Outlook for municipalities is bleak, Parks Tau tells Salga assembly

Leaders and councillors attending the two-day South African Local Government Association (Salga) national members assembly in Durban should provide insight and provide a way forward on how a repeat of the VBS Mutual Bank looting scandal can be prevented.

This was the view of Salga president Parks Tau during his opening remarks at the gathering at the Durban International Convention Centre.

Tau told delegates Salga had a mandate from its elective conference to ensure that a consequence and accountability framework was developed to ensure that municipalities meet their developmental mandates.

"This framework will set out the responsibility of each integral group in local government in terms of governance, financial management, service delivery and intergovernmental relations, and clear measures to ensure that transgressions are dealt with in a swift and decisive manner," said Tau.

He cited the VBS bank feeding frenzy as an example.

"A case in point is the VBS debacle. While acknowledging that there were regulatory lapses that, if appropriately managed, could have mitigated against the losses suffered, as leaders and fellow councillors, our conversation should not only lament on the implications of this crisis for municipalities, but also provide insight and a way forward on how this and matters of similar grave nature — negatively affecting our members and communities they serve — should be avoided," said Tau.

Tau also painted a bleak picture of the financial state of municipalities in the country.

"Municipalities are under extreme cash flow constraints, with the aggregated year-to-date actual collection rate at 83.3%, with over 123 municipalities with less than 80% collection levels and a further 75 municipalities with less than 60% collection levels."

Tau questioned whether this has been a realistic assumption upon which to base funding of local government given the spatial amalgamation of vast rural and small urban areas.

He said to date 93% of municipalities were repeatedly flagged with going-concern status by the auditor-general.

“It should not be surprising to see that of the 257 municipalities we have, 133 passed budgets that are not cash-backed as detailed in the recent 2017/18 Section 71 reports by the National Treasury."

Tau said there was an urgent need to sort out the lingering challenges arising from the current fiscal framework.

"This must include consideration of the unsustainable and increasing debt owed to the municipalities. According to the first quarter Local Government Section 71 report, issued by the Treasury this past week, the aggregate municipal consumer debt amounted to R158.9bn as at September 30 2018 compared to R143.6bn reported in the first quarter of 2017/18 — a staggering increase of R15bn."

The Treasury report also acknowledged that not all the outstanding debt of R158bn was realistically collectable, as these amounts were inclusive of debt older than 90 days, which translated to historic debt that has accumulated over an extended period, interest on arrears and other recoveries.

Tau said bold measure were needed to curb these debts and to ensure that municipalities collect and better manage their customers and that national interventions were initiated to ensure that this growing debt situation did not undermine the solvency of local government.

"These bold measures must include serious consideration to introduce legislation that will allow, in particular, the writing off of bad, realistically uncollectable debt against incentives such as the installation of prepaid meters to prevent recurrence," said Tau.

There was also a need for a "fundamental rethink of the overall local government fiscal architecture" to ensure that under-capacitated municipalities were adequately resourced to perform their functions.