MUNICIPAL SYSTEMS BILL

COSATU

1. Introduction

Local government is poised for the second round of democratic elections. The Demarcation Board is currently finalising the delineation of municipal and ward boundaries. It is widely expected that the demarcation process will result in viable municipal structures and a substantial reduction of municipalities from about 800 to approximately 300. The Municipal Systems Bill (hereafter the ‘Bill’) must be understood as adding to the legislative framework for post-apartheid local government system. It will therefore complement the Municipal Structures and the Demarcation Act. Whereas the Structures Act and the Demarcation Act dealt with the structures that must be established and the demarcation process respectively, the Bill deals with core functions and processes that must be established to fulfill the Constitutional vision for local government as set out in Chapter of 7 of the Constitution, Act 108 of 1996.

In addition, it gives effect to the remainder of the issues outlined in the White Paper on Local government released by the Department of Constitutional Development in 1998. The purpose of the Bill is best captured in the Preamble which state that the aim of the Bill is to "provide for the core principles, mechanisms and processes that are necessary to enable municipalities to move progressively towards the social and economic upliftment of communities and to ensure universal access to essential services that are affordable to all."

The following constitute a joint COSATU and SAMWU submission on the Bill. We thank the Portfolio Committee on Provincial and Local Government Affairs for inviting us to participate in the public hearings. In addition we congratulate the Department for a truly consultative process. COSATU and SAMWU have been involved in the process from conception up to the current process. Thus our participation in the public hearings is a culmination of a long process of involvement. The Bill was tabled for discussion at Nedlac in September 1999 and we made a detailed submission, which is available on COSATU home page: www.cosatu.org.za. We expect that the Nedlac Report will be tabled for consideration by the Committee. We are pleased to note that there is an attempt in the Bill to address some of our key concerns.

However, as shall be demonstrated in the course of the submission, we have substantive concerns with elements of the process and content of the Bill. In particular we are concerned that the Bill is introduced prior to finalisation of a policy framework on municipal services and in the absence of the long promised Municipal Financial Management Bill.

2. Local Government and Development

Local government has a central role in any development strategy. Municipalities perform a pivotal service delivery role both in respect of services that local governments have to perform in terms of the Constitution as well as the delegated responsibilities from national and provincial governments. In addition, national and provincial governments provide services within local government.

It is a generally recognised fact that local governments play both direct and indirect role in employment creation. In 1997, municipalities employed more than 200 000 workers in terms of Statistics South Africa figures. Municipalities provide key services to industry, which can stimulate employment creation if appropriately, designed and supplied. For instance, cheap energy reduces costs of production; the development of industrial sites can stimulate small-scale enterprise. Local governments also procure goods and services from the private sector. Their policies in this connection can strengthen the broader effects on job creation and production.

Local government is the sphere of government closest to the people and can serve as a laboratory for participatory democracy. Participatory democracy is a corner stone of South Africa’s democracy and requires that people participate in decision-making. It is easier to involve people in decision-making in local issues than in provincial and national forums. However, this is contingent upon the council actively promoting participation.

Municipalities control substantial resources that can be invested in development. The aggregate size of the municipal budget in South Africa in the 1998/99 fiscal year came to about R27 421 billion. This figure equals roughly 4 per cent of South Africa’s total Gross Domestic Product, and about 13 per cent of the national budget. However, municipal budgets vary enormously, from metropolitan areas with budgets of several billions, to rural councils with negligible revenues.

In sum, local governments have a critical role to play in social and economic development. Yet municipalities are confronted with a legacy of apartheid development as manifest in the huge infrastructure and service backlogs, especially in black areas. These resulted from both inappropriate governance structures and from substantial backlogs on infrastructure in the black community combined with inequalities in the ability to pay.

In general the resources of the municipalities are not adequate to address these backlogs, especially in rural areas and former black townships. Give or take a few big municipalities, as general rule municipalities on their own will not address these backlogs and there is a need for injection of resources from the national fiscus. Therefore, the litmus test for the Bill is the extent to which it will enable municipalities to address apartheid spatial geography, meet the needs of the poor and provide services in a sustainable manner.

3. Concerns on Process

COSATU has two concerns on the process of finalise this Bill. First, the Bill is considered in the absence of legislation dealing with Municipal Financial Management Bill. As a result, this Bill contains proposals on financing issues in an environment of uncertainty of the resource envelope for local government. Moreover, if the Financial Management Bill tends to be restrictive in line with the current macro-economic policy, the result is that municipalities will operate within a fiscal squeeze imposing real constraints, which then create pressure to privatise services or to engage the private sector through public private partnerships. In this context, the Bill’s injunction that ‘all municipal services must be financially sustainable’ becomes problematic (we shall return to this issues below). We note that the Bill is due to be published for public comment and we urge that it should be expedited.

Secondly, national legislation on municipal services is finalised while parallel to this government is in the process of finalising the White Paper on Municipal Service Partnerships (MSP). Normally, policy precedes legislation but in this context legislation is preceding policy. It is therefore not clear how the Bill articulates with the MSP policy process. Therefore, the Department must clarify the relationship between these processes.

In addition, it is important that issues addressed in the Bill should be included in the White Paper and vice versa. COSATU is in the process of developing a broad framework for municipal service delivery, including MSPs. We find ourselves in a predicament where we have to respond to the white paper on MSPs while the Bill is being finalised. We also note the difficulty of suggesting that the parliamentary process of considering the Bill be suspended until the White Paper is finalised. We propose that the Committee in its report should address the issue of the relationship between the Bill and the White Paper process. Further in the event that the finalised policy documents require legislative amendments these should be given expression in an Amendment Bill.

Currently, the demarcation process is under way and it is going to change the face and shape of local government. Against this background a moratorium on large scale restructuring should be considered. Proceeding with large-scale restructuring go municipal services would pre-empt the demarcation process and tie the hands of future municipalities. In addition, this Bill sets and important framework for municipal services and restructuring which should guide municipal service restructuring. According to our information, a number of municipalities have halted restructuring pending the demarcation process, i.e. Port Elizabeth and East Rand.

4. Municipal Services
a) General Duty

Section 67(1) of the Bill provide that "a municipality must give priority to the basic needs of the community, promote the development of the community, and ensure that all communities, residents and ratepayers in the municipality have access to at least the minimum level of basic municipal services." However, the Bill does not contain a definition of ‘basic municipal services’ to guide the users of this legislation. As proposed in our submission to the Nedlac process, we propose that the ‘minimum level of basic municipal services’ should be defined along the lines of the definition contained in the Framework Agreement.

Section 67(2)(c) of the Bill states that "the municipal service provided in a municipality must be financially sustainable". The definition of financial sustainability is contained in section 1 of the Bill. COSATU has major concerns with both the definition of financial sustainability and the injunction that municipal services must be provided in a financially sustainable manner. Pressure for municipal service to show a profit or reasonable surplus will make cross-subsidization between services impossible. Secondly it elevates profitability at the expense of other developmental considerations of providing municipal services. If this provision was to be retained, services that traditionally did not operate on the basis of profitability such as cemeteries and libraries will now be forced to make a profit or close. This would create undue to pressure to hand over services to the private sector.

Further the experience of the last few years has shown that the poor generally lack the ability to pay for capital costs let alone the operating costs of major infrastructure. This formulation therefore contradicts the stated intention to provide services in an equitable manner. At the same time COSATU does acknowledge that there are services which can generate surpluses or profits but to write into law that all service must be run in a financially sustainable manner will produce perverse outcomes such as privatisation or the provision of service to those who have the ability to pay. Cherry picking by the private sector may be understood but is highly undesirable within the public sector from an equity perspective.

Against this background COSATU proposes this clause should be removed from the Bill and emphasis should be placed on proper financial management and prudent utilisation of public resources. Section 67(2)(b) already covers the emphasis on prudent and proper financial management. This section provides that "municipal services must be provided in a manner conducive to: (i) the prudent and effective use of available resources and (ii) the improvement of standards of quality over time." It this must be defined, it must be covered under the Financial Management Bill on condition that financial viability does not frustrated cross-subsidisation between services.

b) Service Tariffs

COSATU welcomes the provisions of section 68 as they broadly reflect the need for sound tariff policies. In particular we welcome the explicit recognition of measures to assists poor households such as lifeline tariffs. Lifeline is easier to administer compared to the means test. It fulfills the requirement to ensure a minimum basic level of services across the board. While tariffs should reflect costs reasonably associated with providing municipal services explicit recognition of subsidies and lifeline tariffs would ensure that poor households have access to services.

c) Provision of Services

COSATU welcomes the fact that the chapter on municipal services has been restructured along the lines proposed in our submission and to take into account the Framework Agreement. In particular we welcome the following:

The factors that a municipality must take into account when deciding on mechanisms to provide municipal service and the criteria for deciding in such mechanisms as stipulated in section 71 and 72. The insertion of subsection 72(a)(iv) was recommended by COSATU and we recognise this as a significant step forward. This sub-clause would ensure that the municipalities take into account the likely impact on local economic development and employment when choosing mechanisms to provide services.

The insertion of a new clause 73 which refers to the provision of service by the municipality. COSATU proposed this clause in order to focus on direct provision of services by municipalities rather than a situation where direct service provision by municipalities is removed from the equation. While we recognise the role that can be played by service delivery agreements, the preferred route is direct delivery by municipalities and where there is lack of capacity other stakeholders, particularly the public providers should be roped in to build the capacity of the municipality. However, it is important that there is clear guidance for municipalities as to what constitutes ‘transformation’ as stated in section 73(b). In this context a broad policy framework on municipal service delivery is crucial. This ties with the provisions of section 48 of the Bill dealing with organisation of administration.

The exclusion of national and provincial organs of state from the competitive bidding process in terms of sections 74(1)(b) and 77(1) is welcomed. COSATU had proposed that public sector institutions should not be equated with the private sector.

At the same time we note that section 74 entrenches the notion of a "contracting-municipality" where municipality enters into agreements with service providers including its own utilities. In addition, this is consistent with the notion of separating ‘service providers’ from ‘service authorities’. The concerns equally apply to section 76 dealing with service utilities and municipal business enterprises.

In our view, the establishment of service utilities and business enterprises should not blur accountability. They should be under direct control and ownership of the municipality. This approach is contrary to the creation of independent service utilities run at arms-length. We prefer internal ring fencing along the line of internal trading entities envisaged by section 70(b) of the Bill. Further it is important that the setting of goals and targets for such units must be an open and transparent process in which communities and stakeholders participate.

More fundamentally we are concerned that corporatisation should not be seen as a preliminary step to full privatisation. In addition, it should not lead to undermine workers’ job security and conditions of employment.

COSATU’s preference is for the public sector provision of municipal services. The public sector is understood broadly to include local governments, parastatals and other organs of state including water boards. The public sector and the private sector are driven by different ethos a profit maximisation in the case of the latter and meeting community needs in the case of the former. In our view, the private sector should only be engaged in so far as this will build the capacity of the public sector to provide public services.

Despite the improvement in the Bill noted above, it still essentially adopts a ‘neutral’ posture between the public and private sector. There is no privileging of the public sector in the Bill. As such private and public provision of service are treated as equal in the Bill. Our view it that the Bill must give effect to the notion of the public sector as a preferred option. This mean in practice service agreements with private sector should be considered after the consideration of public options including public- public partnerships. It is for this that we proposed the exclusion of the public sector from the competitive bidding process.

Having said this, we welcome the emphasis on consultation and information dissemination stipulated by section 74(2). However it is important that guidelines are developed stating norms and benchmarks for adequate consultation. This is informed by the experience of the last few years where consultation by some municipalities was both inadequate and unsatisfactory or gave more say to entrenched vested interests thereby effectively marginalising the poor.

Generally we welcome the responsibility set for the municipality when it provides services through service delivery agreements outlined in section 75. In particular, we welcome the fact that the municipality would retain the power to set tariff policies and control the setting and adjustment of tariffs by the service provider in terms of section 75(1)(d). This is an improvement from the original Bill, which stipulated that a municipality could delegate the imposition of tariffs by way of service delivery agreement. Section 160(2)(c) of the Constitution states that the municipality cannot delegate the function of "imposing rates and other taxes, levies and duties". In terms of section 75(2)(b) a service delivery agreement may authorise a municipality to review and adjust tariffs. However the language of section 75(2)(b) must be changed to must instead of may.

Further the insertion of sub-clause 75(2)(f) gives effect to COSATU’s proposal. In term of this clause a municipality must take "over the municipal service, including all assets, when the service delivery agreement expires or is terminated". In addition, we recognise the fact that the municipality will now be responsible for public consultation and the service provider will be responsible for ‘customer management’ in terms of subsection 75(2)(a)(iv). This is an improvement from the original Bill, which stipulated that the municipality could delegate both public consultation and customer management.

Notwithstanding the above, we note that section 75(3) has not been improved to empower the community and stakeholders to propose amendment of the service delivery agreement. In our view, this clause should be amended to state that ‘a service delivery agreement may be amended by agreement between the parties or if a substantial number of stakeholders so demand. Although we agree with section 75(2)(d) that staff can be seconded or transferred to the service provider, this should be done in consultation with the unions and not only through the concurrence of employees. A related matter, which however falls outside of the scope of the Bill, is the need to clarify which collective bargaining council will have jurisdiction. This is a policy matter that must be negotiated with the unions.

COSATU welcomes the principle of competitive bidding that is transparent and minimise the possibility of corruption as set out in 77 and 78. This should be subject to the regulatory framework set out in the Framework Agreement which sets out the terms of contract when negotiating agreements with private parties. Against this background we welcome section 86 which identify issues for regulations and guidelines. It takes into account regulatory issues contained in the framework agreement including principle of life-line tariffs [86(a)]; limits on tariff increases [86(c)]; measures against malpractices in selecting and appointing service providers [86(g)]; exclusion of companies involved in corruption [86(p)]; performance guarantees by service providers [86(r)].

However section 86 needs to be strengthened by making it obligatory rather than discretionary for the Minister to issues such regulations. Therefore the word ‘may’ should be substituted by ‘must’ in section 86. Further, the list of issues requiring regulation and guideline should be expanded to include other issues contained in the Framework Agreement such as ownership of assets; penalties for non compliance by the private party; dispute resolution mechanism; duration of contracts; limits on rate of return that companies can make; social reinvestment and investment obligation and prevention of asset stripping. Some of these issues are subject of discussion within the Sectoral Forum such as the duration of contracts. These issues are important for the efficient provision of municipal services and should be included in the Bill.

COSATU does not have an in principle objection to the establishment of internal municipal service districts and multi-jurisdictional municipal service districts envisaged in part 4 of the Bill. However, our preferred option is that the creation of internal municipal service districts must be removed from the Bill. Internal service districts have the potential of reinforcing intra-municipal inequality. If the approach is not accepted, we believe that internal service districts must be seen as an instrument to improve service delivery in historically disadvantaged areas to bring them on par with the developed former white areas. It is important that clear demarcation criteria are included to guide the delineation of service districts. Further, the establishment of multi-jurisdictional municipal service districts should be conditional on the finalisation of the demarcation process.

5. Local Public Administration and Human Resources

While we support the broad thrust of this Chapter, we would like to highlight several concerns. First, we would like to identify the positive changes made in the Bill, which are in line with our recommendations. COSATU recognise the following positive changes in the Bill:

Section 48(c) improves on the original Bill by indicating that the municipality must organise its administration in a manner that enables it to "focus on the objects of local government set out in section 152 of the Constitution…" This formulation proposed by COSATU, replaces the contentious provision that municipalities must focus on their "core business" as provided in the original Bill. In addition, we support the insertion of section 48(l) as it take forward COSATU’s proposed recommendation that the Bill should explicitly recognise the involvement of workers in decision-making.

The new section 49 is supported as it stipulates the relationship between the provisions of this Chapter with labour legislation. Despite this support, we believe that the Code of Conduct must be tabled in the Collective Bargaining Council for negotiations. To include it in the Bill preempts such negotiation.

The insertion of section 51(n) is welcomed as it takes into account our recommendation that the municipal manager must facilitate public participation as one of his/her core functions.

The streamlining of staff issues in line with COSATU’s recommendation is also welcomed. We also note that some of the detailed staff issues such as pensions and medical aid issues have been removed from the Bill to be dealt with by Ministerial regulation in terms of section 66. The realignment of capacity building provisions with the Skills Development Act and the Skills Development Levies Act is also welcome. Further, the removal of staff performance evaluation from the Bill is welcomes, as this matter must be dealt with through regulation and through negotiations with the unions.

In spite of the position outlined above, we feel that section 66 must be deleted so that these issues can be dealt with in collective bargaining. Granting the Minister power to regulate on matter covered by the LRA which the employer and employees have to reach agreement is problematic. In all probability it is unconstitutional in the extent to which it undermines collective bargaining.

COSATU notes with disappointment that the issue of fixed term contracts for municipal managers has not been addressed to take care of our concerns. In our previous submission we raised concerns with the practical implication of imposing fixed term contracts on all municipalities. In particular we pointed out the likely financial implications for smaller municipalities if they have to employ the municipal manager and other managers under fixed-term contracts. Secondly, was the question of the desirability of adopting one form of contract, which excludes the possibility of full-time employment, especially at middle-management level. Thirdly, the transition mechanism is not clear as to what would happen to people already occupying these positions and whether there will be a negotiation process with the unions. Fourthly, it has the potential of increasing causalisation through the adoption of fixed term contract approach.

For this reason, COSATU believes that the issue of fixed-term contract for middle management in particular should be reconsidered. In addition, negotiations with the relevant unions are necessary prior to alteration of contracts of employment.

6. Integrated Development Planning

COSATU supports the broad thrust of the chapter on Integrated Development Planning. However, human resource plan as proposed in our previous submission should be include in the core components of the IDPs. Therefore a new subsection 2323(1)(i) must be included to integrated human resource plan as a core component of the IDP.

A number of sections which dealt with the details of IDP in the original Bill such as financial plans, development priorities and objective, development strategies, operational strategies have been removed from the current Bill. In terms of the current Bill the Minister may issue regulations and guidelines in terms of section 34. COSATU had raised concerns with elements of the afore-mentioned section and support the fact that the detail of IDPs should be dealt with in the regulations rather than in the Bill.

7. Performance Management

COSATU supports the underlying principles of performance management to evaluate the performance of municipalities. Key performance indicators should include the extent to which municipalities provide quality services to historically underserved communities. In our original submission, we proposed that for the system to work in practice an incremental approach must be adopted, to at least allow municipalities to build their necessary capacity. In this vein, the role of the national Department of Provincial and Local Government Affairs is pivotal to assist struggling municipalities to implement a performance management system. In addition, the emphasis in section 35 that the performance management system must be "commensurate with its resources is important.

8. Provincial Supervision and National Monitoring

COSATU supports the need for supervision of local governments by provincial and national government. This must be done in an empowering manner and should not lead to the dilution of the powers of local government by other spheres of government. However, it is disconcerting to note that the chapter on provincial and national monitoring has been further weakened. Earlier versions of the Bill empowered MEC’s to take over municipal functions for a defined period in cases where a municipality substantially fails to fulfill an executive obligation. The current Bill at section 98 empowers the MEC to initiate investigations but is silent on what happens if the investigation reveals systemic failure by local government to fulfil its obligations. The experience of the last five years has shown that in certain instances intervention by provincial government is necessary to ensure continuation of service in instances where municipalities fail to fulfill their executive obligation. This was the case in Butterworth and Orgies where provincial government had to intervene.

While it is important that the priority should be given to ensuring a proactive approach by providing adequate resources for municipalities to carry out their functions, intervention is necessary in extreme cases. Section 139 of the Constitution empowers provincial governments to supervise local governments. In particular section 139(1)(b) states that a provincial government must assume responsibility for the relevant function if a municipality fails to execute such a function. Against, this background, COSATU calls for the beefing up of section 98 to empower provincial government to assume responsibility for municipal services. Therefore, earlier clauses dealing with MEC interventions should be reinstated in the Bill.

9. Municipal Powers and Duties

COSATU supported the inclusion of the section to regulate assignment of duties to municipalities by other spheres of government. In this vein, we support section 14 of the Bill. However, our concern around the fact that the Minister has to be requested by organised local government or after consultation with MECs to publish standard draft by-laws remains. In our view, section 18(1) must be changed to ensure that the Minister may publish standard by-laws in consultation with organised local government and the MEC responsible for local government.

10. Credit Control and Debt Collection

COSATU welcomes the reformulated section 87(d), which enjoins the municipality to take reasonable steps to ensure that the consumption of services by individual users and customers is measured through accurate and verifiable metering systems. This improves on the original Bill as a municipality is now encouraged to take necessary steps to ensure accurate metering.

Section 95 must be changed to include mechanisms for debit order payment rather than agreements with employers to deduct outstanding amounts owed to the municipality from salaries or wages. COSATU’s concern is that giving employers powers to deduct moneys owed to the council is subject to abuse by unscrupulous employers particularly if there is no oversight.

11. Public Participation

While COSATU supports the overall thrust of the chapter on public participation there two concerns we would like to raise. First, as proposed in our initial submission, we believe that the Bill should list issues for public participation without however, attempting to be comprehensive or conclusive. In our view, it must be mandatory for the municipality to consult on the development of IDP, restructuring of municipal service, the budget and tariff policy. This should not be construed to mean that a municipal council does not have to consult on unlisted issues.

Secondly, while we do no query the need under certain circumstances to close the council meetings as envisaged by section 11, the decisions of such meetings should be made public and to ensure, that this happens there must be proper records of meetings. In addition, the council must give notice of its intention to close the meeting and the issues to be considered. The public must be given the right to comment on the council’s intention to close the meeting. A system to consider public objections and recourse must be developed by the Minister.

Against this background, COSATU recommends that the Bill should be amended to outlined issues which are mandatory for the council to have public participation. Secondly, the decisions of closed meetings must be made public. Thirdly, subject to ministerial regulation, councils must give public notice of their intentions to close meetings and give the public the right to comment on such a move. In terms of section 11(3) a municipal council can close any of its meetings "unless the municipality has given at least 14 days public notice of closure of the meeting." However, there is not mechanism to deal with public objections to council’s intentions to close its meetings. In general the dissemination of information by the council should be consistent with the provisions of the Promotion of Access to Information Act.

12. Legal Nature of Municipalities and Internal Relationships

In general we support the provisions of chapter 2 which sets out the legal nature of municipalities. However, as raised in our previous submission the Bill makes participation in and compliance with agreements reached with organised local government discretionary on the part of a municipality. The wording of section 3(1)(b) particularly the phrase ‘extent necessary" means a municipality must choose the extent of its participation in organised local government. More seriously from our perspective the wording of section 3(1)(c) particularly the phrasing ‘seek to comply’ with any agreements’ means a municipality can choose to opt out of agreements reached with SALGA.

COSATU therefore believe that the two clauses should be reformulated. Section 3(1)(b) must be amended by deleting "to the extent necessary". Section 3(1)(c) must be amended by the deletion of the words "seek to".

Another concern revolves around the manner in which section 5(1)(g) is crafted and its relationship with subsection 5(2). In terms of this clause residents can enjoy public facilities and services provided they comply with the conditions set out in section 5(2) which include payment of services [section 5(2)(a)]. The underlying intention of inculcating a civic duty among residents is not in dispute. COSATU’s concern is that there must be a recognition that residents have no equal ability to pay. Therefore this section must refer to the tariff policy which inter alia include mechanisms to support poor households [section 68].

Finally, we welcome the improved definition of ‘resident’ and ‘ratepayer’ as contained in section 1 of the Bill. The original definition of a resident contained in the previous bill would have unintentionally introduced a qualified franchise.

13. Conclusion

Again, COSATU welcomes the opportunity to participate in the public hearings. The submission underlined COSATU’s position on the Bill. We have raised concerns on the process and content of the Bill which must be taken into account. In certain respects, there has been improvement as the Bill has been changed to be in line with the Framework Agreement and the agreement reached in the Nedlac.

Ultimately, in our view, the yardstick to measure this Bill is the extent to which it consolidates transformation by ensuring that municipal services are provided to all particularly the poor. Due time constraints were unable to provide detailed legal amendments. However, we are prepared to assist with the redrafting of the Bill to address our concerns.