We already have a solution to failing municipalities: It’s in the fine print

Local government has been identified as one of South Africa’s most pressing problems. Many municipalities face operational and financial challenges. More than 100 had unfunded budgets in the last financial year, but a relatively small group – around 30 – are in a state of almost total collapse. They regularly get extremely poor audit opinions, service delivery is close to non-existent, and workers and suppliers are not paid. The cases seem hopeless, beyond any assistance.

It is surprising, therefore, that policymakers concluded some 20 years ago that local government could not be allowed to fail. South Africa would, for the first time, have wall-to-wall municipalities, each allocated a long list of development responsibilities. Local government would be central to achieving the goals of the developmental state. It was thus of utmost importance that it functioned at (at least) a certain minimum level of financial and operational efficiency.

Despite the new inter-governmental framework that made local government an autonomous sphere, this autonomy did not extend to any “right” to operational and financial collapse. To prevent such collapse, a mechanism was required for provincial and national government to intervene before that happened.

The result was section 139 of the Constitution. The first version (in the 1996 Constitution) only included one type of discretionary intervention (to be undertaken by a province) that could be triggered by “a failure to fulfil an executive obligation” – to deliver a municipal service, such as water reticulation or waste management. A range of options is available for such a discretionary intervention, including that the province takes over responsibility for the delivery of that particular municipal function.

This original version did not include any specific remedies for financial problems. Once the new local government structure was in place after 2000, however, there was growing concern within National Treasury that section 139 was not broad or powerful enough to ensure that municipalities could be prevented from falling into financial collapse. Specifically:

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  There was no clear basis for intervention for financial problems;

  
  


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  There was no clear process for how serious financial problems were to be addressed in an intervention; and

  
  


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  Treasury wanted an additional mechanism to ensure that an intervention in respect of a serious financial problem would, in fact, take place, even if a province had decided not to intervene.

  
  

Treasury advocated for an amended version of section 139, which was approved by Parliament in 2003. The additional paragraphs provide for a mandatory intervention if a municipality is in serious financial difficulties: if the province does not intervene when a municipality meets the criteria (set out in Chapter 13 of the MFMA), the national executive must intervene. The compulsory nature of the intervention also means that (in theory) political discretion is removed from the intervention decision.

The intervention should take the form of a specialised unit within Treasury (the Municipal Financial Recovery Service – MFRS) investigating the finances of the municipality, and developing a financial recovery plan which the council must implement. Failure to do so will result in council being dissolved, and new elections being held.

Chapter 13 of the MFMA includes a list of other remedies for municipalities in financial distress, including a review of contracts and relief from creditors. All in all, the legislation provides a powerful set of remedies for a wide range of problems in local government.

If we have a cleverly designed and detailed piece of constitutional legislation designed specifically to prevent it, why do we have municipalities in total collapse? The short answer is that all of the parties tasked with implementing section 139 have failed to act as the spirit and letter of the legislation requires.

Let’s start with the appointing of an administrator to take over all of the affairs of the municipality – the “under administration” part. The sheer scale and complexity of the task – particularly in a completely dysfunctional municipality – means that most administrators face an impossible task, and their inability to address all of the many problems in a municipality is the main reason why so many interventions are failures.

The reality, however, is that these administrators should not be there in the first place. The only provision in section 139 for the appointment of an administrator is when council has been dissolved, and the administrator is only intended to be there for as long as it takes to elect a new council. The legislation makes allowance for the province to take over functioning of a particular executive obligation, but not the entire executive function of a municipality.

Further, section 139 contains clear criteria for deciding what kind of intervention is required – is the primary problem delivery of a particular municipal service (s139(1)) or serious financial problems (s139(5))? Since each particular problem has a particular legislated solution, the application of the correct part of section 139 is paramount. Our study shows that s139(1) is applied in almost all cases where the correct part would be s139(5), and thus the inappropriate remedy is being applied.

Most important, the institutions tasked with the implementation and oversight of section 139 (COGTA, Treasury and the NCOP) have all taken the position that the constitutional autonomy of local government extends to some kind of constitutional right to bring a municipality to a state of complete collapse. As a result, municipalities meet the qualifying criteria of serious financial problems for years without any intervention, despite the fact that the Constitution is clear that there should be an intervention.

As a result, what should have been a powerful tool of local government oversight has been almost completely neutralised. Very few of the more than 130 interventions initiated since 1998 have had a sustained positive impact on municipal operations or financial health, and some municipalities are in a worse position after an intervention than before.

Section 139 must no longer be seen as an intervention of last resort when a municipality has collapsed, but as a framework to prevent such collapse. And it must be implemented as it is written. Getting this right is the dual responsibility of COGTA and National Treasury. DM

Read the full report on s139 interventions here.