participate in municipal budget hearing processes organised by the provincial treasuries • Ensure ‘service level agreements’ are in place where municipalities deliver services on their behalf • Ensure all ‘delegated mandates’ and ‘service level agreements’ are properly funded – to avoid unfunded mandates • Housing Departments and Transport Departments must work with municipalities to prepare for the devolution of these functions

  10. Format of engagements with municipalities • National Treasury has extended the concept of ‘Budget Benchmarking Hearings’ to the 17 non delegated municipalities • Involves analysing municipalities’ tabled budgets to ensure • Compliance with the new budget formats • Budgeted revenues are based on realistically, collectable revenuews • Operational budgets are funded in accordance with the MFMA (application of the funding compliance assessment) • Capital budgets are funded • Budgets are aligned to the IDPs • Hearings to be held in April and early May. i.e. before municipalities table their budgets for approval • Provincial Treasuries should hold similar ‘benchmark’ hearings for the delegated municipalities • Work together with Depts of local government and sector departments • Western Cape Provincial Treasury provides a ‘good practice’ model that other provinces can learn from

  11. DISCUSSIONS THANK YOU CONTACT Jan Hattingh Chief Director: Local Government Budget Analysis National Treasury Tel: 012-315-5009 E-mail: jan.hattingh@treasury.gov.za

  12. ANNUAL MUNICIPAL BUDGET PLANNING PROCESSES FOR 2011/12 Preparing municipal budgets in the context of the local government elections Presenter: Conrad Barberton| Director: Local Government Budget Analysis, National Treasury| 24 January 2011

  13. Purpose of the Presentation To outline the legal framework for the preparation of municipal budgets To highlight some of the challenges posed by the local government elections To propose two options for managing the 2011/12 budget process To highlight key issues for the 2011/12 budgets

  14. Legal framework • The MFMA is the cornerstone of budgeting and financial management reforms in the country • It governs the municipal budget and financial reporting process • Timing, contents and formats • Provides the legal foundations for the Municipal Budget and Reporting Regulations • Chapter 3 of the Constitution and Chapter 5 of the MFMA require national and provincial governments to build capacity of municipalities for efficient, effective and transparent financial management

  15. Legal framework: MFMA requirements on budget processes • S15(a) Municipality may incur expenditure only i.t.o. an approved budget • S16(1) Council must approve budget before the start of the financial year • That is before 1 July 2011 • S21(1)(a) Mayor must coordinate budget & IDP preparation processes • S21(1)(b) Mayor must table time schedule of key deadlines at least 10 months before start of budget year (31/8/2010) for: • Annual review of the IDP, preparation, tabling & approval of budget and public consultations • S16(1) Mayor must table budget to Council at least 90 days before start of financial year • That is by 31 March 2011 • S17(3) Tabled budget must be accompanied by, inter alia • Draft resolutions approving budget • Draft resolutions imposing tariffs and taxes • Proposed amendments to IDP and budget related policies • Proposed service delivery agreements with external mechanisms • S24 Council must consider budget for approval at least 30 days before the start of the budget year 15

  16. Legal framework: Failure to approve IDP and budget by 30 June 2011 • In case of failure to approve the IDP and budget by the 1st day of the budget year, the following applies: • Mayor must immediately report to the MEC for LG • Provincial Executive may intervene i.t.o S 139(4) of the Constitution, including dissolving of Council and appointment of administrator • S26(4) funds may be withdrawn only with the approval of the MEC for Finance to defray capex and opex for votes appropriated in the previous year • S32 any expenditure incurred will be unauthorised • Municipality will receive an audit qualification • Adjustments budget may not increase tariffs, add programmes or projects 16

  17. Legal framework: other important provisions • MFMA read with the Municipal Budget and Reporting Regulations only allows for a ‘main adjustments budget’ to be tabled after the mid-year budget and performance assessment has been tabled in council, i.e. after 1 January 2012 • Permitted scope of an adjustments budget is quite limited: • taxes and tariffs may not be increased, • any additional revenues may only be appropriated to programmes and projects already budgeted for (see section 28 of the MFMA), i.e. no new programmes and projects permitted • Idea of a ‘holding budget’ which can be changed substantially through an adjustments budget soon after the start of the municipal financial year is not legally permitted • Section 13 of the MPRA, and sections 24 and 42 of the MFMA provide that new tariffs for property rates, electricity, water and any other taxes and tariffs may only be implemented from the start of the municipal financial year (1 July) • If municipalities do not pass their budgets by 30 June 2011 they will not be able to increase rates, tariffs and taxes which will result in an immediate financial crisis 17

  18. Legal framework: critical dates and timeframes

  19. LG Elections: Scenarios and implications • Election date unknown • Earliest 2 March 2011 • Latest June 2011 i.t.o IEC (within 90 days after date of previous elections) • Electioneering timetable to be considered • Council scenarios • Entirely new Council • Combination of new & previous Councilors • Changes in governing party • Implications • On budget/ IDP processes (tabling & approval) • Continuity of service delivery (stop/ start) • Buy-in by new council – especially if previous council adopts budget 19

  20. LG Elections: challenges to the municipal budget process • If a council does not approve the necessary resolutions regarding increases in rates, taxes and tariffs such increases may not be implemented – • The result will most likely be an immediate financial crisis, and an intervention in terms of section 139(4) of the Constitution. • If a council does not approve the budget before the start of the financial year, then in terms of section 26 of the MFMA the provincial executive must intervene • The outgoing councils need to ensure that their inputs into the 2011/12 budget and MTREF safeguard the financial sustainability of their municipalities. • More specifically municipalities are advised against unrealistically low tariff increases and over-ambitious capital expenditure programmes • The election campaigning period is likely to coincide with the period when municipalities normally conduct public consultations on the budget. • There is a risk that these public consultations will either be neglected or used to serve narrow party political interests • In managing the above risks, Mayors and municipal managers must seek to ensure stability and continuity 20

  21. Budget process: Option One

  22. Budget process: Option Two

  23. MFMA reporting responsibilities • Although elections would be held with only a quarter (1/4) of the 2010/11 FY remaining, the MFMA reporting responsibilities still stand, namely • AFS to be prepared for a full financial year (1/7/2010 to 30/6/2011); • To be submitted to Auditor General by 31 August 2011 • Annual Report is for a full year • To be tabled to Council by Mayor, ideally with the AFS for 2010/11 but latest within 7 months after end (by 31 January 2012) • Council Oversight Report is for a full year • Council must Consider O/ Sight Report and adopt within 2 months from tabling of Annual Report (by latest 31 March 2012) • Particularly important for municipalities affected by the demarcation process 23

  24. Key issues for the 2011/12 budgets (1) • See MFMA Budget Circular 54 • Alignment to national outcomes – see Annexure 1 • Implications of the demarcation process • Date of transition is critical – must be 1 July 2011 • The affected municipalities must work together to compile budgets for the ‘new’ municipalities • Consolidation of the budget format reforms • Only change is the additional request for information on repairs and maintenance

  25. Key issues for the 2011/12 budgets • Revising rates, tariffs and other charges • Multi-year tariffs • NERSA’s approval of municipal electricity tariffs • Water tariffs must be cost-reflective • Funding choices and management issues • Ensuring sustainability – funding compliance assessment • Ensuring that drinking water meets the required quality standards at all times; • Protecting the poor from the worst impacts of the slow recovery in the labour market; • Supporting meaningful local economic development (LED) initiatives that foster micro and small business opportunities and job creation; • Securing the health of their asset base • Expediting spending on capital projects that are funded by conditional grants • Minister of Finance will table DoR Bill and National Budget on 23 February 2011 • National Treasury will provide further guidance at the start of March 2011

  26. DISCUSSIONS THANK YOU CONTACT Jan Hattingh Chief Director: Local Government Budget Analysis National Treasury Tel: 012-315-5009 E-mail: jan.hattingh@treasury.gov.za

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