NOMBEKO MBAVA | The 30-day loophole that let 49 municipalities off the hook

On Friday, the last day of July, the National Treasury released the R7.1bn in outstanding municipal equitable share funds that had been withheld from 49 municipalities at the beginning of the month.

Nothing about those municipalities had changed. Their audit outcomes remained as they were at the start of July, when the suspensions were announced. Their unfunded budgets remained unfunded and their outstanding debt remained unpaid.

What had changed was the constitutional clock. Under the country’s supreme law, the withholding of such funds becomes invalid — and any extension illegal — if parliament does not endorse the decision within 30 days of the executive taking it.

The release of the R7.1bn on Friday had therefore become compulsory. Because parliament had not approved the withholding within the prescribed period, the funds had to be released.

Even if the executive had wanted to continue withholding the funds, it could not have done so beyond the constitutional deadline. The decision became unsustainable and the sanction lost its sting simply because of poor timing.

The local government equitable share is an entitlement of municipalities in terms of various sections of the constitution. Its unconditional character is a deliberate feature of the constitutional design: it is intended to secure the fiscal capacity of municipalities to provide basic services and perform their allocated functions.

The Treasury can stop the transfer of funds to an organ of state in terms of section 216(2) of the constitution where there has been a serious or persistent material breach of the Treasury norms and standards established under section 216(1).

The Treasury’s intervention lost its sting because there was no parliamentary enforcement

For municipalities, this power is given effect through the Municipal Finance Management Act (MFMA), which allows the stopping of equitable share transfers only where a municipality commits a serious or persistent breach of the section 216(1) measures.

Importantly, a section of the MFMA subjects such a decision to parliamentary control. The decision may be enforced immediately, but unless approved by parliament within 30 days, it lapses.

The Treasury’s intervention therefore lost its sting because there was no parliamentary enforcement. When the decision was taken, on July 3, parliament was in recess — and remains so. Had the process continued, parliamentary approval would have been required by Monday, August 3.

The process would have required the tabling of a motion in the National Assembly, accompanied by a schedule and documentary evidence of noncompliance by the 49 municipalities. Parliamentary hearings would have been followed by a consideration of the motion to stop funds by both houses of parliament.

The decision to invoke section 216 in the absence of a live parliamentary process was bound to elicit mixed results. Some municipalities quickly complied, apparently as a result of the shock of suddenly having expected cash flows suspended. Others did nothing.

The municipalities that ignored the intervention and the that complied ultimately faced the same outcome: all received their full allocation because the constitutional deadline expired.

The problem here is that a time-limited stoppage of an unconditional entitlement is a structurally poor enforcement tool. It cannot be continued beyond 30 days without parliamentary approval, yet the money must ultimately flow.

If the executive wants the stopping itself to have teeth, the constitutional route is endorsement by parliament, which can sustain any stoppage for up to 120 days — and that can only happen if parliament is in session

For the municipalities, it means the engendering of what could be described as malicious compliance — knowing full well the constitutional clock of 30 days is ticking and that funds cannot lawfully be withheld beyond this time. Compliant or not, the municipalities simply bide their time, bear the brunt of zero income for 29 days, but, as sure as clockwork, on day 30 the money must flow.

What happens if the executive continuously stops a constitutional entitlement to a sphere of government for exactly 29 days and releases it on the 30th day? This essentially implies that oversight is structurally evaded.

Section 39 of the MFMA makes parliament the reviewer of a stopping decision. There is never an opportunity by oversight to truly interrogate whether the “serious or persistent material breach” threshold was actually met. Was the stopping rational, proportionate, procedurally fair?

Were the municipalities’ presentations heard on why they persist in noncompliance? because whilst the municipalities were given a hearing through the executive corrective processes, being heard by parliament is different from being heard by officials. Therefore, because the stoppage decision never reaches the forum meant to interrogate it, those questions are never answered. If it was unlawful, the unlawfulness is never surfaced or corrected; if lawful, it’s never validated.

So a power to stop, and the constitution made to be contingent on parliamentary sanction, is essentially exercised with zero legislative scrutiny.

If the goal is real consequence management, the lawful tools built for that purpose include MFMA disciplinary, recovery and criminal processes; section 154 support and capacity building; and, where warranted, section 139 provincial interventions.

Section 216 will not work effectively with the executive arm only. The parliamentary process needs to kick in and strengthen it.

If the executive wants the stopping itself to have teeth, the constitutional route is endorsement by parliament, which can sustain any stoppage for up to 120 days — and that can only happen if parliament is in session.

• Mbava is chair of the Financial and Fiscal Commission