Urban Settlements Development Grant 2016/17 performance: Department of Human Settlements briefing, with Minister

Meeting report

The Chairperson started the meeting by saying that the National Development Plan (NDP) emphasised the need for urban reform in order to overcome the legacy of apartheid. The Minister of Finance had indicated that expenditure in the advancement of human settlements would be increased by 8%, and would reach an average spending of R226.4 billion by the 2019/20 financial year. Public transport, housing, improved access to water, sanitation and electricity would be the areas on which spending would be focused. As a result, 75% of the Department of Human Settlements (DHS) vote would be transferred to municipalities for their expenditure on such infrastructure development. Public discourse in South Africa had been dominated by the need for housing, and both the DHS and National Treasury were expected to deliver comprehensive presentations on this aspect at the meeting.

The Committee that dealt with Human Settlements and the Standing Committee on Appropriations were not available to attend this meeting, because they had other meetings to attend. The two committees usually did attend such meetings.

Mr Mbulelo Tshangana, Director General: DHS introduced his team, and said the Minister might either not attend the meeting or arrive late, as she and President Zuma were engaged in a site visit at Elsies River. He also apologised on behalf of the Deputy Minister, who was in a Cabinet meeting. He nevertheless assured the Committee that the DHS delegation would be able to answer every question. There were some municipalities that were perpetual poor performers and others that generally performed well. These municipalities would be identified throughout the presentation.

The municipal financial year would be coming to an end in June, and the DHS could report on figures only up to the end of April 2017. He was concerned about the performances of both eThekwini and Johannesburg, because these two municipalities had always been good performers and this trend had changed in the current financial year. The municipalities used an accounting system that allowed the closing of financial records at the end of July and in some instances, in August, so it was too early to raise red flags on their performances. If the municipalities were not in a position to spend the Urban Settlements Development Grant (USDG) on priority areas such as land acquisition, the DHS would not be able to deliver on its mandate. He added that the DHS was interested in securing funds from the private sector.

Ms Funani Matlatsi, Chief Financial Officer: DHS, said the USDG had been initiated and initially disbursed to municipalities during the 2011/12 financial year. Since the inception of the grant, right up to the 2016/17 financial year, the municipalities had spent around 90% allocated to them. Cape Town, Ekurhuleni and Mangaung had always been unable to fully utilise the grants awarded to them. This had hindered the amount of work that the DHS could do in the cities. Nelson Mandela Bay had consistently been able to spend all the funds that had to been granted to it, and human settlements had not been a problem there.

The 2012/13 financial year had been characterised by high requests for the rollover of unspent funds to the next year. This was normal, because the very nature of the projects made spending in one financial year, especially the first, virtually impossible. Municipalities generally planned on spending 95% of the funds allocated to them. This was because the start of financial years was characterised by planning, so not much spending could be done during this time. Not all the grants that had not been spent in the previous years had been approved to be rolled over to the next year. This was because the various municipalities could not justify or provide evidence of projects that required such funding. The financial year 2014/2015 had been characterised by high spending of the grants. It had come to their attention, however, that Ekurhuleni and Cape Town were problem cities that needed some intervention from the DHS.

Ms Matlatsi said that there was a miscalculation in the figures in the eighth slide of the presentation. She apologised for the miscalculation, and provided the correct figure of R5.9 billion to represent the amount that had been spent during the 2016/17 financial year at the time of the presentation.

Mr Neville Chainee, Chief Operations Officer: DHS, said that the DHS and National Treasury had confirmed the status of the grants as schedule four grants, and requested an increase in municipal accountability. He said that the DHS should identify existing programmes and their desired outcomes as well. The grant should be different for urban and rural municipalities and greater flexibility should be given to the urban municipalities in order to allow them to combine their own revenue with the grants and achieve common goals. Amenities in the municipalities, which involved the construction of libraries, fire departments and community halls, should be included in the grants expenditure. He recommended that at least 50% of the grant should be spent on the development of informal settlements in the municipalities.

Mr Steven Kenyon, Director: Local Government Budget Process, Intergovernmental Relations: Policy and Planning, presented on behalf of National Treasury (NT). He said that the figures presented by the DHS aligned to a large extent with those of NT. It was expected that municipalities would fund the bulk of their development projects and that the grant would act only to supplement their budgets. Urban areas carried out more complex development projects compared to rural areas, and the USDG allowed the municipalities to blend their own funds with the USDG. The grant was designed to respond to large urbanization projects. The reporting on the USDG required that the full capital budget of the municipality be looked into. This was because justice in assessing development would not be sufficiently met if only USDG funds were considered in isolation. R10.8 billion had been allocated at the beginning of this year, and this amount had been adjusted to R15 billion in order to accommodate the impact of inflation.

The outcomes of sustainable human settlements were, among others, the improvement of spatial densities by improving household access to public amenities and socio-economic services. The cities had to have a strategic plan to eradicate infrastructure that was characterised by highly developed areas being surrounded by poorly developed areas.  The municipalities were required to build a ‘corridor’ of some sort that would link the underdeveloped areas to the developed areas as a matter of priority. In addition, it was easy to buy new land, lay roads and water pipes in order for the province to come and build houses there. However, this easy way out should be avoided and priority should move to developing what already existed, as the easy way out perpetuated segregation and this was not in line with the goals of the USDG. The municipalities that were not performing up to par were generally trying to develop the already underdeveloped areas, and were taking the easy way out.

Mr Sello Mashaba, Director: Local Government Budget Analysis, National Treasury said the cities should be strong in leveraging their capital in order to grow the built environment. The USDG had initially contributed to 14% of municipal capital budgets, but this amount had grown to an average of 29% in the 2016/17 financial year. In Nelson Mandela Bay, the portion of the USDG contribution had grown from 11% to 56%. He added that Treasury was in a position to address only the second and third quarter expenditures, because the financial records for the fourth quarter would be finalised only at the end of June. He said the municipalities were engaged in approximately 1 002 infrastructure development projects.

Minister’s comments

Ms Lindiwe Sisulu, Minister of Human Settlements, said the DHS had taken it upon themselves to devise a policy on how to spend the USDG grants. It had been justified in doing so because these funds came from Budget Vote 38, for which her Department was responsible, and had to account for. There had been a difference in interpretation on what the municipalities should be doing and what national government thought should be done. In the past there, had not been any coherence in the messages delivered to the municipalities from both the National Treasury and the DHS. She recommended that both departments should work together in order to achieve unison. The Treasury was of the opinion that the municipalities should have more of a free hand to determine the use of the grants, and she did not necessarily agree with this position.

She said that Cape Town always asked for the grants to be rolled over to the next year. She viewed this as a failure on the part of the city to spend these funds properly. Johannesburg also had the same problem. She said that the policy that the DHS promulgated should be the primary policy, as a third of the funds allocated to the DHS were allocated to the municipalities, and it did not make sense that the Department would not have primary input to the policy. She acknowledged that the USDG represented a small amount in comparison to what the municipalities spent on infrastructure development. Nevertheless, she believed that the municipalities accounted sufficiently to the DHS.

The Minister mentioned that the City of Cape Town had threatened legal action against the DHS in order to maintain its independence on policy creation, because the city believed that the DHS did not have the authority to dictate policy. However, she believed that the DHS did have the authority to do so. The basis of her belief was that the DHS had disbursed the funds, and as such it ought to direct policy.

Discussion

Ms T Motara (ANC, Gauteng) asked that all the stakeholders -- the municipalities, National Treasury and the DHS -- should clarify this policy conundrum. People did not understand that there were policy implications. All they wanted to see was human settlements in action. Inconsistent policy had resulted in inefficient expenditure. Accounting inefficiency may also have been a direct result of the policy inconsistency. The municipalities should be brought to Parliament so that they could explain their understanding of the policy. She added that the fact that there was a difference between the national government’s financial year and individual municipalities’ financial years did affect the work that had to be done, and National Treasury needed to work on resolving this impasse

Mr O Terblanch (DA Western Cape) asked whether the municipalities were complying with the requirements that 50% and 3% of the USDG were being spent on informal settlement upgrades and capacity building respectively. He also wanted to know whether municipalities were in fact contributing anything to human settlement development, considering the fact that substantial amounts of the USDG were being rolled over to the next financial periods. He wondered whether this year would be characterised by massive under-expenditure. He also acknowledged that the DHS did have a right to significant policy input, but cautioned against a power struggle. He recommended that policy creation be treated as joint exercise.

Mr L Gaehler (UDM, Eastern Cape) said that this policy impasse needed to be resolved in order to make sure that people did not depend on government for housing in the long run.

Mr C de Beer (ANC, Northern Cape) said he agreed with Ms Motara’s assessment and questions. On 21 June, the Select Committee on Finance would be meeting with municipalities, and on the day before that, the Committee on Appropriations would be looking at minutes and recommendations. He suggested that these two meetings should be combined in order to address the issues that had been raised. He also reminded Members that on 29 January this year, the Cape Town municipality had appeared before the Committee and had presented a lot of stories on development. He recommended that the Cape Town municipality be brought back on 21 June.

The Chairperson asked whether the DHS had the capacity to assist municipalities with the implementation of the work that they should be doing. He wanted to know what the major issues were that gave rise to under-expenditure of the funds.

Mr L Nzimande (ANC, KwaZulu-Natal) said that the Minister was requesting more stringent involvement in developing policy, and the municipalities were asking for the DHS to give them more leeway in implementing it. This issue ought to be addressed. He also asked for more information on what made municipalities fail to spend all of the USDG allocated to them. His particular interest was on eThekwini’s failure.

Mr T Motlashuping (ANC, North West) said he was disappointed that Members were complaining without asking any relevant questions. He commented that the presentation by the DHS had not addressed whether it had met its targets with regard to allocating funds to the municipalities. He also wanted to know whether these allocations where in line with the DHS’s strategic plan. He also wanted to know how the DHS had fared with regard to the integration of communities without necessarily relying on the municipalities’ efforts. Why did the DHS not withdraw funds from perpetually underperforming municipalities and give those funds to the municipalities that performed well? What intervention strategies had been put in place in order to mitigate this under-expenditure? He was forced to speculate on the reasons there had been under-expenditure because these reasons were not advanced in the meeting. There was a desire to finalise the policy, but there were no deadlines on when these important issues ought to be addressed.

Mr Tshangana responded that eThekwini had always been a good performer and that the DHS had used one of the models developed by the eThekwini municipalities to emulate them elsewhere. Every second week, the managers there sat down with project managers and discussed important projects. He was worried by the fact that they had started at a slow pace this financial year. He hoped that there would not be a rush to spend the funds towards the end of the year, as that would result in inefficiencies. He added that they did have some good projects in place, and he was not worried about their performance.

He had met with the city managers in Ekhuruleni and Cape Town towards the end of last year, and had mentioned that he may have to move the funds to other municipalities. He said he asked whether the two municipalities needed extra capacity to deal with their under-spending. Ekhuruleni had taken up the offer and two officials from the DHS had been sent to the City to assist. However, Cape Town had turned down the offer Ekhuruleni was expected to spend up to 96% of the budget this year. Buffalo city had improved its expenditure because of the DHS intervention. He added that the DHS was closing its monitoring of the developments in Cape Town, eThikwini, Johannesburg and Ekhuruleni this year. He had told National Treasury that funds would have to be moved from poorly performing municipalities to those municipalities that performed better.

The Minister added that she had offered the senior management at the DHS the opportunity to go on vacation in order to allow her the leeway to sort the policy issue out.

Mr Chainee said that it was not correct to assume that the USDG was not a major contributor to the municipalities’ capital expenditure budgets, because it was. He gave the example of Nelson Mandela Bay, where he said the USDG contributed to approximately 56% of their budget. He said no municipality had met the 50% target on poor households. Cape Town had been the worst, with expenditure on poor households reaching only 7% last year and 14% this year. The differences between the financial years affected the extent to which the individual municipalities were able to plan. He added that the DHS had not placed any cumbersome compliance requests on the municipalities, and all their requirements were in line with the various DHS strategic planning documents.

Mr Tshangana said some of the reasons for under-spending varied from poor leadership in the municipalities, to poor planning for projects. Planning in the built environment took approximately 36 months to complete. eThekwini had understood this concept, and that was what made them a leader in spending.

Mr Mashaba added that the difference between the timing of the financial years was not a problem -- the differences actually gave the National Treasury some breathing space. The biggest challenge faced by the municipalities was with planning. He asked that there be some assistance and development with regard to assisting the municipalities with planning.

The Minister said that the mayor of Johannesburg had completely disagreed with the policy on human settlements, because he believed that the municipality did not have the funds to do what the policy required it to do. It turned out that no one in the municipality had told him that he had a USDG grant at his disposal. She called for the establishment of a school of governance to inform new governance structures on how to handle government. She also said the incident in KwaZulu-Natal, where a two year old had died during housing protests, had been an unfortunate incident and should not be allowed to happen again.

The meeting was adjourned.