PRESENTATION TO THE SELECT COMMITTEE ON FINANCE

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PRESENTATION TO THE SELECT COMMITTEE ON FINANCE

• 2004 DOR BILL
• COMMENTS ON CLAUSES
• 25 February 2004

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INTRODUCTIONA number of new clauses have been
introduced in the 2004 Division of Revenue Bill.
Most of these clauses were not discussed with
SALGA, and it is our submission that they should
be reviewed.Furthermore, certain clauses have
been changed without prior consultation and we
seek to comment on both the new and amended
clauses.The Budget Speech documentation was not
submitted to SALGA before the speech as it has
been practice over the past years, especially
DOR. This made consultations with National
Treasury prior to the speech less meaningful, as
a result of this.The comments that follow
should be considered alongside the submission
detailing the analysis of the 2004 Bill and some
concerning trends indicated in terms of declining
allocations to at least 104 municipalities.
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CLAUSE 8 Transfers of Grants to Entities

• This is a new provision, which can generally be
  viewed as being positive for municipalities in
  that it reinforces the need to have funds going
  directly to municipalities instead of entities
  for BMS.
• Issue is Sec 8 (4) and 8(5), which suggest that
  at times funds will be directed to entities, and
  that the entities that perform a municipal
  function will report to both municipalities and
  NT.
• Second issue is that where a municipality fails
  to reimburse an entity that has performed a
  municipal function, NT may direct the withholding
  of funds and reimburse the public entity
  directly.
• The good elements expressed under this clause are
  therefore diminished because, a municipality may
  withhold funds if it is not happy with the level
  of service provided by such an entity for
  instance, or where service level agreements are
  being violated.

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If this right is taken away from the
municipalities, and the decision to address any
misunderstandings that may arise between
municipalities and entities has to come from NT,
then there is a conflict as to what the role of
NT is.It is necessary therefore that NT focuses
on determining measures, norms and standards of
effective arrangements between municipalities and
entities and follow such, instead of seemingly
putting municipalities, as a sphere of
government, in par with entities.It is proposed
that the two clauses are removed until there is
meaningful consultation between NT and SALGA to
resolve this issue.
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CLAUSE 11 (3)Conditions on the MIG

• To the extent that the MIG conditions were
  discussed and adopted by the MIT3, and that it is
  administered by DPLG. Some areas need to be
  clarified moving forward
• Issues
• It is found to be inappropriate that NT may
  direct some additional conditions on the transfer
  of MIG funds to municipalities failing to comply
  with uniform norms and standards as set out in
  clause 5(7) of the DOR Bill 2004
• More so when this includes transferring of funds
  via district municipalities or another organ of
  state.

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Firstly what arises from the clause is why NT is
undermining the role of DPLG in terms of managing
the MIG, particularly its policy
direction.Secondly, what are the implications
on municipalities which may, in real terms, not
have the capacity to comply with the NT Norms and
Standards.And if it is correct to exclude these
municipalities before they can even submit plans
because they may not comply with norms and
standards. It is in the interest of our IGR that
we build capacity at Local Government, this
clause seems to indicate that these
municipalities may not in fact access MIG
funds.The third point is, would conditions of
this nature, not disadvantage the targeted group
that the MIG is seeking to address, which would
possibly be historically, under serviced areas,
rural, small or municipalities with a low tax
base. SALGA submits that this clause should be
removed.
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CLAUSE 18 (3) Municipal Financial Management Act

• The clause provides that the annual financial
  statements and annual reports of a municipality
  for 2004/05, must be in accordance with the MFMA
  .
• It must be noted from the onset that SALGA is
  fully behind LG financial management
  transformation,
• and SALGA shall to the extent possible, work in
  collaboration with municipalities to address the
  various challenges around implementation the
  MFMA.
• There are however, some concerns on the
  implementation of the Act, the following is a
  summary of these concerns

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Following the signing off of the MFMA, there has
been insignificant movement regarding the
implementation framework of the MFMA from
NT.There is no clarity on the approach to be
adopted in terms of implementing the Act, i.e.,
whether it will be staggered, or implemented as a
whole.If implementation is staggered, what
would be the criteria that informs the selection
of clauses/chapters in the Act.Mainly, the
nature of instruments/tools that National
Treasury is developing, and how these are going
to be utilised to ensure that the implementation
takes into account variations on capacity levels
within municipalities.
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When is NT publishing the Gazette that provides
the date of implementation, and at what stage in
the implementation process does NT intend to
engage with SALGA to ensure that municipal
concerns are taken on board.It is submitted
that NT should consult SALGA on the
implementation framework of the Act, and enable a
transparent process that takes inputs from SALGA
into account.SALGA wants to make inputs, and
this was agreed during the Budget Forum, but
unless there is adequate information from NT,
this can not be effectively done.It is
therefore proposed that the clause be removed
until there is meaningful and adequate
consultation with SALGA. And there is clear
understanding from municipalities, of what is
required from them.
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CLAUSE 13 Municipal Capacity Building

• The clause provides that only DPLG may determine
  a framework for capacity building and training in
  municipalities, in consultation with NT. This, it
  is said, is to ensure that capacity is developed
  in measurable ways.
• The issue here is, what would the role of SALGA
  and sector Departments be in terms of capacity
  building?
• It is desirable to have a concerted approach when
  dealing with capacity building in LG, but to
  legislate this at the exclusion of SALGA is found
  to be inappropriate.
• It would also be adequate to understand what is
  implied by building capacity in measurable ways
  in terms of the measure.
• SALGA has been participating in a number of
  capacity building initiatives, including the
  framework thereof, it is only correct that this
  mandate of SALGA is recognised by NT.

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It is therefore proposed that the clause is
revised to take into account the role of SALGA
and how sector Departments and provinces can take
part in capacity building at LG, in a more
integrated manner.The other point on capacity
building relates to funding and the agreement
reached during the Budget Forum, wherein the
Minister said that it may be premature to
integrate the capacity building grant into the
Equitable share, and that NT should consult
SALGA, after three years to determine if this
could be done.Contrary to this, NT has provided
for the integration of capacity building grants
in the ES from 2005/06 budget. No consultation
has been made. This is found to be particularly
inconsistent with agreements from the BF. If
these are not taken into account, it means that
the purpose of the structure should begin to be
questioned.Especially when SALGA reflects on a
number of recommendations taken over the past 4
years at the Budget Forum, which NT has done
nothing about to this date.
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CLAUSE 16 (4), 23 (1), 26(1) Roll-overs and
under spending

• These clauses deal with interim arrangements for
  withholding of payments.
• The issue of withholding funds is an old
  provision, what is new in the current Bill is
  when reallocation is not done according to
  section 7 which deals with serious or persistent
  breach of uniform norms and standards.
• NT is proposing that a portion of allocation from
  one municipality may be transferred to another
  within a district if the affected district and
  municipality fails to agree on the performance of
  any municipal service
• This clause may create conflicts between
  districts and LMs, especially LMs that are
  beginning to entrench developmental
  transformation challenges, and require districts
  to assist them. A proper mechanism should be
  agreed between NT, DPLG and SALGA on how this is
  going to be effectively practiced.

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Clause 26 deals with municipalities with weak
administrative capacity,and reallocations through
DPLG. The definition of what weak administrative
capacity entails is necessary to avoid
interference of any nature. And it is submitted
that a standard that applies to all
municipalities be developed before this clause
kicks in.It is also questionable that we are
not interrogating measures to build capacity, and
instead, we are providing clauses that may in
fact disadvantage smaller municipalities with
capacity impediments. This has to be re-looked at
in consultation with SALGA.It is proposed that
NT should seek to assist and support efficient
financial management by providing uniform norms
and standards, and allow municipalities to
operate with this framework. In the absence of
these, subjectivity may be introduced to the
transferring of funds.
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CLAUSE 11 (7) MIG

• DPLG NT may direct payments to creditors
  against the MIG to capital grants incurred as at
  30 Sep 2003.
• This will happen if the receiving municipality is
  unable, unwilling or fails to pay for such
  commitments etc.
• This clause is fairly acceptable, however, there
  should be a predetermined uniform framework that
  forms the basis for assessing the failure,
  inability or unwillingness of a municipality to
  pay. Taking into consideration the capacity and
  transformation challenges.
• Secondly, this framework should seek to develop,
  to the extent possible, the concerns of the
  municipalities such that there is limited
  interference in the process of redirecting the
  grant.
• This could potentially affect the municipalities
  power to function, it is therefore proposed that
  SALGA is consulted in dealing with this clause,
  or it is removed.

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AREAS OF CLARIFICATION FROM THE NATIONAL TREASURY

• Consultation with SALGA regarding entities and
  MFMA
• Clarity on what is NT seeking to achieve in terms
  of additional MIG conditions, and why these are
  brought in at this point.
• Can NT explain the intentions, and change in the
  policy direction when dealing with the capacity
  building grant.
• The new clauses in the 2004 Bill were never
  discussed with SALGA, it is therefore not in line
  that NT should come up with such clauses in Bill,
  without due consultation.
• Especially when SALGA considers that the DOR Bill
  was not made to the Organisation prior to the
  Budget Speech as has been the case previously.

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It is further submitted that more information and
transparency on changes in allocations, caused by
changes to formula variables or data sets,
should be communicated to SALGA on time if it
impacts on municipal budgets to the extent that
2004/5 2006/07 are potentially going to. In
addition, National Treasury should begin to
address a number of outstanding recommendations
that both SALGA and FFC have been bringing
forward in terms of costed norms approach, and
the critical requirement for a needs based
formula. The current system is evidently
beginning to be less equitable in addressing
municipalities with a low tax base, or in
targeting poor households.
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RECOMMENDATIONS AND PROPOSALS MOVING FORWARD

• The analyses made by SALGA in the DOR Bill 2004,
  and attached to these comments, seek to indicate
  the disparities and poor targeting of transfers,
• and the need to review the IGF framework to
  ensure that municipalities that benefit from
  national and provincial allocations, are indeed
  those that should be.
• Secondly, it is strongly proposed that the new
  clauses in the Bill, that have an impact on LG,
  should be removed until adequate consultation
  with SALGA has taken place.

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CONCLUSION

• In conclusion, we submit to the Select Committee
  that, as we are processing this Bill within tight
  time frames, as a result of forthcoming
  elections,
• consideration be given, and responses sought from
  NT, in writing on the issues raised and
  recommendations made,
• It is also submitted that the Chair takes these
  issues for discussions at Provincial legislature.

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THANK YOU