The outbreak of the novel Corona virus will impact on municipalities’ revenue collection.
Senior Correspondent LUCAS LEDWABA asked SA Local Government Authorities [SALGA] president Thembi Nkadimeng what this means for the already ailing local government sector.
Inside Metros: President Cyril Ramaphosa announced a R20 billion stimulus package for municipalities in the wake of the COVID-19 outbreak and lockdown. There’s concern that already many municipalities have performed badly in handling their finances as alluded to by the AG’s audit reports and cannot be trusted with the responsibility of handling these funds. How is SALGA planning to ensure these funds are not wasted and lost to corruption and mismanagement?
Thembi Nkadimeng: SALGA believes in prudence and accountability in the management of public financial resources and will continue to impress this upon its members. Furthermore, in instances where there is corruption and mismanagement, consequence management must be exercised as outlined in the consequent management framework developed by SALGA for municipalities. In our communication to municipalities we will continue to reinforce the objectives and remedies found in the Municipal Finance Management Act (MFMA) which provides measures on how to deal with irregular expenditure and financial misconduct by councillors and municipal officials. The Code of Conduct as well as the Regulations pertaining to financial misconduct also provides guidance on the remedies of misconduct. The aforementioned consequences for misconduct applies to the use of any public money including the recently allocated R20 billion.
Inside Metros: COGTA said in its presentation to Parliament this week it was considering distributing the funds on a monthly basis. Does SALGA agree with this and how will such a system the funds are not wasted?
Thembi Nkadimeng: COVID-19 has significantly impacted on the resources of municipalities, who in responding to the pandemic have burdens imposed on them through the regulations, in addition to their constitutional obligations to provide services to communities. SALGA, therefore is of the view that the disbursement of funds to municipalities should be treated with urgency to alleviate the pressure on the already stretched resources of the municipalities in order to deliver services as expected as well as to effectively manage the spread of the corona virus.
Inside Metros: Allegations of councillors selling food parcels meant for the poor and violating lockdown regulations have heightened such concerns on whether municipalities will spend these funds appropriately. This must surely be a concern to SALGA as well – how are you dealing with such cases?
Thembi Nkadimeng: In the wake of reports of misconduct by councillors in the distribution of food parcels as well as the contravention of the Disaster Management Regulations, SALGA had already condemned this behaviour. We, for ease of reference, attach hereto the media statement issued by SALGA on the 09 April 2020. SALGA has called upon Speakers of Councils to initiate proceedings against errant councillors who have contravened the regulations including referring matters to Municipal Ethics Committees.
Inside Metros: Some municipalities were already struggling financially before the lockdown. How this impact on service delivery post lockdown and what will is SALGA’s plan to assist municipalities in this position?
Thembi Nkadimeng: There is a link between the worsening economic status of the country and the ability of municipalities to collect revenue for services rendered to the public. SALGA has thus predicted a general decrease in payments and loss of revenue from business and industry as it were.
The outbreak of the corona virus will drastically increase the number of households which are indigent. With some research institutions foreseeing that broader unemployment will rise to 50%, it is evident that revenue collection will decrease and as such municipalities will not be able to recover the cost of delivering services.
SALGA will continue to engage National Treasury, the Department of Co-Operative Governance and Traditional Affairs (COGTA) and the Financial Fiscal Commission (FFC) to review the current fiscal framework to guarantee the financial sustainability of the sector.
It should, however, be noted that SALGA and National Treasury, together with Provincial Treasuries are working closely with municipalities on budget reprioritisation to address the Capex and Opex requirements to ensure sustainable delivery of services as part of their COVID-19 response plans.
Inside Metros: President Ramaphosa said the R20 billion stimulus package will be made available to municipalities for the provision of emergency water supply, increased sanitisation of public transport and facilities and providing food and shelter for the homeless during the COVID-19 crisis. What happens after the stimulus package is spent? How do municipalities maintain the supply of water especially in rural areas? Will this require another form of bailout?
Thembi Nkadimeng: The stimulus package announced by President Ramaphosa is augmenting the work municipalities are already seized with in responding to COVID-19. Water Supply in rural municipalities is maintained through funding instruments such as the Local Government Equitable Share as well as the Municipal Infrastructure Grant.
Inside Metros: SALGA has projected a difficult time financially for municipalities due to a decline in revenue generation as a result of the COVID-19 outbreak and lockdown. You have put a figure of R14 billion as a projected loss of revenue. How long do you project municipalities would require to recover from this especially since many of them were already highly indebted to entities like Eskom before the lockdown?
Thembi Nkadimeng: The rate of recovery for municipalities is positively linked to the overall economic recovery. Therefore, it is expected that their recovery rate will be slow as government takes a cautious and phased approach in opening up economic activity in order to contain the spread of the virus and flatten the curve.
It is important to note that while municipalities indeed owe Eskom and water utilities, municipalities themselves are owed R185 billion by business, government and households.
Inside Metros: Is there a likelihood municipalities may have to shed jobs because of a lack of revenue generation? What is the likelihood of municipalities failing to cover salaries/wages post lockdown?
Thembi Nkadimeng: The ability of municipalities to meet their overall financial obligations is weakened by the predicted drop in revenue collection. SALGA however has and continues to encourage municipalities to exercise prudent financial management. Municipalities will be expected to develop financial turnaround strategies to deal with the aftermath of COVID-19 and its impact so as to continue to provide services to communities. The overall expenditure framework will be reviewed in line with the budget planning processes.
SALGA has encouraged municipalities to work closely with their Risk and Finance Department to assess potential cash flow risks and financial sustainability risk as a result of the expected decline in revenue collections due to COVID-19. SALGA is working with National and Provincial Treasuries to continuously monitor potential challenges proactively so that solutions can be considered to mitigate the risks.
Inside Metros: Has SALGA already engaged with Eskom and bulk water supply entities to impose ‘payment holidays’ during the lockdown period? What has been the outcome of this engagement since Eskom made a public statement it would only consider such applications individually based on the merit of each application?
Thembi Nkadimeng: SALGA has, for the better part of 2019, been seized with the matter of debts owed to and by municipalities. This included numerous SALGA appearances before the Parliamentary Standing Committee on Public Accounts (SCOPA), at times accompanied by municipalities, to provide clarity on the impasse between Eskom and some municipalities. SALGA’s assessment is that it is evident that a clear link exists between the ability of a municipality to service its debt, including that to Eskom and Water Boards, and the inability of a municipality to collect from government, business and households for services delivered.
Following recent developments pertaining to COVID-19 and its impact on the country as a whole, SALGA re-considered the matter and noted the following:-
• A direct impact of the restriction on movement as part of the lockdown measures, has been reduced payments of municipal accounts;
• There is general acknowledgement that the lockdown has and will likely continue to impact the income levels of many households;
• The disconnection of electricity and lowering the water consumption of defaulting households, will only worsen the current COVID-19 induced crisis; and
• The reduced collection levels are highly likely to negative affect the ability of many municipalities to service their bulk accounts for water and electricity respectively, amongst others.
As such SALGA resolved that:-
1, Whereas municipalities must introduce measures to collect as much revenue as possible, the disconnection of water and electricity should be suspended for the duration of the lockdown period;
2, Eskom should be engaged on the impact of COVID-19.
Informed by the aforementioned context and resolutions, we have as an interim measure called on Eskom to, similar to municipalities, suspend all electricity disconnections of municipalities for the duration of the lockdown period. The intention is to engage further with ESKOM to consider the impact of COVID-19 on municipalities.
Inside Metros: SALGA has noted that water tanks and tankers are logistically difficult and extremely expensive; costing in the region of R100 million per month. What does SALGA propose as a solution to this challenge to ensure that communities get water but also to ensure municipalities are not crippled financially? Is this expected to be the sole responsibility of municipalities or is there cooperation with national government?
Thembi Nkadimeng: The ideal provision and preferred water supply is through a number of systems such as boreholes, piped water and yard connections, on site rain water and public/communal stand pipes. However it should be noted that in emergency situations such as COVID-19 providing water through tankers and water tanks is ideal.