Debate on the Municipal Finance 2010/2011 Close-Out Report
By Roman Liptak MPL
Shadow KZN MEC For Finance, KZN Legislature

Pietermaritzburg: 8 December 2011


Honourable Speaker 


Many of the challenges faced by provincial government departments are replicated on a much grander scale in municipalities. In most of them, outside the three non-delegated municipalities, the lack of skills and capacity results in weak planning and budgeting as well as underspending, especially on infrastructure. Under these circumstances, service delivery continues to be severely compromised.


Then there are the deep rural municipalities with specific challenges of their own. In addition to their inability to generate revenue, many have cash flow problems, many routinely use grants and subsidies for operating expenditure, many grossly mismanage their budgets without delivering services and, as a result of this, many have recurring audit issues.


Despite these glaring differences, rural municipalities, which raise little or no own revenue and are highly dependent on grants and subsidies, are expected to deliver similar services to their residents as viable metropolitan municipalities which have the capacity to raise sufficient revenue from their ratepayers. At the core of the problem is the fact that legislation gives similar powers to all municipalities, irrespective of their status, size and capacity.


One way of dealing with this challenge is redesigning the current municipal map of KwaZulu-Natal. But this process must keep clear of political considerations and focus exclusively on the issues of economic viability. We have little confidence in the impartiality of the demarcation changes that seek to undermine some political parties at the expense of others.


The financing of municipalities is an ongoing challenge. The rates bases of many, particularly rural ones, appear to be static, if not shrinking in proportion to their growing populations. Since its implementation, the Municipal Property Rates Act has done little to raise additional revenue in municipalities outside metropolitan areas. In some rural municipalities, the cost of implementation of the MPRA has far exceeded any proceeds from this legislation.


Spending municipal budgets seems as daunting as raising municipal revenue. The concentration of expenditure on wage bills means that municipalities largely act as a source of employment for the local, politically-connected elite.


I remind this House that last yearís close-out report showed some encouraging improvements in municipalitiesí capital spending. These improvements appear to have been reversed during the 2010/2011 financial year, with capital underspending in four out of 11 districts sitting under 50 percent.


The implications of this for service delivery are clear. Underspending on capital budgets results in little progress at municipal level in terms of urban renewal and rural development. The provincial Department of Cooperative Governance is also a culprit here. The mid-term budget reviews which we debated in this House yesterday showed that its transfers and subsidies to municipalities on items such as Corridor Development Programme and Small Town Rehabilitation Programme stood at alarming figures between 15 and 17 percent at mid-year.


Poor spending is clearly the result of bad planning and budgeting. Provincial Treasury and COGTA need to place even more emphasis on assisting municipalities with annual as well as multi-year budgeting. Inadequate planning results in hasty spending towards the end of the financial year when unspent funds are spent recklessly for the sake of it while service delivery suffers. This is an obvious area of interest to the newly established Infrastructure Crack Team and we would like to receive regular updates about its engagement with municipalities in this regard. 


It is also obvious that political instability plays a role in poor planning, budgeting and spending. This must have been especially so in the wake of the May 2011 local government elec......... the end of the municipal financial cycle. There are recorded instances of new municipal administrations cancelling contracts entered into by their predecessors. One of these cases, an infrastructure project at Nkandla, we duly reported to the MEC for COGTA. We are interested to know if Treasury has detected any instances where conditional grants unspent as a result of changes in political leadership had to be surrendered to National Treasury.


Debt owed to municipalities is on the rise despite increasing efforts by all stakeholders to bring it down. This suggests that municipalities stand almost no chance of recovering their debt in its entirety. It seems that more old debt will have to be written off, either in total or by way of a partial amnesty or it will remain a permanent fixture on the municipal books and an annual headache for Provincial Treasury, COGTA and this House.


We appreciate all the work that has gone into the reconciling and settling of debt owed to municipalities by government departments, both provincial and national. The dedicated Debt Recovery Task Team, which was mandated to quantify government debt, has obviously served its purpose. We would like to know from the Honourable MEC, if this task team is a permanent unit and if so, how it is changing its focus from identifying debt to settling disputes which exist between government departments and municipalities.


Government debt in municipalities was never excessive in absolute terms compared to debt owed by households but it has a symbolic value. We cannot expect ordinary consumers to pay their way if government isnít paying its dues. The real concern here is with consumer debt and debt levels for households remain unacceptably high. Despite these efforts, it appears that municipal debt is growing at a faster rate than it is being paid off.


Madam Speaker, a few final comments about assisting municipalities:


It is obvious that most challenges boil down to issues of capacity. What our municipalities really need are skilled and dedicated officials to deliver services. If a municipality has competent and hardworking officials appointed on merit, a decent level of services will be delivered, even if most councillors are failing to discharge their duties. If we are looking to spend more state resources in local government, we should invest them into skills and Treasury, together with COGTA, need to keep their focus on skills development when assisting municipalities.


We are generally very impressed with the engagement between Provincial Treasury and municipalities through the Municipal Support Programme. The volume and scope of the MSP has been growing steadily with an increasing number of municipalities receiving support but, through all this, Treasury has managed to let municipalities safeguard their independence as a separate sphere of government. However, the success of these interventions can only be measured by their lasting effects and this is where an increasing focus on aftercare must come in.


Treasuryís assistance can also benefit from supporting the institutions that promote municipal independence. For this reason, investing into the work of the newly established Municipal Public Accounts Committees is likely to benefit all parties involved. Those of us who serve on SCOPA are already interested to see what effect these MPACs will have on future municipal audit outcomes. The results are likely to be better if MPACs receive support from Provincial Treasury and COGTA.


We have received a list of forensic investigations that are currently underway in municipalities through the COGTA portfolio committee which is much appreciated. We would like to know to what extent efforts to detect fraud and corruption in municipalities coincide with similar efforts within the provincial government where they are led by the Office of the Premier with its dedicated Integrity Unit and Provincial Treasury.


The Honourable MEC made a direct reference to the local government elections in May this........erspective. Very often politics deepens rather than solves problems. Unrealistic promises are made and wild expectations are created in order to win votes, but the same individuals who are responsible are nowhere to be found after elections.


The frustrations of the communities are ignored and if visits are paid to them by provincial or national institutions to ostensibly listen and enlist public input, little or no feedback and progress follows. Similarly, interventions in municipalities are often motivated by political expediency rather than genuine desire to improve the prospects for service delivery. Our appeal to the provincial government departments which extend support to the local government, such as Treasury and COGTA, is therefore to focus on helping municipalities rather than helping themselves.


I thank you. 


Roman Liptak
078 302 0929