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Nov 10, 2013 (3 years and 8 months ago)

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L
OCAL

G
OVERNMENT

W
EEK
:

B
RIEFING

O
N

L
OCAL

G
OVERNMENT

R
ECOMMENDATIONS

For an Equitable Sharing of National Revenue

2 August 2012

L
OCAL

G
OVERNMENT

I
SSUES


Inadequate service delivery


Backlogs


Under
-
spending, poor planning


Inadequate human, organisational or institutional capacity


Inadequate repair maintenance


Poverty, unemployment


Governance challenges


Recent Events


Ongoing Local Equitable Share Formula Review of LES formula


FFC public hearings on sustaining municipal finance



Briefing on Recommendations Relating to
Local Government

2

LGES R
ECOMMENDATIONS

3

Briefing on Recommendations Relating to
Local Government

Year

Recommendat
ions

Government response

2011
/
12

Use the
institutional
component of
Local Equitable
Share to assist
poor
municipalities

Government

agreed

that

changes

are

required

to

improve

the

way

the

local

government

equitable

share

is

allocated

between

municipalities
.

To

assess

whether

the

local

government

equitable

share

formula

results

in

an

equitable

division

among

individual

municipalities

(horizontal

division)

as

stipulated

in

sections

214

and

227

of

the

Constitution,

the

formula

should

be

analysed

as

a

whole



rather

than

subcomponents

in

isolation
.


2011
/
12

Develop
alternative
methods of
revenue
prediction for
the
RRC

The

institutional

component

has

been

changed

in

2011
,

adjusting

the

amount

allocated

to

municipalities

in

terms

of

their

poverty

rate
.

This

means

that

poorer

municipalities

will

receive

increased

allocations
.


LGES R
ECOMMENDATIONS


4

Briefing on Recommendations Relating to
Local Government


Year

Recommendations

Government response

2011/12

Remove

the

step

structure

of

the

differentiated

tax

mechanism

of

the

Revenue

Raising

Component

and

develop

a

flat

gradient

structure

so

that

municipalities

on

the

outer

ends

of

bands

are

not

treated

unfairly

In

the

absence

of

accurate

property

valuation

rolls

for

all

municipalities

and

with

no

official

data

on

economic

activity

at

municipal

level,

it

is

very

difficult

to

construct

a

model

that

would

provide

fair

estimates

of

municipalities’

捡灡捩瑹



牡楳r

瑨敩e

潷o

牥癥r略u
.

Government

agreed

to

remove

the

stepped

structure

from

the

revenue
-
raising

correction

and

a

smooth

curve

has

been

used

instead

to

calculate

the

differentiated

“revenue

correction”

rate

applied

to

each

municipality
.


R
URAL

D
EVELOPMENT

AND

U
NFUNDED

M
ANDATES

5

Briefing on Recommendations Relating to Local
Government

Year

Recommendations

Governmen
t response

2012/13

The

governance

and

institutional

arrangements

for

rural

development

across

the

three

spheres

of

government

needs

to

be

clarified

urgently
.

The

Commission

recommended

that

a

functional

mapping

of

all

rural

development

activities

be

undertaken,

with

specific

responsibilities

assigned

to

each

sphere

of

government
.


2012/13

The

organ

of

state

initiating

a

general

assignment

must

provide

the

financial

and

fiscal

implications

of

a

function

shift

to

the

Commission

for

its

recommendations

to

the

Minister

of

Finance

in

line

with

Section

3

of

the

FFC

Act

2003

as

amended

and

the

Minister

of

Finance
.

The

Commission

tabled

a

compliance

check

list

for

this

specific

purpose

in

2007
.

All

resources

associated

with

delivering

a

service

associated

with

a

function

to

be

shifted

are

transferred
.


F
INANCIAL

M
ANAGEMENT

I
SSUES

(R
EVENUE

E
NHANCEMENT
, M
UNICIPAL

D
EBT
, O
VERSIGHT
)

6

Briefing on Recommendations Relating to
Local Government


Year

Recommendations

Government response

2011
/
12

Adopt

standard

early

warning

systems

to

detect

fiscal

stress

in

municipalities

and

reach

consensus

on

them
.

National

government

has

an

early

warning

system

that

monitors

municipal

finances
.

This

system

is

anchored

by

the

budget

formats

prescribed

in

terms

of

the

municipal

budget

and

reporting

regulations,

the

associated

funding

compliance

assessment

(see

MFMA

Circular

42
)

and

monthly

financial

reports

required

in

terms

of

section

71

of

the

MFMA
.



2011
/
12

Legislate,

through

S
43

of

the

LGMS

Act

of

2000
,

revenue

collection

as

one

of

the

key

performance

areas

against

which

to

assess

overall

municipal

performance
.




National

government

supported

the

recommendation

that

each

municipality

should

have

a

broad

revenue

improvement

programme

in

place
.

National

government

believes

that

at

this

stage

there

is

far

more

to

be

gained

from

improving

the

accuracy

and

completeness

of

municipal

billing

systems,

and

putting

in

place

proper

customer

relations

capacity
.


F
INANCIAL

M
ANAGEMENT

I
SSUES

(R
EVENUE

E
NHANCEMENT
, M
UNICIPAL

D
EBT
, O
VERSIGHT
)

7

Briefing on Recommendations Relating to
Local Government


Year

Recommendations

Government response

2011
/
12

Support

efforts

to

estimate

the

fiscal

capacity

and

fiscal

effort

of

municipalities

to

dispel

the

perception

that

certain

municipalities

will

never

be

financially

viable
.

The

notion

that

certain

municipalities

will

never

be

financially

viable

is

a

misrepresentation

of

both

the

design

of

the

local

government

fiscal

framework

and

the

practical

reality

of

local

economies
.


National

government

is

investigating

the

issue

of

developing

measures

of

fiscal

capacity



it

is

by

no

means

a

straightforward

task

given

the

impact

that

traditional

land

and

different

modes

of

service

delivery

have

on

many

municipalities’

rates

bases

and

service

revenues
.



2011
/
12


Subject

revenue

enhancement

programmes

to

empirical

tests

that

cover

changes

in

(a)

effective

tax

rates

(b)

tax

burdens

(c)

yield,

efficiency

and

overall

fairness


Government

supported

these

recommendations
.

F
INANCIAL

M
ANAGEMENT

I
SSUES

(R
EVENUE

E
NHANCEMENT
,
M
UNICIPAL

D
EBT
, O
VERSIGHT
)


8

Briefing on Recommendations Relating to
Local Government

Year

Recommendations

Government response

2012
/
13

Municipalities

need

to

improve

technical

efficiency

in

utilising

existing

resources

Accepted

2012
/
13

National

and

provincial

treasuries’

efforts

to

improve

the

credibility

of

municipal

budgets

through

annual

benchmarking

exercises

should

continue

to

be

supported
.

Agrees

but

disagrees

that

benchmarking

documents

be

made

public

2012
/
13

National

and

provincial

government

should

require

and

assist

municipalities

to

identify

the

primary

cause

of

poor

performance

in

billing

and

revenue

collection

functions

and

use

the

information

to

design

appropriate

remedial

strategies
.


Government

agrees

that

municipalities

should

be

assisted
.

NT

is

training

municipalities

on

revenue

management

2012
/
13

As

an

interim

measure,

government

should

establish

and

publish

guidelines

for

municipalities

on

management

of

municipal

consumer

debt

in

terms

of,

but

not

exclusive

to,

interest

charges,

debt

impairment

and

writing

off

of

bad

debts
.

A

legislative

framework

for

this

already

exists

F
INANCIAL

M
ANAGEMENT

I
SSUES

(R
EVENUE

E
NHANCEMENT
, M
UNICIPAL

D
EBT
, O
VERSIGHT
)


9

NCOP:LOCAL GOVERNMENT WEEK 31
JULY TO 3 AUGUST 2012

Year

Recommendations

Government
response

2012
/
13

S
64

of

MFMA

(No
.
56

of

2003
)

should

be

amended

to

require

regular

collation

and

updating

of

information

on

indigent

residents

of

a

municipal

area,

as

an

integral

component

of

municipal

revenue

management

practices
.


Guidelines have
been issued to
help
municipalities to
implement
indigent policies

2012
/
13

National

and

provincial

government

should

develop

and

support

peer

learning

and

support

programmes

that

assist

poorly

performing

municipalities

to

leverage

experience

and

best

practices

of

well
-
performing

municipalities,

particularly

in

relation

to

spending

performance,

efficiency

in

using

resources,

proper

debt

management

and

achievement

of

desired

developmental

outcomes
.

Government
agreed. Forums
for such exist,
eg
. CFO’s
forums, City
Budget Forum

E
NVIRONMENT

(C
LIMATE

C
HANGE

AND

D
ISASTER

M
ANAGEMENT
)


10

Briefing on Recommendations Relating to
Local Government

Year

Recommendations

Government
response

2012
/
13

Government

should

ensure

that

municipalities

develop

their

own

climate

change

mitigation

and

adaptation

strategies

and

plans

for

climate

change

as

part

of

the

Integrated

Development

Planning

process
.


Agreed
.

DCOG,

DEA

and

SALGA

developing

planning

tool

for

climate

change

management

2012/13

Government should consider providing
municipalities with a performance

based conditional grant, which
rewards or incentivises actions that are
environmentally efficient .

More

research

needs

to

be

done

as

to

how

such

a

grant

should

be

structured
.


H
OUSING

AND

L
AND

U
SE


11

Briefing on Recommendations Relating to
Local Government

Year

Recommendations

Government
response

2012
/
13

Government

should

conduct

a

broad
-
based

review

of

the

efficacy

of

current

housing

finance

arrangements

in

meeting

housing

needs

within

the

context

of

creating

sustainable

and

more

compact

human

settlements
.


Government

accepted

recommendation

2012
/
13

Government

should

actively

and

specifically

pursue

development

of

a

more

spatially

compact

urban

form

for

cities,

by

developing

and

adopting

appropriate

policies

and

financing

instruments
.


Government

agrees

with

recommendation

and

has

initiated

a

new

cities

support

programme

to

assist

cities

manage

built

environment


I
NFRASTRUCTURE
/R
EPAIRS

AND

M
AINTENANCE


12

Briefing on Recommendations Relating to
Local Government

Year

Recommendations

Government
response

2012
/
13

National

government

should

specifically

enforce

provisions

set

out

in

S
74
(
2
)

of

Municipal

Systems

Act,

such

that

the

basis

of

municipal

tariffs

accurately

reflects

the

cost

of

providing

the

specific

service,

as

well

as

conforms

to

National

Treasury

expenditure

guidelines

for

repairing

and

maintaining

municipal

infrastructure
.

Government

supported

proposal
.

But

it

may

take

time

to

implement

proposal

since

data

requirements

fo
r

this

are

huge

C
APACITY

B
UILDING

I
NITIATIVES


13

Briefing on Recommendations Relating to
Local Government

Recommendations

In

future,

all

capacity

building

initiatives

should

be

evaluated

by

an

independent

and

impartial

party

and

identify

lessons

that

could

be

taken

into

account

when

a

new

programme

is

designed

and

implemented
.


Capacity

building

initiatives

should

target

poor

performing

(distressed)

municipalities

that

have

limited

capacity

to

compete

in

the

open

market

for

skills

and

conditions

be

set

for

permanent

absorption

of

such

capacity

and

transfer

of

skills

to

permanent

municipal

employees
.


Each

capacity

building

programme

must

have

a

clear

outline

of

measurable

objectives,

targets

and

timelines

detailing

conditions

under

which

a

programme

can

be

withdrawn

from

a

respective

municipality

and

after

a

detailed

monitoring

and

evaluation

of

the

programme

is

done
.

DCOG

and

NT

need

to

strengthen

their

capacity

to

manage

and

monitor

new

programmes
.


There

must

be

an

intergovernmental

wide

common

understanding

of

what

constitutes

“lack

of

capacity”

within

the

context

of

local

government

and

that

local

government

should

be

central

to

setting

the

agenda

for

capacity

building

programmes

intended

for

their

own

improvement
.

Capacity

development

programmes

should

be

comprehensive

and

not

only

focus

on

training

of

personnel

and

deployment

of

experts

within

municipalities
.

They

must

also

focus

on

other

organisational

and

human

resource

issues

(recruitment

and

retention

of

permanent

municipal

staff)
.

D
ATA

I
SSUES


14

Briefing on Recommendations Relating to
Local Government

Year

Recommendations

Government
response

2012

/
13

Data

available

at

local

government

level

should

be

reviewed

to

ensure

appropriate

surveys

or

alternatives

are

available

to

account

accurately

for

changes

in

demographics

and

other

factors

at

municipal

level

Agreed: The
Local
Government
Data forum was
established in
response to the
need to
rationalise

data
collection from
LG.

P
ROGRESS

ON

THE

R
EVIEW

OF

THE

LES F
ORMULA


Task team established to review LES formula


National Treasury


DCoG


SALGA


FFC Secretariat


StatsSA


Revised principles and objectives of formula


Compiled two discussion documents for comments


Principles more focused and objectives more tangible


Opportunity given to all municipalities to comment on process
and discussion documents


15

Briefing on Recommendations Relating to
Local Government

P
ROGRESS

ON

THE

R
EVIEW

OF

THE

LES F
ORMULA


All written municipal comments received in June


Team currently working on new formula based on
principles, objectives and municipal/stakeholder input


Proposed new formula to be taken to department and
organisation

heads by end August


Consultation on proposed new formula to be undertaken
with municipalities and other stakeholders in September


Final proposed formula will be presented at Budget
Forum in October

16

Briefing on Recommendations Relating to
Local Government

LGES
-
G
ENERAL

C
OMMENT


The

LGES

review

suggested

by

government

has

only

focussed

on

the

formula


What

is

needed

is

a

broad

review

of

the

Local

Government

Equitable

Share

or

the

entire

Local

Government

Fiscal

Framework


The

FFC

through

the

Public

hearings

is

in

the

process

of

doing

this

and

will

advise

Government

on

this

when

work

is

complete

17

Briefing on Recommendations Relating to
Local Government

FFC P
UBLIC

H
EARINGS

ON

S
USTAINING

M
UNICIPAL

F
INANCE



FFC undertook a set of public hearings to understand and
propose options for the problems inherent in Local
Government Fiscal Framework


Two sets of public hearings took place


First public hearing identified the problem statement and issues
hindering sustainable financing of LG


Second public hearing provided a set of options for problem
statement identified


Input from process driven largely by stakeholder perspectives


Identified issues from various stakeholders in LG

18

Briefing on Recommendations Relating to
Local Government

E
MERGING

C
ONSENSUS
:
D
IFFERENTIATION

AND

D
EMARCATION



Differentiation


Principle of differentiation agreed upon


Common system of differentiation is required


Context (fiscal capacity, cost efficiency…)
vs

performance
(i.e. fiscal effort, spending efficiency and effectiveness …)


Any demarcation framework to conform to constitutional
framework


Demarcation


Develop a system that ensures fiscally sustainable
municipalities are created

19

Briefing on Recommendations Relating to
Local Government

E
MERGING

C
ONSENSUS
: LGFF
AND

F
UNCTION

A
SSIGNMENT



Stakeholders proposed a broader definition and criteria for the
LGFF


Should include not only transfers, but also own revenue, borrowing and
transfers


Cautioned against expecting too much from a redesigned
LGFF


A lot of other work (e.g. capacity building and support) is required to
improve local government functionality.


Future devolution of fiscal powers should be informed by
functional assignments


Functions (of, for example, district municipalities) must be clarified
before making any changes to grants

20

Briefing on Recommendations Relating to
Local Government

E
MERGING

C
ONSENSUS
: O
PTIONS

F
OR

LGFF


Three primary options for the LGFF:


Gap
-
filling: A system based on gap filling with a primary emphasis on
transfers, much as exists currently


Performance based system: with emphasis on incentives, which implies
a major shift towards expenditure
-
side interventions, incentivising own
source revenue and capital finance, complemented with conditional
transfers.


Range of hybrid options in between


Approaches were discussed as options for the LGFF structure


FFC to
finalise

a set of recommendations emanating from
process and undertake further engagements


21

Briefing on Recommendations Relating to
Local Government

T
HANK

Y
OU
.

Financial and Fiscal Commission

Montrose Place (2
nd

Floor),
Bekker

Street,

Waterfall Park,
Vorna

Valley,
Midrand
,

Private Bag X69, Halfway House 1685

www.ffc.co.za

Tel: +27 11

207 2300

Fax: +27 86

589 1038