Debate On The Consolidated Statement on KZN Municipalities
By Roman Liptak MPL
Shadow KZN MEC For Finance

 Kwazulu-Natal Legislature Pietermaritzburg: Thursday, 8 September 2011 


The landscape of local government in our province at the beginning of its third term is at best uneven. We are pleased with the improvements in the municipal audit outcomes over the past few years – the number of unqualified audits with other matters has increased to 53 and we are down to just one disclaimer for the latest financial year under review - but audit opinions in themselves offer an inaccurate picture of progress in our municipalities. These improvements show little more than improvements in the submitted financial information. They reveal very little about service delivery on the ground or even the current financial position of municipalities.


We have municipalities, both local and district, that have been receiving unqualified audits but are now, according to media reports, bankrupt. Unauthorised and irregular expenditure are rife. Too many municipalities have insufficient cash coverage, too many fund their operations from conditional grants and some even from an overdraft facility. It is clear that the municipal workers’ strike which is currently underway will have a negative impact on already strained municipal budgets as well as on the public perceptions of service delivery.


The backlogs in the delivery of services remain high as does consumer debt owed to municipalities, which is on the increase with old debt accruing interest. Low expenditure on repairs and maintenance poses service delivery risks associated with aging infrastructure. Where services are being delivered, the steady increase in rates and service charges is generally not matched by improved levels of service. As a result, service delivery protests in our communities are becoming more intense and attacks on councillors more frequent.


Although there is currently some effort to assess performance by measuring it against predetermined objectives, this is mostly focused on issues of compliance with laws and regulations. Where actual service delivery outcomes are measured, the audit largely relies on reported information on performance and paper trails in general as opposed to evidence on the ground. It seems that the only time when facts are checked on the ground is during forensic investigations. We shouldn’t have to wait for forensics to see where things have gone wrong with service delivery in our municipalities.


The expectations are now high with our province being selected as a pilot site for a performance audit. We appreciate today’s presentation on it and as an oversight institution we hope to benefit from the findings of this performance audit.

One of the prominent issues last year was debt owed to municipalities by government departments, both provincial and national. Treasury and COGTA formed a joint task team to map this debt and deal with the amounts in dispute. National Treasury in turn allocated our province a substantial once-off conditional grant to cover the cumulative shortfall in its entirety.  


Although the latest finance close-out report points to substantial underspending on this once-off conditional grant allocation, much of it now appears to be spent with the discrepancy being due to the disjuncture between the provincial and municipal financial cycles. We would like to know, Honourable MEC, how much departments still owe municipalities, particularly in light of yesterday’s media reports that Msunduzi municipality’s outstanding government debt still stands at R90-million.


One positive development emerging from the joint task team is that government departments have been forced to get their asset registers in order which has been a recurring audit issue in its own right. Similarly municipalities have been under pressure to relook at their debtor registers. We hope that both Treasury and COGTA will keep up this pressure and that it will have a lasting effect on both government departments and municipalitie........concern, however, is consumer debt. The inability of municipalities to collect old debt calls into question their constitutional imperative that they must raise their own revenue. One convenient cash cow for municipalities has been local business. It is already questionable why businesses should be charged significantly more for the same, often substandard level of service that is offered to households.


Increasing rates and service charges for businesses only makes the cost of doing business higher than it should be. In the long run, this undermines the potential for expanding the economic base of our municipalities. Another short-sighted strategy is imposing unrealistic hikes in residential rates. If rates are hiked beyond acceptable levels and when such hikes are not matched by improved service delivery and action against corruption, ratepayers are likely to become defaulters. Ratepayers’ associations are already threatening municipalities with withholding rates and paying their dues into trust accounts. If these threats are realised, municipal coffers are likely to suffer another blow.                       


We accept that local government is a separate sphere of government responsible for its own conduct. Our mandate in overseeing municipalities is therefore very limited. Whatever resolutions we choose to adopt in this House are non-binding as far as municipal councils are concerned. Our municipalities are well known for safeguarding their independence vigorously, they only seem to turn to the national and provincial governments when they need extra money.


Local government now receives just under nine percent of the national fiscus. But if this proportion were to be increased as various champions of local government and municipalities themselves are demanding, it would be at the expense of the national and provincial budgets. These other two spheres of government would then be right to ask if municipalities have the capacity to spend larger budgets and if they are prepared to submit themselves to more rigorous parliamentary oversight.


Since audit opinions which we receive do not cover the most recent financial statements, our oversight function relies heavily on regular updates on the financial position of municipalities from Treasury. With local government being a separate sphere of government, the focus in the provincial government’s support of municipalities must be on early detection of problems. I believe that is where our own focus as an oversight body should be too.


The most immediate concern for us has to do with the cash flows in those municipalities that find themselves in a negative cash position. And I would like to take this opportunity to ask the Honourable MEC to inform this House if there are municipalities that have carried over a negative bank balance into their current financial year and if the municipalities that are having to fund their operational expenditure from an overdraft facility can expect some form of assistance from the provincial government. In other words, we would like to know if the provincial government is contemplating any municipal bailouts.


We know that municipalities are skilled at hiding critical information from both provincial and national departments. Provincial Treasury has nevertheless been doing a good job of monitoring their cash flows and cash coverage while COGTA has kept an eye on such items as qualifications of appointees into senior management positions or purchases of mayoral vehicles.

Two areas where more work could be done and where our own oversight function could assist is the spending of conditional grants by municipalities. These are crucial for infrastructure development but their continuous spending by municipalities is being hampered by the same challenges faced by government departments, chief of them capacity and project management.


We are aware that more than R130-million has been claimed by National Treasury from our municipalities in unspent conditional grants to date. These are, however, unspent conditiona.... on municipal books. This amount does not include conditional grants that have been spent on operational expenditure such as salaries. Spending projections for conditional grants are clearly exaggerated in municipalities as they are in many government departments and this matter needs urgent attention from all parties involved in the process.


We really appreciate all the support our municipalities receive from the Provincial Treasury whose Municipal Support Programme has a special place in building capacity in municipalities to enable them to live up to their constitutional mandate. The MSP has grown in volume and scope over time but there are municipalities that relapse once specific support initiatives come to an end. Aftercare and improved monitoring have gone some way towards setting up permanent frameworks but it is unclear whether requisite skills are being transferred and, even more importantly, retained by the rural municipalities.


Similarly, turnaround strategies and interventions such as those in terms of section 139 of the Constitution – and we have had four of those in this province recently – have come at significant cost to the national and provincial budgets. They have helped to avert disasters and they have managed to throw municipal challenges into media spotlight but on the whole they have not yielded lasting results. Here I would like the Honourable MEC to give us some idea as to when the current interventions will be finalised.


Our real concern is that support programmes and interventions by provincial departments provide only short-term solutions to the complex challenges faced by municipalities. They do not address the big question about viability of certain, mostly deep rural municipalities. A great deal of time, energy and resources have gone into expanding the rates base in some of them and yet collection of rates and service charges still accounts for less than one percent of their revenue.


It is clear that the one-size-fits-all approach whereby our urban and rural municipalities are expected to deliver the same level of services to their residents has failed. While it is important that municipalities continue to roll out services to the widest possible set of beneficiaries, they cannot indefinitely expand services to communities that have no hope of making any contribution towards such services. This is simply not sustainable.


It is obvious that we need to debate the viability of certain municipalities. But, at the same time, we must be careful not to stigmatise rural areas due to factors such as limited economic potential that are beyond their control. If such a debate concludes that non-viable municipalities should be disestablished and re-demarcated, we must accept that this in itself will not solve the underlying economic challenges of non-performing municipalities. The answer lies in a more holistic approach to development in our rural areas where key service delivery departments such as Economic Development and Agriculture have an important role to play.


Contact: Roman Liptak, 078 302 0929