Battle of the purse strings grows

THE South African Local Government Association (Salga) is unhappy with the Treasury’s withholding of equitable share allocations to about 60 financially errant municipalities.

Salga says while the R5bn in consumer debt owed to local government by other spheres of government will go some way to settling the R9bn owed to Eskom there is no clear correlation between those municipalities burdened by debt (typically larger cities) and those with the most compromised creditors.

Salga is at a further disadvantage with the national government holding the purse strings and a number of municipalities clearly flouting their constitutional responsibilities notwithstanding the fact that South African local government is in a fairly unique position. Other local governments around the world are considered "local authorities" — agents of higher levels or tiers of regional or national government.

But the Constitution which was negotiated two decades ago when decentralisation was seen as a way in which to promote democracy and best represent community demands crafted a system of co-operative governance in which local government was envisaged as an equal "sphere" of government bolstered by considerable revenue-raising powers.

The catch: nationally collected revenue remains as Salga puts it the "life blood" for many small and medium-sized municipalities that do not have access to a sizeable rates base and even though local government is constitutionally entitled to a share of nationally collected revenue (through the equitable share) the distribution and division of this effectively remains the domain of the Treasury and is contingent on (not unreasonably) local government fulfilling its mandate to deliver basic services.

The Treasury announced dramatically that it was withholding equitable share transfers to 13 Free State 13 North West 11 Mpumalanga and 11 Northern Cape municipalities until they had settled their creditor debt — a collective total of R9bn to Eskom and R3.6bn to water boards.

In a stern press release the Treasury explained that the failure of 60 municipalities to honour financial commitments "in general" and to Eskom and creditors (as required by section 65 (2) of the Municipal Finance Management Act had prompted it to invoke section 216 (2) of the Constitution.

The press release also made clear that municipalities in arrears were warned of the prospect of such action in early March and advised to devise financial recovery plans as well as to commit to settle current amounts due to cash-strapped Eskom.

Acknowledging the profound ramifications of the action the Treasury argued that "there cannot be an improvement in overall service delivery in an environment where principles of efficient public finance management are regularly disregarded". The question in this standoff between national and local government is: how profoundly will residents be affected? To what extent would equitable share funds have been used productively even if they had been transferred?

SINCE democracy the dysfunctionality of many municipalities (affecting about a third of the total of 278) has raised quiet debate in the corridors of decision makers about whether the full promise of decentralisation is attainable especially with limited local capacity to understand and deliver on community needs and whether there should not be stricter regulation of municipal functioning (for instance centralised supply chain management).

Scandalous abuse of public funds (reported by the auditor-general regularly) by a number of municipalities has done little to improve the sphere’s reputation. Of course this image is not universally true and larger metros and municipalities in particular have managed to support the vision of strong financially significant agents of delivery even taking over housing (a provincial responsibility) as a competency in a number of cases.

As the fiscus faces increasingly competitive demands in a time of significantly diminished fiscal space it was perhaps inevitable that the screws would be tightened with no room for waste or mismanagement. Furthermore local government elections looming and a leadership sweep on the cards present an opportune time to clean house revise structures and tighten management.

Local government’s rumblings were already apparent at the Salga national assembly last month where improved councillor remuneration was demanded and perhaps more interestingly the tone of the Back to Basics campaign was derided as being dismissive.

In response to choked equitable share grants Salga has pushed back and instructed municipalities to recover outstanding consumer debt from national and provincial departments (even though this has decreased marginally according to the latest Municipal Finance Management Act section 71 reports) and the Treasury undertook to assist with the collection of the R4bn sum through an "intense approach to revenue management". Unfortunately there is a hint of retribution in what should have been part of a broader debt collection strategy.

Salga argues that withholding the equitable share "will have wide-ranging and long-term ramifications for both the affected municipalities and the communities they serve. Withholding the funding will disproportionately punish the poor and badly affect service delivery to those communities with some municipalities already being unable to pay salaries and provide basic services as a result."

Salga also believes that withholding the equitable share may be unconstitutional but has a poorly articulated argument that conflates credit control with payment of creditors: "It is no secret that municipalities are currently owed in the region of R96bn …

"Approximately R5.4bn of this debt is owed by government departments. To isolate the debt owed by municipalities to Eskom and water boards is misguided and frankly misleading as it does not consider the totality of the financial challenges endured by municipalities and communities.

"Contrary to the Treasury view expressed in the statement this measure will in fact impair the ability of municipalities to meet their overall financial commitments."

The questions that need to be addressed are: to what extent is the R96bn figure given by Salga meaningful and to which municipalities is it owed?

And importantly would municipalities that do not honour commitments to creditors use revenue collected from debtors and/or the equitable share in a way that would benefit residents?

IT IS imperative for local government to be able to prove that those equitable share funds that are being withheld would reach intended recipients and not be mismanaged.

The stakes in the intergovernmental standoff are high; municipal workers face an uncertain pay cycle and residents in as many as 60 municipalities may have their lights and water cut (if they haven’t already been).

In theory this should prompt provincial support and possibly intervention.

The gamble that the Treasury appears to be taking in this last-resort measure is that the majority of municipalities will manage to get their proverbial houses in order before the lights go out (literally as well as figuratively) leaving only the most dysfunctional exposed (those that would probably not spend their equitable share efficiently in any event).

Unfortunately for the national government this strategy of trying to force municipalities to spend more efficiently has lost some moral authority in light of the Cabinet’s VIP jet spending plans.

It is likely that during this crisis it will take considerable work to restore the notion of co-operative governance.