PORTFOLIO COMMITTEE ON FINANCE

 

 

 

 

 

THE LOCAL GOVERNMENT: MUNICIPAL FINANCE

MANAGEMENT BILL OF 2003

 

 

 

 

 

 

 

OPINION

 

 

 

 

 

CONTENTS

 

INTRODUCTION *

PROVINCIAL INTERVENTION TO SOLVE MUNICIPAL PROBLEMS *

Introduction *

The constitutional framework *

Chapter 13 *

Clause 134(2) of the Bill *

REGULATION OF MUNICIPAL BUDGETS *

The constitutional framework *

Treasury norms and standards *

Clause 23(1) of the Bill *

Clause 23(3) of the Bill *

Clause 122(2) of the Bill *

Clause 122(4) of the Bill *

Clause 123 of the Bill *

Clause 162 of the Bill *

REGULATION OF THE CONTRACTUAL POWERS OF MUNICIPALITIES *

The constitutional framework *

Clause 31 of the Bill *

CAPPING POWERS *

The constitutional framework *

Clause 20(b)(vi) of the Bill *

Clause 40(2) of the Bill *

An alternative procedure *

MUNICIPAL SUPPLY CHAIN MANAGEMENT *

The constitutional framework *

Chapter 10 of the Bill *

DOES THE BILL TRENCH ON THE POWERS OF THE PROVINCES? *

Clause 125(6) of the Bill *

What if the guidelines were binding? *

CLAUSE 171(2) OF THE BILL *

 

INTRODUCTION

  1. The Parliamentary Portfolio Committee on Finance seeks advice on the constitutionality of certain aspects of the latest draft of the Local Government: Municipal Finance Management Bill dated 29 April 2003 (the Bill).
  2. We gave an opinion on 25 March 2002 on an earlier version of the Bill. The current draft of the Bill however incorporates material amendments since then.
  3. Sections 100 and 139 of the Constitution have also since then been amended by the Constitution of the RSA Second Amendment Act 3 of 2003. The amendments have not yet come into force. That will only happen on a date determined by the president. We are told to assume however that the Bill will only be enacted after the amendments have come into force. We accordingly base this opinion on sections 100 and 139 of the Constitution as they will read once the amendments have come into force.
  4.  

    PROVINCIAL INTERVENTION TO SOLVE MUNICIPAL PROBLEMS

     

    Introduction

  5. Section 139 of the Constitution permits the provinces in certain circumstances to intervene in the affairs of municipalities that do not discharge their constitutional and legislative obligations. Chapter 13 of the Bill puts flesh to the bones of s 139 by prescribing the circumstances and manner of provincial intervention when municipalities default in the fulfilment of their constitutional or legislative financial obligations. The Portfolio Committee seeks advice on the constitutionality of chapter 13 generally and on the formulation of one of its provisions.
  6.  

    The constitutional framework

  7. In terms of ss 151(3), 156 and 229 of the Constitution, municipalities may generally govern their own financial affairs by the exercise of their legislative, executive and administrative powers. This municipal autonomy is however "subject to national and provincial legislation, as provided for in the Constitution" in terms of s 151(3). It is in other words subject to such national and provincial legislation as is authorised under the Constitution itself.
  8. Section 139 of the Constitution is one of the provisions that permits national and provincial government to interfere in the affairs of municipalities. It provides for the provincial executive to intervene in the affairs of a municipality that fails to fulfil its constitutional or legislative obligations. It provides for three kinds of intervention. One of them is discretionary and the other two are mandatory. If the province fails to intervene or fails to do so adequately when it is obliged to do so, the national executive must intervene in its stead. The section lastly provides that national legislation may regulate this process. Chapter 13 of the Bill is national legislation of that kind.
  9. The three kinds of intervention provided for in s139 are the following:
    1. Discretionary intervention (ss 139(1) to (3)). The provincial executive may intervene whenever a municipality fails to fulfil any executive obligation in terms of the Constitution or other legislation. The provincial executive may then take any appropriate steps to ensure fulfilment of the obligation.
    2. Mandatory intervention (budget) (s 139(4)). The provincial executive must intervene if a municipality fails to fulfil an obligation in terms of the Constitution or other legislation, to approve its budget or any other revenue-raising measures necessary to give effect to the budget. The provincial executive must then take appropriate steps to ensure that the budget or measures are approved.
    3. Mandatory intervention (other) (s 139(5)). The provincial executive must intervene if, as a result of a crisis in the financial affairs of a municipality,

    - it is in serious or persistent material breach of its obligations to provide basic services;

    - it is in serious or persistent material breach of its obligations to meet its financial commitments, or

    - it admits that it is unable to meet those obligations or financial commitments.

    The provincial executive must then take various steps to address the problem. It must inter alia impose a recovery plan on the municipality.

     

    Chapter 13

  10. Chapter 13 of the Bill tracks s 139 of the Constitution. It provides for the same three kinds of intervention except that it confines itself to intervention to address the financial problems of municipalities. It also provides for,

  1. There is one respect in which chapter 13 goes further than s 139 of the Constitution that might be problematical. It relates to the remedial steps that a provincial executive may take in the case of discretionary intervention. Chapter 13 provides,

These provisions give rise to the uncertainties and anomalies referred to below.

  1. The first uncertainty is whether it is constitutionally permissible for the Bill to allow the provincial executive to impose a financial recovery plan on a municipality in the case of discretionary intervention. The uncertainty arises from the fact that s 139 of the Constitution specifically provides for the imposition of a financial recovery plan in the case of mandatory intervention (other) in s 139(5) but does not specifically provide for it in the case of discretionary intervention in s 139(1). It may accordingly be argued on the basis of the inclusio unius est exclusio alterius rule that s 139(1) impliedly excludes the remedy of imposition of a financial recovery plan in the case of discretionary intervention. We are however on balance of the view that such an argument would be incorrect. Section 139(1) permits the provincial executive to take "any appropriate steps" to address the municipality’s failure to fulfil its executive obligation. It is wide enough to permit the imposition of a financial recovery plan if the plan and its imposition are an appropriate way to address the problem. Section 139(5) is not directly comparable because it deals with the steps that the provincial executive is obliged to take in the case of mandatory intervention (other). The fact that it specifies the imposition of a financial recovery plan does not imply that this is not a permissible step in the case of discretionary intervention in terms of s 139(1).
  2. These provisions however also create an anomaly within chapter 13 itself which raises some constitutional concern:
    1. It arises from clauses 136(2)(b)(v) and (vi) which provide that the financial recovery plan imposed on a municipality in the case of discretionary intervention, may "provide budget parameters which bind the municipality" and "identify specific tax rates, tariffs and revenue collection measures".
    2. Measures of that kind interfere with the municipality’s legislative powers to determine its own budget, tax rates, tariffs and revenue collection measures.
    3. But in terms of clause 139(2), the financial recovery plan binds the municipality only "in the exercise of its executive authority".
    4. It also creates uncertainty about the constitutionality of these provisions because it is not clear that it is permissible in terms of s 139(1) of the Constitution, for the provincial executive to interfere with the municipality’s legislative functions in the case of discretionary intervention. Discretionary intervention is authorised whenever a municipality fails to fulfil an executive obligation. The provincial executive is then authorised to take any appropriate steps to ensure fulfilment of that obligation. It is uncertain whether it can ever be said to be appropriate to interfere with the municipality’s legislative functions to address its failure to perform an executive obligation and no more. We can see arguments both ways but it is not necessary to resolve the uncertainty because we infer from the anomaly referred to above, that the drafters of the Bill did not intend to interfere with the legislative functions of a municipality in the case of discretionary intervention.

  3. We infer that the anomaly and constitutional uncertainty were not intended. They arise from the fact that the Bill fails in clause 136, to distinguish between the recovery plans that may be imposed on municipalities in the case of discretionary intervention and mandatory intervention (other) respectively. We would suggest that the distinction be maintained and that separate criteria be prescribed for the financial recovery plans that may be imposed in those two cases. Both the drafting anomaly and the constitutional uncertainty should then disappear.
  4. We conclude that chapter 13 is generally consistent with the Constitution but that the aforegoing anomaly and uncertainty should be resolved by distinguishing in clause 136 between the financial recovery plans that may be imposed in the case of discretionary intervention and the financial recovery plans that may be imposed in the case of mandatory intervention (other). It may even be a good idea to deal with the three forms of intervention in completely different sections of the chapter. The present style of drafting which sometimes deals with them separately and sometimes together, does become rather confusing.
  5.  

    Clause 134(2) of the Bill

  6. Clause 134(2) of the Bill sets out two drafting options as follows:
  7. OPTION 1: "The following factors, singly or in combination, may indicate that the municipality is in serious material breach of its obligations to meet its financial commitments."

    OPTION 2: "The existence of any of the following circumstances indicates that the municipality is in serious material breach of its obligations to meet its financial commitments."

    The Portfolio Committee prefers option 2 over option 1, but is concerned that it may represent an unconstitutional attempt to define what is meant in s 139(5) of the Constitution. Our advice is sought regarding whether option 2 would be unconstitutional.

  8. Section 139(5) of the Constitution provides that a provincial executive authority "must" intervene if a municipality "as a result of a crisis in its financial affairs, is in serious or persistent material breach of its obligations to provide basic services or to meet its financial obligations". In other words, a provincial executive has an obligation to intervene if the jurisdictional requirements in s 139(5) are satisfied (although it has a discretion to determine whether its intervention should take the form of subsection (b) or (c)). The decision whether or not the jurisdictional requirements are satisfied, vests in the first instance in a provincial authority. However s 139(8) of the Constitution provides that national legislation "may regulate" the implementation of s 139.
  9. In our view, option 2 gives rise to two constitutional objections. The first is that option 2 is under-inclusive.
    1. Option 2 appears to indicate that subsections (a) to (d) provide an exhaustive list of all the circumstances in which a municipality is in serious material breach of its obligation to meet its financial commitments.
    2. It is however an easy matter to think of situations in which a municipality may be in serious material breach of its obligation to meet its financial commitments even though it does not fall within subsections (a) to (d). To the extent that option 2 seeks to prohibit a provincial executive from acting in terms of s 139(5) in such a situation, it is under-inclusive.

  10. The second objection is that option 2 is over-inclusive.
    1. Option 2 sets out a series of situations in which a municipality is considered to be in serious material breach of its obligation to meet its financial commitments.
    2. It is however an easy matter to think of situations in which a municipality falls within subsections (a) to (d) even though it is not in serious material breach of its obligation to meet its financial commitments. For example, a municipality that fails to repay a R100 loan on the day that it is due falls within subsection (a) but would hardly be said to be in serious material breach of its obligation to meet its financial commitments. To the extent that option 2 obliges a provincial executive authority to act in terms of s 139(5) in such a situation, it is over-inclusive.

  11. We conclude that option 2 is probably an unconstitutional attempt to give exhaustive content to s 139(5) of the Constitution.
  12.  

    REGULATION OF MUNICIPAL BUDGETS

  13. Our advice is sought on whether the Bill impermissibly intrudes into the affairs of local government in the manner in which it regulates municipal budgets.
  14.  

    The constitutional framework

  15. Municipalities have executive authority in respect of, and the right to administer, their own finances. The fact that municipalities have this authority, does however not necessarily mean that parliament is deprived of the power to legislate on municipal finances. Section 151(3) of the Constitution makes it clear that the power of a municipality to administer its affairs is not absolute, but is subject to national legislation "as provided for in the Constitution". In other words, the right of a municipality to govern its affairs on its own initiative gives way when the Constitution provides for national legislation.
  16. There are both specific and general constitutional provisions that provide for national legislation on the topic of municipal budgets.
  17. Specific provisions.
    1. Section 215 of the Constitution provides as follows:

"(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.

    1. National legislation must prescribe –
    2. (a) the form of national, provincial and municipal budgets;

      (b) when national and provincial budgets must be tabled; and

      (c) 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 –

(a) estimates of revenue and expenditure, differentiating between capital and current expenditure;

(b) proposals for financing any anticipated deficit for the period to which they apply; and

(c) an indication of intentions regarding borrowing and other forms of public liability that will increase public debt during the ensuing year".

Section 215(2) envisages that national legislation must be enacted regarding municipal budgets.

    1. Section 216(1) of the Constitution provides as follows:

"National legislation must establish a national treasury and prescribe measures to ensure both transparency and expenditure control in each sphere of government, by introducing –

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

Section 216(1) envisages that national legislation must be enacted to introduce generally accepted accounting practice and uniform treasury norms for municipalities.

  1. General powers of regulation
    1. Section 155(7) of the Constitution provides that parliament may regulate municipalities in the exercise of their executive powers, whether by legislative or executive means. It accordingly envisages that a municipality’s powers in terms of s 156(1) are subject to:
    2. - "supervision by national … government";

      - "overseeing" by national government.

    3. Parliament’s power to regulate municipal budgets in terms of s 155(7) is subject to a series of constitutional constraints that are fully set out in our earlier opinion.

     

    Treasury norms and standards

  2. Our advice is sought on the limits of parliament’s competence to introduce treasury norms and standards that will impact upon the ability of a municipality to manage its own affairs.
  3. The limits may be summarised in broad terms as follows:
    1. In terms of s 216(1)(c) of the Constitution, parliament has the competence to introduce "uniform treasury norms and standards" in (inter alia) the sphere of local government.
    2. In term of s 155(7) of the Constitution, parliament has the competence to "regulate" the exercise by municipalities of their executive authority. This provision differs from s 216(1) of the Constitution in that it does not authorise parliament to regulate the exercise by municipalities of their legislative authority.
    3. Irrespective of whether parliament relies on s 216(1) or s 155(7) for the establishment of treasury norms, its competence is subject to the following limitations.
      1. First: parliament may not ‘compromise or impede a municipality’s ability or right to exercise its powers or perform its functions (s 151(4) of the Constitution).
      2. Second: parliament may not "encroach on the geographical, functional or institutional integrity of government in another sphere" (s 41(1)(g) of the Constitution). It has been held that s 41(1)(g) is concerned with the way power is exercised, not with whether or not a power exists. In other words, s 41(1)(g) seeks "to prevent one sphere of government using its powers in ways which would undermine other spheres of government and prevent them from functioning effectively".

  4. Against this background, we turn to consider the constitutionality of those clauses of the Bill to which our attention has been directed.
  5.  

    Clause 23(1) of the Bill

  6. Clause 23(1) of the Bill provides that a municipal council must "consider" the views of the National Treasury and of any other organs of state that have made submissions on a municipal budget.
  7. The Bill does not require a municipal council to accept those submissions. It follows that clause 23(3) is not subject to constitutional challenge on the basis that it trenches on the authority of local government.
  8.  

    Clause 23(3) of the Bill

  9. Clause 23(3) of the Bill provides that "the National Treasury may issue guidelines on the manner in which municipal councils should process their annual budgets, including guidelines on the formation of a committee of a council to consider the budget and to hold public hearings".
  10. The Bill does not provide that guidelines issued in terms of clause 23(2) will bind a municipal council. In other words, a municipal council is not obliged to comply with whatever guidelines are issued by the National Treasury. It follows that clause 23(3) is not subject to constitutional challenge on the basis that it trenches on the authority of local government.
  11.  

    Clause 122(2) of the Bill

  12. Clause 122(2) requires that a municipal council must hold a public hearing in respect of its annual report.
  13. It is possible that this provision may fall within s 215 or s 216 of the Constitution. Even if it does not, it probably ‘regulates’ the exercise by municipalities of their executive authority within the meaning of s 155(7) of the Constitution and does not ‘compromise or impede’ a municipality’s ability to exercise its powers within the meaning of s 151(4). It follows that this clause is probably not unconstitutional.
  14.  

    Clause 122(4) of the Bill

  15. Clause 122(4) of the Bill provides that the National Treasury may issue guidelines on the manner in which municipal councils should consider their annual reports and the functioning of any oversight committees.
  16. It is clear from clause 122(5) that a municipality is not obliged to comply with whatever guidelines are issued. It follows that clause 122(4) is not subject to constitutional challenge on the basis that it trenches on the authority of local government.
  17.  

    Clause 123 of the Bill

  18. Clause 123 of the Bill regulates the procedure to be followed at certain meetings of a municipal council.
  19. It is possible that this provision may fall within s 215 or s 216 of the Constitution. Even if it does not, it probably ‘regulates’ the exercise by municipalities of their executive authority within the meaning of s 155(7) of the Constitution and does not ‘compromise or impede’ a municipality’s ability to exercise its powers within the meaning of s 151(4). It follows that this clause is probably not unconstitutional.
  20.  

    Clause 162 of the Bill

  21. Clause 162(1) of the Bill provides that the National Treasury may make "regulations or guidelines applicable to municipalities" regarding a vast array of topics.
  22. Clause 164(2) envisages that ‘regulations’ made in terms of clause 162 are binding. In contrast, it appears that ‘guidelines’ are not intended to be binding.
  23. On the basis that ‘guidelines’ made in terms of clause 162 are not binding, they will not be subject to constitutional challenge on the basis that they trench on the authority of local government. It is not unconstitutional for the Bill to provide that the National Treasury may issue guidelines that are not binding.
  24. A ‘regulation’ that binds a municipality will intrude into the authority of local government.
    1. As we have indicated above, there are various provisions of the Constitution that allow for national legislation to impact on the affairs of municipalities. In the light of these provisions, the existence of a power to make regulations in terms of clause 162 does not appear to be subject to constitutional challenge.
    2. There is however a difference between the existence of a power and the way in which a power is exercised. If clause 162 confers lawful powers on the National Treasury, the manner in which such a power is exercised may nevertheless be unconstitutional. It is therefore possible that the National Treasury may violate the Constitution when it exercises its powers in terms of clause 162.
    3. Many of the regulations that are contemplated in clause 162(1) deal with issues that fall within the scope of s 216(1) of the Constitution. The general question that arises is whether this constitutes an impermissible delegation of law-making power. In other words, the question is whether s 216(1) of the Constitution requires parliament – rather than a delegated law-maker – to prescribe the relevant norms and standards.
    4. The Constitutional Court held in the Western Cape case that, where the Constitution uses the phrase ‘national legislation must…’, it is a strong indication that the relevant legislative power may not be delegated and must be exercised by parliament itself.
    5. The Western Cape case appears to take insufficient account of section 239 of the Constitution, which provides that (unless the context indicates otherwise) the phrase ‘national legislation’ includes ‘subordinate legislation made in terms of an Act of Parliament’.
    6. In our view, s 216(1) of the Constitution probably does not prohibit parliament from delegating the law-making power which is referred to therein. It follows that clause 162(1) probably does not contain an unconstitutional delegation of power to the National Treasury.

  25. We conclude that clause 162 is probably not subject to constitutional challenge.
  26.  

    REGULATION OF THE CONTRACTUAL POWERS OF MUNICIPALITIES

  27. Our advice is sought regarding the constitutionality of those provisions of the Bill that impact on the contractual powers of municipalities.
  28.  

    The constitutional framework

  29. Municipalities have executive authority in respect of, and the right to administer, the matters listed in Schedules 4B and 5B. It includes the authority to enter into contracts regarding Schedule 4B and 5B matters (s 156(5) of the Constitution). However the fact that municipalities have this authority, does not necessarily mean that parliament is deprived of the power to legislate on these matters. Section 151(3) of the Constitution makes it clear that the power of a municipality to administer its affairs is not absolute, but is subject to national legislation "as provided for in the Constitution". In other words, the right of a municipality to govern its affairs on its own initiative gives way where the Constitution provides for national legislation.
  30. The following provisions of the Constitution provide for national legislation on the topic of municipal contracts.
  31. Section 230A
    1. Section 230A of the Constitution provides as follows:

"(1) A Municipal Council may, in accordance with national legislation –

    1. raise loans 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 financial 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.

(2) National legislation referred to in subsection (1) may be enacted only after any recommendations of the Financial and Fiscal Commission have been considered."

    1. Section 230A(1) envisages that national legislation may be enacted to impose conditions that must be complied with by a municipality wishing to raise a loan or to bind itself in the exercise of its authority to secure loans or investments.

  1. Section 155(7)
    1. Section 155(7) of the Constitution provides that parliament may regulate municipalities in the exercise of their executive powers, whether by legislative or executive means.
    2. For the reasons indicated in our earlier opinion, parliament’s powers in terms of s 155(7) are subject to a series of constitutional constraints. For present purposes, the relevant constraints may be listed as follows.
      1. First: although parliament has the power in terms of s 155(7) to "regulate" the exercise by municipalities of their executive authority, it has no power to deprive a municipality of its executive authority. National legislation that deprives a municipality of its executive authority will fall foul of s 156(1).
      2. Second: parliament has no power in terms of s 155(7) to "regulate" the exercise by municipalities of their legislative authority.
      3. Third: parliament may not ‘compromise or impede a municipality’s ability or right to exercise its powers or perform its functions (s 151(4) of the Constitution).

     

    Clause 31 of the Bill

  2. Clause 31 imposes certain requirements if a municipality wishes to enter into a contract that will "impose financial obligations on the municipality beyond the end of the second financial year following the budget year". These requirements apply to all contracts, save for those excluded in terms of clause 31(2).
  3. Some of the contracts that fall within the ambit of clause 31 involve "[securing] loans or investments for the municipality". They are covered by s 230A(1)(b) of the Constitution. Section 230A provides for national legislation and envisages that those contracts will bind a municipal council "in the exercise of its legislative and executive authority". To the extent that clause 31 refers to contracts falling within the ambit of s 230A(1)(b) of the Constitution, it is not subject to constitutional challenge.
  4. The position is different in the case of contracts that fall within the ambit of clause 31 but do not involve "[securing] loans or investments for the municipality". They are not covered by s 230A(1)(b) of the Constitution, and s 230A can accordingly not be relied on as the source of parliament’s competence. Parliament’s competence to regulate contracts of this kind would have to be located in its power to "regulate" the exercise by municipalities of their executive authority in terms of s 155(7) of the Constitution.
    1. A municipality enters into contracts in the exercise of its executive authority. This is so notwithstanding the fact that clause 31(1)(c) provides that the contract must be approved by a resolution of the municipal council which authorises the municipal manager to sign the contract on behalf of the municipality. This provision imposes a requirement for the exercise of executive authority by a municipality. It does not convert the conclusion of a contract into an exercise of legislative authority. It should be borne in mind that in the case of local government (unlike in the case of provincial and national government), legislative and executive authority is vested in a single body, viz. the municipal council (s 151(2) of the Constitution).
    2. In our view, clause 31 probably ‘regulates’ the exercise by municipalities of their executive authority within the meaning of s 155(7) of the Constitution and does not ‘compromise or impede’ a municipality’s ability to exercise its powers within the meaning of s 151(4). It follows that this clause is probably not unconstitutional.

  5. We conclude that clause 31 is probably not subject to constitutional challenge.
  6.  

    CAPPING POWERS

  7. Our advice is sought regarding the constitutionality of those provisions in the Bill that provide for the capping of municipal powers.
  8.  

    The constitutional framework

     

  9. Municipalities have executive authority in respect of, and the right to administer, their own finances. However the fact that municipalities have such authority does not necessarily mean that parliament is deprived of the power to legislate on the matter. Section 151(3) of the Constitution makes it clear that the power of a municipality to administer its affairs is not absolute, but is subject to national legislation "as provided for in the Constitution". In other words, the right of a municipality to govern its affairs on its own initiative gives way where the Constitution provides for national legislation.
  10. There are both specific and general constitutional provisions that provide for national legislation involving the capping of municipal powers.
  11. The specific powers
    1. Section 230A(1) envisages that national legislation may be enacted to impose conditions which must be complied with by a municipality wishing to raise a loan.
    2. Section 216(1) envisages that national legislation must be enacted to introduce uniform treasury norms for municipalities.
    3. Section 229(2) of the Constitution provides as follows:

"The power of a municipality to impose rates on property, surcharges on fees for services provided by or on behalf of the municipality, or other taxes, levies or duties –

    1. may not be exercised in a way that materially and unreasonably prejudices national economic policies, economic activities across municipal boundaries, or the national mobility of goods, services, capital or labour; and
    2. may be regulated by national legislation."

  1. The general power of regulation
    1. Section 155(7) of the Constitution provides that parliament may regulate municipalities in the exercise of their executive powers, whether by legislative or executive means.
    2. Parliament’s power of regulation is subject to three constitutional constraints that are relevant for present purposes.
      1. First: parliament has the power in terms of s 155(7) to "regulate" the exercise by municipalities of their executive authority, but it has no power to deprive a municipality of its executive authority.
      2. Second: parliament has no power in terms of s155(7) to "regulate" the exercise by municipalities of their legislative authority.
      3. Third: parliament may not ‘compromise or impede a municipality’s ability or right to exercise its powers or perform its functions (s 151(4) of the Constitution).

    3. Against this background, we turn to consider the constitutionality of those provisions of the Bill to which our attention has been directed.

     

    Clause 20(b)(vi) of the Bill

     

  2. Clause 20(b)(iv) of the Bill provides that the National Treasury may prescribe

"uniform norms and standards aimed at ensuring that municipal budget do not undermine national economic policy objectives, including measures limiting –

    1. the rate of total revenue growth or the rate of revenue growth from particular sources; and
    2. the rate of growth of operating expenditure within particular categories of expenditure".

  1. Clause 20(b)(iv) seeks to regulate a municipality’s power when it comes to determining its budget. A municipality’s power to establish a budget is legislative rather than executive in character. It follows that the powers in clause 20(b)(iv) do not fall within the ambit of s 155(7) of the Constitution, since the latter only provides for parliament to regulate the exercise by municipalities of their executive authority.
  2. If parliament has the competence to enact clause 20(b)(iv), such competence would have to be located in s 216(1) or s 229(2) of the Constitution. National legislation that falls within the ambit of those provisions will be constitutional even if it impacts on the legislative authority of municipalities.
  3. Clause 20(b)(iv) does not fall within the ambit of s 229(2) of the Constitution. Clause 20(b)(iv) goes much further than merely to regulate the exercise by a municipality of its power to impose rates on property, surcharges on service fees or other taxes.
  4. Whether clause 20(b)(iv) falls within the ambit of s 216(1) of the Constitution, is a question of some difficulty.
    1. Clause 20(b)(iv) clearly does not provide for "generally recognised accounting practice" (s 216(1)(a) of the Constitution) or "uniform expenditure classifications" (s 216(1)(b) of the Constitution). It is less easy to determine whether it provides for "uniform treasury norms and standards" within the meaning of s 216(1)(c) of the Constitution.
    2. In our view, the norms and standards that are referred to in clause 20(b)(iv) of the Bill, probably do not amount to treasury norms and standards. They seek to ensure that municipal budgets "do not undermine national economic policy objectives". In other words, they seek to bring municipal policy into line with national economic policy. (Cf clause 5(2)(a), which provides that the National Treasury may monitor municipal budgets to establish whether they "are consistent with the national government’s fiscal and macro-economic policy".) This probably does not amount to a treasury norm or standard.

  5. We conclude that clause 20(b)(iv) is probably an unconstitutional attempt by parliament to constrain the legislative authority of municipalities.
  6.  

    Clause 40(2) of the Bill

  7. Clause 40(2) of the Bill provides as follows:
  8. "Section 20(b)(iv) or any other power conferred by national or provincial legislation on a national or provincial organ of state to determine the upper limit of municipal tariffs, rates, taxes, levies or revenue does not, despite that section or such other legislation, apply to a municipality to the extent that it would impair a municipality’s ability to meet its contractual obligations in terms of a contract that has been approved by the municipality in accordance with section 31 or 43(3)."

  9. We have indicated above that clause 20(b)(iv) of the Bill is probably unconstitutional. It is accordingly unnecessary for us to consider whether clause 40(2) is constitutional, since it envisages the creation of exceptions to a cap imposed in terms of clause 20(b)(iv).
  10. If our preceding conclusions are incorrect, then we point out that clause 40(2) would give rise to extraordinary difficulties in practice. It envisages that a cap imposed in terms of clause 20(b)(iv) does not apply if and to the extent that "it would impair a municipality’s ability to meet its contractual obligations" in terms of clause 31. The creation of such an exception to the capping power may well be unworkable in practice.
  11.  

    An alternative procedure

  12. Our advice is sought on whether an alternative procedure would be constitutional whereby the Minister has the power to grant case-by-case exemptions from the capping provisions. What is apparently envisaged is that a municipality could apply to the Minister on an ad hoc basis to be exempted from the caps imposed in terms of clause 20(b)(iv).
  13. We have indicated that clause 20(b)(iv) is unconstitutional. It is accordingly unnecessary for us to consider this question.
  14. We will however assume for the sake of argument that clause 20(b)(iv) is not subject to constitutional challenge. On this assumption, the alternative procedure would be a particular manifestation of the general power of exemption contained in clause 171(1)(b). Such a procedure would be lawful. However it would probably for prudent for the Bill to stipulate what factors must be considered by the Minister when granting an exemption. We say so for the following reasons.
    1. In a series of judgments, the Constitutional Court has indicated that parliament must provide adequate guidelines in order to indicate how administrative functionaries are required to exercise a delegated discretion.
    2. In Dawood v Minister of Home Affairs, parliament had conferred an administrative discretion on functionaries without providing any guidelines regarding the circumstances in which the discretion should be issued. The court held that this was constitutionally impermissible since,
    3. "no attempt has been made by the legislature to give guidance to decision-makers in relation to their power’ (para 55).

    4. The principle enunciated in Dawood seems to be subject to at least two limitations. The Constitutional Court appeared to indicate that parliament’s duty to give guidance to decision-makers in relation to their powers,
    5. - was only relevant in the context of determining whether a law satisfied the general limitation clause;

      - only applied in circumstances where decision-makers were authorised to interfere with constitutional rights.

    6. Both of these limitations were apparently ignored in the subsequent case of Janse van Rensburg NO v Minister of Trade and Industry. Goldstone J held as follows:
    7. "[A]s this Court has already held (in the context of a limitation analysis), the constitutional obligation on the Legislature to promote, protect and fulfil the rights entrenched in the Bill of Rights entails that, where a wide discretion is conferred upon a functionary, guidance should be provided as to the manner in which those powers are to be exercised. The absence of such guidance [renders] the procedure provided in s 8(5)(a) [of the Consumer Affairs (Unfair Business Practices) Act 71 of 1988] unfair and a violation of the protection afforded by s 33(1) [of the Constitution]".

      In footnote 29, Goldstone J indicated that other provisions of the act under consideration,

      "may also be of concern because they too confer a wide discretion without any guidance as to their exercise by the Minister".

    8. For present purposes, it is unnecessary for us to consider whether it is a general principle of law that, whenever parliament confers a wide discretion on an administrative functionary (including a minister), it must provide some guidance as to the manner in which those powers should be exercised. It suffices to say that in the light of the above-mentioned judgments, it would probably be prudent for the Bill to stipulate criteria that must guide the Minister if the alternative procedure were to be adopted.

     

    MUNICIPAL SUPPLY CHAIN MANAGEMENT

     

     

  15. Our advice is sought regarding whether chapter 10 of the Bill is unconstitutional on the basis that it seeks impermissibly to interpret what is meant by s 217(1) of the Constitution.
  16.  

    The constitutional framework

  17. Section 217 of the Constitution provides as follows:
  18. "(1) When an organ of state in the national, provincial or local sphere of government, or any other institution identified in national legislation, contracts for goods or services, it must do so in accordance with a system which is fair, equitable, transparent, competitive and cost-effective.

    (2) Subsection (1) does not prevent the organs of state or institutions referred to in that subsection from implementing a procurement policy providing for –

    (a) categories of preference in the allocation of contracts; and

    (b) the protection or advancement of persons, or categories of persons, disadvantaged by unfair discrimination.

    (3) National legislation must prescribe a framework within which the policy referred to in subsection (2) must be implemented."

  19. Section 217(1) imposes requirements that must be satisfied when an organ of state in the local sphere of government contracts for goods and services. It must do so in accordance with a system that is "fair, equitable, transparent, competitive and cost-effective".
  20. The predecessor of s 217 was s 187 of the interim Constitution. It provided that the procurement of goods and services at any level of government had to be regulated "by an Act of Parliament and provincial laws" (s 187(1)). The Supreme Court of Appeal held that "the primary and overriding import of s 187 [was] to impose legislative duties on the national and provincial legislatures".
  21. Section 217 of the Constitution is differently worded. Save to the extent set out in s 217(3), it does not provide for the enactment of national legislation . It does not follow, however, that parliament is deprived of the competence to enact legislation dealing with the matters envisaged in s 217(1). In general, parliament has the competence to enact legislation in terms of s 44(1)(a)(ii) of the Constitution. To the extent that such legislation applies to local authorities, parliament’s competence is located in s 155(7) of the Constitution. In other words, parliament has the competence to provide for the "system" that is envisaged in s 217(1). National legislation is liable to be set aside if it fails to provide for a system that is not "fair, equitable, transparent, competitive and cost-effective".
  22. The fact that s 217(1) does not mandate national legislation means that other spheres of government are not disempowered from enacting legislation on the same topic. It follows that national legislation will not necessarily prevail over any conflicting legislation that is enacted by provincial government or local government.
    1. Provincial legislatures have the competence to regulate the exercise by municipalities of their executive authority in terms of s 155(7) of the Constitution. A provincial legislature might competently enact legislation providing for the procurement system to be used by local government. An example of such legislation is the Gauteng Rationalisation of Local Government Affairs Act 10 of 1998.
    2. A municipality has the competence to make by-laws dealing with its procurement system (s 156(2) of the Constitution).
    3. A situation may accordingly arise in which national legislation, provincial legislation and municipal by-laws all purport to regulate the procurement system that must be followed by a municipality. If each system complies with the constitutional norms in s 217(1), a conflict will arise. Such a conflict will have to be resolved in terms of sections 146-150 and subsection 156(3) of the Constitution. The question as to which legislation would prevail in the event of conflict is a question "about the effect of the legislation and not the power to make it".

     

    Chapter 10 of the Bill

  23. Our advice is sought on whether chapter 10 of the Bill is unconstitutional on the basis that it purports impermissibly to interpret what is meant by s 217(1) of the Constitution.
  24. Clause 84(1) of the Bill provides that a municipality’s supply-chain management must "comply with a prescribed framework setting uniform treasury norms and standards". This appears to be an attempt to invoke s 216(1)(c) of the Constitution. In our view, the attempt is probably unsuccessful. It is difficult to see what procurement policies have to do with "treasury norms and standards". It is even more difficult to see why policies regulating the disposal of capital assets (see clause 14(5) and clause 82(1)(b)) should be regarded as "treasury norms and standards".
  25. It is however unnecessary for parliament to derive its competence to establish a supply-chain management system from s 216 of the Constitution. We have indicated above that s 155(7) of the Constitution gives parliament the competence to establish a procurement system for local government as envisaged in s 217(1) of the Constitution. It follows that chapter 10 probably does not exceed the competence of parliament.
  26. The difficulty that arises is that there may be provincial legislation and municipal by-laws that also purport to establish a supply-chain management system for local government. This may give rise to conflicting obligations. If such a conflict arises, it would have to be resolved in terms of sections 146 to1 50 and subsection 156(3) of the Constitution. It is unnecessary for us to express a view as regards which legislation would prevail in the event of such a conflict. We merely point out that clause 3(2) cannot of itself ensure that the Bill will prevail over conflicting provincial legislation or municipal by-laws dealing with this topic.
  27.  

     

    DOES THE BILL TRENCH ON THE POWERS OF THE PROVINCES?

  28. Thus far we have considered whether the Bill trenches on the constitutional authority of local government. In this section we consider whether the Bill intrudes impermissibly into the affairs of the provinces.
  29.  

    Clause 125(6) of the Bill

  30. Clause 125(6) provides that "the National Treasury may issue guidelines on the manner in which provincial legislatures should consider the annual report of municipalities". Our advice is sought regarding whether this interferes with an area of exclusive provincial competence in terms of chapter 6 of the Constitution.
  31. The short answer is that clause 125(6) does not envisage that a provincial legislature must necessarily accept whatever guidelines are issued by the National Treasury. Since a provincial legislature is at liberty to reject those guidelines, clause 125(6) does not intrude into an area of exclusive provincial competence.
  32.  

    What if the guidelines were binding?

  33. Our advice is sought regarding whether the position would be different if clause 125(6) were to provide for norms and standards that bind provincial legislatures (as opposed to guidelines that do not). Our instructions are that the aim of such a provision would be to ensure that provincial legislatures follow a "public accounts committee type arrangement … to ensure effective financial governance and accountability and to address non-compliance (as spelled out in the audit by the Auditor-General)".
  34. Norms and standards of the sort contemplated would not fall within the ambit of s 215(2) or s 216(1) of the Constitution.
  35. Such norms and standards would also not fall within the ambit of s 155(7) of the Constitution. They would not seek to regulate the exercise by municipalities of their executive authority. They would seek rather to prescribe the manner in which provincial legislatures must conduct themselves. Section 155(7) does not authorise parliament to impose duties on provincial legislatures and, in our view, it is probably not competent for parliament to do so. As the Bill acknowledges in clause 125(5), provincial legislatures have "constitutional powers" to deal with the documents referred to them in terms of s 125(1). In terms of s 104(3) of the Constitution, a provincial legislature "is bound only by the Constitution". The National Treasury may not prescribe to a provincial legislature how it should exercise its powers.
  36. We conclude that clause 125(6) would probably be unconstitutional if it were to provide for norms and standards that bind provincial legislatures.
  37.  

    CLAUSE 171(2) OF THE BILL

  38. Our advice is sought regarding whether clause 171(2) of the Bill contradicts the judgment of the Constitutional Court in Swartbooi v Brink that was delivered on 3 April 2003.
  39. The Constitutional Court judgment dealt with the circumstances in which it is appropriate for members of a municipal council to be ordered to pay, de bonis propriis, the costs of court proceedings concerning the validity of decisions of a municipal council. The judgment revolved around section 161 of the Constitution and section 28 of the Local Government: Municipal Structures Act No 117 of 1998.
  40. Clause 171(2) of the Bill provides that the Minister may in certain circumstances exempt a municipality from complying a provision of the Bill. This does not "contradict" the judgment in Swartbooi.

 

____________________

Wim Trengove SC

 

 

____________________

Alfred Cockrell

Chambers

Sandton

26 May 2003