NCOP%20Public%20hearings:%20Trends%20in%20Intergovernmental%20Finances

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NCOP Public hearingsTrends in Intergovernmental
Finances

• Select Committee Local Government
• 7/10/2004
• Cllr M Mvoko

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Introduction

• Trends in Intergovernmental Finances (TIF) is a
  high level review providing information, trends
  some comment
• Assesses financial performance in service
  delivery across spheres
• Informs NCOP for its oversight function on
  local government matters
• But important that it considers another view

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Purpose of Presentation

• To provide a local government perspective
• To review certain conclusions
• To highlight some successes remaining
  challenges
• To propose additional conclusions from available
  data

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Sources

• SALGA input is informed by its policies as well
  as data from inter alia
• budget week process
• analysis of budgets the report thereon
• internal data input from municipalities
• SALGA CA (August 2004)
• SALGA National Conference (Sept 2004)

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Format of Presentation

• This presentation follows the structure of the
  TIF, in particular
• The introduction (Key pointers-p 6)
• Local government finances (Ch 3)
• Some comments on Health (Ch 5), Roads (Ch 8),
  Housing (Ch 9), Water (Ch 10), Electricity (Ch
  11).

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Key pointers

• In addition to those set out, SALGA notes the
  following
• Financial sustainability of municipalities is
  imperative is the responsibility of all spheres
  of government
• Municipalities have not yet fully established
  themselves as constitutional governments by
  complying with constitutional laws

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Ch 3-Budgets Trends

• Total budget doubled in 8 years
• reflects progress in extending services to all
• municipalities remain primarily self funding
• operating expenditure is the primary instrument
  of delivery

8
Budgets trends (cont.)

• Location of budgeted expenditure
• 6 metrosR50.5 billion (R33 billion in big 3)
• 278 LMs DMsR35 billion
• marked difference in per capita expenditure
  between large urban municipalities smaller
  (poor) largely rural municipalities

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Expenditure trends

• Operating expenditure
• focus on increasing capital expenditure puts
  pressure on operating budgets
• SALGA analysis suggests consequential operating
  costs not adequately provided for in many
  municipalities
• under provision for maintenance for last 10 years

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Expenditure trends (cont.)

• pro-poor infrastructure provision necessary for
  development of communities, but operating impact
  inadequately provided for (equitable share
  transfers not based on cost of service provision)
• cost of service provision greater in more
  sparsely populated (poor) areas, customers less
  able to pay

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Expenditure trends (cont.)

• Personnel expenditure
• SALGA is the employer representative at
  centralised bargaining
• supports the need to control increase in
  expenditure
• has succeeded with strategy to conclude 3 year
  wage agreement linked to inflation

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Expenditure trends (cont.)

• However, misleading to generalize
• national policy is to use manpower intensive
  methods
• municipal service provision is inherently labour
  intensive
• indicator of 30 essentially a private sector
  norm-not necessarily applicable to all
  municipalities in all circumstances

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Expenditure trends (cont.)

• care must be taken to achieve economies without
  compromising service delivery national policy
• SALGA is implementing a robust strategy on salary
  bargaining
• SALGA supports greater integration of the public
  sector

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Expenditure trends (cont.)

• Capital expenditure
• infrastructure investment in smaller
  municipalities driven by national policy
  availability of funds thru districts
• inadequate consideration of operating
  maintenance implications at planning stage
• development of MIG budget should be accompanied
  by provision for shortfalls in operating funding
  in poorer municipalities

15
Revenue trends

• User charges
• profit on electricity sales a critical component
  of municipal financial viability
• SALGA policy supports EDIR subject to municipal
  ownership of the EDI protection of its
  financial contribution
• consequential costs require careful management

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Revenue trends (cont.)

• SALGA budget analysis reveals a pattern of under
  recovery with other revenue generating services
  not self sustaining
• aggravated by function transfers esp water where
  post transfer financial support will not bridge
  gap to sustainability

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Revenue trends (cont.)

• Property rates
• implementation challenge of new Act (uniform
  national strategy for implementation needed)
• recovery gap still exists (under subsidization of
  the indigent home owner, inadequate records,
  recovery structures, political pressures)

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Revenue trends (cont.)

• Intergovernmental transfers
• SALGA supports the review of LG Fiscal framework
• allocation basis of equitable share MIG funds
  should be linked (capital spending has operating
  consequences which requires to be funded in areas
  with no prospective income streams)

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Revenue trends (cont.)

• flat rate approach not supportable (costs more
  to install, operate maintain infrastructure in
  sparsely populated areas)
• households with equivalent income worse off in
  more rural areas (greater per capita spending in
  cities, better facilities, higher levels of
  economic activity)

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National/Provincial functions

• Functions referred to as being national or
  provincial responsibilities (or both) all are
  delivered within municipal areas all affect
  municipal finances in one way or another
• Responsibility of other spheres to comply with
  obligations as corporate citizens remains an issue

21
Education

• Schools in operate in municipalities
• provision of services to schools (payment for
  services, water delivery strategy)
• Fields other (shared) facilities

22
Roads

• Determination of municipal roads a provincial
  responsibility
• Includes many roads which were not a municipal
  responsibility before 2000
• Provinces unable to maintain provincial roads
  (municipal responsibility by default, affects
  local economic development)

23
Housing

• Housing is an integral component of social
  development, but is a provincial function
• Many municipalities have assumed responsibility,
  with financial consequences
• provision of bridging finance before transfers
• hidden development costs (costs of admin,
  financial project management)

24
Housing (cont.)

• inconsistent approach of SARS branches regarding
  input VAT on transfers
• additional expense to municipalities

25
Water

• Transfers of water services poses financial
  challenges
• adequacy of provisions for manpower costs
• adequacy of provision for operation maintenance
  costs
• services being transferred with no income base

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Water (cont.)

• adequacy of equitable share transfers to cover
  irrecoverable costs of basic service provision in
  largely indigent areas when DWAF transfers cease
• SALGA DWAF engaging in robust intergovernmental
  processes to address, but residual issues may
  remain

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Health

• Certain municipalities subsidise provision of
  primary health care (metros)-call to continue for
  at least 3 years
• Transfer of municipal health services to DMs not
  implemented
• LMs did not budget to continue
• call to continue to provide for at least one year

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Electricity

• SALGA supports the implementation of EDIR
  agrees with the analysis of key issues
• Is a highly charged political issue at local
  level
• Implementation at national level seen as an
  essentially technical issue

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Electricity (cont.)

• SALGA opposes constitutional amendment to achieve
  objectives
• solution is intergovernmental cooperation
  politically driven at all levels
• outcome to be regulated by comprehensive
  agreements, not legislation
• financial interests of municipalities not to be
  compromised by unilateral deadlines

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Budgetary challenges

• Revenue collection
• complex issue, not only about debt collection
• SALGA promotes the development of a national
  strategy
• Pro-poor policies
• Implementation the responsibility of all spheres

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Challenges (cont.)

• better integration of policies strategies
  needed
• review of municipal fiscal framework to provide
  cost-based support of free basic services the
  operating consequences of infrastructure
  provision in largely poor communities

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Challenges (cont.)

• Budget financial management reform
• Cannot be considered in isolation from need to
  fully establish municipalities to be structured,
  to operate, to manage their finances fund
  themselves ITO 5 municipal statutes as opposed to
  isolated compliance

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Challenges (cont.)

• SALGA has adopted a comprehensive strategy to
  achieve this
• Commitment by all spheres to the continued
  progress of municipal development, early
  implementation of the IGR Bill policy,
  acceptance of the local sphere as an equal
  partner in government are needed to take us
  forward