Institutional Reforms and Effective

City Management

The South African Experience

David Savage

Water & Sanitation Program – South Asia

Conference on Strenghtening Urban Management

ASCI, Hyderabad, 20 January 2004

2

A recap of the issues …

Cities are engines of the economic growth:• Creating world class cities means improving services

Municipal service delivery cannot be seen in isolated context;• How municipal services come together to serve the city-

economy;• Managing cities to be credit worthy • National economic growth and poverty reduction efforts will

be increasingly determined by the productivity of cities and towns

A new approach to addressing the persistent underperformance of urban services:

• Need to fix institutions that provide services, not only the service infrastructure itself

• Need to focus across services, not only within them

Summary of presentation

Background to the South African local government reform process

Fiscal incentives for institutional restructuring Restructuring in Johannesburg Relevance to India

S.African local government reform

The apartheid city• Well established ‘white’ cities with strong tax base • Separate black towns administered from centre

1976 – Soweto uprising • Creation of ‘black local authorities’

Early 1980’s – mass resistance to ‘indirect rule’ built around civic associations

• Rent and service charge boycotts• Slogan ‘One City One tax base!’

A 3 phase local government transition from 1994 - 2004

Service Revenue Source

Roads

Protection services

Community services

Land use, planning

Health

Etc

Property tax (15%)

Payroll/turnover taxes (7%)

Transfers (8%)

Electricity

Water

Refuse

Sewerage

etc

User charges (42%)

Functional and fiscal context

Service backlogs Inefficient service delivery Management and leadership shortfalls Municipalities in financial distress

unbalanced budgets and no cash reserves increasing bank overdrafts, debtors, and loan defaults

Major challenges

0

10 000

20 000

30 000

40 000

50 000

60 000

96-97 97-98 98-99 99-00

R m

illio

n

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Total expenditures Capital as % of total expenditures

Projected Actual Budget

Declining capital expenditure

Key elements of the reform agenda

Local government an independent ‘sphere’ Widely drawn boundaries

• Single tier metropolitan municipalities• Two tier non-metropolitan system

Functional and fiscal devolution Accountable & ‘Developmental’ local government

• Clear allocation of responsibility• Universal and sustainable basic service delivery• Strategic and planned response to local conditions• Requirement for substantial local consultation

More rigorous financial administration Create conditions for private sector involvement in

municipal service provision

Capital, capacity building,restructuring & transition

Intergovernmental Transfers

Municipal Finance Mgt. Bill

Municipal Systems BillCapacity Building

Systems

Property Rates BillRSC Levy

Own Source Revenue

Fiscal

Structures Act

Demarcation

Structural

White PaperConstitution

The reform programme

10

Overcome funding gaps and stimulate capital market access through improving:

• Legibility, certainty, equity and efficiency of all transfers• Sustainability of capital investments• Revenue administration and tax powers

Consolidate and decentralise transfers:• Unconditional equalisation grant (Equitable share)• “Single pot” capital grant (Municipal Infrastructure Grant)• Capacity building funds targetted to priorities in small and large

municipalities (financial management, capacity support and transition costs)

Develop and enforce a hard budget constraint

Fiscal reform goals

Distribution of Transfers

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

2001/02 Allocation(R'000)

2002/03 Allocation(R'000)

2003/04 Allocation(R'000)

Smaller (below R300m)

Large (above R300m)

Metro

Equalising outcomes of transfers

Restructuring Grant for large urban areas whose success or failure would have an impact on the national economy

• disincentive to restructure due to fiscal stress and likely expenditure spike;

• cities are engines of growth: efficient service delivery critical Intended to facilitate restructuring which

• pre-empts and avoids key threats• Leads to significant enhancement of service delivery capacity

Funds the costs of transition to sustainable service delivery systems

• Staff and asset restructuring• Tariff smoothing• Unfunded liabilities• Capital budget support

Incentives for urban restructuring

Characteristics of the grant

Amounts available are considerable: • More than offset the costs of restructuring

Finances outcomes not projects• Economic, fiscal, institutional and service delivery dimensions

• Aimed at getting municipalities to develop their own coherent strategy and programme for improvement….and stick to it

• Must be enhance financial sustainability and service delivery Structural reform programme to be determined by municipality

• Aimed at developing a partnership between bigger cities and Treasury Agreed amounts are paid out on the basis of reaching pre-agreed

targets and milestones Grant was developed in response to fiscal and service delivery crisis in

Johannesburg

14

RestructuringRestructuring

15

Joburg’s Problems

Growth without sustainability, then sustainability without growth

• Weak financial stability and sustainability• Weak budgeting, debt and revenue management

Service delivery• Inadequate info, weak strategy & wrong institutions

Frameworks of accountability• Overlapping mandates, no strategic purpose, poor definition of

unit and individual responsibilities Administrative efficiency

• Excess and insufficient management capacity, disempowerment, culture problems, inefficient systems, corruption and maladministration

Political systems• Lack of strategic political focus, poor admin interfaces,

internally focused Metro unresponsive to citizens

16

Goal and objectives Overarching goal of growth and sustainability Objectives:

Restore financial stability & sustainability by improving financial planning, management and control;

Ensure effective spending on service delivery & development; Structure roles & responsibilities & mechanisms of

accountability to make clear who is accountable to whom and for what, within an integrated planning framework that ensures all parts of the City are driven by a unified strategic purpose;

Create the basis for an efficient administration by incentivizing good management, attracting highly-skilled & motivated professional staff; & upgrading administrative systems;

Give back to councillors their proper representative & strategic leadership role, improve the decision-making system, & clarify the political-administrative interface.

17

•City PowerCity Power•PikitupPikitup•JHB WaterJHB Water•Roads AgencyRoads Agency•City ParksCity Parks•JHB ZooJHB Zoo•CivicCivic•The MarketThe Market•MetrobusMetrobus•ProComProCom

•City PowerCity Power•PikitupPikitup•JHB WaterJHB Water•Roads AgencyRoads Agency•City ParksCity Parks•JHB ZooJHB Zoo•CivicCivic•The MarketThe Market•MetrobusMetrobus•ProComProCom

EMSEMSEMSEMS

PlanninPlanningg

PlanninPlanningg

MPSMPSMPSMPSHeritagHeritag

e e ServiceService

ss

HeritagHeritage e

ServiceServicess

Exec Exec MayorMayorExec Exec

MayorMayor

CouncilCouncil

Peoples CentresPeoples CentresPeoples CentresPeoples Centres

The PeopleThe PeopleGood governanceGood governance

Sustainable servicesSustainable servicesSocial & Economic DevelopmentSocial & Economic DevelopmentHealthy and Safe EnvironmentHealthy and Safe EnvironmentParticipatory and InclucivityParticipatory and Inclucivity

The PeopleThe PeopleGood governanceGood governance

Sustainable servicesSustainable servicesSocial & Economic DevelopmentSocial & Economic DevelopmentHealthy and Safe EnvironmentHealthy and Safe EnvironmentParticipatory and InclucivityParticipatory and Inclucivity

Regions X 11Regions X 11Regions X 11Regions X 11

HealthHealthHealthHealthSocial Social

ServiceServicess

Social Social ServiceService

ss

HousinHousingg

HousinHousingg

LibrariLibrarieses

LibrariLibrarieses

Sport &Sport &RecreationRecreation

Sport &Sport &RecreationRecreation

ContractsContractsFinanceFinance

CorporateCorporateCommunitCommunit

yy

ContractsContractsFinanceFinance

CorporateCorporateCommunitCommunit

yy

CMCMCMCM

A new organisation designed

18

FinancFinancee

FinancFinancee

Peoples CentresPeoples CentresPeoples CentresPeoples Centres

Executive Executive MayorMayor

Executive Executive MayorMayor

CouncilCouncil

CEOCEOCEOCEO

EMSEMSEMSEMSComm. Comm. DevDev

Comm. Comm. DevDev

MPSMPSMPSMPSHeritage Heritage Heritage Heritage

Regions X 11Regions X 11Regions X 11Regions X 11

HealthHealth Social ServicesSocial

Services HousingHousing LibrariesLibraries Sport &Recreation

Sport &Recreation

PlanPlanPlanPlanContr.Contr.MangtMangtContr.Contr.MangtMangt

Corp.Corp.ServiceServiceCorp.Corp.

ServiceService

Internal Organisational Structure

19

Contract Management & Regulation

Contract Contract Management UnitManagement Unit

Contract Contract Management UnitManagement Unit

EconomicEconomic EngineeringEngineering legallegalAccountantAccountant

•TariffsTariffs•Pricing PolicyPricing Policy

•FinancialFinancial AnalysisAnalysis

•QualityQuality•StrategyStrategy•Busn’s plansBusn’s plans

•Service DeliveryService Delivery AgreementsAgreements•GovernanceGovernance

ConsultantsConsultants

CEOCEO

Exec MayorExec MayorShareholderShareholder

Shareholders Unit

20

Privatisation, Corporatisation & Outsourcing

Rand Airport (June) S197 of the LRA facilitated transfer– Employee briefings and consultations extensive– All Contracts protect employee provisions and give job guarantee

Metro gas (August) Corporatisation (July) IT outsourcing (September) Fleet outsourcing (October)

Privatisation Corporat-isation

Outsourcing

21

Essence of the model

Design Principles:Design Principles: Economic decentralization, substantive

control, internalised accountability. Design Features:Design Features: Client/contractor split, UAC’s as relatively

independent companies to manage the larger service functions, administrative regions to manage social development in an integrated way, centralized distribution functions, smaller and less cumbersome core administration, and strong regulatory mechanism.

Key Assumptions:Key Assumptions: Institutional restructuring would ensure financial stability & sustainability and provide opportunities for addressing admin weaknesses

Core Programmes and Actions:Core Programmes and Actions: Implementation evolved (“devil in the detail”). Programmes responded to objectives but key areas included Diamond project, stakeholder consultation and

communication, settlement with organized labour and iGoli 2010.

22

Collective Effects

Has Joburg suceeded in achieving growth with sustainability?

“…on the threshold of getting the basics right”, but huge challenges remain

Modifications to model during implementation often necessary (eg CMU) but changes:

• Have costs, which must be explicitly understood alongside anticipated benefits (eg revenue)

• Can negatively affect organisational culture Danger of ongoing institutional ‘tweaking’ with limited

benefits, distracting attention from priorities in:• internal expenditure reforms• external economic and social development

23

Relevance for India

Very different contexts, but similar problems:• Chronic poor performance is the rule rather than the

exception in many publicly run municipal services:– Irregular and poor quality service

• Technical & commercial losses: filling the leaking bucket

• Poor cost recovery through inappropriate tariffs and ltd collection

• Subsidies do not reach the poor – high coping costs• Financially unsustainable

24

The Judge, Jury and Executioner are the

Same!

Policy

Regulation Delivery

Define the Objectives– 24-hour supply– Clean water– Extended Access

• Define the Rules

Enforce the Rules– Monitor Compliance– Regulate Pricing

Deliver the Service Play by the Rules

.

25

Elements of separation in water service delivery

Government ownership of some form• Public good nature of water• Sustainability as a resource: time and quality• Attacking poverty

Business approach to delivery• Private good nature of water• Demand driven; customer responsive

Independent regulation

26

City Challenge Fund

Many similarities in urban services problems and solutions City Challenge Fund offers similar approach:

• Demand driven, outcome focussed• Performance based• Partnership approach

Intergovernmental system must be robust enough to:• Create a net incentive for restructuring (remove disincentives)• Create an enabling environment for city strategies (link to URIF)

SA lessons:• Limited strategic capacity amongst municipalities• Reforms need to be nurtured and must be self-imposed• Over-prescription is unenforceable and unconstructive • Monitor outputs and risks, not inputs

– Link payment to performance• Dedicated capacity with credibility amongst municipalities required

to manage grant