09 February 2005

Enquiry: P.M. Raedani

The following comments that in our opinion form key parameters in as far as harmonizing cooperative governance principles, ensuring compliance to the Constitution and promoting the best financial management practices are hereby submitted for inclusion in the bill:

We are of the view that for purposes of clarity a reference should be made in the section to the origin of the determining formula so that it is clearly apparent to municipalities that the determination is not arbitrary. Hence we suggest insertion as follows:

Each municipality’s share of local government equitable Share revenue anticipated to be raised national in respect of the budget year, determined as provided in section 10 of the Intergovernmental Fiscal Relations Act no. 97 of 1997, is set out in Column A of Schedule 3

In addition we suggest that the memorandum referred to in section 10(5) of the Act mentioned above should clearly spell out both the process in terms of which the formula was determined and the content of the formula thereof. Thus reference should be made to the fact that the formula takes account of recommendations from the FFC and consultation between dplg, National Treasury and SALGA and spell out how it is applied. The memorandum should then be promulgated with the Act (not just presented to parliament) so that it is available to all municipalities for reference.

The section now provides for the transferring of equitable share to municipalities in quarterly instalments before the end of June, September, November and March, whereas the 2004 DORA provided for such quarterly instalments to be transferred before the end of May, August, November and February. Our proposal is that the period by which equitable share installments should be transferred to municipalities must be kept consistent so that municipalities are able to reliably compare their cash-flow performance between different financial years and thus forecast future cash-flow appropriately. Furthermore, by the time the Act is promulgated municipalities will have completed the budget implementation planning, and will have done so on the basis of last year’s arrangements.

The change does not seem to be based on logic, but rather on departmental expediency. The advance is stated to be quarterly, but the proposed payment dates are neither in advance (as was the case) nor in arrears.

Subsection 2 seems to be superfluous and over-prescriptive. The intention of ensuring that service delivery agreements are completed is covered by section 9 (1)(b). If necessary more clarity can be given to that subsection by inserting the words "before the commencement of the financial year". Furthermore, this subsection implies that no transfers will be made in the future unless agreements are made on the date stipulated. In fact municipalities have the right to conclude agreements with entities at any stage in future pursuant to the process anticipated in Part 2 of Chapter 8 of Municipal Systems Act. (and S77 in particular)

Sub sections 9 (6) & (7) seem to be at odds with Municipal Systems Act which regulates the process of determining the service delivery mechanisms to be used by municipalities. These sections go beyond the level of regulation allowed by the Constitution.

While we do not propose that this be regulated statutorily, it is convenient to refer to the following comments from municipalities namely, "The control of the flow of funds between the different spheres of government and between Municipal entities and municipalities needs to be improved. At present the provincial government requires municipalities to obtain Council approval for the transfer of funds and the accounting officer is required to sign a declaration form. District municipalities are also using the mechanism where funds are transferred to local municipalities.

The obtaining of the necessary Council approvals is time consuming. However, the acceptance of the Conditional Grant should be the responsibility of the Council which should not delegate this responsibility.

It may however be necessary for National Treasury to standardize the declaration forms used by the three spheres of government and to provide guidelines in this regard."

We would welcome the opportunity to engage you on the development of a uniform set of guidelines.

Our proposal regarding section 14(1) is similar to that provided for section 5(1) above.

With regard to section 14(2) municipalities have commented as follows, "In terms of section 14 (2), the MIG will be transferred directly to municipalities from 1 July 2006 subject to certain conditions. District municipalities have established Project Management Units (PMU) which are financed by means of a 5% top slice of the MIG. It is important that as from 1 July 2006, the 5% top slice be transferred directly to district municipalities to simplify the administration and ensure continued funding of the PMU. PMU’s are an essential component of the administrative structure prescribed by dplg as implementing department.

Regarding this section we also received comments from municipalities which read as follows, "Section 24 (1) determines that a district municipality must submit its draft budget by not later than 15 March. CFO’s will be under pressure to meet the 30 March deadline determined by the MFMA and it is suggested that the MFMA date of 30 March should be included in the DORA".

Section (3) refers to the 80% of RSC levies to be allocated to local municipalities in terms of the RSC Levy Act. This will result in many district municipalities becoming unsustainable. The Demarcation Act changed the boundaries of municipalities and often resulted in the significant reduction of income of many district municipalities. These district municipalities have resorted to utilizing RSC levies which is their only source of discretionary income to finance operating expenditure. A large number of district municipalities receive an equitable share which is below R3,0 million which is inadequate and prevents these district municipalities from performing their legal mandate."

SALGA welcomes the addition of this section as although it is punitive in nature it will go a long way to promote co-operative governance.