SALGA political leadership; Division of Revenue Amendment Bill: negotiating mandates

Meeting report

Opening remarks

The Chairperson said he had asked the South African Local Government Association (SALGA) to present a summary of the report that was tabled by the previous Minister of Finance in January 2018 with regard to the municipal spending for the year that ended 2017. SALGA would respond to questions that were previously submitted. He also indicated that the National Treasury would also respond to some of the concerns that had been raised in the negotiating mandates of provinces.

SALGA’s responses
 
Mr Charles Stofile, National Executive Member: Inter-governmental Relations (IGR) Governance & Councillor Empowerment: SALGA, said the first questions dealt with the district municipalities. It came at a time at which SALGA was currently in the discussion with the Department of Cooperative Governance and Traditional Affairs (COGTA), asking the Department to reflect since 1998 on the dawn of local the government White Paper – this is where the discussion needed to be located. They had sat and agreed that it was important to relook at the white paper on local government, because some of the issues spoke directly to the systematic matters and the establishment of local government. It was agreed that it was important to relook at the role of district municipalities in various areas, as it was known that in the White Paper’s outlook, the district municipality was mandated to deal with coordination and support. Support required someone with a technical background in various areas to support those municipalities that were under a district municipality, which is why there was work pertaining to the amendment of the municipal structures.

SALGA’s understanding of the African Management Services Company (AMSCO) is that it is a product or system that was introduced by Treasury, and it had been engaging with the Treasury on this. At one point, when the system was to be introduced, there was extensive discussion and SALGA’s view was that the AMSCO was to be introduced due to the complex nature of local government.  Unfortunately, at the time SALGA could not agree this was not a SALGA matter, but was under Treasury, and it outsourced the training to a private entity. Having said so, the Association would lobby and advocate, and present the interests of local government.

The Municipal Public Accounts Committee (MPAC) was an instrument that was a result of a gentlemen’s agreement that has not yet been legalised. It is a matter of arrangement that was made, so having realised its challenges, SALGA approached COGTA to create this avenue and locate it in the law. In the recent past we have therefore attempted to amend and insert the MPAC role into the Municipal Structures Act, as proposed in the current deliberations with all the other role players. SALGA’s view is that the MPAC should be deleted from politics, account directly to the council and make its recommendations to council, and have an ability to subpoena individuals who were found to be not compliant with the regulations. Basically, it is a work in progress between SALGA and COGTA, and there was consensus that some work needs to be done. A presentation was made to the COGTA committee on Tuesday this week.

Mr Mohammed Lorgat, SALGA Director, referred to the issue of the money that was returned on two consecutive years in the Free State. The point was that it was not a Free State issue alone, but it was transversal across the country, and the matter of under-spending of conditional grants which had to be returned to Treasury was something that was prevalent. The ability to spend was dependent on a number of factors, with technical expertise and capacity being one of the critical factors. In terms of the inter-governmental framework, it promoted collaboration between the different spheres of government, and SALGA and COGTA were working together to address the issue of technical expertise. The Minister of COGTA had a budget and funding available, and had deployed 53 engineers to a number of municipalities to address the issue of technical skill and expertise. So there was work being done in this regard, and over and above the 53 engineers, there may be a further technical skills support that could be deployed.

Regarding interventions in the Free State, where some court cases had emanated as a result, it was argued that the interventions could have led to findings. Unfortunately, SALGA could not respond to that question because it do not have all the information regarding those court cases, and did not really know anything about it. However, from an intervention perspective, it needed to be made very clear that SALGA did not initiate or drive any interventions – it needed to be consulted and give input into any planned interventions, and those interventions were driven by the provincial government, not SALGA. It followed a model of advocating and supporting local government in areas that were required.

Mr Stofile said the Treasury had conducted research on the interventions since the dawn of democracy and local government, and that research spoke to the weaknesses of interventions.

On the support and training of councillors, SALGA had established a leadership institute which provided various training and capacity building programmes for councillors. In this training, it empowered councillors in the portfolios that they occupied so that they could contribute towards those portfolios. SALGA had entered into various agreements with institutions of higher learning to enroll councillors to better equip themselves educationally and respond to challenges of the time.

With regard to the shutting down of district municipalities, the current work of COGTA speaks to this, and the work undertaken in the Ministers and Members of Executive Council (MINMEC) would provide clarity in terms of what needs to be done going into the future.

Mr Lorgat responded to the question regarding the shortage of revenue and local government funding, specifically the equitable share. The research on this would be finalised at the end of March 2019, and a response would be provided then.

On the unfunded budgets, this was a difficult matter, but SALGA would like to explain that the reason for this was very complex, and there were a number of contributing factors as to why municipalities had unfunded budgets. As an overriding statement, there should be no municipality with an unfunded budget, but SALGA had picked up in its engagement with municipalities that there were unfunded mandates. Sometimes they are burdened with things they had not planned to do, and they continued to be expected to do those things going forward, just because they did it in one year.

The list of the unfunded mandates would be provided at a later stage.

In some of the district municipalities, there was an issue of the staff organogram, where a municipality would receive a budget cut but maintain the initial organogram which did not complement the current allocated budget. There were a number of considerations that gave rise to the unfunded budgets, but SALGA maintained that there should not be any unfunded budgets.

Mr Stofile said that last week, at the MinMec meeting, the role of COGTA as a coordinator was discussed. When municipalities engaged in the Integrated Development Plan (IDP), one needs the coordination of various sector departments to participate, and this was an issue. In the process, one would take a category three municipality that had no mandate for human settlements, but after a period of time, when the budget had been passed, the municipality would be expected to partake in human settlement matters.

On the matter of VBS, the instruments in the country should be vibrant and they should immediately pick up problems. SALGA was asking how on earth it allowed this to happen and picked it up only years later when there are institutions like the Auditor General of South Africa (AGSA) and National Treasury, which was receiving Section 71 and 72 reports. This was an indictment because it was a matter that was picked up very late, whereas the instruments were available and were supposed to be responsive and pick it up immediately. Unfortunately, in the period under review, nowhere did SALGA receive a section 71 and 72 report -- these go only to Treasury and SALGA picks up these reports only after their assessment, and reports back about the challenges. Every year there is an audit conducted by the AGSA. It is important to up the game on our instruments of monitoring as well as those pertaining to checks and balances to avoid facing the same problem of this nature. SALGA had encouraged its councillors and municipalities to ensure that whatever they were doing was within the prescripts of the law. On VBS, SALGA needs to accept that these available instruments just failed to perform.

Mr Lorgat responded to the issue of a turn-around strategy to enhance local government investment and to avoid collapsing the local government. SLGA had recently established a Trillian investment working group which was focusing on investment strategies for local government broadly, but also on specific municipalities in specific regions. The issue they were looking at was how to leverage their natural resources. On a broader level on local government, the fiscal architecture was in need of an overhaul, otherwise it would lead to a collapse in local government if it stayed the same.

The Chairperson thanked the delegation for the responses. The fact of the matter was that this was an input by SALGA on the Division of Revenue Amendment (DoRA) bill.

Discussion
 
Mr F Essack (DA, Mpumalanga) said that the Committee did have an opportunity to engage with SALGA last week, and it was grateful for all the efforts that had been submitted. He wanted to highlight the two issues on page 11 of the presentation received last week. The Committee had discussed the issue of unfunded budgets, which had been a matter of concern over the last three years.

The Chairperson interjected that all replies should come in a written format for the sake of the minutes, because some of these matters had already been discussed.

Mr Essack acknowledged this, and moved on to the matter of VBS. He asked whether SALGA had never been aware of what had been transpiring with VBS. Had there been no discussion in the last 12 months highlighting certain municipalities that were partaking in these practices? Did SALGA not have any exposure to the issues that had been transpiring regarding VBS with certain municipalities?

The Chairperson said that the institution that monitored the banks was the Reserve Bank. This matter was being dealt with by the Standing Committee on Public Accounts (SCOPA) and the Standing Committee on Finance, so all the documentation could be obtained from SCOPA to bring the Members up to speed on what was happening.

Mr O Terblanche (DA, Western Cape) said one of the major issues in the country was that local government had to start performing its role, but that was not the case at the moment. He was wondering what SALGA was doing about this and what it saw as its role to get local government performing, and what it understood its role to be in that space. SALGA needs to up its game, and be clearer on what it saw as upping its game, because he had reservations about whether their sentiments were the same.

Lastly, it had been mentioned that there was some work being done on an investment strategy. He asked for more information on this.

The Chairperson said that the “upping of the game” was monitoring, evaluation and control, and it stretched over all departments in the three spheres of government. It was a governance issue in all three spheres of government and Members could read the report of the AGSA on this so that they could understand what they were dealing with.

SALGA’s response

Mr Pat Hlungwani, Member: SALGA, said that with regard to upping the game, on the challenges with the audits that were most negative year in year out, SALGA had been saying that it was going to up the game in capacity building. However, it had realised that when it spoke of capacity building, it had been giving its councillors one day workshops. To circumvent that, as already indicated, it had now partnered with higher education institutions to empower its councillors to be adequately skilled on a yearly basis.

Mr Stofile said it was important to reflect on South African history and the recent local government elections, and it would be incorrect to believe that SALGA did not do anything. As the country moved towards the 2016 local government elections, one saw better audit outcomes because of the investments that SALGA had engaged in. The turnover of new councillors coming in spoke to the skills and capacity that had been brought in to the sector.

On VBS, SALGA derived its existence from the Constitution, which defined it as an organisation whose responsibility was to lobby, advocate and represent. When one lobbied, you lobbied for better instruments to improve the sector. SALGA had been lobbying that the local government framework needed to be reviewed. He did not recall having a discussion on the VBS matter, and they were all surprised when they picked up the information from the media, and had devised a plan on what steps would be taken going forward.

The Chairperson directed Members to page 39 of the Medium Term Budget Policy Statement (MTBPS) document, which informed them about what they needed to monitor in terms of the Committee work. R2.5 billion per annum was allocated to empower and capacitate municipalities, so the Committee needed to focus on that. There was a need to improve inter-governmental relations, and the Municipal Standard Chart of Accounts (MSCOA) was an exercise not only from Treasury, but involved other Departments as well.

With regard to revenue collection, the Minister of COGTA would table a plan today regarding the payments to Eskom, and that plan would still go to Cabinet. He thanked SALGA for its input and responses provided to the Secretariat.

The Committee would now proceed to the input from the provinces on the division of revenue.

Division of Revenue: negotiating mandates
 
Mr Essack said that Mpumalanga in its negotiating mandate had raised the matter of the huge amount of money that was spent on the water pipeline and reticulation network in the Bush Buck Ridge municipality. There was great concern because there were many people that were struggling with water, and the allocation did not address the reticulation of water, but it negotiated in favour.

The Chairperson indicated that the Northern Cape negotiated in favour, but on page 2 of its mandate some issues that raised to which Treasury would need to respond.

Mr T Motlashuping (ANC, North West) said over and above all the concerns the province had, it unanimously supported the Bill.

Mr Terblanche said that the Western Cape had raised some issues regarding the wage increase and that they needed to find money for education, as well as for service delivery. However, it supported the Bill.

All the other provinces voted in favour of the Bill.

The Chairperson handed over to National Treasury to respond, and indicated that it may also respond in writing.

National Treasury response

Eastern Cape

National Treasury first responded to the Eastern Cape, and referred to the school infrastructure backlogs grant and the inability of the national Department to spend. In the past, it had been a very valid concern, and the reason there was now an injection was because the Department had built the capacity to spend, which was good news. All the money that was made available would shortly be under way for projects. If it gave the allocations as they were, they would have over-spent.

Free State

With regard to the Free State’s concerns on the wage bill, this had also raised by the Standing Committee on Appropriations when the Bill was discussed. One needed to note that Treasury was operating in a financially constrained environment. When the funds were available, it always budgeted in light of the consumer price increase (CPI) for compensation, but it had not been able to do that due to the slow growth. In the last few years, it had made it clear that in order to remain within the budget ceiling, one had to either limit the numbers of staff or reduce the salaries. There had been quite a large amount of growth in personnel, and one would notice that priority had been given for administrative staff rather than key, critical staff members.

With regard to conditional grants for failing municipalities in the province, there was a request that came through and it was announced that there would be a special grant that would be allocated to struggling municipalities to enable them to turn themselves around. However, the key concern was the lack of capacity in both provinces to support municipalities, as well as municipalities’ ability to manage the resources effectively.  

Mpumalanga

In Mpumalanga, a concern was raised regarding its capacity to monitor the grant. The key matter was that the responsibility to build the capacity lay with the department that administered the grant in terms of section 9 of the Division of Revenue Act. If that department did not do so, it must come before the Committee to account.

Limpopo

In Limpopo, the health issues would be referred to the Department of Health in the province to ascertain why the hospitals were not performing. With the transport network grant, there were concerns about how the subsidies were allocated between the different transport modalities. The responsibility for doing that policy work was that of the national Department of Transport, and the work was not going at a speed it was supposed to. Treasury had referred the matter to the Department.

The maintenance of school infrastructure remained a challenge in the province, and the funding should be ring-fenced for this function.

Two recommendations were made about water -- one on water quality, and educating communities about responsible water usage. These were issues that get dealt with by the national department.

Building capacity to spend funds in municipalities linked up with to how to deal with interventions, but it was important that Treasury built that capacity. Lastly, the Department of Social Development should assist on how to absorb social workers into their system, and to ensure that the issue of substance abuse and other related matters in communities was dealt with.

Northern Cape

The Committee had raised a concern that government needed to introduce new conditional grants. Treasury always had to balance two considerations. One was that if it introduced a lot of grants into the system, one overloaded the reporting responsibilities on the provinces, because municipalities on the ground were not performing effectively in utilising the grants. The two conditional grants that were introduced for health were for health reforms that were not taking place in the province. The most volatile area for conditional grants to be introduced was the health sector, but other sectors were quite stable.

The time frame for provincial legislatures was not within the scope of Treasury.

North West

Issues were raised about the provincial road maintenance grant not allowing for road upgrading, and being designated only for maintenance. This grant was a supplementary grant in the sense that it formed part of the expenditure, and it did not fund all roads, but strategic roads within the province.

Western Cape
 
In response to the question regarding the fires that broke out in the Western Cape and Eastern Cape, and why recovery was funded in the only Western Cape but not in the latter province, the Disaster Recovery Funds were allocated only if there was an application for the funds and when, after the assessment of the disaster, it was determined that the province could not cope with its own resources. Even in the Western Cape, the fire relief funding was quite small in relation to the fire and most damage occurred at privately owned residences, and that was the responsibility of the private owners and their insurers. Treasury never received an application from the Eastern Cape.

With regard to the North West query about why the municipality did not receive an allocation for water services infrastructure; in this Bill Treasury provided R3 billion in drought relief funding which was additional to the normal baseline for the regular expansion of water and sanitation infrastructure. Treasury did not receive an application for drought relief funding from the Moretele municipality, but the municipality did receive funding in 2018/19 through the normal grant system -- R120 million for the Municipal Infrastructure Grant (MIC), R60 million for the Water Services Infrastructure Grant (WSIG), and R18 million through the Regional Bulk Infrastructure Grant (RBIG).

The Chairperson requested Advocate Jenkins to provide a legal opinion on the Public Service Wage Agreement, and he handed over to him to take Members through the paper.

Public Service Wage Agreement: legal opinion

Adv Frank Jenkins, Senior Parliamentary Legal Advisor, said he had prepared the document at short notice with a very defective brief over the phone. He had also got received request from the Standing Committee, but in the opinion he had not analysed section 35 of the Public Finance Management Act (PFMA). He had analysed where the Public Service Wage Agreement fitted in, and it was an agreement between various trade unions under the central bargaining council, and it affected both the national and provincial spheres. This was a policy matter, and one just needed to find a solution to honour the agreement. Regarding Section 35 of the PFMA, the agreement did not fall under S35, and it applied to an additional function or power. There was an argument that said that the non-funding of the Wage Agreement was an imposition on national legislation; but he differed from that. Having considered the brief and analysed it, this matter could be dealt with in the DoRA bill. It could go in there, but it had not.

The Chairperson said that the way forward was to call the Department of Public Service and Administration regarding what was said on page 25 of the MTBPS to advise on how this would assist departments at the national and provincial level. He then put the mandates before the Committee for adoption.

The negotiating mandates were duly adopted.

Consideration and adoption of outstanding minutes

The minutes dated 10, 23, 25 and 30 October 2018; and 9 November 2018 were adopted without amendments.

The Chairperson thanked the Members, and declared the meeting adjourned.