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Funding service delivery

Local government operates within a highly regulated environment and there is a wide range of laws and regulations that determine how they may operate.

With respect to financial matters these regulations are particularly stringent, and control how municipal revenue can be spent.

The penalties for not operating within these regulations can impact on senior municipal officers in their personal capacity as well as on the residents of the municipality.

When local municipalities fail to operate consistently within the regulations, provincial government is compelled by s139 of the constitution to take remedial action. This often means that the province assumes administrative control of the municipality for a limited period.

In other instances national government may itself intervene (s100) or suspend the transfer of grants and payments from the fiscus in terms of s216(2) of the constitution.

In 2015 treasury moved, under s216(2), to suspend equitable share payments to 60 local municipalities as a result of their arrears to Eskom. In a smaller number of instances Eskom itself has threatened to stop the supply of electricity to municipalities because of escalating arrears.

The level to which the municipality complies with regulations and legislation is an important indicator of whether it can be considered a functional entity. Compliance indicates that the municipality attains the minimum requirement – that it is operating within the law and prescribed regulations.

Five measures of municipal compliance are presented:

1. If the current administration has been subject to a s139 intervention (s100)
2. If National Treasury has moved to suspend Equitable Share grants (s216)
3. If Eskom has moved to suspend bulk electricity supplies to the municipality in the last five years, and
4. If, in the 2014/15 financial year, the municipality provided key documentation and monitors essential services.

These are used as an indicator of general compliance[1].

Interventions in municipal administration or the failure to submit key document suggest the municipality is failing to meet minimum prescripts.

5. The final measure is the Auditor General’s assessment of the extent to which the municipality has complied with financial standards. These range, from best to worst:

• Clean audit (unqualified audit without findings)
• Unqualified audit (with findings)
• Qualified Audit
• Adverse
• Disclaimer
• Municipality failed to submit adequate documentation.

Finances

In the 2014/15 financial year, total expenditure by municipalities across the country amounted to R320-billion. This is approximately equal to 30 percent of the national budget. Within that budget, municipalities have to provide services to about 15-million households. The primary focus of municipal services are the provision of potable water, distribution of electricity and the removal of refuse and other waste.

To ensure the welfare of all, municipalities may be required to provide free basic services to the indigent. An estimated 2.6 million households benefit from municipal support to the indigent. Support to the indigent costs municipalities approximately R9-billion each year[2]. The average value of these services to benefiting households is R300 per month. However these costs amount to only 3.5% of the operating costs of municipalities.

The core business of municipalities is the provision of a higher level of services to households and local businesses. To ensure that the services are provided, municipalities draw on revenue from both government grants and the payments made by consumers.

While all municipalities receive support from the fiscus, sustainable municipalities rely more on payments from residents and less on state grants.

Residents’ payments to the municipalities are dominated by:

• Payments for water, electricity, sewage services and refuse removal services and,
• Property rates and taxes.

These payments, coupled to the state grants, are used by local government to pay for bulk services and employ councillors, managers and workers.

Municipalities employ over 8 200 councillors, almost 10 000 senior managers and 270 000 workers. This translates to an average of one municipal worker for every 50 households in the country.

Typically one-third of municipal expenditure is on employing staff. Municipal workers earn an average of R20 000 a month. The remuneration of councillors alone amounts to R3-billion a year.

This means that for every one Rand spent on councillors municipalities spend three Rand on support to the indigent.

Many municipalities outsource service provision and the total number of jobs created by local government in greater than the 270 000 indicated above. Responsibilities are often outsourced to companies that are wholly owned by the local municipality.

When compared to municipalities with large urban populations or significant industrial or mining sectors, rural municipalities are less able to leverage payments for rates and services. These municipalities rely more heavily of state grants for operating costs and capital investment. Service levels in such areas tend to be lower and are more likely to be provided by state agencies like Eskom, and National and Provincial Departments.

Capital investment amounts to an average of almost R4 000 per household each year. By contrast operational expenditure on households amounts to an average of R18 000. Seventy percent of operational costs are recouped from local households and businesses.

1. The documents and practices are: An Integrated Development Plan, water services development plan, a monitoring system in place for drinking water quality and effluent discharges, a funding agreement with Eskom and a HIV/AIDS policy.

2. According to the Auditor General irregular expenditure by municipalities amounted to R14-billion in 2014/15.

  • By Michael O’Donovan

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