NEDLAC REPORT ON THE MUNICIPAL SYSTEMS BILL

November 1999

1. BACKGROUND

1.1. The Municipal Systems Bill emanated from the objectives of the White paper on Local Government. The Bill gives effect to the country's vision of developmental local government as envisaged in the White Paper.

1.2. The Bill elaborates on the core principles, mechanisms and processes that are necessary to enable municipalities to move progressively towards the social and economic upliftment of communities and ensure universal access to quality services that are affordable to all.

1.3. The Municipal Systems Bill was tabled at Nedlac on 14 June 1999. The Bill was published in the Government Gazette on 6 August 1999.

2. THE NEDLAC PROCESS

2.1. A meeting was held on 15 July to discuss the terms of reference and the time frames for negotiations on the Bill. The task team held two meetings on 15 July and 11 August 1999 to receive briefings on the Bill from the Department of Provincial Affairs and Local Government.

2.2. The negotiations on the Bill began on 31 August 1999 and three meetings were held. The dates were scheduled as follows:

• 08 September 1999

• 20 September 1999

• 27 September 1999

2.3. The meetings held on 8, 20 and 27 September 1999 were utilised for discussions and negotiations on the Bill. The task team held extensive discussions on all chapters of the Bill.

2.4. The date for the submission of inputs to the Department of Provincial Affairs and Local Government was 17 September 1999.

2.5. The task team entered into an agreement with the Department of Provincial and Local Government to have a parallel process on the Bill. The task team submitted its input to the Department at the same time as the Department was processing the Bill at Government level.

2.6. It was further agreed that inputs from Nedlac which would not be included in the Bill could still be tabled by Nedlac or the various constituencies independently at Portfolio Committee level.

2.7. The Nedlac sub-committee would revisit the revised Bill and benchmark it with the Nedlac report and input into the Portfolio Committee.

3. AGREEMENT ON POLICY PRINCIPLES

The parties at Nedlac reached an agreement on the following policy principles from the Municipal Systems Bill.

3.1. Clause 3(b)(c)

3.1.1. Labour raised a concern regarding the provisions of sub-clauses 3(b) and(c). Their concern relates to the words "as far as it is in the interest of a municipality"

Labour said that the provisions of the two sub-clauses unwittingly constrain the notion of cooperative governance. In its view, the impact of these sub-clauses is to allow municipalities an opportunity to opt out of the agreements reached at the South African Local Government Association (herein after referred to as SALGA). This would distabilise the operations of Salga. Any party that concludes agreements with it would be uncertain whether those agreements were binding.

Labour proposed that the Bill should rather ensure that Salga is representative of all municipalities instead of allowing municipalities to opt out of national agreements reached at Salga.

Labour proposed the following amendments to the Clause:

Amend subsection 3(b) as follows:

"3.(b) participate in organised local government to [the extent necessary]"

Amend subsection 3(c) as follows:

"3(c) [seek to] comply [as far as this is in the interest of the municipality concerned] with any agreements concluded by organised local government within its mandate on behalf of local government."

3.1.2. Government agreed to delete the words and said that their intention in inserting the words had been to urge municipalities to conform with collective agreements.

        3.2. Clause 5

3.2.1. Business felt that the use of the word "resident" in the Bill was inconsistent. Business said that the use of the word "resident" should be clarified throughout the Bill in order to ensure that business was accorded equivalent status with residents as stakeholders.

They proposed that the use of the words "resident", "stakeholder" and "community" needed to be applied consistently throughout the Bill.

3.2.2. Labour said that the definition of resident in the bill leads to confusion. For instance, by including a juristic person who is not ordinarily domicile in an area but who is a rate payer, this begs the question whether property will then allow one person to vote more than once in local government elections. If the latter is correct, then the bill unintentionally introduces a 'qualified franchise'. In order to deal with this ambiguity we propose the exclusion of juristic persons from the definition of resident to be included in the definition of rate payers.

3.2.3 Government agreed to redefine the words "resident", "community" and "stakeholder" and apply them consistently throughout the Bill.

        3.3. Clause 8(3)

3.3.1. Business and Labour raised concerns regarding the provisions of sub-clause 8(3).

3.3.2. Labour said that the idea of subjecting the dissemination of information to the council's administrative and financial capacity was unnecessarily restrictive. They requested that the sub-clause be cross-referenced to the chapter on Integrated Development Planning.

3.3.3. Business went further to say that the establishment of a mechanism alone did not ensure public participation. They recommended that clause 8 should be amended to include an additional sub-clause requiring timeous response to petitions and complaints raised by stakeholders. They said that a provision should also be made for performance indicators on the mechanisms established in terms of this chapter. These should be included in the requirements of chapter 6.

3.3.4. Government agreed to qualify the provisions of sub-clause 8(3) to avoid this being used as an excuse by municipalities.

        3.4. Clause 11(1)(a)(b)

3.4.1. Business raised a concern regarding the power of municipalities to exclude the public from meetings.

They proposed that clause 11 should provide recourse to a stakeholder in the event of being excluded from a meeting.

3.4.2. Labour said that the community must be given reasonable notice on the council's intention to close the meeting. This will provide communities with an opportunity to comment on the council's intention to close the meeting.

Labour went further to say that in the public interest a municipality would have to disclose the decision of their closed meeting.

Labour proposed the following insertion:

Insert new subsection 11(3) and renumber current subsection (3) as follows:

"(3) (a)When a municipality contemplates closing any of its meetings to the public, it must give reasonable notice to the public of its intention.
(b) Members of the public can object in writing to the council's decision to close its meeting and state their reasons for objecting;
(c) The council must consider the objection and may rescind its decision to close the meeting or proceed with its decision;
(d) Anyone aggrieved by the decision of the municipality to proceed with its decision to close it meeting after an objection has been lodged can approach the MEC to appeal against the decision of the municipal council;
(e) The MEC must give due consideration to the appeal including whether it is reasonable for the municipality to close its meeting having regard to the nature of the issues.
(f) The MEC may instruct the municipal council to open the meeting or uphold the council's decision to close its meeting;
(g) Subsection (d) does not divest anyone of the right to approach a competent court to appeal against the decision of a municipality to close its meetings.
(h) Giving due weight to the importance of open, accountable and participatory administration, a municipal council shall disclose the decisions of its closed meetings to the public and ensure proper records are kept of such meetings."

3.4.3. Government agreed and said that the matter would be addressed by the Public Participation Bill. A requirement would be made in the Bill that a municipality should give reasonable notice in an instance where a meeting would be closed to the public.

        3.5. Clause 13(1)

3.5.1. Business raised a concern regarding the provisions of sub-clause 13(1). Business said that the consultation mentioned in the Bill would not protect municipalities from having functions placed upon them but rather consultation should have to result in consensus between the parties before an agreement was made.

3.5.2 Government said that since the legislation would be published for public comment, this issue should not be a problem.

It was agreed that the formulation in the Bill should remain as phrased.

3.6. Clause 26(e)

3.6.1. Labour raised a concern regarding the provisions of this sub-clause. It said that the Bill adopts a neutral stance regarding public and private provisioning of services.

Labour said that in terms of sub-clause 26(e) a municipality should "take into account options available to meet its development objectives" and as a result no emphasis is made on the direct delivery of services by the municipality or even the public sector as the preferred option to provide a municipal service.

An amendment was proposed as follows:

Amend subsection 26(e) as follows:

"(e) take into account options available to the municipal council to meet its development objective [including by way of service delivery agreements]"

3.6.2. Government agreed to delete the words and make a cross-reference as requested by labour.

        3.7. Clause 28 (b)

3.7.1. Business was not pleased with the emphasis in this sub-clause on the financial capacity of a municipality. It said that references to the financial capacity should be replaced with a phased- in approach and that other factors besides the financial capacity needed to be taken into consideration.

3.7.2. Labour said that another area of concern is the lack of clarity on municipal financial capacity. The department of finance is expected to introduce a bill dealing with issues of financial management, budgeting, borrowing and treasury control as well as legislation reforming the property rating and taxation system. The absence of this legislation makes it difficult to test whether municipalities would have the necessary financial capacity to realise their objectives.

3.7.3. Government agreed to the proposal and said that they would decide on how to redraft the sub-clause.

3.8. Clause 137

3.8.1. Labour raised a concern regarding the transitional arrangements on the Bill.

3.8.2. Government agreed that there was a need to explicitly state the arrangements regarding transition in the Bill. It said that the implementation of the Bill would take place incrementally with the phasing-in of chapters starting on the date of promulgation.

3.8.3. Business said that there were some chapters that would be obligatory to implement immediately.

3.8.4. Labour raised a reservation regarding the phased-in implementation of the Bill. It proposed that government should rather identify the chapters to be implemented immediately.

3.9. Clause 40(c)-(I)

3.9.1. Labour raised a concern regarding clause 40, sub-clauses (c)-(I), saying they needed to redrafted. Labour said that sub-clause (b) addresses all the issues raised in sub-clauses (c)-(I).

Labour proposed the deletion of sub-clauses(c)-(I).

3.9.2. Government agreed to delete the sub-clauses.

3.10. Clause 55.(2)

3.10.1. Business raised a concern regarding access to information and reports. It said that annual reports should not only be made available to residents but to all stakeholders.

3.10.2. Government agreed to the proposal.

3.11. Clause 56(2)(a)(e)

3.11.1. Labour raised a concern regarding the provisions of the two sub-clauses 56(2)(a) and (e). They proposed the removal of the following wording: (a)"as far as is practical" and (e) "when necessary".

Labour proposed the following wording to be included in the Bill:

Amend section 56(2)(a) as follows:

"56. (2)(a) consult residents, [as far as is practical], about the level and quality of services and the available options."

Amend subsection 56(2)(e) as follows:

"56. (2)(e) inform residents, [when necessary], of how municipalities are managed, the cost involved and the person in charge"

Labour said that it was inappropriate to subject public consultation to the discretion of the municipality or to practical considerations. This would open an opportunity for municipalities to opt not to consult residents.

3.11.2. Government agreed to redraft the provisions of the two sub clauses.

        3.12. Clause 133

3.12.1. Labour was unhappy that the clause confines interference as a form of an offence to if it was done by councilors. It said that councilors were not the only role players as defined in chapter two of the Bill.

3.12.2. Government agreed to the proposal and said they would rephrase the clause accordingly.

4. RESERVATIONS

The parties at Nedlac had reservations on the following policy principles from the Municipal Systems Bill.

4.1. Clause 15(1)(e)

4.1.1. Labour raised a concern regarding sub-clause 15(1)(e), saying that it construes the municipal executive authority to include the "appointment of the appropriate service provider for any functions listed in Part B of Schedule 4 or Part B of Schedule 5 of the constitution."

In Labour's view the provision creates an unnecessary compulsion to consider other service providers even where this is not necessary. It proposed that the words "appropriate service provider" be removed from the Bill and a new sub-clause (f) be created and cross-referred to clause 96.

Labour proposed the following amendment:

Amend subsection 15(1) (e) as follows:

'(e) providing for and regulating the provisioning of municipal services [including the appointment of the appropriate service provider] for any function listed in Part B of Schedule 4 or Part b of Schedule 5 of the Constitution."

4.1.2. Government said that the words referred to by labour were very important and could not be deleted since they were intended to return the power that has been lost by municipalities and not to promote privatisation.

        4.2. Clause 13 (3)

4.2.1. Business and labour raised their reservations regarding the provisions of sub-clause 13(3). They said that they welcomed the intention to regulate the assignment of duties to municipalities by other spheres of government but had reservations regarding the devolution of unfunded mandates.

They agreed that the clause addressed the future scenario but had reservations regarding the mandates devolved in the past.

        4.3. Clause 18(1)(a)

4.3.1. Business and Labour raised reservations regarding the provisions of this clause.

4.3.2. Labour said that they agreed that national norms and standards were imperative to guide municipal decision making as well as creating minimum national norms and standards but they believed that this could also be achieved without divesting the municipalities of their autonomy.

4.3.3 Labor proposed an amendment to subsection 18(1)(a) as follows:

"(a) The Minister, [on request by organised local government, or after consulting the MEC's for local government and organised local government,] may by notice…"

Amend subsection 18(2)(a) as follows:

"(2)(a) An MEC for local government, [on request by organised local government, or after consulting the Minister and organised local government,] may by notice…"

4.3.4. Business went further to say that since many of the functions of municipalities were regulated at national level by other ministers, it would recommend that this clause make provision for municipalities to be consulted when such decisions are taken.

4.3.5. Government was requested to consider the reservations raised in this regard.

4.4. Clause 57(c)

4.4.1. Labour raised a concern regarding the term "core business" as used throughout the Bill. It said that the concept of core business was not defined anywhere in the Bill and may therefore lead to arbitrary definitions of what constitutes core business and what happens to non core business. They requested that the provision should be read together with the framework for municipal duties as provided in the constitution.

The following amendment was proposed:

Amend Subsection 57(c)as follows:

"(c) is performance oriented and focused on its [core business] developmental and objects of a municipality in terms of section 152 and 153 of the Constitution."

4.4.2. Government was requested to consider the reservations raised in this regard.

        4.5. Clause 60(4)

4.5.1. Labour raised reservations regarding the provisions of this clause. It said that if the broad intention of this section was to allow municipalities to employ top managers who shared their political orientation, then the intention was flawed.

Firstly, it encroached on collective bargaining issues without explicitly recognising the role of collective bargaining in negotiating conditions of employment. Secondly, the cost effect of compelling all municipalities to adopt fixed term contracts for all managers had not been adequately taken into account. The cost of offering packages to ease-in fixed term contracts might end up crippling municipalities and/or pension and provident funds.

Linked to this was the potential for unilateral alteration of current conditions for serving managers. In addition, it recognised only one form of contract, i.e. fixed term contract suggesting that there was no place for full-time employment. In this vein the bill was highly prescriptive and left no discretion to the municipality. Labour's view was that it must accommodate various forms of contracts subject to collective agreements. The Public Service Act, 1994 and the subsequent regulations were instructive in this regard.

4.5.2. Labour proposed two options to amend clause 60 as follows:

Option 1: Deleting current section 60 and replacing it with the general empowerment to appoint municipal managers along the lines of section 82 of the Municipal Structures Act, Act No. 117 of 1998.

Option 2: Amend current section 60 as follows:

"60. (1) subject, to section 82 of the Municipal Structures Act, Act 117 of 1998, a municipal council must appoint-
(a) a municipal manager who is the head of administration and also the accounting officer for the municipality; and
(b) when necessary, an acting municipal manager
(2) The municipal manager may be appointed -
(a) on fixed term of employment not exceeding five years, but which may be renewed by agreement; or
(b) on a full-time capacity.

(3) When appointing a municipal manager in terms of subsection (2), a municipality must give due regard to its financial capacity and the conditions of employment as agreed in the bargaining council for local government established in terms of applicable labour legislation.

(4) the general conditions of service and benefits for municipal managers will be as stipulated and provided for in terms of labour legislation and applicable collective agreements reached in the local government bargaining council.

(5) Notwithstanding subsection (4) the Minister, after consulting the bargaining council for local government established in terms of applicable labour legislation, may by notice in the Government Gazette issue guideline to municipalities concerning -
(a) the contents of contracts entered between the municipality and the municipal manager; and the conditions for terminating or extending the contracts."

4.6. Clause 84 Schedule 1 Item 10

4.6.1. Labour (Fedusa) raised a reservation regarding the provisions of this clause. It said that Local Government employees do not enjoy special privileges in terms of the South African Constitution and therefore should not be subjected to special credit control measures as far as municipal rates and service charges were concerned. They said that the wording was ambiguous and a reference should be made to the Municipal Structures Act.

4.6.2. Labour (Cosatu) suggested an amendment to the heading. They said that the word "officials" as it appears in the heading should be changed to "employees". They suggested that reference in the code be made to employees rather than officials.

Labour (Cosatu) went further to suggest the deletion of Schedule 1 item 10. They said that it amounted to a new condition of service and as such should be discussed in the bargaining council before it was legislated.

4.6.3. Government agreed to delete the provisions and add them to the code of conduct in the regulations. They said that this would be done in consultation with the Bargaining council.

4.6.4. Government concluded that they would seek legal advice on the matter and consider a decision to take in this regard.

Chapter 9 Credit control and Debt Collection

4.7. Clause 108(d)

Labour raised a reservation regarding the provisions of sub-clause 108(d). It said that a municipality should be encouraged to take active steps to ensure accurate metering of consumption of services. Where it was not possible, it should explain to residents how it measures the consumption of the service and the steps being taken to correct the situation.

Labour proposed an amendment to subsection 108(d) as follows:

"(d) [as far as is practicable,] ensure that the consumption of services by individual households is measured through accurate and verifiable metering systems."

4.8. Business raised reservations regarding the provisions of clauses 111, 114(1), 116(a),and 117. It said that they agreed with the view that in order to ensure long term financial viability, each municipality must collect revenue due to it for services rendered, and that appropriate credit control measures must be established.

        4.9. Clause 111

Business said that the implementation of this clause should enjoy high priority and should be implemented within a prescribed period after the promulgation date of the Act.

        4.10. Clause114(1)

Business agreed with the approach in this clause but raised reservations regarding the indebtedness of the different categories of debtors.

Business suggested that indebtedness of different categories of debtors would be a more useful performance indicator of payment levels. This would also promote a more targeted remedial approach.

        4.11. Clause116(a)

Business raised a reservation on the consolidation of accounts. Business will only support the idea provided that the original source of indebtedness remains traceable.

        4.12. Clause 117

Business raised a reservation regarding the inclusion of a mechanism for employers to deduct municipal service charges from employee's salaries. They proposed that if a municipality wishes to pursue specific cases it may do so in terms of 108(i)

        4.13. Chapter 7 Local Public Administration and Human Resources

4.13.1. The parties agreed that government would hold a bilateral with labour to discuss redrafting of chapter seven. Business would be given an opportunity to peruse the revised draft before indicating its agreement.

        4.14. Chapter 8 Municipal Services

4.14.1. The parties agreed that government would hold a bilateral with labour to discuss redrafting of chapter eight. Business would be given an opportunity to peruse the revised draft before indicating its agreement.

Chapter 11 - Legal Matters and Offences

        4.15. Clause 132

Business raised a strong reservation regarding the provisions of clause 132. It said that the clause provides insufficient incentive for municipalities to pursue aggressive credit control in that they have to be paid before a transfer can take place.

In addition, it is understood that there is currently no limit on the arrears that have to be paid before property transfer can take place. The three-year limit implies that the remainder of the debt will be written off. An effective credit control policy should promote earlier action.

The chapter does not address business's concern that the present law (as contained in section 89 (1) of the Insolvency Act and a number of Provincial Ordinances) allows a local authority a preferment or preferent claim in respect of arrears rates and, in some jurisdictions, in respect of arrears on municipal service charges as well.

When financial institutions are forced to bring a house to a sale in execution, in order to pass transfer of the property, all outstanding rates and services owed to the local authority must first be paid. This right of preference results in local authorities having little or no incentive to enforce proper credit control management, knowing as they do that the financial institutions will be forced to clear the arrears.

Business said that this preferred creditor status was unfairly discriminatory in that the creditor of a defaulting ratepayer, as opposed to other tax payers, is the person who should be compelled to pay the arrears due by the defaulting ratepayer, if and when the creditor seeks to recover a debt lawfully due to him by attaching the land of the defaulting ratepayer.

International experience and other African countries show that, in general, where countries do not strongly support property rights and foreclosure processes are difficult to implement, and where a low priority is given to mortgage loans, delinquency and default rates tend to significantly increase. As a consequence, financial institutions are driven to become very cautious in loan underwriting.

Business strongly recommended that all laws conferring preference on local authorities for rates and other municipal charges be repealed. In the event that a total repeal of the laws conferring rights of preference was not accepted then, at the very least, they recommended the following:

The right of preference should not extend for a period exceeding 2 years, in conformity with Section 89 (1) of the Insolvency Act, and all the provincial ordinances should reflect this. It would be more appropriate to introduce a uniform national obligation around this issue.

The right of preference should be confined to municipal rates and not to basic and or consumption service charges.

The three year limit should only be applied in cases of liquidation and not in cases of a property transaction.

Government agreed to engage with business on the guidelines for a credit policy

5. CONCLUSION

5.1. This report completes consideration of this issue in Nedlac, and the report is hereby submitted to the Minister of Public Works and the Minister of Labour in terms of section 8 of the Nedlac Act, No. 35 of 1994.

5.2. It was agreed that the parties would continue to try to reach consensus on outstanding issues.