Why we should be concerned about the R20 billion additional funding to municipalities

Municipalities are to get R20 billion in additional funding to ride them through the Covid-19 crisis, but given their track record of irregular spending, residents and rates payers have a right to be concerned that this money will be properly spent.

DearSA-municipal-handout

The cause for concern comes from the Auditor-General’s (AG) 2019 Municipal Report which suggests 60% of revenue reflected on the books of municipalities will never be paid. Even before the Covid-19 crisis, there was an alarming pattern of individuals and businesses showing signs of a diminishing ability to pay for services, or simply refusing to pay.

This has devastated revenue in many municipalities, reducing their ability to meet service delivery expectations. The Department of Cooperative Governance is about to launch a National Responsible Citizenry Campaign across all 257 municipalities in the hopes of restoring a culture of payment.

But such a campaign sinks or swims on the economic fortunes of households and businesses. We know from the July 2020 TransUnion Consumer Financial Hardship Study that 80% of those surveyed reported a negative impact from the Covid-19 crisis. Shockingly, 17% of “impacted consumers” reported losing their jobs compared to 10% in the previous survey.

South Africans are in dire financial straits. This does not augur well for any campaign to restore a culture of payment in municipalities. The culture of non-payment was already well entrenched before Covid-19, but will have severely deepened In the last three months of the lockdown.

Quite in addition to this, the AG report points to a shocking culture of financial mismanagement and corruption in municipalities. Only 8% of the 257 municipalities received clean audits in the 2017-8 financial year, and half of them had financial statements deemed “quality”. Irregular expenditure totalled R32 billion and the likely financial loss from material irregularities came to R24 billion.

South Africans need to be especially vigilant when an additional R20 billion is being directed to already dysfunctional municipalities.

The Parliamentary Monitoring Group (PMG) reports the growing concerns of opposition parties relating to how this R20 billion will be distributed and what mechanisms will be put in place to monitor this spending.

There are valid concerns that municipalities will become semi-permanent wards of National Treasury, which means taxpayers will ultimately be responsible for their financial survival. The municipal funding models are shattered and an entirely new model will have to be found over the longer term.

Rate payers are becoming more active and engaged in local governance, and this is likely to be the most powerful force for establishing a culture of accountability and service delivery at local government level, says DearSA programme director, Rob Hutchinson.

“Municipal governance has been allowed to sink to these appalling levels because there was no proper oversight. This is changing, but it needs to happen far quicker. We cannot end up with a completely broken local government sector that relies more and more on bailouts from central government. We will be keeping a close eye on this R20 billion in additional funding for municipalities to see that it is not squandered through theft, corruption and maladministration.”

One of the areas of efficiency being explored by the DCoG is improved supply chain management – for example, “pool financing” for municipalities that have identified projects on municipal boundaries such as the Lanseria Airport project which lies on the border of the City of Johannesburg and the City of Tshwane.

Municipalities will be able to apply for licences to distribute electricity as a way of raising additional revenue. Programmes are being conceived by Treasury and SA Local Government Association (SALGA) to improve the local government fiscal framework. Municipalities will be required to report weekly to National Treasury for money allocated through the Covid-19 relief scheme.

The DCoG will introduce an Intergovernmental Monitoring, Support and Intervention Bill to provide further oversight of municipal fiscal management and spending.

The AG will continue to audit these entities and now has more robust powers to bring municipal thieves to book.

But we are still not satisfied that this will solve the problems mentioned above. For this reason, DearSA is redoubling its efforts to bring accountability to the local government sector by running various participative democracy campaigns at municipal level.

If there is one thing that terrifies errant municipal officers, it is the voice of the public. DearSA is providing that voice.

It pays to keep a beady eye on municipalities – as Joburg City backtracks on tariff increases.

DearSA municipal increases

DearSA takes notes of the fact that the City of Joburg has decided to reduce the proposed increases in property, water and electricity tariffs after considerable public outrage from Joburg City residents.

Here’s what the City eventually agreed, after a vigorous campaign by DearSA and other civic groups:

  • Property tariffs will go up 4% instead of the proposed 4.9%
  • Water tariffs will go up 6.6% instead of 8.6%
  • Electricity tariffs will go up 6.23% instead of 8.10%.

This will not satisfy many city residents who believe the City should have dropped tariffs – rather than offer a slightly lower increase – in light of the Covid economic crash, which has resulted in an estimated eight out of 10 South Africans experiencing a reduction in income.

The fact that Joburg City backtracked (somewhat) on its proposed tariff increases is due in no small measure to the public campaign run by DearSA, which brought this to the public’s attention.

Around 14,000 DearSA municipal campaign participants demonstrated the power of participative democracy, and what can be done when citizens are mobilised. But we cannot let it rest there.

There are 257 municipalities in South Africa, and very few of them garner the attention that Joburg City did. Only 18 of the 257 received clean audits from the Auditor General (AG), compared with 33 in the previous year. Irregular expenditure across all municipalities came to a staggering R32 billion. Some 91% of municipalities did not comply with legislation.

Municipalities are back-sliding at an alarming rate.

Some of the worst-managed municipalities are in far-flung dorpies where few people pay much attention to their dismal financial management or the quality of the services they deliver. We recently learned that Steve Tshwete Municipality in Mpumalanga gave its municipal manager a 48% annual increase in the midst of a lockdown. The six senior managers of Steve Tshwete Municipality voted themselves an average 16.8% increase.

It’s time to change that. We need to pay far greater attention to the budgets of the 257 municipalities around the country. Councillors are awarding themselves inflation-plus increases in complete disregard for the ability of residents to pay. They must be held to account.

Some municipalities – such as Ekurhuleni – are showing some sensitivity to the plight of their residents by holding rates and taxes increases to 0%, and freezing electricity tariff increases for the poor. That said, the 4% salary increase for councillors is concerning given that between 150,000 and 200,000 residents in the municipal area are reckoned to have lost their jobs.

Ekurhukeni, however, is better managed than most. To get a sense of how awful municipal management is we need look no further than the AG’s 2019 municipal audit report, which suggests 60% of revenue reflected on the books of municipalities will never be paid. There has been a growing trend of individuals and established businesses showing signs of a diminishing ability to pay for services, or simply refusing to pay.

The AG report tells a disturbing story of most municipalities “crippled by debt and being unable to pay for water and electricity; inaccurate and lacklustre revenue collection; expenditure that is unauthorised, irregular, fruitless and wasteful; and a high dependence on grants and assistance from national government”.

While the AG has now received enhanced powers to investigate material irregularities in all public entities and refer complaints to law enforcement bodies, greater citizen engagement at local government level is essential to combat the rot that has gripped municipalities.

This will also assist the AG in doing its job. Once material irregularities have been reported to law enforcement and no action is taken by the stipulated date, the AG must take action itself and instruct the accounting officer at the public entity to quantify and recover the loss.

If that fails, the AG must issue a certificate of debt to the accounting officer or the relevant accounting authority. It then falls to the minister or other executive authority to recover the loss.

It’s time for citizens to stand up and make their voices heard. Especially, though not only, at local government level.

DearSA will be keeping a beady eye on this sector of our governance and will alert you to key developments around the country. This is where some of the worst and most toxic corruption is taking place. It has to be stopped if we are to have a proper and functioning democracy.