Input by the City of Cape Town on Bill 9 of 2007


The Constitution of South Africa, (Chapter 3) recognises that government is constituted as national, provincial and local spheres of government which are distinctive, interdependent and interrelated. All spheres of government and all organs of state within each sphere must respect the constitutional status, institutions, powers and functions of government in the other spheres and not assume any power or function except those conferred on them in terms of the Constitution.

The Constitution further stipulates that all spheres of government and all organs of state within each sphere must exercise their powers and perform their functions in a manner that does not encroach on the geographical, functional or institutional integrity of government in another sphere and further, must co-operate with one another in mutual trust and good faith by, inter alia, assisting and supporting one another. The objectives of local government are clearly stipulated in S152 (1) of the Constitution and municipalities are encouraged to strive within their financial and administrative capacity, to achieve these objectives.

Local Government has a strong developmental role to play in the area over which it is given jurisdiction. The sources of funding for the provision of social and utility services and related infrastructure come from various sources. While it is commonly argued that the social responsibility services should be provided from the rates charged on property, it cannot be denied that the surcharges on fees for services provided by or on behalf of the municipality are also a significant income source of funding.

If the basis on which the limited income streams to municipalities are tampered with, the fine act of balancing the municipal budget to provide significant social services funded out of limited economic services becomes nearly impossible. This is due to the fact that the possibilities of raising funds at local government level are significantly limited? The regulation of raising funds will be further tightened through the, introduction of the Municipal Fiscal Powers and Functions Bill now introduced by National Treasury - with a lead time of up to 12 months should any new source of funding possibly be identified.

The City is not essentially opposed to the Bill, as long as the role of local government is not compromised through the arbitrary maximum capping of surcharges or the arbitrary capping of a particular category of service, without taking into account the circumstances of the individual municipality concerned. Local government has to balance economic development and related "income producing services" with its social responsibilities which involves a very careful review of the related revenue streams each year during the budgeting process. This is particularly important in the larger metropolitan municipalities where the majority of the funding comes from service provision and not from the equitable share.

Every municipality is obliged to use the resources of the municipality in the best interests of the citizens of the area. The City of Cape Town believes that it sets service charges at a realistic level and generates a surplus from certain reliable income sources, such as the electricity service. These surplus funds (generated from "surcharges" referred to in this Bill) are used for a number of social subsidies.

The City redistributes funding to subsidise other services where tariffs and charges are not imposed or are limited to the barest minimum to ensure access by all - such as libraries, swimming pools, clinic services, etc. The City is aware that it is one of the few metropolitan municipalities that limit the surcharge to within proposed national norms on electricity services.

It must be noted that Electricity usage is one of the few areas where consumers can manage their expenditure according to their means, but also where the growth in the economy directly relates to a growth in usage. Property rates can assist municipalities in providing for the various "unfunded" or "social" services that the City must provide, but the development of the rates base is not aligned to the economic growth in an area.

Municipalities do already have certain "caps" placed on them through the Budgetary Circular issued by National Treasury each year which already stipulate the particular growth parameters that can be applied to municipal budgets. It is not clear if this "capping" of surcharges will be in addition to the current limitations already set by National Treasury when municipalities determine the possible income streams to support the expenditure growth areas and areas of need.

The City would like to propose that National Treasury aligns the capping process with the timeframes outlined in the Municipal Finance Management Act (MFMA) and stipulates a date when the capping will be done in order to take this into consideration when preparing the budget for the municipality. Thus, municipalities should know of the capping limitations set well before the start of the financial year in order to prepare the necessary tariffs to support the budget to be implemented from 1 July in that year.

This is due to the fact that the MFMA stipulates that the budget must be tabled at a Council meeting at least 90 days before the start of the budget year (Le. by 1 April of each year). Municipalities are already caught in a dilemma that bulk tariffs can be increased by state departments as late as 15 March which affects the budget being tabled at a Council meeting at the end of March.

While clause 9 of the Bill refers to the fact that the Minister may exempt a municipality from complying with the norms and standards set, which can include the maximum municipal surcharges that may be imposed by municipalities, there is no process outlined for this exemption or the support measures that will be provided by various national or provincial departments to those municipalities that feel it would not be able to implement such capping. [This support may involve a full review of the various income streams that would allow that municipality to comply with its Constitutional objectives, which may even include determining a new revenue stream and the related process and timeframes outlined in clauses 4 to 6 of the Bill.]

It is unclear from the Bill that the provision made in section 43 of the MFMA would still be applicable (effectively this provision seems to be a "shortened version" of clause 8 and 9 of the new Bill). It is however essential that this kind of provision (which allows an automatic exemption from any upper limits that would impair a municipality's ability to meet the escalation of payment of a contract entered into under various other provisions in the MFMA) is still made available to municipalities in order to meet contractual requirements. Hence it is essential to carefully time the capping of municipal surcharges or the setting of the norms and standards and the related criteria which must be applied by municipalities in terms of this new legislation as well as setting very clear processes for the application for exemption.

In summary, the Bill is not essentially opposed by the City, but it is disappointing that the Bill seeks to further control municipalities, rather than enable and guide them in expanding sources of revenue to assist in fulfilling their constitutional role. It can per viewed as an opportunity lost rather than gained.