More needs to be done to help local governments overcome their financial crises, writes Caroline Kihato
The financial crisis that afflicts local government needs to be resolved. Local government is regarded as pivotal to development in South Africa as the majority of the population depend on it for the delivery of much-needed social services.
By September last year, local government in all nine provinces owed R10-billion to various lending institutions and service providers such as Eskom. Top on the debtors list was Gauteng with R4,5-billion in arrears, followed by the Western Cape with R1,5-billion. Debt to banks had soared to R3,6-billion, a 193% increase on the same period in 1996.
However serious it is, the debt crisis is only a symptom of a broader set of problems. The high expectations of local government to deliver has led to an overload of mandates. Some of the mandates are made by higher tiers of government without providing corresponding funds. This “overload” is forcing local government to bite off more than it can chew.
The announcement by Minister of Finance Trevor Manuel that the government will not throw a lifeline to ailing municipalities has set off alarm bells, not only in local councils. Reacting to the news, major lending institutions have established a joint forum which will evaluate the consequences of a massive municipal debt, as well as the government’s new sink-or- swim approach, to its lending policies to local government.
Currently, local government’s “equitable share” of revenue raised at national government is R1,21-bllion or 0,8% of the nation’s cake, and the proportion is unlikely to change in the next three years. Using a formula-based approach to apportion amounts to various municipalities, these funds will be used to support the operation costs of providing basic services to low- income communities.
Although this is only a nominal amount which excludes conditional grants transferred to local government by the national government, it is argued that the amounts provided by national government are inadequate given the crucial role local government plays in development.
But increased reliance on national government for financial assistance has its drawbacks, diminishing the autonomy of the third tier of government. Besides, one could argue that the share received from national government is “fair” considering that local government raises 95% of its revenue locally, while provincial government depends on national government for 95% of its revenue.
In response to Manuel’s statement, various local authorities have made attempts to cut down their expenses and improve their revenue-collection systems. For instance, in Nelspruit, the city council has suspended planned capital projects; in Krugersdorp, no deputy mayor will be appointed because of the lack of funds.
Similarly, in cash-strapped greater Johannesburg, a task team, appointed in October to sort out the financial crisis in the city, has begun trimming the metropolitan budget. Expenditure has been reduced by cutting costs such as consultants’ fees, office furniture, printing, publicity and advertising and by freezing posts.
The city’s budget structure has also been improved. Whereas the council’s previous budgets have assumed a 100% payment level, a more “realistic” one has been drawn up, basing projected expenditure on recovery rates of 93% in affluent areas and 50% in historically disadvantaged areas.
In addition, campaigns to recover the R1,75-billion owed to the council by service defaulters began in earnest in the last quarter, with the council adopting a hard-line attitude towards the non-payment of services — which has plunged some residential areas and businesses into darkness. As a result, greater Johannesburg had recovered R17-million from its campaign by December 3.
At national level, measures have been taken to increase transparency on municipal financial transactions. Two government gazettes published on November 14 set regulations for financial reporting by municipalities and the publication of the remuneration received by the chief executive officer of district councils, local councils, metropolitan councils and metropolitan local councils.
The move compels the CEOs to submit comprehensive financial reports on, inter alia, the rates, service debts, turnover rates, cash flow and payment levels to their councils and to the relevant MECs.
While attempts are being made to save the sinking municipalities, the question remains whether these measures are timeous and adequate. Slimming budgets, increasing financial transparency, improving on credit control, billing and revenue-collection systems will certainly improve local authorities’ financial status, but there are doubts that these efforts sufficiently allow local government to carry out its mandates. A 58% slash in Johannesburg’s capital budget, for instance, means that the provision and maintenance of infrastructure will be affected dramatically.
Already cuts in the municipalities’ budgets imply that subsidies to the southern and western councils from the eastern council are reduced by R50-million, meaning that the poor might be the hardest hit by the fiscal tightening policies.
Even the “empowering” City Improvement Districts Act, passed by the Gauteng legislature in December — which allows organised city residents to collect additional levies to improve on services provided by municipalities such as security, maintenance of street lights and sewerage removal — will only exacerbate the disparities between the city’s rich and poor areas.
Even if municipalities recovered 100% of their revenue, it would still be difficult for them to fully carry out their current mandates in an environment where they provide services to double the previous populations within largely unchanged budgets.
Furthermore, it is generally accepted that local government should play a crucial role in development. Thelocal government Green Paper puts forward a vision for a “developmental local government” charged with a leading role in “enhancing the growth and development of local communities”.
However, it is apparent that local government, in its current state, can’t fulfil these expectations and the demands being made on it. There are various reasons for its calcification — among them a lack of capacity or expertise, poor communication and inadequate support from other tiers of government — but the lack of funds contributes as much, if not more, to the slow delivery by local government.
One of the spin-offs from this situation is a feeling of helplessness, hopelessness and frustration among officials working in the third tier of government. During the summit on the White Paper on local government, the lack of financial resources was among the issues most discussed. Councillors from across the country expressed their frustration — and that of their electorate — at the lack of adequate funds in municipalities to carry out their development mandates.
The issue of “unfunded mandates”, where national and provincial governments delegate certain functions to local authorities without sufficient funds, was also a contentious one. The net effect of these problems is that they negatively impact on the attitudes of local government officials and affect their performance, contributing to the problem of what is generalised to be a lack of capacity.
Ignoring the other problems facing local authorities, this tier of government cannot fulfil its roles, duties or mandates if it does not have the necessary money.
The tinkering with systems of collecting revenue, accountability, transparency and early warning of financial trouble, will go some way towards shifting the municipal coffers from the red nearer to the black. Manuel’s sink-or-swim solution may also tighten up any slack in terms of planning and expenditure. But neither provides a total solution.
It appears that the budgets are inadequate and the demands being made currently on local government are unrealistic.
Naturally, lending institutions are going to react to the burdensome debt of local government. They may be able to come up with a responsible way of responding to the debt crisis, but, in the end, they have to protect their investments.
A more imaginative solution is needed: either lifelines must be thrown to local authorities or their functions must be scaled down or both.
Caroline Kihato is a reseach officer at the Centre for Policy Studies