SALGA welcomes the overall sentiment of the budget given the current economic pressure:

1. Comments on the 2014 DoRBSelect Committee on Appropriations 18 March 2014 by Councillor Subesh Pillay 1 1

2. Overview and general assessment SALGA welcomes the overall sentiment of the budget given the current economic pressure: • The budget supports the NDP’s vision of building a capable state at local government level through various capacity-building programmes that support rural municipalities • The evident alignment of 2014 budget to NDP is essential for job creation • Budget encourages economic and job growth and emphasizes the need to work with business by creating an environment for business to create such jobs • The targeted focus on infrastructural expenditure will have positive impact on employment • The call for control of government expenditure is a welcome development in curtailing wasteful expenditure, • The plateauing trend on local government funding is noted however, some of the challenges facing local government call for an upward sloping trend

3. Major Changes / Additions • The impact of the new LGES formula is welcome, sensitive to municipalities with lower revenue raising potential (50% more allocated to rural & district munics) • SALGA welcomes the new Human Settlement Capacity Grant of R300 million to the 6 metropolitan municipalities • A number of municipal grants have had funds shifted to their indirect components, or have had new indirect grant components created over the spending period ahead • Additional R 934 million added to the indirect regional bulk infrastructure grant welcome • SALGA welcomes incentives introduced for developing more integrated & efficient cities through Integrated City Development Grant (R841 million) over medium term • Additional funding is made available through subsidy of R293 aimed at lowering the cost of basic services (further studies underway)

4. Assessment of direct and indirect grants An amount of R36.1 billion will be transferred to municipalities through direct conditional grants and R7.7 billion will be spent on their behalf through indirect grants. • The increase in indirect grants for 2014/15 is noted • indirect grants make up 17.6 per cent of conditional grants to municipalities, compared with 14.3 per cent in the previous year. • Funds were reduced from municipalities with weak past performance • R460 million is shifted from the direct integrated national electrification programme grant to its indirect • SALGA notes an assertion for municipalities who fail to implement certain projects, funds may be converted to indirect grants for national government to provide infrastructure on behalf of the municipality • challenges in local govt acknowledged however, capacity building grants should help municipalities to develop their management, planning, technical, budget and financial management skills

5. Overview of HSDG and USDG performance • Notably, HSDG and USDG spending both exceeding general capital spending by Metros. • Furthermore, USDG performance is improving in 2013/14 and appears to be on more solid ground heading into its 4th year. 2013/14 expenditure reportedly 93%, with BCM and Mangaung managing to improve spending from past years. Source: 2014 DORB pgs 154 and 189; Section 71 Reports; NDHS presentation to Portfolio Committee on Human Settlements 12 Feb 2014.

6. HSDG and USDG HSDG • USDG increases by 13% (nominally) in 2014/15 compared to a small 1% increase of the HSDG. Given estimated inflation of 6.2% in 2014, this effectively means HSDG is declining in real terms. • Combined with the recent substantial increase in the housing subsidy approved by MINMEC, this will put considerable pressure on the HSDG, and limit the sector’s ability to meet targets for delivery of top structures and serviced sites. USDG • This year SALGA will be lobbying NDHS and putting together proposal to extend the USDG to additional large cities. • SALGA also welcomes the willingness of the NDHS to make changes to the draft USDG policy to enable municipalities to use the funds for interventions to install or upgrade services for backyard tenants. • SALGA is working with NDHS to amend existing housing subsidy programmes to enable their application to backyarder interventions, as well as to develop other possible initiatives for municipal support to backyard dwellers.

7. New Human Settlements Capacity Grant • The new HS Capacity Grant, which will provide R300m funds directly to the 6 metros to be assigned the housing function in 2014. Funds will cover operational costs to administer national housing programmes on behalf of the province. • NDHS has indicated HSDG capital grants will only flow directly to assigned metros beginning 1 July 2015, which leaves a full year for metros to utilise capacity grant to get their house in order, including approved organograms, training of staff, union negotiations, due diligence on projects and assets to be transferred, and the proper identification and management of all risks. • In order for metros to be ready to receive capital grant by 1 July 2015, its vital that provincial departments move quickly to provide full information on staff, assets, and projects to be transferred, and to work closely with metros on the ‘nitty-gritty’ of project handovers. • National must also set out a clear plan to provide detailed technical assistance to each metro throughout this year, and to ensure National Accreditation Task Team is functioning effectively to enable clear communication and support. • In summary, its extremely important that risks be managed so that metros are not set up to fail, and to ensure there is no dip in performance (financial and non-financial) with the handover to the metros.

8. Rural Household Infrastructure Grant (RHIG) • Since its introduction in 2010/11, RHIG has struggled to perform. • Of the R205 million allocated in 2012/13 (as Indirect Sched 6b Grant), only R135m or 66% spent. • SALGA welcomed the conversion of RHIG to direct (Sched 5b) grant to municipalities in 2013/14, as it strengthens capacity and accountability of LG in delivery of water and sanitation services to households. • Municipalities can better manage community consultation processes and choose appropriate technology. • Shift to direct grant means that same sphere which installs infrastructure is responsible for ongoing maintenance and functionality. • However difficulties have remained in 2013/14 with rollout, despite conversion to direct grant. • In 2013/14, R107m allocated as direct grant, but as of end of Q1 (30 Sept 2013), zero expenditure recorded.

9. Rural Household Infrastructure Grant (RHIG) • The dual approach to the grant introduced in 2014 DORB may therefore be the appropriate solution to ensure service delivery while simultaneously strengthening and promoting local government’s role in sanitation. • 42% (R48m) will flow directly to municipalities upon approval of business plans, while remainder is spent directly by NDHS via an SLA with the municipality. Dept must provide for skills transfer as part of project implementation. • By outer year of MTSF, ideally entire allocation will be disbursed directly to munics as Sched 5b grant.

10. Standing and Select Committees on Appropriations OTHER MATTERS WITH COST IMPLICATIONS FOR LOCAL GOVERNMENT FOR CONSIDERATION 04 March 2014 by Councillor Subesh Pillay – Chairperson of the SALGA National Municipal Finance Working Group 10 10

11. SPLUMA • Its implementation will lead to an increase in operational budget as Municipalities are required to establish Municipal Planning Tribunals (MPT) • municipalities must establish and appoint qualified and experienced personnel to serve on MPT • It is envisaged that the SPLUMA will come into operation during the course of the 2014/15 financial year • To give effect to the provisions of the SPLUMA, municipalities must : • Review their SDFs, Zoning/Town Planning Schemes and prepare new Land Use Schemes • Review their policies, By-Laws and System of Delegations • Ensure that their records system is in place • Processing of land use contraventions will have cost implication for local govt (court orders) • Like the MPT, the Appeals Tribunal will have cost implications as qualified professionals must be appointed to adjudicate on Appeals. • Cost implications will vary depending on existing capacity/expertise and the system currently in use in each municipality.

12. Regulations on Appointment & Conditions of Employment of Senior Managers: • The regulations now prescribe (municipality must review its staff structure by 16 Jan 2015) • staff structure to include at least the following departments to include at least the following departments: • Development and town planning • Public works and basic services • Community services • Finance • Corporate support services • Roads and transport • This will also have a financial implication for municipalities. • Capacity assessments to be done for all MMs and sect 56 managers will also have cost implications for municipalities.

13. Public Administration Management Bill • The PAM Bill recently passed by parliament will have financial implications for municipalities • No indication of the costing has been done to date • or if it has been done, was not shared despite the request from SALGA. • The Bill provides for the compatibility of ITC systems (extent unclear) • Due to the different municipal financial and billing IT systems • huge financial implications for municipalities if the ICT systems have to be replaced by a fully integrated system.

14. Unfunded mandates • Unfunded mandates a significant problem faced by local government • Can be minimised if parties involved properly adhere to legislation around the assignment of functions • NT should review the extent of compliance with legal procedures for the assignment and delegation of functions • Develop minimum norms and standards to guide the provision of municipal assigned services • Provincial assignments should be done through a formal agreement as per the legislation, lack of agreement contradicts legislation and Constitution • MECs for Finance and Municipal Councils must monitor the implementation of formal agreements, preferably through SLAs, between provinces and municipalities through thorough provincial and municipal budget benchmarking exercises • MECs for Finance should ensure that assigned functions are appropriately budgeted for, allocations gazetted and transfers materialise, as stipulated in the MFMA and the Division of Revenue Act

15. Municipal Boundary determinations • A number of municipalities in KZN and Gauteng will merge • The merger preparation processes will have to start during 2014 already in order to ensure smooth functionality for the new municipalities on day 1 • Past experience emerging from 2011 mergers indicated clearly that there is a dire need for the establishment of a restructuring grant • Need for a restructuring grant also supported by the MDB • A grant of that nature needs to be provided for outside of normal budget processes.

16. Conclusion • Municipal revenues remains under pressure during 2014/15 • Continued greater involvement of OLG in the budget process is acknowledged, SALGA increasing efforts to actively participate • SALGA continues to participate in the review of the LG Fiscal framework such as: • Local government infrastructure Grant Review • Review of Metropolitan municipalities‘ own revenue sources • Cost of providing free basic services