Revised MFM Bill

Portfolio and Select Committees of Finance

29 July 2002

Progress since Hearings• Extensive revision of Bill, taking account of views

of members at hearings– Better consistency with constitution

• Massive undertaking and also complex– Availability of legal drafter complicates re-drafting

• More consistency and references to Systems Act

• Chapters 1-8 completed with a legally refined draft

• Chapters 10, 12 and 13 available on Wed

• Difficult chapters: Ch 9 on entities, Ch 11 on financial emergency (first drafts only)

Proposed Programme• Focus on clause-by-clause wording this week

– Aim to finish wording of all chapters this week

– BUT ch 9 (entities) and 11 may need Aug 13 meeting

• Formal consideration of Bill (cl-by-cl) thereafter• Proposals for this week

– Do chapter 1(definitions) at the end

– Mon: Ch 2 (NT), 3 (bank acts), 5 (debt), 8(tr office)

– Tues: Ch 4 (budget), 4A (co-op gov in budgeting), ch 7 (Ac Of)

– Wed: Ch 7 (cont), Ch 10 (fin reports), 12 (treas matters)

– Thursday: Ch 11 on financial emergencies

– Friday: Ch 9 on mun entities

Functions

• Municipality responsible to its community

• Council must oversee its exec and finances– Plenary local muni can do so via DC– Pleanary DC can do so via provincial legis

• Council to set up public accts committee– BUT cannot be legislated– Done thru guidelines issued by NT

Roles within Municipality• Council

– Ordinary councillor attends meetings, votes to approve policy for the Council (IDP, Budget, tariffs)

• Meetings of Council 4-12 times a year

• Must play an oversight role over its Executive– Meetings of Council committees (4-12 a year)

– Bigger role is a political role (with community)

• Speaker– Presides over council meetings

– Ensures council committees meet and report to Council

– Enforces Code of Conduct

– Is not the head of municipality

– Does not normally report to provincial MEC or legislature

Roles within Municipality• Mayor and Executive/Mayoral committee member

– Mayor is head of the municipality

– Responsible for proposing policy (IDP, budget, tariffs)

– Responsible for outcomes

– Responsible for guiding and supervising administration

– Must ensure municipal manager and top managers are employed, and have performance contracts

– Mayor is the link to the provincial sphere

• Reports to MEC when there is potential non-compliance anticipated, or has occurred

• Mayor may be called by provincial legislature

• Mun manager responsible for implementation and outputs

Role of Province

• Roles for legis, MEC for LG and Finance

• Often joint role for prov LG and treasury - one lead dept only in all cases

• MEC for LG– Must ensure muni follows all processes

• IDP and its annual review• Budget-related policy processes (rates, tariffs)

– Must ensure municipality meets deadlines– Tabling and approval of budget– Submission of financial statements on time

Role of Province• MEC for LG

– Must ensure muni takes appropriate action • Post-FY accountability (public accts comm in muni)

• Unauthorised expenditure etc

– Monitoring councillors and mayors• Disciplinary code for councillors enforced

• Councillor remuneration within national framework (Goldstone Commission and Rem of PO Act)

– Imposition of section 139 and fin watch/emergency

Role of Province• MEC for Finance

– Must assist and oversee budget proposals (credibility test, priority tests) before tabling and before approval

– Must assess capital budgets and plans • Assist in facilitating co-ordination between

national/provincial entities within municipality

– Enforcement of MFM Bill– Monitoring wrt in-year budget reporting by

province (but work with LG prov dept)

Province legislature

• Provincial legislature– Only considers mun financial statements after

the AG reports on how munis have dealt with the audit report

– May deal with plenary councils in more detail– Public Accts or LG committee?– Non-fin part of annual reports

Function of National • S216 allows for an enforcement role for NT

– NT will delegate to provinces• Budget assessment, Co-ord IDPs with other sphere’s

capex, Compliance with MFM Bill to Prov Treasury

• Most other roles to MEC for local govt

• No other direct role for national govt– Setting policy and frameworks– Procurement, banking arrangements,

investment, grants etc

• Possible role under fin emergency (MoF)

Chapter 2 • Clause 5(1)

– situates power of NT to ch 3, 13 and PFMA– co-operative govt

• Clause 5(2) and (3)– changes take acct of Constitution (eg capacity,

power to stop funds)

• Clause 5A on capacity building (MUST)

• Delegations limited to NT as dept or provincial dept (P treasury or LG dept only)

Chapter 3: Mun Revenue• Clauses 7 and 8

– primary accounts (rename accredited accts)

– less prescriptive approach

• Clause 9: Bank acct details to AG

• Better controls within muni (cl 8 and 10)

• clause 10 no change

• Clause 11: small tech changes only

• Cl 12 changes on info from banks and on investments

• Clause 13: Definition of municipal service

• Clause 14: Minority interest acquisitions (minor change to take account of no subsidiary approach)

– Issue of REDs

Cl 13: Defn of municipal service

not currently defined in Constitution, Systems Act, or MFM Bill

Difficult to define: Impacts on what councils may do (leads to broader

definition) Impacts on what councils must do (leads to narrower

definition) May impact on division of revenue per section 214

(2)(d) One proposed definition:

A service the municipality is actually providing, and which is included in Part B of Schedules 4 or 5

Ch 13: Minimum essential municipal service

What service is essential varies by community e.g. solid waste and storm drainage essential

in urban areas, often not provided in rural areas

What assets are needed varies with municipality E.g. even if electricity is a “minimum essential

service,” a particular power plant may not be Because of these varying circumstances,

determination of necessity is left to council

Ch 13: Minimum essential municipal service (continued)

If asset is necessary for minimum essential service: Council may not dispose of asset Council may not pledge asset without

indicating how the asset will be protected Creditor may not impede continued service May not be liquidated in terms of Chapter 11

Cl 13: Basic municipal service

Defined in Municipal Systems Act Similar wording to “minimum essential municipal

service” per MFM Bill, but used differently: Aspirational: IDP must seek to provide “basic

municipal services,” see 26(b) MSA sometimes qualifies, e.g. section 73(1)(c)

“minimum level of basic municipal services” MSA also uses other terms:

“Basic services” see 74(2)(c) “Basic levels of service” see 74(2)(c)(ii) “Municipal services,” see 4(d), (f); 5(1)(g); 6(2)(e);

11(2)(f),(g); 16(1)(a);55(1)(o);Chapter 8; 95; 103(a)

Ch 13 on municipal service

Conclusions on definition of mun service Must always consider definition and

context in which term is used in the Bill No one term works for all purposes There is intended to be a difference

between “basic municipal services,” per MSA and “minimum essential municipal services” per MFM Bill

Chapter 8

• No change to budget and treasury office

Ch 4: Budget Process

• Major changes to original bill• Attempts to co-ordinate various processes

– Annual review of IDP

– Budget-related policies• Setting of rates and tariffs

– Clause 17(3)(e)-(f) and clause 21• docs to be tabled with budget

• mayor must announce schedule for various processes 10 months before start of financial year

• All consult processes ito Ch 4 of Systems

Budget process (ch 4)• Clause 15 and 16 are standard

• Clause 17 on contents and docs– for annual budget

– with annual budget

• Clause 18: Funding of budget (standard)

• Clause 19: capex (new)

• Clause 20 on formats and other assumptions to be prescribed

• Clause 21 on budget process

• Consultations before and after tabling• Before an internal process led by mayor• After an external process led by Council• Consultations ito Mun Systems Act (ch 4)

MFM Bill - Chapter 5

Basic borrowing rules:• long term debt for plant, property, equipment• short term debt for cash flow management• no guarantees by national or provincial• guarantees by municipal of entities treated as

debt• pledges of assets and revenues OK, but

Council to apply its mind to whether assets are needed for “minimum essential municipal services”

MFM Bill - Chapter 5 (cont’d)

– Conditions for long term and short term split out per Committee request, see section 26

• Both LT and ST borrowing in rands only• Short term borrowing within prudential limits or

necessary for emergency• Long term must be approved by council after

notice to the community, disseminated per Municipal Systems Act requirements

– Security may be given, as per section 27– Disclosure required per section 28 (regulations

now being prepared)

Budget process

• Clauses 23A, 23 B: passage or failure to pass a budget

• clause 23C: adjustments budget

• Various clauses on unauthorised expenditure etc

Chapter 4A

• Co-operative governance and budgeting• Address Division of Revenue issues • Effective planning through timely notices of grants• Stopping of funds sec 216(2)• Co-ordination of regulatory tariff setting bodies and

timely announcing • May need to repeal tariff setting powers in other

legislation • Disputes resolution by mediation• In assigning must reflect multi year implications

including consultation with the FFC

Chapter 6

• After public comment and committee deliberations agreed to delete chapter on Councillor for Financial matters

Chapter 7

• Duties of MM– MM is accountable and is the accounting officer– Fiduciary responsibilities

– Co-operative governance and budgeting

• Division of Revenue • Effective planning through timely notices of grants• Stopping of funds sec 216(2)• Co-ordination of regulatory tariff setting bodies and timely announcing• Disputes resolution by mediation• In assigning must reflect multi year implications including consultation

with the FFC

Chapter 4A

• Co-operative governance and budgeting• Division of Revenue • Effective planning through timely notices of grants• Stopping of funds sec 216(2)• Co-ordination of regulatory tariff setting bodies

and timely announcing• Disputes resolution by mediation• In assigning must reflect multi year implications

including consultation with the FFC