Ove rvie w of the Munic ipa l Infra struc ture Support DRAFT PRESENTATION TO PORTFOLIO Ag e nt (MISA) COMMITTEE ON THE STIMULUS PACKAGE TO LOCAL GOVERNEMNT Br ie fing to the Por tfolio on CoGT A Str ate gic Planning Se ssion (27 – 29 August 2019) PRESENTER: DR N. DLAMINI - ZUMA 30 APRIL 2020 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
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 2
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. 3
2020/21 MTEF ALLOCATIONS TO LOCAL GOVERNMENT The table below presents allocations to local government 4
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] 5
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 of 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. 6
Table W1.26 Amounts per basic service allocated through the local government equitable share, 2020/21 Allocation per household below affordability Total allocation Maintenance threshold (R per month) per service Portion (R million) 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 7
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 8
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 9
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. 10
Reprioritization of MIG Grant to deal with COVID 19 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 11
Reprioritization of MIG Grant to deal with COVID 19 (Cont) 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 order to maximize the resources and impact to communities. Section 88 (2) (c) of the Municipal Structures Act 12
Reprioritization of MIG Grant to deal with COVID 19 (Cont ) 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). 13 Maintenance of taxi ranks wrt provisioning of ablution facilities and water
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. 14
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