October 25, 2007
By JoNews Reporter
RECENT national policy directions threaten to reverse the financial gains South African cities have made in the past few years, and could result in the credit rating of many cities being downgraded.
This is the warning coming out of a detailed report on the financing of nine municipalities, released on Tuesday, 23 October. It was commissioned by the Development Bank of Southern Africa, the Institute of Municipal Financial Officers, and the South African Cities Network.
The cities network is a voluntary association of nine municipalities, comprising the six metros plus Msunduzi, Buffalo City and Mangaung. The nine cities account for two thirds of the economic activity in the country. The study is based on the audited financial results of the 2005/6 financial year, when Joburg accounted for 25% of expenditure incurred by the nine cities.
While acknowledging that the cities under review are in a financially stronger position than they have ever been, the study warns that these gains could be overturned if the national government implements measures which might deprive municipalities of crucial revenue sources.
Overall, it paints a positive picture of the state of municipal finances in the new dispensation, acknowledging that "across the nine cities, the newly created single municipalities which united black and white areas, faced massive challenges through the 1990s and into the current decade. But, as the new institutions have stabilised, expenditure growth has been contained and revenues have increased – including the actual collection of revenue – and there has been much more realistic provisioning for bad debts."
Regional services councils
But the study contends that the abolishing of regional services council (RSC) levies, the takeover of electricity distribution from municipalities by regional electricity distributors (REDs) and the proposed absorption of municipal employees into a single public service could threaten municipalities' financial viability.
"Ironically, just as the outlook brightens, new and serious dangers are emerging in the form of a number of worrying national policy directions on a key set of issues. Collectively, these could profoundly undermine the newly established capabilities," warns the study.
Ronald Hunter, one of the authors, and a former executive director of finance in Johannesburg, says loss of revenue from RSC levies has had an adverse effect on municipal revenue. According to Hunter, cities will be facing mounting pressure to pay for infrastructure as the economy continues to grow, but their sources of revenue may decrease.
"The interim grant promised by the national Treasury is not a strong incentive for growth because it doesn't rise with economic growth."
Regional electricity distributors
The restructuring of electricity distribution also spells doom for municipalities. "Municipalities have managed to extract a surplus from electricity distribution. They have also used cut offs to enforce service payments," Hunter observes.
Even though municipalities will have some stake in the REDs, the new structures would have to spend any profit they make on further electrification, thus depriving municipalities of a revenue source.
Without this leverage, municipalities will find credit control even more daunting, Hunter says.
Single public service
Herding municipal employees into a single public service could also kill staff morale and lead to a loss of skills, says Hunter van Ryneveld, who co-authored the report.
In his State of the Nation speech in 2003, President Thabo Mbeki proposed the establishment of a single public service "for the harmonisation of systems, conditions of service and norms between public service in national and provincial spheres on the one hand, and municipalities on the other".
In terms of this, there would be a common wage policy for the entire public service; harmonised conditions of service, including medical aid and pension funds; norms and standards for human resource management; legal mechanisms for mobility within a single public service; and a common culture and standard of service delivery across the three spheres of government.
But Van Ryneveld says the idea of a single public service goes against the international norm of decentralisation. "Running cities is complex. The closest model to this is the India of the 1940s. In such a setup, an employee has no loyalty to the job or the local area. Employees need to identify with a particular locale and a set organisational culture."
This move could see municipalities losing some of their skilled personnel, Van Ryneveld warns.
These interventions place the financial and administrative future of South African cities in considerable doubt, the report warns.
Sithole Mbanga, the chief executive of the South African Cities Network agrees, saying that there are no clear benefits for city governments from a single public service. "People are not taken by something as general as national interest."
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