The legendary former US Speaker of the House of Representatives, Tip O’Neill, coined this phrase to help concentrate the minds of his elected colleagues on the issues that really matter to their constituents. What matters most to most of us are those essential daily services supplied by local governments in South Africa that are all important to the quality of life and the value of the houses we own.
The delivery of water and electricity, the removal of waste and refuse, convenient access to local roads and public spaces as well as protection against fire, flood and local epidemics are the vital responsibilities to homeowners and citizens of South African municipalities.
The better value for the taxes and the charges levied for the service local residents receive from their local governments, the more valuable will be the land, homes and buildings they own or rent. The better the protection delivered by local governments, the lower will be the insurance premiums or the charges levied by alternative providers of security services, to the further benefit of real estate valuations. In the US towns and suburbs, we would add the responsibility exercised by local authorities for schools and local policing, the cost benefit relationship of both, that will reveal itself in property values. It is not only the households with children at local schools that have an interest in their quality. Good schools add value to all property in the neighbourhood.
The virulence as well as the pervasiveness of the service delivery protests all over SA are making the point about the importance of local governments. The failures of delivery have more to do with the lack of administrative capabilities and the focus of politicians than it has with a want of additional resources to pay for these services. These protests no doubt are focusing the government’s mind on the failures of local government and the quality of their management.
To quote the 2015 Budget Review on the issue of policies for the urban areas of SA:
“Investment to transform urban spaces
South Africa’s urban infrastructure must be renewed. Population growth places enormous pressure on ageing transport systems, roads, housing, water and other amenities. Moreover, apartheid spatial planning dominates the urban landscape. Over the next three years, government will expand investment in the urban built environment, using resources more effectively to transform human settlements, and drawing in private investment to support more dynamic and inclusive economic growth.
The 2015 Budget begins a fundamental realignment to achieve these goals. The National Treasury will work directly with municipal governments, development finance institutions and the private sector to expand investment in urban infrastructure and housing. A series of transformative projects valued at over R128 billion has been identified for potential investment in large cities, supported by a project preparation facility at the Development Bank of Southern Africa (DBSA). To broaden funding streams, city governments will focus on improving their systems for revenue collection, expenditure management and land-use zoning”.
A number of development projects in the large urban metros were identified in the Budget Review, among them to quote further:
“The Metro South East Corridor in Cape Town, where the MyCiti bus service complements the commuter rail modernisation programme. Integrated land, infrastructure and precinct development projects in Athlone, Langa, Philippi, Khayelitsha and Mitchells Plain are being prepared. These projects are being supported by upgrades to sewerage and electricity infrastructure, along with community facilities such as libraries. Alongside extensive investments to upgrade informal settlements are plans to develop 6 000 high-density social housing units in Manenberg, Hanover Park, Heideveld, Marble Flats and Langa.
Cornubia, a mixed-income commercial and residential development in eThekwini, is under construction. A total of 28 500 housing units, 18 clusters of community facilities and 2.3 million square metres of commercial floor space are planned. The city has also developed a densification plan to complement commuter rail modernisation between Umlazi and Bridge City. Private-sector contributions will amount to R15.4 billion of the total development cost of R25.8 billion. To date, 2 668 subsidised houses have been completed and 80 hectares of serviced industrial and commercial land successfully launched, with two transport interchanges under construction. It is estimated that 387 000 construction jobs will be created and 43 000 permanent jobs sustained over 15-20 years, while the city will benefit from R240 million in additional property tax contributions annually”
A large share of the taxes collected by the central government, now about a trillion rand a year, flows back to the municipalities mostly on a predetermined formula based process. As the 2015 Budget Review reports on Transfers to local government:
Over the 2015 MTEF period, R313.7 billion will be transferred directly to local government and a further R31.9 billion has been allocated to indirect grants. Direct transfers to local government in 2015/16 account for 9.1 per cent of national government’s non-interest expenditure. When indirect transfers are added to this, total spending on local government increases to 10 per cent of national non-interest expenditure.
An even bigger share (about 40% of revenue collected at the centre) flows back on a similar formula to provinces who assume responsibility for public schools and hospitals.
The City of Cape Town in its Financial Accounts to June 2013, the latest available on its web page, reports grants and subsidies from the government to the City of R5.4bn and it share of the Fuel Levy of R1.7bn. This R7.1bn represented about 26% of all revenues of R27.4bn. Of these revenues, property rates generated R5.2bn and service charges (electiricty, water, refuse etc) R13.1bn These accounts report an operational surplus of R3.44bn while net financial cash income of R592m fell short of finance cash costs of 646m by a mere 54m in 2013, reflecting very little net indebtedness.
The financial picture presented therefore is one of very robust financial health with what appears to be a lazy balance sheet – especially so when little account appears to be taken of the value of undeveloped land owned by the City – that could be brought to market with the right encouragement. And having been converted, it would thereafter provide annuity income for the City in the form of extra rates and service charges that more than cover costs, as illustrated in the case of the Cornobia project in the Durban area.
Cape Town has the balance sheet and hopefully the competence to raise abundant funds from both private lenders and the central government for expanding the infrastructure of land buildings and roads, investments that will make every economic sense for the City itself. And it would help provide access to jobs and meaningfully help relive national poverty as young work seekers in particular continue to migrate in large numbers to Cape Town, as they are also doing to Gauteng and Durban.
The encouraging feature of this new emphasis by Government on the role of municipalities in SA is the recognition of the economic importance of the major urban areas of South Africa. It is there that the economic opportunities will present themselves and so where the additional investment in houses, serviced land and the roads and transport is best made.
But an important caveat should be registered. It is easier for government agencies to deliver agendas than successful outcomes even with abundant revenues, as government failure to date has illustrated. The road to a successful urban economy has to be paved with more than good intentions. And, one may add, accompanied by a proper degree of respect for the creative powers of private developers with which the city administrators and planners should be encouraged to hold. They will have to draw on them to turn not only the city land to more productive uses, but to ensure that privately owned land and buildings can be converted to ever more productive uses. Such developments will make an essential contribution to economic growth and the relief of the scourge of SA, poverty.