Debate On The Consolidated Statement On
 KZN Municipalities' Budget Report
By Roman Liptak MPL


Kwazulu-Natal Legislature Pietermaritzburg: Thursday, 19 August 2010 


Honourable Speaker


The recent set of municipal hearings has made it clear that the current funding model of local government is not working. Financial challenges facing municipalities – including challenges presented by the Municipal Property Rates Act, municipal debt, and compliance burden - are overwhelming, and none of them even directly measure the performance of municipalities in service delivery.


At the heart of the problem is that all municipalities share the same constitutional mandate. This means that eThekwini Metro and Umkhanyakude District, for example, are expected to render the same level of services regardless of their vastly different funding profiles. Yes, certain core requirements should apply to all municipalities, but other requirements should differ according to the fiscal and financial capacity of individual municipalities. There is a need for a reasonably differentiated approach.


It is true that substantial increases have been made to the transfers - both operational and infrastructure - to local government over the last few years in acknowledgement of its increased service delivery responsibilities. Yet, many municipalities are not in a position to meet their constitutional mandate due to an inadequate rates base on the one hand and high levels of underdevelopment on the other.


An increasing reliance of municipalities on transfers – both equitable share and conditional grants - from national government to fund their activities is clear as the share of rates and service charges in total operating revenue is declining. This may be a reflection on the effectiveness of the MPRA and I am glad the finance committee addressed the concerns stemming from the cost of implementation of this legislation in our province and the return on this investment.


Generally speaking, municipalities have poor debt collection records. The total municipal debt grew to R8.2-billion to 31 March 2010, and eThekwini held the biggest debt at R4.9-billion. The worrying part is that debt is almost exclusively concentrated in our two major urban municipalities – eThekwini and Msunduzi, the two economic powerhouses of this province.


A significant part of this debt to municipalities is owed by government departments, both provincial and national. Service charges are the main source of revenue for municipalities and the challenges experienced with enforcing debt collection and an increase in the outstanding debts of more than 90 days impact hugely on their financial viability.


I wish to express our appreciation to the MEC for Finance for her concerted effort in identifying this debt. We all hope that the timeframe for intergovernmental disputes and the settling of this debt will be met. I would also like to know to what extent this is a once-off rescue operation and what measures are being taken by provincial Treasury to prevent intergovernmental debt from accumulating to such monstrous proportions in the future. I would also like to mention that many municipalities continue to report substantial losses of both water and electricity due to illegal connections, but some, such as eThekwini, are attending to the problem.


It seems obvious that the funding model of local government needs to be made more flexible as much as the financial management model needs to be simplified if municipalities are to deliver on their constitutional mandate. One area where immediate change is possible is compliance with regulations.


There are complex and costly financial reporting requirements, placing a major administrative burden on municipalities.

According to the Financial and Fiscal Commission’s submission for the Division of Revenue for the last financial year, 225 questionnaires from national organs of state were distributed to municipalities within one year. This means one form for virtually every working day, and ught similar data! This is not to mention additional requests from provincial government departments, especially the Department of Co-operative Governance. When do municipalities get the time to deliver services to their residents?


In addition, the analysis of this data is seldom shared with municipalities. Municipalities, however, are not the only ones who are kept in the dark. It is exactly one year since the national government co-opted this House in its Local Government Assessment Programme. We have since visited numerous municipalities, interrogating their officials with the same reference tool, not least during the recent Mandela Week. What for? What exactly have we achieved?


One last observation. The focus on aspects of financial management in municipalities is often too narrow. It does not help for managers to look at financial statements without looking at the overall mandate of municipalities. There needs to be more focus on asset management, procurement, value-for-money, cost-benefit analysis with regard to projects and on effectiveness and efficiency. 


We all have come to see clean audits as merely technically clean. Audits should also be clean of fraud and corruption. It is true that the more the audits are technically clean, the less the chance of fraud and corruption. But then there is Msunduzi Municipality. It has a history of relatively unproblematic audits and yet these outcomes have for a long time concealed deep seated problems, some of which go back many years only to blossom into an overnight crisis.


I thank you.


Contact: Roman Liptak, 078 302 0929