1. On 18 April 2002 we were instructed in writing by Lucille Gibbons on behalf of the Finance Portfolio Committee ("FPC") as follows:
1. Parliament and its support system find itself in a transformation phase with the Portfolio Committees having limited technical support and access to expertise. This limits its capacity to undertake its monitoring and oversight mandate effectively.
2. A need exists to appoint a consultant to prepare a written opinion as to the legitimacy of submissions received by the Finance Portfolio Committee alleging that the Local Government: Municipal Finance Management Bill ("MFMB") conflicts with a number of provisions in existing legislation, namely the Local Government: Municipal Systems Act 32 of 2000 ("Systems Act") and the Local Government: Municipal Structures Act 117 of 1998 ("Structures Act").
3. The opinion consists of short responses to the comments and examines the interaction between the three pieces of legislation enumerated above, but does not provide a detailed analysis of the constitutional validity of provisions, where this issue is relevant.
4. The consultant will be responsible for drawing up an opinion as to the validity of the following submissions that have been raised regarding the compatibility of the MFMB with the following provisions in existing legislation:
1. There are contradicting definitions of "basic municipal services" in the Systems Act (includes environmental services) and "minimum essential municipal service" in the MFMB (excludes environmental services).
2. CITY OF CAPE TOWN and WECLOGO submits that Chapter 4 (Municipal Budgets) 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.
3. CITY OF CAPE TOWN and WECLOGO also submit that 17(2)(b) of the MFMB 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 Municipal Systems Act, must now begin? Section 16 of the Municipal Systems Act requires a municipality to develop a system of participative governance and provides that it 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.
4. Section 23 (Assignment of New Functions and Powers to Municipalities) of the MFMB 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.
5. WHITE & CASE submit that section 25 (Long-term Debt), 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 MFMB 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 the MFMB.
6. 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 Municipal Systems Act. Accordingly, they urge that additional text be inserted into the MFMB 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.
7. 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.
8. THE DEPARTMENT OF DEVELOPMENTAL LOCAL GOVERNMENT & HOUSING, PROVINCE OF THE NORTH WEST, OFFICE OF THE MEC and THE MUNICIPAL DEMARCATION BOARD and SALGA submit that section 32 (Duties of Councillors for Financial Matters) and it’s designation of a "councillor for financial matters" is an undue interference in the internal operations of the Municipality and 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 MEC responsible for local government in establishing the municipalities.
9. THE MUNICIPAL DEMARCATION BOARD submits with regard to Chapter 7 (Duties of Municipal Officials) 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. Extensive duties and obligations are assigned to Municipal Managers in the Systems Act. There may be overlap and contradiction. Should the Systems Act be lacking in any provisions, would it not be better to review the Systems Act rather than to enact new legislation. Alternatively, it may be better to examine the possibility of rather including some provisions in municipal by-laws.
10. THE MUNICIPAL DEMARCATION BOARD further points out that the MFMB 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.
11. THE MUNICIPAL DEMARCATION BOARD submits that section 40 (Information to be submitted by Municipal Managers) may place an unnecessary burden on municipalities, which could be to the detriment of their performance of other important services such as service delivery. This section may also be incompatible with the Systems Act, where the legislator realized this predicament. Even the MEC for local government is restricted and may not burden municipalities unnecessarily. In terms of section 105 of the Systems Act the MEC, when exercising his monitoring function, 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.
12. THE MUNICIPAL DEMARCATION BOARD submits that section 41 (Delegation of powers and Duties by Municipal Managers) is superfluous since sufficient legal provisions pertaining to delegations exist in other local government legislation. (Sections 37, 120 and 45 of the Systems Act)
13. SALGA submits, with regard to Chapter 8 (Municipal Budget and Treasury Offices) that the MFMB 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 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.
14. The URBAN SECTOR NETWORK submits that there is a glaring lack of linkage between the Integrated Development Plans (IDP) and the MFMB and the processes it introduces. The Municipal Systems Act began these linkages, but the MFMB 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.
15. THE COMMUNITY LAW CENTRE submits with regard to section 45(1)(c)(ii) (Delegation of Functions) of the MFMB, which empowers the chief financial officer to sub-delegate to a contractor, that 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, councillors and staff members.
16. THE MUNICIPAL DEMARCATION BOARD submits, with regard to Chapter 9 (Municipal Entities) that the need for each Municipality to submit detailed annual reports to the National Treasury appears to be unnecessary since Chapter 10 of the Systems Act 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.
17. COSATU submits that section 50 (Service Delivery agreements with Municipal Entities) should include a reference to section 80 (Steps that Municipalities must take when entering into a service delivery agreement with, amongst others, a municipal entity) of the Municipal Systems Act and not only to section 81.
18. THE COMMUNITY LAW CENTRE further submits that section 66 (Preparation of Annual Reports and Financial statements) (and further) of the MFMB 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 MFMB extends the invitation to the provincial and national treasuries. This is likely to cause confusion.
19. 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.
20. THE MUNICIPAL DEMARCATION BOARD submits that section 74(2) (Tabling of Annual Reports, Financial Statements and Audit Reports) is an unnecessary interference in the internal business of a municipal council. 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.
21. The AUDITOR-GENERAL submits, with regard to section 85(1)(b) (Reports of Auditor) 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.
22. THE MUNICIPAL DEMARCATION BOARD submits that section 118(2) (Transitional Provisions) 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.
23. CITY OF CAPE TOWN and WECLOGO: Submits that under section 119 (Repeal and Amendment of Legislation) section 93(4)(b) of the Local Government: Structures Act needs to be repealed.
5. This opinion attempts to deal with each and every material issue raised in the comments, however, we have not felt it necessary to treat each comment under a separate heading and have collated those comments that can be dealt with together.

PART ONE

There are contradicting definitions of "basic municipal services" in the Systems Act (includes environmental services) and "minimum essential municipal service" in the MFMB (excludes environmental services).

2. The Systems Act defines "basic municipal services" to mean

"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".

3. In contrast the MFMB defines "minimum essential municipal services" to mean

"a service, which, if not provided, would pose a threat to public health or safety".

4. The first enquiry relates to the ambit of the definition of a "basic municipal service". Does the definition include both those services that are necessary to ensure an acceptable and reasonable quality of life as well as those services, which, if not provided, would endanger public health or safety or the environment, or is it a reference to those services, which, if not provided, would endanger public health or safety and which are a sub-set of those services that are necessary to ensure an acceptable and reasonable quality of life.
5. If "basic municipal services" are the latter, then there is no contradiction between the two definitions, although the definition of "basic municipal services" would extend to danger to the environment. If, on the other hand, "basic municipal services" are the former, then the Systems Act and MFMB must be reconciled in a way that gives effect to both definitions.
6. In interpreting the meaning of the definition, regard must be had to the rules of statutory interpretation. In a discussion of competing theories of interpretation, LM du Plessis ‘Statute Law and Interpretation’ in (Ed) Joubert The Law of South Africa Vol 25(1) First Reissue Volume (1989) at para 308 considers the historical development of this body of law and states

"The courts’ approach to statutory interpretation, vacillating between narrow, formalist literalism and broad, free-thinking purposivism, cannot be pinpointed with finality. There has been a dominant trend, though, best described as a literalist-cum-intentionalist approach."

7. LM du Plessis ‘Statute Law and Interpretation’ (Ed) JoubertThe Law of South Africa Vol 25(1) First Reissue Volume (1989) at para 309 (d) best summarises the elements of this approach to statutory interpretation

"The approach to statutory interpretation that Innes J verbalised in Venter v R [1907 TS 910 913] still dominates the judicial scene. This approach identifies determining the intention of the legislature as the object of statutory interpretation, and is to that extent intentionalist. But this is not where it stops. The legislature "meant to express" its intention and has assumedly packaged it in language since, as the court intimates, the intention of the legislature is ascertainable from the language used. This hint at literalism waxes as the court continues to explain: "By far the most important rule to guide courts in arriving at that intention is to take the language of the instrument, or of the relevant portion of the instrument as a whole; and, when the words are clear and unambiguous, to place upon them their grammatical construction and to give them their ordinary effect."

8. In applying the principles of literalism-cum-intentionalism to the interpretation of the definition of "basic municipal services" in the Systems Act, the first step is to consider the language of the statute. To restate the definition, a "basic municipal service" is one, which "is necessary to ensure an acceptable and reasonable quality of life and, if not provided, would endanger public health or safety or the environment". The word "and" in this definition is conjunctive and is indicative of a two part test set out in the definition. The question then becomes, what is the significance of this two-part test? The test "necessary to ensure an acceptable and reasonable quality of life" has not been interpreted by the courts and can include a range of services from access to clean air, clean water, adequate housing, a clean environment. However, the second part of the test reduces the ambit of the services that are "basic municipal services" to only those services which "if not provided, would endanger public health or safety or the environment." In light of a rule of statutory interpretation that operates to presume against surplusage in legislation, we are hesitant to state that the first part of the test of what constitutes a "basic municipal service" doesn’t add anything to the two part test, although we are hard pressed to identify any service that satisfies the second part of the test without also satisfying the first part.
9. Having discussed at length the manner in which statutes are interpreted, and having identified that in our view the first part of the two part test for "basic municipal services" doesn’t add anything to the two part test, the only two differences we can identify between the definitions of "basic municipal services" and "minimum essential municipal services" are that:
1. the danger to public health or safety described minimum essential municipal services is a potential danger, which the danger to public health or safety or the environment set out in the definition of basic municipal services is an actual danger;
2. the definition of basic municipal services includes dangers to the environment which is excluded from the definition of minimum essential municipal services.
10. Before concluding that the mere existence of a difference between the two definitions is something with which to be concerned, we believe that it is necessary to examine how each definition is used in the context of the legislation. If it is apparent that both definitions cover the same ground, then it may be wise to correlate the two definitions. If, on the other hand, the definitions are used in quite different contexts, then it is our view that it would be unwise to attempt to correlate the two definitions.
11. The Systems Act has two references to basic municipal services. The first is in section 26(b), which states

"An integrated development plan must reflect—

(a)…

2. an assessment of the existing level of development in the municipality, which must include an identification of communities which do not have access to basic municipal services"

and the second is in section 73(1) which states that:

"A municipality must give effect to the provisions of the Constitution and—

(a) give priority to the basic needs of the local community;

(b) promote the development of the local community; and

(c) ensure that all members of the local community have access to at least the minimum level of basic municipal services."

1. The integrated development planning requirements set out in the Systems Act call for long term planning by a municipality to achieve certain objectives, and the general duties of municipalities in section 73 reflect the broad obligations of municipalities in respect to the provision of services.
2. The references to minimum essential municipal services in the MFMB are in sections 13 and 27(3) and then again in Chapter 11. Sections 13 and 27(3) perform the same function. These sections are designed to protect assets or rights that are required for the provision of essential minimum municipal services. Both sections require a municipality to make a judgement call about whether an asset or right (in the case of section 13, only a capital asset) is needed to provide a minimum essential municipal service before it transfers or disposes of that asset or provides security over that asset. In terms of section 27(3), if security is granted over an asset or right that is needed to provide a minimum essential service, the municipality is required to ensure that the availability of the asset or right for the provision of that service is protected. Section 100 in Chapter 11 precludes a financial recovery plan from liquidating assets needed for the provision of minimum municipal essential services. [This wording differs from the defined term " minimum essential municipal service", but we have ascertained that this is a typographical error which we hope will be corrected prior to the enactment of the MFMB, and have accordingly assumed for the purposes of this opinion that section 100(3)(b) is a reference to a minimum essential municipal service.] Further section 105(1)(b) refers to minimum essential municipal services. It is unnecessary for the purposes of this opinion to describe the operation of the provisions of section 105 and its relationship to section 103, except to note that in this context, the reference to minimum essential municipal services is related to the protection of assets required for the provision of these services.
3. The contrast between the usage of the two definitions in the Systems Act and MFMB is interesting. In the context of both pieces of legislation, the defined services are the bare minimum services that a municipality must ensure the provision of. The question is, are these bare minimum services intended to be the same?
4. The answer rests with the political will of the legislature. It is our view that these do not necessarily have to be the same. The MFMB references to the minimum essential municipal services are in extreme circumstances, either where assets are to be protected; or in cases of financial difficulty where the rights of third parties are severely restricted in order to protect the public at large from harm. The concern is one for public harm. In contrast the Systems Act uses basic municipal services as a platform from which a municipality must begin to ensure the provision of services. There is no reason why this platform should not be above the test for public harm.
5. Accordingly it is our view that the two definitions do not need to be reconciled and redrafted in order to make them identical.

PART TWO

CITY OF CAPE TOWN and WECLOGO submit that Chapter 4 (Municipal Budgets) is procedurally over prescriptive in that it places too many obligations on a municipality that may open it to successful legal challenge.

6. Chapter 4 of the MFMB prescribes four things relating to municipal budgets; content, procedure for adoption, reporting and amendments to a budget. The following requirements have been prescribed:
1. The form and contents of an annual budget in so far as:-

• an annual budget must be drawn up;
• the budget should be in the format prescribed;
• the budget must balance;
• the budget must reflect the integrated development plan ("IDP");
• the minimum contents of any budget;

1. In terms of process:

• The process by which a budget is drawn up and adopted by a municipality;
• The manner in which a budget is to be approved;
• The consequences of failing to approve a budget;

1. The instances and the manner in which adjustments to the budget may be made during the course of a year;
2. The number and form of reports to be made by municipalities on their budgets;
3. Chapter 4 also deals with:

• The manner in which the municipality is to deal with unauthorised and irregular expenditure; and
• The assignment of new functions to municipalities.

1. The Systems Act does not purport to regulate municipals budgets or the municipal budgeting process and there is no overlap between the two pieces of legislation in regard to municipal budgets.
2. In considering the SALGA comment, it is useful to determine the requirements of the previous budgeting regime pertaining to local government. In this regard, section 10G of the Local Government Transition Act 209 of 1993 ("LGTA") provides for the following in respect of municipal budgets:-
1. that a municipality shall structure and manage its administration and budgeting and planning process to give priority to the basic needs of its community, and promote social and economic development within its area of jurisdiction and support the implementation of national and provincial development programmes [section 10G(1)(d)];
2. that a municipality shall compile an annual budget for operating income and expenditure and capital expenditure [section 10G(3)(a)];
3. that a municipality may not budget for a year-end deficit on its operating account and must ensure that the budget is in accordance with its integrated development plan [section 10G(3)(b)];
4. that the Minister of Finance may (where it is essential for the pursuit of the national economic policy) determine maximum expenditure limits for the budgets, or components of budgets [section 10G(4)(b)];
5. that a municipality must submit the budget to the Minister of Finance within 14 days of adoption of the budget [section 10G(4)(c)];
3. It is apparent that the MFMB does a number of things that are different to the regime established by the LGTA:

1. The MFMB prescribes the actual form and content of a budget;
2. The MFMB creates a budget adoption procedure;
3. The MFMB regulates the type and procedure for amendments to the budget;
4. The MFMB requires a far more substantial reporting regime to a wider group of people.

1. The comment by SALGA is that these procedures are burdensome to municipalities. The question is whether the procedures can be justified either as a matter of policy for local government or in terms of a national framework which the National Treasury wishes to introduce.
2. Some insight into national policy with respect to Municipal Budgets can be gleaned from the "Intergovernmental Fiscal Review 2001" published by the National Treasury. The section on "Overview of Municipal Budgets" begins with:

"The budgets of municipalities provide important insight into their progress with service delivery, and also serve as management tools for planning. They should clarify what municipalities spend on, and how they raise funds for those."

3. National Treasury analyses the budgets of pre-demarcation municipalities and in so doing sets out a number of concerns regarding the form and content of the budgets. It is clear that the prescriptions in the MFMB with regard to form and content are an attempt to introduce a system that will produce uniform reporting results that permit of comparison and analysis. It is our view that the form and content of municipal budgets, as regulated by the provisions of the MFMB, is not onerous insofar as the policy and planning framework imposed in the MFMB is required by National Treasury in order to analyse service delivery and functionality in municipalities.
4. It is also useful to consider the regulation of national and provincial budgeting in the Public Finance Management Act 1 of 1999 ("PFMA") as it provides a context for the analysis of whether the procedures set out in the MFMB are onerous or not.
5. The PFMA regulates the following aspects of provincial and rational budgeting: Chapter 4 of the PFMA regulates National and Provincial Budgets. Sections 27(1) and (2) regulates the timing of the budgets and section 27(3) regulates the format of the budget. Sections 30 and 31 deal with adjustments budgets, the contents and procedure for adoption of their adjustments budgets. Section 34 sets out the position with regard to unauthorised expenditure and section 32 requires National and Provincial Treasuries to publish certain reports with prescribed information.
6. Substantively, the difference between the PFMA framework and the MFMB framework is, prima facie, the provisions relating to budgeting in the MFMB appear to be far more detailed than the provisions relating to budgeting in the PFMA, and the reporting requirements of municipalities are more onerous than those of the National Treasury and Provincial Treasuries. Having said that, all treasury officers are required to provide reports on a monthly basis, it is only that in the case of municipalities, other political structures of government are interested in and want to analyse the reports of municipalities. As regards the content, by and large the requirements are the same, with a few exceptions. Both the PFMA and the MFMB require:
1. budgets in the prescribed format;
2. budgets that contain:

• estimates of revenue;
• estimates of expenditure;
• estimates of interest and principal payments;
• estimates of capital expenditure;
• indication of intentions regarding borrowing and public liability;
• projected and actual figures for the previous year in respect of:
• revenue;
• expenditure per vote;
• borrowing.

1. In addition, to their requirements, municipal budgets must:
1. include an operating budget which is balanced;
2. include an amount of accumulated surplus;
3. include a balanced capital budget;
4. not exceed a growth factor determined by the National Treasury; and
5. must reflect the IDP.
2. It is difficult to decide what kind of regulation is "too much" or "burdensome". In the absence of the prescriptions in the MFMB, a municipality would still have to comply with the following requirements for adoption of the budget:

1. Drafting and tabling the draft budget before financial year end;
2. Public participation;
3. Approval of the budget.

1. The MFMB adds to this by requiring that a municipality obtain the comments of National Treasury, Provincial Treasury and in the case of B and C municipalities, the relevant B/C municipality(s), and take into account various factors in drafting the budget:

"17(5) The councillor for financial matters must as soon as the council discussions and the public hearings referred to in sub-section 2(b) have been completed -

1. direct the municipal manager to prepare the final budget for the financial year, taking into account-
1. the discussions and public hearings conducted by the council on the draft budget;
2. any public comment and representations received by the municipality in terms of sub-section 2(a);
3. any recommendations on the draft budget submitted by-

27. the National Treasury;
28. the relevant provincial treasury; and
29. any other municipality; and

1. any guidelines and policy statements issued by the National Treasury; and"

1. The provisions regarding approval and failure to approve budgets are novel and appear to fill a gap that in a manner that is both necessary and constitutionally mandated. The Constitution in section 215 provides:

"National, provincial and municipal budgets

215. (1) National, provincial and municipal budgets and budgetary processes must promote transparency accountability and the effective financial management of the economy, debt and the public sector.

2. National legislation must prescribe-

(a) the form of national, provincial and municipal budgets;

1. when national and provincial budgets must be tabled; and
2. that budgets in each sphere of government must show the sources of revenue and the way in which proposed expenditure will comply with national legislation.

3. Budgets in each sphere of government must contain-

1. estimates of revenue and expenditure, differentiating between capital and current expenditure;
2. proposals for financing any anticipated deficit for the period to which they apply; and
3. an indicating of intentions regarding borrowing and other forms of public liability that will increase public debt during the ensuing year."

1. As regards the procedural prescription of the MFMB in respect of municipal budgeting process:
1. the budget must be prepared in the prescribed form at least 4 months (or as otherwise prescribed) before the start of the financial year;
2. the draft budget must go through a process of community participation in terms of the Systems Act;
3. a notice must be published stating that:

• the draft budget is available for public perusal and comment within a specified period; and
• stating the dates for public hearings in respect of the budget;

1. the draft budget must be tabled for discussion and public hearings at the next sitting of the municipal council;
2. the draft budget must be submitted to:

• National Treasury;
• Relevant Provincial Treasury;
• District/local municipality, where relevant;

1. the above may comment on the draft budget within 40 days;
2. the budget must be drafted taking into account all comments and recommendations and then tabled in council for approval;
3. the budget must be tabled at least 30 days before the start of the financial year;
4. the budget must be approved before the start of the financial year.

1. The procedures prescribed in respect of adjustments budget limit a municipalities powers in respect of the amendment of municipal budgets. These provisions permit adjustment to municipal budgets only in the following circumstances:

"20.(1) The councillor for financial matters-

1. may table an adjustments budget in the municipal council as and when necessary, but any second or subsequent adjustments budget during the same financial year may only be tabled with the approval of the MEC for local government in the province acting within a prescribed framework; and
2. must table an adjustments budget when this becomes necessary to-

1. adjust the budget due to under collection of revenue;
2. appropriate funds for the reduction of debt or the funding of capital projects; or"

1. Further an adjustments budget may only cater for:

"20.(2) An adjustments budget, apart from the matters referred to in sub-section (1)(b), may provide only for-

1. the appropriation of any net additional revenues that have become available, over and above those anticipated in the approved budget;
2. unforeseeable and unavoidable expenditure recommended by the municipal manager, within a prescribed framework;
3. the utilisation of savings between votes; and
4. any other matter prescribed, or approved by the Minister in writing."

1. These requirements protect the sanctity of original budgets and the financial planning of a municipality. They appear to introduce prudent financial planning rates while protecting a municipality’s power to react flexibly to financial matters that arise during the course of the financial year.
2. The reporting provisions of section 21 are dealt with in Part 9 of this opinion. Section 22 of the MFMB deals with unauthorised and irregular expenditure. The provision allocates responsibility for unauthorised expenditure and details the steps a municipality must take to recover unauthorised and irregular expenditure.
3. In this regard, section 22 provides:

"22.(1) Without limiting liability in terms of the common law or other legislation-

1. the municipal manager is liable for an unauthorised expenditure, subject to sub-section (3); and
2. the person who committed, made or approved an irregular expenditure is liable for that expenditure.
2. A municipality must recover any unauthorised or irregular expenditure from the person liable for that unauthorised or irregular expenditure unless the expenditure-

1. in the case of unauthorised expenditure, is-

9. authorised in an adjustments budget; or
2. certified by the municipal council as irrecoverable and written off by the council; and

1. in the case of irregular expenditure, is certified by the council as irrecoverable and written off by the council.

2. If a political structure or functionary of a municipality takes a decision which, if implemented, is likely to result in an unauthorised or irregular expenditure, the municipal manager is liable for any ensuing unauthorised or irregular expenditure unless the municipal manager has informed the relevant political structure or functionary, in writing, that the expenditure is likely to be unauthorised or irregular.
3. The municipal manager must inform the National Treasury, the relevant provincial treasury and the provincial department responsible for local government, in writing, of-

1. any material unauthorised or irregular expenditure that has been incurred by the municipality; and
2. the steps that have been taken-

1. to recover or rectify the unauthorised or irregular expenditure; and
2. to prevent a recurrence of such expenditure.

2. The writing off of any unauthorised or irregular expenditure is irrecoverable in terms of sub-section (1) is no excuse in criminal proceedings against a person charged with the commission of an offence relating to such unauthorised or irregular expenditure.
3. The council of a municipality must take all reasonable steps to ensure that irregular expenditure that occurred in the municipality and that may constitute a criminal offence is reported to the South African Police Service.
4. The National Treasury may regular the application of this section by regulation in terms of section 106."

1. In our view, the form and content requirements of municipal budgets are not overly onerous for municipalities given the public interest in having uniform budgets that can be compared and analysed by National Treasury, the relevant MEC’s and provincial treasury and any other interested party.
2. As regards the procedure for the adoption of a budget, the content and procedure for adoption of adjustment budgets, unauthorised and irregular expenditure, it is our view that the framework, while highly detailed is one which gives effect to a policy of good financial planning. The only provisions which in our minds can be left out without detracting from the financial management policy of National Treasury are those pertaining to community participation. A community participation framework is already required by the Systems Act and need not necessarily be duplicated.

PART THREE

CITY OF CAPE TOWN and WECLOGO also submit that 17(2)(b) of the MFMB 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 Municipal Systems Act, must now begin? Section 16 of the Municipal Systems Act requires a municipality to develop a system of participative governance and provides that it 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.

3. Section 17(2)(a)(iii) provides that the councillor for financial matters must publish a notice specifying inter alia the dates set down by the council for public hearings on the draft annual budget.
4. Section 17(2)(b) of the MFMB sets out that in the budgeting process for municipalities the Councillor for financial matters must-

"at the next sitting of the municipal council following the draft budget’s preparation, table the draft budget in the council for discussion and public hearings".

5. The meaning of section 17(2)(b) is ambiguous. On the one hand, it can mean that the draft budget should be tabled at the next sitting of the municipal council, and that the budget be discussed and the public hearings be held at that next sitting. Alternatively, it could mean that the draft budget, which has been completed and will be subject to discussion and budget at a future date must be tabled (i.e. made available for perusal) at the next sitting of the municipal council.
6. It is our view that this ambiguity can be cleared up with closer attention to the language of the section. The Structures Act requires, in terms of section 18(2), that a municipal council meet at least quarterly. If one was to interpret section 17(2)(b) as meaning that the draft budget should be tabled at the next sitting of the municipal council and then discussed thereafter, the time frames for completion of the budget would be impossible given that the budget drafting procedure is only required to begin 4 month before the start of the next financial year. In our view, it would make more sense to interpret the section to mean that the draft budget is tabled and opened up for discussion and public hearings at the next sitting of the municipal council.
7. Regarding the relationship between section 17 of the MFMB and section 16(1)(a) of the Systems Act, section 16(1)(a) of the Systems Act requires a municipality to develop a culture of municipal governance that complements formal representative government with a system of participatory governance. In so doing a municipality must:

"(a) encourage, and create conditions for, the local community to participate in the affairs of the municipality, including in-

1. the preparation, implementation and review of its integrated development plan in terms of Chapter 5;
2. the establishment, implementation and review of its performance management system in terms of Chapter 6;
3. the monitoring and review of its performance, including the outcomes and impact of such performance;
4. the preparation of its budget; and
5. strategic decisions relating to the provisions of municipal services in terms of Chapter 8;

1. contribute to building the capacity of-
1. the local community to enable it to participate in the affairs of the municipality; and
2. councillors and staff to foster community participation; and
2. use its resources, and annually allocate funds in its budget, as may be appropriate for the purpose of implementing paragraphs (a) and (b)."

"A Municipal Council may, in accordance with national legislation—

1. raise loans for capital or current expenditure for the municipality, but loans for current expenditure may be raised only when necessary for bridging purposes during a fiscal year; and
2. bind itself and a future Council in the exercise of its legislative and executive authority to secure loans or investments for the municipality."

1. The term "loan" is undefined in the Constitution and can be interpreted unambiguously to mean "a loan for consumption" as that term is understood in our law. There is no limitation in the Constitution on the purpose for which the loan is raised in the short-term, provided that the loan is only used as a bridging mechanism. It is also clear that all loans for current expenditure may be raised only when necessary for bridging purposes, and must be repaid before the end of the financial year.
2. A careful reading of section 230A(1) indicates that a municipality may raise loans only in accordance with national legislation. This can be interpreted to mean either that national legislation can give effect to the meaning of section 230A(1) and in so doing may reduce the ambit of the right; or that national legislation may give effect to section 230A(1), but may not reduce the ambit of the right.
3. A thorough investigation of the proper constitutional interpretation of the meaning of section 230A(1) is outside of the scope of this opinion. However our prima facie view is that the Constitution does not permit long-term loans for operational expenditure by a municipality, and that the MFMB validly differentiates between short-term and long-term debt and validly requires that all loans for current expenditure (which includes expenditure for operational purposes) be repaid within a financial year.

PART SIX

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 Municipal Systems Act. Accordingly, they urge that additional text be inserted into the MFMB 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.

4. Neither national nor provincial government may guarantee the debt of a municipality or municipal entity in terms of section 30 of the MFMB. The question is whether this is a permissible limitation of the right enunciated in section 218(1) of the Constitution that

"The national government, a provincial government or a municipality may guarantee a loan only if the guarantee complies with any conditions set out in national legislation."

5. The Constitution affirms, in section 218, the right of national, provincial and local government to guarantee loans. However this right is subject to conditions set out in national legislation. Section 30 of the MFMB, a piece of national legislation, imposes such a condition - the prohibition of national or provincial guarantees of municipal loans.
6. The prohibition does not negate the right enumerated in section 218, and merely limits the application of that right. It is our view that this is an acceptable condition imposed by the national legislation envisaged in section 218 of the Constitution, and reflects a policy decision made by the drafters of the legislation.
7. However we note that it may be arguable that this provision is an unconstitutional limitation of the rights set out in section 218 of the Constitution and believe that it is likely that if the provision survives enactment of the legislation a healthy legal debate will arise and in the fullness of time a court will be asked to consider the constitutionality of this proscription.

PART SEVEN

THE DEPARTMENT OF DEVELOPMENTAL LOCAL GOVERNMENT & HOUSING, PROVINCE OF THE NORTH WEST, OFFICE OF THE MEC and THE MUNICIPAL DEMARCATION BOARD and SALGA submit that section 32 (Duties of Councillors for Financial Matters) and it’s designation of a "councillor for financial matters" is an undue interference in the internal operations of the Municipality and 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.

8. The Structures Act provides in section 32 that a municipal council must develop a system of delegation that will maximise administrative and operational efficiency and provide for adequate checks and balance. Thus delegations may be made to various institutions, committees and persons. Section 31 of the MFMB designates a councillor to be responsible for financial matters. The duties of this councillor are largely those of political oversight of the administrative functions with regard to finances. The function of this councillor appears to be one of ensuring that the political arm of local government is adequately informed and involved in the implementation of the financial plan of the municipality. Section 31 and 32 provide:

"31.(1) One of the members of a municipal council must be responsible for financial matters in the municipality.

2. The councillor responsible for financial matters-

1. in the case of a municipality with an executive committee referred to in section 42 of the Municipal Structures Act, must be the mayor or, if the council has designated another councillor, that other councillor;
2. in the case of a municipality with an executive mayor referred to in section 54 of the Municipal Structures Act, must be the executive mayor or, if the executive mayor has designated another councillor, that other councillor; and
3. in the case of a municipality that does not have either an executive committee or an executive mayor, must be a councillor designated by the council.
32. The councillor for financial matters must-

1. exercise general political control over the financial affairs of the municipality, but may not interfere in the financial management responsibilities assigned in terms of this Act to the municipal manager or the chief financial officer;
2. oversee expenditure and revenue collection with a view to preventing overspending of the municipality’s budget or a vote;
3. report regularly to the council on the financial state of affairs of the municipality; and
4. perform the other duties assigned by the council or in terms of this Act to the councillor for financial matters."

1. This is not a function that is assigned in terms of the Structures Act, nor is this function in conflict with the powers and authorities of either executive committees or executive mayors as set out in the Structures Act. The interaction between the provisions of section 31 and 32 of the MFMB and the Structures Act are positive insofar as the duties carried out by a councillor responsible for financial matters will enable either a executive committee/executive mayor to perform its functions and powers as set out in sections 44 and 56 of the Structures Act. Sections 56(2) and 44(2) of the Structures Act provide that an executive committee/executive mayor must:

"(a) identify the needs of the municipality;

1. review and evaluate those needs in order of priority;
2. recommend to the municipal council strategies, programmes and services to address priority needs through the integrated development plan and estimates of revenue and expenditure, taking into account any applicable national and provincial development;
3. recommend or determine the best methods, including partnership and other approaches, to deliver those strategies, programmes and services to the maximum benefit of the community."

1. Further, both executive committees and executive mayors are required to:

"(i) identify and develop criteria in terms of which progress in the implementation of the strategies, programmes and services referred to in sub-section (2)(c) can be evaluated, including key performance indicators which are specific to the municipality and common to local government in general;

(ii) evaluate progress against the key performance indicators;

1. review the performance of the municipality in order to improve-

1. the economy, efficiency and effectiveness of the municipality;
2. the efficiency of credit control and revenue and debt collection services; and
3. the implementation of the municipality’s by-laws;

1. monitor the management of the municipality’s administration in accordance with the policy directions of the municipal council;
2. oversee the provision of services to communities in the municipality in an sustainable manner;
3. perform such duties and exercise such powers as the council may delegate to it in terms of section 32;
4. annually report o the involvement of communities and community organisations in the affairs of the municipality; and
5. ensure that regard is given to public views and report on the effect of consultation on the decisions of the council."

1. The provisions of sections 31 and 32 of the MFMB provide for a councillor to carry out functions that assist executive committees and executive mayors to implement section 44(2)(c) and 56(2)(c), and to carry out the monitoring functions set out in sections 44(3)(d) and 56(3)(d).
2. The role of the MEC’s and the national minister responsible for local government in determining the internal structures of municipalities are as follows:
1. In terms of section 12 of the Structures Act, the MEC for local government in a province must establish a municipality and in so doing must determine the category and type of municipality established. The internal structure of a municipality is established by the municipality in accordance with the provisions of Chapter 4 of the Structures Act.
2. The Minister does not appear to have any powers with regard to the internal structures of a municipality.
3. There appear to be two basic premises on which this comment is based; firstly that the only national legislation that may govern the internal operations of a municipality is the Structures Act, and secondly that any legislation that goes beyond the requirements of the Structures Act is an undue interference in the internal operations of a municipality. Both of these premises must be investigated with reference to the provisions of the Constitution.
4. Section 160 of the Constitution refers to the internal procedures of a municipal council. Section 160(1)(c) provides that a municipal council may elect an executive committee and other committees, subject to national legislation. Section 160(5) provides that national legislation may provide criteria for determining inter alia the size of a municipal council, whether they may elect an executive or other committees or the size of the executive or other committee of the municipal council. Above all, section 164 provides that

"Any matters concerning local government not dealt with in the Constitution may be prescribed by national legislation or by provincial legislation within the framework of national legislation."

5. The language of section 64 is very permissive, and it is our view that the provisions of sections 31 and 32 of the MFMB fall squarely within the four corners of this section. If the provisions are not unconstitutional, then the only concern is a political one. Does the national legislature intend to regulate the affairs of local government in this manner? This question is not one that can be answered with reference to legal principles.
6. One other question remains, is the Structures Act the only Act that may govern the internal procedures of local government? Section 6 of the Interpretation Act 33 of 1957 provides that

"In every law, unless the contrary intention appears—

(a) words importing the masculine gender include females; and

(b) words in the singular number include the plural, and words in the plural number include the singular."

7. It is clear that a reference to "national legislation" in the provisions of section 160 and section 164 of the Constitution is not limited to one piece of national legislation, and accordingly, it is our view that the MFMB may, together with other relevant legislation, also govern aspects of the internal procedures of local government.

PART EIGHT

THE MUNICIPAL DEMARCATION BOARD submits with regard to Chapter 7 (Duties of Municipal Officials) 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. Extensive duties and obligations are assigned to Municipal Managers in the Systems Act. There may be overlap and contradiction. Should the Systems Act be lacking in any provisions, would it not be better to review the Systems Act rather than to enact new legislation. Alternatively, it may be better to examine the possibility of rather including some provisions in municipal by-laws.

8. Chapter 7 of the MFMB establishes the office of the accounting officer of a municipality. This is the most important position of any official with regard to the financial matters of a municipality and the provisions of section 35 of the MFMB very carefully and in great detail set out the duties of the accounting officer. The accounting officer of a municipality is also the municipal manager of the municipality, and the provisions of section 82(a) of the Structures Act state that a municipal council must appoint a municipal manager who is the head of administration and accounting officer for the municipality. The term "accounting officer" is undefined in the Structures Act.
9. In terms of section 55(2) of the Systems Act, a municipal manager is held responsible and accountable for:
1. all income and expenditure of the municipality;
2. all assets and discharge of all liabilities of the municipality;
3. proper and diligent compliance with applicable municipal finance management legislation.
10. In contrast, the duties of the accounting officer set out in section 36 of the MFMB are very detailed. The duties include:

"36. As the accounting officer of a municipality, the municipal manager-

1. must ensure that the municipality has and maintains-

1. effective, efficient and transparent systems of financial and risk management and internal control;
2. a system of internal audit under the control and direction of an audit committee complying with and operating in accordance with section 107 and any prescribed norms and standards;
3. an appropriate procurement and provisioning system which is fair, equitable, transparent, competitive and cost-effective; and
4. a system for properly evaluating all major capital projects prior to a final decision on the project;

1. must keep full and proper records of the financial affairs of the municipality in accordance with any prescribed norms and standards;
2. is responsible for the effective, efficient, economical and transparent use of the resources of the municipality;
3. must take effective and appropriate steps to-
1. collect all money due to the municipality;
2. prevent unauthorised and irregular expenditure and losses resulting from criminal control; and
3. manage available working capital effectively and economically;
4. must promptly notify the National Treasury and the relevant provincial treasury if a bank account of the municipality is overdrawn for a period exceeding 10 days;
5. must promptly report to the South African Police Service all-
1. irregular expenditures that may constitute a criminal offence; and
2. other losses resulting from criminal conduct;
6. is responsible for the management of-
1. the assets of the municipality, including the safeguarding and the maintenance of those assets; and
2. the liabilities of the municipality;
7. must comply with such tax, levy, duty, pension, audit and other commitments as required by legislation;
8. must settle al contractual obligations and pay all money owing, within the agreed period, or if there is no agreed period, within 30 days of it becoming due;
9. on the discovery of any unauthorised or irregular expenditure, must promptly report, in writing, particulars of the expenditure to the municipal council and the Auditor-General;
10. must take effective and appropriate disciplinary steps against any official in the service of the municipality who-
1. contravenes or fails to comply with a provision of this Act;
2. commits an act which undermines the financial management and internal control system of the municipality; or
3. makes or permits an unauthorised or irregular expenditure;
11. must promptly report to the MEC for local government in the province any interference by a councillor in the staffing or financial management responsibilities of the municipal manager or the chief financial officer;
12. must, before transferring any funds otherwise than in terms of a commercial or other business transaction to an organisation or other entity outside the municipality, be satisfied that the organisation or entity implements effective, efficient and transparent financial management and internal control systems;
13. must enforce compliance with any prescribed conditions if the municipality gives financial assistance to any organisation, entity or person;
14. must promptly inform the National Treasury and the relevant provincial treasury, in writing, of any new entity which the municipality intends to establish, or in the establishment of which it intends to take the initiative, or in which it intends to acquire an interest;
15. is responsible for the submission by the municipality of all reports, returns, notices and other information to the relevant provincial legislature, the National Treasury, the relevant provincial treasury or the Audit-General, as may be required by this Act;
16. must comply, and take all reasonable steps to ensure compliance by the municipality, with the provisions of this Act."

1. The overlaps between the two provisions are, in our view, a matter of detail. The provisions of section 36 of the MFMB appear to set out specific duties of the accounting officer which would fall within the ambit of her duties in being responsible and accountable for the matters set out in section 55(2) of the Systems Act. For example, the requirement that an accounting officer must keep full and proper records of the financial affairs of the municipality in accordance with any prescribed norms and standards is clearly an activity which would be required of any person responsible for all income and expenditure of the municipality. The provisions of section 36 of the MFMB introduce uniformity into the manner in which accounting officers carry out their responsibilities and provide certainty to accounting officers as regards the ambit of their duties.
2. The two areas in which the Systems Act and the MFMB overlap are:
1. section 34(1) of the MFMB, section 55(2) of the Systems Act and section 82(1) of the Structures Act all state that the municipal manager is also the accounting officer. It is our view that there is no conflict between the three provisions; and
2. section 35 of the MFMB and Schedule 1 to the Systems Act both deal with the conduct of the accounting officer. Section 35 applies only to accounting officers, while the Schedule sets out a code of conduct for all councillors.
3. Section 36 requires the following conduct of an accounting officer:

"35(1) As accounting officer of a municipality, the municipal manager must-

1. exercise utmost care to ensure reasonable protection of the assets and records of the municipality;
2. act with fidelity, honesty, integrity and in the best interests of the municipality in managing its financial affairs;
3. on request, disclose to the municipal council all material facts which are available to the municipal manager or reasonably discoverable, and which in any way might influence the decisions or actions of the council; and
4. seek, within the sphere of influence of that municipal manager, to prevent any prejudice to the financial interests of the municipality."

1. There is an overlap between section 35(1)(b) and sections 2(a) and (b) of the Schedule. The Schedule in sections 2(a) and (b) provides:

"(2) A municipal manager may not-

1. act in a way that is inconsistent with the duties assigned to a municipal manager in terms of this Act; or
2. use the position and privileges of, or confidential information obtained as, municipal manager for personal gain or to improperly benefit another person."

"(a) links, integrates and co-ordinates plans and takes into account proposals for the development of the municipality;

(b ) aligns the resources and capacity of the municipality with the implementation of the plan;

1. forms the policy framework and general basis on which annual budgets must be based;
2. complies with the provisions of this Chapter; and
3. is compatible with national and provincial development plans and planning requirements binding on the municipality in terms of legislation."

1. In the context of municipal planning and budgeting, the comment of the Municipal Demarcation Board is valid, however it does not follow that because financial planning cannot be separated from the municipal planning, the financial responsibilities of an accounting officer cannot be separated from the other responsibilities of the municipal manager. It is correct for the Municipal Demarcation Board to point out that it is easier to locate all the duties of the municipal manager in one place, however the provisions of section 25 of the Systems Act do not add to this discussion.

THE MUNICIPAL DEMARCATION BOARD submits that section 41 (Delegation of powers and Duties by Municipal Managers) is superfluous since sufficient legal provisions pertaining to delegations exist in other local government legislation. (Sections 37, 120 and 45 of the Systems Act)

2. Section 45 permits the chief financial officer of a municipality to sub-delegate any of the below mentioned functions:
1. budgeting;
2. accounting;
3. analysis;
4. financial reporting;
5. cash management;
6. debt management;
7. financial management;
8. review and other functions as may be delegated to the chief financial officer by the municipal manager.
3. The chief financial officer is authorised to sub-delegate the above mentioned functions to:
1. an official in the budget and treasury office;
2. the holder of a specific post in that office; or
3. with the approval of the municipal manager, to any other official of the municipality or any person contracted by the municipality for the work of the office.
4. Section 45(2) of the MFMB provides that:

"45(2) If a chief financial officer sub-delegates any functions in terms of sub-section(1) to a person who is not an official of the municipality, the chief financial officer must be satisfied that effective systems and procedures are in place to ensure control and accountability."

5. Further section 45(3) provides that:

"45(3) A sub-delegation in terms of sub-section(1)-

1. must be in writing;
2. is subject to such limitations or conditions as the chief financial officer may impose; and
3. does not divest that chief financial officer of the responsibility concerning the delegated function."

1. Sections 59 and 60 of the Systems Act also deal with delegations. These delegations are from a municipal council to other political structures in a municipal council, political office-bearers, councillors or staff members.
2. The delegations set out which powers may and may not be delegated, for instance the powers mentioned in section 160(2) of the Constitution, the power to set tariffs, to decide to enter into a service delivery agreement and to approve/amend the municipalities IDP may not be delegated, but all other powers may be delegated. Section 60 restricts the persons to whom specific powers may be delegated. Sections 59(2) provide that form for delegations such that a delegation:

"59(2) A delegation or instruction in terms of sub-section (1)-

1. must not conflict with the Constitution, this Act or the Municipal Structures Act;
2. must be in writing;
3. is subject to any limitations, conditions and directions the municipal council may impose;
4. may include the power to sub-delegate a delegated power;
5. does not divest the council of the responsibility concerning the exercise of the power or the performance of the duty; and
6. must be reviewed when a new council is elected or, if it is a district council, elected and appointed."

"A Municipal Council consists of-

1. members elected in accordance with subsections (2), (3), (4) and (5); or
2. if provided for by national legislation;
3. members appointed by other Municipal Councils to represent those other Councils; or
4. both members elected in accordance with paragraph (a) and members appointed in accordance with subparagraph (i) of this paragraph."