Explanatory Note
Constitution of the RSA Third Amendment Bill
Background
The main impetus for the Bill is the need to amend section 139 of the Constitution to assist municipalities to borrow at reasonable interest rates, and to provide greater certainty for both residents and investors. This is done by providing more effective and predictable mechanisms for intervention in municipalities which experience serious financial or governance failures.
There is a lot at stake for municipalities and their residents. New municipal lending has essentially stopped since 1994. National Treasury calculations show that if we can unlock access to private sector credit, municipalities can potentially responsibly borrow up to R40 to R60 billion for new infrastructure investment over the next 5 years. This is over and above what can be financed out of national transfers. The potential for much faster service delivery is real, provided that we can plug gaps in the legal framework.
The amendment to section 139 is urgently required to lay a constitutional foundation for key provisions of the Municipal Finance Management Bill, which is currently before the National Assembly. This Municipal Finance Management Bill is a critical bill for local government, and is expected to be passed by the National Assembly in April this year. It will be tabled for the consideration of the National Council of Provinces thereafter.
In addition to section 139, the Bill also contains amendments to sections 76, 100 and 103. These three amendments are largely technical in nature, and improve the workings of the Parliamentary system. Three of the amendments (to sections 76, 100 and 139) alter provisions related to the National Council of Provinces.
DISCUSSION
Only the change to section 139 involves a major policy change, whilst the changes to sections 76, 100 and 103 are largely technical. Before discussing the changes to section 139, the three technical changes are outlined.
Three technical amendments
The changes to section 76 do not in any way affect money bills (which are section 75 Bills in terms of the Constitution), nor the annual Division of Revenue Bill (which is a section 76(4) Bill in terms of the Constitution). Rather, they affect all other legislation required in terms of chapter 13 of the Constitution. The NCOP has equal power to the National Assembly for section 76 Bills, but less power for section 75 Bill.
The result of this change is that all such bills will go through the more rigorous NCOP process, as the NCOP has a greater and equal involvement for bills classified as section 76 bills. It should be noted that this is not at the discretion of the executive – if any Bill (other than a money bill) has even a single clause that affects the financial interests of a province, it must be treated in terms of the section 76 procedure. This change broadens the powers of the NCOP and assures that it can consider the entire Bill, rather than (as is currently the case) only the clauses that affect the financial interests of provinces.
The main effect of these changes is to extend the time period for the NCOP to approve an intervention when it is first imposed. Thus it does not limit the power of the NCOP in any way, but provides it with more flexibility. It can still act within 30 days, but also choose to respond later should it decide to do so. Similar changes are also effected to section 139(1) (b) (in addition to the other substantive changes in that section).
It should be noted that under the current Constitution, the NCOP does not have the power to stop (or approve) all interventions – this power applies only to those interventions that involve "assuming responsibility for the relevant obligation" in terms of sections 100(1)(b) an 139(1)(b). The Bill maintains this approach.
Since the above three changes are technical, and have met no opposition during hearings of the Portfolio Committee on Justice and Constitutional Development in the National Assembly, this note does not deal with these provisions further.
Overview of changes to Section 139
The current section 139 limits intervention by a province over a municipality where a municipality fails to "fulfil its executive obligations". The intervention by the province is discretionary, so a province is not obliged to intervene even if there is a serious crisis in a municipality. In particular:
a) Instruct the municipality to act, but only if the obligation is "executive,"
b) Assume direct responsibility for an "executive" obligation, or
c) Possibly dissolve the Council (in terms of section 139 read with a previous amendment to section 159 (3) of the Constitution).
The changes to section 139 essentially introduce a MANDATORY intervention by a province in the event of a very serious financial crisis. They also extend intervention to legislative (non-executive) failures by a municipality. The reason for the mandatory intervention for a serious financial or budget crisis is outlined below.
Contagion and reputation – one bad apple affects all the others!
Serious financial crises differ from other problems because they can be compared to a disease – they spread and infect other healthy municipalities. The credit rating of all municipalities suffers if just one municipality is allowed to default on a contract or loan. In addition to the problems a financial crisis can cause for the troubled municipality itself, the lack of a clear and effective solution has a direct impact on the cost of borrowing for all municipalities – lenders charge a risk premium to deal with the potential for non-payment.
This is similar to the emerging country problem, where a problem in Thailand or Argentina impacts directly on South Africa, regardless of how well managed South Africa may be. It is also similar to what happens with a bank failure, where public confidence in all banks is shaken when one fails. As with banks, prompt and effective action is needed to maintain public confidence. Unless the conspicuous failures of a few municipalities are addressed quickly and effectively, the reputation of the entire local government sphere, and indeed of all spheres of government, is affected. The national government cannot allow one municipality to adversely affect the sovereign credit rating of the country as a whole, nor of other municipalities.
Annexure A provides further background on the framework for intervention, and also includes a review of previous interventions. It indicates that the general experience with previous (discretionary) interventions is that they occur too late, and are weak and ineffective. There is little evidence to suggest that such interventions can be quick and effective in the future, unless they are made mandatory. Private sector players prefer legal remedies to political remedies. Where there is a greater resort to political remedies, lenders demand other protections. The first effect is that borrowing municipalities have to pay significantly higher interest rates. Municipalities also have to over-collateralise, tying up resources unnecessarily. For example, one recent transaction required the municipality to ring-fence a revenue stream worth eight times the annual debt service. Many transactions have required a reserve fund or instrument equal to the full principal amount. The costs associated with these aggressive security structures are directly related to lenders’ perceived risks in an uncertain environment.
Municipalities that are not in a position to provide these high levels of collateral are denied market access completely, even though they may be financially sound, and have reliable revenue streams to support debt service payments. Now that municipalities receive massive injections of national transfers for infrastructure and their equitable share (refer to the 2003 Division of Revenue Bill), they should be able to gear in further funds for capital by borrowing. To the extent they cannot, they will be less able to deliver infrastructure and address backlogs. The reluctance of the private sector to lend money to municipalities under the current legal regime is largely attributable to the lack of any predictable mechanisms to deal with financial crises in municipalities.
The approach adopted in the Constitutional Amendment Bill and in the Municipal Finance Management Bill strikes a balance between a political and legal remedy. It recognises that the Courts must be involved when a municipality seeks protection from its creditors. All key stakeholders support this balance. Annexure B sets out the extensive 3-year consultative process to develop consensus for the amendments to section 139, which was led by the Departments of Provincial and Local Government and the National Treasury. Key stakeholders such as the South African Local Government Association (SALGA) and provincial MECs for Finance and Local Government are (through the Budget Council and Local Government Minmec) in support of this approach. The experience of the NCOP with regard to previous section 139 interventions was researched, and discussed with the previous chair of the Select Committee on Local Government to arrive at this consensus position.
In summary, the decision as to whether to intervene in a municipality, when, and what tools to use, rests with the provincial executive. However, if there is a serious financial crisis in a municipality, or when a municipal council cannot or will not adopt a budget, provincial intervention would be mandatory. In the case of a financial crisis, such mandatory intervention involves the preparation of a recovery plan, which must be implemented by the municipality.
Smaller changes made to section 139 include a very limited form of national intervention where a province fails to intervene, but only in the case of a mandatory intervention. Although the constitutional amendment originally tabled in Parliament in 2001 allowed national government to intervene directly in a municipality, the Bill before the NCOP retains the status quo -- only a province may intervene directly in a municipality when there is an executive failure. National intervention is restricted to a serious budget or financial crisis, and only if the province fails to intervene as required.
Specific changes to section 139
Below follows a description of each subsection of section 139, as the section is proposed to be amended.
139(1)
This section provides for discretionary (provincial) intervention where there are executive failures by a municipality. This subsection contains the essence of the current section 139 approach, and will be the basis for most interventions.
While this subsection remains limited to ‘executive obligations,’ the subsection has been revised to add executive obligations in terms of Constitution. This broadens the power of the provincial executive to intervene.
In addition, there is a new provincial power to dissolve the municipal council in exceptional circumstances. This dissolution can only occur in exceptional circumstances, and after the softer options (of a directive, or assuming responsibility) have been exercised by the province, and failed to resolve the problem. However, this power to dissolve may be reversed by the Minister or the NCOP in terms of the new section 130(3). This change therefore strengthens the hand of the provincial executive to dissolve, and of the NCOP and Minister to review the decision to dissolve.
The addition of this dissolution provision was first suggested by SALGA, which strongly argued that dissolution is a better option than a province continually intervening in a municipality, as it minimises the intervention only to the period for electing a new council, and thereafter allows the new council to govern.
139(2)
This subsection contains the essence of the current NCOP and Ministerial review powers over 139(1) interventions.
The changes are
The period for approval for an intervention is extended for both the NCOP and Minister, but both still need to approve the intervention for it to continue beyond this period . By extending the period for review, the power of the NCOP over interventions is strengthened. The NCOP can still disapprove an intervention within 30 days, and if it approves the intervention, continue to review the intervention thereafter. The intervention must end after 180 days if the NCOP does not approve the intervention (or end earlier if the NCOP disapproves it before the 180 days).
139(3)
This subsection strengthens and extends the role of the NCOP in the event a provincial executive dissolves a municipal council in terms of subsection 139(1). It acts as a check and balance against the new power given to the provincial executive in section 139(1)(c) to dissolve a municipality. Should a province exercise the option of dissolving then:
It must be noted that a previous amendment to section 159(3) of the Constitution, which envisions the dissolution of a municipal council, does not require the NCOP to be informed of such dissolution, nor provide any mechanism for the NCOP to stop or reverse such dissolution. The dissolution power, in contrast to the current provision, is unambiguous under the proposed formulation. This discretionary, strong power for provinces requires strong oversight by the Minister for Provincial and Local Government and the NCOP.
139(4)
This subsection creates a new and specific rule for cases where a council cannot or will not adopt budget or revenue raising measures (by-laws setting taxes and tariffs are the principal example of such measures). This has happened in municipal councils, and has crippled service delivery, as it cannot currently be dealt with in terms of section 139.
The reason that section 139 as it stands does not deal with this situation is that the Constitutional Court has held that budget and revenue measures are legislative in terms of the Constitution, and section 139 only provides for the provincial executive to act with respect to an executive obligation.
The need for the provincial executive to have the power to deal with legislative failures was highlighted in testimony by MEC Mohammed Bhabha before the Portfolio Committee on Justice and Constitutional Development. He pointed out that the Local Government Transition Act provided for the MEC to impose a budget where necessary, but that this was no longer possible after the 1996 Constitution.
This new subsection provides that if the municipal council cannot or will not adopt these legislative measures, the MEC can take appropriate steps, including dissolution of council. An administrator is appointed until a new council is elected, and the MEC can approve temporary budget or revenue raising measures to provide for continued functioning of municipality
These new powers substantially strengthen the power of provinces to deal with the specific case where a council cannot or will not adopt a budget or revenue raising measures. It also assists residents in that it prevents the disruption of basic services by allowing for continuity.
139(5)
This subsection is the provision urgently required to create legal certainty to deal with a municipality which is in a financial crisis and cannot meet its obligations. It must be emphasised that this clause is required to deal with very serious financial problems only (like debt defaults), and not minor financial problems, so it can only be used rarely. Provinces will be expected to exercise their oversight and monitoring responsibilities over municipal finances effectively. The research noted below in Annexure A on previous interventions (including those by the NCOP) indicates that provinces have tended to act too late, and have postponed taking action when problems are first identified. Acting late means that the problem is allowed to get worse, leading to harsher steps later.
This clause addresses the problem from three perspectives:
In these cases, the MEC must oversee a recovery plan, which must comply with strict criteria which will be established in the Municipal Finance Management Bill. Initially, the proposal by Cabinet was for a court to intervene first, but these have been revised to allow for a political intervention only, but limited to the provincial executive. Such intervention, however, has to be MANDATORY, and there is no discretion involved. A failure to act may be tested in court by residents, employees or lenders, and force the hand of a province to act in the event of a serious financial crisis.
In this instance the MEC must ensure that a credible recovery plan is prepared, and implemented. Ideally, the municipality will take ownership of the recovery plan. In the worst-case scenario where a municipality refuses to take credible corrective action, and does not adopt any legislative measures (budget, taxes, tariffs) that are needed to implement the recovery plan, the MEC must dissolve the council and appoint an administrator, as in a section 139(1) dissolution. Also, the MEC would approve temporary budget and revenue measures.
If the council is prepared to adopt the necessary legislative matters, then it will not be dissolved, and the council must implement the recovery plan. The MEC must assume responsibility for recovery plan only to the extent the council cannot or does not do so.
The new process established by this subsection achieves the core objective of the amendment process that began almost three years ago – to provide prompt and effective remedies to deal with financial collapse, and by doing so, to assure that councils are in a position to meet their financial and service delivery obligations.
139(6)
This subsection deals with notice when an intervention is undertaken in terms of subsections 139(4) or (5). Because these new interventions are mandatory and non-discretionary, they cannot be reviewed nor set aside by the Minister or NCOP.
Notice must be given to the Minister and to the NCOP within 7 days, but a court challenge would be necessary if any party felt that the province was acting beyond its authority.
Should the Minister or NCOP have the power to reverse, or veto, a mandatory intervention, such intervention will no longer be mandatory, and be regarded as largely political. It will also not solve the current problem of uncertainty, and a reluctance by lenders to lend new funds to municipalities. It will therefore negate national government’s efforts to create a municipal borrowing market, or to ensure that municipalities can borrow as cheaply as possible. Investors would see such a change as a reversal of government policy, and would understand that they may not have any recourse when a municipality chose not to honour its commitments for politically popular reasons. The current draft already reflects a major compromise, as the initial proposal did not allow for any political intervention at all in these instances – the new approach requires a mandatory provincial intervention, subject to a judicial process.
It should also be noted that because these clauses deal with new types of intervention (legislative interventions), they do not reduce the current power of the NCOP, which is limited to executive interventions only. Rather, the old review powers over discretionary interventions are not extended to this new category of mandatory interventions. Since there is no discretion involved by the province, no review process is necessary.
139(7)
This subsection simply provides that if the provincial executive does not act in terms of subsections 139(4) or (5), the national executive must do so. This assures residents, investors, and other stakeholders that financial crises will be addressed by government, and thus protects the credibility of the local sphere of government. It also forces provincial governments to take their mandatory powers seriously.
139(8)
This subsection provides that national legislation may regulate the implementation of section 139. That national legislation has been drafted and is contained in the Municipal Finance Management Bill that is now under deliberation in the Portfolio Committee on Finance.
Conclusion
The changes to clauses 1, 2 and 3 in the Bill are largely technical improvements to sections 76, 100 and 103 of the Constitution.
The critical policy change is clause 4, which amends section 139 of the Constitution. This amendment seeks to stimulate municipal borrowing, by creating legal certainty for dealing with financial emergencies. It gives effect to policy adopted in the White Paper on local government, and in subsequent policy documents of the national government. It extends intervention to legislative failures related to the budget and revenue-raising measures, and also introduces a mandatory intervention for very serious financial crises.
Conspicuous financial failures in a few municipalities, which have not been effectively dealt with in terms of the current section 139, have harmed the reputation of the entire local government sphere. This creates unnecessary barriers for responsible municipalities seeking private sector investment. The revised section 139 provides a comprehensive scheme – it preserves the role of a democratically elected municipal council, while assuring residents and other stakeholders that serious or prolonged failure will be dealt with. This revised section 139 will give investors confidence to lend to municipalities, and it will improve governance in the local sphere, helping more South Africans gain access to affordable and quality services.
The amendments strengthen the power of provinces to exercise their oversight and intervention function more effectively. The amendments also indirectly impact on the NCOP. All these improve or extend on the current powers of the NCOP. This approach takes into account that political intervention by a Minister or the NCOP is not possible where provinces are required to exercise a mandatory intervention. Local governments will also benefit from earlier intervention (when problems are first identified), and from the measures protecting them from creditors when they face very serious financial problems.
Other relevant documents like "The Policy Framework for Municipal Borrowing and Financial Emergencies", the Municipal Finance Management Bill and other related documents are available on the National Treasury website: www.treasury.gov.za. If any member of the NCOP or of a provincial legislature needs additional information on the policy issues underlying this Bill, they should feel free to contact:
Ismail Momoniat
Deputy Director General
Intergovernmental Relations
National Treasury
012 315 5165
083 378 0333
OR
Vuyo Kahla
Chief Director: Legal Services
National Treasury
012 315 5744
082 498 1673
OR
Derek Powell
Chief Director: Intergovernmental Relations
Department of Provincial and Local Government
012 334 0833
ANNEXURE A: FRAMEWORK FOR INTERVENTION
Review of previous interventions
The review of provincial interventions that was undertaken as part of last year’s consultations and deliberations indicated the urgency and need for changes to our national approach to provincial interventions. In the period from 1994-2000, there were:
These experiences are not peculiar to South Africa. Well-known international experiences include New York City and Washington DC. Less well-known are municipal financial failures in Hungary and other emerging economies.
All four provincial interventions were successful in restoring their financial health. One reason for this may be that provinces are totally dependent on funds from nationally raised revenue, receiving 96% of their total revenue from such grants, making it possible for national government to determine financial issues without additional legal powers.
The experience with provincial intervention in local government is more problematic. It is characterised by the inaction and delays, resulting in worse crises where these were clearly avoidable had action being taken when problems were first identified. Summary descriptions of the most serious section 139 interventions follow:
For example, in Tweeling, payments for services dropped to less than a third of previous levels. In Viljoenskroon, creditors threatened lawsuits and employees’ pension and medical aid contributions were diverted to pay debts. In Butterworth, and to a lesser extent in Noupoort, there was complete breakdown of governance and financial systems.
Another problem is that even where section 139 interventions were implemented, they have not always been able to succeed. For example, in Ogies, two years after financial problems first resulted in service shutdowns, and after repeated support efforts and cash infusions by the provincial government, the municipality’s financial picture was still a mystery and the crisis was, if anything, worse. In Warrenton, a year of deterioration followed the first provincial instructions and the appointment of consultants, before a full-time administrator was appointed and began to improve the situation.
Where a municipality takes ownership for resolving such financial problems, a formal intervention can be avoided. When the Greater Johannesburg Metropolitan Council (GJMC) found itself in serious financial difficulties in 1997, the provincial and national government relied on persuasion and co-operation.The Council then took full responsibility to resolve its financial problems.
Welkom defaulted on a number of loans in 1998 and 1999. Management support teams were brought in by the MEC. Notwithstanding, creditors sued and obtained a judgement. This triggered further support by the MEC, and the Council agreed to restructure to delegate its powers to the executive committee. A resuscitation plan was then agreed with a creditors’ committee. After the December 2000 elections, the Welkom resuscitation plan stayed in force, though council powers have reverted to the new council. Prospects for restoring financial health are good.
An example of the uncharted territory in which legal processes affecting municipalities currently operate comes from De Aar. In a dispute with its former attorneys, computers and other assets the municipality needed to provide essential services were seized in execution in July 2001. The council applied to the High Court for an interdict, as the assets were used for core functions of the municipality. The council’s application was granted and the creditor was required to return the assets. The final court case is still pending. Although De Aar was experiencing cash-flow problems in January 2001 when it disputed the attorneys’ account, it could have paid by rescheduling other payments. The municipality has not defaulted on external loans, and is not in crisis.
Butterworth’s troubles went on for 5 years, with municipal workers on strike, payment boycotts, political in-fighting, lawsuits, and near-complete service breakdown. Because of the lack of clarity about legal situation, a kind of gridlock developed, and the administrators appointed by the MEC could not act effectively. The publicly reported actions of the council and the mayor undermined public confidence not only in Butterworth, but also in municipalities generally. The situation went on, with variations, for five years. This situation clearly would have fallen within the scope of Chapter 11.
Noupoort is another example of a failure with both legislative and executive dimensions. Chaos resulted from both council and administrative problems. Three of seven Councillors had resigned and a fourth was in ill health and unable to attend meetings. A quorum could not be formed and regular Council meetings were not held. Municipal finances were a shambles. Wages and benefits could not be paid to municipal staff for a period. Various legal actions were started and others threatened. The Receiver of Revenue had seized money from the municipal bank accounts to cover VAT arrears. One root cause of Noupoort’s problems was an unemployment rate of 65%. An Administrator was ultimately brought in, and the municipality seems to have been on the path to recovery.
Ogies suffered chronic financial problems and service delivery failures over several years. Like several other municipalities in these case studies, provincial intervention was slow. One difference here is that the provincial intervention seems never to have been very effective. There was considerable confusion and imprecision about the financial situation. Two different municipal support teams and an Administrator seem to have done little to resolve the situation. As in some other municipalities, there was a period when the Council stopped meeting for several months. Ogies presents a possible case for the quasi-bankruptcy write-off provisions of Chapter 11.
Stilfontein involved a chronic shortfall of income in relation to expenditures. As a result, basic services were interrupted and infrastructure was not being maintained. The provincial intervention did not result in an immediate increase in revenue collection, but it did force a review of management practices (e.g. using two officials virtually full time to drive councillors to meetings) that clearly needed review. As in Wedela and Warrenton, strong and appropriate steps were ultimately taken, but the potential for Chapter 11 might have prompted an earlier and firmer provincial response.
Tweeling suffered severe problems over many years. For almost two years, the Council did not meet because of personality and political problems. A community payment boycott and inadequately staffed treasury operations both contributed to serious revenue shortfalls. This in turn caused basic services to fail, including refuse collection and removal of solid waste. Once the province finally intervened, the situation seems to have improved.
Viljoenskroon was another example of chronic problems that were not fixed by provincial loans and management support teams. Ultimately, an administrator had to be appointed. It is not known whether this helped.
Warrenton involved chronic financial mismanagement, with expenditures exceeding revenues over several years. At one point the municipality stopped paying staff salaries and benefits. Water and electric service was shut off for non-payment, and lawsuits were instituted. The provincial government appointed short-term consultants, but the situation continued to deteriorate. The province also made repeated "loans" and provided other financial assistance, but this did not help. It appears that the Council performed its legislative functions adequately – it was able to approve a budget and other financial policies. The problem arose with the implementation of these policies, and the failure of Council or the MEC to recognise this and act promptly. Ultimately, the Province’s appointment of an Administrator was largely effective.
Wedela was a municipality with serious external economic stress. The gold mines around which it grew up are in decline, and the town’s main employer had shut down. Council met regularly and approved realistic budgets. All parties seem to have viewed the amalgamation with another municipality as the ultimate solution. The procedure followed to intervene in Wedela was clumsy and dragged on, but seems to have been largely effective. Once the situation began to improve, Chapter 11 would not have been necessary, but the potential for Chapter 11 may have prompted an earlier and more aggressive response by the Province
ANNEXURE B: BACKGROUND AND CONSULTATION PROCESS
The main impetus for this Bill is the need to amend section 139 of the Constitution to assist municipalities to borrow at cheap and competitive rates, by providing legal certainty through more effective mechanisms for intervention in municipalities which experience serious financial of governance failures.
This amendment grows out of a 3 year policy development process, and has involved extensive consultation, revision and negotiation. The history may be summarised as follows:
1998: The White Paper on Local Government outlined government policy regarding the importance of municipal borrowing to maximise delivery, and hence on creating the legal environment to encourage private lenders to provide loans to municipalities. The White Paper noted:
"Ultimately, a vibrant and innovative primary and secondary market for short and long term municipal debt should emerge. To achieve this, national government must clearly define the basic "rules of the game". Local government will need to establish its creditworthiness through proper budgeting and sound financial management, including establishing firm credit control measures and affordable infrastructure investment programmes. Finally, a growth in the quantum, scope and activities of underwriters and market facilitators (such as credit-rating agencies and bond insurers) will be required.
. . .
"The rules governing intervention in the event that municipalities experience financial difficulties need to be clearly defined and transparently and consistently applied. It is critical that municipalities, investors, as well as national and provincial government, have a clear understanding of the character of their respective risks. Risks should not be unduly transferred to national or provincial government." (emphasis added)
1998-2000: Following he path laid out in the White Paper, Government selected a team of international and South African experts, to assist in developing a policy for municipal borrowing. After extensive consultations with stakeholders like DPLG, SALGA, municipal councillors and officials, representatives of banks, insurance companies, and pension funds, Financial Services Board and the Development Bank of Southern Africa, policy documents entitled "Formulation of a Regulatory Framework for Municipal Borrowing in South Africa," and "Policy Framework for Municipal Borrowing and Financial Emergencies" were circulated from comment. It was during this stage that the need for a constitutional amendment to deal with financial emergencies was first identified.
The Municipal Finance Management Bill included chapters on borrowing and intervention. These chapters, and the policy documents, were approved by Cabinet in July 2000, together with a proposal on the Constitutional amendment. Cabinet requested that all of these materials be published for comment, both in the Government Gazette and on the Treasury web-site. Copies of the "Policy Framework" can are available to the on the National treasury website www.treasury.gov.za.
2000-2001: During the comment period following publication of the Policy Framework and MFM Bill, consultation continued. Over 405 comments from 38 institutions were analysed and changes were made in response. These comments came from local governments, SALGA, provincial local government organisations, provincial governments, practising attorneys, financial institutions, government agencies and departments, and others. National Treasury sponsored 10 workshops to discuss the MFM Bill and the financial emergency provisions. These workshops, in conjunction with SALGA, were held around the country, and attended by hundreds of municipal and provincial representatives.
2001: In July 2001, after a full year of comment, consultation, and revision, Cabinet approved a revised version of the financial emergency constitutional amendment, along with a second constitutional amendment on municipal borrowing powers, and a Bill with both amendments was tabled in Parliament.
Lengthy hearings and deliberation in the National Assembly’s Portfolio Committee on Justice and Constitutional Development included presentations by provincial MECs for Local Government, SALGA, and other concerned parties. In large part as a result of the concerns raised by provincial representatives, the amendment on municipal borrowing powers was adopted, but the financial emergency amendment was deferred for further consultation.
2002: The Department of Provincial and Local Government (DPLG) and National Treasury (NT) conducted further research on previous provincial interventions in local government, as well as further consultations with many role-players. The research clearly demonstrates the need for provincial interventions in municipalities, as failures of various kinds do occur in the local sphere. The research indicated that:
Delays in dealing with problems cause unnecessary interruptions in services to residents and businesses, as well as in payments of employee salaries and benefits. The longer a financial crisis is allowed to continue, the more severe its impact on the community, and the more drastic the corrective measures that are eventually required. Such unresolved or continuing crises affects the reputation and credibility of all other municipalities in the entire local government sphere, and impair the ability of healthy municipalities to access cheap and affordable credit. Conspicuous failures in one municipality results in a higher risk premium for all municipalities. As with banking failures, where the failure of one bank (e.g. Saambou) affects all other similar banks, prompt and effective action is needed to maintain public confidence.
In addition to the research on provincial interventions, there were many consultations with MECs for Local Government, MECs for Finance, SALGA, and the relevant Portfolio Committees (Justice and Constitutional Development, Local Government and Finance). Before tabling in Parliament, revised text was discussed at the Budget Council and at Local Government MinMecs. The amendments as introduced were tested with the Portfolio Committee on Finance, the chair and members of the Portfolio Committee on Local Government in the National Assembly. The chairs of the NCOP Select Committee on Finance, and the previous chair of the Select Committee on Local Government (Mr Mohammed Bhabha) were also consulted.
In mid-2002, after these extensive consultations, the three Ministers (Provincial and Local Government, Finance, and Justice and Constitutional Development) agreed on the text of a new Bill. As amended by the Portfolio Committee and approved by the National Assembly, this is the Bill that is before the Select Committee.
2003: After amendments in the Portfolio Committee, the Third Amendment Bill passed the National Assembly on 25 February 2003, and was taken up by the Select Committee on 26 February 2003.