DIVISION OF REVENUE BILL HEARING 2005

1. DIVISION OF REVENUE BILL HEARING 2005 DEPARTMENT OF HOUSING PRESENTATION TO PUBLIC HEARINGS ON CONDITIONAL GRANTS 17 FEBRUARY 2005

2. OVERVIEW • INTRODUCTION • PURPOSE OF GRANTS • HOUSING ALLOCATION FORMULA • HOUSING SUBSIDY GRANT • HUMAN SETTLEMENT REDEVELOPMENT PROGRAMME • MONITORING OF PERFORMANCE • MOTIVATION FOR RETENTION AS CONDITIONAL GRANTS • END

3. INTRODUCTION Housing administers two conditional grants in 2004/05 financial year: • Housing Subsidy Grant • Human Settlement Redevelopment Grant

4. PURPOSE OF GRANTS • Housing Subsidy Grant is to finance housing subsidies under the national housing programme. • Human Settlement Redevelopment Grant is to fund projects which are meant to improve the quality of urban environment by addressing the legacy of dysfunctionality.

5. ALLOCATION FORMULA • By and large the formula is consistent with the relevant principles and provisions contained in Section 214 of the Constitution. • Provincial allocations are currently made according to a formula determined by MINMEC and approved by Cabinet.

6. ALLOCATION FORMULAcont. • For 2004/05 the Census 1996 was applied as funds were already allocated over the MTEF period and are committed when 2001 Census figures were published (to comply with requirement on predictability of allocations) • For 2005/06 the allocation is based on the 2001 Census figures. • Formula is currently under review for 2006/07 to reflect factors in accordance with the current developments.

7. ALLOCATION FORMULAcont. • The formula recognizes the following factors: • A population indicator, weighted at 20 percent, as a measure of each province’s share of total population • The formula provides for weighting in order of the priority of the elements that define homelessness and poverty as defined below- • A = P(20%) + HH(30%) + HN(50%) where • A = Allocation • P = Population. • HH = Households earning less than R3 500 per month (affordability indicator) • HN = Housing Need

8. ALLOCATION FORMULAcont. Statistics used in formula based on 1996 census. P HH HN

9. ALLOCATION FORMULAcont. • Housing need used in the formula is defined on a weighted formula that takes into account the following: • HN = RBY(0.5) + SBY(1.0) + SE(1.2) + FR(0.5) + TC(1.0) + HL(1.25) where: • HN = Housing Need • RBY = Flat/room in backyard • SBY = Shacks backyard • SE = Shacks Elsewhere • FR = Flat/room on shared property • TC = Tents and Caravans • HL = Homeless People

10. ALLOCATION FORMULAcont. Statistics used in formula based on 1996 census. RBY SBY SE FR TC HL

11. ALLOCATION FORMULAcont. Variance between 1996 and 2001 census (P).

12. ALLOCATION FORMULAcont. Variance between 1996 and 2001 census (HH).

13. ALLOCATION FORMULAcont. Variance between 1996 and 2001 census (RBY).

14. ALLOCATION FORMULAcont. Variance between 1996 and 2001 census (SBY).

15. ALLOCATION FORMULAcont. Variance between 1996 and 2001 census (SE).

16. ALLOCATION FORMULAcont. Variance between 1996 and 2001 census (FR).

17. ALLOCATION FORMULAcont. Variance between 1996 and 2001 census (TC).

18. ALLOCATION FORMULAcont. Variance between 1996 and 2001 census (HL).

19. a. The national interest; Adequate housing in all provinces is in national interest (HN), addressing poverty (HH). b. Any provision that must be made in respect of the national debt and other national obligations; Provision of adequate housing is an obligation of the state in terms of the Constitution c. The needs and interests of the national government, determined by objective criteria; • It is objective to deal with the housing backlog (HN) in all provinces as soon as possible within available means • Funding is based on an objective critical that takes into account uniform factors at each of the provinces d. The need to ensure that the provinces and municipalities are able to provide basic services and perform the functions allocated to them; • The funding for operational costs of each province is provided for through equitable share • Future provisioning to cater for operational costs to support the capital grant is to be made from 2005/06 e. The fiscal capacity and efficiency of the provinces and municipalities; • Current formula does not cater for capacity to perform • Current reforms are looking at that matter • Proposals for future DORAS to allow for mechanisms to shift funds based on non performance • Accreditation will be accompanied by initial capacity building provision. ALLOCATION FORMULAcont. Compliance to the criteria of Section 214(2) (a) to (j) of the constitution

20. f. developmental and other needs of provinces, local government and municipalities; Allocations at provincial and local governments is expected to be in line with the planning processes an frameworks. g. economic disparities within and among the provinces; Housing need (HN) and low income groups factors (HH) in the formula provide for this. h. obligations of the provinces and municipalities in terms of national legislation; Providing adequate housing where needed as indicated by the housing need (HN) i. the desirability of stable and predictable allocations of revenue shares; and The formula stayed constant for 5 years, from 2000 to 2004. New Census 2001 data bring some changes in 2005/06 • Principle followed accommodated minimal short term changes to allocation; j. the need for flexibility in responding to emergencies or other temporary needs, and other factors based on similar objective criteria. • An emergency housing programme has been developed and provisioning for this is made in the grant ALLOCATION FORMULAcont. Compliance to the criteria of Section 214(2) (a) to (j) of the constitution

21. Housing Subsidy Grant • Purpose is to finance housing subsidies under the national housing programme.

22. PER CAPITA ALLOCATIONS BASED ON POPULATION FIGURES

23. PER CAPITA ALLOCATIONS BASED ON HOUSEHOLDS EARNING LESS THAN R3 500

24. CURRENT PERFORMANCE HOUSING SUBSIDY GRANT

25. CURRENT PERFORMANCE cont.

26. CURRENT PERFORMANCE cont.

27. CURRENT PERFORMANCE cont.

28. CURRENT PERFORMANCE cont.

29. PROVINCE NUMBER OF UNITS COMPLETED OR UNDER CONSTRUCTION FROM APRIL 2004 UP TO DECEMBER 2004 Eastern Cape 33,327 Free State 12,530 Gauteng 15,245 KwaZulu-Natal 28,838 Limpopo 7,881 Mpumalanga 14,186 Northern Cape 3,293 North West 5,379 Western Cape 8,873 Total 129,552 CURRENT PERFORMANCE cont.

30. CURRENT PERFORMANCE cont.

31. CURRENT PERFORMANCE cont.

32. CURRENT PERFORMANCE cont.

33. CURRENT PERFORMANCE cont.

34. ADDITIONAL COMMENTS ON SPENDING TRENDS • Overall spending is at 65% (against planned levels of 72%) of allocation • Northern Cape, Mpumalanga and Free state spending above cash flow and thus expected to be in excess of 95% of funds available • North West and Western cape lagged behind at end of 3rd quarter but Western Cape is expected to be within 90% of funds available. • Western Cape particularly will be able to spend considerably well once the N2 project implimentation reaches its optimum level

35. ADDITIONAL COMMENTS ON SPENDING TRENDS • Lack of skills as a result of senior and higher skills levels turnover particularly project management skills • There is therefore an impact on the quality of project planning assessment , monitoring and quality of the cashflows management • Project managers have been appointed to assist and a business plan has been prepared • Quite a lot of the current projects are new reflecting a wide/long lag in the phasing of project approvals Of the 227 projects running as 31 December 2004 63 were recently approved therefore significant spending expected in 2005 when top structures are constructed • 164 are over 80 % complete

36. HOUSING SUBSIDY GRANT(CONT.) • To date the programme has achieved a 49.65% to 50.34% split allocation between male and female headed households. • Since 1994 the programme represents an investment of R29,4 billion into low income communities.

37. MONITORING MECHANISMS • Monitoring is performed in accordance with requirements of the DORA on a monthly basis; • The Department has developed specific and targeted monitoring framework for monitoring the grant; • National requires that the provincial departments focus particular on the submission of comprehensive non financial information; • Detail project performance reports from provinces are used to determine projects that are inter alia stalling and underlying reasons.

38. MONITORING MECHANISMS CONT. • Department has installed a Transversal system which has been rolled out to provinces (HSS); • Use is made of HSS to determine the extent of progress in regard to projects implemented; • Provincial reports are presented to MinMec and HOD meetings on a quarterly basis; • Structured Provincial visits take place targeting all provinces. • Letters are addressed to provinces if it is observed that underspending could occur and request that problem be addressed. • In cases of persistent underspending a various intervention are made based on analysis of underlying reasons and discussions.

39. Human Settlement and Redevelopment Grant (HSRP) • Purpose:is to fund projects which are meant to improve the quality of urban environment by addressing the legacy of dysfunctionality.

40. PER CAPITA ALLOCATIONS BASED ON HOUSEHOLDS EARNING LESS THAN R3 500

41. CURRENT PERFORMANCE

42. CURRENT PERFORMANCE

43. HSRP cont. • Introduced in 1999/2000 as pilot programme started very slowly at R20 million p.a. and grew to current levels of over R100 million. • Expected to accelerate delivery as guidelines are developed taking into account experiences learnt in the last two years.

44. HSRP cont. • Currently there are 156 projects approved throughout 9 provinces on a multi year basis with a gross commitment value of R348m. • Of the 156 projects, 19 projects are located in Rural Development Nodes and 57 projects are located in Urban Development Nodes.

45. MONITORING MECHANISMS • Monitoring is performed in accordance with requirements of the DORA on a monthly basis; • The Department has developed specific and targeted monitoring framework for monitoring the grants; • National requires that the provincial departments focus particular on the submission of comprehensive non financial information; • Project performance reports are used to determine projects that are stalling and underlying reasons.

46. MONITORING MECHANISMS CONT. • Provincial reports are presented to MinMec and HOD meetings on a quarterly basis; • Structured Provincial visits take place targeting all provinces. • Monthly letters are written to provinces pointing out problem areas and also address underspending aspects.

47. Common reasons for under spending • Process of securing agreements with local authorities; • Tender evaluations and recommendations in terms are time-consuming and result in project implementation delays; • Local authorities are in some instances not complying with the conditions of the HSRP as it was originally set; • Provinces also report that implementing agents have disputes with the contractors appointed to implement the projects;

48. Common reasons for under spending • Lack of capacity in municipalities and in some provincial departments; • Liaisons with community structures and consultative project planning to ensure wide community support for projects being implemented are time consuming; • Successful implementation of projects is also in some instances dependent on the removal of people from these locations.

49. END

50. Expenditure trends by province as at 31 December 2005