CONTENT

1. Exploring Sustainable Funding Models for Roads in Municipalities to Meet the Increasing Demand for Better Accessibility

2. CONTENT • Background • Challenges • Current funding resources • Proposed interventions

3. BACKGROUND • Throughout all spheres of government, with the exception of tolled roads, the roads infrastructure is generally funded from tax. • In the case of local government, conditional grants, equitable share to local government and property rates tax is used to fund municipal roads. • In rural areas there is no property rates tax payment. The national fiscus contributes on behalf of poor households, in the form of the Municipal Infrastructure Grant (MIG) and some limited amount for the provision of basic services infrastructure, including basic level of roads infrastructure

4. BACKGROUND CONT… • Section 229 of the constitution assigns significant revenue powers to all municipalities that, in addition to user charges, include rates on property and surcharges on fees for services provided by or on behalf of the municipality. • Section 224 and 227 guarantee that municipalities should receive an equitable share of nationally raised revenues, based on their assigned functions, fiscal capacity and developmental needs, among other matters. • However, Section 227(2) relieves national government of any obligation to compensate municipalities that do not raise revenue commensurate with their fiscal capacity and tax base, and prevents it from penalising those municipalities who demonstrate fiscal effort.

5. CHALLENGES • Most municipalities are struggling to provide roads infrastructure for both rural and urban poor & non poor households, • Furthermore, municipalities are struggling to maintain their road network even though they get an equitable share to local government to assist with operations and maintenance, • There is no funding for “bulk” roads • Limited funding for refurbishment, • Lack of asset management systems, • Lack of road data • Limited technical skills

6. CURRENT FUNDING RESOURCES • There are pockets of funding streams for roads in the fiscal framework, Equitable shares, MIG, Rural Roads Asset Management Systems Grant (RRAMS), Public Transport Infrastructure and Systems Grant (PTISG), USDG, Developer Contributions to the provision of road infrastructure in urban areas, and Own Revenue. These funding streams are divided into road infrastructure development and road maintenance.

7. INFRASTRUCTURE PROVISION • MIG (rural poor) • RRAMS (data) • PTISG (BRT) • USDG (urban poor) • Developer Contributions to the provision of road infrastructure in urban areas, and • Own Revenue.

8. INFRASTRUCTURE MAINTENANCE • Equitable shares, and • Own Revenue.

9. PROPOSED INTERVENTIONS • SALGA PROPOSAL • LG INFRASTRUCTURE GRANT REVIEW • REFURBISHMENT

10. SALGA PROPOSAL • Road grant made up of: • Road portion of MIG • Road portion of USDG • Portion of the fuel levy • Percentage of Equitable Share committed to roads • The grant needs to be ring fenced and reside under the Land Transport Fund (LTF) of the municipality as stipulated in the NLTA • Under the LTF would also be the ring-fenced Developer Contributions to the provision of road infrastructure in urban areas • From the municipal fiscus framework should also be a ring-fenced municipal road fund hosted under the LTF • Percentage of rates and taxes allocated to roads

11. SALGA PROPOSAL • It would be ideal to incorporate the PTISG under this fund but it performs a specific function of IRPTNs • The grant needs to address capital, rehabilitation, maintenance, and network enhancements and allocations should be percentage base • The grant should be supplemented by the other ring-fenced funds (municipal road fund and Developer Contributions to the provision of road infrastructure in urban areas) • The grant should not only cater for poor households but address road challenges as a whole • Municipalities also need to investigate the promotion of PPP in their municipalities in the roads sector (social responsibility)

12. Proposal Status-quo Road portion of MIG SALGA PROPOSAL Roads grant capital, refurbishment, maintenance, and network enhancements and allocations should be percentage base grants Road portion of USDG Equitable share Portion of Fuel Levy Rural Roads Asset Management Private Sector Ring-fenced Developer Contributions Own revenue Development contributions • Road fund made up of percentage of rates and taxes allocated to roads and revenue raised from road Rates and taxes (not to scale)

13. LG INFRASTRUCTURE GRANT REVIEW (Metros) (not to scale)

14. LG INFRASTRUCTURE GRANT REVIEW (Secondary cities)

15. LG INFRASTRUCTURE GRANT REVIEW (Rural) (not to scale)

16. REFURBISHMENT • Grants • Borrowings • Municipal renewal fund • Pooled municipal bonds • Combined option

17. MUNICIPAL RENEWAL FUND • Municipalities pool some of their cash surpluses (cash surpluses and capital accumulated in a Capital Replacement Reserve (CRR) – depreciation accounting) in an external Fund • A Fund Manager invests these monies in order to earn returns • Municipalities draw money down from the Fund when required to renew assets.

18. POOLED MUNICIPAL BOND • Municipalities come together to pool their borrowing needs and jointly issue a municipal bond. • This has received considerable attention from National Treasury, and has also been investigated by both Gauteng and Western Cape provinces. • Allows for a large enough bond issue to attract preferential interest rates

19. COMBINED OPTION • Create a Municipal Renewal Fund to help municipalities save for renewal. • Issue a pooled bond and use the cash held in the Fund as collateral to lower the risk profile of the bond. • Lower risk, due to additional collateral, means reduced interest rate on borrowing.

20. THANK YOU