Where does the money come from?

Municipalities get their revenue from three sources. First, they raise some of their own revenue by charging all people who own property such as land, houses and businesses rates based on the value of their property. The second way they raise revenue is by charging tariffs for services like water, electricity, refuse removal and the use of municipal facilities such as sports grounds. Some municipalities can generate a lot of revenue in this way, while poorer municipalities raise virtually nothing and are almost totally dependent on funding transfers from national government, which is the third source of revenue for municipalities.

Municipal property rates

If you cannot afford to pay property rates because you are receiving a social grant or are unemployed, you may be eligible for a temporary waiver, reduction or rebate on the rates you owe the municipality. Contact your municipal office to find out how to apply and the conditions of eligibility. Property rates rebates might be linked to registering on the municipal indigence register (see relevant section on indigence register).

The national government provides funding to municipalities in two ways. The first is through what is called an “equitable share allocation”, which is a transfer from the national Treasury. The amount of equitable share a municipality receives depends on a number of factors such as the size of its low-income population, the cost of basic services and its capacity to raise its own revenue. This allocation is meant to be used for basic services and operational costs. One problem with the equitable share allocation is that it is an unconditional grant, which means that local government can spend the money on other things rather than basic services, even if it should be using the money to improve basic services.

Municipalities also receive funding from national government in the form of conditional grants. The Municipal Infrastructure Grant (MIG) is the most important conditional grant from national government. MIG must be used to extend or maintain the infrastructure for the provision of basic services such as water, electricity and sanitation.

In the past, municipalities have not spent all the money allocated to them through this grant due to a lack of capacity and the mismanagement of funds. During the 2010/11 financial year, for example, 272 municipalities in South Africa did not spend a quarter of what was available to them and some of this money had to be returned to Treasury. This has most certainly contributed to the slow pace at which municipalities are providing infrastructure for services.

Municipal financial management cycle

Regardless of where the money comes from or what it is used for, it must be managed and accounted for in the same way each year. Municipal finance management has an annual cycle that includes four broad activities: planning and budgeting; implementation and spending; monitoring of services and spending; and evaluation of services and spending.

Each of these activities provides community members and activists, such as you, with opportunities to participate, monitor and make sure that the municipality is using the money available to it in the best interest of the community. If something is not working during one activity, this can have an impact on the implementation of the next activity. It is the municipality’s responsibility to make sure the system is functioning properly. The rest of this section describes each of the four stages of the municipal financial management cycle in more detail.

Planning and Budgeting

Each year municipalities are required to review their IDPs and budgets (s. 21, 57, 69 of the MFMA). This process starts in June of the year before the municipality will implement its IDP and spend its budget on service delivery. The budget is the municipality’s financial plan and indicates how much money will go towards each of the activities outlined in the IDP. The budget should outline where the municipality is getting its money from, how much it will receive and how much will be spent on things like salaries, goods and services, infrastructure and equipment.

The law requires the municipality to consult the community when setting its priorities, developing its plans and allocating resources to priorities through the budget. In August and September in the year before a budget is implemented, the municipality must get input from communities on what they think of the services they are receiving and any changes in needs and expectations (Chapter 4 of the Municipal Systems Act).

The municipality then amends its IDP and develops a draft budget. Once this has been done, the municipality must once again consult the community to ensure that needs and reasonable demands are being met (s. 21 of the MFMA; Chapter 4 of the Municipal Systems Act). If these needs are not met, the IDP and budget may be revised. This should be done between March and April before the financial year starts in June.

It is your councillor’s responsibility to make sure that the community is consulted in drafting the budget and that your needs are considered in planning and that there are sufficient resources allocated to meeting municipal commitments. It is both your councillor and municipality’s responsibility to ensure that you know what services should be delivered and to provide evidence that resources have been allocated to do this. As part of a ward committee, social movement or on your own it is your responsibility to ensure that community needs and demands are heard and that they form the basis of planning and budgeting

Implementation and Spending

Here the municipality starts to spend the money provided in the budget on activities outlined in the IDP. It pays salaries and service providers, buys goods needed to deliver services, buys and maintains machinery and equipment, and develops and maintains infrastructure. This process starts in June and ends in May the following year (s. 69 of the MFMA).

This means that you can use these documents to monitor your municipality’s progress in delivering on these promises. Go to project sites and check that services and infrastructure are being delivered or you can demand that your councillor provides evidence that this is happening! For example, if the IDP and budget show that the municipality plans to extend water pipes to your township this year, go to the places where these projects are to be implemented and make sure that construction has started on time! You can then also monitor progress made in implementing these projects against plans and the budget and make sure that they are on schedule. And you can ask about which companies are involved in the project and how they got the tender – this is to ensure that the correct processes were pursued and that the contract was not awarded just because of political connections.

If you are not satisfied that services are being delivered properly, you can raise the issue in ward committee meetings, approach your councillor for an explanation or form an interest group to demand that your concerns are dealt with. You can also contact or join existing organisations.

Monitoring

In order to ensure that it is delivering on the IDP and that it is spending its budget as it should, the municipality must carefully monitor its activities and spending. To do this the municipality must have systems that track the payment of salaries, the purchase of goods, and the payment of service providers and building contractors. The municipality must also physically verify that services are being delivered and infrastructure is being developed in-line with set norms and standards. The municipality is required to develop monthly and quarterly financial statements (reports on how they spent their money) as well as quarterly service delivery reports (s. 62 and s. 71 of the MFMA).

Make sure that your councillor explains the contents of these reports at ward committee meetings and that he or she addresses your concerns.

Evaluation

At the end of each year, the municipality must look back over the year and assess how well it has done in terms of delivering on its promises in the IDP and if it spent its money in-line with its budget. The municipality should publish this review in an annual report in January each year.

Each municipality is also required to have an audit committee that must carry out an external and objective review of the municipality’s finances. The audit committee must have the majority of its members from outside of the municipality to ensure that the committee is independent and can operate in an open and transparent fashion (s. 166 of the MFMA). It is important that you find out who is on your audit committee, how often they meet, and what their responsibilities are. If there is no audit committee, you should insist that one is formed.

Independent institutions such as the Auditor General (AG) are also required to audit the municipality’s spending and performance in delivering services. They produce a report that must appear in the municipality’s annual report (s. 122-126 of the MFMA). The AG’s findings on the 2009/10 audit outcomes highlight the following:

  • Municipalities could not account for more than R10 billion in the year, with much of it potentially lost through fraud and corruption.
  • Failure to comply with public finance legislation and regulations is widespread.
  • 89% of municipalities did not comply with legislation on service delivery performance reporting and 24% of municipalities did not report at all.

Evaluations of spending and service delivery are important since they tell the municipality what they have done well, what they have not done well, and what they need to do in future to meet their obligations. They form the basis of future amendments to the IDP and the budget for the next year.

These evaluations, especially the independent ones, also provide you with a good indication of how well your municipality is doing and must be made accessible to you in the annual report. These reports should be available at your municipal office, in libraries and on the internet.

The municipality is also required to hold public hearings to debate these reports. These hearings should take place in January each year. Make sure that you discuss service delivery issues with other members of your community beforehand and that your councillor is aware of your concerns.

If your efforts to hold the municipality to account for the use of public resources are unsuccessful and you can show the municipality is failing to provide basic services and meet its financial commitments, you should report incidents to the provincial department responsible for local government or even to the national government department – the Department of Cooperative Governance and Traditional Affairs (COGTA).

If the provincial (or national) government finds that the municipality cannot fulfill its obligations it can impose a recovery plan. This involves:

  • assessing the seriousness of the problem and the municipality’s financial position
  • identifying strategies to deal with financial management weaknesses
  • identifying resources necessary to implement these strategies and where these resources should come from
  • setting out timeframes for the implementation of the recovery plan.

If the municipality refuses to accept the plan or if it cannot implement the plan, the provincial government can dissolve the municipal council and place the municipality under administration until new elections can be held (s. 139 (4)(5) of the Constitution; s. 136-149 of the MFMA). If this fails to bring about necessary improvements, the national government can also intervene and administer the municipality until new elections are held (s. 150 of the MFMA).