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The Treasury complied with constitutional and legislative prescripts when it temporarily withheld R13.5bn in funding from 69 municipalities over poor financial management, the department’s senior legal adviser says in a legal opinion seen by Business Day.This comes after the Financial and Fiscal Commission (FFC) questioned the lawfulness of the move.The FFC is a constitutional advisory body that makes recommendations to parliament, provincial legislatures, local government and other organs of state on the equitable division of revenue among the three spheres of government, as well as on broader financial and fiscal matters.The withheld funds formed part of the July tranche of the Treasury’s local government equitable share (LGES) allocation.In a memorandum dated July 20, advocate Empie van Schoor, the deputy director-general in the National Treasury’s office of the general counsel, stated that the decision to stop the LGES “is undoubtedly that of National Treasury according to section 216(2) of the constitution”. The Treasury has cited years of persistent financial mismanagement, repeat audit failures and continued noncompliance with the Municipal Finance Management Act (MFMA) for the move, one of its strongest interventions yet against failing local governments. The municipalities, spanning all nine provinces and including major metros such as Buffalo City, Nelson Mandela Bay, Mangaung and Johannesburg — which has had R3.6bn withheld — were informed of the decision in advance and given an opportunity to explain why their transfers should not be withheld before the Treasury acted. Fiscal disciplineTreasury officials reiterated during a recent media briefing that the move was intended to instil fiscal discipline, ensure municipalities properly managed public money, addressed unauthorised, irregular, fruitless and wasteful expenditure and held officials accountable if required by law. Van Schoor said the FFC’s presentation indicated, among other things, that conditional grants can be withheld by the executive; that unconditional LGES can only be permanently stopped by parliament; that a decision to stop the LGES must be approved by parliament and that calling “a stopping” a “temporary withholding” cannot bypass parliamentary oversight. She explained that a decision by the Treasury to stop the transfer of funds is subject to parliament’s approval. “A decision by National Treasury to stop the transfer of funds to a municipality may be enforced immediately, but will lapse retrospectively unless approved by parliament following a process substantially the same as that established in terms of section 75 of the constitution and applicable parliamentary rules. This process must be completed within 30 days of the decision by the National Treasury to stop the transfer,” in terms of the MFMA. “Therefore, National Treasury must in writing inform the speaker of the National Assembly and the chair of the National Council of Provinces (NCOP) simultaneously with sending the letters informing the municipalities of the invocation of section 216(2) of the constitution, read with section 38(1)(a) of the MFMA, stopping the transfer of funds. This is necessary to enable parliament to commence the process to consider the approval of the decision to stop the funds and complete it within 30 days.” Read: Treasury freezes funds for 69 municipalities over financial failuresVan Schoor said the parliamentary speaker and chair of the NCOP were notified through Godongwana’s letters dated July 6 of National Treasury’s decision to stop the LGES to specified municipalities. “These letters use the phrase ‘to stop (withhold) the local government equitable share transfers to selected municipalities’. These letters end with the following request: ‘Parliament is hereby requested to note this matter and to exercise its oversight function in ensuring that constitutional and legislative framework governing public financial management are upheld.’” Business Day
