SACN PRESENTATION LOCAL GOVT EXPENDITURE REVIEW

1. SACN PRESENTATION LOCAL GOVT EXPENDITURE REVIEW Krish Kumar 2006-11-14

2. INTRODUCTION • Amalgamation of 843 municipalities into 283 must not be under-estimated in terms of complexity, HR rationalisation, disparate systems, policies and procedures - all in tandem with normal functioning of the Admin • Apartheid legacy / rationalisation / legislative challenges • Maintenance (operating expenditure) and renewal (capital expenditure) • - Added areas with no tax base and poor ability to pay • - Poor service quality / aging infrastructure inherited • Budget allocations need to be linked to an assessment of actual needs and affordability • Severe constraints on skilled and experienced resources • - acknowledge that capacity differs between municipalities • - metro / well-capacitated municipalities but still have the country’s poorest cities – urban migration

3. INTRODUCTION • Alignment of national priorities and provincial growth strategies with local IDP’s • - poor integration • Alignment of functions and fiscal powers • - RED’s • - Housing accreditation • - Unfunded mandates • - National targets set for local government – water and sanitation & free basic services • 2010 - during, beyond and legacy “One machine can do the work of fifty ordinary men. No machine can do the work of one extraordinary man” – Elbert Hubbard

4. PLANNING & BUDGET ALIGNMENT • Need to establish integration structures that bring together national, provincial and local IDP’s • Alignment of budgets with IDP • Determine 3,10 and 20 year development plans, budgets and financial model • Additional national funding / grants required to ensure backlogs eliminated • - Implications are greater with REDs & 2010 / tariffs stretched • - Local Government budgets / Revenue raising limited • - Capacity to borrow exists in certain municipalities, however, affordability and impact on tariffs significantly huge “I skate where the puck is going to be, not where it has been” – Wayne Gretzky, professional hockey player

5. INFRASTRUCTURE BACKLOGS • Huge infrastructure backlogs inherited that requires integration and rationalisation • Dynamic environment • - migration pattern / urbanisation rates • - growth and unemployment • - changing household formation • Impact of asset management plans • - target level of service / standards • - life cycle costs of infrastructure • - sustainability “We will receive not what we idly wish for but what we justly earn. Our rewards will always be in exact proportion to our service” – Earl Nightingale

6. INFRASTRUCTURE BACKLOGS • Funding constraints • - Municipal Infrastructure Grant insufficient • - Additional funding not affordable • - Impact on tariffs “Imagination is more important than knowledge. Knowledge is limited. Imagination encircles the world.” – Albert Einstein

7. INFRASTRUCTURE / SERVICE BACKLOGS AS AT 30/06/2006 ***Figures from Johannesburg and Tshwane not available “Opportunity always involves some risk. You can’t steal second base and keep your foot on first” – Joseph Heller

8. UNFUNDED MANDATES • Fiscal dumping • Unfair burden on municipalities • Need to get commitment to relieve local authorities of this unfair burden ***No figures available from Tshwane

9. IMPACT OF MUNICIPAL PROPERTY RATES ACT • Huge implementation challenges • Cost of preparation of valuation roll in respect of market value • Impact of ratio of commercial to residential • Impact of the shift in incidence • Manage the implementation – big bang vs phased “Often the difference between a successful man and a failure is not one’s better abilities or ideas, but the courage that one has to bet on his ideas, to take a calculated risk and to act.” – Dr Maxwell Maltz

10. 2010 • Stadium funding • Infrastructure • - Transport • - ICT • - Operating costs – fan parks, shade cloth, fencing, parking • - Upgrading / improvements/ City beautification • - Security costs • Will have a major impact on local authority spending • Future maintenance “Every problem has in it seeds of its own solution. If you don’t have any problems, you don’t get any seeds” – Norman Vincent Peale

11. 2010 ***Figures from, Polokwane and Mangaung not available “The world is a great mirror. It reflects back to you what you are. If you are loving, if you are friendly, if you are helpful, the world will prove loving and friendly and helpful to you. The world is what you are.” – Thomas Dreier

12. CASH COLLECTION RATE Monthly billing versus payments • Affected by increasing unemployment trend and urbanisation • Notwithstanding the increase in debtors, the payment/cash collection rates have increased • Debtor increase due to historical debt – interest and penalties

13. GOVERNMENT DEBT • Very disappointing • Why can’t National Treasury offset from equitable share?

14. LOANS OUTSTANDING & PROJECTED BORROWINGS

15. LOANS OUTSTANDING & PROJECTED BORROWINGS

16. BUSINESS LEVIES • Need to ensure that local government autonomy and funding not compromised • Need a growth related income stream that takes into account growth in the economy to replace business levies • Local business tax must be given serious consideration • 15% growth per annum • Distribution must be equitable “The weak can never forgive. Forgiveness is the attribute of the strong” – Mahatma Gandhi

17. IMPACT OF REDs • The fundaments and necessity for RED’s appreciated, however, the institutional framework / public entity model is a concern • Concern about whether we will achieve the redistribution we are trying to achieve with the 6 RED model • SALGA / Constitutional challenges • Will affect credit rating and gearing – impact on borrowing • Contribution / surcharge only for 10 years in terms of blueprint – will seriously impact on the municipality’s funding • Impact on cash flow if local government does not do collections • Need to have urgent clarification on these issues due to the major consequences • Would have preferred the 6 + 1 RED model – less impact on Metros • Why not create Water & Sanitation as a public entity at the same time?

18. GROWTH IN INCOME & EXPENDITURE OPERATING

19. GROWTH IN EXPENDITURE CAPITAL

20. PERSONNEL • Attraction and retention a major challenge especially in engineering, town planning, valuations, IT, and health fields • Salaries of municipal managers need to be market related • Need to ensure that we pay a fair rate for any given job – do not compromise on qualifications, especially technical and senior management level • Agree that there should be a common public sector pay curve, pension benefits, etc, across the sector, but, this needs to be phased in • There needs to be focused attention on capacity building with assistance / co-ordination from National Government • Skills SETA not effective – there needs to be a focus on public sector as a priority project • Once staff are trained by the public sector, they are snapped up by the private sector • Employment equity targets are difficult to meet as there are not enough graduates

21. GENERAL • Cost of compliance • - legislation • - fund business plan requirements is onerous • - MFMA reporting onerous for smaller municipalities • Eliminate duplication and effort by municipalities – National Govt should set up a Small Municipalities Legislation Compliance Network to get economies of scale • Ensure that information requested is being utilised to inform stakeholders and decision-makers • Targeted support for struggling municipalities • Further rationalisation of grants and subsidies

22. THE WAY FORWARD • All spheres of government need to work, plan and implement in an integrated manner • Need to address funding gaps • Need to take cognizance of the different capacities / abilities to spend • Need to carefully analyze municipalities carefully in terms of effectiveness, ability to spend and focus attention on key areas of intervention (similar to the restructuring grant) • - set clear targets • - monitor / regulate • - provide feedback and mentorship • Need focused attention on capacity building with regard to key / scarce resources with a nationally co-ordinated programme to identify, train and retain skilled staff

23. CONCLUSION : KEY ISSUES • Impact of REDs – prefer 6 + 1 model • Replacement of business levies with a local business tax for Metros and Category B municipalities • Creating a single consolidated public sector needs careful analysis “Learn to separate the majors and the minors. A lot of people don’t do well simply because they major in minor things” – Jim Rohn

24. THE END “Keep in mind that you are always saying ‘no’ to something. If it is not to the apparent, urgent things in your life, it is probably to the most fundamental, highly important things. Even when the urgent is good, the good can keep you from your best, keep you from your unique contribution, if you let it” – Stephen Covey