The problem of failing municipalities

A research report by the Public Affairs Research Institute (Pari) on the financial state of South Africa’s municipalities has received very little attention in the media, despite its damning findings and its importance for residents and ratepayers – especially with voters heading to the polls next year to elect new councillors.

The report found that governance and financial administration at most municipalities in SA is lacking.

Read: From bad to worse

Nearly half of the municipalities got their political councils to approve unfunded budgets in the 2019 financial year, meaning they planned to spend money they did not have and would not get.

Predictably, the result was chaos.

The report quotes figures from the SA Municipal Workers’s Union (Samwu) showing that 30 municipalities are currently unable to pay salaries, and many more that cannot pay suppliers such as Eskom.

Read: SA municipalities face collapse, index shows 

It is common knowledge that Eskom is financially vulnerable. In turn, Eskom says part of its financial problems are that local municipalities are unable to pay their debts to the utility, even in cases where residents have paid their electricity accounts. At the time of the writing of the Pari report, municipalities owed Eskom more than R34 billion.

Finance Minister Tito Mboweni called on Eskom to collect these debts by making it one of the conditions of the recent bail-out by taxpayers.

Pari, a research organisation that studies the effectiveness of state institutions to deliver services and infrastructure, shows in its report how difficult this would be.

‘Difficult’ in a nutshell …

“Infrastructure has fallen into disrepair, particularly infrastructure that is necessary for municipalities to generate revenue,” it states. “It cannot be repaired, since there simply isn’t any money available.”

It notes that 10 municipalities received an adverse opinion from the Auditor-General (AG) for their 2018 financial year (the year preceding the research study). This means there were serious shortcomings in their reports.

Even worse, the financial statements of another 27 municipalities received what the AG calls a disclaimer opinion. In these cases, the auditors could not find enough paperwork to come to any conclusion about the accuracy of the financial statements.

Among the 278 metro, district and local municipalities, 25 were unable to present financial statements by the due date of six months after the end of the financial year. No fewer than 15 of these also received a bad auditing outcome in their previous financial year or did not publish financial statements at all.

Misappropriation of ‘considerable amounts’

Pari says this includes municipalities in which there was a complete breakdown in good governance and municipal management and, in many cases, misappropriation of considerable amounts of public money.

“They indicate a deep-rooted and long-term serious problem that no one seems able or willing to address,” note the researchers in their report.

“These are places where the municipality struggles to deliver even the most basic services, a significant percentage of municipal infrastructure has disintegrated alarmingly and the municipality can barely be considered a going concern.

“Often the causes of these problems can be traced to maladministration, corruption and theft of public assets. In many examples, the municipality has become the central site of political battles and employment and contracts are traded as part of a wider jostling for political influence.

“There is little regard for even the most basic principles of good governance or the needs of the community,” says the report.

The problem in trying to fix the problem …

The Pari research was conducted to try to determine how to fix problematic municipalities and why placing bad municipalities under administration did not seem to work.

It lists several problems with administrators in several municipalities where the research was conducted, two of which seem to stand out:

• The administrator did not have the right set of skills to tackle or solve the problems; or
• Things had become so bad that it was too late to fix anything.

In addition, the executive decision-making was still left with the elected councillors or the same ineffective municipal managers. Pari even highlighted a few cases where the administrators were corrupt as well.

Political power trumps expertise

The process of decision-making in municipalities is, at best, questionable. Most decisions need to be ratified by political office bearers. Politicians without experience or training in any particular field can override officials’ decisions, such as the maintenance schedule for roads, water pipes or electrical networks.

There is no minimum requirement for a politician in SA, and voters seem willing to vote for illiterate candidates who cannot even read the documents of items that will be tabled in council meetings.

In some municipalities, competition between councillors of the ruling party for the few full-time positions might create problems too. Around a quarter of councillors occupy full-time positions and chair different committees. They also earn double the amount the part-time councillors earn.

The competition for jobs can be even worse in a city council with different political parties in coalition, given that the speaker, mayor and deputy mayor earn even higher salaries.

Such a weak system can – and often does – lead to serious problems, as the Pari report shows. It includes shocking pictures of the state of roads, electrical equipment and water pipes due to the lack of maintenance or implementation of basic law and order. The report can be read here.

Remedy ‘does exist’ (but does not work)

The report states that a remedy does exist in the form of an overriding mechanism to enable provinces and central government to act when municipalities fail. Unfortunately, the report comes to the conclusion that the remedy of putting a municipality under administration does not work in practice.

Section 139 of the Constitution makes provision for intervention in the affairs of municipalities, but only if the municipality has deteriorated to such as extent that there is a failure to deliver basic services. In other words, when it is too late.

“There is a growing sentiment that the legislation is largely useless, something that we turn to when we have been forced to admit defeat on all other fronts, but we still have to make a public display of ‘doing something’,” states the report.

“Many officials voice the sentiment that Section 139 is a nice idea, but essentially has no relevance in the real world of municipal failure,” it adds.

It says the problem is that supporting legislation has never been implemented as intended, and many of its provisions are either routinely ignored or applied incorrectly.

Legislation provides no opportunity for intervention when the first cracks of failure start to show, such as financial difficulty, but only once it has happened. Even then, the process of applying for administration is lengthy and somewhat subjective.

Pari notes an instance where the province refused to place a municipality under administration because “things were not that bad”. Apparently the situation was compared to a nearby town, where protesters carried automatic assault rifles when voicing their concerns.

On the positive side, the Policy Framework for Municipal Borrowing and Financial Emergencies introduced in 2000 rules that national government will not guarantee any municipal debt, placing the onus on municipalities to manage their operations properly to ensure access to financing from suppliers, banks and investors.

Eventually, the responsibility lies with voters to ensure responsible political representation to oversee the management of municipalities.