Municipal Demarcation Board & Institute for Municipal Finance Officers on Municipal Finance Management Bill

FINANCE PORTFOLIO COMMITTEE
19 February 2002
MUNICIPAL DEMARCATION BOARD & INSTITUTE FOR MUNICIPAL FINANCE OFFICERS ON MUNICIPAL FINANCE MANAGEMENT BILL

Chairperson: Ms Hogan (ANC)

Documents handed out:
Municipal Finance Management Bill [B1 - 2002]
PowerPoint Presentation by the Municipal Demarcation Board
Municipal Demarcation Board submission, 19 February 2002 (Appendix 1)
Municipal Demarcation Board submission, 07 February 2002 (Appendix 2)

Relevant documents:
Mail & Guardian article, Conflict flares on municipal law February 08, 2002
Mail & Guardian article, Uproar over local govt studies. January 11, 2002

SUMMARY
The Institute for Municipal Finance Officers and the Municipal Demarcation Board made their submissions to the Committee. The IMFO welcomed the Bill but presented a few concerns that mainly take into the account the day to day running of municipalities and focussed on the practicality of the Bill.

The Municipal Demarcation Board (MDB) appreciated the need for legislation of this nature but pointed out many shortcomings in the Bill and it provided an outline of everything that the Bill lacks. The Board also questions the constitutionality of certain provisions in the Bill.

MINUTES
Institute for Municipal Finance Officers (IMFO)
The IMFO was represented by Mr Kumar who introduced his organisation as a body of professional municipal accountants and treasurers.

In the introduction to the submission Mr Kumar said that the IMFO welcomes the Bill and that the rationale thereof is understood and appreciated. Nevertheless the IMFO still had a few concerns:

- Many provisions in the bill are too prescriptive and should rather be enabling in nature.

- The Bill should not be applied too rigidly to local authorities that are larger and well capacitated.

- Too much regulation stifles independence and the autonomy of local government.

Mr Kumar went on to look at specific problem areas and provisions in the Bill:

Functions & Powers of National Treasury
The IMFO welcomes the discretionary powers given to National Treasury to perform various itemized tasks but there is no certainty that Treasury will undertake these functions.

Section 5(e)ii allows Treasury to monitor the standards of generally recognized accounting practice (GRAP) but the IMFO sees this provision as undermining the role and the need for the Accounting Standards Board that currently undertakes what the section sets out to do.

Municipal Revenue: Bank Accounts
The IMFO does not see the need to designate a primary bank account in terms of section 8 and submit that it is onerous to notify Treasury, Province and the Auditor General in writing when a bank account is opened in terms of section 9.

In section 11(1)(d) that deals with withdrawals from a municipal bank account, it was submitted that a definition of deposit should include consumer deposits.

Cash Management & Investment Â
Section 12(4) obliges financial institutions to notify Treasury, Province and the Auditor General of monies invested. The IMFO questions how this will be enforced.

Disposal of Assets
Section 13 deals with the disposal of capital assets. In terms of the section 13(2)(b) a municipality may alienate assets only after consideration has been given to the economic and community value that will be gained by the alienation. The IMFO wants this criteria to be properly defined because as it stands there is an implication that the procedure must be followed for the disposal of even a very small asset which is impractical.

Section 13(3) states that alienation may not be reversed. The IMFO wants clarity on what this exactly means.

Municipal Budgets
Section 16(1)(a) states that the budget must be in the prescribed format. The IMFO submits that it will probably be Treasury who prescribes the format but the legislation does not say so.

Section 16(1)(c) calls for a capital budget that is balanced. The IMFO wants a capital budget that is fully funded. A fully funded budget takes into account the necessary funding needed for a capital budget whereas a balanced budget is just enough for expenditure.

Section 17 sets out the budget process and more particularly the role of the Councillor for Finance. The IMFO suggests that it would be appropriate for the Council to appoint the Councillor for Finance.

The provisions of section 20 dealing with the Municipal adjustments budgets are too restrictive and the MEC's approval for any second adjustment budget undermines the autonomy of local government. Mr Kumar said that there are many emergencies at local level and the Bill cannot be too restrictive. Local government would need to respond immediately without going through the process of obtaining approval from national. The current Bill is not flexible enough.

Section 21(b) obliges municipalities to submit reports on the state of their budgets within ten days of the end of each reporting period. The IMFO submits that this period is too short and recommended 30 days.

Municipal Manager
The Bill designates the Municipal Manager as the Accounting Officer and the IMFO wants the Chief Financial Officer (CFO) to be the accounting officer. There must be one Accountable person but the question of accounting is a different issue and the Bill as it stands undermines the accounting officer.

Section 37(2)(a) obliges the municipal manager, within ten days of the end of each month, to provide the Councillor for Finance with the information in terms of sub (i) - (iii) that relate to budgetary control. The IMFO submit that the 10 days is insufficient and it should rather be no later than the end of the next month.

The TEN days in section 38 to provide Treasury with information on all transfers from National and provincial Departments is too short. Municipalities should be given 30 days. Â

The provisions in section 39 on virement are too restrictive.

Section 44 undermines the role of the CFO and more latitude should be given for the CFO to be more creative, innovative and allow for strategic thinking.

The auditing of financial statements should be completed within three months after the end of the financial year rather than two months given in section 67 which is unrealistic.

Section 73(1) obliges the municipal manager, within two months after the end of the financial year, to submit the consolidated financial statements to the Auditor General. Again the IMFO wants the period extended to three months.

General comments
Mr Kumar said that a phasing-in period must be catered for and consideration should be given to central government funding for capacitating. Also the MMF Bill, the Municipal Structures Act and the Municipal Systems Act should be consolidated so that the municipalities know their responsibilities and the roles of the CFO and the Municipal Manager need clarification.

In conclusion he said that the Bill addresses the past problems of lack of accountability, transparency and the lack of sound management of municipal finances. However, careful consideration needs to be given to establishing clear lines of accountability and relationships amongst the different spheres of government with regard to the various stipulations in the Bill.

Mr Kumar added that he had heard rumours that there is talk of changing the financial year for municipalities and said that serious consultation should take place before such a decision is taken.

Discussion
Ms Hogan asked Treasury if there was any intention to change the date of the financial year-end.

Mr Pillay (Treasury) replied that it would be inappropriate for him to respond at this time but he did say that there was talk of bringing municipalities in line with national government. There would then be a need to amend the definition of financial year in the MFM Bill.

In answer to Ms Hogan asking when the committee could expect a decision, Mr Pillay replied that he did not know.

Mr Smith (IFP) commented that the presenter is suggesting that the CFO be the accountable officer for Accounting and the Municipal Manager is accountable for everything else.

Mr Louw (DP) said the point made by the IMFO about the role of the CFO and the municipal manager is good to a point but at local government level there is a problem with overall responsibility and therefore it would be good to have just one person.

Ms Hogan added that she did share the concern about the split regime.

Mr Kumar agreed that there must be one accountable person. The Bill says what the accounting officer should do and the role set out is very restrictive. In big municipalities to give the duties of the accounting officer to the municipal manager is too onerous. The CFO should be given more responsibilities.

Mr Smith said that he still did not understand the argument because section 44(1)(b) allows the municipal manager to delegate other functions to the CFO.

Mr Kumar indicated that this was exactly the problem because the municipal manger is made accountable for everything but he can delegate therefore it is important to say who is responsible for what.

In answer to Ms Hogan asking if he wanted the powers of delegation firmly established, Mr Kumar replied that he did.

Mr Louw asked how could legislation take into account the various types of municipalities because there are definitely those that are stronger than others.

Mr Kumar replied that it was important to look at the capacity of the municipalities. There is no doubt that prescriptive legislation is needed for weaker municipalities but different rules have to apply the stronger ones.

Ms Hogan asked if Treasury is intending to phase in the MFM Bill and if it is taking into account the capacity of different municipalities.

Mr Pillay replied that Treasury has it in mind to implement the Bill in a phased manner and to look at the capacities of municipalities.

Mr Carrim (ANC) commented that some provisions apply to all municipalities while other provisions might have to be phased in or linked to a capacity-building programme. He said that this was just something for IMFO to think about.

Mr Kgarimetsa (ANC) noted that the conclusion of IMFO's submission refers to the past problems. He asked what were the problems associated with local government.

Mr Kumar replied that municipalities must get to grips with the new demarcations and greater clarity is needed on the role of politicians and administrators in respect of how provinces are run. The two roles are somewhat blurred at the moment.

There were no further questions.

Municipal Demarcation Board (MDB)
The chairman of the Municipal Demarcation Board, Mr M Sutcliffe, made the presentation to the Committee. The submission was a brief overview of a more detailed submission sent to the Committees on 7 February.

Mr Sutcliffe summarised the main points of the submission as follows:
- The Bill ignores the provisions of the Systems Act and the Structures Act.
- The Board believes that political power cannot be separated from financial power.
- The delegations in the Structures Act are ignored in the MFM Bill.
- Any inadequacies in the Systems Act should be beefed up in that Act such as the code of conduct

The Board highlighted the limitations of the Bill:
- Does not adequately appreciate the difference between the three spheres with special reference to the relative financial independence of municipalities requiring a different form of treasury control and intervention;
- Does not appreciate the need for legislative and other measures to support and build the
capacity of municipalities;
- Does not understand that political supervision must include financial supervision - taking
financial supervision / intervention away from political structures may lead to the collapse of the
political system. Who will respect a political structure that has no financial power?
- The Bill has not ensured that it prevents overlap or duplication. The Bill does not appreciate what it is requiring of municipalities,

The submission then states what the Municipal Demarcation Board would like to see in the Bill:
- Must give effect to the Constitution
- Must fit into the scheme of three spheres of government which are distinctive, interdependent
and interrelated.
- Must enhance co-operative governance
- Must respect the constitutional status, institutions, powers and functions of government in the
other spheres
- Must provide for powers and functions in a manner that does not encroach on the
geographical, functional or institutional integrity of government in another sphere
- Must foster co-operation between the three spheres in mutual trust and good faith.
- Must allow for consultation, co-ordination, assistance and support between the three spheres.
- Must provide for mechanisms and procedures to settle intergovernmental disputes before
interventions are considered.
- Must form part of the regime of local government legislation without overriding or duplicating
existing legal provisions.

Mr Sutcliffe concluded his presentation by pointing out eight chapters that the MFM Bill should have contained and said that if this were included in the Bill it would be one that all municipalities would want to comply with.

Discussion
Mr Goosen (ANC) commented that capacity building has not kept pace with the transformation of
local government. He asked if the nature of capacity building should not be spelt out in the Bill.

Ms Hogan asked what kind of capacity will Treasury put in place.

Mr Pillay listed documents that illustrate Government's approach to capacity building: the
Intergovernmental Fiscal Review 2001, Budget Review 2001, Division of Revenue Act of last year, this year's Division of Revenue Bill and the Budget Review in February 2002. He added that
Treasury and the Department of Provincial & Local Government are busy drafting a capacity
building framework.

Prof. Turok referred to the “strong words� of Mr Sutcliffe on the constitutional issues in the Bill.
He said that SALGA had conceded that there must be a separation of political power and
good financial management.

Prof. Cameron (MDB) replied that municipalities must have certain rights. The right to vary their
budgets being an example. It is understandable that the right must be exercised within the
National framework. He submitted that allowing local government to make financial decisions
is an essential part of political autonomy. The MDB has concerns that the legislation goes to
far.

Mr Sutcliffe responding to Mr Pillay's comments said that in all the documents mentioned there is
no framework for capacity building. The responsibilities of national government, province and
local government must be clearly spelt out. Mr Pillay says that the framework is being put
together but the MDB submits that it must surely be in the Bill. He added that currently provincial government does much more for capacity building compared to national government.

Ms Hogan summarised the MDB's view by saying that they want stipulated in the Bill who the role players are and what their responsibilities are.

Mr Pillay advised that the consultation process for the framework is well under way. If one spells out the responsibilities of certain role players then that in itself could lead to constitutional problems and this is one of the factors that Treasury is taking into account. To spell out the responsibilities in legislation is difficult but the framework would be in the Division of Revenue Bill. He added that it would be difficult to come up with a full capacitation programme because one could be looking at different types of capacity building, such as for finance management and planning just to name two.

Ms Hogan agreed that something more concrete is needed about who is responsible for what.

Mr Carrim said that there can be a general provision in the Bill dealing with capacity and the Committee could also write a report to Parliament saying that the Bill could be better understood if it is linked to a capacity building programme. This should also be the basis on which the MFM Bill is monitored by Parliament.

On the issue of the constitutionality of certain provisions:Â Mr Sutcliffe said that he had read somewhere that the constitutionality of the Bill had been cleared except for one outstanding issue. He advised that the MDB has legal opinion that finds many more constitutional problems. He said that a legal opinion is not even necessary because the Constitution just needs to be looked at to see that there is something fundamentally wrong with the Bill.

Ms Hogan asked for the legal opinion and Mr Sutcliffe said that he would make it available.

Mr Louw commented that he had detected that the MDB is implying that this is the opportunity for legislation that differentiates between stronger and weaker municipalities.

Mr Sutcliffe referred to his presentation that states that the Bill needs a chapter dealing with the building of capacity and that the responsibilities of the three tiers of government must be known.

Mr Pillay commented that Treasury is looking at the Bill in conjunction with the other relevant legislation. He said that the preceding legislation was completed in a vacuum - without the financial clauses. The same legal drafter of the Systems Act and the Structures Act was used to ensure that the MFM Bill maps together with the other legislation. The reporting requirements for municipalities is in draft form and all the legislation is taken into account. He added that the consultattion process for the bill involved about 550 people.Â

Ms Borman (DP) asked if the MDB was involved in the consultation process and if so. Were they ignored especially on the constitutional issues.

Mr Sutcliffe replied that the MDB was not involved in the consultation process. At the end of the day there is a Bill that must stand on its own feet, must fit into the jigsaw puzzle and what does not belong in the Bill must be taken out.

Ms Hogan called the meeting to a close because the allotted time was up.


Appendix 1
MUNICIPAL DEMARCATION BOARD
THE MUNICIPAL FINANCIAL MANAGEMENT BILL: PRESENTATION TO FINANCE PORTFOLIO COMMITTEE, 19 FEBRUARY 2002

1. CONTEXTUALISING FINANCIAL AND ADMINISTRATIVE CAPACITY IN MUNICIPALITIES
THE NEW LOCAL GOVERNMENT SYSTEM
The demarcation process has created a more functional and rational system of municipalities with:

6 Category A metropolitan municipalities;
47 Category C District municipalities (26 of which include District Management Areas); and
231 Category B Local municipalities.

In assessing the financial and administrative capacity of the new system (obtained through aggregating the old municipalities) the Municipal Demarcation Board indicated that in the short-term there would remain significant differences between municipalities in terms of their capacity.Â

While the 6 metropolitan areas all have significant human, financial and technical resources, there are significant differences between the Category B (Local) municipalities. The Board classified them as follows:

Classification 1 - 5 Aspirant Metropolitan Areas;
Classification 2 - 17 Significant and Large Category B Municipalities;
Classification 3 - 22 Significant Category B Municipalities
Classification 4 - 85 Strong Category B Municipalities:
Classification 5 - 28 Weak Category B Municipalities
Classification 6 - 44 Very Limited Capacity Category B Municipalities
Classification 7 - 30 Almost completely new local municipalities;

It is very important to reflect on the existing racial and financial breakdown of the Category A and B municipalities to understand the investment requirements of the new municipal system.

i. Racial Breakdown:
The table below indicates approximately how many people there are within the various categories of municipality. While the metropolitan municipalities contain just over 30% of the population, the remaining 70% of the population is spread across the different types of Category B municipality. Most importantly, while metropolitan areas constitute only 31% of the total population, they contain over 50% of all people formerly classified as Whites, Coloureds and Indians.

This contrasts strongly with the fact that over 30% of all people formerly classified as African are located in the weakest municipalities. And 14% of all Africans are found in municipalities which are completely 'new' in the sense that they have no infrastructure at a local level.

ii. Financial Breakdown:
The situation is even more dramatic when one examines the previous expenditure (in the old Metros and TLCs) and aggregates it into the new municipalities. One finds for example, that in metropolitan areas the expenditure on municipal budgets is approximately R2525 per person per annum, whilst in the completely new municipalities it is around R2 per annum. Clearly, this expenditure breakdown conforms closely with the racial breakdown.

These two tables summarise clearly the challenge facing us. The focus heretofore on primarily metropolitan areas, the aspirant metros and the so-called secondary cities, must be tempered with real re-distribution towards building the financial, economic and administrative capacity of the weaker (and more 'African') municipalities.

iii. Capacity:
The final table provides some indicators of basic financial capacity and clearly indicates that in the more 'African' and underresourced municipalities, there is very limited capacity:

2. LIMITATIONS ON MUNICIPAL FINANCE MANAGEMENT BILL
The Municipal Demarcation Board has separately documented very serious limitations in the Bill before Parliament and believes that in its current form the Bill should be rejected.

The Board believes significant sections of the Bill, dealing with aspects such as municipal entities, delegations, internal structuring, staff, misconduct, penalties etc. could easily be incorporated (if required) into existing legislation (particularly the Municipal Structures Act and Municipal Systems Act).

In the final section, the Board provides some comments on a way forward.

3. DRAFT FRAMEWORK FOR A MUNICIPAL FINANCE MANAGEMENT BILL
The Board believes that the Municipal Finance Management Bill should take into account:

The difference between the 3 spheres with special reference to the relative financial independence of municipalities requiring a different form of treasury control and intervention;
The need for legislative and other measures to support and build the capacity of municipalities;
That political supervision must include financial supervision - taking financial supervision/intervention  away from political structures may lead to the collapse of the political system. Who will respect a political structures that has no financial power?
The need to review the Bill in relation to other local government legislation to prevent any overlap or duplications

In the remainder of this presentation the Board respectfully places before the Portfolio Committee what we believe should be a framework for revising the Bill. Such a framework would, we believe, address many of the concerns raised by the Board (and indeed other stakeholders) and would ensure more effective and logical capacity-building, monitoring and intervention.

DRAFT
MUNICIPAL FINANCE MANAGEMENT BILL:
WHAT THE MUNICIPAL DEMARCATION BOARD WOULD LIKE TO SEE IN THE BILL

GENERAL
The MDB would like to see a Municipal Finance Bill that:

- Gives effect to the Constitution
- Fits into the scheme of three spheres of government which are distinctive, interdependent and interrelated.
- Enhances co-operative governance
- Respects the constitutional status, institutions, powers and functions of government in the other spheres.
- Provides for powers and functions in a manner that does not encroach on the geographical, functional or institutional integrity of government in another sphere
- Fosters co-operation between the 3 spheres in mutual trust and good faith.
- Allows for consultation, co-ordination, assistance and support between the three spheres.
- Provides for mechanisms and procedures to settle intergovernmental disputes before interventions are considered.
- Forms part of the regime of local government legislation without overriding or duplicating existing legal provisions

PROPOSED CHAPTERS FOR A MUNICIPAL FINANCE MANAGEMENT BILL (BASED ON THE CONSTITUTION AND SOME PROVISIONS OF THE MUNICIPAL FINANCE MANAGEMENT BILL)

CHAPTER 1: BASIC VALUES
A general framework containing basic values and principles governing public administration in general, and, financial matters in particular including:

- professional ethics;
- the promotion of efficient, economic and effective use of resources;
- the need for development;
- the impartial, fair, and equitable provision of services;
- response to public needs;
- accountability;Â
- good human-resource and financial management (section 195)

CHAPTER 2: RELATIONSHIP WITH OTHER ORGANS OF STATE
­- The general role of the National Assembly, the NCOP, and national, provincial government pertaining to the financial affairs of municipalities
- The role of the National Council of Provinces (in which part-time representatives designated by organised local government represent the different categories of municipalities - section 67), in the oversight of municipalities.
- A framework for agreements allowing a member of the Executive Council of a province to assign a power or function that is to be exercised or performed in terms of an Act of Parliament or a provincial Act, to a Municipal Council. (section 126)
- A framework as to how members of the Executive Council of a province are accountable collectively and individually to the legislature for the exercise of their powers and the performance of their functions (in respect of local finances). (Section 133)
- The general role of state institutions (section 181 institutions) to strengthen constitutional democracy at local level with specific reference to financial matters
- The specific role of the  Public Protector to investigate any conduct in municipalities that is alleged or suspected to be improper or to result in any impropriety or prejudice; to report on that conduct; and to take appropriate remedial action. (section 182)
- The specific role of the Auditor-General to audit and report on the accounts, financial statements and financial management all municipalities (section 188);
- The specific role of the FFCÂ in the division of the equitable share and other matters (section 214)

CHAPTER 3: FINANCIAL ARRANGEMENTS BETWEEN THE THREE SPHERES OF GOVERNMENT
- Identification of (financial) matters on which a municipality has the right to govern (section 151) and make by-laws (section 156)
- Identification of municipal (financial) matters that can be regulated by individual provinces (section 146) and a possible framework for the provincial legislature to assign any of its (financial) legislative powers to a Municipal Council in that province.(Section 104)
- Identification of (financial) matters to be regulated at national level to ensure uniformity across the nation (section 146)
- Financial arrangements in cross boundary municipal areas established in terms of section 155 (6)(A)
- Financial arrangements when a matter is assigned to a municipality by national or provincial legislation. (section 156)
- A framework allowing municipalities to participate in national and provincial development programmes.(section 153)
- Determination of procedures by which local government may consult with the national or a provincial government (on financial matters) (section 163)

CHAPTER 4: BUILDING THE FINANCIAL CAPACITY OF MUNICIPALITIES
- Measures for national government to assist provinces to develop the administrative capacity required for the effective exercise of their powers and performance of their functions in respect of local government (Section 125).
- Procedures to refer any dispute concerning the administrative capacity of a province to the National Council of Provinces for resolution (Section 125)
- Measures for provincial government to promote the development of local government capacity to enable municipalities to perform their functions and manage their own affairs (section 155).
- Measures by national government and provincial governments, to support and strengthen the capacity of municipalities to manage their own affairs, to exercise their powers and to perform their functions (section 154)
- Procedures for provincial government to monitor and support of local government in the province (section 155)
- Audit or public accounts committees for municipalities (sec 107 of MFMB)

CHAPTER 5: SUPERVISION, INTERVENTIONS AND ACCOUNTABILITY
- Mechanisms to maintain oversight of municipalities.( Section 55 (2))
- Criteria to determine when a municipality cannot or does not fulfil an executive (financial) obligation in terms of legislation (section 139)
- Procedures and steps to be followed by the relevant provincial executive when intervening to ensure that a municipality fulfils an obligation (Section 139)
- The nature of a directive and the procedures to be followed by a provincial executive when issuing a directive to the Municipal Council, describing the extent of the failure to fulfil its obligations and stating any steps required to meet its obligations (Section 139)
- A framework for provincial executives when assuming responsibility for an obligation in a municipality to the extent necessary to maintain essential national standards or meet established minimum standards for the rendering of a service; to prevent that Municipal Council from taking unreasonable action that is prejudicial to the interests of another municipality or to the province as a whole; or to maintain economic unity.(section 139)
- Procedures for the approval of an intervention by the Cabinet member responsible for local government and the tabling and approval of the notice by the National Council of Provinces (section 139)
- Procedures for the NCOP Council to review the intervention regularly and make any appropriate recommendations to the provincial executive.(section 139)
- Measure to regulate the process for national intervention when a province cannot or does not fulfil an executive obligation in respect of local government (Section 100)
- The role of and procedures for the national treasury, with the concurrence of the Cabinet member responsible for national financial matters to stop the transfer of funds to a municipality for serious or persistent material breach of the measures pertaining generally recognised accounting practice; uniform expenditure classifications; and uniform treasury norms and standards (section 216).
- Procedures to allows organised local government, municipalities and other interested persons an opportunity to make representations with regard to any regulations that may be issued in terms of the Act. (section 154)
- Procedures for the NCOP to review a national intervention (section 100)
.
CHAPTER 6: MUNICIPAL REVENUE
- Sources of revenue of municipalities
- A framework within which a municipality may impose rates on property and surcharges on fees for services provided by or on behalf of the municipality; and other taxes, levies and duties appropriate to local government or to the category of local government (sections 160 & 229).
- Protection of revenue raised by municipalities (may not be deducted from their share of revenue raised nationally, or from other allocations made to them out of national government revenue.) (section 227)
- Criteria to determine if there is an obligation, or not, on the national government to compensate municipalities that do not raise revenue commensurate with their fiscal capacity and tax base (section 227).
- Measures to secure local government's entitlement to an equitable share of revenue raised nationally to enable it to provide basic services and perform the functions allocated to it (section 227)
- Criteria for the determination a municipality's equitable share of revenue raised nationally (section 214)
- A framework/criteria for any other allocations to local government or municipalities from the national government's share of revenue any conditions on which other allocations may be made with due regard to the need to ensure that municipalities are able to provide basic services and perform the functions allocated to them; the fiscal capacity and efficiency of municipalities; developmental and other needs of local government and municipalities; obligations of the provinces and municipalities in terms of national legislation; the desirability of stable and predictable allocations of revenue shares; and the need for flexibility in responding to emergencies or other temporary needs, and other factors based on similar objective criteria (section 214 and 227).
- A framework , including a consultation process with organised local government and the FFC, for an appropriate division of fiscal powers and functions when two municipalities have the same fiscal powers and functions with regard to the same area (section 229)
- A framework, including conditions, for the raising of loans by municipalities for capital or current expenditure (sections 160 & 230)
- Conditions on which a municipality may guarantee a loan including reporting on guarantees a municipality has granted.(section 218)
- Investments by a municipality (parts of Chapter 3 of the MFMB)

CHAPTER 7: MUNICIPAL EXPENDITURE
- Linking expenditure to integrated development planning as provided for in the Systems Act.
- Measures to ensure expenditure control in municipalities, by introducing-
generally recognised accounting practice;
uniform expenditure classifications; and
uniform treasury norms and standards (section 216).
- Procurement provisions to ensure that contracts for goods or services are in accordance with a system which is fair, equitable, transparent, competitive and cost-effective.(section 217)
- A framework within which a municipality's procurement policy pertaining to categories of preference in the allocation of contracts; and the protection or advancement of persons, or categories of persons, disadvantaged by unfair discrimination, may be implemented (section 217)
- Unauthorised and irregular expenditure (parts of Chapter 4 of MFMA).

CHAPTER 8:Â MUNICIPAL BUDGETS
- A framework as to how a Municipal Council must deal with the approval of budgets (section 160)
- Measures to ensure that municipal budgets and budgetary processes promote transparency, accountability and the effective financial management of the economy, debt and the public sector (section 215).
- A framework for the form of municipal budgets (section 215)
- A framework for the contents of budgets including  sources of revenue; estimates of revenue and expenditure, differentiating between capital and current expenditure; proposals for financing any anticipated deficit; an indication of intentions regarding borrowing and other forms of public liability that will increase public debt during the ensuing year; and the way in which proposed expenditure will comply with national legislation.(section 215)

Appendix 2
FROM: MUNICIPAL DEMARCATION BOARD
TO: FINANCE PORTFOLIO COMMITTEE CHAIRPERSON

7 February 2002

The Honourable Barbara Hogan
The Chairperson
Portfolio Committee on Finance
Parliament
Cape Town

Dear Barbara

MUNICIPAL FINANCE MANAGEMENT BILL, 2002

Thank you for providing us with the opportunity to comment on the Municipal Finance Management Bill 2002.

It would be appreciated if the Portfolio Committee could consider the following comments on the Municipal Finance Management Bill during its public hearings on 13, 14 and 19 February 2002.

May I begin simply by indicating that as of 5 February 2002 the Parliamentary website did not appear to have details about both the Bill and the hearings. We have rather hurriedly put together these comments but would like to indicate that further comments might also be forthcoming.

In addition, while we recognize that the Finance Portfolio Committee is managing the process, the Municipal Demarcation Board believes that given the significance of this Bill, and in light of comments we make below, that ideally, the Portfolio Committees on Finance, the Portfolio Committee on Provincial and Local Government and the Portfolio Committee on Justice and Constitutional Development should jointly consider this Bill. Given that members of your committee may not be as familiar with relevant provisions in legislation such as the Municipal Structures Act and Municipal Systems Act, I have provided detail for some of the areas where there is duplication.

GENERAL COMMENTS
Our reading of the Bill suggests that it does require very careful scrutiny to ensure that:

The Bill is not unconstitutional;
The Bill fits within the transformation framework envisaged for local government in the Constitution and post 1996 local government legislation;
The Bill does not contradict or duplicate provisions in existing legislation;
The Bill does not violate the system of three spheres of government and accountability to elected institutions;
The Bill does not adversely affect the Constitutional responsibility of national and provincial government to monitor, intervene and build the capacity of municipalities;
The Bill does not undermine the role to be played by the national Minister and provincial MECs responsible for local government a in respect of local government matters;
The Bill does not give undue authority to a non-elected body, the National Treasury, to interfere in the affairs of the local government;
The Bill does not override the limits of intervention envisaged in section 139 of the Constitution;
The Bill gives effect to all the provision in section 229 of the Constitution; and
The Bill does not over burden the resources and capacity of municipalities.

In terms of section 40 of the Constitution, 1996 government is constituted as national, provincial and local spheres of government which are distinctive, interdependent and interrelated.

In terms of section 151 of the Constitution the national or a provincial government may not compromise or impede a municipality's ability or right to exercise its powers or perform its functions, and a municipality has the right to govern, on its own initiative, the local government affairs of its community, subject to national and provincial legislation, as provided for in the Constitution.

In terms of section 154 the national government and provincial governments, by legislative and other measures, must support and strengthen the capacity of municipalities to manage their own affairs, to exercise their powers and to perform their functions, and in terms of section 156, a municipality has the right to exercise any power concerning a matter reasonably necessary for, or incidental to, the effective performance of its functions.

In terms of section 155 each provincial government must provide for the monitoring and support of local government in the province; and promote the development of local government capacity to enable municipalities to perform their functions and manage their own affairs.

Section 139 provides for provincial supervision of local government and interventions. Undue and lengthy interventions are limited by provisions such as “the intervention must end unless it is approved by the Cabinet member responsible for local government affairs within 14 days of the intervention�, and “the interventions must end unless it is approved by the Council (NCOP) within 30 days of its first sitting after the intervention began.�

Section 229 provides, amongst others, that a municipality may impose
rates on property and surcharges on fees for services provided by or on behalf of the municipality; and if authorised by national legislation, other taxes, levies and duties appropriate to local government or to the category of local government into which that municipality falls, but no municipality may impose income tax, value-added tax, general sales tax or customs duty. The power of a municipality to impose rates on property, surcharges on fees for services provided by or on behalf of the municipality, or other taxes, levies or duties may not be exercised in a way that materially and unreasonably prejudices national economic policies, economic activities across municipal boundaries, or the national mobility of goods, services, capital or labour; and may be regulated by national legislation.

When two municipalities have the same fiscal powers and functions with regard to the same area, an appropriate division of those powers and functions must be made in terms of national legislation. The division may be made only after taking into account certain specified criteria.

Nothing in section 229 precludes the sharing of revenue raised in terms of this section between municipalities that have fiscal power and functions in the same area.

It appears from the abovementioned Constitutional provision that the legislator envisaged a strong local sphere of government with municipalities having clearly defined roles and responsibilities allowing them to operate as a distinct sphere of governance.

The notion of a strong 3^rd sphere of government is strengthened by provisions in the Municipal Structures Act and the Municipal Systems Act.Â

In terms of the Systems Act municipalities must exercise their executive and legislative authority within the constitutional system of co-operative government envisaged in section 41 of the Constitution.

The national and provincial spheres of government must, within the constitutional system of co-operative government envisaged in section 41 of the Constitution, exercise their executive and legislative authority in a manner that does not compromise or impede a municipality's ability or right to exercise its executive and legislative authority.

In terms of section 4 of the Systems Act the council of a municipality has the right to govern on its own initiative the local government affairs of the local community; exercise the municipality's executive and legislative authority, and to do so without improper interference; and finance the affairs of the municipality by charging fees for services; and imposing surcharges on fees, rates on property and, to the extent authorised by national legislation, other taxes, levies and duties.

Furthermore the council of a municipality, within the municipality's financial and administrative capacity and having regard to practical considerations, has the duty to, amongst others, exercise the municipality's executive and legislative authority and use the resources of the municipality in the best interests of the local community; provide, without favour or prejudice, democratic and accountable government; encourage the involvement of the local community; strive to ensure that municipal services are provided to the local community in a financially and environmentally sustainable manner; consult the local community about the level, quality, range and impact of municipal services provided by the municipality, either directly or through another service provider; and the available options for service delivery; give members of the local community equitable access to the municipal services to which they are entitled; promote and undertake development in the municipality; contribute, together with other organs of state, to the progressive realisation of the fundamental rights contained in the Constitution.
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Section 11 of the Systems Act stresses executive and legislative authority of a municipality by again stating that the executive and legislative authority of a municipality is exercised by the council of the municipality. A municipality exercises its legislative or executive authority by a range of activities listed in section 11 including developing and adopting policies, plans, strategies and programmes, including setting targets for delivery; establishing and maintaining an administration; administering and regulating its internal affairs and the local government affairs of the local community; providing municipal services to the local community, or appointing appropriate service providers; monitoring and, where appropriate, regulating municipal services where those services are provided by service providers other than the municipality; preparing, approving and implementing its budgets; imposing and recovering rates, taxes, levies, duties, service fees and surcharges on fees, including setting and implementing tariff, rates and tax and debt collection policies; monitoring the impact and effectiveness of any services, policies, programmes or plans etc.

Accountability by municipal councils to communities is also a key feature in local government legislation. Members of the local community have in terms of the Systems Act, amongst others, the right to contribute to the decision-making processes of the municipality; to be informed of decisions of the municipal council, or another political structure or any political office bearer of the municipality, affecting their rights, property and reasonable expectations; to regular disclosure of the state of affairs of the municipality, including its finances.

Chapter 4 of the Systems Act places numerous obligations on a municipality in respect to its communities. A municipality must develop a culture of municipal governance that complements formal representative government with a system of participatory governance, and must for this purpose, amongst others, encourage, and create conditions for, the local community to participate in the affairs of the municipality, including in the preparation, implementation and review of its integrated development plan; the establishment, implementation and review of its performance management; the monitoring and review of its performance, including the outcomes and impact of such performance; the preparation of its budget; and strategic decisions relating to the provision of municipal services.

Though wide participation by communities is envisaged the council's status is protected by section 16(2) providing that the rights of communities must not be interpreted as permitting interference with a municipal council's right to govern and to exercise the executive and legislative authority of the municipality.

Financial transparency is ensured by numerous provisions in local government legislation. Amongst others, section 20 of the Systems Act provides that a municipal council, or a committee of the council, may not exclude the public, including the media, when considering or voting a draft by-law tabled in the council; a budget tabled in the council; the municipality's draft integrated development plan, or any amendment of the plan, tabled in the council; the municipality's draft performance management system, or any amendment of the system, tabled in the council; and the decision to enter into a service delivery agreement.

With regard to the role of provincial governments the Constitution requires provincial governments to play an important role in monitoring and supporting local government, building municipal capacity and intervening when necessary to ensure sound governance.

Section 105 of the Systems Act reinforces the Constitutional principles by providing that the MEC for local government in a province must establish mechanisms, processes and procedures in terms of section 155 (6) of the Constitution to monitor municipalities in the province in managing their own affairs, exercising their powers and performing their functions; monitor the development of local government capacity in the province; and assess the support needed by municipalities to strengthen their capacity to manage their own affairs, exercise their powers and perform their functions.Â

The Constitution restricts interventions by national and provincial governments by making provision for certain checks and balances.

It appears that the Municipal Finance Bill overrides or duplicates many existing Constitutional and legal provisions by giving an extensive role to the National Treasury which is neither an elected body nor one of the state institutions supporting constitutional democracy listed in Chapter 9 of the Constitution. Numerous provisions in the Municipal Financial Management Bill authorise the National Treasury to prescribe to municipalities by regulation, instructions and/or guidelines. Without knowing the details of such regulations, instructions and guidelines at this point in time, it is reasonable to assume that they may undermine or at least weaken the role to be played by elected bodies such as municipal councils and provincial governments.

The Bill and especially the role to be played by the National Treasury may upset the existing checks and balances for maintaining the three spheres of government by reducing the status of local government from being a distinct sphere of governance to being a step-child of National Treasury.

Whereas the funding of national and provincial government derives largely from the national fiscus, this is not true of local government where contributions from national (and provincial government) are generally quite small shares of the local fiscus (sometimes less than 10%). Notwithstanding this fact, wide-ranging powers are now given to national Treasury to intervene in both the legislative and executive affairs of local governments.Â

This sets a dangerous precedent, and the Board would respectfully urge that the Bill be seriously reconsidered. Policy should first be developed on how the three elected spheres should interrelate, and what roles should play in this relationship by central and provincial government departments, including the National Treasury.
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Many provisions in the Bill may undermine or at least create tensions and problems in the system of cooperative governance underpinning our Constitution.

Without dealing in detail with all technical aspects of the Bill the following should at least be considered:

Chapter 1
The provision in section 4 cannot be supported. It provides that draft national legislation directly or indirectly amending this proposed Act on Municipal Finance Management, or providing for the enactment of subordinate legislation that may conflict with this Act, may be introduced in Parliament by the Minister (of Finance) only; or only after the Minister has been consulted in writing on the contents of the draft legislation, and has responded in writing. The Minister and MECs responsible for local government, are primarily responsible for local government matters and their legislation should not be subject to other legislation or the consent of the Minister of Finance.
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Chapter 2
The memorandum on the objects of the Bill pertaining to this Chapter is quite misleading. It states that this Chapter defines the relationships between the different spheres of government. A sphere of government should no doubt be interpreted as those persons and or institutions elected to govern. This Chapter in essence actually deals with the supervisory role of National Treasury and gives extensive powers to the National Treasury. No mention is made of the role of the elected spheres.

Despite the role envisaged in the Constitution and local government legislation for elected municipal councils and provinces pertaining supervision this Chapter empowers the National Treasury, amongst others, not only to monitor budgets but also to prescribe uniforms treasury norms and standards and to review any system of financial management and internal control in any municipality. This may be justified in terms of the provisions of Chapter 10 of the Constitution but the Board would like to recommend that explicit provision be made for a consultation process and procedures to ensure that any envisaged Treasury regulations, instructions or guidelines are subject to proper consultation and consensus with organised local government, the Minister and MECs responsible for local government and municipal labour unions.

Furthermore, National Treasury may take appropriate steps, including the withholding of funds in terms of section 216 (2) of the Constitution, to address a serious or persistent material breach of the provisions contained in the Bill. The Bill covers a wide spectrum of issues and it may happen that funds will be withheld outside the limitations set by the Constitution. The Constitution provides specifically that the National Treasury, with the concurrence of the Cabinet member responsible for national financial matters, may stop the transfer of funds to an organ of state only for serious or persistent material breach of the measures pertaining to only three issues namely, generally recognised accounting practice; uniform expenditure classifications; and uniform treasury norms and standards. The interventions by National Treasury should also be measured against the oversight and intervention role of provinces and the NCOP provided for in section 139 of the Constitution. It appears that National Treasury powers in this regard is too far reaching and should at least be made subject to oversight by political institutions such as the NCOP.

Chapter 3
The National Treasury, among others, is authorised to interfere in the bank affairs of a municipality. A municipality must for instance provide the National Treasury with details of its banks accounts, may change its primary bank account only with the written consent of the National Treasury, and National Treasury may prescribe a framework within which municipalities must conduct their cash management; and invest money not immediately required. These provisions reflect a vote of no confidence in elected municipal councils to run the internal affairs of their municipalities.

The Bill also places an obligation on institutions with which a municipality has invested money. An institution such as a bank must notify the National Treasury, in writing, that it holds money as an investment for the municipality; and promptly disclose information regarding the investment when so requested by the National Treasury. This is an infringement of the trust and confidential relationship between a bank and its clients.

Chapter 5
The Bill deals in detail with annual appropriations; the format for budgets which will again be prescribed (by National Treasury); the growth factor which will be determined annually by the National Treasury; the budget process; certain functions for the “councillor for financial matters�; the withdrawal of funds from a municipality's bank accounts; the submission of reports containing prescribed (by National Treasury) particulars in a prescribed (by National Treasury) format on the state of the municipality's budget to the National Treasury and the relevant provincial treasury; and unauthorised and irregular expenditure which may be regulated by the National Treasury by regulation in terms of section 104.

This is a comprehensive and detailed Chapter requiring of municipalities significant financial expertise, time and money. It is not clear from the explanatory memorandum as to whether National Treasury has quantified the resource implications of this Chapter. Neither is there any indication as to how the National Treasury will support municipalities in this process and what procedures should by followed by municipalities to access technical and financial support from the National Treasury to comply with all the requirements in this Chapter.

The creation of a position of “councillor for financial matters� and the allocation of certain functions to this councillor appear to be unjustifiable interference in the internal affairs of the municipality. There is ample provision in the Structure and Systems Act for an elected municipal council to delegate matters to political structures, political office bearers and staff. (see for example Part 3 of Chapter 7 of the Systems Act.) Section 53 of the Systems Act gives explicit responsibility to a municipality to define the specific role and area of responsibility of each political structure and political office bearer of the municipality and of the municipal manager. The respective roles and areas of responsibility of each political structure and political office bearer and of the municipal manager must be defined in precise terms by way of separate terms of reference, in writing, for each political structure or political office bearer and the municipal manager; and be acknowledged and given effect to in the rules, procedures, instructions, policy statements and other written instruments of the municipality.

It is heartening to note that the existence of MECs for local government is acknowledged in this Chapter: If a municipal council has not approved an annual budget before the start of the financial year, the MEC for local government must direct the council to adopt the budget within 14 days!

The protection of municipalities against unfunded mandates are also welcomed. However, such legal provisions already exist, and it is not understood why political office bearers who wish to assign new functions and powers to municipalities, should consult the National Treasury, and not the Minister of Finance? Surely the natural counterpart of the Minister responsible for local government is the Minister of Finance and not the National Treasury. Note should also be taken of section 156(4) of the Constitution providing for the assignment of functions to municipalities by agreement and subject to conditions.

The provisions in the Bill pertaining to the assignment of functions clearly overlap with provisions in this regard in local government legislation. Section 10 of the Systems Act provides that a Cabinet member initiating the assignment of a function or a power to any specific municipality by way of national legislation, must consult the Minister (responsible for local government) before the draft legislation providing for the assignment is introduced in Parliament. When legislation is assigned by way of an agreement in terms of section 99 of the Constitution, the Minister must also be consulted before the agreement is concluded. An MEC initiating the assignment of a function or a power to any specific municipality by way of provincial legislation, must consult the MEC for local government in the province before the draft legislation providing for the assignment is introduced in the relevant provincial legislature; or by way of an agreement in terms of section 126 of the Constitution, must consult the Minister before the agreement is concluded.

The Cabinet member or MEC initiating the legislation to be assigned or agreement to be concluded must take appropriate steps to ensure sufficient funding, and capacity building initiatives as may be needed, for the performance of the assigned function or power by the municipality concerned if the assignment of the function or power imposes a duty on the municipality concerned; that duty falls outside the functional areas listed in Part B of Schedule 4 or Part B of Schedule 5 to the Constitution or is not incidental to any of those functional areas; and the performance of that duty has financial implications for the municipality concerned.

These provisions in the Systems Act pertaining to assignment of functions by legislation is supported by section 154 of the Constitution that provides that draft national or provincial legislation that affects the status, institutions, powers or functions of local government must be published for public comment before it is introduced in Parliament or a provincial legislature, in a manner that allows organised local government, municipalities and other interested persons an opportunity to make representations with regard to the draft legislation.

Any additional provisions in this regard should not be addressed in the Municipal Finance Management Bill but should be incorporated in the Systems Act.

In general, consideration should also be given to linking this Chapter to the provisions in the Systems Act pertaining to integrated development planning. There should be a clear relationship between budgets, development planning and projects.

Chapter 6
As indicated under Chapter 4 the designation of a “councillor for financial matters� is regarded as undue interference in the internal operations of a municipality. Other legislation contains sufficient provisions to allow an elected municipal council to delegate matters to political office bearers and officials.

It is also unacceptable that a single man or women in a council “must exercise general political control over the financial affairs of the municipality�. Provision should be made to ensure that political accountability vests in the council as a whole. The Systems Act stresses the collective responsibilities of all councillors by providing, amongst others, that the council of a municipality, within the municipality's financial and administrative capacity and having regard to practical considerations, has the duty to exercise the municipality's executive and legislative authority and use the resources of the municipality in the best interests of the local community. The Council as a collective must also provide, without favour or prejudice, democratic and accountable government; encourage the involvement of the local community; strive to ensure that municipal services are provided to the local community in a financially and environmentally sustainable manner; consult the local community about the level, quality, range and impact of municipal services provided by the municipality, either directly or through another service provider; and the available options for service delivery.

The principle that this “councillor for financial matters� may delegate any of his/her functions to another councillor also appears to be absurd. (Can a Minister delegate to another Minister or a DG to another DG or an MEC to another MEC?) The power to delegate to councillors should remain the responsibility of the municipal council.

Chapter 7
This Chapter deals with the responsibilities of municipal officials and provides, amongst others, that the accounting officer must promptly notify the National Treasury if a bank account of the municipality is overdrawn for a period exceeding 10 days. No indication is given for what purpose such information should be provided to National Treasury. This provision again stresses the lack of appreciation for the scheme in which elected councillors and appointed municipal staff operate. The accounting officer should no doubt be accountable to the elected council that appointed him or her, and the council should be accountable to the electorate. Ample provisions exists in local government legislation to ensure public consultation and accountability to communities. Should a need arise for intervention by a higher authority the MEC can use his powers provided for in section 139 of the Constitution.
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In dealing with responsibilities of municipal officials note should be taken of the already existing provisions in Chapter 7 of the Systems Act dealing with local public administration and human resources. Should there be shortcomings in the provisions in the Systems Act that Act should rather be reviewed instead of enacting new legislation in this regard. Financial accountability is but one part of the role and functions of a Municipal Manager, and the Bill tends to separate the financial responsibilities from other functions and responsibilities of a municipal manager. The financial responsibilities are interrelated with other responsibilities and should not be divorced from them. This is substantiated by section 25 of the Systems Act that provides that each municipal council must, adopt a single, inclusive and strategic plan for the development of the municipality which links, integrates and co-ordinates plans and takes into account proposals for the development of the municipality; aligns the resources and capacity of the municipality with the implementation of the plan; and forms the policy framework and general basis on which annual budgets must be based.

Unnecessary red tape and bureaucratic steps are introduced by the provision that a municipal manager must, within 10 days of the end of each month submit to the “councilor for financial matters� information in the prescribed (Treasury) format on actual revenue and expenditure for that month and for the year up to that month; a projection of anticipated expenditure and revenue collection for the remainder of the current financial year; and when necessary, an explanation of any material variances and a summary of the steps that are taken or are to be taken to ensure that the projected expenditure and revenue remain within budget; any impending under collection of revenue due; shortfalls in budgeted revenue; overspending of the municipality's budget etc. All councillors have a direct interest in these matters and the Municipal Manager, as accounting officer, should be allowed to report directly to the full council.

The provision that the municipal manager of a municipality must submit to, amongst others, the National Treasury, such information, returns, documents, explanations and motivations as may be prescribed (by National Treasury) may place an unnecessary burden on municipalities which could be to the detriment to the performance of other important functions such as service delivery.

The legislator realised this predicament when it adopted the Systems Act. Even the MEC for local government is restricted and may not burden municipalities unnecessarily. When exercising his monitoring function in terms of section 105 of the Systems Act the MEC must rely as far as is possible, on annual reports in terms of section 46 and information submitted by municipalities as a result of a notice in the Provincial Gazette requiring certain information. The MEC “may make reasonable requests to municipalities for additional information after taking into account the administrative burden on municipalities to furnish the information; the cost involved; and existing performance monitoring mechanisms, systems and processes in the municipality.� There is no such provisions in the Bill to restrict the National Treasury.

The Systems Act already contains sufficient mechanisms for reporting to political office bearers. The municipality's integrated development plan (which is linked to the budget) must, for example, in terms of the Systems Act, be submitted to the MEC for local government. The MEC is also empowered in terms of section 37 and 120 to make regulations on various issues, and in terms of section 45 the results of performance measurements must be audited as part of the municipality's internal processes and annually by the Auditor-General. In addition a municipality must prepare for each financial year an annual report, including financial statements prepared in accordance with the standards of generally recognized accounting practice, and must invite the public the MEC and the Auditor-General to a meeting where the report is discussed.
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The provisions pertaining to delegations in this Chapter appears to be superfluous. Sufficient legal provisions pertaining to delegations exists in other local government legislation.

The provision that a delegation to an official is subject to any limitations and conditions as may be prescribed by the National Treasury or as the National Treasury may impose, is, to say the least, presumptuous and arrogant.

This Chapter and provisions in other Chapters pertaining to the Municipal Manager and municipal staff should be compared with other legislation to remove any possible overlap; to examine which additional provisions should rather be incorporated in legislations administered by the Minister and MECs responsible for local government; to examine the possibility to rather include some provisions in municipal by-laws, and to determine the administrative burden on employees. Extensive duties and obligations are assigned to Municipal Managers in the Systems Act.

Chapter 8
This Chapter again interferes with the internal structuring of a municipality's administration. It places an obligation on every municipality to have a budget and treasury office and to appoint specific officials. It also determines the job descriptions of the officials to be appointed and provides for delegations and sub- delegations.
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Has National Treasury quantified the financial and other resource implications of these provisions? What steps will National Treasury take to support municipalities that can not afford the expenses related to these provisions? What if a municipality cannot afford a budget and treasury office? Can a municipality outsource the function or make use of the infrastructure of capacitated neighbouring municipalities (sharing of resources)?

Chapter 9
It is recommended that most if not all of the provisions in this Chapter be incorporated in the Systems Act in as far as additional legal provisions are required. The Systems Act deals comprehensively with service delivery, mechanisms for service delivery and service delivery agreements. The provisions in this regard in the Bill should rather be used to improve the Systems Act should the provisions in the Systems Act not be adequate. It should also be investigated as to whether the provisions in the Bill pertaining to the auditing of municipalities and municipal entities should not rather be accommodated in the Auditor General Act or the Public Accounts and Auditors Act.

It is of real concern that this Bill authorises the National Treasury to, in exceptional cases, approve or instruct that another official of an entity be the accounting authority for that entity. Why taking this function away from the municipality that has sole or joint ownership control over the municipal entity? If the municipality or municipal entity is unable or unwilling to appoint an accounting officer, surely the next line of responsibility to intervene is the MEC responsible for local government in the province or Minister for Provincial and Local Government and not the National Treasury.

The same applies to the provision in section 59 which requires of an accounting authority of a municipal entity to submit to, amongst others, the National Treasury such information, returns, documents, explanations and motivations as may be prescribed by National Treasury.

The Bill disregards the Constitutional duty of provincial governments to monitor municipalities, and if necessary, to intervene. In fulfilling their monitoring duty provinces will no doubt have a system in place to ensure that municipalities report regularly on matters such as the establishment of municipal entities and related matters. The need for each municipality to submit annually, within one month of the end of each financial year, to the National Treasury and others, in a format prescribed by National Treasury, a list of all municipal entities under the sole or joint ownership control of the municipality as at the last day of the financial year; and any other undertakings in which the municipality obtained a financial interest during the financial year, appears to be unnecessary. National Treasury should be able to obtain such information from the relevant provincial departments. The same applies to the requirement that copies of service delivery agreements be submitted to Treasury.

Chapter 10 of the Systems Act, dealing with national and provincial monitoring and standard setting, already provides that “the MEC for local government in a province may by notice in the Provincial Gazette require municipalities of any category or type specified in the notice or of any other kind described in the notice, to submit to a specified provincial organ of state such information as may be required in the notice, either at regular intervals or within a period as may be specified.� The MEC can easily issue a notice to municipalities to provide the required information to him as the supervisory political office bearer for local government affairs or to the provincial treasury that van then report to National Treasury.

The MDB is of the opinion that the Systems Act is in line with the framework envisaged in the Constitution for the transformation of local government. The Municipal Finance Management Bill undermines the authority of provinces by numerous provisions where the National Treasury is authorised to prescribe and to demand reporting directly to the National Treasury.

The provision in section 73 which entitles representatives of the Auditor-General, the National Treasury, the relevant provincial treasury and the provincial department responsible for local government matters in the province to attend, and to speak at, any meeting of the municipal council at which the financial statements and the audit report are tabled or discussed or at which decisions concerning the financial statements and the audit report are to be taken, is also regarded as unnecessary interference in the internal business of a municipal council. A municipal council is an elected political body accountable to its communities/rate payers and should be allowed to function without the interference of non-elected officials. There are ample provisions in this and other legislation to allow the Auditor General and provinces to perform their oversight role.

It should also be noted that section 46 of the Systems Act already contains provisions to allow inputs at a meeting on the annual report and the financial statements from the public, the MEC and the Auditor-General. Representatives of the Auditor-General and the MEC for local government in the province are entitled to attend and to speak at such meetings, and the municipal manager must be available to respond to questions related to the annual report. The municipality must adopt its annual report, and within 14 days make copies of the report accessible to the public, interested organisations and the media, free of charge or at a reasonable price; and submit a copy of the report to the MEC for local government in the province; the Auditor-General; and such other institutions as may be prescribed by regulation. Should there be a real need in this regard National Treasury can approach the Minister responsible for local government to make the necessary regulation.

Sections 47 and 48 of the Systems Act will in any case ensure that problems at local level are made known. In terms of section 47 the MEC for local government must annually compile and submit to the provincial legislatures and the Minister a consolidated report on the performance of municipalities in the province. The report must identify municipalities that under-performed during the year; propose remedial action to be taken; and be published in the Provincial Gazette.The MEC for local government must also submit a copy of the report to the National Council of Provinces. In terms of section 48 the Minister must also annually compile and submit to Parliament and the MECs for local government a consolidated report of local government performance in terms of general key performance indicators.

Chapter 11 (Annexure A)
This Chapter is undoubtedly the most controversial part of the Bill.

The provisions that allow for the exercise of executive and legislative authority on behalf of a municipality can not be supported at all. It diminishes the status of local government as a distinct sphere of governance and does not allow for the checks and balances contained in section 139. No serious policy-related proposals have been put forward by National Treasury to justify this Chapter. When one considers that financial emergencies for municipalities often result from national policies this means that national government becomes the judge, jury and prosecutor in assessing emergencies.

Note should be taken of section 139 of the Constitution which provides for interventions by MECs. The Minister responsible for Local Government, for example, must approve interventions (section 139(2)(a)) within 14 days. Section 139 is carefully crafted to ensure cooperative governance (particularly between national and provincial governments) whilst at the same time ensuring that local governments are not treated as inferior step-children.

It should also be noted that section 139 was designed through recognizing that provincial governments are better placed to carry through the intricate work required in dealing with interventions. The Board must certainly note that provincial departments are better placed and have more capacity to carry out such work than any other institution. Clearly, with the Minister responsible for Provincial and Local Government already designated as the key reference point in dealing with the major national powers and functions of water, electricity, sanitation and health, and that he/she is involved in Section 139, there is no real need for this Chapter.

The Board believes that this Chapter should be firmly rejected.

Chapter 12
This Chapter gives extensive and far reaching powers to National Treasury to make regulations on no less than 22 local government matters. Again the role and responsibilities of MECs for local government is totally negated. Taking into consideration the limited financial contribution of central and provincial government to municipalities compared the revenue collected locally, it is unacceptable to give National Treasury, a non-elected institution, such interventionist powers.

Chapter 13
This Chapter deals with financial misconduct and should be included in the Code of Conduct for Municipal Staff members. (Schedule 2 of the Systems Act.)

Note should also be taken of the provisions of the Labour Relations Act and other legislations dealing with financial irregularities and discipline. There is no need for the Minister to make regulations prescribing the manner, form and circumstances in which allegations and disciplinary and criminal charges of financial misconduct must be reported to the National Treasury.

The provision that the regulations may prescribe the circumstances in which the findings of a disciplinary board and any sanctions imposed by the board must be reported to the National Treasury, also appears to be quite arrogant. Misconduct should in the first instance be dealt with the employer and any further interventions by the MEC or provincial legislature.

Chapter 14
This Chapter, amongst others, requires of municipalities to, within three months of the date on which the relevant section takes effect, submit to the National Treasury a list of all municipal and other corporate entities in which the municipality has an interest, specifying the name and address of the entity; the purpose, extent and other particulars of the interest; whether the entity is under the sole or joint ownership control of the municipality; and other information as may be required by the National Treasury. As with so many other provisions in the Bill, this provision puts an unnecessary administrative burden on municipalities. It also negates the fact that the information may be available in provincial departments, and that the MEC for local government already has the power in terms of the Structures Act to require of municipalities to submit to him information as may be required, either at regular intervals or within a period as may be specified. National Treasury should start respecting the constitutional hierarchy responsible for local government.

Section 116 indicates ignorance of the Constitution and existing laws pertaining to local government. Section 116 provides that the a municipal council may with the approval of the MEC for local government acting within a framework prescribed by National Treasury, determine the remuneration, allowances and other benefits of councillors. No attention whatsoever was given to the provisions in section 219 of the Constitution and the existing national legislation (Remuneration of Public Office Bearers Act) in this regard. There is no need for additional legislation. Neither is there a need for National Treasury to take over the functions of the Commission on the Remuneration of Public Office Bearers and the Minister of Provincial and Local Government.
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The Board therefore believes that this section should be rejected.

While the Municipal Demarcation Board strongly supports the need for a Municipal Finance Management Bill, it cannot support this Bill.Â

In general the Board is of opinion that the Bill does little to strengthen constitutional democracy, and to deal with prevailing key financial issues at local level.

The Board looks forward to the deliberations of your committee.

Thank you very much in anticipation.

Sincerely,
Dr. Michael O. Sutcliffe
CHAIRPERSON