Transforming South African Local Government

Dave Savage

Summary of presentation

 Brief background to the South African local government reform process  South African Local Government Restructuring Grant • Introduction • Lessons

South African local government reform

   The apartheid city • Well established ‘white’ cities with strong tax base • Separate black towns administered from centre 1976 – Soweto uprising • Creation of ‘black local authorities’ Early 1980’s – mass resistance to ‘indirect rule’ built around civic associations • Rent and service charge boycotts • Slogan ‘One City One tax base!’

Local government reform

 While national negotiations were occuring there was a separate process of urban local negotiations  Agreement on three phase local transition • Pre-interim phase (1994/5) – twinning (no elections) • Interim phase (1995-2000) – new boundaries and single elected councils; White Paper process • Final phase (2000-?)

Some key features

 Local government an independent ‘sphere’  Widely drawn boundaries • Single tier metropolitan municipalities • Two tier non-metropolitan system  Macro-economic impacts: 10.5% of total public expenditures, and increasing

Service Roads Protection services Community services Land use, planning Health Etc Electricity Water Refuse Sewerage etc Revenue Source Property tax (15%) Payroll/turnover taxes (7%) Transfers (8%) User charges (42%)

Local Government Challenges

 Service backlogs  Inefficient service delivery  Management and leadership shortfalls  Municipalities in financial distress  unbalanced budgets and no cash reserves  increasing bank overdrafts, debtors, and loan defaults

60 000 50 000 40 000 30 000 20 000 10 000 0 96-97 97-98 Projected Actual Total expenditures 98-99 99-00 Budget Capital as % of total expenditures 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

Key elements of the reform agenda

    ‘Developmental local government’ • Strategic and planned response to local conditions • Sustainable service delivery • Universal access to basic services Accountability • Clear allocation of responsibility • Requirement for substantial local consultation • Performance management systems More rigorous financial administration Create conditions for private sector involvement in municipal service provision

Local Government Transformation Programme Constitution White Paper Structural Own Source Revenue Property Rates Bill RSC Levy Capacity Building Intergovernmental Transfers Capital, capacity building, restructuring & transition Systems Fiscal

Structural Reform Goals

 Creating sustainable and efficient local government structures:  Boundary changes through demarcation  Changes to leadership structures and categories through Municipal Structures Act  Appropriate allocation of powers and functions

Systems Reform Goals

 An enabling and regulatory role for local government  Empower Councillors  Allow managers to manage  Improve accountability to residents  Ensure transparency  Embed local government in intergovernmental system

Fiscal Reform Goals

 Improve legibility, certainty, equity and efficiency of all transfers  Overcome funding gaps for urban poor, large municipalities  Improve sustainability of capital investments  Stimulate capital market access  Improve revenue administration and strengthen tax powers  Appropriate division of fiscal powers between B’s and C’s

Distribution of Transfers

8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 2001/02 Allocation (R'000) 2002/03 Allocation (R'000) 2003/04 Allocation (R'000) Smaller (below R300m) Large (above R300m) Metro

What is the Restructuring Grant?

    Grant administered by National Treasury Aimed at approximately the largest 15 municipalities • Those whose success or failure would have an impact on the national economy Was developed in the context of a response to the Johannesburg crisis Intended to facilitate restructuring which • pre-empts and avoids key threats • Leads to significant enhancement of a municipality

Characteristics of the grant

      Not intended to finance specific projects Aimed at getting municipalities to develop a coherent strategy and programme for improvement….and stick to it Structural reform programme to be determined by municipality – not Treasury Agreed amounts are paid out on the basis of reaching pre-agreed targets and milestones Aimed at developing a more substantial relationship between bigger cities and Treasury Amounts available are considerable

Content of application

     Key motivation of about 10 to 15 pages • Annexures containing detail Must show proper appreciation and ownership of key issues and problems Must indicate strategies to address key problems and opportunities Must include indicators against which progress in addressing key problems can be measured • To be refined in the process of negotiations Emphasis on financial sustainability

What are we looking for?

 An understanding of the current context and trends • Economic • Social • Service delivery • Financial • Organisational

 A vision and approach that addresses these issues • credible • owned and understood by key leadership (political and administrative) • clearly communicated

 A set of lead programmes and projects which give life and momentum to the vision • Limited number • Appropriately balanced between inward and outward focus • Milestones that can be monitored  Outputs and dates • Aimed at supporting key drivers and managing key risks

 Must be based on financial sustainability  Must address revenue/income issues

Lessons from SA experience

   Take-up slower than expected • Limited strategic capacity amongst municipalities • Reforms need to be nurtured • Unfamiliar grant approach Good vehicle for building a common urban agenda Reforms must be self-imposed

Lessons (cont)

   Over-prescription is unenforceable and unconstructive Monitor outputs and risks – not inputs • Link payment to performance Dedicated capacity with credibility amongst municipalities required to manage grant