Municipal Demarcation Board on its 2015/16 Annual Performance & Strategic Plans; Disaster Management Amendment Bill [B10-2015]: National Treasury response

Meeting report

Municipal Demarcation Board (MDB) Strategic Plan and Annual Performance Plan briefing
Mr Mlulami Manjezi, Acting Chief Executive Officer, Municipal Demarcation Board, briefed the Committee on Strategic Plan and Annual Performance Plan (APP) of the Municipal Demarcation Board (MDB or the Board).

He began with an update on the preparation for municipal elections. The MDB commenced with ward demarcation in 2014, with the intention to complete this in August 2015. While this was under way, the Minister requested that the Board consider re-determining certain municipal boundaries. The MDB opted to invite written submissions from the public, which it had considered and it was currently in the course of conducting public meetings and formal investigations. It was expected that this process would be finalised in July 2015 and the municipal boundaries would be handed over to the Independent Electoral Commission (IEC) in November 2015. All of those boundaries that were not affected by the Minister’s request would be finalised at the end of August 2015 and handed over to the IEC.

Strategic Plan for 2015 to 2020

Mr Manjezi outlined the Strategic Plan for 2015 to 2020. The key strategic goals were to:
- determine and re-determine municipal boundaries
-delimit wards to facilitate local government elections
- conduct Municipal Capacity Assessments (MCAs)
- initiate research and form partnerships to exchange knowledge
- improve public participation and stakeholder engagement by creating public engagement platforms
- maintain impeccable standards of sound financial management and good governance
- undertake organisational review and realignment

Mr Manjezi indicated that there were several slides that provided further detail of the strategic goals, but did not elaborate on them in his oral presentation (see attached presentation for full details).

In order to implement the strategic goals, it was crucial for the MDB to identify emerging risks and take action to mitigate them. There were insufficient human and financial resources, which would be tackled with a review of the organisational structure, along with ensuring optimal utilisation of existing personnel. Inadequate public and stakeholder engagement in the demarcation processes sometimes resulted in protests. The MDB was attempting to broaden its footprint by establishing some kind of provincial presence, and by exploring better ways of enhancing collaboration with stakeholders. There was also litigation in disputes on demarcation decisions. This would be addressed through enhanced stakeholder engagement, and by conducting thorough background research and consistent application of demarcation criteria.

Some key challenges remained even after the mitigation of risks. The main challenge was that the strategy and mandate were incompatible with the current resources and capabilities. There was a very lean organisational structure, with only 35 approved posts, eight of which were on contract. This resulted in over-reliance on consultants. There was also a negative public perception of the MDB, suggesting that the entity was politically charged. A lack of a provincial footprint created a disconnection with the public.

2015/2016 Annual Performance Plan

The implementation of the strategy was supported by three programmes. Programme 1 dealt with operations. The programme gave effect to the institution’s legislative mandate of determining and re-determining municipal boundaries, appropriate categorisation of municipalities, an advisory service on the alignment of service delivery boundaries to municipal boundaries, and delimitation of municipal wards for local government elections. The programme was supported by a budget of R22,5 million.

Programme 2: Research and Knowledge Management conducted municipal capacity assessment to support decisions made by the Board on boundary demarcations. The programme included knowledge development and management to facilitate optimal decision making and to position the Board as a knowledge hub on all matters involving spatial planning and boundary demarcations. The programme was supported by a budget of R2,8 million.

Programme 3: Financial Management and Accounting led the financial strategy of the institution and contributed toward resourcing of planned programmes. The focus over the next five years would be optimising financial resources from traditional sources, and the MDB would work to secure new opportunities. It would also enhance accountability and reporting measures by delivering statutory reporting requirements and management information, and contribute towards value for money through effective supply chain management services; whilst also maintaining compliance to PFMA legislation, regulations and policies and procedures. This programme was supported by a budget of R7,8 million. The major goal was good governance, with a target for a clean audit every year.

Programme 4: Corporate Services provided corporate services to all the other programmes within the organisation, including human capital and administration, communications and stakeholder management, legal services and board secretariat, and information technology. This programme was supported by R1.5 million for the public awareness and stakeholder engagement objective; R11 million for human resources management; R2.7 million for good and sustainable corporate governance; and R1.6 million for information technology services.

Medium Term Expenditure Framework

Mr Manjezi noted that the budget had been increasing by 4% to 5% year on year, which was not enough to carry the institution forward. The total revenue for 2014/15 was R45 million; for 2015/16 it was predicted to be R46.4 million; for 2016/17 it was predicted to be R48.7 million; and for 2017/18 it was predicted to be R50.7 million.

The MDB’s work was cyclical, in line with the electoral cycles. Because of this, peaks and troughs were experienced in expenditure, with peaks occurring in the run up to elections. This was reflected in the financial statements in the annual reports for the previous years. In the past the entity had been funded in the same way as the Department of Cooperative Governance and Traditional Affairs (COGTA) and as a result savings had been amassed during the slow parts of the cycle, amounting to about R25 million in 2013/14. The entity had been dipping into these savings during peak years, and the savings were likely to be exhausted by 2016/17.

The key cost drivers included:

- the institutional capacity and capabilities commensurate with the mandate
- research activities to support Board decisions, add value to its advisory role and increase revenue streams
- public participation and stakeholder engagement
- Minister's proposals in line with "Back to Basics".

In his concluding remarks, Mr Manjezi highlighted that the Board needed resources to ensure the successful implementation of the Strategic Plan. While the 2015/16 shortfall would be funded from accumulated savings, these would soon be exhausted and the Board would therefore not have sufficient funds over the MTEF period.

Discussion

Mr M Hlengwa (IFP) asked how the MDB intended to establish a provincial footprint.

Ms Jane Thupana, Chairperson, MDB, responded that the MDB only interacted with the public every three years. Often there were problems with the boundaries experienced by communities within that period, but there was no MDB representative to interact with them on an ongoing basis about these issues, so it tended to be more a case of the MDB representatives consulting, determining the boundaries, and then leaving the area. The MDB did not envisage building offices in provinces, but it would be useful to simply have one person present in the provinces, in partnership with other stakeholders, so as to create some continuity with the provinces.

Mr Hlengwa asked what the cost of the Minister’s request had been and how these costs would be covered.

Mr K Mileham (DA) also asked about the process of covering these costs.

Ms Thupana said that that there were some cost factors, like litigation, which would be hard to estimate until the court cases were finalised, but the cost was estimated at R9 million. This was funded through the accumulated savings. The Board was interacting with the Department of Cooperative Governance and Traditional Affairs (COGTA) and National Treasury regarding funding challenges. The hope was that these costs would be refunded by COGTA later on.

Mr Mileham pointed out that the process for the delimitation of municipal wards was usually scheduled over a two year period, but about a quarter of these were being affected by the boundary deliberations, at the Minister’s request. As a result, the process was being crammed into a four month window between July and November. He wondered if this time frame was either possible or realistic. He asked what interactions there had there been with the IEC about delays that this may cause with registering voters. He pointed out that Gauteng’s boundary determinations came very late in the day on 15 April, at the Minister’s request. He also asked about the impact of this.

Ms Thupana responded that although the Minister’s request had left the MDB with a short time frame, many of the processes had already been done – for example the stakeholder engagement – and did not need to be repeated. The full three years were not required because all the activities that happened were still relevant. What remained was to map the wards, consult the public regarding the draft maps and then finalise.

The Gauteng boundary determinations request came in mid-April and this was indeed a challenge in terms of the timeline of the Board. The request had not yet been considered. When the Board received the request, it had to publish a notice indicating that it intended to consider it, receive the public input, and then consider the request, looking at all aspects including the time frames.

Mr Mileham asked for clarity on how many approved posts there were, as there were discrepancies in the reports. He commented that there was a high turnover of senior management, and asked what was being done to stabilise that, and how far the process of appointing permanent management staff had gone.

Ms Thupana clarified that the number of positions in the APP included the interns, which was why there appeared to be a discrepancy. She confirmed that the MDB had lost its Chief Executive Officer (CEO) and Chief Financial Officer (CFO). It was at an advanced stage of resolving this. Interviews for the CEO had been conducted, and the applications were closed for the position of CFO.

Mr Mileham was concerned that only 42% of budget was allocated to the mandated activity.

Ms Thupana responded that the disparities in the ratio were created by the overlap of core business and the payment of employees. The knowledge base was a core mandate, and this was provided by building the capacity of researchers. Essentially, therefore, the purchase of human capital was contributing to the core mandate.

Mr Mileham said that the Board was budgeting for a massive deficit over the medium term, and the biggest chunk of this was the increase in compensation of employees. He understood the cycle of peaks and troughs, and said also that the Minister had "thrown a pebble into the pond and created ripples". However, he wondered if staff should not have been hired contractually during peak periods, rather than on permanent contracts. He was concerned about the massive spike in compensation of employees over that period.

Ms Thupana responded that the spikes in compensation were necessary to create capacity and capabilities in the organisation. The Board did take consideration of the trough periods. The staff structure was not designed to deal with high periods like the one which had been created by the Minister’s request. In drawing up the Strategic Plan it became clear that the MDB not only had few people, but lacked the capacity required to achieve the mandate. For example, in the area of research the Board had been doing a lot of outsourcing. This was a core mandate, so it did not make sense to rely continuously on consultants. The Member’s concern was noted and would be considered.

Mr E Mthethwa (ANC) asked how the savings had been accumulated.

Ms Thupana responded that the reserves built up at the end of 2013/14 amounted to R25 million. Prior to this the Board had been underspending every year. This was because the cycle was not being catered for properly in the budgeting process.

Mr Ashraf Adam, Deputy Chairperson, MDB, added that many of these problems were legacies from the previous Board, which the current Board had inherited - including the issue around the staff turnover. This Board sought to be more accessible and interactive than the law provided for.

Mr Mileham said that the Chairperson had raised a point about the formula for the number of councillors. This also came late, and was only gazetted in November or December. The MDB would need to wait for the Municipal Executive Committees (MECs) to publish the number of councillors before they could move forward for affected municipalities.

Ms Thupana responded that the Minister’s proposal came through consultation with the MECs. The number of councillors should be published in August, immediately after the process was closed. There was no reason to expect any delay in this.

Mr Mileham explained that he had calculated the amount spent on mandated activities by adding together the budgets of Programmes 1 and 4, which included staff compensation, and this came to only 42% of the budget. The rest was going to support activities.

Mr Adam said that the MDB would have higher support activity costs because of the nature of the organisation. Although these were support activities they contributed to the core mandate.

Mr Mileham said that the amalgamation of Tshwane and Mesident had cost in excess of R168 million. He wondered if the Board had discussed these costs?

Mr Adam responded that these were the kinds of questions that the Board would like to engage with, through research. The Board was trying to build its capacity to provide advice and knowledge on such issues.

Mr Mileham said that the tender for MACs was awarded by the previous Board and then withdrawn by the current Board. The current Board had therefore brought the subsequent consequences and legal action on themselves.

Ms Thupana responded that the correct tender processes had not been followed, so the Board therefore could not go ahead with the tender as a matter of principle.

Mr Adam added that there were supply chain irregularities so it would have been inappropriate to continue. The Board had sought legal advice and would have been remiss not to follow it.

The Chairperson said that communities were getting wiser and knew the impact and implications of municipal demarcation. They therefore needed to be included, or there would be protests. There were a lot of challenges in this work. If people were not informed they were very easily misled and encouraged into protests, which were easily sparked and costly. He commended the Board on its APP. He made the point that there would never be enough resources, so the Board would have to use what was made available to it.

Mr B Bhanga (DA) was concerned that instability was created by changing boundaries all the time. This created communities that might only be in existence for the next five years. The changes were politically charged, and communities tried to influence the process to secure certain councillors. There was a prevailing perception at the local level that the Board was susceptible to influence from the recommendations.

The Chairperson said that he Board was independent and there were clear specifications for municipal demarcations.

Ms Thupana said that the Board was aware of this perception and was investing time and resources in being understood as an independent entity. This would prevent protests, if people were better informed. In some wards the MDB created forums where stakeholders from the community agreed, for the most part, on the demarcation through their own negotiations.

The Board tried to use the quiet periods for reflection and research, so there should never be periods of inactivity. There was indeed the potential for instability with frequent changes of municipalities but the law of the country dictated that it should be reviewed every five years. She encouraged the Members to look at legislative review if this was a particular concern. Finally, she requested the Committee’s support in requesting further funds, as it was impossible to hire stable staff if they were not assured of funding for the medium term.

Disaster Management Amendment Bill: National Treasury briefing
Ms Wendy Fanoe, Chief Director: Intergovernmental Policy and Planning, National Treasury, briefed the Committee on the Disaster Management Amendment Bill. The National Treasury had been included from the beginning of the amendment process. She explained that South Africa’s intergovernmental system was based on the principle of cooperation between the three spheres of government – national, provincial and local government. The Constitution described these spheres as distinctive, interdependent and interrelated.

In line with the Constitution, a municipality had the executive authority in respect of, and therefore municipalities had the right to administer, any matter assigned to local government in terms of national legislation. Disaster management was a functional area of concurrent national and provincial legislative competence. It was allocated to local government in terms of section 156(1)(b) of the Constitution, through the Disaster Management Act of 2002.

The functions allocated to local government through the Disaster Management Act of 2002 included the development of Disaster Management Plans - although this currently was not a mandatory function as the Act used the term “may”- and the establishment of Disaster Management Centres.

The Disaster Management Amendment Bill clarified and strengthened these provisions. The Amendment Bill recognised the importance of disaster plans and would make it mandatory for all municipalities to develop these plans. Although metros and District Municipalities (DMs) were responsible for establishing disaster management centres, some local municipalities also had these centres. The Amendment Bill would require these local municipalities to sign service level agreements with the assigned DMs.

Ms Fanoe gave an overview of the intergovernmental and local government fiscal context. Priorities were set nationally through legislation, norms and standards and political statements. The available revenue pool needed to be shared between spheres as there was never enough funding to do everything. Municipal funding was intended to enable municipalities to perform their assigned functions. This came through their own revenues, including property rates and service charges, equitable share and conditional grants. Each municipal council decided where to allocate resources to perform the municipality's assigned powers and functions.

Services for non-poor households and businesses were paid for from the municipalities' own revenues. Services for poor households were mainly funded through transfers from national government. Taken over the whole of local government, own revenues funded 75% of budgets, but in rural areas transfers could fund up to 80% of budgets.

The heart of local government was managing finances to deliver services. Municipalities needed to ensure that they were effective and efficient. If they ran out of money it was not necessarily because they were not getting enough money from the national fiscus, but more likely because they were doing multiple things wrong. Municipalities needed to prioritise provision of mandatory services, which would include things now to be stipulated in the Disaster Management Act. They often needed to avoid spending money on non-essentials that were not geared towards improving service delivery, and to address wastages in the system.

Leakage in the system also happened from revenue collection, as municipalities did not bill everyone that they should be billing. The equitable share was not to intended to fund a municipality that said it did not have enough money; it was intended to fund the gap between services the municipalities needed to perform in terms of legislation, and their own revenue that they had the potential to collect through property rates or tariffs.

Funding Disaster Management in municipalities

Ms Judy Mboweni, Director: Local Government Finance Policy, National Treasury, spoke specifically about funding dedicated for disaster management. Municipalities varied dramatically in the shape of their funding. Disaster reduction would be funded through general funding. For metropolitan municipalities this would mean through their own revenue, and for district municipalities it would be through the equitable share. Recovery would be funded through a municipality's own revenue, but if there was a declared disaster, conditional funding may be provided. There would be a conditional grant for immediate response, and for rehabilitation.

Disaster Management Planning involved the following phases: risk assessment, prevention and mitigation, emergency preparedness, and response and recovery. This would be funded through a combination of equitable share, municipalities’ own revenues, and conditional grants.

The primary purpose of the local government equitable share was to fund basic services and to assist smaller municipalities with basic institutional structures. It was determined through a formula which included a basic services component and an institutional and community services component.

Institutional and community services funding was only allocated to municipalities with a low own-revenue base. Rather than individual households, this covered administration costs and services that benefited communities, such as roads, street lights, and municipal health. The formula could be refined in future, and research had been commissioned on this. The formula did not reward municipalities for dong the wrong thing – for example, funding would not be granted if there was a tax base that was not being tapped in to.

There were two conditional grants used to specifically fund disasters in municipalities: the Municipal Disaster Grant, released to address immediate needs of communities, and the Municipal Disaster Recovery Grant, released to fund rehabilitation and reconstruction of damaged municipal infrastructure.

In conclusion, Ms Mboweni said that disaster management was a fundamental component of development and poverty reduction. It was a function performed by all three spheres of government and therefore required coordination, planning and funding across the spheres to be aligned. The focus should be on risk reduction measures. Political commitments and political will to institutionalise disaster management into development planning, and to allocate necessary resources, would go a long way in reducing the impact of disasters on infrastructure and lives. There was a need to develop monitoring mechanisms for identifying the degree of main-streaming disaster risk management and tracking of expenditures for disaster risk management. Effective disaster management required capacity building of all three spheres and communities at large.

Discussion

Mr Mileham said that when a responsibility was assigned to another sphere of government it was a mandate, not a norm and standard. This Bill mandated municipalities to do certain things, using the phrase “must”. The South African Local Government Association (SALGA) had said it would not accept the present wording of the Bill, because the municipalities were not being given money for it. If there was no agreement, the mandate could not be assigned.

The equitable share was an unconditional grant, how the municipality spent it was their business. SALGA had pointed out that on the electricity component of the equitable share alone, there was a shortfall of R3.56 billion, which was being taken out of the institutional and community services share. Water showed the same problem. He questioned whether it would not be too much to ask, to add disaster management to the costs that were placed on the equitable share.

Mr Mthethwa added that there were municipalities that could not afford to even pay salaries. He wondered what the plan would be for such municipalities?

Mr Bhanga said that SALGA viewed this as an additional responsibility on the municipalities, therefore the suggestion had been made that this Amendment Bill should be a money bill. Municipalities like Cape Town had the capacity to deal with emergencies, as Cape Town had done recently with the mountain fire, but this approach was dangerous for the municipalities that lacked this capacity. The Nelson Mandela municipality, for example, was bankrupt. The Act envisaged stable municipalities, but the reality was that many of them were not financially stable.

The Chairperson commented that the National Treasury always said there was money out there, it was just not being managed effectively.

Mr Hlengwa said it was important to ensure that municipalities had the capacity for financial management. The Auditor-General regularly said that this did not exist. Municipalities did not have the financial health or capacity to deal with disaster management. The situation should not be created where funds were spent recklessly because of a disaster.

Ms Fanoe responded that she did not have a legal background, but could pass on the feedback she had received from the National Treasury legal team. She emphasised that this was not a new function being allocated to local government, as the Disaster Management Act already existed. Section 156 of the Constitution dealt with the powers and functions of municipalities. It said that the functions included “any other matters assigned to it by National or Provincial government”. The National Treasury had asked the Department to deal with this issue to avoid conflict.

When the formula was reviewed two years ago SALGA was part of the discussions. The costing of services was reviewed, to get the most appropriate cost. Costing would never be 100% perfect but it was ongoing work.

It would not be disaster management that would derail the finances of the municipalities. Those with financial challenges were in trouble because of underlying causes, and that was what needed to be addressed. National Treasury monitored the most serious problems, and made recommendations to those municipalities to rework their budget. However, National Treasury could only give advice, as the Municipal Councils finally approved the municipalities’ budgets. National Treasury received that information monthly, and also did mid-year visits. It was in the process of developing a strategy for each province to support the municipalities. If the municipalities could not pay their salaries, then they would not be able to pay for other services either. They needed to be brought back to financial sustainability, and merely putting money in the system would not help.

National Treasury did do assessments and released a report at end of the financial year listing which municipalities were doing well and which were not. It also did capacity assessments. In this way it assessed how far municipalities were with running systems in a financially prudent manner.

Ms Fanoe made the point that there should be a differentiation between money for planning and money for disaster management centres. For example, the Cape Town Metro could fund a disaster management centre to do planning, but if Nelson Mandela municipality had a disaster, then rehabilitation money or response money would be made available. If the municipalities could not spend this correctly then there was a bigger problem and the overall health of the municipality would have to be addressed.

Ms Mboweni said municipalities should declare if they could not cope with the resources that they had, and then the grant would flow to them.

Mr Hlengwa asked what regulations were in place to monitor that there would not be duplication of efforts over the different spheres of government.

Ms Mboweni responded that, in terms of coordination, there was an overlap in the allocations and this was currently being managed on an ad hoc basis. However, going forward the disaster management framework would set out the responsibilities. Response activities should be planned with a view to efficiency, so that money was not dumped in certain sectors.

Ms Fanoe hoped Members were convinced that this was not a new function. The two issues causing discomfort for SALGA were that this was seen as an unfunded mandate and as a new assignment. Both issues had been addressed in the presentation. The State Law Advisors could support the fact that this was not a new function, it was assigned through legislation passed in 2003 with the principal Act. SALGA had not challenged that Act or threatened legal action. The Department had met with the Financial and Fiscal Commission on the previous day, who had been comfortable with the Bill. National Treasury had agreed to form a task team to look at the review of the chapter in the disaster management framework that dealt with funding, and was always building on the system to see how it could be done more effectively, using the existing funding framework. National Treasury was meeting with SALGA the following day, to discuss these concerns with SALGA.

Mr Bhanga said that even National Treasury did not want to put its neck on the block in relation to the issue of mandated funding. It was clear in legislation that the interventions for disaster or instruments were not going to assist local municipalities with no capacity to institutionalise and start a proactive plan for disaster management. What was needed was not a reactive but rather a proactive approach, and weaker municipalities would not have this, which was the concern of SALGA. If a disaster happened in these weaker municipalities then there would be a terrible outcome. He expected to be out-voted on this in Parliament, but felt strongly that the Department should look into this issue with SALGA, and that before the Bill came to the House, there should be agreement.

Mr Hlengwa said that it may benefit the Committee to get the opinions of all the stakeholders on the key question that SALGA kept raising, on the mandate. The point of contention around the mandate remained one that the Committee should look at. National Treasury was relying on the opinions of others and there were threats of litigation. The Committee should be in a position to assess for itself and to speak to all the stakeholders in one room.

The Chairperson said this should be discussed further in the later scheduled sessions.

The meeting was adjourned.