Ove rvie w of the Munic ipa l Infra struc ture Support DRAFT - - PowerPoint PPT Presentation

Ove rvie w of the Munic ipa l Infra struc ture Support Ag e nt (MISA)

Br ie fing to the Por tfolio on CoGT A Str ate gic Planning Se ssion (27 – 29 August 2019)

Pre se nte r: Mr Nta nda zo Vimba , MISA Chie f E xe c utive Offic e r T ue sda y, 27 Aug ust 2019

DRAFT PRESENTATION TO PORTFOLIO COMMITTEE ON THE STIMULUS PACKAGE TO LOCAL GOVERNEMNT

PRESENTER: DR N. DLAMINI - ZUMA 30 APRIL 2020

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PRESENTATION OUTLINE

• Purpose and Background of Presentation
• 2020/21 MTEF Allocations to Local Government
• Criteria for Allocation Between Municipalities
• Severity of Impact on Cash Flow
• Adequacy of Stimulus to Cover Deficit
• Other Measures and Interventions Planned
• Mitigating Implementation and Accountability Risks
• Recommendations

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PURPOSE AND BACKGROUND

• The purpose of this presentation is to provide a briefing to the Portfolio

Committee of CoGTA, on the Stimulus Package announced by the President to assist municipalities in response to COVID-19, with a particular emphasis on:

• Whether or not the stimulus package to municipalities is sufficient to cover

the deficit arising from depressed municipal revenue sources.

• Addressing the delivery of basic services to households that can no longer

afford to pay.

• Other measures and interventions planned should the allocated R20 billion

prove insufficient.

• Other relevant matter, in relation to the COVID-19 development, that affects

municipal viability.

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2020/21 MTEF ALLOCATIONS TO LOCAL GOVERNMENT

• The table below presents allocations to local government

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THE LOCAL GOVERNMENT EQUITABLE SHARE FORMULA

• The structure of the Local Government Equitable Share (LGES) formula is as

follows: LGES = BS + (I + CS) X RA ±C where,

• LGES is the local government equitable share
• BS is the basic services component
• I is the institutional component
• CS is the community services component
• RA is the revenue adjustment factor
• C is the correction and stabilization factor

The basic services component = basic services subsidy x number of poor households) The institutional component = base allocation + (allocation per councillor x number of council seats) The community services component = [municipal health and related services allocation x number of households] + [other services allocation x number of households]

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ALLOCATIONS PER LOCAL GOVERNMENT EQUITABLE SHARE FORMULA COMPONENT

• The basic services component - is worth R54.1 billion in 2020/21 and accounts for

79.5% of the value of the local government equitable share.

• The institutional component - accounts for 8.2 per cent of the equitable share share

formula and is worth R5.6 billion in 2019/20. The component is also complemented by special support for councillor remuneration in poor municipalities which is not part of the equitable share formula.

• The community services component - accounts for 12.3 per cent of the equitable

share formula and is worth R8.4 billion in 2019/20.

• RSC/JSB levies replacement grant – grant increases to 7.2 per cent for district

municipalities authorized for water and sanitation and 2.4 per cent for unauthorized district municipalities.

• Special support for councillor remuneration and ward committees - The total value
• f the support provided in 2020/21 is R969 million, calculated separately to the local

government equitable share and in addition to the funding for governance costs provided in the institutional component. Councilors' salaries are subsidized in poor municipalities.

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Table W1.26 Amounts per basic service allocated through the local government equitable share, 2020/21

Maintenance Portion Operations Maintenance Total (R million) Energy 84,30 9,37 93,67 11 645 1 169 Water 130,38 14,49 144,86 18 011 1 808 Sanitation 96,21 10,69 106,90 13 290 1 334 Refuse removal 80,65 8,96 89,61 11 141 1 118 Total basic services 391,53 43,50 435,04 54 087 5 429 Allocation per household below affordability threshold (R per month) Total allocation per service (R million)

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THE MUNICIPAL INFRASTRUCTURE GRANT (MIG) FORMULA

• The structure of the Municipal Infrastructure Grant (MIG)

formula is as follows: Municipal Infrastructure Grant (MIG) = C + B + P + E + N where,

• C Constant to ensure a minimum allocation for small municipalities (this

allocation is made to all municipalities)

• B Basic residential infrastructure (proportional allocations for water supply

and sanitation, roads and other services such as street lighting and solid waste removal)

• P Public municipal service infrastructure (including sport infrastructure)
• E Allocation for social institutions and micro-enterprise infrastructure
• N Allocation to the 27 priority districts identified by government

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THE MUNICIPAL INFRASTRUCTURE GRANT (MIG) FORMULA

• The structure of the Municipal Infrastructure Grant (MIG)

formula is as follows: Municipal Infrastructure Grant (MIG) = C + B + P + E + N where,

• C Constant to ensure a minimum allocation for small municipalities (this

allocation is made to all municipalities)

• B Basic residential infrastructure (proportional allocations for water supply

and sanitation, roads and other services such as street lighting and solid waste removal)

• P Public municipal service infrastructure (including sport infrastructure)
• E Allocation for social institutions and micro-enterprise infrastructure
• N Allocation to the 27 priority districts identified by government

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2020/21 MTEF ALLOCATIONS TO LOCAL GOVERNMENT

• The current equitable share formula subsidizes basic services to 10,4

million households at the cost of R54 billion.

• It is anticipated that the number of poor households will increase

beyond the 10,4 million to between 14 and 16 million.

• This increase will result in a deficit in municipal funding and negatively

affect municipal liquidity.

• Municipalities should therefore be supported to bridge this funding gap.
• The funding needs to consider the varied impact on municipalities, as

no two municipalities will be identical.

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• In order to respond to the COVID-19 pandemic, the following has been

undertaken:

• Municipalities were requested to reprioritize their 2019/20 MIG allocation to

address the water and sanitation needs in communities.

• Municipalities were requested to reprioritize the funding that was envisaged

to be under spend informed by under commitment and slow implementation due to lockdown

• This is to allow the implementation of short term projects to be implemented in

the last two months of the municipal financial year ( May and June 2020)

• Municipalities across the country have reprioritized approximately R 1 581

billion to be committed towards COVID 19 water and sanitation projects

Reprioritization of MIG Grant to deal with COVID 19

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• Provincial COGTA’s were requested to coordinate the reprioritization process

and work closely with MISA deployees and Regional DWS to screen the list of projects and to ensure coordination with DWS water provision interventions (i.e. DWS interventions are immediate but might not be sustainable)

• DCoG, Provincial COGTA’s and MISA are supporting municipalities with the

reprioritization of the projects for immediate registration and implementation (cooperation is required from municipalities and DWS (wavering of requirements)).

• Non-Water Services Authorities(WSAs) in the North West, Eastern Cape,

Limpopo, Kwazulu-Natal Provinces were requested to work closely with the District Municipalities to reprioritize the funding for water and sanitation in

• rder to maximize the resources and impact to communities. Section 88 (2)

(c) of the Municipal Structures Act

Reprioritization of MIG Grant to deal with COVID 19 (Cont)

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• Typical MIG projects:
• MIG projects to immediately improve water and sanitation provision includes:
• Repairs and installation of key components within existing water and

sanitation systems, that includes for example:

• Repairs and installation of water mains, pump stations, reservoirs and

connector and supply pipes

• Refurbishment and upgrades of Water Treatment Works and Waste Water

Treatment Works

• Repairs and installation of sewer mains, pump stations, mechanical and

electrical equipment.

• Drilling of new and equipping new and existing boreholes to ensure appropriate

water quality compliance (where geo-hydrological investigations have been commissioned).

• Maintenance of taxi ranks wrt provisioning of ablution facilities and water

Reprioritization of MIG Grant to deal with COVID 19 (Cont)

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CRITERIA FOR ALLOCATION BETWEEN MUNICIPALITIES

Following a technical meeting with between CoGTA and National Treasury it was agreed that a combination of the following criteria will be used to allocate funds between municipalities:

• The municipal powers and functions;
• The number of poor households;
• The loss of revenue due to COVID-19;
• Additional unbudgeted operational expenditure due to COVID-19 (e.g.

law enforcement, waste management, over time, upkeep and maintenance of temporal shelters etc.);

• Additional unbudgeted capital expenditure due to COVID-19 (e.g.

emergency requisition of water, sanitation and temporary shelter infrastructure to meet additional needs);

• Unfunded budgets.

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UNFUNDED BUDGETS

• An unfunded budget is when a municipality’s expenditure is greater than its income.
• In the 2019/20 financial year, 127 (49% of all) municipalities were identified by

Treasury (National and Provincial) as requiring support / intervention (included 30 of the 40 municipalities that were currently under intervention).

• Provincial Treasury’s (PT) and Provincial COGTA supported municipalities during the

month of October 2019 to realise funded budgets.

• To attain a funded state these municipalities had to revise:
• Original budget assumptions
• Reduce the expenditure budget, even to the extent of removing internal funds for

capital programmes, cost containment

• Develop revenue improve measures that will increase the collection rate of the

municipality

• The exercise was successful, 61 of the 127 municipalities revised their budgets to

funded state; 66 municipalities could not change the status for various reasons – one being their large arrear obligation.

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SEVERITY OF IMPACT ON CASH FLOW

• The impact of COVID-19 on municipalities will not be evenly

distributed across municipalities:

• Municipalities which are most severely impacted are those that

generate most of their operating revenue from own sources i.e. trading services (electricity, water, rates etc.).

• Municipalities which are moderately impacted, are those that are

equally reliant on both grants and own revenue for their operating budgets.

• Municipalities which are minimally impacted, are those that are largely

reliant on grants for their operational budgets.

• Allocations should be differentiated, taking the impact on revenue

into account.

• Allocations should also consider the revenue lost due to households

inability to pay for municipal services

CONTRIBUTION TO THE BROADER LOCAL GOVERNMENT ECONOMIC RESPONSE

In order to stimulate local economic development to counter job losses as a result of COVID-19, the following immediate interventions linked to the use of the R20bn will be implemented: 1. Facilitate the establishment of Operation and Maintenance Cooperatives – municipalities to facilitate establishment and registration

• f Coops, train and assign minor repairs, operations and maintenance
• f water, sanitation and roads infrastructure (bias on women, youth and

people with disabilities). 2. SMMEs development - The supply of certain goods and services associated with COVID 19 that have been traditionally awarded to large contractors be bias towards SMMEs and local contractors with special bias to women, youth and people with disabilities. 3. Labour intensive delivery – use EPWP and CWP guidelines for a deliberate labour intensive approach to infrastructure delivery and reduce mechanization, where this is technically feasible. The department is working on a long term, sustainable post COVID-19 Economic recovery strategy for the sector, which is in line with the National strategy.

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ADEQUACY OF STIMULAS TO COVER DEFICIT

• CoGTA and National Treasury will be engaging municipalities to determine the extent
• r impact of COVID-19 on their revenue and expenditure. The following information

will be requested and analysed:

• Revised Integrated Development Plan (IDP), reprioritized Service Delivery and

Budget Implementation Plan (SDBIP), and repurposed grants.

• Additional expenditure.
• Council resolution supporting the changes.
• It is anticipated that the impact will vary from municipality to municipality and trading

services .

• The process outlined above will quantify the impact on all trading services and property

rates, after which the adequacy of the stimulus will be determined.

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OTHER MEASURES AND INTERVENTIONS PLANNED

• In partnership with DBSA the following pool of financing options

are being investigated:

• Project preparation support
• Development loan facilities
• Alternative financing for bulk infrastructure
• Infrastructure implementation support
• Project management unit support
• Donations in kind
• More details will be available as the investigations mature.

• The DCOG has at the end of 2019/2020 financial year, allocated an amount of R466 million to the

Departments of Health in all provinces for response measures to address the effects of COVID-19 pandemic.

• Funds are meant for the procurement of Personal Protective Equipment and Ventilators.

COGTA INTERVENTIONS

• The DCOG has at the end of 2019/2020 financial year, allocated an amount of R466 million to the

Departments of Health in all provinces for response measures to address the effects of COVID-19 pandemic.

• Funds are meant for the procurement of Personal Protective Equipment and Ventilators.
• An funding application for amount of R250 291 800.00 which was subsequently adjusted to R252

080 800.00 was submitted to National Treasury.

• It is however important to indicate that the Division of Revenue Bill, 2020 is still being

processed by Parliament.

• As such, in terms of section 28(1)(b) of the Division of Revenue Act (Act 16 of 2019 – “the Act”), if

the Division of Revenue Act for the new financial year has not yet commenced by 1 April 2020, National Treasury may determine that an amount not exceeding 45 per cent of the total amount of each conditional grant allocation may be transferred to the relevant municipalities.

• The total amount allocated for the Municipal Disaster Relief Grant in 2019/20 is R335 488 000,

then as amount of R150 970 000.00 has been approved to be transferred to all municipalities in all provinces.

• The balance of the funds will be made available after the Division of Revenue Act is promulgated.

COGTA INTERVENTIONS

• The following areas have been prioritised for funding:

(i) Sanitation, (ii) Waste and Refuse removal, (iii) Decontamination of selected public spaces, Personal Protective Equipment & Hygiene packs

• National Treasury approved funds on 29 April 2020 and it is anticipated to reach municipalities by

end of 1st week of May 2020 considering the number of municipalities that have applied for funding.

MUNICIPAL DISASTER RELIEF GRANT

NO Province

Amount to be transferred to municipalities in in respective provinces R’000

1. Eastern Cape

42 787

2. Free State

8 610

3. Gauteng

5 276

4. KwaZulu-Natal

47 499

5. Limpopo 14 579 6. Mpumalanga 9 596 7. Northern Cape 3 137 8. North West 11 559 9. Western Cape 7 927 TOTAL 150 970

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MITIGATING IMPLEMENTATION & ACCOUNTABILITY RISKS

TO ENSURE THE FUNDS ARE USED OPTIMALLY AND FOR THEIR INTENDED PURPOSE, THE FOLLOWING MEASURES WILL BE TAKEN : a) Using the municipal capacity assessment outcomes. The assessment considered: 1. Historic capital expenditure (MIG, Disaster Relief etc.) 2. Governance (s139, audit outcomes, unfunded budgets etc.) b) Where a municipality is deemed to have the requisite capacity, funds will be transferred directly. c) Where a local municipality is deemed to not have the requisite capacity, funds will not be allocated directly, and the district municipality will intervene (provided they are deemed to have capacity). d) Where a district municipality is deemed to not have the requisite capacity, funds will not be allocated directly, and provincial and national will intervene. e) For Water and Sanitation, where the Water Services Authority is deemed to not have capacity, national will implement.

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SUMMARY

The committee must note the following:

• The work that the department is doing together with National Treasury to

determine the criteria for the allocation of the additional funding.

• These funds will be available as early as August due to the budget process

that needs to be followed..

• These revised/reprioritised budgets by municipalities must be tabled in

councils and approved before they are submitted.

• A joint circular by officials from CoGTA and National Treasury will be

issued to municipalities clarifying the process and information required and the timelines.

• Notes that the balance of R101 110 800.00 will be made available after the

promulgation of the Division of Revenue Act, 2020

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RECOMMENDATIONS

The following recommendations are made:

• It is recommended that the Portfolio Committee notes contents of

presentation.

• Notes initiatives undertaken by the various stakeholders to address

the challenges relating to the stimulus package.

• Provides further inputs to assist CoGTA in dealing with the challenges in

this regard.

• Notes that the Provincial Disaster Relief Grant fund

for 2020/2021 (R131m) has been earmarked for the persisting drought conditions in the country as a national state of disaster was declared in 27 February 2020.