Local government must implement new financial reporting measures from July. These include submitting quarterly reports to the National Treasury and posting them on their council websites, to better track revenue and spending.
This key innovation in terms of the Municipal Finance Management Act has come amid ongoing national government concern that councils spend too little on service delivery. Instead, the lion’s share of municipal expenditure goes on operational budgets — particularly personnel costs that, over the past eight years, have increased by up to 40%, according to the 2004 Budget Review.
While municipal capital spending stood at R16,8-billion last year, operational costs were R68,9-billion, up from R34-billion in the 1996/07 financial year. And personnel costs accounted for the most significant portion of this increase: expenditure more than doubled to R22,7-billion in 2003/04 from R11-billion in 1996/07.
In addition, the Department of Provincial and Local Government last year warned of the trend of councils tapping into capital budgets to finance municipal running costs.
The Budget Review says the low increase in budgeted capital spending was “a reflection of institutional and financing bottleneck”. But this would be overcome through several regulatory interventions alongside capacity-building initiatives.
The Act, which comes into force on July 1, will also require councils to be more accountable and transparent about how they budget and spend their money.
Initially the new reporting requirements will kick off in the large metropoles like Johannesburg, Tsh-wane and Cape Town.
“Quite important information will be revealed. Low spending patterns will give council committees and parliamentary committees an opportunity to exercise oversight,” said a senior Treasury official.
The metros were among the 39 municipalities that, since last year, have implemented the Act’s stipulations, including three-year budget cycles, annual reports, monthly and quarterly reports of income and expenditure and the appointment of suitably qualified municipal managers and financial officers.
But last year only 24 of the 39 councils participating in a pilot project tabled three-year budgets, while seven prepared annual reports according to the proposed formula. And monthly reports submitted as part of the pilot project “[did] not provide sufficient information on spending”, but reflected that 53% of all transfers had been spent, according to the Division of Revenue Bill.
The National Treasury which, in terms of the Act, oversees the reporting process and will issue its own overall figures on its website, has set aside a grant to assist councils in implementing the new regimen.
While it is clear the new requirements will have to be phased in as the management capacity of councils varies greatly, no deadlines have yet been set. However, the process is expected to take a few years. The changes come as the municipal debt is estimated to be about R24-billion, a figure that could be revised later in the year when Minister of Provincial and Local Government Sydney Mufamadi is expected to release the new figure. However, last week he indicated that a large part of the debt had been recovered from government departments that owed councils rates and service payments.
Under the new financial regimen, councils can enter bond markets, although Minister of Finance Trevor Manuel on Wednesday pointed out that such bonds would not be guaranteed by either the provincial or the national government.
Councils continue to face the ongoing challenge of providing free basic services to their residents and catching up on the backlog of infrastructure.
To this end the 2004 Budget has made a substantial allocation of an extra R1-billion for water, electricity and sanitation — increasing the allocations from national coffers to R14,24-billion from last year’s R12,39-billion.
Most of this increase comes from the equitable share allocation that councils must use for pro-poor service delivery.
The Municipal Infrastructure Grant (MIG) — first introduced last year to simplify various infrastructural grants, each with its own conditions — has been increased to R4,44-billion, the largest slice of the overall R4,89-billion infrastructure allocation to councils.
As the MIG is being implemented, further changes in the allocation of grants from national government are on the cards from next year. The formula that determines equitable share transfers will take into account the Census 2001 figures. These indicate that 36% of all households can be found in the six metropoles, largely owing to wide-scale urban migration.
The figures were not implemented this year for logistical reasons — the municipal budget cycle starts on July 1 — and also to maintain stability, as councils had used the old census figures for their planning, said a Treasury official.