Municipalities performing provincial functions without funding

Municipalities, particularly metros, are having to carry the financial burden of exercising functions handed down to them by provincial governments without being given all the funds required to do so. 

Key sectors affected are health and library services, human settlements and transport. 

The amounts are not insignificant — case studies by National Treasury show R6.8bn was involved with the worst affected being Cape Town with a R2.5bn shortfall, Ekurhuleni R2.3bn and Joburg R1.2bn. These shortfalls mean municipalities have to dig into their own revenues to fill the funding gap, worsening their financial position. 

National Treasury has attempted several initiatives to deal with the problem after it received complaints from municipalities. It has identified the scale of the problem which started off as an unfunded mandate and over time became an underfunded one as provinces tried to deal with it. 

A Treasury official told parliament’s appropriations committee on Wednesday the practice placed financial strain on municipal budgets “and the NHI (National Health Insurance) is likely to make this worse if the role of municipalities is not clearly articulated” as they played a big role in this area. The problem affected the financial sustainability of municipalities. 

He said the problem arose because of the way the law was applied and how the service level agreements were formulated, which in some cases did not exist at all.

This created a problem for the division of nationally raised revenue, which was meant to allocate funds for functions. Funds should follow the function but in these cases funds were not cascading down to where the service was delivered. 

If the functions were formally shifted to municipalities their equitable share would have to be adjusted accordingly. 

He said the problem could also be self-inflicted by municipalities that continued to provide services even though they did not get money for them from provincial governments. If no solutions were found they would have to reconsider this and return the functions to provinces. 

Treasury has engaged with national departments and provinces to address the problem and would also include it in its reconsideration of the funding model for local government. The arrangements needed to be formalised. 

The constitution delineates what functions are performed by provinces and municipalities and might have to be changed. There is also sector specific legislation that would have to be looked at. 

The official said one of the reasons for the phenomenon was the higher operational costs in municipalities, especially metros, with staff costs not accounted for in the grants from provinces. Also municipalities sometimes provided a higher standard of service. In solving the problem it was key to protect the conditions of service of employees. 

DA MP Kingsley Wakelin said legislation needed to change “because we cannot continue in this fashion” with municipalities being overburdened.

ANC MP Nonceba Gcaleka-Mazibuko said the problem had persisted for some time. It was unfair, she said, that municipalities, many of which were bankrupt, had to tap into their own revenue to perform these functions. She recommended there be standard service level agreements across the country. 

EFF MP Constance Mkhonto raised the issue of the lack of municipal capacity to perform these functions. There had to be a full transfer of funds from national government to municipalities to avoid the problem, she said. 

ensorl@businesslive.co.za