The submissions generally revolve around a number of core issues, namely:

THE KNYSNA MUNICIPALITY makes some submissions regarding principle:

1. The notion of "spheres" of government as separate and self sustaining entities seems to have been disregarded since there is a clear and distinct pecking order when having regard to the fact that National Treasury determines amounts and reports have to be rendered to that department. It looks as though this implies that the one level is above the next, especially when having regard to the fact that the Minister of Finance may withhold funds if a local government does not meet certain criteria.
2. The relationship between B and C Municipalities is alluded to, without attempting to determine more closely what that relationship is/should be.

THE URBAN SECTOR NETWORK (USN) generally welcomes and supports the Bill, but submits that it would be more effective and advantageous in the long term, to focus on building the capacities of local government whilst encouraging them to take responsibility of their financial wellbeing. In this sense, the Bill could be more facilitating and empowering than it currently is. Can it be assumed that the National and Provincial treasuries have the capacity to play the monitoring roles envisaged for them in the Bill? An interactive monitoring system is necessary if the reports submitted by the municipalities are to benefit the municipalities themselves.

In summary, better financial management will be achieved if municipalities themselves take a leading role in better managing their own finances. The Bill should push towards this direction, while retaining the necessary monitoring and reporting.

THE COMMUNITY LAW CENTRE submits that the Bill does not promote democratic and developmental local government as entrenched in the Constitution. Democracy entails an opportunity to participate and be part of government decisions. Decentralizing development matters to local government is a critical element of this because it strengthens community participation. Accountability of municipalities to senior governments creates dependency and skewed accountability and prevents local government from developing as is envisaged by the Constitution.

The MUNICIPAL DEMARCATION BOARD looks at these two sections of the Constitution, as well as a number of others and submits that, in terms of:

Section 40 of the Constitution, 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 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, (ie: vests legislative and executive authority of a municipality in its council) subject to national and provincial legislature, as provided for in the Constitution.

Section 152 sets out the objects of local government which includes democracy, accountability, transparency, and participatory governance.

Section 153 sets out the developmental duties of local government including budgeting that must give priority to the basic needs of the community.

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.

THE COMMUNITY LAW CENTRE points out that, in terms of section 155(7) of the Constitution, the national government has the constitutional mandate to regulate the exercise by municipalities of their executive authority. The essence of regulation is that it provides a framework within which local government must function without prescribing outcomes. If outcomes are prescribed, it is no longer regulation but control. Examples of overregulation are: 8(2)(b); 5(2)(d); 106(1); 41(2)(b); 46(1)(b); 53(4); 54 and 58(3).

Section 139 provides for provincial supervision of local government and intervention by a province (only) into the affairs of a municipality. 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 authorized by national legislature, 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.

The MUNICIPAL DEMARCATION BOARD submits that it appears that this 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 this Bill Authorize the National Treasury to prescribe to municipalities by regulation, instructions and/or guidelines, which 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 stepchild of National Treasury.

THE MUNICIPAL DEMARCATION BOARD and SALGA both submit that it appears from the abovementioned Constitutional provisions 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. It is also clear that provincial governments have a unique role to play in monitoring, support, supervision and capacity building in respect of municipalities within their boundaries.

THE CITY OF CAPE TOWN and DEPARTMENT OF DEVELOPMENTAL LOCAL GOVERNMENT & HOUSING, PROVINCE OF THE NORTH WEST, OFFICE OF THE MEC are concerned about the erosion of its autonomy in that some of the provisions are felt to be unconstitutional and others are over prescriptive. National Government should not legislate against worst-case scenarios to the detriment of those municipalities more than capable of conducting their affairs in an acceptable manner. The National Treasury is given too much power in regulating matters where it is felt that the appropriate place for control should be contained in the Act.

WECLOGO comments that section 215 and 216 of the Constitution set the framework for municipal finance. Any legislation enacted by National Government in respect of municipal finances must meet the imperatives of these sections and must be tested against them.

Section 215(2) states that National Legislature must prescribe:

1. the form of municipal budgets, and
2. that budgets must show the sources of revenue

Section 216 states that National Legislature must prescribe measures to ensure

1. transparency and (ii) expenditure control, by introducing

1. generally recognized accounting practice
2. uniform expenditure classifications; and
3. uniform treasury norms and standards

The DEPARTMENT OF TRADITIONAL AND LOCAL GOVERNMENT AFFAIRS-KWAZULU-NATAL submits that the Bill in several respects encroaches upon the exclusive legislative competence which the Constitution vests in the province and upon their powers of supervision of local government. The role of the NCOP appears to have been ignored. The powers given to National Treasury not only go beyond what is contemplated by the national legislation for which provision is made by section 216(1) of the Constitution, but also exceed the functions and powers of the National Treasury in terms of section 6 of the Public Finance Management Act, 1999 (Act No. 1 of 1999).

1. The compatibility of the Bill with existing legislation, especially the Municipal Systems Act and the Municipal Structures Act.

The notion of a third sphere of government is strengthened by provisions in the Municipal Structures Act and the Municipal Systems Act.

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. On the other side of the coin, the national and provincial spheres of government must, 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 or legislative authority.

Section 4 of the Systems Act gives many rights to the council of a municipality. Section 11 of that 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 a municipality.

Accountability by municipal councils to municipalities is also a key feature in local government legislation. In terms of the Systems Act, members of the community have, amongst others, the right to contribute to the decision making processes of the municipality, to be informed of decisions of the municipal council effecting their rights property or reasonable expectations and to regular disclosure of the affairs of a municipality, including its finances. Chapter 4 of the Systems Act places numerous obligations on a municipality in respect to its communities. However, section 16(2) reasonably limits this.

Financial transparency is ensured by numerous provisions, namely section 20 of the Systems Act. 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 etc.

THE COMMUNITY LAW CENTRE points out that there are other instances where the Bill contradicts the Systems Act. An example is the sub delegation to subcontractors. Section 45(1)(c)(ii) empowers the chief financial officer to subdelegate to a contractor. This is in conflict with section 59(1)(a) of the Municipal Systems Act where the recipients of delegated powers are limited to political structures, political office bearers, councilors and staff members.

Another example is the contradicting definitions of "basic municipal services" in the Systems Act (includes environmental services) and "minimum essential municipal service" in the Bill (excludes environmental services).

Section 23 of the Bill puts forward a framework for assignment of additional functions that overlaps with sections 9 and 10 of the Municipal Systems Act.

THE COMMUNITY LAW CENTRE submits that one framework for assignments should be developed in one of the two pieces of legislation. They further submit that section 66 (and further) of the Bill deal with the annual reports of municipalities, but some of these provisions contradict section 46 of the Systems Act. For example, section 46(3)(b) allows representatives of the MEC and the Auditor-General to attend the council meeting where the annual report is tabled. The Bill extends the invitation to the provincial and national treasuries. This is likely to cause confusion.

THE KNYSNA MUNICIPALITY submits that the role, function and valuable guidance of the FFC and DBSA appears to be overlooked, notwithstanding the fact that this commission plays a major part in the financial matters of local government. Further, that the IDP, which has a pivotal role in the Systems Act is not mentioned anywhere, and should be, especially in the chapters dealing with budgets.

The URBAN SECTOR NETWORK submits that there is a glaring lack of linkage between the Integrated Development Plans (IDP) and the Bill and the processes it introduces. The Municipal Systems Act began these linkages, but this Bill has not taken them forward. This omission could have disastrous consequences. The IDP process creates a broad development momentum within a municipal area and this momentum importantly needs to be carried through the budgeting and other financial processes. The linking of budgetary processes to the IDP process also builds confidence with the prospective investors within the municipal area.

The AUDITOR-GENERAL submits that sections 66,67,68,71,72 and 73 should be aligned with similar sections in the Municipal Systems Act as serious conflict exists between the contents of these sections. For example, the auditing of performance information.

2. The compatibility of the Bill with the Labour Relations Act.
3. The extent to which the Bill facilitates borrowing from the private sector, which practice is seen as desirable by all parties.

THE MUNICIPAL INFRASTRUCTURE INVESTMENT UNIT (MIIU) (was created for the specific purpose of facilitating and encouraging private sector investment in municipal infrastructure) makes a purely policy based submission. It welcomes the Bill and the rigor it brings to budgeting, accounting and financial reporting in municipalities. MIIU focuses specifically on Chapters 5 and 11 stating that these two chapters are key to implementing government’s policy framework for municipal borrowing, as first described in the white paper on local government. The core of this policy is that private investment must be mobilized to help finance local infrastructure. Since investors make decisions based on their perception of risk, the thrust of government’s policy framework is to bring predictability to the lending environment. It is submitted that the borrowing provisions of Chapter 5 and the financial emergency provisions of Chapter 11 will go a long way towards bringing predictability to the investment environment. The provisions in this Bill make it possible for municipalities to apply for credit on the basis of their financial strength and allows the financially healthy ones to distinguish themselves from the unhealthy and poorly managed municipalities and municipalities will no longer be seen as an homogenous group, which they patently are not.

THE BANKING COUNCIL views this Bill as an essential building block towards the stabilization of municipal financial governance and therefore a deepening of democracy in the third sphere. The Bill lays the basis for a more robust partnership between the public and private sectors through the attention given to norms and standards for financial prudence, risk management mechanisms and accountability.

4. The suggestion that the whole structure of municipalities is outdated.

THE DUNDEE RATEPAYERS ASSOCIATION submits that the whole structure of municipalities, in particular the positions of Mayors and Councilors is out dated. They submit that these people are nothing but amateur politicians and have very little experience or qualification relevant o managing people, money or any other facet of a business. A municipality is a business (big or small) with budgets, debtors, creditors, cash flow etc. Furthermore, as politicians their interests are self or political party oriented, and not the efficient management of a business. They suggest doing away with this colonial legacy, and instead having a good general manager with business acumen, and a few good sub-managers to help run an efficient business.

THE DUNDEE RATEPAYERS ASSOCIATION is also of the opinion that, since a municipality is totally dependent on monies paid by its tax payers, a properly elected ratepayers association should have more say in how such monies are spent for the betterment of all rate payers. Such an association would go a long way towards a more transparent democracy and sensible allocation and spending of the people’s money.

5. The question of whether municipalities should be graded and then dealt with differently in the Bill.
6. Whether the Bill overburdens the resources and capacity of municipalities

SALGA submits that if regard is had to the provisions of the Constitution concerning the obligations placed on national and provincial government to support municipalities and to build capacity, it is important that the Bill includes, as one of its objects, measures to support municipalities to comply with the dictates of the Act. This additional object must of course be fleshed out in the Bill in Chapter 2 that deals with supervision.

THE KNYSNA MUNICIPALITY points out that the following have not been defined although they form an important part of the subject matter:

"Audit committee"

"Internal audit"

"Income"

"Revenue"

They further submit that "long term debt" should mean debt of the municipality, otherwise outstanding debtors, that is, those debts that are owed to the municipality may also be termed long term debts.

"unauthorized expenditure": THE BANKING COUNCIL submits that an additional definition of "unauthorized liabilities" should be included, and that section 22 be amended so as to include "unauthorized liabilities". Alternatively, the definition of "unauthorized expenditure" could remain as is, if a definition of "expenditure is given, which included liabilities incurred through debt.

THE BANKING COUNCIL suggests that "intergovernmental transfers" be added as a definition. In addition to the implied definition in section 8(1), so-called off-budget funds from government grant programmes should be included.

"financing agreement": THE BANKING COUNCIL submits that this definition should include not only capital cost, but also costs including interest.

The AUDITOR-GENERAL submits that the definition for "Auditor-General" should be replaced with: "means the person appointed as Auditor-General in terms of section 193 of the Constitution and includes

1. with regard to the auditing and/or investigating of accounts and/or financial statements

1. a member of the staff of the Auditor-General, or
2. a person registered as an accountant and auditor under the Public Accountant’s and Auditor Act, 1991 (Act No. 80 of 1991), and appointed by the Auditor-General as auditor for the purpose;

CITY OF CAPE TOWN and WECLOGO: Submits that this Act is not the appropriate legislation to deal with "assets and liabilities. They suggest that the Local Government Act is more relevant.

MUNICIPAL DEMARCATION BOARD: Does not support this section. Submits that 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.

The constitutionality of the sections dealing with assets and liabilities is questioned and is dealt with under the appropriate sections.

THE URBAN SECTOR NETWORK proposes that the word "supervision" be replaced by the word "oversight" as this removes a hierarchical relationship and gives an impression of cooperation. While the important roles of National Treasury as stated in the Bill are appreciated and welcomed, it is important that these roles become more empowering and facilitative.

THE DEPARTMENT OF DEVELOPMENTAL LOCAL GOVERNMENT & HOUSING, PROVINCE OF THE NORTH WEST, OFFICE OF THE MEC submits that sections 5, 6, 18 and 19 do not define the role of the MEC for Local Government and that of the national minister responsible for local government.

SALGA submits that this chapter patently ignores the constitutional regime which clearly contemplates a significant role for local government and leaves supervision to the National Treasury. There is a patent lack of consultation measures with MECs, the Minister for Provincial and Local Government, and organized local government in relation to the prescription of uniform norms and standards, the establishment of monitoring processes, and the taking of appropriate steps where there has been a serious breach. The Bill must be amended to make adequate provision for supervision as contemplated in the Constitution.

5(2): CITY OF CAPE TOWN and THE MUNICIPAL DEMARCATION BOARD both expressed concerned about the monitoring powers of the National Treasury. National Treasury doesn’t have monitoring powers conferred by law in any other spheres so why should local government be treated differently. They submit that this chapter gives extensive power to National Treasury and that 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 to supervision, this chapter empowers the National Treasury, amongst others, not only to monitor budgets but also to prescribe uniform treasury norms and standards and to review any system of financial management and internal control in any municipality. It is further submitted that this may be justified in terms of chapter 10 of the Constitution but the BOARD recommends 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 organized local government, the Minister and M.E.Cs responsible for local government and municipal labour unions.

In terms of section 216 of the Constitution the National Treasury may take appropriate steps, including withholding of funds in section 216(2), to address a serious or persistent material breach of the provisions contained in the Bill. 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 a serious or persistent material breach of the measures pertaining to only three issues, namely, generally accepted accounting practice; uniform expenditure classifications; and uniform treasury norms and standards.

However, as pointed out by THE COMMUNITY LAW CENTRE, section 5(2)(h) of the Bill appears to broaden the scope of the stopping of funds substantially by linking it to a breach of the Act. However, such breaches may not warrant the stopping of funds eg: section 54.

THE COMMUNITY LAW CENTRE submits that in order to preserve the system if intergovernmental fiscal relations, the stopping of funds in terms of section 5(2)(h) should be clearly linked to serious and persistent breaches of the three types of measures, mentioned in section 216(9)(a)-(c) of the Constitution.

THE MUNICIPAL DEMARCATION BOARD submits that 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 power in this regard is too far reaching and should at least be made subject to oversight by political institutions such as the NCOP.

5(2)(e)(ii): Refers to the standards of "generally recognized accounting practice". The DEPARTMENT OF TRADITIONAL AND LOCAL GOVERNMENT AFFAIRS-KWAZULU-NATAL submits that since the Minister of Finance has approved a new format of municipal financial statements that will be introduced by legislation in terms of section 216(1) of the Constitution, it is felt that the word "municipal" should be inserted between the words "recognized" and "accounting".

5(2)(f): THE DEPARTMENT OF DEVELOPMENTAL LOCAL GOVERNMENT & HOUSING, PROVINCE OF THE NORTH WEST, OFFICE OF THE MEC points out that this section requires the national treasury to assist municipalities in building their capacity for efficient, effective and transparent financial management. This development of capacity needs to be properly coordinated between Treasury and the Department of Local Government to avoid any duplication.

5(2)(h): THE DEPARTMENT OF DEVELOPMENTAL LOCAL GOVERNMENT & HOUSING, PROVINCE OF THE NORTH WEST, OFFICE OF THE MEC submits that this approach is reactive and a proactive approach is needed through close monitoring and reporting to prevent non-compliance.

5(2)(h): SALGA submits that the ambit of this subsection is much wider than that contemplated in the Constitution because a serious or persistent breach of the Act (as opposed to the three categories referred to in the Constitution) will attract the sanction. This section therefore exceeds the limitations of the Constitution and must, be brought in line with the Constitution.

WECLOGO: Submits that any delegation in terms of the Bill must guard against the usurping of municipal powers by the delegatee exercising the power. Checks and balances should be built into the legislation and should not be at the discretion of the Minister (S6 (2)).

6(1)(c): The DEPARTMENT OF TRADITIONAL AND LOCAL GOVERNMENT AFFAIRS-KWAZULU-NATAL points out that the delegation here is to the provincial treasury, or the head of a provincial department, as the Minister and the MEC for Finance in the province concerned may agree. The DEPARTMENT says that it is unacceptable that local government matters are to be shared between two provincial departments ie: Finance and Local Government. They submit that section 6(1)(c) should read: "To the Head of the Provincial Department charged with responsibility for Local Government."

THE DEPARTMENT OF DEVELOPMENTAL LOCAL GOVERNMENT & HOUSING, PROVINCE OF THE NORTH WEST, OFFICE OF THE MEC questions whether "call accounts" (funds available on 32 days notice) will also be regarded as the opening of an account, which has to be reported? If so, the effort of reporting will stop the municipalities using this type of short-term investment and the municipalities will loose a valuable income resource.

8(2): THE URBAN SECTOR NETWORK submits that it is not clear why the term "Municipal Finance Officer" is used, and not "Municipal Chief Financial Officer", as this aligns this delegation with the rest of the Bill.

8(2)(b): CITY OF CAPE TOWN; WECLOGO; MUNICIPAL DEMARCATION BOARD and THE DEPARTMENT OF DEVELOPMENTAL LOCAL GOVERNMENT & HOUSING, PROVINCE OF THE NORTH WEST, OFFICE OF THE MEC all submit it should not be necessary for a municipality to require the consent of National Treasury to change its primary bank account, as this erodes the municipality’s right to exercise its own executive authority. It should only be required that the municipality meets the procedure set out in section 9 of the Bill.

The THEEWATERSKLOOF MUNICIPALITY makes the same point and submits that a municipality should be able to decide where it wants to open a bank account, which decision will be determined by taking into account factors such as interest rates, bank costs and services. SALGA makes the same point and says that to inform the Treasury is one matter, but for a democratically elected body to obtain permission, is quite another. They say that the provision must be deleted.

THE BANKING COUNCIL points out that where revenue, from intergovernmental or own revenue sources are ceded as security, these funds should be placed in a separate bank account dedicated for this purpose, they therefore propose that a rider to section 8(2)(b) should be inserted as follows: "subject to a dedicated account being opened as provided for in section 27."

THE BANKING COUNCIL submits that the municipal manager should be required to disclose the purpose for which the bank accounts in section 9(a) have been opened.

THE URBAN SECTOR NETWORK proposes that in order to remove any ambiguity, a new subsection reading "as contemplated by section 16(3)" should be added. This makes the scope of withdrawals from the Revenue Fund clearer and more complete.

The THEEWATERSKLOOF MUNICIPALITY submits that municipalities are autonomous and should not have to report to three other entities with regard to the opening of their bank accounts.

19(2): THE URBAN SECTOR NETWORK doubts if it is intended that deposit refunds should also be appropriated from the Revenue Funds, therefore section 9(2) should read "A payment in terms of subsection (1)(b) and (c) may…"

11(1) read with 10(2): CITY OF CAPE TOWN; WECLOGO: Requiring the municipal manager or the chief financial officer to authorize the withdrawal of each transaction is nonsensical. It limits the authority of a municipal manager to delegate and this is not practical, especially in larger municipalities. This will affect service delivery. Suggest that the municipal manager should determine who should authorize any withdrawals.

CITY OF CAPE TOWN, WECLOGO and THE MUNICIPAL DEMARCATION BOARD: Permitting the National Treasury to prescribe a framework within which a municipality must conduct their cash management and invest any money not immediately required, exceeds the constitutional mandate of "expenditure control" and is therefore beyond the National Treasury’s powers.

12(3): THE MUNICIPAL DEMARCATION BOARD and The DEPARTMENT OF TRADITIONAL AND LOCAL GOVERNMENT AFFAIRS-KWAZULU-NATAL submit that the obligation on institutions with which a municipality has invested money (such as a bank), to notify the National Treasury, in writing, that it holds money as an investment for the municipality, and to promptly disclose information regarding the investment when so requested by the National Treasury, is an infringement of the trust and confidentiality relationship between a bank and its clients.

THE DEPARTMENT OF DEVELOPMENTAL LOCAL GOVERNMENT & HOUSING, PROVINCE OF THE NORTH WEST, OFFICE OF THE MEC submits that the requirement that both the municipal manager and the bank have to notify the national treasury is a duplication of functions. Notice from the municipal manager should be sufficient.

The DEPARTMENT OF TRADITIONAL AND LOCAL GOVERNMENT AFFAIRS-KWAZULU-NATAL then goes on to say that if this section remains, it is felt that the section should provide that a bank must also notify the "provincial department", as this department is a role player in this process.

CITY OF CAPE TOWN; WECLOGO: Submits that the legislating of assets and liabilities is beyond the ambit of this Bill.

They also submit this section is unconstitutional as it unreasonably fetters the municipality in conducting its own affairs.

THE MUNICIPAL DEMARCATION BOARD and the DEPARTMENT OF TRADITIONAL AND LOCAL GOVERNMENT AFFAIRS-KWAZULU-NATAL submits that a clear distinction should be made between moveable and immoveable assets and that the sale of all assets be subject to advertising in the media.

CITY OF CAPE TOWN; WECLOGO: Submits this section is unnecessarily restrictive as it limits the ability of a municipality to hold a minority interest in certain categories. This would prohibit a municipality from interacting with the private sector in possible joint ventures. For example, the creation of a juristic entity to promote tourism in a municipality. The municipality may not wish to control the entity and the tourism industry may want the municipality to play a lesser role.

CITY OF CAPE TOWN; WECLOGO: Submits this section is procedurally over prescriptive in that it places too many obligations on a municipality that may open it to successful legal challenge. SALGA submits that the assignment of functions to municipalities is already dealt with in the Systems Act and should not be repeated here. In addition, the requirement that a political functionary should consult with a national department, as opposed to the political head of such a department, is problematic and this section should be deleted.

The AUDITOR-GENERAL suggests that some form of limitation be introduced in respect of the extent of municipal borrowing, for example, borrowing not to exceed a set percentage of municipal income. National Treasury should determine the exact nature of such limitation. Furthermore, the section should state that the set limit might not be exceeded except with Treasury approval.

16(1): The FFC points out that there is no specification in the Bill of what an "operating" budget includes (for the purpose of balanced budgets). Does it include both current expenditures and amortized expenditure (depreciation)?

16(1)(b)(ii): The FFC submits that it is not clear what this is meant to achieve. If this is meant to deal with debt accumulated before the implementation of this legislation, then it is appropriate. For the future, however, it may be bad for municipal financial management.

16(1)(c): The FFC submits that the term "realistically anticipated" is unclear, and that the whole subsection needs to be expanded and integrated with the borrowing provisions.

16(1)(d): The FFC submits that a qualification should be included to indicate that the Minister’s approval should be based on objectively determined and transparent criteria.

16(2): CITY OF CAPE TOWN; WECLOGO: Clarification is required as to what "measurable objectives" means.

The FFC submits that the process requirements for the budget are reasonable, especially with respect to reporting to National Treasury.

17(2)(a): The FFC submits that some clarity is required with respect to newspaper publication. The term "general circulation" needs to be defined.

17(2)(a): THE DUNDEE RATEPAYERS ASSOCIATION suggests that taxpayers must be furnished with a detailed analysis of the annual budget, which should be set out in such a way that ordinary rate payers without an accounting background can understand and interpret the budget. This condensed budget should be made available (one copy), free of charge, to Ratepayers Associations.

17(2)(a): THE URBAN SECTOR NETWORK submits that public participation mechanisms in the budgeting process need to be strengthened. Public participation should be more than the budget "lying at state" in the municipal offices.

17(2)(b): CITY OF CAPE TOWN; WECLOGO: Section 17(2) is unclear in its intention. Does it require public hearings at the council meeting at which the budget is tabled or does it merely mean that the public participation process, as provided for in the Local Government: Municipal Systems Act, must now begin? Section 16 of the Local Government: Municipal Systems Act requires a municipality to develop a system of participative governance and must create conditions for the local community to participate, inter alia, in the preparation of its budget. Each municipality will have developed a system of public participation to meet its individual need. Section 17(2)(a)(iii) contributes to this confusion. The requirements of public participation need not be regulated as the systems Act already governs the situation.

17(3): THE DUNDEE RATEPAYERS ASSOCIATION wants "Ratepayers Associations" added.

The DEPARTMENT OF TRADITIONAL AND LOCAL GOVERNMENT AFFAIRS-KWAZULU-NATAL wants "provincial department" added.

17(3): The FFC submits that is not clear what the distinction is between (a) and (b), especially why the provincial treasury should not receive all the budgets of municipalities under its oversight.

17(5)(a): THE URBAN SECTOR NETWORK submits that there should be some evidence of public comments having been taken into consideration when the final budget is tabled before the council. They say that "taking into account" is simply not sufficient.

17(4): WECLOGO: Submits that the ambit of the comments permitted by National Treasury/Provincial Treasury needs to be set out. The treasury may constitutionally only make comment on certain issues, such as whether the budget meets the framework set out in the Bill, but may not comment on the content of the budget.

17(7): The FFC says that it seems there should be a requirement for a copy of the final approved budget to be lodged with the National Treasury and the relevant Provincial Treasury.

18(4): The FFC believes that this provision may be too rigid since there could be major issues of difference within council. The FFC proposes that this section should be amended to read "such differences be resolved by council within the stated 14 days."

The AUDITOR-GENERAL also submits that the practical effect of section 18(4) should be reconsidered in the event of there being some dispute regarding the budget at council level. The requirement for the MEC to direct a council to approve a budget may not necessarily address the underlying problem. It is suggested that the MEC be empowered to approve an interim budget.

18(5): THE DUNDEE RATEPAYERS ASSOCIATION submits that "Ratepayers Associations" should be added here.

18(5): THE DEPARTMENT OF DEVELOPMENTAL LOCAL GOVERNMENT & HOUSING, PROVINCE OF THE NORTH WEST, OFFICE OF THE MEC points out that this section requires the municipality to take into account any recommendations of national and provincial treasury before it approves an adjustment budget, but this section excludes the inputs from the MEC for local government, who plays a vital role in the approval of the municipal budget. The Bill further makes no provision for the municipal manager to report to the MEC for local government on the state of the municipalities’ budget.

19(1): CITY OF CAPE TOWN; WECLOGO: Submits that this section needs to be cross-referenced to section 18(4). Once the MEC has directed the council to adopt the budget in terms of 18(4), then 19(1) should be activated without the MEC having to give his approval. The MEC should not be in a position to refuse his or her permission to withdraw funds, this should happen automatically once the municipality has been directed to adopt the budget.

CITY OF CAPE TOWN; WECLOGO: Raises two concerns. Firstly, the mechanism whereby an MEC can determine whether a second adjustment budget is permitted exceeds the parameters of section 216 of the Constitution. A municipality should be unfettered in its ability to expend its resources, as long as it does so in a transparent manner.

The second concern relates to the municipality’s ability to react speedily to emergencies and service delivery requirements. Having to wait for the MEC’s permission and thereafter National Treasury’s comment will cause unreasonable delays.

THE DUNDEE RATEPAYERS ASSOCIATION submits that Tax payers (Ratepayers Associations) must likewise be provided with a detailed analysis of any adjustment budgets prepared.

20 & 21: THE URBAN SECTOR NETWORK points out that budget adjustment and quarterly reports also (as well as the passing of the annual budget) have to be subject to public participation. This allows the municipality to be accountable on its performance. While the municipality is accountable to other spheres of government, it is primarily accountable to its citizenry, which are its lifeline and very reason for existence. Public reporting will also assist the public to compare the achievement of developmental objectives as envisaged in the IDP and budget expenditure.

21(1): THE DUNDEE RATEPAYERS ASSOCIATION submits that "Ratepayers Associations" should be included here.

21: THE URBAN SECTOR NETWORK submits that while the reporting system proposed in the Bill is both important and necessary, it is important that this process does not end up being too onerous for municipalities, especially category B and C municipalities.

They further submit that this section touches on the important matter of unfunded mandates, but it does not help the municipality if they are only given a three-year projection of the financial implication of that function by national or provincial government. Municipalities require resources to carry out new responsibilities and this should be seriously considered as it may place even more pressure on already financially weak municipalities.

21(4)(b): provides that a budgetary report for a specific period must detail the expenditure incurred up to that point in comparison to the budget and must distinguish between capital and operating expenditure. The DEPARTMENT OF TRADITIONAL AND LOCAL GOVERNMENT AFFAIRS-KWAZULU-NATAL submits that since there is a need to distinguish between operating and capital expenditure, the following should be added to the definitions section:

"operating expenditure means the day to day running costs of a municipality relative to the provision of services to the community and includes salaries, wages and allowances, general expenses, repairs and maintenance, capital charges, contributions to fixed assets and contributions to statutory funds, reserves and provisions."

"capital expenditure means any expenditure incurred or incidental to the acquisition or improvement of land, buildings, engineering structures and machinery and equipment. This expenditure normally confers a lasting benefit and results in acquisition of, or extends the life of a fixed asset or long-term work. It includes vehicles, office furniture and equipment but would exclude minor items that are generally regarded as being expendable even though in some instances their useful lives may extend beyond one year."

22(1): Refers to "the person liable" for unauthorized expenditure. The FFC proposes that this phrase should be replaced with the phrase "the person responsible."

22(3): IMATU points out that this section renders the municipal manager liable for unauthorized or irregular expenditure by the political structure or functionary structure unless he informed the structure in writing that the expenditure is likely to be unauthorized or irregular. They submit it is unfair to hold one person responsible for the actions of others. The structure that approved the expenditure should be held responsible.

22(4): The OFFICE OF THE AUDITOR-GENERAL submits that this is not their function, since they should not be part of the administrative process. The independence of the Auditor-General would be compromised which would be unconstitutional. They submit that the municipal manager should carry out this function. They suggest either amending this section or deleting it altogether and placing this function under the municipal manager’s functions in terms of section 35.

22(6): CITY OF CAPE TOWN; WECLOGO: Submits that the municipal manager, rather than the council of the municipality, should ensure that irregular expenditure is reported to the South African Police Services. The council should only be obliged to report matters if the municipal manager is responsible for the irregular expenditure. This provision needs to be included in section 35 of the bill which deals with "Fiduciary duties of Municipal Managers".

23(4): THE BANKING COUNCIL submits that this exclusion has a potentially severe effect on "own revenue" to municipalities arising from utilities – revenues that improve the credit worthiness and financial stability of municipalities.

The FFC submits that the rules for debt are reasonable. Municipalities have substantial discretion to issue debt albeit within prescribed limits. The proscription of national and provincial bailouts or debt guarantees is particularly welcomed by the FFC since this promotes hard budget constraints for municipalities.

However, the FFC submits that it is necessary to include in the Bill, procedures that would be followed in cases of potential or actual defaults by municipalities. The modalities of intervention are important, especially with respect to those municipalities that have very little own revenues but are still expected to meet their constitutional mandates. Any direct intervention by national and/or provincial government may send wrong signals about bailouts to municipalities and creditors, softening the budget constraint. There is also a need to clarify what happens in situations where an outgoing council incurs non-productive debt that nay seem to be immoral for the incoming council to honour.

THE MUNICIPAL DEMARCATION BOARD submits that 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 be followed by municipalities to access technical and financial support from the National Treasury to comply with all the requirements in this chapter.

The DBSA submits that 24(3)(b) does not allow a municipality to renew or re-finance short-term debt under any circumstances. There is however a possible requirement to re-finance short-term debt in the event of a financial emergency. If it is intended that section 25(4) be used to allow this (the clause allows long-term debt "to support financial restructuring" in a financial emergency) it may need to expressly say so, or section 24(3)(b) would need a caveat such as the addition of "except where a financial emergency has been declared and the measure is included in the financial recovery plan."

24(2)(b): The FFC submits that this section needs to be more clearly worded.

24(5)(a): THE BANKING COUNCIL suggests the inclusion of a "debt approval certificate" from the municipality which not only states that the short term debt being sought is not for renewal or refinancing of short term debt, but also indicates the purpose for which the debt is incurred and the source of revenue against which the debt will be repaid within the financial year. The provision that "written representations" by the municipality would suffice is too loose and open to misuse.

WHITE & CASE submit that this section, read together with the definition of "long term debt" namely "debt that is repayable over a period exceeding one year", means that a municipality may incur long-term monetary indebtedness (whether contingent or otherwise) under the specified forms of financing arrangements (including guarantees) only for its capital expenditure requirements.

The Bill does not regulate the power of a municipality to incur long-term monetary indebtedness (of a "non-contingent" nature) under any financing arrangement that is not specified in the definition of "debt". Nor does it regulate the power of a municipality to incur any such indebtedness for its operational expenditure requirements. However, WHITE & CASE submit that the power of a municipality to incur long-term monetary liabilities and obligations for its own operational expenditure derives implicitly from the Municipal Systems Act. Accordingly, a municipality may incur, and budget for, any monetary indebtedness relating to its operational requirements (for services and goods) without having to comply with the provisions of chapter 5 of this Bill.

WHITE & CASE further submit that section 25 prohibits the assumption by municipalities of "contingent liabilities" (ie. Guarantees) other than for capital expenditure. A municipality may enter into an agreement for the long-term provision of services or supply of goods by a third party, against the assumption by the municipality of obligations to pay for such goods or services (eg: a management agreement), however a municipality may not incur any contingent liabilities in respect of any such arrangement. Thus a municipality may not give indemnities (eg: undertakings to pay for any losses incurred by the service provider or supplier for actions or omissions on the part of the municipality that are in breach of that arrangement. Nor may a municipality issue any guarantees in respect of any payment obligations under such an arrangement.

They note that section 27 read together with section 25 of the Bill provides expressly that a municipality (and notably, not also a municipal entity) may enter into any security arrangements whatsoever it considers necessary and prudent but only for its capital expenditure related debt.

WHITE & CASE therefore submit that the Bill confines the power of municipalities to provide financial guarantees and assurances and accordingly does not give municipalities the flexibility to structure appropriate and cost effective Municipal Service Partnerships. Many Municipal Service Partnerships would entail the incurring by a municipality of monetary liabilities or obligations which may have both a capital and an operational component. Eg: A BOT arrangement for a municipal sewerage facility, where the service provider would undertake to design, build, manage, operate, maintain and repair the facility at its own expense. The facility would be transferred to the municipality or a municipal entity at the end of the contract term (usually between 10 to 20 years) and the service provider would receive a "service fee" over the term of the contract. On the face of it, the fee appears to be operational. However, given that the municipality/municipal entity would ultimately take transfer of the facility, it is also part capital. The Bill provides municipalities with no guidance as to how they should classify their debt obligations under this type of Municipal Service Partnership.

WHITE & CASE submit that the prohibition against municipal guarantees, for debts relating to operational expenditure will undermine the ability of a municipality to enter into cost-effective Municipal Service Partnerships as envisaged in the White paper on this Bill as well as the Municipal Systems Act. Accordingly, they urge that additional text be inserted into the Bill confirming the ability of a municipality to incur long-term monetary liabilities and obligations under guarantees and other similar contingent undertakings for operational and other non-capital expenditure.

Similarly, the range of "security options" should be extended to cover "operational" and other non-capital monetary liabilities and obligations such as those incurred by municipalities pursuant to long term service delivery agreements and supply contracts, and also to cover any security granted by a municipality for similar debt obligations of its municipal entities or Municipal Service Partnerships.

25(2): CITY OF CAPE TOWN; WECLOGO: Submits that the meaning of "property" is unclear. It needs to include intellectual property rights. For instance, a municipality may want o incur long-term debt to purchase a computer program to assist it in achieving its constitutional objects. An exclusion of intellectual property rights may be construed as an unreasonable condition and therefore be in contravention of section 230 of the Constitution.

25(3)(a): Refers to municipalities incurring long-term debt for financing costs. The FFC questions whether this implies that debt can be issued for interest payments. They submit that clarity is required and propose that financing costs not be included but be treated as operating expenditure.

THE BANKING COUNCIL requests the following two additions to both sections 26 and 65:

1. if borrowing is to be done through a competitive process, the process and procedures, in addition to the basis on which approval by the relevant entity was granted, must be specified as a requirement of borrowing;
2. if borrowing from a Development Finance Institution, a municipality or municipal entity should be required to test the market first.

The FFC submits that clauses (a) to (f) should have a basic de minimus rule applied.

26(b): THE DUNDEE RATEPAYERS ASSOCIATION proposes that the following words be added: "and to which Ratepayers Associations are invited (in writing)".

26(c)(i): THE BANKING COUNCIL questions whether this section applies to both short and long term debt, and suggests the inclusion of a subsection which will obligate the borrower to include in the certificate issued (as suggested in 24(5)(a)), that borrowed funds will not be utilized for any other purpose than that stated.

27(2)(d) provides that a municipality, when incurring debt, and as security, may cede any category of revenue or rights to future revenue specified in a financing agreement or information statement. The DEPARTMENT OF TRADITIONAL AND LOCAL GOVERNMENT AFFAIRS-KWAZULU-NATAL questions the legality of revenue of a municipality being ceded to a third party particularly from a point of view of future service delivery. They feel that tighter controls should be placed on a municipality resorting to this action. They therefore suggest the insertion of the words "with the approval of the MEC for local government in the Province, after consultation with the MEC for Finance, and in terms of criteria laid down by the MEC" before the word "cede" in section 27(2)(d).

THE BANKING COUNCIL submits that there are no provisions for how security will be accessed and whether any additional limitations regarding accessing of security, except in so far as section 27(4) imposes a conditional security, are to prevail.

27(3)(a): The FFC submits that it is not clear what asset is being referred to. Is the asset being pledged as security or the asset being purchased?

27(4): THE BANKING COUNCIL notes that the provisions as applied amount to conditional security over essential assets, and bring to your attention that lenders could thus seek alternative methods of security for such assets.

THE BANKING COUNCIL suggests the addition of a new subsection to enable, with the approval of the municipality, the municipality to open a dedicated bank account into which intergovernmental transfers ceded as security could be placed for this purpose.

THE BANKING COUNCIL proposes an addition that compels the borrower to disclose the procurement method and related procedures for each instance when debt/borrowing is to be undertaken.

The FFC submits that this section must be subject to section 27.

WHITE & CASE, LIMITED LIABILITY PARTNERSHIP submit that this section should be revised to:

1. enable municipalities to guarantee the debt obligations of municipal entities in respect of their operational expenditure requirements
2. enable municipalities to utilize the security options referred to in section 27 of the Bill in respect of their operational expenditure related debt
3. enable municipal entities to utilize the security options referred to in section 27 of the Bill in respect of their operational and capital expenditure related debt.

THE MUNICIPAL DEMARCATION BOARD and SALGA submit that the designation of a "councilor for financial matters" is an undue interference in the internal operations of the municipality. There is ample provision in the Structure and Systems Act for an elected municipal council to delegate matters to municipal structures, political office bearers and staff (eg. Part 3 of chapter 7 of the Systems Act)

The board further submits that it is unacceptable that a single man or woman in a council "must exercise general political control over the financial affairs of the municipality". It suggests that provision should be made to ensure that political accountability vests in the council as a whole.

Further, the principle that a "councilor for financial matters" may delegate any of his/her functions to another councilor also seems strange. The power to delegate to councilors should remain the responsibility of the municipal council.

32(a): CITY OF CAPE TOWN; WECLOGO: Submits it is not clear what "general political control" means. Also the "obligation" to exercise "general political control" needs to be clearly defined. The DEPARTMENT OF TRADITIONAL AND LOCAL GOVERNMENT AFFAIRS-KWAZULU-NATAL submits that "political" control should be vested in the whole council and not in a single person (the councilor).

32(a): THE DEPARTMENT OF DEVELOPMENTAL LOCAL GOVERNMENT & HOUSING, PROVINCE OF THE NORTH WEST, OFFICE OF THE MEC points out that the "distinction" and "control" is very narrow, and that more clarity needs to be given to avoid the blurring of responsibilities.

They also submit that this provision neglects the provision of the Municipal Structures Act, which determines the internal structures of the Council and the concomitant powers and responsibilities of the Minister and MECs responsible for local government in establishing the municipalities.

32(c): THE DUNDEE RATEPAYERS ASSOCIATION proposes that the following be added: "report also to Ratepayers Associations in writing". They are after all, funding all council activities.

THE MUNICIPAL DEMARCATION BOARD makes the general comment that in dealing with the responsibilities of municipal officials notice should be taken of the already existing provisions in Chapter 7 of the Systems Act dealing with local public administration and human resources. Further, that should there be shortcomings in the provisions in the Systems Act that Act should rather be reviewed instead of enacting new legislation.

The board suggests that this chapter and provisions in other Chapters pertaining to the 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.

THE MUNICIPAL DEMARCATION BOARD further points out that the Bill tends to separate financial responsibilities from other functions and responsibilities of a municipal manager. The Board submits that financial responsibilities are interrelated with other responsibilities and should not be divorced from them. This is substantiated by section 25 of the Systems Act.

IMATU submits that this section gives responsibilities to the municipal managers without giving them resources or tools to meet such responsibilities. Other responsibilities are provided under sections 22, 35, 36, 37, 38, 40, 65, 66 and 71. They submit that the municipal manager has too many duties, and he will be unable to perform these duties properly as most of these responsibilities cannot be delegated. This may result in the municipal manager being charged with incapacity or poor performance. They submit that it is advisable that these powers vested in the municipal manager be distributed on the officials or structures having administrative duties and decision-making power.

36(e): THE MUNICIPAL DEMARCATION BOARD submits that this provision stresses the lack of appreciation for the scheme in which elected councilors and appointed municipal staff operate. Ample provisions exist in local government legislation to ensure public consultation and accountability to communities. Should a need arise for intervention by a higher authority the M.E.C. can use his powers provided for in section 139 of the Constitution.

THE COMMUNITY LAW CENTRE says that the Bill imposes numerous reporting duties to the National Treasury which may tend to undercut the principle of primary responsibility and accountability to the municipal council. For example:

36(o): while this is simply a reporting duty, THE COMMUNITY LAW CENTRE submits that it may easily lapse into an informal permission seeking exercise.

36(l): provides that the municipal manager must promptly report to the MEC any interference by a councilor in the staffing or financial management responsibilities of the municipal manager. THE COMMUNITY LAW CENTRE submits that the first responsibility is to report such a matter to the entire council so as to enhance local self-reliance to resolve their own problems, rather than create a culture for running to "big daddy".

37(2): THE MUNICIPAL DEMARCATION BOARD submits that this section introduces unnecessary red tape and bureaucratic steps. Further, that all councilors have a direct interest in these matters and the Municipal Manager, as accounting officer, should be allowed to report directly to the full council.

CITY OF CAPE TOWN; WECLOGO: The controls put in place must not inhibit service delivery and emergency situations. A balance must be struck between transparency and service delivery.

The FFC submits that this section is very open-ended and needs to be more specific with respect to the information that national and provincial treasuries might request.

THE MUNICIPAL DEMARCATION BOARD submits that this provision may place an unnecessary burden on municipalities which could be to the detriment of their performance of other important services such as service delivery. The legislator realized this predicament when it adopted the Systems Act. Even the M.E.C. for local government is restricted and may not burden municipalities unnecessarily. When exercising his monitoring function in terms of s105 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; costs involved; and existing performance monitoring mechanisms, systems and processes in the municipality." There is no such provision in the Bill to restrict the National Treasury.

THE MUNICIPAL DEMARCATION BOARD submits that this section is superfluous since sufficient legal provisions pertaining to delegations exist in other local government legislation. (ss37, 120 and 45 of the Systems Act)

It further submits that the provision that a delegation to an official is subject to any limitations and conditions as may be prescribed by the National Treasury is presumptuous and should be excluded. THE COMMUNITY LAW CENTRE points out that it is unconstitutional for want of compliance with section 160. In particular, subsections (1) and (6) protect the right of municipalities to regulate their own affairs.

CITY OF CAPE TOWN; WECLOGO: Questions whether prescribing an organization structure falls within the ambit of S216 of the Constitution.

SALGA refers to section 160 of the Constitution which gives a municipality a discretion to employ or not to employ. This Bill seeks to compel a municipality to have a particular structure (budget and treasury office) and to place certain personnel in that structure and this is contrary to the Constitution and out of sync with the Systems Act (section 55) which places the responsibility to form a municipal administration in the hands of the municipal manager.

THE COMMUNITY LAW CENTRE also makes reference to section 160 of the Constitution and says that the fact that the Bill prescribes how the council should be structured and creates for example, the position of "councilor for financial matters", interferes with the notion of self-governance in section 160.

THE MUNICIPAL DEMARCATION BOARD submits that this provision should not apply to every municipality since some may not be able to afford doing this. Can a municipality outsource the function or make use of the infrastructure of neighboring municipalities (sharing of resources)?

47(1)(b) & 66(2)(c): The AUDITOR-GENERAL suggests that the word "undertakings" be clearly defined.

THE MUNICIPAL DEMARCATION BOARD makes the general comments that most, if not all of the provisions in this chapter is incorporated in the Systems Act in as far as additional provisions are required. The Systems Act deals comprehensively with service delivery, mechanisms for service delivery and service delivery agreements.

The FFC is concerned that there are other means of alienating assets other than those described in this section. This section should be linked with section 13 and broadened to cover those means that are not currently described.

53(4) AND (5): CITY OF CAPE TOWN; WECLOGO: Submits that the term "municipal council" should be replaced with "municipality" because a municipal council should have the discretion to appoint a committee to make the selection and if the term "municipal council" is used, then a municipality cannot delegate this power.

54(4): IMATU points out that this section provides that the "prescribed number" may not be exceeded, but there is no number specified in the Bill.

57(7): CITY OF CAPE TOWN; WECLOGO: Submits that the power given to the National Treasury to approve or instruct an official to be the accounting officer is not within the mandate of the constitutional imperatives.

58(3): THE MUNICIPAL DEMARCATION BOARD is concerned that this section authorizes the National treasury to, in exceptional cases, approve or instruct that another official of an entity be the accounting officer for that entity. It is suggested that if the municipality or municipal entity is unable or unwilling to appoint an accounting officer, the next line of responsibility to intervene is the MEC responsible for local government in the province or the Minister for Provincial and Local Government and not the National Treasury.

THE MUNICIPAL DEMARCATION BOARD makes the same submissions made in relation to s 58. Further, that this section disregards the constitutional duty of provincial governments to monitor municipalities, and if necessary, to intervene. In fulfilling their monitoring duties 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 detailed annual reports to the National Treasury appears to be unnecessary, since National Treasury should be able to obtain such information from the relevant provincial departments. The same applies to the requirement that copies of service agreements be submitted to National Treasury. See chapter 10 of the Systems Act which already provides that the MEC for local government can call for information by way of notice in the government gazette at any time. This information can then be conveyed to National Treasury.

59(1)(a): The AUDITOR-GENERAL submits that while the principle of proper accountability is extremely important, it is suggested that perhaps some deviation should be allowed to cater for entities which are too small to justify the cost of establishing a system of internal audit and an audit committee.

SALGA points out that Chapter 10 of the Systems Act already provides that "the MEC for local government in a province may by notice in the Provincial Gazette require municipalities…to submit a specified provincial organ of state such information as may be required…" MEC can easily call for information to be given to him or to the provincial treasury who can then report to National Treasury.

63(1)(b): indicates that a municipality must adopt an annual or multi-year plan that is consistent with the budget of the municipality. The DEPARTMENT OF TRADITIONAL AND LOCAL GOVERNMENT AFFAIRS-KWAZULU-NATAL submits that this section should include a reference to the IDP of the municipality.

The AUDITOR-GENERAL suggests that borrowing by municipal entities be regulated on a basis similar to that of municipalities. A distinction should therefore be made between short-term and long-term borrowing by municipal entities as well as the purposes for which each may be utilized.

CITY OF CAPE TOWN; WECLOGO: Submits that the requirement that a municipal manager must submit financial statements within two months after the end of the financial year is unreasonable. The DEPARTMENT OF TRADITIONAL AND LOCAL GOVERNMENT AFFAIRS-KWAZULU-NATAL submits that it should be at least 3 months.

66(1)(b): The DEPARTMENT OF TRADITIONAL AND LOCAL GOVERNMENT AFFAIRS-KWAZULU-NATAL submits that the reference should be to "generally accepted municipal accounting practice."

66(2)(d): The AUDITOR-GENERAL submits that the word "audited" should be deleted in view of the word not being included in section 66(1)(b).

68(2): The AUDITOR-GENERAL submits that this subsection should be amended to include the word "public" immediately before the word "meeting".

68(2): THE DUNDEE RATEPAYERS ASSOCIATION suggest that the phrase "are entitled to attend" be amended to read "must attend", at least for the first couple of years.

Further, that "representatives of Ratepayers Associations are entitled to attend and to speak…"

68(3)(a): THE DEPARTMENT OF DEVELOPMENTAL LOCAL GOVERNMENT & HOUSING, PROVINCE OF THE NORTH WEST, OFFICE OF THE MEC submits that "the relevant provincial department" needs to be clearly defined in order to prevent confusion and misunderstanding.

68(4): THE DUNDEE RATEPAYERS ASSOCIATION suggests that the following be added "copy of financial statements and audit report must be provided to ratepayers associations in good time."

CITY OF CAPE TOWN; WECLOGO: Submits that the requirement that a municipal entity must submit financial statements within one month after the end of the financial year is unreasonable.

69(1)(b) & 71(1)(b): The AUDITOR-GENERAL points out that generally recognized accounting practice cannot be identified in cases where the Accounting Standards board has not determined it, which would defeat the objective of "…unless the Accounting Standards Board approves another accounting standard for the entity.." Perhaps the intended wording was "generally accepted accounting practice" in stead of "generally recognized accounting practice."

74(2): THE MUNICIPAL DEMARCATION BOARD submits that this section is an 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. For example, sections 46, 47 and 48 of the Systems Act. SALGA echoes these submissions and suggests that National Treasury approach the Minister responsible for local government to make any necessary regulations (in terms of section 46) who can then provide copies to the National Treasury and its relevant provincial offices.

The PROVINCIAL ADMINISTRATION: WESTERN CAPE submits that since financial statements and the interpretation thereof are clearly financial issues, it is advisable that the Provincial Minister of Finance (rather than the Provincial Minister of Local Government) submit the statements to the relevant provincial legislature. The DEPARTMENT OF TRADITIONAL AND LOCAL GOVERNMENT AFFAIRS-KWAZULU-NATAL submits that only reports of "non-compliance" should be forwarded to the provincial legislature.

The AUDITOR-GENERAL suggests the inclusion of the following as 78(c): "to the Minister responsible for local government on actions taken to ensure that municipalities adequately address matters raised in the audit reports.

CITY OF CAPE TOWN; WECLOGO and SALGA (refer also to section 77(c)): The National Treasury in consultation with the Minister has the power to stop funds. The Minister does not have the constitutional authority. Funds may only be withheld for serious and persistent material breaches. If the failure to rectify an adverse finding is not a material breach, then the National Treasury may not withhold the transfer of funds.

SECTION 85 – REPORTS OF AUDITOR

85(1)(b): The AUDITOR-GENERAL points out that the auditor cannot express an opinion on the performance of information as required because in terms of section 70(1), only the financial statements will be submitted for auditing whilst the performance information will be included in the annual report which is not subject to audit. This matter should be dealt with in a manner which is consistent with the Municipal Systems Act, possibly by including the performance measurement required by the Act, in the financial statements.

86(4): CITY OF CAPE TOWN; WECLOGO: Submits that a municipal entity or a municipality should only be liable for the payment of the special investigation if there has been a contravention of some nature. The municipal entity or a municipality should not be financially prejudiced if it has done no wrong.

SALGA and THE COMMUNITY LAW CENTRE submit that this chapter is simply an intervention by national government into the affairs of a municipality and is currently unconstitutional. They hope to address the committee when the constitutional amendments become available. THE COMMUNITY LAW CENTRE further submits that the procedure prescribed in this chapter excludes the supervisory role of the NCOP. Section 139 of the Constitution creates the necessary political checks and balances to maintain the distinctiveness of local government which is absent from chapter 11.

The BANKING COUNCIL states that they are aware of the concerns raised over section 5, and the emergency provisions in chapter 11 (and the second constitutional amendment necessary to enact them). The COUNCIL specifically supports the provisions of section 5, 106 and chapter11 in this regard. Their support is based on the increased role, which private financial institutions can play in a secure and well-managed environment, and the importance of obtaining this goal at municipal level. Section 5 and 106 are in their view, strong pre-emptive measures, whilst chapter 11 makes provision for swift and appropriate remedial action. Both the pre-emptive and remedial measures, and a balance between them, are critical to the lending environment.

THE MUNICIPAL DEMARCATION BOARD firmly rejects this section on the grounds that it does not allow for the checks and balances contained in section 139 of the Constitution which is carefully crafted to ensure cooperative governance. 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.

THE KNYSNA MUNICIPALITY says that this chapter creates the impression that instead of "emergencies" being expected once every second year in the case of maybe one or two local governments, it is to be expected from many and in every year.

THE DUNDEE RATEPAYERS ASSOCIATION applauds this position.

The PROVINCIAL ADMINISTRATION: WESTERN CAPE points out that this section provides that the "Authority" will be an institution outside the public service, but within the public administration, but to whom does the Authority answer or report?

This means that the authority will not fall under the auspices of National Treasury or the Department of Finance. It will have to fall under the National Minister of Public Service and Administration. But, to add further confusion, section 91 of the Bill states that the National Minister of Local Government must appoint the CEO of the Authority in concurrence with the National Minister of Finance.

Section 89 then provides that the Authority must:

"oversee the financial recovery of municipalities declared to be in a financial emergency with a view to normalizing their affairs."

The PROVINCIAL ADMINISTRATION: WESTERN CAPE goes on further to say that this begs the very obvious constitutional question, namely what role is there then for a Province to play and how can it exercise its constitutional duties to monitor, support, oversee and strengthen local government? In sum they are saying that the Authority is doing what the province (either by way of Provincial Treasury or its provincial Department of Local Government) should, from a constitutional perspective, be doing in situations of municipal financial emergencies. They suggest instead, an "asymmetrical approach" which would entail, in the case of a financial emergency, that a province is allowed to intervene in the first instance. Only if the said office is unable to act or requests the national sphere of government to intervene by way of the national sphere of government to intervene, then the national sphere should intervene by way of National Treasury, and not by way of an independent statutory body.

Further, the PROVINCIAL ADMINISTRATION: WESTERN CAPE states that section 89(e) provides that the authority must submit annual reports directly to the national Minister for Local Government. No mention is made of any possible provincial intervention and amounts to a disregard for the specific role of the Province vis-à-vis local government and would, in their view, fall foul of the provisions of sections 139 of the Constitution. The Bill amounts to an intervention by a parastatal, where the Constitution only allows for intervention by another sphere of government.

The PROVINCIAL ADMINISTRATION: WESTERN CAPE points out that section 97 provides that a province, either by way of its provincial Minister of Finance or its provincial Minister for Local Government, may bring an application to court for a declaration that a municipality is in a financial emergency. This means that the Province will have to obtain a court order before any intervention may take place. This creates an additional formality which was not envisaged by section 139 of the Constitution. Also, the Province then has no further role to play because the duties are taken over by the Authority and the recovery specialist.

97(1): THE DUNDEE RATEPAYERS ASSOCIATION submits that "registered Ratepayers Associations" should be added here.

THE BANKING COUNCIL submits that the ability of creditors to apply through a court of law for an emergency to be declared or lifted, is an important provision in so far as it makes an unequivocal commitment to ensuring administrative justice in the municipal lending environment, and in the COUNCIL"S view improves confidence and deepens democratic governance. Consideration by an independent court of law in terms of legislation, which clearly spells out the rules, is in the COUNCIL’S view an essential safeguard in circumstances where there are many, often conflicting, and substantial interests.

97(2)(c): THE DUNDEE RATEPAYERS ASSOCIATION submits that "3 years" should be amended to "1 year" since shortages over one year can aggravate financial plight of taxpayers.

THE BANKING COUNCIL applauds the appointment of an independent emergency authority and recovery specialist to execute an assessment and to propose a plan, because the independence and expertise of the authority will be focused on how best a municipality’s financial crisis can be restored to normality.

98(1): The PROVINCIAL ADMINISTRATION: WESTERN CAPE submits that more detail should be given here as to who the financial recovery specialist must be. It only mentions that such a person must have "appropriate financial and management experience".

The PROVINCIAL ADMINISTRATION: WESTERN CAPE also raises the question of how the role of the Authority and the recovery specialist will impact on the duties and powers of the National Treasury in terms of section 216 of the Constitution. What happens if the National Treasury decided to take certain steps in terms of section 216, which is constitutionally allowed, and it happens to be in conflict with the proposed recovery plan, which has been approved by the Authority.

THE BANKING COUNCIL welcomes the procedure and consultation required during the preparation of these recovery plans, affording all stakeholders the opportunity to provide input, and obliging the emergency authority to consult before finalizing a recovery plan. SALGA however points out that the requirement to consult creditors will not be enforceable unless it is included in the conditions to be applied by the emergency authority when approving the plan. They therefore propose that sections 99(6) and 99(9)(c) includes compliance with subsection (2) in addition to compliance with subsection (3) as it now reads.

THE COMMUNITY LAW CENTRE submits that the main problem is that the powers of the financial recovery specialist are not defined. 99(3) says that the financial recovery plan must identify the powers of the financial recovery specialist. It is unclear what powers the financial recovery specialist can have in respect of financial matters. It appears as if the only clear power accorded to him or her is the access to information on the basis of section 100(1).

Section 99(5) states that councilors and officials must co-operate with the implementation of the financial recovery plan. At the same time, section 100(2) says the council must decide whether or not to approve the financial recovery plan. Is the financial recovery plan dependent on the council’s approval or not? It is also unclear whether or not a council decision to reject the financial recovery plan influences the councillor’s responsibility to cooperate with its implementation. Experience with section 139 interventions show that the relationship between the council and the administrator (who fulfilled similar functions as the financial recovery specialist) is one of the most difficult aspects of intervention. Their respective powers should therefore be spelt out clearly.

100(2): THE BANKING COUNCIL supports this provision which requires approval of the municipality of the plan, since the municipality will after all have to implement it, but submits that it is not clear what the procedures are to be if the municipality disagrees with the recovery plan in a manner which cannot be remedied in the opinion of the recovery specialist or the emergency authority, through amendments to the plan.

THE BANKING COUNCIL further submits that the provisions under disposal of assets contained in section 51(2)(b) should be added to this section, since a financial recovery plan may not permit the liquidation of any assets, whether these assets are secured or not, without ensuring that fair market value is obtained for these assets as set out in section 51(2)(b).

THE BANKING COUNCIL suggest that, to avoid repetition and possibility of 103 and 104 materializing, a court in granting the lifting of emergency conditions, should order the municipality to implement the recovery plan.

SALGA suggests that the use of land area as a criterion in section 102(1)(a) is a rather blunt and possibly misleading instrument, and propose that this be changed to rateable value since there is a possibility that a large amount of unoccupied land might be excised or added without changing the financial situation of the municipality. The same could not be said of a large portion of rateable value.

104(2) and 105(2)(a): SALGA: The words "before the" have been omitted.

SALGA proposes that a clear signal be sent to councilors that in the event of an application for extraordinary relief then their remuneration would be seriously affected. A section 104 action (suspension of municipal obligations) should trigger a 75% reduction in councilors’ pay and a section 105 action (termination of municipal obligations and proportional settlement of claims) should result in no pay. They further suggest that section 100(3) (powers of financial recovery specialist) should contain a reference to the recovery plan providing for a reduction in councillors’ allowances during the period of the financial emergency.

THE MUNICIPAL DEMARCATION BOARD submits that here again the role and responsibilities of MECs for local government is totally negated.

CITY OF CAPE TOWN; WECLOGO: Submits that the National Treasury may only make regulations to ensure transparency and expenditure control as set out in section 216 of the Constitution. The following are therefore ultra vires:

1. a framework for the exercise of municipal fiscal and tariff fixing powers
2. a framework for procurement
3. a framework for public private partnership agreements
4. the establishment by municipalities of, and control over, municipal entities
5. the transfer of assets from a municipality to a municipal entity
6. the alienation, letting or disposal of assets by municipalities

They further submit that the drafters of the Bill have not taken into account the independence of local government as a sphere of government and that any attempts at micro management of local government is contrary to the Constitution.

SALGA points out that there are different legal consequences to regulations, instructions and guidelines. These consequences relate to enforceability and applicability. It must be clearly spelt out in respect of which matters there intends to be regulations, instructions or guidelines. In addition, there are no consultative measures put in place before such regulations, instructions or guidelines may be promulgated. This is problematic in terms of the established practice of cooperative government.

DEPARTMENT OF TRADITIONAL AND LOCAL GOVERNMENT AFFAIRS-KWAZULU-NATAL submits that the word "may" in section 106(1) should be substituted with "must".

THE MUNICIPAL DEMARCATION BOARD submits that this chapter should be included in the Code of Conduct for Municipal Staff Members – Schedule 2 of the Systems Act.

SALGA submits that this chapter should be incorporated in the Code of Conduct for employees as per the Systems Act.

CITY OF CAPE TOWN; WECLOGO and IMATU: Submits that any regulation on financial misconduct procedures cannot conflict with applicable labour legislation.

Section 111(4) of the Bill is contradictory to the provisions of section 210 of the Labour Relations Act.

IMATU submits that the penalties given to municipal managers is too harsh, in that no distinction is made between offence committed negligently and those committed intentionally. They submit that where municipal managers acted negligently, they should be treated leniently as they committed that offence with no intention of prejudicing anyone’s interests. Negligent behaviour should be addressed in terms of the applicable disciplinary code that attaches itself to an individual through his/her Conditions of Service. Criminal charges should be instituted only against officials who committed the offences willfully or purposefully.

THE MUNICIPAL DEMARCATION BOARD and IMATU submit that notice should be taken of the provisions of the Labour Relations Act and other legislation 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.

IMATU submits that a cross-reference should be made to the disciplinary code in terms of conditions of service, as is the case in the Municipal Systems Act which in section 14 of the code of conduct stipulates: "Breaches of this code must be dealt with in terms of the disciplinary procedures of the municipal…" as well as reference to Schedule 8 of the Labour Relations Act.

THE DUNDEE RATEPAYERS ASSOCIATION submits that this provision is unnecessary since it is a principle of common law.

117(1): The FFC proposes that this provision should be amended to read "The Minister may in terms of criteria set in consultation with the FFC, then by notice published in the gazette…" A clause should be added that ensures the Minister states reasons for granting an exemption, eg: grading of a municipality or natural disaster. IMATU points out that the word "practicalities" is not qualified in any way, nor are any other ways of assessment or criteria set which leaves the granting of an ‘exemption" wide open for abuse. "Practicalities" should be qualified.

The DBSA submits that there is a need for some form of transitional measures to pay off short-term debt, or convert it into long-term debt where a municipality has used short-term debt inappropriately in the past. Bearing in min that many municipalities will not be able immediately to obtain long-term debt, we suggest an additional sub-clause here allowing a municipality with short-term debt that cannot be repaid within the financial year during which the Act is passed, to apply to National Treasury for a grace period of one financial year.

The AUDITOR-GENERAL draws attention to entities created in terms of section 17D of the Promotion of Local Government Affairs Act, 1983 (Act 91 of 1983). Adequate provision should be made in respect of these entities.

118(2): THE MUNICIPAL DEMARCATION BOARD submits that 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.

CITY OF CAPE TOWN; WECLOGO: Submits that section 10G(6A) of the Local Government Transition Act (as amended by section 93 of the Local Government: Structures Act) must remain in place until the Municipal Property Rates Bill is promulgated. This section relates to Computer Assisted Mass Approval and will affect the legality of some General Valuations currently conducted by municipalities if not saved.

Section 93(4)(b) of the Local Government: Structures Act needs to be repealed.

Section 10(7)(a)(ii) of the Local Government Transition Act is a very important empowering provision for local government. The section reads: "A Municipality may by resolution supported by a majority of the members of the Council levy and recover levies, fees, taxes and tariffs in respect of any function or service of the municipality." There is no corresponding legislation in place which empowers a municipality to do this. A similar section needs to be enacted.

119(2): The AUDITOR-GENERAL submits that this section should be deleted as it is in direct conflict with the Remuneration of Public Office Bearers Act (Act 20 of 1998) which inter alia provides for a framework for determining the upper limit of salaries as well as the pension and medical aid benefits of all office bearers including members of municipal councils.