The National Treasury’s temporary withholding of the transfer of the July equitable share funds to 69 municipalities came under intense scrutiny in Parliament on Friday, where questions were raised about the lawfulness of the intervention.

On July 7, the National Treasury announced the withholding decision, which it said had been taken in terms of Section 216(2) of the Constitution, read with Section 38 of the Local Government: Municipal Finance Management Act 56 of 2003.

During a joint meeting of the Portfolio Committee on Cooperative Governance and Traditional Affairs, the Standing Committee on Finance, the Standing Committee on Appropriations, the Standing Committee on Public Accounts, and the Standing Committee on the Auditor-General, Finance Minister Enoch Godongwana defended the intervention.

Arguing that it was a corrective rather than punitive measure, Godongwana said the decision to invoke Section 216(2) had been taken as a “last resort” to halt the financial deterioration in municipalities, and only after other supportive actions had been taken.

The intervention, he reiterated, was designed to address the passing of unfunded budgets, the non-payment of bulk suppliers, including water boards and Eskom, ongoing unauthorised, irregular, fruitless and wasteful expenditure, and a failure of the councils to implement consequence management.

Initially, letters were sent to 99 municipal mayors on June 22, following which 30 municipalities responded by the June 30 deadline with evidence demonstrating they had adhered to the requirements.

On July 3, 69 letters were emailed to the mayors of the remaining municipalities indicating that the Minister had decided to temporarily withhold the transfer of the July funding. Equitable share funds are transferred to local governments in three separate tranches in July, December and March.

National Treasury director-general Duncan Pieterse told lawmakers that all 69 municipalities had responded to their letters and that these responses had been assessed to determine if municipalities met the criteria to receive the funds.

Pieterse said 27 municipalities received their equitable share transfers on July 16. Ten of these municipalities had received their full transfers amounting to R1.7-billion, while 17 received a portion totalling R2.9-billion to strictly pay the relevant creditors.

The financially distressed City of Johannesburg formed part of the group of 17 receiving partial relief and the funds would be transferred only once the National Treasury had received proof of the payment of creditors.

A further 22 municipalities were due to receive their equitable share in the week starting on July 20.

Nevertheless, the legality of the National Treasury’s intervention, as well as the process followed, was criticised, including by the Cooperative Governance and Traditional Affairs Minister Velenkosini Hlabisa, who suggested that a different approach could have been used.

Hlabisa called for a harmonisation of the process to be followed before invoking Section 216(2) and also urged the National Treasury to act as assertively against provinces and national departments that owed municipalities billions in outstanding payments.

STRONG CRITICISM

However, the intervention was most heavily criticised by Financial and Fiscal Commission (FFC) chairperson Dr Patience Nombeko Mbava who argued that while conditional grants could be withheld by the executive, the unconditional local government equitable share could be stopped only by Parliament.

She highlighted textual contradictions in the National Treasury’s announcement, as Section 216(2) speaks only of the stopping of funds to municipalities, with the withholding of funds referred to only in the Division of Revenue Act, which was not invoked.

Mbava also questioned the efficacy of the action, which she said could have serious service delivery consequences for residents and businesses in the 69 affected municipalities, 15 of which had no cash buffers in place.

The withholding was also a “blunt instrument” being applied in an undifferentiated way to municipalities whose problems were not homogenous.

She also noted that, while the 69 municipalities owed R97.4-billion to creditors, they were owed R217.9-billion, including by other organs of State, which owed them R11.6-billion, and commercial entities, which owed R46.4-billion.

The commission proposed a clarification of the procedures for triggering a Section 216(2), including legislative amendments where necessary.

In response, Godongwana noted the “textual” and “sequencing” issues raised by the FFC and promised that the National Treasury would provide a legal opinion on both to Parliament.

In addition, he indicated that he would be instructing national departments and provinces to meet their 30-day payment obligations to municipalities, or run the risk of a similar withholding of transfers.

The Minister also promised to work with the Department of Cooperative Governance and Traditional Affairs, other national departments and provinces on ways to provide differentiated support to municipalities in distress so that the withholding of funds could be used as a last resort.

There was a mixed reaction to the intervention by members of the committee, with some signalling strong support and others questioning its lawfulness.

However, there was a general consensus of the urgent need to improve governance and service delivery at the local government level and to hold officials to account in a way that did not punish residents.