Intergovernmental

1
Intergovernmental Fiscal Review 2001 Local
Government NCOP T Pillay (National Treasury) 18
October 2001
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Background

• Municipalities have significant fiscal power
• Two thirds from user charges business activity
• (electricity and water)
• One third from tax funded services
• (local decisions and discretion)
• Direct transfers from national government
• Equitable share, CMIP, capacity
• (What more does national need to do?)
• (Focus on sequenced capacity building?)
• Provincial Transfers
• (How can provinces support Local
  government?)
• (Can provinces afford to transfer more?)

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Purpose and evolution

• Review of intergovernmental trends to support
  budget and policy processes
• 2000 IGFR
• made first attempt to cover local government
• but data weak or non-existent
• 2001 IGFR
• though information sketchy due to new structures
  - progress noted
• attempts to depict trends and highlight
  challenges going forward

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Objective

• Allows for comparisons and benchmarks
• Assists legislatures in understanding different
  pressures and dynamics at local government
• Informs policy-making process
• sharing of analysis and dissemination of
  information
• Promotes co-operative governance
• Aligning policy, budget, planning processes
• Tool for NCOP to strengthen oversight

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Local Government Chapters

• 8. Transformation challenges
• 9. Overview of municipal budgets
• 10. Transfers to local government
• 11. Capital investment
• Annexure D (trends, budget income and
  expenditure, levies, employee numbers)

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Introduction

• Overview of intergovernmental system
• 3 distinct, but interdependent spheres
• national role largely policy formulation
  setting of norms and standards
• provinces local government mainly responsible
  for implementation
• System premised on cooperative governance

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Local Government Transformation Challenges

• amalgamation and establishment of new munis
• re-alignment and re-assignment of powers and
  functions (between cat B and C)
• integrating over 200 000 employees without
  raising costs
• co-ordinating activities of cross border munis
• re-prioritisation of service delivery and
  expansion of infrastructure to service all
  citizens
• introduction and implementation of new
  legislative environment (Structures Act, Systems
  Act, MFMB, Prop Rates)

8
Personnel Expenditure

• PE case study real increases over past 10 years
  (Table 8.2 page 126)
• Minimum salary in some metros R4000 pm
• Pension variation (Table 8.3)
• Up to 35, with 27 from employer
• Shifting of functions involves shifting personnel
• risk of significant cost increases without any
  improvement in service delivery

9
Restructuring/Amalgamation

• Shifting functions between district and local
  munis
• What does it mean for effective service delivery
  and accountability?
• Restructuring of services, e.g. Regional
  Electricity Distributors
• How does this affect service quality and equity?
• Funding gap and impact on cash flows
• Funding implications
• Financial effects when moving personnel
• What does this do for affordability and
  sustainability of services?
• Impact on tariffs and incidence of taxes
• Tshwane case study on page 136

10
Restructuring and Support

• Decentralisation or devolution of functions
• Is this the right time to devolve functions to
  munis? e.g. primary health care, water services,
  public transport
• Free basic services
• How do we make this possible?
• What mechanisms do we use?
• How do we allocate subsidies efficiently?
• Local Government transformation plan
• Support by government
• Institutional and fiscal support
• Equitable share, Consolidation of grants
  (infrastructure and capacity)
• Reforms
• budget reforms, revenue reforms, planning
  reforms

11
Local Govt Budgets

• Budgets
• Reforms required
• formats, classification, presentation,
  understandable information, build linkages with
  planning, etc
• Budget trends
• overall local budgets now at R 61,8 bn
• need to improve on capital and infrastructure
  spending now at R 13,7 bn
• growth in personnel expenditure to 31 and lack
  of revenue collection impacts on infrastructure
  spending
• wide differences between municipalities

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Local Govt Budgets

• Sources of income
• Property rates 21
• Utilities (electr, water) 32
• Intergov transfers 8
• RSC levies 7
• Expenditure
• Salaries 31
• Bulk (electr, water) 30
• Capital charges 13
• Repairs and Maint 8

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Sample Metro budgets

• New classification - sector / functions
• Electricity 30
• Water Sanitation 19
• Administration 8,8
• Public safety 7,5
• Roads and Stormwater 6,3
• Refuse 5,1
• Need to implement country-wide, develop, improve
  reporting formats system

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Local Govt Transfers

• National Transfers
• responsibilities functions of local gov.
• subsidy to assist poor households for basic
  services
• expansion and rehabilitation of infrastructure
• skills training and development to assist in
  service delivery
• Proportion of allocation
• Equitable share 57
• Infrastructure 35
• Capacity 8

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Local Govt Transfers

• Equitable share (unconditional)
• efficacy of usage/local discretion
• access to basic services
• policy directed towards poor households
• overall average ES per household
• Smaller category B munis from 2001/02 to 2003/04
  - R 510 to R 611
• Metros category A munis from 2001/02 to
  2003/04 - R 151 to R 194

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Capital

• Capital / Infrastructure grants
• R2,7 bn in 2001/02
• facilitates expansion of services to all citizens
  faster (basic services)
• improve standards and level of services
• provide economic and other infrastructure unlock
  and stimulate countrys growth potential
• upgrade and update infrastructure (township/R293
  areas)
• Borrowing inability for infrastructure
• means higher grants from national and province
• less infrastructure funds spread more thinly

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Capital

• How do we address service backlogs?
• Who will build infrastructure?
• Private Public Partnerships
• Examples Table 11.1
• Municipal borrowing
• leveraging of grants and revenue
• short term loans - expensive
• longer term loans - cheaper
• municipal bonds
• Stagnant borrowing at R20 bn
• Two large players - INCA provides new lending in
  private sector, DBSA in public sector
• How do we attract new money and participants?

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Conclusions

• Efficient and cost effective service delivery to
  all our citizens
• Focus on better targeting equitable share
• Focus on infrastructure grant consolidation
• Focus on strategic management capacity building
  initiatives
• Enhance and leverage new infrastructure money to
  address backlogs
• Improve reporting and information flows
• Continue to deepen and improve budget process
• Move toward measuring service delivery indicators

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THANK YOU!