How will municipalities spend R23bn transfer?

The Organisation Undoing Tax Abuse (OUTA) calls on municipalities to spend the equitable share grant they received this week on service delivery not on year-end bonuses.

The most urgent spending priorities should be payments towards the municipal debts to Eskom and to the water boards. These are debts that the inter-ministerial task team (IMTT) on Eskom which was appointed in 2017 has failed to resolve.

On Monday (2 Dec) National Treasury was scheduled to transfer another tranche of the equitable share grant to municipalities. On Tuesday (3 Dec), Parliament’s Standing Committee on Public Accounts (Scopa) heard how the municipal debt to Eskom has now reached R26.5 billion and to the water boards is R14.9 billion with no solution in sight. Scopa heard that 41% of water which the municipalities buy is lost due to leaks and non-payment, while some municipalities lose 30% to 50% of the electricity they buy to theft and technical losses. Tuesday’s presentation to Scopa by the Department of Cooperative Governance (CoGTA) is here.

“It is sad that this issue, which has been plaguing South Africa for years, is not taken seriously. It seems that government, SALGA, the IMTT, Eskom and municipalities take each other for granted and are not serious about addressing the real issues. The ratepayer is essentially the one that takes a beating,” says Michael Holenstein, OUTA’s Manager in the Local Division.

“The bottom line is not one of them has an implementable plan and quite frankly there seems to be no political will to address the issues head on.”

OUTA believes that the Treasury should withhold equitable share tranches from financially delinquent municipalities and consider settling the debts directly with service providers in order to ensure services are not cut.

“We are convinced that the equitable share will not be used to pay service providers to guarantee the continuation of services, but to ensure that the officials and councillors receive their salaries, bonuses and 13th cheques. The situation will probably deteriorate even further for communities in these defaulting local councils,” says Holenstein.

“The City of Tshwane has recently made a commitment to increase salaries, backdated to July 2017. The total increase is in the region of R665 million. This will no doubt be funded by the ratepayers, through their direct taxes or the equitable share,” says Holenstein.

The equitable share is the main funding from national government to local government and totals R69 billion this year. It is paid in three tranches through the year, and the December payment is R23 billion. The equitable share is intended to enable the municipalities to provide basic services, particularly for the indigent community.

“The transfer should have been withheld from municipalities with unresolved unfunded budgets and from those who refuse to make repayment agreements with Eskom and the water boards or to honour those agreements,” says Holenstein.

In early October, the National Treasury notified all municipalities which had passed unfunded budgets for the 2019/2020 financial year that if this was not rectified, the December tranche of the equitable share would be withheld.

The Treasury’s Mid-Term Budget Policy Statement, tabled in Parliament in October, says that 126 municipalities passed unfunded budgets, “where realistically anticipated revenue is insufficient to cover planned spending sustainably”. The MTBPS also said: “If these municipalities do not table funded adjustments budgets by 15 November 2019, the National Treasury will take steps to enforce compliance, which may include withholding future transfers of the local government equitable share.”

OUTA was shown the letter which the Treasury wrote to Emfuleni Local Municipality, warning it to revise its budget. The letter is here. Emfuleni subsequently passed an amended budget; the amended budget increases the revenue expectation so it’s not clear how realistic this is. The recently published Eskom Roadmap lists Emfuleni’s electricity debt as R1.5 billion in June; in Tuesday’s meeting Scopa heard from the CoGTA presentation that this debt has increased to R2 billion.

Treasury has previously temporarily withheld tranches to municipalities which failed to honour debt payment agreements with Eskom or the water boards.

“Eskom has been very lax when it comes to collecting from rogue municipalities. Section 41 of the Municipal Finance Management Act is quite clear on what Eskom and other bulk service providers are obliged to do to recover arrears. Eskom has been sleeping, or not wanting to upset the political apple cart,” says Holenstein.

“Resolving these debts needs united action from national government but we are not seeing this.”