Local Government Budgets and Expenditure Review, 2011 Strengthening governance to improve service delivery National Treasury, 14 September 2011
Why a Local Government Budgets and Expenditure Review? • Allows progress over the last three years to Review measures be measured progress in local government • Are municipalities delivering services to all? Review shows where • Are municipal budgets allocating funds in municipalities have line with development priorities? allocated and spent public • Are budgets buying the planned outputs? money • Does government need to adopt a more Review explores differentiated approach to enable rural and developmental role of municipalities urban municipalities to be more effective? Review shows link • Are policies delivering the intended between policies, budgets, outcomes? expenditures and outputs 2
Data issues • The implementation of the Municipal Budget And Factors that impact on Reporting Regulations the comparability of • Compliance with the MFMA requirement relating to information over the consolidated budgets and financial statements • Replacement of the RSC levy for metros has an period impact on the local government equitable share • The following sources were used: Every effort made to • Audited financial statements for 2006/07 to 2008/09 ensure reliability of • Available audited financial statements and pre-audit budget and information for 2009/10 expenditure • Budget and related documents for 2010/11 to information 2012/13 Detailed budget and expenditure data • www.treasury.gov.za/publications/igfr/2011/default.aspx published on National Treasury’s website 3
Outline of presentation Key findings of the review Summary of chapters Conclusion 4
Local government faces ongoing challenges Demographic Economic pressures pressures arising from arising from economic Crisis in credibility urbanisation growth Percentage of population Trust in government Gross value added per in urban areas and growth institutions, 2004 to capita by type of in urban population 2009 municipality, 2009 80% 60000 70% 50000 Rand per capita 60% 40000 50% 30000 40% 20000 10000 30% 0 20% Metros Secondary Large towns Small towns Mostly rural cities 10% 1 Agriculture 2 Mining 3 Manufacturing 0% 4 Electricity 5 Construction 6 Trade National Government Provincial Government Local Government 7 Transport 8 Finance 9 Community services 2004 2005 2006 2007 2008 2009 5
There is considerable pressure for infrastructure investment and improved service delivery Proxies of poverty by municipal Households without access to basic location, 2007 services, 2007 To 4.0 40% 3.5 35% Percentage of population 3.0 Households (millions) 30% combat 2.5 25% 2.0 20% 1.5 15% 1.0 poverty 10% 0.5 5% 0.0 0% Refuse Sanitation Water Electricity for Formal housing Metros Secondary Large tow ns Small tow ns Mostly rural lighting cities Receiving social grants Unemployed (official definition) Metros Secondary cities Large tow ns Small tow ns Mostly rural 100 Nominal value of To 80 building plans passed and 60 Rands billion completed vs support 40 local government capital 20 growth expenditure, 0 1998 – 2009 Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec 98 99 00 01 02 03 04 05 06 07 08 09 Total passed Total LG capex Total completed 6
National government continues to provide significant support to local government Transfers by type, 2006/07 - Massive real 2012/13 growth in national transfers • Municipal Budget and Reporting Regulations Significant • Three-year allocations and payment schedules for policy reforms national and provincial transfers (DoR Act) • Improved in-year financial monitoring • Support in planning and budget reform Targeted • R3bn spent on Siyenza Manje between 2007 and capacity and 2010 to provide hands-on support to municipalities systems support • Additional support through conditional grants 7
… and municipal challenges remain … Limited focus on Inadequate spending Prevalence of non- Priorities economic on repairs and priority spending development maintenance Policies and Outdated spatial plans Poor quality IDPs Unfunded budgets plans Badly managed Poor asset Poor revenue Procedures procurement management management processes processes Delays in approving Underspending of Deteriorating levels of Performance development capital budgets service plans 8
The 2011 LGBER offers both new and updated analysis of key issues • Supporting economic growth Focuses on the • Providing basic services and supporting adequacy development of municipal • Strengthening governance and the initiatives stewardship of resources • Social and economic context for local governance • Financing and management issues: trends, MFMA implementation, leveraging private finance and Structured municipal personnel management in four • Service delivery: water and sanitation, electricity, parts roads and solid waste services • Service delivery contexts: delivering services in rural areas, and managing cities 9
Key issues identified… Quality of governance • Governance challenges undermines service delivery is critical to • More competent senior mangers needed • Instability in senior management detracts from continuity performance • Depleted cash reserves – operating at the absolute margin Municipal budgets • General under-pricing of municipal services – bankrupting municipalities must be funded and • Revenue projections are unrealistic – not based on requirements of the MFMA • Operating expenditures are too high – driven by non-priority spending realistic • Capital budgets are too ambitious • Lack of key technical skills – qualified managers, engineers and technicians Maintenance of • Weak asset management systems existing assets needs • Spending on repairs and maintenance inadequate to maintain assets • Maintenance spending is reactive, and so is more costly than planned urgent attention maintenance • Increased grant reliance, and reduced own funding of the capital budget Own funding of • Tariffs and operating budgets not making provision to fund capital capital budgets needs • Municipalities (other than metros) not adequately leveraging private finance to increase to fund economic infrastructure • New housing developments are located on the periphery far from economic Reconceptualise opportunities and services approach to combat • Municipalities are not using labour intensive approaches to deliver services • Current modes of service delivery are too expensive and unsustainable, poverty especially for poor households in rural areas 10 10
Potential policy responses include … • Bring mayors and councils into the Outcomes monitoring system • Depoliticise senior management appointments Focus on leadership • Appoint competent MMs, CFOs and senior managers • Highlight difference between political leadership and management roles • Get back to basics in all aspects of revenue management and cash management • Ensure tariffs are cost-reflective – including maintenance and capital spending Creating fiscal • Make more innovative use of opportunities to leverage private finance space • Ensure value-for-money in procurement and contract management • Eliminate non-priority spending • Use spatial planning, development approval and location of bulk infrastructure to Focussing on guide private investment decisions sustainable human • Effective development control to ensure poor households are located close to economic opportunities settlements • Ensure co-ordination of infrastructure and housing investments • Increase funding for repairs and maintenance Ensuring fiscally • Ensure indigents policy is appropriately structured and properly implemented sustainable choices • Use appropriate service standards and technologies, especially in rural areas in service delivery • Use labour intensive service delivery methods • Better coordination of financing with the allocation of powers and functions Adopting a • Devolving of functions to municipalities with management capacity, especially differentiated housing and transport • Structuring the local government fiscal framework around municipalities’ fiscal approach towards capacity, to ensure more equitable funding of rural municipalities municipalities • Targeting support to municipalities where assistance is needed and there is a willingness to co-operate 11 11
Outline of presentation Key findings of the review Summary of chapters Conclusion 12 12
Summary of chapters • 1. Introduction • 2. Socio-economic and fiscal context of local government Introduction and context • 3. Intergovernmental relations and the local government fiscal framework • 4. Revenue and expenditure trends in local government • 5. Financial management and MFMA implementation Financial issues • 6. Leveraging private finance • 7. Managing municipal personnel • 8. Water and sanitation • 9. Electricity Service delivery • 10. Roads • 11. Solid waste services Delivery contexts • 12. Delivering municipal services in rural areas of rural and city • 13. Cities and the management of the built environment municipalities 13 13
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