COSATU / SAMWU Submission on Municipal Finance Management Bill

1. PREFACE 2

2. AREAS OF CONCERN 4

2.1 PARTICIPATORY NATURE OF PROCESSES 4

2.2 LOCAL GOVERNMENT FINANCES 5

2.2.1 Equitable share of national revenues 6

2.2.2 Funding of delegated powers and functions 6

2.2.3 Access to affordable finance – Prescribed Asset Requirements 7

2.3 FINANCIAL ACCOUNTABILITY AND TRANSPARENCY 7

2.4 MUNICIPAL FINANCES AND MACRO-ECONOMIC POLICY 10

2.4.1 Balancing Budgets: 10

2.4.2 Budget capping 11

2.4.3 Budget Process 12

2.5 MUNICIPAL ASSETS AND PRIVATISATION 13

2.6 MUNICIPAL DEBT 15

2.7 MUNICIPAL ENTITIES 16

2.8 FINANCIAL EMERGENCIES 17

3. CONCLUSION 18

1. Preface

COSATU and SAMWU welcome the opportunity to comment on the Municipal Finance Management Bill ("the Bill"). The Bill constitutes, along with the Municipal Property Rates Bill, the major pieces in the local government legislative framework.

We had previously expressed our concern at the finalisation of the Municipal Systems Act prior to the finalisation of a policy framework on municipal services and in the absence of the necessary finance management legislation. As such, we are pleased that this Bill is now in the process of finalisation and we are able to make a contribution to this process. On the other hand, the complex nature of matters affecting local government finances and a lack of any sustained prior public debate on many issues limits our capacity to engage fully with some of its content. Where this is so we merely indicate reservations.

There are aspects of the Bill which we support, notably its attempts at introducing greater financial efficiency and accountability. The main areas of concern which we have around the Bill, which are discussed in more detail in the body of the submission, are as follows:

• The Bill undermines the political autonomy of elected local governments, mainly by extending the authority of the treasury over key areas of decision making.
• A related concern is that the Bill builds in fiscal austerity in the budgets of local government, by capping budget growth, and undermines political oversight over key spending decisions.
• Concerns around the constitutionality of certain provisions, particularly as this relates to the powers and responsibilities of the three spheres of government.
• The Bill sets out complex and extensive requirements and processes for local governments to follow. It seems to pay inadequate attention to equipping local governments – particularly those with limited capacity – to meet these requirements, or transitional arrangements while structures are still building capacity and getting up to speed with the requirements.
• The Bill’s conception of essential vs. non-essential services appears to be a narrow one and is inconsistent with other local government legislation. It is not absolutely clear, for example, whether key basic services are included within the definition of "essential services". The Bill also opens the way for privatisation of both "non-essential" and, through the backdoor, also of "essential" services.
• Key issues of substance are "to be prescribed", with no inclusive process set out as to how this would be done.

The problems with the Bill as it stands are extensive and substantive. COSATU and SAMWU are of the view that much reworking of the proposed legislation is required to address these, as opposed to minor amendments here and there.

We would also like to record that we support a number of the comments made by the Municipal Demarcation Board in their submissions. These include their concerns around ensuring that the Bill is constitutional; is consistent with the transformation framework envisaged for local government; does not adversely affect the Constitutional responsibilities of national and provincial government to monitor, intervene and build the capacity of local authorities; does not undermine the role to be played by the national Minister and provincial MECs of local government in respect of local government matters; does not give undue power to a non-elected body – National Treasury – to interfere in the affairs of local government; and does not over burden the resources and capacity of municipalities. The Board makes a number of useful comments around specific provisions of the Bill which are seen to be problematic in terms of these and other concerns.

1. Areas of concern

 

1. Participatory nature of processes

The thrust of the local government transformation process has been towards finding sustainable ways to eliminate service backlogs, improve service delivery and promote greater levels of popular participation in these processes. The Local Government White Paper defines developmental local government as "local government committed to working with citizens and groups within the community to find sustainable ways to meet their social, economic and material needs and improve the quality of their lives".

It is our understanding that this Bill should aim to promote and consolidate a local government transformation process geared towards promoting the notion of developmental local government. In this regard the Bill is only partially successful. There are a number of provisions in the Bill which we feel will weaken or undermine the capacity of municipalities to directly deliver services in a way which meets basic needs and involves the local community in this process through forms of participatory democracy.

While other parts of the legislative framework actively promote such participation, this Bill tends to promote top down prescription by Treasury rather than bottom up control and accountability to the electorate. The Bill is riddled with matters that are left to prescription by Treasury with no indication of how these regulations will be developed. Will there be thoroughgoing processes allowing for public participation? The sense we get is of a potential for unilateral decision making within the confines of the Treasury. Similarly when approaching the need to deal with inadequate financial management in Local Government the thrust is to go overboard in seeking to impose punitive measures for non-compliance rather than enhancing forms of public participatory scrutiny, and building of capacity and skills, as a critical means of achieving financial probity.

Some issues would be appropriate for prescription because they are not easily captured in legislation or are of a technical nature. However, a number of the issues in the Bill which are to be prescribed in regulation are issues of substance. The participation of elected representatives, interested stakeholders and the public at large is thus required in the formulation of such regulations. We thus propose that regulations which deal with issues of substance (as opposed to technical detail) should be gazetted in Draft Regulations and should be subject to the approval of Parliament, which would hold public hearings on the issue. The Bill should make specific provision for this.

Areas which we believe further public debate is required on, include (without being limited to) the following:

• Section 16(1) (d) – growth factor.
• Section 40(2) (a) – where Treasury may prescribe on issues of delegation or even "impose in a specific case."
• Section 45(1)(b) – where municipalities may be allowed on terms to be prescribed to set up municipal entities for reasons other than providing a municipal service in their own area.
• Section 49(1) – where space is provided for treasury to prescribe additional matters for inclusion in service delivery agreements.

Other aspects of popular participation are addressed elsewhere in this submission.

1. Local Government Finances

Municipalities control substantial resources that can be invested in development. However, municipal budgets vary enormously, from metropolitan areas with budgets of several billions, to rural councils with negligible revenues.

We would question the apparent assumption of Treasury, and some other commentators, that as much as 90% of local government revenue is from own revenue streams. Treasury itself has acknowledged, in last year’s Intergovernmental Fiscal Review, that outside of major urban centres the figure is only around 60%. The legacy of service backlogs that remain means that the resources of most municipalities are not adequate to address these backlogs, especially in rural areas and townships. Perhaps a few big municipalities have to date managed to sustain this level of "self sufficiency". Even they have not met backlogs, and urban drift continues to place increasing pressure on their resources.

A further squeeze on local government finances may come through electricity restructuring, depriving local governments of at least part of a significant revenue source. Government’s stated intention is that electricity distribution be transferred to Regional Electricity Distributors (REDS). The extent to which local governments will be compensated for the loss of these revenues is not clear. We would also suspect that even if there were revenue redistribution mechanisms arranged in the immediate transition that government’s apparent aversion to cross-subsidisation would leave the longer-term retention of such revenue source uncertain.

We recognise that this Bill’s objective is not necessarily to deal with the regime of inter-governmental transfers or of local government financing policies more generally. However it is the wider terrain of local government finances in general which will largely determine the effect of this legislation. It does continue the trend of undermining the role of the public sector in delivery, and promoting public-private partnerships which we have concerns around. We are also concerned that there are a range of other matters, financial and political which need to be tackled to ensure that municipalities have secure sources of revenue such that their accessing of bank loans or debt finance is enhanced; but not on terms which create excessive reliance on private sector financing.

The following matters are of concern in seeking to assess the effects of this legislation in developing a framework for municipal debt:

2.2.1 Equitable share of national revenues

Despite the increases recently announced in the budget for the equitable share, funding remains inadequate. This grant is essential to stabilise the central administrative, financial and governance systems of municipalities, and give them the flexibility to be responsive organs of participatory democracy as advanced in Chapter 2 of the Municipal Systems Act.

There are also questions concerning the process through which the equitable share is decided, in structures such as the budget forum, and the extent to which there is effective representation by organised local government in this process.

A related problem is the effectiveness of SALGA in representing local government interests. There are many reasons for what we see as an institutional crisis in SALGA. Problems include lack of capacity; difficulties in obtaining mandates from local governments and ensuring compliance with agreements; and poor labour relations practices. Various interventions are needed to address this situation, including a review of the Organised Local Government Act to overcome some of the structural and constitutional problems of SALGA, such as those mentioned above.

2.2.2 Funding of delegated powers and functions

In terms of sections 9 and 10 of the Municipal Systems Act municipalities enjoy some financial protection when further functions are delegated by provincial or central government at the time of such assignment of powers and functions. However over the longer term there is no protection from the reduction of such revenue streams, which leads to the danger of unfunded mandates. The current approach by line departments is to indicate a 3-year projection in line with the 3-year expenditure framework. No commitment beyond this is made, and in at least some cases the message conveyed by line departments seems to be that by the end of the 3 years the municipality will have to secure other revenue sources.

While section 23 of the Bill does seek to ensure disclosure of the financial implications of new responsibilities being delegated to municipalities, it does not ensure that these will actually be funded. We propose the strengthening of this section to ensure that no responsibilities should be delegated without adequate funding for the entire period.

2.2.3 Access to affordable finance – Prescribed Asset Requirements

We wish to flag the issue of prescribed asset requirements, insofar as it relates to the funding available to local governments. It was prescribed asset provisions – which channel a certain proportion of the assets of retirement funds and long-term assurers – that were a major contributor historically in the development of white local authorities. It is our view that such policies are required, both to improve the financial sustainability of local government as well as more broadly to channel funds into infrastructural development. In essence, and in contrast to the thrust of this Bill, prescribed assets policies are interventions designed to overcome the failure of financial markets left to themselves to provide debt financing.

This Bill essentially seeks to encourage lending by securing the lenders against risk rather than the municipality. There needs to be a carrot and a stick – this Bill deals only with the former. This may advantage those municipalities which are already relatively creditworthy but it is not clear that it will provide any support to the weak. Lenders are likely to be sparse to the District Areas (both District and Local Councils) where poverty and a lack of employment hold out little short-term prospect of viability.

 

2. Financial Accountability and Transparency

Many of the Bill’s provisions have to do with the management of municipal financial affairs and municipal entities through mechanisms and procedures to ensure proper budgeting, transparency, accountability, discipline and criminal sanctions where applicable. COSATU and SAMWU strongly support these objectives. We can thus support most of these provisions in principle though in some instances we have problems around the detail.

In general our concern is that where the Bill seeks to ensure sound and clean financial management there is at the same time a:

• tendency to resort to punishment rather than forms of prevention;
• insufficient elaboration of what constitutes councilor interference in financial management, and tendency to focus primarily on officials; and
• insufficient focus on "whistle blowing" provisions, or at least cross-reference to such legislation.

We would suggest amendments as follows:

• We propose that at section 20 (3) the Municipal Manager must not only warn the political structure or functionary that it is about to do something irregular, but must also be entitled to inform Council, and if the wayward structure is the Council, then inform the MEC. In other words more focus on prevention rather than only reporting after the deed is done.

• Sections 46 and 49.2 require municipalities to report to various national and provincial authorities regarding municipal entities.

• Sections 35, 41, 58, and 61 stipulate the general responsibilities of municipal managers and accounting authorities respectively. At various points these sections use words such as "effective", "efficient", "transparent" and "economical" without clear definition. As an example, it might be effective, efficient and economical to cut-off the water of citizens if full cost recovery is the only operative criterion. The fact that a cholera epidemic might arise may not be factored into the decision. Yet the final cost might far exceed any savings made initially. The way these terms are used in the Bill are also not linked with the conception of service delivery espoused in the Systems Act.

• We are committed to clean and transparent government, and to the extent that the Bill aims to tighten up on financial practices and prevent or expose corrupt practices we fully support it, and will actively co-operate with its implementation. Similarly, we support the need for national and provincial government to monitor and enforce compliance with uniform norms and standards in accounting practices and accordingly to receive regular reports.

• Chapter 13 details how financial misconduct is to be dealt with. Sections 35 and 58 in chapters 7 and 9 respectively make it a responsibility of the municipal manager and accounting authority to institute disciplinary proceedings against officials alleged to have committed financial misconduct. As indicated above, we fully support the need for effective action against corrupt practices. This action, however, must take place within the existing labour relations framework.

• While the Bill, in Section 54(2) prohibits abuse of position and privilege by board members of municipal entities, it does not spell out the consequences of such action. This omission needs to be rectified.

• It is also to be noted that nowhere is reference made to the Municipal Systems Act’s Codes of Conduct for Councilors and for Officials (other than in amendments) – both of which also deal with issues of clean government.

1. Municipal finances and Macro-economic policy

The Bill seeks to set requirements for the efficient and effective management of revenue, expenditure, assets and liabilities of municipalities and municipal entities. In this respect we support the need, at a general level, for responsible and realistic budgeting.

Many of the provisions seeking to ensure "disciplined" approaches to financial management contain within them implicit assumptions about what constitutes "effectiveness" and "efficiency" that are by no means neutral. As mentioned above, these terms need to be more clearly defined.

There is an overriding assumption in relation to budgeting that any form of deficit financing is implicitly wrong and to be phased out completely. This is most explicitly stated at 16(1)(b)(ii) where Treasury can prescribe that a current budget must be reduced by a given amount to reduce an accumulated deficit. In these terms there is no allowance that regulated deficit financing may be a reasonable tool for promoting economic and financial growth. This seems to be underpinned by the type of assumptions central to GEAR, and the actual provisions about the Treasury’s role in ensuring compliance with the governments macro-economic policies and for the capping of growth are merely the most evident tips of the iceberg.

There must be disciplined budgeting and control over income and expenditure – we are not arguing for a free for all; but to effectively prohibit regulated forms of deficit financing is short sighted. As is common with all levels of government around the world, deficit financing in a responsible and (in the case of lower tiers of government) regulated manner can be an integral part of a growth and development strategy. More so given the massive backlogs and delivery challenges confronting our local governments.

Of further concern is that it appears that municipalities and municipal entities are treated differently in this regard. Although reference is made under section 62 to the need for entity budgets to be consistent with the municipality budget and that it should comply with other provisions of this Act, it does not specifically call for balanced budgeting. The implication of this is that a balanced budget for a municipality would be perceived as efficient and effective management and a deficit budget for an entity would mean exactly the same. This is particularly contradictory given the fact that a council is politically governed and accountable, whereas an entity is not.

The Bill also provides, at section 36(1)(c), for the municipal manager to take effective and appropriate steps to ensure that ‘spending is reduced as necessary when revenues are anticipated to be less than projected in the budget’. There are serious service delivery implications in this provision. For while subsections (2) and (3) of the section compel reports to the councillor and council of these steps, the final decision would appear to reside with the Municipal Manager.

As noted elsewhere in this submission, we do support elements of the Bill that promote sound financial management and accountability. However, we are concerned about aspects that introduce fiscal austerity at the expense of delivery. One such area is around the capping of annual municipal budget expansion.

In addition to the substantive policy problems which we have repeatedly raised around contractionary macro-economic policies and their impact on service delivery, is the nature of management by Treasury. We have noted the high-handed way in which Treasury often asserts its authority or presents policy positions as non-negotiable. The issue is how to balance the need for a coherent macro-economic policy and overall financial sustainability of policies pursued by different organs of government, with the relative political autonomy of the local government sphere.

There also need to be mechanisms that ensure that decisions on the form of restraint or control are not just left to bureaucratic processes of imposition but can be managed in an open and transparent way.

It is the case that the major mechanism used to restrain municipal spending is the prescription of an annual "growth factor" for municipal budgets as contained at 16(2) in this Bill. This capping mechanism is an inadequate instrument to deal with issues confronting local government. It is a crude instrument that has, certainly as far as employees are concerned, always amounted to the dictation of wage increases outside of a collective bargaining process.

In practice Treasury can and does allow for exceptions, as is provided for here. The reality is that different Municipalities do face different contexts. In a municipal area in which there is a higher than average growth rate, or in which major state development projects are located, there may be a greater need for an expansionary local government budget. The problem is that the process of "exemptions" lacks transparency and is left to the discretion of Treasury to determine.

To date we have seen very little concrete attempt by municipalities to comply in full with the spirit and the letter of chapter 4 of the Municipal Systems Act in relation to public participation in the budget process. Very often municipalities simply place adverts in newspapers informing of public meetings. While this goes through the motions in the narrowest sense, it does very little to actually empower civil society and members of the public to meaningfully engage in processes.

Genuine consultation and participation should happen from the beginning of the process. As the Systems Act at section 16(a) reads,

This implies participation in the planning and prioritising process from the start, rather than simply commenting on a draft budget.

We also refer to the Systems Act which states at 17(3):

1. people who cannot read or write;
2. people with disabilities;
3. women; and
4. other disadvantaged groups."

1. Municipal Assets and privatisation

The Bill, in section 13, prohibits municipalities from selling, transferring ownership or otherwise permanently disposing of assets needed to provide a minimum essential service. The trend in local government these days, especially in regard to the very basic service of water is to enter into long-term concessions. Concessioning out an asset for fifty years has a similar effect as the outright sale or transfer of ownership of the service. As such, we believe that long-term concessioning should be included in the list of prohibitions. This section is another example of how the Bill is attempting to entrench the separation of the municipality into core and non-core sections.

Secondly, the definition of "minimum essential service" is inadequate to achieve the intended objective of safeguarding the delivery of essential services to the local community. So while we welcome the restriction placed on municipalities that they may not dispose of certain assets, we propose that the Bill should rather follow the Municipal Systems Act by applying the definition of ‘basic municipal services’, namely:

"basic municipal services" means a municipal service that is necessary to ensure an acceptable and reasonable quality of life and, if not provided, would endanger public health or safety or the environment."

We are also concerned with the provisions of section 13(20) that deals with the sale of other assets. The provisions for an open council meeting in which a decision must be made on "reasonable grounds" and only after consideration of "fair market value of the asset and the economic and community value to be received in exchange for the asset" is scant protection. This formulation suggests that the issue is narrowly what the community will receive in the immediate term in exchange for sale and not what the asset in itself might be worth in community and social terms if retained.

We are therefore proposing that a full cost benefit analysis (direct and indirect costs) be made prior to a decision. This would at least ensure that an informed decision is made weighing up all relevant factors. We propose that it should rather read along the lines that:

"prior to any decision to dispose of an asset a Council must conduct a full social cost benefit analysis of both direct and indirect costs to the community associated with the retention or disposal of the asset."

We propose that regulations should define the value and character/strategic nature of assets to be covered by this and other relevant provisions of the legislation. This would ensure that the intended type of assets are covered and that bureaucratic obstacles are not set up to the disposal of trivial assets of small value (such as office furniture).

Section13 (3) is also problematic. It implies that decisions taken by municipalities on what is needed to provide minimum essential services are irreversible and cannot be reviewed irrespective of changed or changing conditions. Whether our suggested definition is used, or the current "minimum essential services" retained it is simply undemocratic to suggest that this matter can be determined in perpetuity. This makes privatisation a "one way street".

There may be instances where a negative experience of a particular privatisation prompts a review of that decision at a later stage. Alternatively, a political shift in Council may legitimately lead to a reassessment of a decision. Investor security would be adequately guaranteed by existing law of contract without this provision of the Bill. We therefore propose the deletion of this clause.

 

2. Municipal Debt

The Bill prohibits central or provincial governments from guaranteeing municipal debt. While we do not necessarily feel that provinces should have this role, we do believe that central government should. This obviously cannot just be an open-ended matter whereby central government is automatically liable for debt incurred by municipalities. Appropriate checks and balances in this regard would need to be developed. But the notion that central Government will never stand guarantor seems shortsighted in terms of overall developmental challenges and the financing of these. It is also not at all clear to us that irrespective of this clause, government would not in any event end up bearing some of the cost of a "bankrupt" council.

Our central problem is that the thrust of the Bill is more concerned with protecting lenders from risk than the municipalities. Although the Bill requires that councils need to ensure that where assets related to the provision of minimum essential services are used as collateral, the delivery of these services need to be safeguarded, this is in our view hopelessly inadequate.

Should a private lender take ownership of Council assets used in the provision of basic services, such a company will have no interest in the ongoing delivery and extension of quality services. At such a point the Council would also have limited power in ensuring that service delivery is safeguarded, as the Bill suggests. We propose the deletion of this provision.

This would result in "privatisation through the backdoor" – not as a direct result of or subject to any political or economic decisions, but through creditors seizing collateral assets. The effects on people’s access to water, electricity, and other essential services, could be devastating.

In the main, the Bill provides capital with the incentive of security rather than seeking to provide for forms of compulsion, or market intervention in the form of requirements for financial institutions to hold prescribed assets in local government financial instruments. The Bill’s approach is essentially an attempt to "talk up" the credit rating of Municipalities.

The Bill is also contradictory in that the same debt prescriptions apparently do not apply to municipal entities except where they seek municipal guarantee for the debt. Section 64 simply requires that the entity has to reflect debt borrowing in its financial plan. Again, it is not clear why entities generally appear to be given much more leeway in their financial management systems than actual municipalities are.

 

3. Municipal Entities

Through its provisions in relation to municipal entities, the Bill further entrenches the contracting model of municipal governance and service delivery. At the same time there are other aspects of the Bill that effectively seek to intensify privatisation by encouraging the sale of "non-core" assets. It is solidly located within the model in which service provision and "trading services" are seen as externalised entities in which the municipality’s role is to regulate. This diminishes the role of the state and, we believe, undermines equitable service delivery.

Our view on local government service delivery is informed by the thrust of the Framework Agreement concluded with government. Central to this agreement is that local government is the preferred provider of services and that steps need to be to build its capacity. This includes, in our view taking the necessary steps to improve the financial situation of municipalities. Too often, councils simply go for the contracting out model without doing a proper internal assessment as required by the Municipal Systems Act. Given this scenario, we do therefore agree that we need to regulate the entities as strongly as possible.

The Municipal Systems Act prescribes, in section 80, the steps that municipalities must take when entering into a service delivery agreement with, amongst others, a municipal entity. We propose that section 49(2) of this Bill be amended appropriately to include reference to section 80 of the Municipal Systems Act and not only section 81.

We also welcome the section 56 provision that municipal entity board meetings must be open to the public and the media. However, we are of the view that the qualification allowing prohibition as a result of the nature of the business being transacted is too wide. While there may be circumstances in which this could be justified, the practice needs to be regulated and tightly qualified in the legislation, to avoid abuse and the undermining of transparent local governance.

The circumstances under which closed meetings are held and the manner in which this decision is taken and by whom should thus be clearly spelt out. This should include proper notice that a meeting is to be closed and the issues to be debated. The public should also be given a right to comment on the decision to close the meeting and a system for objecting to the closure should be put in place. Decisions from the meeting should be available to the public.

We have concerns around the form of governance by technocrats, which is proposed in the Bill. The public interest needs to be put first, and entities should not just operate like any other businesses. We are also concerned that this section is out of place and should be dealt with as an amendment to the Municipal Systems Act. It is a matter of governance rather than just financial management.

We would also suggest that at minimum the Board must include a given number of Councilors – subject to strict prohibition on issues of probity – to bring political accountability and oversight.

4. Financial Emergencies

We share the concern raised by other stakeholders, including the Municipal Demarcation Board, around the constitutionality of these provisions and the undermining of the political autonomy of local authorities. Any Bills with constitutional implications need careful scrutiny by all stakeholders within and outside Parliament. In fact we question whether this chapter is needed at all, in the light of other mechanisms and responsibilities which are already in place, notably the role of the Minister of Provincial and Local Government and the relevant MECs.

Over and above this overall concern, we have certain specific reservations as outlined below.

Given the financial impact of the current macro-economic policies on municipalities, many municipalities already find themselves on the verge of collapse. Already many of our members’ retirement and medical aid contributions are not being paid over to the relevant funds and in some instances workers do not receive their salaries on a regular basis.

It is however not evident to us why a special authority must be established to oversee administrative intervention. The broad thrust of the section is to give the decision on whether a municipality is in an emergency or not, or to withdraw such order, to the Courts. It is not clear why a special agency must be established other than that its head will be appointed with concurrence of both Ministers. We can only presume this is the real reason for an agency, as opposed to establishing a unit within the Department of Provincial and Local Government Affairs.

As critically, the whole approach to managing Municipalities out of crisis is seen as essentially a financial management issue rather than a funding issue. Yet the reasons for collapse are essentially related to underlying local economic conditions of poverty and unemployment that inhibit the development of a viable revenue basis. The solution will depend on economic growth not only strict bookkeeping and planning.

We also have reservations as to the extent to which this Agency may just be a way of allowing central government to intervene in local government matters beyond what is necessary and reasonable. We do acknowledge a need for interventions but are also concerned that more attention should be given to sorting out the problems of SALGA and the role that organised local government should play in such problems. The Agency is simply a Unit – without any Board or representation from the three spheres of government.

In section 95 of the Bill and consequentially in sections 99 there is reference to "creditors". This is not defined but we would assume that it does not include employees or for that matter councilors receiving allowances. We therefore believe that it is necessary to clearly distinguish between creditors, to whom money is owned as a result of a business transaction and employees or others entitled to receive remuneration.

We further argue that there must be a specific prioritisation of rights of employees to be treated as preferential "creditors" in terms of payment of their remuneration, and payment of any amounts to pension, medical or other deductions and contributions which may not have been paid by the collapsing administration. We also have reservations about section 101 relative to this issue as to whether employees and their rights are considered as "creditors".

It is gratifying to note that organised labour is listed at 99(2)(h) as a potential party who can make application to have an emergency declared. It should also however be included in the list at 95(6) (b). We presume that there would be consultation on the "prescribed form" referred to in 99(2)(h) and 101(2)(h).

We are not in agreement that there will only be some occasions when stakeholder input will be appropriate.

Similarly the reference at 97(5) to "parties involved in the court proceedings" rather than simply to the parties listed in 95(1) and (5) is too limiting.

Again, we welcome the opportunity to participate in the public hearings. The submission underlines our position on the Bill. We trust that the concerns we have raised will be taken into account. Ultimately, in our view, the yardstick to measure this Bill is the extent to which it consolidates transformation by contributing to the ability of local government to meet its service delivery obligations.

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