<\/p>\n
A few weeks ago, Finance Minister Enoch Godongwana took the extraordinary step of withholding the equitable share grant from 69 municipalities.<\/p>\n
The decision to withhold funds on which these municipalities are heavily dependent followed growing frustration over the way they have managed their finances.<\/p>\n
Read:
Withholding R13.5bn for mismanaged municipalities won\u2019t hit services, says Treasury
Time to pay up: A look at municipal debt<\/p>\n
According to National Treasury, the municipalities affected by the decision were characterised by persistent failures to address issues like wasteful, fruitless and irregular expenditure.<\/p>\n
Payments to third-party service providers like Eskom, the South African Revenue Service (Sars), the Auditor-General (AG) and pension funds, were long outstanding and unlikely to be settled in the normal course of business.<\/p>\n
Core to the problem is the autonomy that all government structures enjoy.<\/p>\n
This means that even if Eskom alerts National Treasury that a particular municipality is defaulting on its dues, the Treasury cannot simply redirect the funds due to the municipality in order to pay Eskom. Rather, the model is that the municipality will receive its funds and then hopefully pay third parties.<\/p>\n
The flaw in that model is that once National Treasury passes the funds on, it loses any ability to direct what happens to them.<\/p>\n
Even if it has a line of sight on spending patterns, it can do little to intervene as municipal officials and councillors have autonomy on how the funds are managed.<\/p>\n
That authority and autonomy is premised on the idea that elected representatives and appointed officials will exercise the most prudent management of public resources and are best placed to do so due to their proximity to the issues at hand.<\/p>\n
The upside of that idea is clear to understand.\u00a0Public representatives elected to serve citizens are meant to ensure that all resources are deployed towards the services of citizens and failure to deliver will be catastrophic.<\/p>\n
The incentive for public representatives is to ensure that Eskom is paid so that electricity supply is not interrupted.<\/p>\n
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The incentive is to pay the water boards so that water flows to the taps of citizens.<\/p>\n
Failure to do this would result in aggrieved citizens who would \u2013 theoretically \u2013 vote out whoever is responsible for the interruption in this process.<\/p>\n
Who gets paid first?<\/p>\n
Unfortunately, the South African political system is not that linear.<\/p>\n
Rather than municipal defaults to third parties triggering an immediate denial of service, providers like Eskom and the water boards continue to supply services even if old payments are not honoured.<\/p>\n
The reality is that while the municipality may be an intermediary between service providers and citizens, any denial of service will hit communities hard \u2013 and no one wants to see that.<\/p>\n
Over the years, this dynamic has allowed municipal debt to Eskom to accumulate to more than R110 billion (2026) \u2013 and Eskom has continued supplying electricity to avoid punishing end users.<\/p>\n
Read:\u00a0Treasury releases R7.1bn to municipalities after funding freeze<\/p>\n
Across the 69 municipalities that were initially denied access to the July instalment of the equitable share grant, Eskom and the water boards were owed almost R28 billion, while pension funds, the AG and Sars were owed another R2.3 billion.<\/p>\n
This state of affairs is untenable.<\/p>\n
Interventions and desperation\u00a0<\/p>\n
The avenues of intervention \u2013 intergovernmental relations protocols and the role of co-operative governance in managing the relationships across state institutions \u2013 have not resulted in substantially fruitful outcomes.<\/p>\n
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Negotiated agreements between Eskom and some municipalities have had to be paired with incentives like debt haircuts just to get parties to the negotiating table.<\/p>\n
Some of these agreements were signed but did not improve the culture of consistent payments.<\/p>\n
National Treasury\u2019s act of desperation \u2013 holding back on releasing equitable grants \u2013 has the capacity to change things if only slightly across the truant municipalities.<\/p>\n
If grants are only released on the back of municipalities reaching a payment agreement with third parties and being forced to show evidence of such agreements, the financial risk will shift away from creditors and back to the municipalities themselves.<\/p>\n
This will mean that rather than incurring the cost of ensuring continuity of supply and service provision but not getting paid for it, entities like the AG and Eskom will be able to receive what is due to them and continue to provide services.<\/p>\n
Read:
Treasury tightens public purse on red-flagged municipalities
Godongwana hauled to parliament over R13bn municipal funding freeze
42 errant municipalities off Godongwana\u2019s naughty list<\/p>\n
The problem that will remain \u2013 the imbalanced state of finances at municipal level \u2013 requires more drastic solutions that remain a point of debate.<\/p>\n
One reason third-party creditors \u2013 both statutory and procurement creditors \u2013 get paid late is that municipalities distribute whatever funds they have to areas where they decide the priority lies and the consequences of defaults would be more acute.<\/p>\n
Inevitably, paying staff is a greater priority as the consequence of not paying triggers union action and service interruptions.<\/p>\n
Read: Regulator sounds alarm over South Africa\u2019s R5.2bn pension contribution arrears<\/p>\n
On the other hand, paying the pension contributions for the same employees may be less of a priority as its consequences are deemed less immediate.<\/p>\n
The limits of intervention<\/p>\n
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The glaring limitation of the National Treasury intervention is that it might lead to a prioritisation of statutory creditors identified on the Treasury\u2019s list, while doing little to address the plight of procurement creditors, whose 30-day payment terms are routinely ignored across all spheres of government.<\/p>\n
Of the country\u2019s 257 municipalities, far too many do not have ratepayer bases that can pay for municipal services.<\/p>\n
High unemployment means that too many citizens are reliant on public services, some of which are maintained by underfunded municipalities.<\/p>\n
The National Treasury intervention only addresses the financial governance and discipline where creditors must be paid and irregular and wasteful expenditure eliminated.<\/p>\n
A deeper problem \u2026<\/p>\n
Much harder to confront is the fact that, even in the best-run municipalities, high unemployment means that dependence on public services is far greater than the resources available to each municipality.<\/p>\n
Braver municipalities may decide to remove themselves from being conduits between primary services providers and end users.<\/p>\n
This could mean, for example, that a municipality that buys electricity from Eskom and resells it to residents within its jurisdiction would cease to act as an intermediary, allowing Eskom to deal directly with customers.<\/p>\n
Read: Treasury to give departments the municipal treatment<\/p>\n
The problem is that such entities and functions have become deeply embedded in municipal structures, and eliminating them escalates that other national headache of unemployment.<\/p>\n
Less clear to determine, however, is whether removing administrative layers of this nature would translate immediately into more cost-effective service delivery.<\/p>\n
#Tentatively #tackling #truancy #defaulting #municipalities<\/p>\n","protected":false},"excerpt":{"rendered":"
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