Possible funding sources

To meet their devolved social and economic expenditure mandates and obligations, municipalities are empowered with various revenue instruments. Specifically, municipalities fund their capital expenditure through a combination of local tax revenues and credit instruments.

Own tax revenues that fund capital expenditure are usually municipal operating budget surpluses that derive from property taxes, user charges and other local taxes. In support of own revenue contributions, local government can also leverage credit financing to support its short- to long-term infrastructure planning.

The municipality further needs to investigate the capital contribution of private developers to the upgrading and maintenance of infrastructure required as part of the development and could include road infrastructure, PT service and infrastructure contributions.

The main source of external funding of the municipality is allocations made by National Government on an annual basis as promulgated in the Division of Revenue Act (DoRA). The allocations are either unconditional allocations or conditional allocations.

The unconditional allocations are made in the form of an “Equitable Share”, which can be utilised at the discretion of the Municipality to meet their constitutional and legislative mandates and responsibilities.

Table 13: Possible sources of funding contained in the DoRA.

Public funding sources are inadequate to fund all the required infrastructure and as a result the municipality will have to explore innovative alternatives to mobilise private party funds. Private sector investment in local transport projects has been extremely limited to date.

Private equity investment could reduce the public sector's financing costs and thus diversify the financing package.

The term Public-Private Partnership (PPP) has no legal definition and is used to describe a wide variety of arrangements between the public and private sectors working together to deliver a Governmental function. The MFMA provides a set of regulations that govern PPPs.

Although in many instances Governments tend to largely lose operational control over the underlying project, the ultimate accountability to the citizens for the delivered service remains with the appropriate Governmental Function. The provision of public infrastructure under long term contracts can be structured in two categories of PPPs.

• Concession PPP – The municipality grants a private party the right to design, build, finance, and operate a public sector owned infrastructure asset. The concession contract normally covers a fixed period around 25–30 years, after which responsibility for operation reverts to the municipality.

• Availability-Based PPP – This arrangement is similar to a concession, i.e. the private party also assumes design risk, financing risk, construction risk, and subsequently operation and maintenance risk. However, in this case, the municipality (as opposed to the user) pays the private party to the extent that a public service (not an asset) is made available, based on certain output criteria.