With funds not trickling down from national government, municipalities lack the funds for basic service delivery. Picture: THE SOWETAN
With funds not trickling down from national government, municipalities lack the funds for basic service delivery. Picture: THE SOWETAN

A comprehensive review of the model for funding local government is required as the one currently in use by the Treasury allocates an inadequate share of nationally raised revenue to the third sphere of government, the South African Local Government Association (Salga) has argued.

Salga’s demand comes at a time when the government is facing a severe revenue shortfall and growing pressure for state funding for embattled state-owned enterprises (SOEs).

The Salga proposal for more funds for municipalities was made in a parliamentary submission on Friday to the select committee on appropriations on the medium-term budget policy statement (MTBPS), which proposes allocating 48.1% of non-interest expenditure over the next three years to national departments, 42.9% to provinces and 9% to local governments.

Over this period, national government resources are expected to grow by 7%, provincial resources by 7.2% and local government resources by 7.2%.

In the medium-term budget, the Treasury admits that the government is grappling with how best to deal with the growing number of municipalities in financial crisis. In 2018-2019, 113 of the 278 municipalities have adopted unfunded budgets, up from 83 in the prior year. Municipalities owe more than R23bn to Eskom and the water boards, while municipal consumer debts amount to about R143bn. Organs of state owe about R7.9bn to municipalities.

“In many areas of the country, municipal finances are under pressure,” the medium-term budget noted. “This is the result of the rising cost of delivering basic services and weak financial planning and controls.”

Salga director for audit Mohammed Lorgat told MPs that while local government is a key driver of service delivery it received an inadequate distribution of nationally raised revenue. He cited a number of reasons why a reconsideration of the funding model is necessary, especially given the financial difficulties faced by a rising number of municipalities. He said the existing funding model overestimated the amount of revenue raised by municipalities and their revenue raising capacity and did not take into account the role of bulk suppliers in undermining municipal revenue collection.

“A more realistic model of municipal revenue needs to be developed and the structural impediments that prevent municipalities from collecting revenue need to be addressed,” Lorgat said.

He noted that a recent study by the Financial and Fiscal Commission and Salga found that the actual cost of service delivery was much higher than the estimates used to calculate the local government equitable share of national revenue. These costs varied considerably across different municipalities.

Also, the funding model made insufficient provision for the renewal and maintenance of existing infrastructure and did not take into account the considerable administrative costs of municipalities, which erode the amount they have available for service delivery.