Lack of money is not the cause of ailing municipalities

The African National Congress (ANC) national executive committee has after some worrying experiences on the campaign trail and a number of disappointing trends in poll results decided that more funding is required to assist ailing municipalities correctly noting the financial vulnerability of many communities with limited revenue-raising capacity. Unfortunately this is one case where throwing money at an admittedly costly problem will not yield the desired result of better delivery. Indeed the assumption that inadequate funding is the underlying cause of failure in local government is largely not supported by data. 

Aggregate expenditure data suggest that while local government has not been an outright failure especially not in the engine rooms of the economy it has been a miserable failure for the poorest most marginalised South Africans and requires systemic solutions. But these are unlikely to be as simple as fiscal allocations given that underspending of budgets tends to be greatest in those communities that require public spending the most.

Nonetheless it is important to consider that annual expenditure has increased from R458bn in 1997 to R644bn in 2001; and then to R1169bn in 2007 and most dramatically to R2326bn last year meaning that the local government budget last year was five times what it was in 2007.

Probably one of the most worrying features of local government delivery however is its patchiness; essentially between urban and rural (and former homeland) areas. Predictably most spending occurs in metros. Last year 57% of expenditure occurred in the six largest metros (Tshwane Johannesburg Ekurhuleni eThekwini Nelson Mandela Bay and Cape Town) while 35% was spent by local municipalities and about 8% by districts.

Using National Treasury budgeted data and projected population figures we calculate that average annual expenditure per resident over the p ast four years in the metros has been at least R4500 and in most metros more than R5000 while levels of expenditure in top-spending local municipalities such as Bitou Overstrand George and Knysna is as high if not higher. Our research shows that expenditure in the wealthiest local municipalities large or medium-sized cities referred to as B1 local municipalities is reasonably robust — the top 20% of local municipalities on expenditure criteria disbursed on average R3700 per resident over the p ast four years.

But in the bottom 40% 92 local municipalities all spent less than R840 per resident and on average spent less than R400 per resident. While this does not include the amount that districts spend in local municipalities district expenditure per resident across a single district (which usually includes four or more local municipalities) was never more than an average of R1000 per resident over the p ast four years. Average expenditure for all districts over the four-year period was a paltry R315 per resident. Expenditure data confirm then that rural municipalities are delivering at the least impressive rate — a profound irony given the depth of need in these municipalities.

Using 2007 Community Survey data from Statistics SA we know that in metros on average 13% of households did not have access to clean potable water while 25% of households survived on R800 or less a month. By comparison in rural and former homeland municipalities 36% of households did not have access to clean potable water and 46% of households survived on less than R800 a month.

This dismal average is however still far better than the poorest of municipalities such as Port St Johns or Mbizana in the Eastern Cape where fewer than 50% of households have access to more than R800 a month while 75% of households do not have access to clean water from taps.

For those of us who live in metros and big cities it is difficult to comprehend the extent of the grim poverty facing most residents in places such as Port St Johns or Mbizana. But the fact that municipal expenditure per resident is 10% of what it is in metros and other large cities is an indictment of our system of local government and a sign of its failure to deliver to the poorest.

What then is the solution?

The argument that national government has not made enough money available to support municipalities while possibly true in the past is no longer valid. Grant funding to municipalities has increased fivefold in the p ast seven years; from R126bn in 2004 to R46bn last year. Indeed grants as a proportion of revenue in municipalities has doubled over the past seven years as municipalities have begun to rely more and more on grants and less on their own revenue.

But at the same time roughly one in every five municipalities failed to spend even half of its infrastructure grants in the 2009-10 financial year. While R222bn was allocated for conditional grants in the 2009-10 financial year only R189bn was transferred by March 31 last year of which by the end of the financial year only 794% was spent.

The Western Cape experienced no under- spending and Gauteng very little while the more underdeveloped Northern Cape Mpumalanga and North West provinces were worst affected by underspending — these are the areas of the national executive committee’s greatest concern.

It is important to add nuance to the debate seeking solutions to local government’s failures. First it is wrong to assume outright failure across the board.

Our research shows that a significant number of municipalities are delivering adequately if not optimally.

Second for those municipalities that are failing to deliver typically in rural and former homeland areas the underlying reason is not underfunding given trends around underspending in these areas.

While it is true that these areas lack the ability to raise revenue given their limited local economies what is more significant is that they are unable to spend what they are given — fiscal allocations often return unspent at the end of the financial year.

This undesirable outcome suggests that the impoverishment in these areas is not simply affecting the economic base and revenue prospects of these municipalities but also the skills base and ability to attract and retain a competent corps of municipal officials able to tackle the development backlogs in SA’s poorest areas.

Poor commitment by local government officials and office bearers to innovate and persist with stubborn development problems is therefore emerging as a fundamental constraint to the realisation of local government as a developmental sphere notwithstanding numerous training and capacity building programmes.

The implications are fairly drastic and suggest the need for institutional reform. One may be handing over the core functions of ailing municipalities to local agencies or regional service providers as a solution to the apparent failure of smaller councils to take on service delivery. For those of us who supported the notion of a decentralised system of local government this represents a sad outcome for local democracy and the notions that founded the white paper on local government 13 years ago.

But the solution may well prove necessary for delivery that ensures the realisation of individual socioeconomic rights.