LOCAL GOVERNMENT WEEK:
BRIEFING ON LOCAL GOVERNMENT
RECOMMENDATIONS
2 August 2012
For an Equitable Sharing of National Revenue
LOCAL GOVERNMENT ISSUES
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Inadequate service delivery
Backlogs
Under-spending, poor planning
Inadequate human, organisational or institutional capacity
Inadequate repair maintenance
Poverty, unemployment
Governance challenges
Recent Events
– Ongoing Local Equitable Share Formula Review of LES formula
– FFC public hearings on sustaining municipal finance
Briefing on Recommendations Relating to
Local Government
2
LGES RECOMMENDATIONS
2011/12
2011/12
Year Recommendat
ions
Use the
institutional
component of
Local Equitable
Share to assist
poor
municipalities
Develop
alternative
methods of
revenue
prediction for
the RRC
Government response
Government agreed that changes are required to improve
the way the local government equitable share is allocated
between municipalities. To assess whether the local
government equitable share formula results in an
equitable division among individual municipalities
(horizontal division) as stipulated in sections 214 and 227
of the Constitution, the formula should be analysed as a
whole – rather than subcomponents in isolation.
The institutional component has been changed in 2011,
adjusting the amount allocated to municipalities in terms
of their poverty rate. This means that poorer
municipalities will receive increased allocations.
Briefing on Recommendations Relating to
Local Government
3
LGES RECOMMENDATIONS
011/12
Year Recommendations
Remove the step structure
of the differentiated tax
mechanism
of
the
Revenue
Raising
Component and develop a
flat gradient structure so
that municipalities on the
outer ends of bands are
not treated unfairly
Government response
In the absence of accurate property
valuation rolls for all municipalities and
with no official data on economic
activity at municipal level, it is very
difficult to construct a model that would
provide fair estimates of municipalities’
capacity to raise their own revenues.
Government agreed to remove the
stepped structure from the revenueraising correction and a smooth curve
has been used instead to calculate the
differentiated “revenue correction” rate
applied to each municipality.
Briefing on Recommendations Relating to
Local Government
4
RURAL DEVELOPMENT AND UNFUNDED
MANDATES
012/13
2012/13
Year
Recommendations
The governance and institutional arrangements for rural
development across the three spheres of government needs to
be clarified urgently. The Commission recommended that a
functional mapping of all rural development activities be
undertaken, with specific responsibilities assigned to each
sphere of government.
The organ of state initiating a general assignment must
provide the financial and fiscal implications of a function
shift to the Commission for its recommendations to the
Minister of Finance in line with Section 3 of the FFC Act
2003 as amended and the Minister of Finance. The
Commission tabled a compliance check list for this specific
purpose in 2007. All resources associated with delivering a
Briefing on Recommendations Relating to Local
service associated with
a function
Government to be shifted are
transferred.
Governmen
t response
5
FINANCIAL MANAGEMENT ISSUES (REVENUE
ENHANCEMENT, MUNICIPAL DEBT, OVERSIGHT)
11/12
2011/12
Year
Recommendations
Government response
Adopt standard early
warning systems to
detect fiscal stress in
municipalities
and
reach consensus on
them.
National government has an early warning system that
monitors municipal finances. This system is anchored by
the budget formats prescribed in terms of the municipal
budget and reporting regulations, the associated funding
compliance assessment (see MFMA Circular 42) and
monthly financial reports required in terms of section 71
of the MFMA.
National government supported the recommendation that
each municipality should have a broad revenue
improvement programme in place. National government
believes that at this stage there is far more to be gained
from improving the accuracy and completeness of
municipal billing systems, and putting in place proper
customer relations capacity.
Legislate, through S43
of the LGMS Act of
2000,
revenue
collection as one of
the key performance
areas against which to
assess
overall
municipal
performance.
Briefing on Recommendations Relating to
Local Government
6
FINANCIAL MANAGEMENT ISSUES (REVENUE
ENHANCEMENT, MUNICIPAL DEBT, OVERSIGHT)
011/12
2011/12
Year
Recommendations
Support efforts to estimate
the fiscal capacity and
fiscal
effort
of
municipalities to dispel
the perception that certain
municipalities will never
be financially viable.
Government response
The notion that certain municipalities will never be
financially viable is a misrepresentation of both the
design of the local government fiscal framework and the
practical reality of local economies.
National government is investigating the issue of
developing measures of fiscal capacity – it is by no
means a straightforward task given the impact that
traditional land and different modes of service delivery
have on many municipalities’ rates bases and service
revenues.
Subject
revenue Government supported these recommendations.
enhancement programmes
to empirical tests that
cover changes in (a)
effective tax rates (b) tax
burdens
(c)
yield,
Briefing on Recommendations Relating to
7
efficiency and overall
Local Government
fairness
FINANCIAL MANAGEMENT ISSUES (REVENUE ENHANCEMENT,
MUNICIPAL DEBT, OVERSIGHT)
2012/13
2012/13
2012/13 2012/13
Year Recommendations
Government response
Municipalities need to improve technical efficiency in utilising Accepted
existing resources
National and provincial treasuries’ efforts to improve the
credibility of municipal budgets through annual benchmarking
exercises should continue to be supported.
National and provincial government should require and assist
municipalities to identify the primary cause of poor
performance in billing and revenue collection functions and
use the information to design appropriate remedial strategies.
Agrees but disagrees that
benchmarking documents be
made public
Government agrees that
municipalities should be
assisted. NT is training
municipalities on revenue
management
As an interim measure, government should establish and A legislative framework for
publish guidelines for municipalities on management of this already exists
municipal consumer debt in terms of, but not exclusive to,
interest charges, debt impairment and writing off of bad debts.
Briefing on Recommendations Relating to
Local Government
8
FINANCIAL MANAGEMENT ISSUES (REVENUE
ENHANCEMENT, MUNICIPAL DEBT, OVERSIGHT)
2012/13
2012/13
Year
Recommendations
Government
response
S64 of MFMA (No.56 of 2003) should be amended to
require regular collation and updating of information on
indigent residents of a municipal area, as an integral
component of municipal revenue management practices.
Guidelines have
been issued to
help
municipalities to
implement
indigent policies
National and provincial government should develop and
support peer learning and support programmes that assist
poorly performing municipalities to leverage experience
and best practices of well-performing municipalities,
particularly in relation to spending performance,
efficiency in using resources, proper debt management
and achievement of desired
developmental outcomes.
NCOP:LOCAL GOVERNMENT WEEK 31
Government
agreed. Forums
for such exist,
eg. CFO’s
forums, City
Budget Forum
JULY TO 3 AUGUST 2012
9
ENVIRONMENT (CLIMATE CHANGE AND DISASTER
MANAGEMENT)
012/13
2012/13
Year
Recommendations
Government
should
ensure
that
municipalities develop their own climate
change
mitigation
and
adaptation
strategies and plans for climate change as
part of the Integrated Development
Planning process.
Government should consider providing
municipalities with a performance
based conditional
which
Briefing grant,
on Recommendations
Relating to
Local Government
rewards or incentivises actions that are
Government
response
Agreed.
DCOG, DEA
and
SALGA
developing
planning tool
for
climate
change
management
More research
needs to be
done as to how
such a grant10
should
be
HOUSING AND LAND USE
2012/13
2012/13
Year
Recommendations
Government
response
Government should conduct a broad-based Government
review of the efficacy of current housing accepted
finance arrangements in meeting housing recommendation
needs within the context of creating
sustainable and more compact human
settlements.
Government should actively and specifically Government agrees
pursue development of a more spatially with recommendation
and has initiated a
compact urban form for cities, by developing new cities support
and adopting appropriate policies and programme to assist
cities manage built
financing instruments.
Briefing on Recommendations Relating to
Local Government
environment
11
INFRASTRUCTURE/REPAIRS AND
MAINTENANCE
2012/13
Year
Recommendations
Government
response
National government should specifically
enforce provisions set out in S74(2) of
Municipal Systems Act, such that the basis of
municipal tariffs accurately reflects the cost
of providing the specific service, as well as
conforms to National Treasury expenditure
guidelines for repairing and maintaining
municipal infrastructure.
Government
supported
proposal. But
it may take
time
to
implement
proposal
since
data
requirements
for this are
12
huge
Briefing on Recommendations Relating to
Local Government
CAPACITY BUILDING INITIATIVES
Recommendations
In future, all capacity building initiatives should be evaluated by an independent and impartial
party and identify lessons that could be taken into account when a new programme is designed
and implemented.
Capacity building initiatives should target poor performing (distressed) municipalities that have
limited capacity to compete in the open market for skills and conditions be set for permanent
absorption of such capacity and transfer of skills to permanent municipal employees.
Each capacity building programme must have a clear outline of measurable objectives, targets
and timelines detailing conditions under which a programme can be withdrawn from a respective
municipality and after a detailed monitoring and evaluation of the programme is done. DCOG
and NT need to strengthen their capacity to manage and monitor new programmes.
There must be an intergovernmental wide common understanding of what constitutes “lack of
capacity” within the context of local government and that local government should be central to
setting the agenda for capacity building programmes intended for their own improvement.
Capacity development programmes should be comprehensive and not only focus on training of
personnel and deployment of experts
municipalities.
Briefing within
on Recommendations
Relating to They must also focus on other
13
Government
organisational and human resource issuesLocal
(recruitment
and retention of permanent municipal
DATA ISSUES
2012 /13
Year
Recommendations
Data available at local government
level should be reviewed to ensure
appropriate surveys or alternatives are
available to account accurately for
changes in demographics and other
factors at municipal level
Briefing on Recommendations Relating to
Local Government
Government
response
Agreed: The
Local
Government
Data forum was
established in
response to the
need to
rationalise data
collection from
LG.
14
PROGRESS ON THE REVIEW OF THE
LES FORMULA
• Task team established to review LES formula
–
–
–
–
–
National Treasury
DCoG
SALGA
FFC Secretariat
StatsSA
• Revised principles and objectives of formula
– Compiled two discussion documents for comments
• Principles more focused and objectives more tangible
– Opportunity given to all municipalities to comment on process
and discussion documents
Briefing on Recommendations Relating to
Local Government
15
PROGRESS ON THE REVIEW OF THE
LES FORMULA
• All written municipal comments received in June
• Team currently working on new formula based on
principles, objectives and municipal/stakeholder input
– Proposed new formula to be taken to department and
organisation heads by end August
• Consultation on proposed new formula to be undertaken
with municipalities and other stakeholders in September
• Final proposed formula will be presented at Budget
Forum in October
Briefing on Recommendations Relating to
Local Government
16
LGES-GENERAL COMMENT
• The LGES review suggested by government
has only focussed on the formula
• What is needed is a broad review of the Local
Government Equitable Share or the entire
Local Government Fiscal Framework
• The FFC through the Public hearings is in the
process of doing this and will advise
Government on this when work is complete
Briefing on Recommendations Relating to
Local Government
17
FFC PUBLIC HEARINGS ON
SUSTAINING MUNICIPAL FINANCE
• FFC undertook a set of public hearings to understand and
propose options for the problems inherent in Local
Government Fiscal Framework
– Two sets of public hearings took place
• First public hearing identified the problem statement and issues
hindering sustainable financing of LG
• Second public hearing provided a set of options for problem
statement identified
– Input from process driven largely by stakeholder perspectives
• Identified issues from various stakeholders in LG
Briefing on Recommendations Relating to
Local Government
18
EMERGING CONSENSUS:
DIFFERENTIATION AND DEMARCATION
• Differentiation
– Principle of differentiation agreed upon
– Common system of differentiation is required
– Context (fiscal capacity, cost efficiency…) vs performance
(i.e. fiscal effort, spending efficiency and effectiveness …)
– Any demarcation framework to conform to constitutional
framework
• Demarcation
– Develop a system that ensures fiscally sustainable
municipalities are created
Briefing on Recommendations Relating to
Local Government
19
EMERGING CONSENSUS: LGFF AND
FUNCTION ASSIGNMENT
• Stakeholders proposed a broader definition and criteria for the
LGFF
– Should include not only transfers, but also own revenue, borrowing and
transfers
• Cautioned against expecting too much from a redesigned
LGFF
– A lot of other work (e.g. capacity building and support) is required to
improve local government functionality.
• Future devolution of fiscal powers should be informed by
functional assignments
– Functions (of, for example, district municipalities) must be clarified
before making any changes to grants
Briefing on Recommendations Relating to
Local Government
20
EMERGING CONSENSUS: OPTIONS FOR
LGFF
• Three primary options for the LGFF:
– Gap-filling: A system based on gap filling with a primary emphasis on
transfers, much as exists currently
– Performance based system: with emphasis on incentives, which implies
a major shift towards expenditure-side interventions, incentivising own
source revenue and capital finance, complemented with conditional
transfers.
– Range of hybrid options in between
• Approaches were discussed as options for the LGFF structure
• FFC to finalise a set of recommendations emanating from
process and undertake further engagements
Briefing on Recommendations Relating to
Local Government
21
THANK YOU.
Financial and Fiscal Commission
Montrose Place (2nd Floor), Bekker Street,
Waterfall Park, Vorna Valley, Midrand,
Private Bag X69, Halfway House 1685
www.ffc.co.za
Tel: +27 11 207 2300
Fax: +27 86 589 1038