PROVINCIAL AND LOCAL GOVERNMENT PORTFOLIO COMMITTEE
BRIEF REPORT ON PROPERTY RATES STUDY TOUR OF THE UNITED
STATES, JULY 2001

1. Nature of Study Tour
1.1 In terms of the USAID-DPLG (Department of Provincial and Local Government) Local Government Support Programme Bilateral Agreement, the Department arranged for a "Property Rates" study tour to the United States.
Essentially, the aims is of the tour were:
i.) To get a sense of the property rates Systems in the US and see what lessons can be drawn from them for our own new property rates system.
ii.) To discuss with advisors to the Department and other experts the latest version of the "Local Government: Property Rates Bill".
iii.) To get a sense of property rates systems in other developing countries and see what lessons can be drawn from them.

1.2 The study tour took place from 9 - 13 July. Mbulelo Tshangana (Deputy Director, Municipal Finance Directorate, DPLG, Dithaba Nkoane (Policy Researcher, SALGA Finance Committee) and Yunus Carrim (Chairperson, Provincial and Local Government Portfolio Committee, National Assembly) participated. There were two-day programmes organised by the Andrew Young School of Economics of Georgia State University in Atlanta and the Lincoln Institute of land Policy in Boston. We met with a range of academics, including
Professor Roy BahI, Dean of Economics at the Andrew Young School and Professor Jane Malme, Joan Youngman and Martin Smolka of the Lincoln Institute, and Professor Roy Kelly of the Sanford Institute of Public Policy of Duke University. We also visited the Dekalb and
Walton County Tax Assessors offices in Atlanta and the Massachusetts Appellate Tax Board in Boston.

1.3 The study tour was very valuable in achieving the first two aims set out in 1.1 above - but, understandably, less successful in fulfilling the third aim. The study tour was especially valuable too in getting representatives of three key stakeholders - the Department, SALGA and the parliamentary committee - to begin a dialogue around the issues raised in the bill, and the Department and USAID are to be commended for facilitating this.

2. Key Issues Raised
2.1 This is not a comprehensive report - but a brief overview of some of the key issues that emerged out of the study tour. It would be more productive to give a fuller report and draw more extensively from the study tour once the "Property Rates Bill" is formally introduced to parliament and we begin to process the bill - early next year. The documents collected during the study tour have been given to the committee secretary, Llewellyn Brown - and members are encouraged to borrow them from him.

2.2 Of course, relations between the three tiers of government -national, state and local - in the US are structured very differently to our country. Property rates systems differ across the states in the US - but in general the systems are very advanced and sophisticated. They are administered extremely efficiently. Perhaps one of the most valuable aspects of the study tour was the sense it conveyed of the potential there is to have an effective and efficient property rates system and the goals to which we should be striving.

2.3 The US property rates systems centre significantly around a relatively unfettered expression of market principles. Exclusions, reductions and rebates are discouraged, as are notions of using the property rates system as a means of redistribution. The redistribution function should be served through the income tax system, not property rates, it was stressed. Any reductions or rebates should be reflected as expenditure in the budget, it was suggested.

2.4 Emphasis is placed on using the property rates system to encourage productive use of land. Higher rates are levied on vacant land and land not used productively. We need more information on the different ways this is done and explore their relevance to our own property rates system.

2.5 Interestingly too, the property rates systems are used to encourage environmentally sensitive use of land. In order to keep the State of Georgia "green", lower rates are levied on appropriate land on condition it is not used for industrial purposes - sometimes with a time limit of 10 years at least.

2.6 Government buildings are not subject to property rates. Sometimes there is a provision that if, for example, a hospital is profit-oriented it should pay rates, or if a certain part of the hospital is used for profit-oriented activities that part should be liable for rates.

2.7 There is a highly sophisticated use of computers and other aspects of technology to do the valuations, process appeals and administer the property rates systems generally. The accuracy and range of the information available is highly impressive. However long it takes us and whatever the ultimate differences between the US property rates systems and our own, we should strive to attain similar standards of efficiency and effectiveness.

2.8 In the US property rates systems there are strong penalties for not paying property rates or meeting other property rates obligations. We will need to carefully consider whether some of these penalties might also not be useful in our system.

2.9 Interestingly, in some of the property rates systems the assessors or members of the Appeals Board are elected. Importantly valuers are required to undergo regular training programmes and improve their professional capacity.

2.10 The general observation made by experts on property rates systems in developing countries is that there is a lack of political will to enforce them. As a result, property rates are not as important a source of local government revenue as they could be. Of the developing countries South Africa, interestingly, is one of the most reliant on property rates as a source of local government revenue.

2.11 In respect of the "Local Government: Property Rates" Bill, the following, briefly, were some of the issues that arose (and will be pursued further as we process the bill):

a. The relative advantages and disadvantages of applying rates to land only or land and buildings.
b. The relative advantages and disadvantages of a flat or composite rate being applied to land and buildings.
c. Deciding on categories of property and the application of differential rating.
d. How to value communal land - in traditional authority areas? How to make allowances for custom and tradition? Traditional sentiments about land means that land is not sold and will also not be easy to attach.
e. The need for valuers to be constantly trained and monitored for the quality of their work. The need to respond to the challenges of CAMA and other technologically advanced systems of valuation.
f. The need to simplify the appeals process.
g. The need for penalties and enforcement of the property rates system. The cross-references to the Municipal Systems Act may not be adequate - and the Property Rates Bill may have to deal more explicitly with these issues.
h. The success of the new property rates system will depend significantly on the quality of information available and that will be generated. There are major practical problems around
this that have to be addressed.
i. The use of the property rates system to revitalise the CBDs of municipalities.
j. The use of the property rates system to encourage the use of land to serve developmental goals.
k. The need to link the property rates system to the new overall system of local government finances.
I. The proposed property rates system ~ fairly advanced. Do we have the capacity to implement it? What about capacity-building programmes?
m. The need for a programme to implement the new property rates system.

3. Taking Issues Forward

3.1 The experts we met are keen to continue interacting with us on the issues raised during the study tour. We have requested them to offer further comment on various issues, and have already received E-mail correspondence from them in this regard. Copies of their comments will be passed on to you.

3.2 Some of the experts we met might be visiting South Africa on other business - and the possibility will be explored of their participation in a workshop for MPs on property rates issues.

3.3 The people whom we met during our study tour were very hospitable and friendly and helpful - and I express my appreciation to all of them. I would also like to thank USAID, in particular Ms Subethri Naidoo, the Local Government Unit Leader, and Mr Melvin Mosehla of the Public Affairs Section for facilitating a very useful and rewarding study tour.

Yunus Carrim
Chairperson: Provincial and Local Government Portfolio
Committee
18 September 2001