CITY OF CAPE TOWN
in re:-
COMMENTS ON THE LOCAL GOVERNMENT : PROPERTY RATES BILL, 2003
SUBMITTED TO THE PORTFOLIO COMMITTEE ON PROVINCIAL AND LOCAL GOVERNMENT
DATE : 19 MAY 2003
INTRODUCTION
The City of Cape Town ("the City") welcomes the introduction of the Local Government : Property Rates Bill, 2003 ("the Bill") and appreciates the efforts being made both by the Portfolio Committee on Provincial and Local Government and the Department of Provincial and Local Government ("the Department") to process and finalise the enactment of this crucial legislative Act.
The City has engaged extensively both with the Portfolio Committee and the Department with regard to valuation and rating legislation. Most recently all three entities worked together to process remedial legislation aimed at curing defects in the Property Valuation Ordinance (Cape), 1993.
The City is committed to ensuring that the Bill passes constitutional muster, is not open to attack by litigants aiming to undermine the valuation and rating processes and meets the reasonable requirements of municipalities. The City's comments, as set out below, are made with these aims in mind. They are certainly not made with the intention of retarding or frustrating the legislative process.
The City's comments fall into three categories. Firstly, the City's overall response to the Bill is set out. In section 3, certain constitutional issues are raised. Lastly, certain clauses not commented on in the section on the constitutional issues are discussed. THE CITY'S OVERALL RESPONSE
The City fully supports the overall thrust and philosophy of the Bill and in particular welcomes the following aspects:-
the Bill for the first time in South African history introduces a single, national and uniform system of valuation and rating;
this new uniform system of valuation has two components to it: firstly, the valuation of properties will now uniformly be based on the market value thereof, while at the same time facilitating a fair and balanced approach by way of exemptions, reductions, rebates and differentiations; secondly, the system of valuation will be based on the improved value of properties and will correctly not permit municipalities to adopt their own systems of valuation. In this regard, while the City recognises the advantages and disadvantages of using site and other normative bases for the valuation of properties, the City believes that the valuation on the basis of the improved value of properties is the best and most appropriate system;
while the Bill introduces a uniform system of valuation, it still permits municipalities to adopt different valuation methodologies (clause 38). In this regard the City benefited hugely from the application of the Computer-Assisted Mass Appraisal (CAMA) method in its recently-completed valuation. Had the CAMA method not been utilised the valuation of the City's residential properties, it would have been impossible to complete the valuation within the time and budget constraints, and the City would still be operating on the basis of out-dated and inequitable valuation rolls;
lastly, the City firmly supports the pro-poor orientation of the Bill and the requirement that the effect of rates not only on the poor, but also on welfare and charitable organisations, must be taken into account in a municipality's rates policy (clause 3). CONSTITUTIONAL ISSUES
The City's main concern with regard to the Bill concerns the powers conferred on the Member of the Cabinet responsible for Local Government ("the Minister") and on the Members of Executive Councils of the Provinces responsible for Local Government ("the MEC's").
At the same time it must be stressed that none of these concerns impacts on the constitutionality of the Bill itself; rather they relate to powers conferred on the Minister and MEC's which, if acted upon, may be open to challenge.
The Bill has been promulgated in accordance with the provisions of section 229(2) of the South African Constitution, 1996 ("the Constitution"), the relevant portion of which provides that "The power of a municipality to impose rates on property,
may be regulated by national legislation" (emphasis added).
In terms of section 239 of the Constitution, "national legislation" includes "subordinate legislation made in terms of an Act of Parliament". In other words, the power of a municipality to impose rates may be regulated either by an Act of Parliament or by subordinate legislation (such as regulations) made in terms of an Act of Parliament. The City's first constitutional concern is that in many instances the Bill itself does not regulate the valuation and rating of property, but instead assigns to the Minister and the MEC's a variety of discretionary administrative powers. The "by national legislation" formulation in section 229(2)(b) of the Constitution must be contrasted with the "in terms of national legislation" formulation in section 229(3), as well as the "in terms of an Act of Parliament" formulation in section 228(2)(b) and in the definition of "national legislation" in section 239. It is necessarily implicit in the "by national legislation" formulation that municipalities section 229 taxing powers may be regulated only by an Act of Parliament or by subordinate legislation made in terms of an Act of Parliament or by subordinate legislation made in terms of Act of Parliament. If the Minister or the MEC's are to be given powers, the powers conferred on them should not go beyond the power to issue guidelines which, by their very nature, are not binding.
Examples of clauses in the Bill in which the abovementioned concern is manifested, and the City's proposed solutions in regard thereto, are the following:- Clause 11 Period for which rates may be levied
A rate may be levied for more than one financial year at a time only with the approval of the MEC. For the reasons set out above, the City does not support the proposal that the MEC has been given the power to extend a rate for a period of longer than a year. Either this power should be removed altogether, or a municipality should be given the power to extend the period of a rate for more than a year, or the Minister should be given the power to pass regulations specifying the circumstances in which a rate can be extended for more than a year. Any of these proposals would accord with the constitutional requirement that the matter must be regulated by, and not in terms of, national legislation. Clause 17 Limits on annual increases
From a policy point of view, the City supports the proposal that the Minister, with the concurrence of the Minister of Finance, is given the power to set a limit on the percentage by which a rate on property may be increased. However, to ensure that this complies with the constitutional requirement set out above, this clause should specify that this must be done by way of regulation. Sub-clauses 18(4) and (5) Compulsory phasing-in of certain rates
In terms of these sub-clauses, the MEC has been given the power to extend the phasing-in period, and determine the maximum percentage rate payable during any extended period. The City contends that these sub-clauses suffer from the same defect as clause 11, and can be remedied on any of the bases set out in paragraph 3.5.1. Sub-clause 29(2) Period of validity of valuation rolls
This sub-clause empowers the MEC to extend the period for which a valuation roll remains valid to five financial years. Once again it suffers from the same defects as set out above and can be remedied on any of the bases set out in paragraph 3.5.1.
The City, however, has an additional concern with regard to this matter. While the City supports the proposal that valuation rolls should only remain valid for a period of four years, and at most one additional year, it is concerned about the implications thereof if a municipality does not adopt a new valuation roll within the prescribed period. While such a circumstance would probably justify an intervention by the Provincial Executive in terms of section 139 of the Constitution, an intervention would not have the effect of validating a roll that has already expired. This could result in a situation in which a municipality does not have a valuation roll and accordingly cannot collect rates. The City suggests that this matter is given careful consideration. Possibly provision should be made for the extension of a valuation roll for a limited period in the event of an intervention by the Provincial Executive in terms of section 139 of the Constitution. Clauses 49, 51(2), 54, 56, 57 and 64 Valuation Appeal Boards
The MEC's have been given extensive powers with regard to the establishment and composition of Valuation Appeal Boards, the conditions of appointment and removal from office of their members and alternative members, and the establishment of committees to assist the Valuation Appeal Boards. Once again, for the reasons set out above, the City does not support the proposal that the MEC's are given these powers. Instead, municipalities should be empowered to establish and determine the basis of operation of Valuation Appeal Boards. The City appreciates the need for Valuation Appeal Boards to be autonomous and independent, but believes that this can be achieved by specifying very clearly the composition of Valuation Appeal Boards. In this regard the City proposes that neither councillors nor employees of municipalities should be able to sit on Valuation Appeal Boards (see clause 52). The City furthermore acknowledges that, while in the pre-2000 period, when municipalities had relatively small areas of jurisdiction, it was perhaps necessary for Valuation Appeal Boards to be appointed by an outside entity such as the MEC, this situation no longer pertains. All municipalities have a sufficiently large areas of jurisdiction to enable them to appoint competent and independent persons to serve on the Valuation Appeal Boards.
The City's second constitutional concern is a more difficult to define and elucidate. It relates to the extent to which the Bill potentially oversteps the permissible bounds of "regulation".
Section 229(1)(a) of the Constitution affords municipalities "specific and guaranteed taxing powers", albeit subject to two constraints, which are to be found in section 229(2). The first constraint is set out in section 229(2)(a), namely that these powers "may not be exercised in a way that materially and unreasonably prejudices national economic policies, economic activities across provincial boundaries, or the national mobility of goods, services, capital or labour".
The second constraint is, as explained above, that described in section 229(2)(b), namely that municipalities' taxing powers "may be regulated by national legislation". The Constitutional Court has made it clear that the term "regulate", when used in provisions such as section 229, "connotes a broad managing or controlling rather than a direct authorisation function". Consequently, as the Constitutional Court has explained, the aim of national legislation such as that envisaged by section 229(2)(b) "is to ensure the coherence of the taxing system and is not directed at providing the underpinning of the taxing power itself".
The power to raise rates on properties is one of the core legislative functions of municipalities. In terms of section 160(2) of the Constitution, it is one of the functions that may not be delegated by a municipal council. In addition, the Constitutional Court has confirmed the significance of this power in the following way:-
"It seems plain that when a legislature, whether national, provincial or local, exercises the power to raise taxes or rates, . it is exercising a power that under our Constitution is a power peculiar to elected legislative bodies. It is a power that is exercised by democratically elected representatives after due deliberation."
Once again, this concern of the City does not impact on the constitutionality of the Bill. Rather, it is a concern which impacts on the manner in which the Minister and the MEC's exercise their powers in terms of the Bill. Particularly important in this regard is section 71 of the Bill, which gives the Minister the power to make regulations. The power given to the Minister is extremely wide-ranging and concerns all aspects of the valuation and rating process. If regulations were passed by the Minister in respect of all these matters, it could amount to a case of the Minister micro-managing municipalities' valuation and rating processes, in potential conflict with the approach adopted by the Constitutional Court. FURTHER COMMENTS ON THE BILL
The City has certain additional comments and suggested amendments which will not all be dealt with in the course of the City's oral submissions, but are set out below for the benefit of the Portfolio Committee. Clause 1 Definition of "owner" and of "property"
Under both these definitions a distinction is drawn between immovable property registered in the name of a person and a right registered against immovable property in the name of a person. This means that, for example, in the case of a property over which a long lease has been registered, there will be two owners and two properties. Both entities will have a distinct market value which in each case will be less than the market value if the property were unencumbered. It is not clear from the two definitions, and from the Bill as a whole, whether it is intended that both "properties" will be valued and, in this example, whether two separate rates levied; or alternatively, that it will be treated as one property (and if so, which?) and rated once. This definition needs to be clarified, if necessary with the assistance of technical and legal experts. The City is naturally willing to provide help in this regard. Clause 1 Definition of "property"
A further problem which arises with regard to the definition of "property" concerns the narrowness of the definition. This is evident in circumstances in which a person purchases a property in instalments, in which event the separate valuation is only fully realised when transfer of ownership is eventually registered. The City therefore proposes that the definition of "property" be amended to read as follows:-
"(a) any immovable property registered under separate title or sectional title provided that
if the surveyor-general has approved a general plan or diagram of subdivision in respect of any property registered under separate title, and any land unit forming part of the subdivision has been let, sold or sold in instalments, or any buildings or structures have been erected on such land unit, such land unit may be valued separately and be excluded from such piece of registered land for valuation purposes;
if property which is registered under separate title is the subject of an unregistered subdivision and any land unit forming part of the subdivision has ascertainable boundaries and in the opinion of the valuer forms a separate and distinct economic entity, such land unit may be valued separately and excluded from the registered property for valuation purposes; or
if, in the opinion of the valuer, two or more adjacent properties each registered under separate title, or two or more land units each falling within the terms of subparagraphs (i) and (ii) form one economic entity, they may be valued as one property;
any unregistered property if the ownership thereof can be determined;
a right registered against immovable property in the name of a person;
a land tenure right registered in the name of a person or granted to a person in terms of legislation."
The definition of "property" can only be finalised once the ambiguity regarding the definition of "owner" is resolved. Once again, this is a definition which needs to be carefully considered, with the assistance of technical and legal experts. Clause 18 Compulsory phasing-in of certain rates
In terms of sub-clause 18(1), a rate levied on "new rateable property" must be phased in. The definition of "new rateable property" includes all rateable property on which property rates were not levied before 30 June 2002, i.e. including new property developments. While the City accepts that property which was not rated before 30 June 2002, but could potentially have been rated, should benefit from the definition of "new rateable property", it does not accept that new property developments, many of a very high value, should benefit from the phasing-in process. Clause 19 Special rating areas
The City of Cape Town is one of a number of municipalities which have instituted systems of "improvement districts" in which a special rate is levied for additional municipal services provided in defined districts. In the case of the City of Cape Town, these improvement districts have generally been established in business areas and have been successful in facilitating the upgrade of those areas, particularly through the provision of additional services such as cleansing, refuse removal, etc. These improvement districts have all been established in terms of By-Laws and their establishment has followed an extensive consultative process.
The City proposes that clause 19 of the Bill should provide that existing special rating areas established on terms similar to those set out in clause 19 of the Bill, should be deemed to have been established in terms of the Bill. Municipalities should then be given a period of time, say four years, to ensure that such special rating areas comply with the provisions of clause 19. This will allow the existing improvement districts to continue to exist as they are presently constituted for a defined period of time.
Furthermore, the purpose of special rating areas should not be limited to "funding improvements", but should also be for the purposes of providing additional municipal services. Sub-clause 21(1) Property rates payable by owners
The reference to Chapter 9 of the Systems Act imposes too heavy a burden on municipalities. In effect, owners of properties will be able to use Chapter 9 of the Systems Act as a legal defence when confronted with a rates account. Thus, for example, while the City of Cape Town does not dispute its obligations in terms of section 95 of the Systems Act (which deals with customer care and management), a ratepayer should not be able to use section 95 as a basis to refuse payment of a rate. It is therefore suggested that the phrase "subject to Chapter 9 of the Municipal Systems Act" should be deleted. Clause 28 Date of valuation
Nine months is too short a period to complete a valuation. Billing of rates based on a new valuation roll requires modelling (after completion of the roll) to determine the shifts in the rates payable as well as any rebates. Thereafter a public inspection process must be completed. In the larger municipalities there could be between 500 000 and 800 000 properties to be valued. It is suggested that the period for completion of the valuation be increased to at least eighteen months. Clause 30 Appointment of municipal valuers
With reference to sub-clause 30(3)(b), it should be noted that the MEC does not have any powers in terms of section 139 of the Constitution; rather the powers lie with the relevant Provincial Executive. Clauses 35(1) and 65 Right to inspect property
It is overly restrictive to require valuers to inspect properties during the day. After hours inspections should be permitted in circumstances in which access cannot be obtained during working hours. Clauses 35(2) and 66 Right to inspect property
These clauses oblige owners and occupiers to provide information and documentation to valuers and/or a person authorised by a Valuation Appeal Board. However, failure or refusal on the part of the owner or occupier to co-operate is not included in the list of offences in section 72. They should be included as offences. Clause 39 General basis of valuation
It is unclear what is meant by the reference to "privilege" in sub-clause 39(2)(a).
Furthermore, the reference to "improved value", read with the definition of "improved value" in section 1, presupposes that the municipal valuer will take into account all leases that may be operative within a property, some of which may be at non-market levels as at the date of valuation. In such instances either the lessor or the lessee in question is deriving a financial benefit at the expense of the other, which should not be of concern to the assessment of the improved value of the property for municipal rating purposes. Accordingly, the definition of "the improved value of property" should be amended to reflect a market-related value of such property on the assumption that the occupied portions of such property are leased or occupied at market rentals and on market-related terms and conditions applicable as at the date of valuation. This would minimise the need for the municipal valuer to research the individual leases applicable to each property and to make the necessary allowances for non market-related rentals.
It is therefore suggested that the following should be added to sub-clause 39(1):- " .. on the assumption that the occupied portions of such property are leased or occupied at a market rental or occupancy levels and on market terms and conditions as at such date".
Sub-clause 42(b) Public notice of valuation rolls
A valuation roll should not be invalidated merely because the provisions of this sub-clause are not complied with. It is therefore suggested that the following be added at the end of sub-clause (b):- "provided that a valuation roll should not be invalidated merely because an owner of property does not receive a copy of the notice or the extract of the valuation roll pertaining to that owners property". Sub-clause 48(3) Right of appeal
A successful appeal may result in a reduction of the rate. Taking account of the fact that in such circumstances the appellant will have paid an excessive property rate pending finalisation of the appeal, it would be equitable for the appellant to be paid interest on any excess amount, at a rate prescribed by the Minister of Finance.
In addition, a person's liability for the payment of rates should not be deferred only if an appeal is lodged, but also if an objection is lodged. It is therefore suggested that the words "An objection or" should be added at the beginning of the sub-clause. Clause 52 Disqualifications
In addition to the disqualifications listed in sub-clause (1), anyone disqualified from acting as a valuer in terms of the Property Valuation Professions Act, 2000, should also be disqualified from serving on a Valuation Appeal Board. Furthermore, for the reasons set out in paragraph 3.5.5, councillors and employees of municipalities should not sit on Valuation Appeal Boards. Sub-clause 63(a) Orders as to costs
A Valuation Appeal Board should only be entitled to award costs against an objector if they deem the appeal to have been frivolous or capricious [as in sub-clause 63(b)]. The valuation appeal process provides opportunities for aggrieved ratepayers to air their opinions and exchange views with the valuer in front of an impartial body. The cost incurred by the municipality is insignificant when compared with the total costs of compiling and implementing a valuation roll. On the other hand, an objector with limited financial resources may be deterred from appealing because of the risk of an adverse costs order. Expenditure incurred in the appeal process is justified when account is taken of the fact that it gives credence to the roll and the rates account based on the roll. It also assists in facilitating transparency and openness. Experience has shown that the appeal process enhances the credibility of a roll as it gives ratepayers an opportunity to seek to persuade an independent arbiter of the correct valuation of their properties. Sub-clause 68(2) Proceedings by or against Valuation Appeal Board
Since the municipality will be liable for any costs awarded in legal proceedings against a Valuation Appeal Board, the relevant municipality should be joined in any legal proceedings. Sub-clause 70(2) Offences
The matters dealt with in paragraph 4.9 should be included in the list of offences.
Submitted on behalf of:-
City of Cape Town
by Michael Evans
Mallinicks Inc.
3rd Floor Granger Bay Court
Beach Road
V&A Waterfront
8001
Tel : 410 2221
Fax : 410 9000
E-mail : [email protected]
Date : 19 May 2003