on the 2015 DoRB Select Committee on Appropriations 14 April 2015 1 Introduction Chairperson thanks for the invitation and opportunity to once again come and present to the Select Committee on Appropriations ID: 581446
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1
Comments on the 2015 DoRB Select Committee on Appropriations 14 April 2015
1Slide2
Introduction
Chairperson, thanks for the invitation and opportunity to once again come and present to the Select Committee on Appropriations We are making this presentation interestingly in a period when there has been so much in the media about the withholding of the Equitable Share (ES) to some municipalities by National Treasury and SALGA’s views on the matterWe are also meeting just a couple of weeks after SALGA hosted a successful National Members’ Assembly (NMA) from the 23rd to 26th of March at Gallagher Estates in Midrand. The NMA took a number of resolutions which the committee would be interested in pertaining to local government (LG) finances and LG generallyAs an independent voice of organised local government, SALGA does always appreciate and welcome the opportunity to present its views to the committee and on some of the key issues entailed by the 2015/16 budget in particular2Slide3
SALGA notes and welcomes the 2015 budget proposals as presented by Minister Nene in Parliament on the 25th
February 2015We note the difficult economic context and the challenges that the budget seeks to address and most of these challenges are acutely felt in the LG spaceOur collective resolve and ability to deal with these challenges would largely mitigate against the desperation that sometimes local government stakeholders feel which at times results and manifest in the form of the so called ‘service delivery protests’The budget is therefore not only an instrument to provide for the medium-to-long term developmental trajectory, but also a short term instrument to address the most pressing challenges that people experience
Overview and general assessment
Of
DoR
2015
3Slide4
As we had previously indicated to this Committee, SALGA did extensively engage with National Treasury, the FFC,
DCoG and other stakeholders on matters pertaining to the fiscal state of the country and the budget allocations proposedWe have during these engagements made inputs pertaining to local government funding, the vertical division of revenue (the equitable share arrangement) and support going to Local Government through conditional grants Most pertinently, SALGA participated in the Budget Forum convened by the Minister of Finance on the 29th September 2014 where most issues related to the DoRB were discussed.Overview and general assessmentOf
DoR
2015
4Slide5
SALGA is cognizant of the state of our country’s finances, our debt burden, and the competing needs for our limited resources
We are aware and mindful of the need to strategically leverage the limited resources to drive the NDP and to secure the fundamentals that will put our country on a developmental trajectory and address the trifecta of poverty, unemployment and inequalityWithin this context, we contend however that it is in everyone’s interest to ensure that LG is properly resourced and capacitated to meet her developmental challengesAccordingly, in this submission we highlight some pertinent matters that seek to demonstrate our take not just on the DoRB but in working with other spheres to address issues pertinent to LG resourcingOverview and general assessment
Of
DoR
2015
5Slide6
SALGA notes that:
There is no baseline reduction made in the LG Equitable Share though the new formula is still being implemented over the MTEF. However, the work on the review of the Equitable Share has to continue so that LG gets a better share of the national fiscus, not the current 9% which falls far short in enabling LG to meet her ever growing challengesThe inflationary adjustment of the ES also falls short compared to the increase in some of the administered prices such as water and electricity tariffsGiven the spatial distortions in our economy, the LGES remains the main source in most municipalities to drive the developmental imperatives and meet service obligations to the poor and the indigentA more holistic approach to the allocation therefore remains a matter to be addressed so that LG is fully resourced and enabled
Major Changes / Additions in the 2015
DoR
6Slide7
Basket of Services Adjustments
Amounts per basic service allocated through the Local Government Equitable Share – 2015/16 The 2014 data is derived from Table W 1.22 DORB 2014 PG 92
The 2015 data is derived from Table W 1.27 DORB 2015 PG 95
NERSA
provided municipalities with a guideline tariff increase of
12.20 % -
therefore the equitable share
just about covers
the increase
7
Total allocation per service( R millions)
Basic Service
2014
2015
% increase
Energy
6 289,00
7 122,00
13%
Water
9 722,00
10 732,00
10%
Sanitation
7 937,00
8 651,00
9%
Refuse
6 654,00
7 252,00
9%
30 603,00
33 757,00
10%Slide8
We have, honourable Chairperson, conducted detailed studies on the actual costs of providing electricity, water and sanitation in various municipalities versus what is provided for in the equitable share.
Indications are that by and large, the LGES falls far shorter of the actual cost:The shortfall in the 2014 ES allocation for Electricity was R 3.56 billion, or 62.2 % of the ES, with the calculated cost being R 9.3 billion The shortfall in the 2014 ES allocation for Water compared to the calculated cost of R 9.4 billion was R 638 million, or 7.3% of the ESThe 2014 ES allocation for Sanitation was R 951 million (13 %) more than the calculated cost of R 6.4 billionThese are matters that we intend taking up with Treasury and the FFC
Major Changes / Additions in the 2015
DoR
8Slide9
SALGA notes and welcomes the support provided by the budget to the cities through the following measures:
Modifying the infrastructure grant system by reducing the number of grants, introducing more flexible grant conditions and increasing the certainty of transfers over a longer time periodRefocusing the Neighbourhood Development Partnership Program to support the development of economic hubs in large urban townshipsReforming the system of development charges to improve the fairness and transparency, and reduce delays in infrastructure provision for private land developmentsReviewing the sustainability of existing own-revenue sources for metro municipalitiesExpanding opportunities for private investment in municipal infrastructure through the DBSA increasing its origination of longer term loansProject preparation facility provided in partnership with DBSA
Major Changes / Additions in the 2015
DoR
9Slide10
With all the positives noted above, as SALGA we are still not happy with the less than 10% of the fiscus going to LG compared to other spheres of government
The as yet unresolved issue of the Human Settlements Development Grant is a matter of concern to us and should remain a matter of on-going discussion between SALGA, NT and the Human Settlements Department We will continue pursuing our proposal for an increased fiscal support for small rural municipalities with limited tax baseWe will again endeavour to work with both the Treasury and the FFC in investigating a more
workable district revenue generation and funding
model
The issue of
state, households and private business
indebtedness to
municipalities continues to be an albatross to us. Likewise, the issue of indebtedness of municipalities to Eskom and Water Boards does need urgent attention and resolution by all – more in this in a bit
Major Changes / Additions in the
2015
DoR
10Slide11
Major
Changes / Additions in the 2015 DoR As we continue to articulate the need for increased LG funding, we are equally mindful of our responsibility to ensure better management of these resourcesAccordingly, in 2015/16 SALGA
will invest more in monitoring the performance and capacitation of municipal oversight structures such as MPAC Committees, Audit Committees and the Internal Audit
function
We will encourage municipalities to strive for value for money and implement the cost saving provisions recommended by Treasury
Equally
, we will continue engaging with NT and
DCoG
on the matter of unfunded and underfunded mandates as was agreed upon at the Budget Forum
We
do welcome as well the agreed upon arrangement of having two Budget Forums a year, one focussing specifically on
LG
(possibly around June)
We
intend using this for better engagement , scoping of the issues and collective resolution on matters that will find space in the
DoRB
in subsequent years.
11Slide12
With regards to cities, we note that:
NT will not be funding the transformation of cities’ transport logistics but would rather assist them in deploying their own resources towards this endeavourThis goes with the merging of the two transport grants, viz. the public transport operating grant and the public transport infrastructure grantThis creates a positive possibility of moving funds between these two grantsAs SALGA we will endeavour to ensure that the grant funds more sustainable transport solutionsThe undertaking that NT/DBSA will assist cities to expand their borrowing instruments and assist them in making better use of their own resourcesThis goes with the call that cities should make a bigger contribution to their own capital budgetsWe further note that with regard to MIG, municipalities would be henceforth allowed to use a portion of this grant for refurbishment (not maintenance) on condition that they maintain the standard of the asset over time
Assessment of direct and indirect grants
12Slide13
Successes and challenges
We note some of the strides in reforming the grants system and we will continue making our inputs in those areas that have not been finalized as yetSALGA welcomes the allocation of the Demarcation Transition Grant of R139m to support those municipalities affected by demarcations issues in KZN and GPwe will lobby for continued support to these areas so that they do not suffer the negative fate experienced by TshwaneWe will engage with NT and DBSA to ensure that the support intended for cities is well managed and coordinatedThe unresolved issues around the Housing Development Grant and other grants would be a subject of our engagement at the next LG dedicated Budget ForumWe will continue with our work on the issue of unfunded/underfunded mandates, billing systems, review of funding instruments for district municipalities and municipal debtsWe will also continue working with NT, MISA and other entities in bringing about the requisite capacity in municipalities so as to ensure that they do spend their grant allocations accordingly13Slide14
Other Issues – the withholding of the ES by NT
An email was sent by NT at 6.47pm on Friday 6th March to about 60 municipalities requiring them to comply with certain measures dealing with their debts to Eskom and Water Boards. The deadline for this compliance was stated to be the next Friday 13th March failing which NT would withhold the ES allocation due on 22 MarchSALGA wrote to the Minister of Finance on 09 March requesting that this action be held in abeyance until a meeting is held between the Minister and the Chairperson of SALGA to find amicable and sustainable solutions to the matterUntil to date such a meeting has not been held and a letter of reminder about the request has been sentAnother letter has also been sent to the President requesting his intervention on the matter before SALGA could formally lodge an IGR dispute14Slide15
15
Other
Issues – the withholding of the ES by NT
On 30 March SALGA was advised by the affected municipalities that they did not get their ES allocation and that they were battling to pay staff salaries, other creditors and to render general services
A bilateral was held between SALGA and NT officials on 1 April to seek an urgent resolution and get clarity on the matter
A special SALGA NEC was convened on 02 April to deliberate and resolve on the matter
Amongst the resolutions taken by the NEC on the matter were the following:
Seek legal opinion on the constitutionality of the action by NT in collaboration with the FFC
Advise the affected municipalities to not bind themselves with unsustainable commitments
Write to the Minister of Finance requesting an urgent meeting; to the President to request his intervention; and to the Deputy President for SALGA to be represented in all structures dealing with the energy crisis issue
Continue to engage NT and
Cogta
so that viable and sustainable solutions are found to the management of creditors (not just Eskom and Water Boards) and debtors by municipalitiesSlide16
Other Issues – the withholding of the ES by NTNEC Resolutions continued:
Caution against the imposition of conditions on the ES and thus making it some sort of a conditional grantAcknowledge Eskom as a strategic asset and continue to work with the company based on our MoUUrge municipalities not to take independent legal action outside the NEC frameworkCall upon NT to take a balance approach on the matter, e.g. equally demanding of National and Provincial governments to honour their debts to municipalitiesAnd lastly urge municipalities to take required measures to enforce their debt management policies
16Slide17
Conclusion
SALGA notes and welcomes the DoRB 2015/16We equally note the ongoing work on finding solutions to local government funding and capacity buildingWe are however concerned and disturbed by the knee-jerk action by NT of withholding ES to some municipalities as it undermines the performance of their functions and the delivery of basic services to the poorWe will continue engaging with related parties in finding long term solutions to the management of municipal budgets, cash flows and revenue streams17