Municipalities fall apart
RESEARCH: INADEQUATE GOVERNANCE AND FINANCIAL ADMINISTRATION
Nearly half plan to spend money they do not have this year.
Aresearch report by the Public Affairs Research Institute (Pari) on the financial state of South Africa’s municipalities has made damning findings regarding lack of adequate governance and financial administration at most of them.
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’ Union showing that 30 municipalities are unable to pay salaries and many more cannot pay suppliers, such as Eskom.
In turn, Eskom says part of its financial problems are that local municipalities are unable to pay their debts to the utility.
At the time the Pari report was written, 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 bailout by taxpayers.
Pari, a research organisation that studies the effectiveness of state institutions to deliver services, shows in its report how difficult this would be.
“Infrastructure has fallen into disrepair, particularly infrastructure that is necessary for municipalities to generate revenue. It cannot be repaired, since there isn’t any money available.”
It notes that 10 municipalities received an adverse opinion from the auditor-general (AG) for the 2018 financial year (the year preceding the research study). Worse, the financial statements of another 27 municipalities received a disclaimer opinion.
Among the 278 metro, district and local municipalities, 25 were unable to present financial statements by the due date. A total of 15 of these also received a bad auditing outcome in the previous financial year, or did not publish financial statements at all.
Pari says this includes municipalities in which there was a complete breakdown in good governance and management and, in many cases, misappropriation of public money.
“These are places where the municipality struggles to deliver even the most basic services, a significant percentage of municipal infrastructure has disintegrated and the municipality can barely be considered a going concern.
“In many examples, the municipality has become the central site of political battles and employment and contracts are traded as part of jostling for political influence.”
The Pari research was conducted to determine how to fix problematic municipalities and why placing bad municipalities under administration did not seem to work. It lists problems with administrators, two of which stand out: the administrator did not have the right skills to solve the problems’ or things had become so bad it was too late to fix it.
The process of decision-making in municipalities is, at best, questionable. Politicians without experience or training in a field can override officials’ decisions. Such a weak system often leads to serious problems, such as a shocking state of roads, electrical equipment and water pipes.
A remedy does exist in the form of an overriding mechanism to enable provinces and central government to act when municipalities fail, but the report comes to the conclusion that putting a municipality under administration does not work in practice.
On the positive side, the Policy Framework for Municipal Borrowing and Financial Emergencies 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.
30 municipalities are unable to pay salaries