SECTION G 

FINANCE 
 

1. INTRODUCTION 

A policy framework is needed which will ensure financially viable local government. Such a framework must: 
  • address the root causes of the financial problems that face municipalities 
  • empower municipalities to fulfil their constitutional mandate 
  • enable municipalities to play a central role in creating sustainable living environments. 
Urban and rural municipalities, and even those in different metropolitan areas, are in very different financial circumstances. They have very different prospects for providing adeqaute services at reasonable costs. Some municipalities particularly those in rural areas do not have adequate tax bases to fund the delivery of even a minimal level of basic services. 

The underlying problems are not all related to shortcomings in policy. Some of the problems have to do with poor implementation of the current system such things as inadequate financial management and service delivery. 
  2. THE CURRENT SITUATION 
Size of SA's municipal budget 

Basic Features 

The aggregate size of the municipal budget is South Africa is substantial. In the 1996/97 financial year, municipalities budgeted for total expenditure of more than R48bn. This represents about 7,5% of South Africa's total gross domestic product, or 20,97% of the country's total public sector budget. Within this overall figure, individual municipal budgets vary enormously. At the one end of the scale, metropolitan areas have budgets of several billions of rands, while at the other end, small rural councils have very little revenue. 
Trading services  Most local government revenue is generated by trading services (electricity, water and sanitation). This is due largely to the historical role of municipalities as direct deliverers of services. Electricity, for example, is the largest source of revenue for many municipalities. The surplus derived from the sale of electricity (that is, the difference between the income derived from selling electricty and the costs of providing the service) is not large, but it is an important source of income for many municipalities. 
Local taxes  The major source of local tax revenues is property taxes. Property rates provide 19,89% of local government own revenue. Trading services provide most of the balance electricity (41,4%); water (11,8%) and refuse removal (8,22%). It should be noted that property taxes are only levied in urban areas. The payroll and turnover taxes levied by District and Metropolitan Councils are an additional source of tax revenue, generating over R2 billion annually. 
Intergov-ernmental transfers  According to the most accurate data available, local government received approximately R2.4 billion in intergovernmental transfers for operating expenditure* in 1996/97, excluding agency payments. In addition, local government received approximately R900 million for capital expenditure. 
 

Strengths 

Strengths and weaknesses 

The present system of local government has a number of strengths and weaknesses. 

On the "strengths" side: 

  • municipalities have a fairly well-defined set of fiscal powers 
  • in many cases, municipalities generate most of their own revenue 
  • many municipalities have sound administrative systems, particularly in urban areas 
  • a number of municipalities have successfully entered the capital markets (they are able to raise loans and attract investment from financial institutions) 
  • many municipalities have exercised due caution in their budgetary policies and have managed their finances well. 
Weaknesses  On the "weaknesses" side, local authorities have had to cope with increased service delivery responsibilities at a time when they face problems such as: 
  • fragmented township administrations with insufficient resources 
  • service backlogs 
  • collapsed or deteriorating infrastructure 
  • increased administrative costs 
  • upward pressure on salaries 
  • non-payment for services (although payment for services is improving) 
  • the difficulty of extending property-taxation to former township areas, and 
  • the loss of experienced finance personnel.
These problems have put pressure on municipal cash flows and financial management. Many local authorities have managed this pressure by: 
  • spending their reserves 
  • reducing their capital expenditure 
  • delaying payments to vendors (suppliers) 
  • using bridging finance (short term loans), and 
  • refinancing or extending their long-term debt.
The weaknesses described above have lead to a deterioration of the creditworthiness of municipalities their ability to borrow money has been reduced. Project Viability - national government's monitoring exercise, has shown that, overall, the financial position of local government is deteriorating. 
 

Taxation powers and borrowing powers 

The Constitution 

A restructured system of municipal finance must be based on the relevant provisions of the Constitution. In terms of fiscal and financial arrangements, the Constitution states that municipalities are responsible for their own financial affairs. The Constitution grants them considerable taxation and borrowing powers (Sections 229 and 230), but limits municipal taxation powers by stating that they cannot "unreasonably prejudice" national economic policies and activities. Municipalities are also not able to levy income taxes or general sales taxes. The Constitution permits municipalities to borrow, but not for the purposes of funding budget deficits (in other words, municipalities cannot borrow money to cover shortfalls in their operating budgets). 
Intergov-ernmental fiscal relations  The Constitution addresses Intergovernmental fiscal relations in two broad respects: 
  • Intergovernmental transfers: Section 227 entitles the local government sphere to an "equitable share" of nationally raised revenue. This is in order that local government can "provide basic services and perform the functions allocated to it". Municipalities may also receive additional grants from national or provincial government, with or without conditions.
  • Oversight and regulation of the financial affairs of municipalities: Clauses 139 (1) (a) and (b) and 155 (7) give national and provincial government executive and legislative authority to oversee the performance of municipalities in terms of their functions. Clauses 229 (1) (b), (2) (b), 230 (1) provide for national regulation over the fiscal powers of a municipality.
  3. POLICY OBJECTIVES 

In order to meet the fundamental objectives laid down in the Constitution, the system of municipal finance will have to be guided by a number of basic policy principles: 

Revenue adequacy and certainty 

Municipalities need to have access to adequate sources of revenue - either own resources or intergovernmental transfers to enable them to carry out the functions that have been assigned to them. They should be permitted and encouraged to fully exploit these revenue sources. In the interests of sound planning, there must be some certainty about revenue. Municipalities should be reasonably certain about the sources of revenue (where the money will come from), how much they can expect to receive or raise, and by what date. 
Affordable levels of service  Sustainability
Financial sustainability requires that municipalities ensure that their budgets are balanced (income covers expenditure). Given that there are limits to revenue, municipalities need to ensure that services are provided at levels which are affordable, and that they are able to recover the full costs of service delivery. 
Relief for very poor  However, to ensure that very poor households, who are unable to pay even a proportion of service costs, have access to services, there is a need for subsidisation of these households. 

Effective and efficient resource use
Municipalities need to make the maximum use of available resources, effectively and efficiently. Efficiency in investment and in operation will ultimately increase poor people's access to basic services. 

Accountability, transparency and good governments
Municipalities should be held responsible and accountable to the people who provide the resources, for what they do with those resources. Municipal budgeting and financial affairs should be open to public scrutiny and constitutents should have a greater voice in ratifying (giving final approval to) fiscal decisions decisions about how revenue is raised and spent. Accounting and financial reporting procedures must minimise opportunities for corruption and malpractice. 

Equity and redistribution
Municipalities must treat people equitably that is, fairly and justly when it comes to the provision of services. Equally, municipalities must be treated equitably by national and provincial government when it comes to intergovernmental transfers. 

It is a basic principle of public finances that central governments are better placed to subsidise the provision of basic services than local government. The "equitable share" of national revenue which local government is entitled to should be used primarily for targeted subsidies to poorer households. In addition, municipalities can cross-subsidise between high and low income consumers. This can occur within particular services (for instance, electricity provision), and between services (for instance, between electricity and sanitation). How much to cross-subsidise is a local choice that needs to be taken carefully, with due coonsideration for the impact on the local economy. 

Development and investment
In order to deal effectively with backlogs in services, there is a need for the maximum possible investment in municipal infrastructure. In restructuring the municipal fiscal and financial system, underlying policies should encourage the maximum possible degree of private sector investment. 

Macroeconomic investment
Municipalities form an integral part of the broader public sector in South Africa. Their actions can have a substantial effect on national policy. Municipalities need to operate within the national macroeconomic framework. Their financial activities of municipalities should support rather than destabilise national fiscal policy. 

 
  4. A FRAMEWOK FOR A NEW MUNICIPAL FINANCIAL SYSTEM
 

4.1. Local revenue instruments and policies 
Local fiscal autonomy  The power to tax is essential for promoting sustainable and accountable local government. There are four important areas of local fiscal autonomy in taxation: 
  • the choice of tax to be imposed 
  • the definition of the tax base 
  • the choice of the tax rate, and 
  • tax administration. 
The choice of tax rate is by far the most important means of promoting the fiscal autonomy of local government. The freedom of municipalities to vary the tax rate strengthens accountability as constituencies can challenge municipalities about the cost of service provision. 
Own revenues fund most expenditure  Municipalities need to have access to the necessary sources of revenue and budgetary powers to succesfully carry out the functions that the Constitution assigns to them. Municipalities do generally have sufficient revenue raising powers to fund most of their expenditure. On average they finance 90% of their recurrent expenditure (operational or running costs) out of own revenues, and in particular from property rates and user-charges (for services). These sources of revenue are traditional for local government throughout the world and are consistent with the previous system of financing local government. 
Own revenues insufficient in most rural areas  However, these figures give the overall picture and hide the fact that there are great variations across the country. Rural municipalities fund less of their expenditure from own revenue than do urban municipalities. In fact, many municipal services in rural areas are provided for by national and provincial departments. A more accurate picture will only become clear when rural local government becomes functional and assumes responsibility for the provision of the bulk of these services. 
 

Property rates 

The major source of local taxation is the property tax (or rates) which, currently, is levied only in urban areas. Government will need to address four main issues with regard to property tax: 
Extending tax base  First, the issue of bringing currently untaxed areas into the tax net. The newly amalgamated urban municipalities (which bring formerly black and white areas into one municipality) have decided in principle to extend the tax base to previously unrated areas. However, most former black areas remain outside of the property tax net. Effective measures to integrate these areas into the property tax net need to be determined and implemented. Currently, property rates are still not being uniformly applied, and property valuations are often disputed. 
Variations in the rating system  Second, there is the issue of variations in the rating system with regard to the tax base. Presently, municipalities use one of three tax bases: 
  • rating the unimproved value of the land only (the value of the land without buildings or developments on it) 
  • rating the improved value of the land (the value of the land, including buildings or developments) 
  • rating both the land and improvements, but at different rates (that is, the land at one rate and the improvements at a different rate).
The key decision that needs to be taken is whether there should be a uniform national system, or whether there should continue to be local choice in this matter. 
Valuation periods  Third, the issue of valuation periods needs to be addressed. In many areas, properties ar not valued regularly. A process for regularly updating property values needs to be determined. Again, the question of national versus local choice in valuation periods needs to be decided. 
Agricultural land tax  Fourth, the introduction of an agricultural land tax at the local sphere needs to be investigated further. There is evidence that income from a land tax would make only a small contribution to the revenue base of municipalities. There are also problems of administration and affordability. However, in the interests of equity, it would make some sense to introduce some form of land tax. 
 

Payroll and turnover tax 

Metropolitan and District levies 

The major source of revenue for metropolitan and district councils are the regional services and establishment levies (payroll and turnover tax). While these levies may be considered economically inefficient, they raise about R2.1 billion of revenue in South Africa. It is unlikely that the local fiscus could afford to lose this income. However, attention should be given to improving this levy system. 
Fuel levy  Previously, metropolitan and district councils received a fuel levy, collected by national government, of one cent per litre. This has now been allocated to provincial and national government to fund public transport. However, the fuel levy is generally considered to be an appropriate tax for the local sphere because it can clearly be shown where the money originates and it targets the more affluent in the community and business. It also has considerable growth potential. If applied also outside metropolian and district councils, it could provide considerable income. 
 

Cost recovery 

User charges 

Another important source of local own revenue are charges which are directly related to the provision of services. The majority of these are public utility charges such as electricity and water. Cost recovery is an important principle to ensure efficient and effective delivery of basic services. If municipalities are unable to recover the full costs of providing these services, they will be unable to maintain the infrastructure created for these purposes. 
Municipal Infra-structure Programme  National government has provided a capital grant package, the Municipal Infrastructure Programme, to assist municipalities to meet the capital costs of addressing backlogs in infrastructure. 
Tariff policy  Consideration also needs to be given to establishing a national guideline for local tariff restructuring. Some of the principles that should guide tariff policy include: 
  • ability to pay: this would ensure that the poorest people are not excluded from basic services 
  • fairness: Tariff policies should be fair. All people should be treated equitably and individuals or groups should not be discriminated against. 
  • payment in proportion to the amount consumed: as far as possible, consumers should pay in proportion to the amount of service consumed. 
  • full payment of service costs: all households, with the exception of those who are too poor, should pay the full costs of the services consumed. 
  • transparency: Tariff policy should be transparent (clear and easily available) to all consumers and any subsidies or concessions which exist must be visible and understood by all consumers. 
  • local determination of tariff levels: Municipalities should be able to develop their own tariffs in keeping with the above principles. 
  • consistent tariff enforcement: A consistent policy for dealing with non-payment of tariffs needs to be developed. This must be targeted and enforced with sensitivity to local conditions. 
Additional revenue-raising powers for LG?  In addition to the above categories of revenue (rates, service charges, levies), consideration needs to be given to adding to the revenue raising powers of local government. 
 

A viable system of financing 

Financing municipalities in rural areas 

If we accept that the richest municipalities are able to fund most of their expenditure from own revenue, it follows that a substantial portion of the share of the national fiscus (revenue collected by national government) reserved for local government will be directed towards rural, rather than urban, municipalities. However, other mechanisms to improve the financial viability of rural local government are required. Some structural proposals, such as the amalgamation of rural councils with small towns will bring some cost savings. Also, the possible land tax mentioned above would generate additional revenue. Other options which could be considered include: 
Measures to improve financial viability 
  • Sectoral funding for infrastructure could be directed via local government to strengthen local capacity 
  • Raising loans for capital expenditures in rural areas - the loans can be paid back through "betterment taxes" taxes on those groups and individuals whose properties are clearly improved through the expenditures. 
  • raising revenue from industries which have an impact on the environment. 
  • the possibility of local government harnessing the flow of revenue, small though it may be, in communal land areas. 
  Each of these options is complex and needs to be viewed against wider policy considerations. Some of the options may be more popular or viable than others. What is clear, however, is that rural local government will not be able to function effectively in the future without combining to best advantage some of these options, and/or other options.

 
 

4.2. Intergovernmental Transfers (IGT) 
  Intergovernmental transfers, now as in the past, are an important part of the relationship between national and local government. However, the existing system of intergovernmental transfers has a number of basic problems which call for a restructuring of the system. 
Problems with IGT system  The problems include: 
  • the grant system is inequitable and inconsistent 
  • the grants are uncertain and unpredictable there is no guarantee as to how much each municipality will receive each year 
  • the grants are not based on objective criteria (a clear set of rules and conditions) they are open to possible political manipulation, and 
  • the incentives built into the system tend to encourage rather than discourage poor financial management behaviour by municipalities. 
The design of intergovernmental transfers needs to consider: 
  • the existing revenue powers and capacities of municipalities 
  • the "equitable share" requirement in the Constitution whereby municipalities should have access to adequate funds to enable them to provide basic services and perform their functions. 
  • national fiscal constraints (the limit to the amount of money available for this purpose from the national fiscus). 
Guiding principles for IGT system  With these goals in mind, we can identify three guiding principles: 

First, intergovernmental transfers must be rational. In other words, the level (amount to be transferred), as well as the distribution of transfers (where funds are to be transfered to) must be based on: 

  • Equity: intergovernmental transfers should be used in the provision of basic services to ensure that all households have access to a certain minimum level of basic services 
  • Efficiency: the system of intergovernmental transfers should promote, not dampen, economic and administrative efficiency 
  • Spillover effects: intergovernmental grants must be used to promote investment in important infrastructure, beneficial to the wider community 
  • Promotion of democracy: intergovernmental grants could also be used to develop municipalities, particularly those in rural areas, into functioning administrative bodies. 
  Second, intergovernmental transfers must be a predictable source of revenue for local government. Knowing when and how much they will receive will bring certainty to local spending and will promote the credibility of democratic municipalities. 

Third, intergovernmental transfers must be accountable. Transfers must be efficiently spent for their stated purposes and respond to the needs of the communities concerned. 
The size of the total grant fund  Decisions have to be made about size of the total grant fund, and how it is allocated among recipients. The size of the total grant fund could be determined in one of two ways. Either it could be determined according to a set formula a specified share of national government revenues. Or, it could be determined by an ad hoc political decision. 
Ad hoc approach  The ad hoc approach gives the national government more flexibility in controlling the demands made by the local government sphere on national budget resources. It enables national government to make short-term rearrangements and to formulate stabilisation policies. However, it creates a problem of uncertainty in municipal budget planning because the flow of revenue may be erratic. Also, the transfers may not keep up with either inflation or real income growth. 
Formula approach  The formula approach, where the total grant fund is determined as a specified share of national government revenues, would still be sensitive to conditions in the economy. For example, if national revenues decline as a result of a downturn in the economy or other macroeconomic factors, the amount in the fund would also decline. However, the formula approach does perhaps provide for a greater degree of local autonomy. 
Size of transfers  Similarly, how the fund is distributed could also be determined either by formula or on an ad hoc basis. The formula could seek to equalise fiscal capacity (give more to municipalities with weaker fiscal capacity) or to reduce disparities in the levels of service provision among municipalities. Such a formula would reduce uncertainty about the shares of individual municipalities. It would be fully transparent and in keeping with the system of local government as an autonomous sphere of government. 
Options for distribution  The following are options for distributing transfers from national to local government: 
  • the provinces carry out the administrative functions of distributing transfers on behalf of national government. The funds would be earmarked for the use of local government only. 
  • national government transfers funds to metropolitan or district councils which then administer the distribution to local government. 
  • direct transfer from national government to primary local structures (individual municipalities), based on a national formula. 
 

4.3. Municipal Borrowing 
Private sector investment essential  The strong capital market in South Africa (banks and other lending institutions) provides an additional instrument to strengthen the system of municipal finance. Increased private sector investment in the municipal sector is essential if the the basic RDP targets are to be met. 
Financial discipline and account-ability required  National government seeks to maximise private sector investment in the municipal sector. However, this has to be done without undermining financial discipline for example, municipalities cannot borrow simply to balance their budgets and pay for over-spending. There is also a need to limit the liabilities that municipal borrowing might impose on national government. 
  Safeguards need to be put in place to ensure that municipalities borrow responsibly. Borrowing from the competitive capital market should in itself help to promote accountable local government. In order to have access to this market, municipalities will need to have accurate and appropriate financial accounting and reporting systems. Also, there needs to be full disclosure of information to the public. This will increase transparency and promote public accountability and market discipline. 
Enhance expenditure efficiency  A further advantage of competitive, responsible borrowing for infrastructure provision is that it can enhance the efficiency of municipal spending. For example, a road which is financed by borrowing from the capital market will be paid for over time, not only by current users of the road but also by future users. 
 

Sustainable market for municipal debt 

 The aim of borrowing is not to produce a short-term inflow of subsidised funds to municipalities. Rather, it is to develop a sustainable market for municipal debt, where the risk is properly priced. In the long term, private sector investment should become increasingly available to municipalities, at a decreasing cost. It should be one of a widening range of options for municipal financing. For this to happen, national government needs to create the right regulatory and institutional environment. This includes developing and making clear the "rules of the game" in terms of the following matters: 
 

Measures to develop market for municipal debt 

Regulatory framework 

Recent changes in legislation in particular, the Local Government Transition Act Second Amendment Act have extended the borrowing powers of municipalities and brought order and uniformity into the previous practices inherited from the Provincial Ordinances. There is a need to examine the possibility of extending these powers further, in the long term and as circumstances permit. The longer term aim would be a vibrant and innovative primary and secondary market for short and long term municipal debt. Measures need to be put in place to ensure this. 

The Local Government Transition Act (LGTA) opened up (liberalised) the regulatory framework for municipal investment. Certain types of investment can enhance the creditworthiness of municipalities. Improved creditworthiness in turn can strengthen the principle of municipal autonomy and needs therefore to be extended. However, this should not mean that municipalities overtax in order to fund unnecessary investment exercises. 

The regulatory role of central and provincial government regarding municipal borrowing and investment needs to be further defined. This includes clarifying the rules and procedures around debt default and higher level intervention when municipalities run into financial trouble. 

Improving creditworthiness 

A range of mechanisms may be used to enhance the general credit position of municipalities their ability to borrow from the capital market. These include: 
  • partial guarantees 
  • municipal bond insurance 
  • treasury trusts 
  • interception of intergovernmental transfers 
  • debt syndication 
  • bond banking, and 
  • revenue ringfencing (structured financial transactions) 
Some of these measures require deregulation (the lifting of restrictions on municipal access to certain types of financial instruments). Other measures require government intervention or regulation. Options appropriate to South Africa need to be explored further. 

In addition to the measures outlined above, other measures to improve the financial management of municipalities would also improve their creditworthiness. These include: 

  • improved municipal accounting systems 
  • the provision of relevant and reliable information 
  • a framework for supervision by other spheres of government and intervention when failure occurs, and 
  • establishing fiscal certainty. 

Concessional Loan Finance 

Municipalities have fairly extensive borrowing powers. However, since a large majority of municipalities are not able to demonstrate creditworthiness, they are unable to borrow on the capital market. Concessional loan finance can play an important role in enabling municipalities which cannot gain access to credit from the capital market to borrow at an affordable price. 
The DBSA  The government's main vehicle for such financing is the Development Bank of Southern Africa. The DBSA has recently been restructured with a focus on supplying finance to infrastructure projects. However, the following points need to be kept in mind: 
 
  • Where public sector intermediaries such as the DBSA are involved, care must to taken to ensure that the government does not subsidise the borrower in a manner which not transparent or clearly quantified that is, where the extent of the subsidy is not absolutely clear.
  • Public bodies such as the DBSA do not compete on a level playing field with private sector institutions. There is therefore a danger that they will "crowd out" or discourage private sector investment. This would have a negative impact on the development of an effective market for municipal debt and reduce the overall level of investment in the municipal sector. The role of public sector institutions, such as the DBSA, needs to be aimed at supporting, rather than contradicting, the financial market system, in order to build effective financing systems in the long term.
  • Concessional finance sources could introduce the discipline of loan finance to municipal institutions which find it difficult to access private markets. This discipline in the way municipalities conduct their financial affairs should be a basic principle of concessional loan finance so that, in the longer term, such municipalities will be able to satisfy the requirements of the markets and so gain access to private sector investment. 
The DBSA clearly has an important role to play in making loan finance available to municipalities. However, because of the potential difficulties discussed above, there is a need for ongoing monitoring and refinement of the role of the DBSA and its relationshipto private sector financial institutions. 
 

4.4. Budgeting, Accounting and Financial Reporting Systems 
Accounting systems inadequate  The current budgeting, accounting, financial reporting and management practices of many municipalities are deficient. One of the problems is that the municipal accounting system does not accurately show the real financial position of a municipality. This means that Councils are unaware of any deterioration in their financial position as it is occurring. This in turn means that municipalities are unable to take corrective action in time. It also means that private sector institutions are reluctant to invest. 
Budgets inaccurate  One of the chief problems with the current budgeting process is that the budgets which are agreed and submitted to national government do not accurately reflect the balance between revenues (income) and expenditure. Frequently, for example, municipalities make no provision for bad debt, even when collection rates are low and credit control measures are weak. 
  Also there is little multi-year forecasting of current revenues and most municipalities do not have realistic long-term capital budgets. Measures need to be put in place to ensure that budgeting is realistic. In addition, to ensure accountability, the municipal budgeting process must be open to public scrutiny (inspection) and cosntituents should have a greater voice is approving fiscal decisions (decisions relating to taxation). 
Further reform of accounting systems  Municipal accounting, and in particular, the formats used for financial reporting, have recently undergone siginificant reform. However, there is room for significant improvement, particularly with respect to the system of internal fund and reserve accounts, capital accounting, and the financial reporting duties of officials and councils. National government needs to ensure that systems and processes are developed and introduced, in line with international best practice. 
 

In Conclusion 

Apartheid resulted in an unworkable fiscal and financial system in South Africa. A new policy on local government finance is essential. This must include significant improvements in local government finance information systems. There are still large gaps in available ainformation (for example, there is insufficient information on the financing of municipalities in some rural areas). Further information is needed on these and other aspects before any uniform national policies are implemented. 
 

THE TRANSFORMATION PROCESS 
Discussion and debate to informLG White Paper 

Completing the Transition Process 

Some far reaching changes are required to establish a new developmental local government system. The Local Government Green Paper has put forward a range of options regarding the future shape and system of local government for discussion and debate. The views, opinions and ideas of stakeholders regarding these options will inform the forthcoming Local Government White Paper. 
White Paper followed by legislation  It is envisaged that the Local Government White Paper will put forward an outline of the new local government system, and will be published for public comment and debate. Following this, new national legislation will be passed. 
National legislation to cover these areas:  National legislation will:
  • Establish criteria for determining which category of municipality an area should have, the criteria and procedures for the determination of municipal boundaries by an independent authority, and the definition of an 'independent authority'
  • Establish or provide for structures that promote and facilitate intergovernmental relations, and procedures to settle intergovernmental disputes
  • Establish guidelines for local elections, in regard to the system of representation, wards, procedures, and the criteria for free and fair representation; the limits and conditions concerning membership of municipal councils and the proposed term of office of municipal councils
  • On the financial side, national legislation must, from 1998, provide for the equitable division of revenue raised nationally amongst national, provincial and local government
  • Furthermore legislation will have to provide for the appropriate division of fiscal powers and functions where two municipalities have jurisdiction in the same area. 
Final phase of transition  National legislation will mark the end of the interim phase of the local government transition, and take us into the final phase of establishing new local government systems and institutions. 
 

Managing and co-ordinating the change process 

Implementing the new local government system 

While national legislation will define the new local government system, the implementation of the new system will involve a range of players. It is therefore crucial that the implementation process is carefully managed and co-ordinated. 

It is essential for the successful implementation of a new local government system that:

  • the objectives of the change process are clear, and understood by all role players
  • clear procedures are defined to guide the implementation of the new system
  • the roles of all players in the change process, including national, provincial and local government, as well as the independent authority tasked with boundary demarcation, organised local government and other players, are clearly defined
  • support programmes are put in place to assist municipalities during the implementation process, and to assist with any difficulties that may arise from the implementation process
  • sufficient resources are provided to manage the change process, and
  • realistic timeframes are set, which ensure that the new local government system is in place and functioning as soon as possible. 
Support for municipalities during change  Care will be taken to ensure that municipalities, which have already undergone a lengthy administrative reorganisation process, are not subjected to undue strain during any reorganisation that may arise from the implementation of the new local government system. The implementation programme will take into account the existing capacity of local government, and ensure that the pace and nature of change are manageable. A package of national and provincial support programmes will need to be developed, to ensure that municipalities have sufficient support to manage the implementation process without impacting negatively on service delivery or staff morale. 
Implementation strategy included in LG White Paper  There a number of issues which need to be considered regarding the way in which the implementation process is structured and phased. As the substantive content of the new local government system becomes clearer, a detailed implementation strategy will be developed. It is envisaged that this implementation strategy will be developed at the same time as the drafting of the Local Government White Paper, and will be published for comment as part of the Local Government White Paper. ?
 

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