A Critical Reflection on Local Government Performance

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A Critical Reflection on Local Government
Performance

• Kevin Allan
• Local Government Consultant
• and Analyst

5th Annual Service Delivery Learning Academy 14th
July 2006
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In summary

• Introduction
• Successes
• Challenges
• A failure to deliver?
• Whe re to now for LG?
• Conclusion

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1. Introduction

• Over a period of ten years local government has
  progressed from being an hierarchical tier of
  government to an equal, autonomous sphere.
• The new local government system was stipulated by
  the South African Constitution, which elevated
  local government as distinctive, interdependent
  and interrelated to the national and provincial
  spheres.
• Following this, the 1998 White Paper on Local
  Government laid out the vision and framework of
  new local government.

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• This was legislated and bedded down in the raft
  of legislation that followed the Municipal
  Demarcation Act and the Municipal Structures Act
  in 1998, and the Municipal Systems Act in 2000.
• The Municipal Properties Rates Act (2004) and the
  Municipal Finance Management Act (2003) assisted
  in refining the new system.
• The number of municipalities has been
  rationalised from 843 to 284 in an extensive
  re-demarcation process.

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2. Key Succeses

• The new local government system succeeded in its
  goal of radically overhauling and transforming
  local government across the country.
• Most importantly, the welding together of
  previously separate parts of localities, ensuring
  all those who live and work in an area share
  fairly in the wealth generated in the area.
• A local vote ensuring that all who live in a
  municipality are equally represented on the local
  council.
• But this legally defined transformation masks an
  era of profound instability and problematic
  service delivery.

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3. Challenges

• Greatest challenge the ability to deliver
  services within the new system.
• The responsibility to deliver was left to the
  actual municipalities themselves, using new and
  untested methods detailed in the Systems Act to
  bring about the much vaunted but overly-ambitious
  developmental local government.
• Vitally dependant on two things
• local capacity to deliver, and
• access to adequate resources.

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(3.I.a) Understanding the roots of the capacity
problem in municipalities

• Constant and gruelling transformation and
  consolidation process over a ten-year period
  inevitably accompanied by transformation fatigue
  characterised by varying degrees of
  organisational stress, conflict and a high degree
  of staff turnover and loss of capacity.
• Dearth of capacity has not been addressed by
  well-publicised, high (and often questionable)
  salary packages for top managers.
• Inadequate recognition of the capacity problem at
  all levels has had profound implications for
  local governments ability to deliver services.
• In municipalities like Cape Town, managerial
  purges associated with changes of political
  leadership have further exacerbated these
  problems.

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(3.I.b) Other problems compounding the lack of
capacity

• In addition, a key concern for all municipalities
  is that post-transformation, they are
  significantly larger, sometimes two or three
  times so, but at the same time, significantly
  poorer, with the same tax base as before.
• Municipalities also inherited the non-payment
  problems of the old black local authorities
  (BLAs), which had begun in the rates boycotts of
  the 1980s.
• Some solutions, such as private sector
  partnerships and organisational restructuring,
  highly contentious and strongly resisted by the
  labour movement.
• Furthermore, the instability implied by
  transformation has led to the shying away of
  private financial institutions from the sector
  with the notable exception of the City of
  Johannesburgs bond issuances.

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(3.II.a) Access to adequate resources

• Although local government raises 2/3 of revenue
  itself, the ability to raise revenue varies
  dramatically from one municipality to the next.
• Poorer, less-capacitated municipalities are more
  dependent on national transfers than wealthier
  municipalities. The 2004 Intergovernmental Review
  reports that
• highest dependency on national sources of revenue
  was Bohlabelo at 92
• lowest dependency was Cape Town at 3.
• Access to national transfers, especially over the
  period of change and uncertainty in the last ten
  years when sources of funding were generally
  reduced, was critical to most municipalities.

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(3.II.b) Analysing access to national transfers -
percentages

• Gross transfers as a percentage of national
  revenue to local government rise from 1.9 to
  3.2 between 1995 and 1997, but then in 1998,
  drop to 1.3, their lowest level over the
  ten-year period (see Figure 1).
• Hereafter, transfers increase strongly and
  consistently to 4.3 in 2003 and 2004.
• The effect of the reduction in national transfers
  to local government is difficult to assess, but
  apart from the need for national transfers to
  address poverty and service backlogs, any
  fluctuations or uncertainty in national transfers
  would have increased instability in most
  municipalities.

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(3.II.c) Analysing access to national transfers
absolute figures

• Figure 2 illustrates the absolute value of
  transfers, showing a dramatic increase in
  transfers to national government after the
  initial drop between 1995 and 1997. Transfers to
  local government have increased from their lowest
  level of R2.1 billion in 1998 to 13.2 billion in
  2004.
• Over a 7-year period national revenue made
  available has increased 6-fold.
• Hence the crisis that faces municipalities can no
  longer be asserted as one of financial means.
• Of key concern now, given its capacity problems,
  has local government the ability to spend its
  revenue?

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4. A failure to deliver?

• Municipal service delivery since democracy can be
  assessed by analysing how well municipalities
  have spent their budgets over the last ten years,
  specifically
• spending on new capital projects (capex) and
• spending on recurring costs (opex)
• Given the existing backlog in infrastructure and
  the provision of services, one would want to see
  ideally a clear and consistent increase in
  spending over the period from 1996, reducing
  backlogs over time.
• Using data from the 2004 IGFR, Figure 3 shows the
  actual growth in spending from one year to the
  next.

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4.I Shrinking Capex

• Instead of a general increase in spending, both
  capital and operational expenditure fluctuate
  greatly, mirroring the instability over the
  period.
• Of greatest concern, the growth in capital
  expenditure. From 1997 to 1998 spending shrinks
  by 8.5 then it rises by 27 from 1998 to 1999,
  between 1999 and 2001 is constant at 0 and then
  shrinks again by 14.6.

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(4.II) Growth in Opex

• Operating expenditure over the period has grown
  more consistently.
• This includes possible increased spending on the
  provision of free basic services such as water
  and sanitation or general growth in the size of
  the municipality and consequently bulk water and
  electricity bills, but this also includes the
  growth in the salary bills of municipalities as
  they employ more personnel.
• While this is necessary and sensible to gear up
  for increased challenges, the poor performance
  around infrastructure spending (capex) would
  cause one to question the value of this increased
  spending on salaries.

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(4.III) Recent growth in Capex

• Hopefully the growth in capital expenditure from
  2002 to 2003 (12) and 2003 to 2004 (27.5) marks
  a new and consistent trend, marking the stability
  of the period post-transformation.
• But, the size of the backlog is such that it
  cannot be done away with in a year or a few
  years, it must be chipped away at over many
  years.
• The real concern is that ten years have now been
  lost, while the backlog remains and peoples
  impatience grows.

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5. Where to now for LG?

• Transformation is thankfully over for LG, but the
  challenge of delivery has yet to be resolved.
• Sources of revenue have stabilised (somewhat) and
  predictability of enhanced national revenue has
  meant that funding delivery is less of a problem
  than it has been in the past.
• But on the horizon the impact of,
• the loss of RSC levies (to metros and DCs) from
  June 2006, and
• the reconfiguring of electricity revenue from
  municipalities to a revised system of REDs
• These two items are sure to cause problems.

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6. Conclusion

• The key issue in regard to delivery is now the
  capacity problem.
• Municipalities have to hire, train and retain key
  staff to drive delivery.
• But the haemorrhaging of professional staff out
  of municipalities coupled with the occasional
  purge has left most municipalities in a
  precarious situation.
• The answer lies partly in sustained support from
  national and provincial government.
• But of far more importance, the need to build a
  professional non-partisan core of municipal
  employees, to take responsibility for local
  service delivery.