Transcript A SUMMURY OF THE BUGDGET PROCESS.

ROLE OF PROVINCES IN SUPPORTING
MUNICIPALITIES WITH THE PREPARATION
OF THEIR BUDGETS
Presenter: Thulani Mandiriza | Director: Local Government Budget Analysis, National Treasury | 24 January 2011
Purpose of the Presentation
•
•
Context: the Municipal Accountability Cycle
To briefly outline the roles and responsibilities of National
Treasury and national Department of Cooperative
Governance in relation to the municipal budget process
• To highlight the role of provincial departments in supporting
municipalities in the budget process
– Provincial treasuries
– Departments of local government
– Other provincial sector departments
•
To recommend a format for budget engagements with
municipalities
Municipal Accountability Cycle
5 year Strategy
IDP
Three year Budget
Focus of MBRR
Budget
Annual Plan to Implement
SDBIP
Next Project
In-year
Reporting
Focus of MBRR
Monitoring
Annual
Financial
Statements
Oversight
Reports
Annual
Report
Standard Chart of Accounts (SCOA)
3
Roles of National Treasury in relation to LG (1)
• Section 216(1) of the Constitution reads as follows:
216. Treasury control
(1)
National legislation must establish a national treasury and prescribe measures to ensure both
transparency and expenditure control in each sphere of government, by introducing
(a)
generally recognised accounting practice;
(b)
uniform expenditure classifications; and
(c)
uniform treasury norms and standards.
(2)
The national treasury must enforce compliance with the measures established in terms of
subsection (1), and may stop the transfer of funds to an organ of state if that organ of state commits a
serious or persistent material breach of those measures.
• National Treasury is the only government department that the
Constitution requires to be established, and then mandates to perform
specific functions
2
Roles of National Treasury in relation to LG (2)
• In relation to local government, the national legislation referred to in
section 216 of the Constitution includes the following:
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The Municipal Finance Management Act;
The sections of the annual Division of Revenue Act that set treasury norms and standards;
The Municipal Fiscal Powers and Functions Act
The Preferential Procurement Policy Framework Act
• National Treasury’s role with regards to municipal budgeting
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Co-ordinate the development of the LG fiscal framework, within the context of the DOR Bill
Manage the development of the Local Government Equitable Share formula
Ensure compliance with the MFMA, including:
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•
•
•
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Adherence to the time-lines for tabling and approval of municipal budgets
Implementation of the Municipal Budget and Reporting Regulations, especially the new budget formats
Application of the funding compliance assessment
Overall evaluation of municipal budgets
Publication of consolidated local government budget information
Provide guidance to municipalities through the MFMA Budget Circulars
Provide budget related training to provincial treasuries and municipalities
Exercise direct oversight of the 17 non-delegated municipalities
5
Roles of DCoG in relation to LG (1)
• DCoG is responsible for the following local government legislation:
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Municipal Structures Act
Municipal Systems Act
Municipal Property Rates Act
Plays important role in relation to interventions in terms of the MFMA
• DCoG’s role with regards to municipal budgeting
– Provide guidance and oversee the production of IDPs
– Ensure compliance with the MPRA
– Manage communications in relation to two municipal conditional grants (MIG and
MSIG)
• If a municipality fails to approve its budget by the start of the new financial
year DCoG (through its provincial counterparts) has a role to play in coordinating the prescribed interventions
1
Role of provinces: Provincial Treasuries
• National Treasury has delegated responsibility for 266 municipalities to
the respective provincial treasuries
• Provincial treasuries take lead from National Treasury
• Provincial treasuries’ role with regards to municipal budgeting
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Ensure compliance with the MFMA, including:
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•
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Adherence to the time-lines for tabling and approval of municipal budgets
Implementation of the Municipal Budget and Reporting Regulations, especially the new budget formats
Application of the funding compliance assessment
Overall evaluation of municipal budgets
Provide budget related training to municipalities
Assist municipalities with implementation of budget related reforms
• Work with Depts. of LG and provincial sector departments to ensure
proper co-ordination of provincial and municipal plans and budgets
7
Role of provinces: Depts. of local government
• Take lead from DCoG’s role
• Provincial depts. of local governments’ role with regards to municipal
budgeting
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Support and guide the municipal IDP process through IDP forums (feed into the budget process)
Review IDPs to ensure that they are strategic and aligned to national and provincial goals
• avoid wish-lists
Facilitate sector involvement in IDP processes
• ensure provincial sector departments plans are integrated and aligned to municipal plans
• ensure that necessary funding is secured from provincial sector departments so that
municipalities are not landed with unfunded mandates
Support alignment of the Performance Management System with the IDP and budget
Support implementation of the MPRA
Ensure compliance with the MPRA
• Work with provincial treasuries and provincial sector departments to
ensure proper co-ordination of provincial and municipal plans and
budgets
8
Role of provinces: sector departments
• Sector departments’ role with regards to municipal budgeting
– Participate in IDP forums to ensure their infrastructure plans feed into municipal IDP
processes
– Participate in municipal budget hearing processes organised by the provincial
treasuries
– Ensure ‘service level agreements’ are in place where municipalities deliver services on
their behalf
– Ensure all ‘delegated mandates’ and ‘service level agreements’ are properly funded –
to avoid unfunded mandates
• Housing Departments and Transport Departments must work with
municipalities to prepare for the devolution of these functions
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Format of engagements with municipalities
• National Treasury has extended the concept of ‘Budget Benchmarking
Hearings’ to the 17 non delegated municipalities
– Involves analysing municipalities’ tabled budgets to ensure
• Compliance with the new budget formats
• Budgeted revenues are based on realistically, collectable revenuews
• Operational budgets are funded in accordance with the MFMA (application of the funding
compliance assessment)
• Capital budgets are funded
• Budgets are aligned to the IDPs
– Hearings to be held in April and early May. i.e. before municipalities table their budgets
for approval
•
Provincial Treasuries should hold similar ‘benchmark’ hearings for the delegated
municipalities
– Work together with Depts of local government and sector departments
– Western Cape Provincial Treasury provides a ‘good practice’ model that other
provinces can learn from
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DISCUSSIONS
THANK YOU
CONTACT
Jan Hattingh
Chief Director: Local Government Budget Analysis
National Treasury
Tel: 012-315-5009
E-mail: [email protected]
ANNUAL MUNICIPAL BUDGET PLANNING
PROCESSES FOR 2011/12
Preparing municipal budgets in the context of the local government elections
Presenter: Conrad Barberton | Director: Local Government Budget Analysis, National Treasury | 24 January 2011
Purpose of the Presentation
•
To outline the legal framework for the preparation of
municipal budgets
•
To highlight some of the challenges posed by the local
government elections
•
To propose two options for managing the 2011/12 budget
process
•
To highlight key issues for the 2011/12 budgets
Legal framework
• The MFMA is the cornerstone of budgeting and financial management
reforms in the country
– It governs the municipal budget and financial reporting process
• Timing, contents and formats
– Provides the legal foundations for the Municipal Budget and Reporting
Regulations
• Chapter 3 of the Constitution and Chapter 5 of the MFMA require
national and provincial governments to build capacity of municipalities
for efficient, effective and transparent financial management
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Legal framework: MFMA requirements on budget
processes
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S15(a) Municipality may incur expenditure only i.t.o. an approved budget
•
S16(1) Council must approve budget before the start of the financial year
 That is before 1 July 2011
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S21(1)(a) Mayor must coordinate budget & IDP preparation processes
S21(1)(b) Mayor must table time schedule of key deadlines at least 10 months before start
of budget year (31/8/2010) for:
 Annual review of the IDP, preparation, tabling & approval of budget and public consultations
•
S16(1) Mayor must table budget to Council at least 90 days before start of financial year
 That is by 31 March 2011
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S17(3) Tabled budget must be accompanied by, inter alia
 Draft resolutions approving budget
 Draft resolutions imposing tariffs and taxes
 Proposed amendments to IDP and budget related policies
 Proposed service delivery agreements with external mechanisms
•
S24 Council must consider budget for approval at least 30 days before the start of the
budget year
15
Legal framework: Failure to approve IDP and budget by
30 June 2011
• In case of failure to approve the IDP and budget by the 1st day of the
budget year, the following applies:
•
Mayor must immediately report to the MEC for LG
•
Provincial Executive may intervene i.t.o S 139(4) of the Constitution, including
dissolving of Council and appointment of administrator
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S26(4) funds may be withdrawn only with the approval of the MEC for Finance to
defray capex and opex for votes appropriated in the previous year
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S32 any expenditure incurred will be unauthorised
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Municipality will receive an audit qualification
• Adjustments budget may not increase tariffs, add programmes or
projects
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Legal framework: other important provisions
• MFMA read with the Municipal Budget and Reporting Regulations only
allows for a ‘main adjustments budget’ to be tabled after the mid-year
budget and performance assessment has been tabled in council, i.e.
after 1 January 2012
• Permitted scope of an adjustments budget is quite limited:
• taxes and tariffs may not be increased,
• any additional revenues may only be appropriated to programmes and projects already
budgeted for (see section 28 of the MFMA), i.e. no new programmes and projects permitted
• Idea of a ‘holding budget’ which can be changed substantially through an
adjustments budget soon after the start of the municipal financial year is not
legally permitted
• Section 13 of the MPRA, and sections 24 and 42 of the MFMA provide
that new tariffs for property rates, electricity, water and any other taxes
and tariffs may only be implemented from the start of the municipal
financial year (1 July)
• If municipalities do not pass their budgets by 30 June 2011 they will not be
able to increase rates, tariffs and taxes which will result in an immediate
financial crisis
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Legal framework: critical dates and timeframes
Election Events
Date
Event
Election
day
plus four days
Election results
declared
Budget Process Events
likely
to
be
Date
Event
By 31 March
Annual budget must be tabled
in municipal council – at least
90 days before the beginning
of the financial year
(section 16 of MFMA)
14 days after
the
councils
election
For
metros
and
local
municipalities - they must meet to
elect the Executive Mayor
April - May
(section 55 of Structures Act)
14 days after
election results
are declared
For local municipalities: they must
appoint representatives to the
District Council
Normal period for public
consultations on the annual
budget
(section 23 of MFMA)
By 30 May
All councils must consider
annual budgets for approval
(section 24 of MFMA)
(section 23 of Structures Act)
14 days after
the last local
council
has
appointed
representatives
For district Councils –the district
council must meet to elect
Executive Mayor
On or before
30 June
All councils must
annual budgets
approve
(section 16 of MFMA)
(section 55 of Structures Act)
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LG Elections: Scenarios and implications
 Election date unknown
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Earliest 2 March 2011
Latest June 2011 i.t.o IEC (within 90 days after date of previous elections)
Electioneering timetable to be considered
 Council scenarios
• Entirely new Council
• Combination of new & previous Councilors
• Changes in governing party
 Implications
• On budget/ IDP processes (tabling & approval)
• Continuity of service delivery (stop/ start)
• Buy-in by new council – especially if previous council adopts budget
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LG Elections: challenges to the municipal budget
process
•
If a council does not approve the necessary resolutions regarding increases in
rates, taxes and tariffs such increases may not be implemented –
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If a council does not approve the budget before the start of the financial year,
then in terms of section 26 of the MFMA the provincial executive must intervene
The outgoing councils need to ensure that their inputs into the 2011/12 budget
and MTREF safeguard the financial sustainability of their municipalities.
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More specifically municipalities are advised against unrealistically low tariff increases and overambitious capital expenditure programmes
The election campaigning period is likely to coincide with the period when
municipalities normally conduct public consultations on the budget.
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The result will most likely be an immediate financial crisis, and an intervention in terms of section
139(4) of the Constitution.
There is a risk that these public consultations will either be neglected or used to serve narrow
party political interests
In managing the above risks, Mayors and municipal managers must seek to
ensure stability and continuity
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Budget process: Option One
Option 1: Outgoing council approves 2011/12 budget
1. Current Mayor prepares a budget schedule that brings the review of the IDP and the
tabling of the budget forward to late February or the beginning of March 2011
2. Community consultations on the annual budget conducted in remainder of March and
early April 2011
3. Officials complete technical work on annual budget by mid-April 2011
4. Current council approves annual budget before the end of April 2011
5. New council implements annual budget from 1 July 2011
Benefits of Option
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
Minimises risk of there not being an approved budget at the start of the financial year
Ensures continuity
Safeguards the financial sustainability of the municipality by ensuring tariff increases
are locked in before the start of the financial year
Risks of Option

New council may not be happy with the priorities set out in the annual budget approved
by the outgoing council, and so be reluctant to be held accountable for its
implementation
All district councils are strongly advised to adopt this option. National Treasury also
recommends this option for all metros and local councils, unless specific local political
circumstances suggest that it is important to allow the new council to approve the budget.
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Budget process: Option Two
Option 2: Outgoing council prepares 2011/12 budget, new council approves it
1. Current Mayor prepares a budget schedule that brings the review of the IDP and the
tabling of the budget forward to early March 2011
2. Community consultations conducted in remainder of March and early April 2011
3. Officials complete technical work on budget during May, and ensure that it is ready to
be place before council for approval by 1 June 2011
4. New council must consider budget as their first order of business, after electing the
Mayor – and approve it before the start of the new financial year – 30 June 2011
Benefits of Option
 Allows new council to approve and ‘take ownership’ of the annual budget
Risks of Option

There is a real risk that the municipal council may not be constituted, or may not get
itself organised in time to approve the budget before the start of the municipal financial
year, which will put the financial sustainability of the municipality at risk
 New council may seek to introduce last minute changes to the tabled budget which will
tend to undermine the integrity of the community consultation processes
National Treasury only recommends this option be adopted where specific local political
circumstances suggest that it is important to allow the new council to approve the budget.
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MFMA reporting responsibilities
 Although elections would be held with only a quarter (1/4) of the
2010/11 FY remaining, the MFMA reporting responsibilities still stand,
namely
• AFS to be prepared for a full financial year (1/7/2010 to 30/6/2011);
To be submitted to Auditor General by 31 August 2011
• Annual Report is for a full year
To be tabled to Council by Mayor, ideally with the AFS for
2010/11 but latest within 7 months after end (by 31 January
2012)
• Council Oversight Report is for a full year
Council must Consider O/ Sight Report and adopt within 2
months from tabling of Annual Report (by latest 31 March 2012)
• Particularly important for municipalities affected by the demarcation
process
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Key issues for the 2011/12 budgets (1)
• See MFMA Budget Circular 54
• Alignment to national outcomes – see Annexure 1
• Implications of the demarcation process
– Date of transition is critical – must be 1 July 2011
– The affected municipalities must work together to compile budgets for the ‘new’
municipalities
• Consolidation of the budget format reforms
– Only change is the additional request for information on repairs and maintenance
Repairs and Maintenance
by Expenditure Item
Employee related costs
Other materials
Contracted Services
Other Expenditure
Total Repairs and Maintenance Expenditure
check
8
9
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Key issues for the 2011/12 budgets
• Revising rates, tariffs and other charges
– Multi-year tariffs
– NERSA’s approval of municipal electricity tariffs
– Water tariffs must be cost-reflective
• Funding choices and management issues
– Ensuring sustainability – funding compliance assessment
– Ensuring that drinking water meets the required quality standards at all times;
– Protecting the poor from the worst impacts of the slow recovery in the labour
market;
– Supporting meaningful local economic development (LED) initiatives that
foster micro and small business opportunities and job creation;
– Securing the health of their asset base
– Expediting spending on capital projects that are funded by conditional grants
• Minister of Finance will table DoR Bill and National Budget on
23 February 2011
– National Treasury will provide further guidance at the start of March 2011
25
DISCUSSIONS
THANK YOU
CONTACT
Jan Hattingh
Chief Director: Local Government Budget Analysis
National Treasury
Tel: 012-315-5009
E-mail: [email protected]