SUBMISSION ON THE PROPERTY RATES BILL (P.R.B)

Introduction

The purpose of this submission is two-fold.

Firstly, I wish to place before your committee, preferably in person at your public hearings, almost six years of practical experience of a bona-fide farmer’s dealings with a local authority which, I submit, "jumped the gun" in 1997 and proceeded in an ad hoc manner to have vast numbers of formerly unrated agricultural properties valued and rated without a rational and financially sustainable Rates Policy in place. This experience should give your Committee an insight as to what lies ahead once the Property Rates Act is promulgated.

Secondly, I wish to recommend possible amendments and additions to the Bill which will ensure that those problems which we are experiencing will be avoided in future and perhaps resolve some existing potentially legal disputes between farmers and their municipalities which may continue into the future.

Problems Experienced in eThekwini Municipality (Formerly Durban Metro)

Immediately after the KwaZulu- Natal Provincial elections in 1996, Durban Metro
appointed a number of valuators to value literally thousands of previously un-rated rural properties in 1997 and commenced levying full rates on these in 1998. In so doing, they gave virtually no thought as to the immensity of the task of doing the valuations or how bona-fide agricultural land should, indeed, be valued and rated. Nor did they fully assess the staff and infrastructure required to efficiently and competently implement the programme.

The record will show they embarked on ad-hoc decision making, using legally incompetent provincial and municipal legislation to deal with the new dispensation. This has not only seriously damaged the economic viability of many farming enterprises, especially smaller ones, but has also led to a situation where, to-day, the city still lacks a logical and rational, fair and equitable and financially sustainable agricultural land rates
policy.

As Bartlett Estate, which has been developed from a small beginning over 42 years into one of the larger family-owned commercial farms in the Outer West entity of Durban Metro, I was not only approached by other farmers to "do something", but also experienced and envisaged the detrimental effects Council’s so-called "rates policy" would have on the farming community as a whole. Here I include the small farmers, farm workers and farm requisite suppliers. I have therefore, since 1998, actively pursued this matter with the Council and its officials with very little success.

I attach hereto Annexure A, which I hope your committee members will have the time to read, because by so doing, I do believe they will gain an insight of the very real problems which exist in the eThekwini Municipality’s rates administration. While the Annexure is basically a letter from me to the Inner/Outer West Entity’s Financial Director challenging the interest due on rates refunds resulting from an Appeal Board’s reduction of our property valuations, I took the opportunity to place on record in chronological order, the serious problems that exist and their resulting inequities and financial implications.

In the light of the provisions of the Property Rates Bill (PRB) and the fact that the eThekwini Municipality had copies of its earlier drafts, I wish to submit that the eThekwini Council and its Durban Metro predecessors (an indeed, perhaps many other municipalities in South Africa) erred as follows:-

They did not embark on an all-inclusive and transparent public debate on their rates policy. Neither did they have the contents of the KZ-N provincial ordinance on Local Authorities, No 25 of 1974, and their own relevant bi-laws carefully and closely studied by suitably qualified legal experts in respect of their competency in the new dispensation and their relevancy in respect of the contents of the draft PRB. This they surely should have done in order to arrive at a rational, equitable and economically sustainable Rates Policy for formerly unrated bona-fide agricultural land.

They totally under-estimated the task of identifying and adequately communicating to thousands of un-rated rural property owners of the council’s intention to value and rate their properties. I know of farm properties that were 18 years into 20 year lease agreements with a large sugar company which agreements had no provision for the payment of rates as the properties were never previously rateable. In two such cases, one elderly retired farmer lived on his farm, while the other was a family trust where the elderly retired beneficiary lives in a flat in Durban. Both only became aware that they were behind in their rates when the sugar company advised that it would not be renewing their leases and both decided to sell their farms and potential buyers enquired about their rates and levies. Only then, did they find out that the actual rates being levied would wipe out about half of their annual rental income and that they were more that a year in arrears and owed interest and penalties. Neither had received any communication or rates assessment from the Council.


They totally under-estimated the task of having thousands of rural properties valued within the time-scale set which resulted in a valuation roll which to this day contains numerous errors and omissions and as such is flawed and inequitable. Indeed, in the Durban North entity, some rural farm properties were only valued in the past year and are only now being rated, while others have had to pay rates since 1998.

They did not adequately consider, or seek expert advice, as to how agricultural properties should be valued for rates purposes. Rather, with imprudent haste, they appointed a number of valuators to the various entities, most of whom I submit, were mainly experienced in valuing urban properties. This resulted in totally different criteria being used which resulted in the valuation of an hectare of arable sugar cane land varying from R3600 in Durban South to R8000 in Outer West and R18000 in Durban North.

The reason for the discrepancies were that, firstly, the Durban South valuator used the correct 1997 market residual value of an hectare of productive arable cane land.

Secondly, the Outer West valuator totally misunderstood the commonly used term that in 1997 cane farms adjacent to Outer-West were selling for around "R8000 per hectare under cane". He believed this was the residual, or raw, market value of a hectare of arable land planted to sugar cane. Instead the term referred to the total sale price of the farm, which included all the farm land, arable, pasture, grazing and conservation (ie unusable land), plus the cane roots and standing crops, plus all buildings and in some cases even movables such as agricultural equipment; divided by the actual hectares planted to sugar cane. The valuator then added to his land valuation of the property, his valuation per hectare of pasture land, grazing land and conservation land. I might add, that he then went on to value the fixed improvements, ie. buildings, the result being a grossly overvalued farm property for rates purposes (this case twice went to the Appeal Board as recorded in Annexure A, and the Board’s record will show that this valuator still believes he is right).

Thirdly, the Durban North valuator was more concerned with the farmland’s potential market value as urban development land due to its proximity to the rapidly developing North Coast area near Umhlanga and La Lucia Ridge. In the process his over valuation virtually wiped out a sugarcane farm’s profitability due to totally punitive rates being levied. Surely bona-fide farm land producing food and foreign exchange for South Africa has to be valued for rates purposes at its "in-use value" regardless of its potential value in the future which, after all, can only be realized when there is an immediate demand for it as commercial, residential or industrial use and only after undergoing a lengthy and costly process of having its zoning changed with the municipality from agricultural to the urban use desired.

I must inform the Committee that during 2002, I attended a meeting of valuers in Pietermaritzburg where this subject of how to value farm land for rates purposes was discussed and it was quite clear that there was no consensus due to a misunderstanding by some valuers as to exactly what is to be valued for rates purposes and to exactly what was included in recorded market sales of farm properties. The view was also expressed that the property valuating fraternity lacked the required manpower capacity to adequately value all South Africa’s rural land for rates purposes within the desired time.

They did not fully investigate a sound randage policy for agricultural land. They initially used the Residential rate of 3.477 cents/rand value for both land and buildings with a 50% rebate . Two years later they switched to the industrial and commercial 12 to 1 randage ratio of 16.032 cents/rand land value and 1.336 cents/rand building value, initially with a 50% rebate but later, after debate in council, to a 70% rebate. Then, for the first time in July, 2001, the Council called for Public Comment and after a public hearing when many groups including the KZ-N Department of Agriculture, SA Cane Growers’ Association, Ratepayers’ associations and individuals such as myself presented their objections, they increased the rebate to 85% which resulted in a rates % of 2.4048 % per land value which is still way too high. They have just increased the randage to 17.7 cents per rand value with 85% rebate, or 2.655 % of rand value.

I wish to state that rates (or land tax) of 2.4048% on the actual present unrated "in use" value of farmland will virtually wipe out almost 50% of the normal profit on the money invested in the actual farmland. This will, without doubt, have a tremendous negative effect on the competitiveness of South African food producers, especially smaller farmers who lack the "economy of scale" of the larger operators.
This problem is compounded enormously when valuators err in grossly overvaluing farm properties as I have described in paragraph 1.4.4 above.

I submit however, that the land to building ratio for randage levied of 12 to 1, was designed for industrial and commercial properties where the real income producing and more expensive assets are the buildings which are levied 1/12 of the rates of that levied on the land. In field crop agriculture, the exact opposite is the case where the arable land is the income earning asset and the farm buildings are just a necessary liability. I therefore submit that the rationale of eThekwinis’ randage formula for agriculture is seriously flawed.

To this date, the Council is still "investigating" a correct and sustainable policy for the valuating and levying of rates on agricultural property, six years after they started rating formerly un-rated farm land.

They totally ignored any research into taxation policy such as the Katz Commission nor did any research of their own into a financially sustainable agricultural rates policy but rather acted in an ad hoc manner going from one unsuitable policy to another.

They did not await the promulgation of the P.R.B. before levying rates on agricultural land as all the neighbouring municipalities surrounding eThekwini municipality have prudently done. Rather, in 1998, they started levying full rates using a totally unacceptable rates policy and without the required logistical and competent infrastructural support to implement the policy and without giving any consideration to phasing in the levying of rates on previously un-rated land as required in the P.R.B.

They gave no consideration to the fact that bona fide farmers, especially commercial farmers, do not enjoy the municipal amenities and benefits city rate-payers enjoy, such as free limited quantities of electricity and water, good roads, drainage, sidewalks, street lighting, parks and gardens etc. Neither did they consider the fact that many farmers supply free accommodation, electricity from Eskom, water from their own boreholes and reticulation, sewerage and even transport to their workers.

Finally, by "jumping the gun" as described above, and not acting in a rational and prudent manner as neighbouring municipalities have done by awaiting the promulgation of the P.R.B., they have applied a questionable rates regime on formerly un-rated agricultural properties which contravenes the contents and the spirit of the provisions of the P.R.B.
In so doing, they have for six years discriminated against and economically prejudiced those farmers within the eThekwini municipality who have to compete with other farmers located just outside its boundaries who have yet to pay a cent of property rates.

RECOMMENDED POSSIBLE AMENDMENTS AND ADDITIONS TO THE PROPERTY RATES BILL.

I now recommend the following to the Portfolio Committee:-

2.1 Definitions

"improvements"

In view of the foregoing in Paragraph 1.4.4 which has resulted in the inequitable valuation of arable land in the various entities on Durban, I recommend the addition of the following sub-clause:-

( c ) any agricultural, horticultural or forestry crop such as pastures, maize, sugarcane, vegetables, flowers, orchards, plantations etc.

"newly rateable property"

This definition applies to property, "on which rates were not levied before 30 June, 2003 or the end of the financial year preceding the promulgation of this Act"

Bearing in mind the contents of 1 above, especially the inequitable and prejudicial nature of the consequences of many municipalities that have "jumped the gun" by levying punitive rates on formerly un-rated agricultural land, this means that until the promulgation of the Act, the definition will result in the affected farmers not having been covered by the provisions of the Act for as far back as 30 June, 1998, as is the case of some KZ-N municipalities.

I fear that because of the irrational and incompetent manner in which some municipalities have levied rates on such properties, there is the potential for court decisions going against such municipalities. Indeed, I am aware of such a case which is due to be heard in the near future.

In this regard may I again refer your members to Annexure A in general, and in particular to "Points To Consider" on page 8 to which, I believe, many others could be added. In view of the foregoing, I wish to recommend the following:-

That Parliament address the very real problems concerning the inequitable and prejudicial manner in which those municipalities that "jumped the gun" have treated their bona fide farmers within their jurisdiction prior to the promulgation of the Act and include provisions in the Property Rates Act that will redress these grievances.

Differential rates: 8

This section is primarily concerned with the levying of different rates for different categories of rateable property and under clause 8(3) it includes-

farm property used for-
agricultural purposes;
(ii)other commercial purposes; or
(iii)non commercial purposes

I wish to submit that there is another category of farm property, namely totally commercially unusable land often designated as conservation land which should be considered.

I wish to quote from the views of the head of the KZ-N Department of Agriculture on the value of various categories of farm property when he wrote:-

"Some land cannot be used for agricultural purposes (ie. Wetland areas cliffs, etc) and should be used for conservation purposes. This type of land is furthermore environmentally sensitive and should not be developed"

I wish to recommend an additional sub-clause to section 8(3) (e) namely:-

conservation purposes;


Amount of rates:10

In view of the extremely negative problems being experienced by farmers located in those municipalities which have "jumped the gun" and levied punitive rates on grossly over- valued agricultural properties, I wish to recommend the inclusion of the following sub-clause to 10(1) :-

( c) rate determined as provided for in section 15(3) when the category of the property
is that of farm property used for agricultural purposes

This means that the Minister in conjunction with the Minister of Finance will lay down guide lines as to the level of rates levied on agricultural property and thereby avoid the present confusion and lack of consensus amongst property valuers and municipal administrators.
Constitutional constraints: 15

In view of the importance of ensuring the sustainability of the valuable biodiversity of South Africa’s fauna and flora, as well as the conservation of our limited water resources and the value of both of these to the economic future of our people, Section 15(2)(e) which disallows rates being levied on State-owned protected areas is to be welcomed.

I wish to submit, however, that there are many agriculturally speaking non-productive areas and many commercial farms which have been declared conservation or nature reserve areas which should also be non-rated. I therefore recommend that sub-clause 15(2)(e) be amended as follows:-

any State-owned land declared as a national or provincial protected area, and any privately-owned land declared as a farm conservation area or private nature reserve, excluding any such part of such area which is used for commercial or business purposes;

Chapter 3: Liability For Rates

Having studied this Chapter and the entire Bill including, Regulations: 71 and Offences:72, the only provisions I see regarding how errant ratepayers who fail to pay their rates are to be treated or a municipality’s responsibilities regarding the refund of excessive rates paid, is in Section 45, Adjustments of valuation rolls. If you study Annexure A, you will note that I went to great lengths on the subject of the vast amounts of interest owed to us by the Council on the refunds due to us a result of the Appeal Board reducing the excessive values placed on our properties due to the incompetence of both the Council and its valuator.

These amounts are summarized on Page 8, para 26 (the calculations are done in para’s 23, 24 and 25) and you will see that the Council’s view is that it can hold tens of thousands of ratepayers’ funds for years without being liable to pay interest thereon.

I am aware that when a tax-payer receives a refund of his overpayment of income tax, the Receiver of Revenue adds interest for the period he has held the taxpayer’s money. I believe the same principle should apply to rates refunds.

I therefore wish to recommend that your Committee studies the implications of the "interest" issue in Annexure A with a view to making provisions in the Act or its regulations so that the iniquities of the eThekwini policy is this regard is prevented and that a more equitable system is implemented which will avoid, if I may use the term, municipalities "ripping off’ ratepayers. I can assure you that the public would applaud such action.

Might I suggest the following possible addition which might help resolve this problem:-

to sub-clause 45(2)(b) in line 50 on page 18:-

in terms of paragraph (a), plus an equitable rate of interest payable for the relevant period the amount recovered or repaid has been owing.

This amendment will cater for a ratepayer’s refund interest but is will not cater for the issue of the errant ratepayer who fails to pay his rates.


Another possible amendment which might help is the following addition:-

to sub-clause 62(3)(b) in line 46 on page 21;-

difference determined in terms of paragraph (a) plus an equitable rate of interest payable for the relevant period the amount recovered or repaid has been owing.


General basis of valuation:39

. I wish to recommend the following amendment to line 21 on page 17

market by a willing seller and a willing buyer

Experience in the outer-West entity of eThekwini municipality has shown that the rates regime being imposed at present has resulted in a marked devaluation of bona-fide formerly un-rated farm land, which raises the question as to whether the valuer should take this into consideration.

I therefore recommend that consideration be given to amending or adding to Clause 39(2)(a) so as to take into account the effects the payment of rates will have on the land value of a formerly un-rated agricultural property.

May I suggest the following addition to clause 39(2)(a) line 24 on page 17:-

Property and where an agricultural property is being valued for rated purposes for the first time, the effect such rates will have on the value of such property; and

In the light of my earlier discussion about valuers placing a value on the future potential use of a property, I wish to recommend the following addition to clause 39(2):-

( c) the value of agricultural property must reflect its present zoned "in-use" value and not its potential for future use.

Public notice of valuation rolls:42

In the light of our experience in Outer-West where an arrogant and cavalier attitude on both the valuer and officials part to our views on the valuation I wish to recommend the following addition to sub-clause 42(b) on line 17, page 18:-

pertaining to that owner’s property and detailed information of the timing and process regarding the owner’s rights to -
lodge an objection to the valuation;
(ii) apply for an agricultural certificate for the agricultural rebates.



Establishment of valuation appeal board:49

I wish to congratulate the drafters of this bill for this clause which clearly places the responsibility for the appointment of valuation appeal boards on the MEC for Local government.

The reason for my views will become very apparent when you read Annexure A of my personal experiences with the Outer-West entity and the eThekwini municipality. I refer you particularly to paragraphs 1 through 17 starting on page2; and paragraph 9 on page 10.

I wish to report that as of to-day, 29 April, 2003, no appeal hearings have been set for literally hundreds of cases, some going back more that 24 months.


Composition:51.

In the light of the fact that there appears to be little consensus among many valuators as to how agricultural properties should be valued, I wish to recommend the following addition:-

51(1)(b), line 3 on page 20, to add

methods of valuation of the category of property concerned.


2.10 Meetings: 58

Due to my personal experience with appeal boards, I wish to recommend the following addition:-

58(3) line 21, on page 21,

the meeting or to act as chairperson providing such a person complies with clause 51(1)(a)




Transitional arrangements: Valuation and rating under prior legislation: 74

This clause will be most acceptable in respect of those properties that were rateable prior to the coming into being of the new dispensation of the Demarcation Board drawing up new municipal boundaries and the Local Government Transition Act.

In KwaZulu-Natal, the only provincial ordinance which concerns this matter is the Natal Local Authorities Ordinance No. 25 of 1974 which was drawn up essentially to deal with rateable properties within municipal or local government areas. It has no provisions at all to deal with bona fide agricultural properties which, as this submission shows, has particular problems and issues which need carefully legislation to accommodate.

I have been told by officials that under the Local Government Transition Act, eThekwini has sufficient powers to pass its own bi-laws without having to have national or provincial empowering legislation. Not being a legally trained person, I can’t say whether this is correct or not, but if it is so, then it is very clear to me that the eThekwini Council has been extremely imprudent to crash on and pass bi-laws affecting the economic future of an extremely important sector of our economy viz. the food production sector, without the in-depth, transparent and all inclusive approach which is most certainly expected from the "new South Africa’s" elected bodies as, indeed, Parliament has been doing over several years with the Property Rates Bill.

I therefore ask Parliament, through its Portfolio Committee on Provincial and Local Government Affairs, to give serious attention to what has happened to farmers in the eThekwini Municipality, and no doubt other municipalities, with a view to redress the deep grievances these farmers hold.

Transitional arrangements: Use of existing valuation rolls:75

I repeat what I stated in paragraph 2.12 above, viz. this will be acceptable in respect of those properties that were rateable prior to the coming into being of the new dispensation.

However, I submit that to apply this clause to those unrated rural bona fide agricultural properties that were incorporated into former local authorities and then with imprudent haste, incompetently added to their valuation roll without well thought-out and just legislative provisions will create a great injustice to those property holders.

Indeed, this clause gives eThekwini another four years in which to have its present disastrous agricultural rates policy brought into line with the eventual Property Rates Act.

I once again ask Parliament to give serious consideration to the problems caused to farmers by municipalities that have not waited for the provisions of the PRB to be finalized and approved by Parliament, but rather "jumped the gun" and started valuing and rating agricultural properties in an incompetent and unjust manner.

Conclusion

In conclusion, I wish to thank the Portfolio Committee for the opportunity to present this submission. I also hope that I have been able to make a worthwhile and constructive contribution to the passing of a Property Rates Bill that will withstand the test of time and be applauded as a wise and just piece of legislation.

Finally, I await your directive as to when I can appear before your Portfolio Committee in Parliament to present this submission in person.

Yours faithfully





George S Bartlett