Municipal Timeline

Mandatory Provincial Intervention if Budget not Approved

Posted on by The CAN Team

Section 26 of the Municipal Finance Management Act (MFMA) addresses the serious consequences for municipalities that fail to approve an annual budget before the start of the financial year (1 July). It provides a clear framework for provincial intervention to ensure the continuity of municipal operations and service delivery.

Key Provisions of Section 26

1. Mandatory Provincial Intervention

If a municipal council has not approved:

  • An annual budget, or
  • Any necessary revenue-raising measures to implement the budget,
    then the provincial executive must intervene under Section 139(4) of the Constitution.

The provincial executive has several powers to resolve the situation, including:

  • Dissolving the municipal council and appointing an administrator until a new council is elected.
  • Approving a temporary budget or revenue-raising measures to maintain the functioning of the municipality.

2. Temporary Budget Authority

When approving a temporary budget under subsection (1)(b):

  • The provincial executive is not bound by the usual municipal budget processes.
  • After the intervention ends, the temporary budget must be replaced by one approved by the newly elected council.
  • The new council must substantially comply with the MFMA provisions for annual budgets within revised timelines set by the provincial MEC for Finance.

3. Limited Access to Funds

Until the annual budget is approved:

  • Municipal funds may be withdrawn only with the approval of the MEC for Finance in the province.
  • Withdrawals are restricted to ensure fiscal discipline, as follows:
    • Funds may only cover current and capital expenditures for votes appropriated in the previous financial year’s budget.
    • Monthly withdrawals may not exceed 8% of the previous year’s current expenditure. This percentage must be scaled down if revenue flows are lower than in the previous year.
    • Withdrawals cannot exceed the actual funds available in the municipality’s bank accounts.

4. Accounting for Withdrawn Funds

Any funds withdrawn under these provisions:

  • Are not additional to the municipality’s approved budget for the year.
  • Must be treated as part of the funds appropriated under the subsequently approved annual budget.

Why Section 26 is Important

1. Ensures Fiscal Discipline

Section 26 prevents reckless or unauthorized spending by restricting access to municipal funds if a budget is not approved. It ensures that public funds are only used for essential operations.

2. Safeguards Continuity

By allowing provincial intervention, the provision ensures that municipal services are not completely halted, even in the absence of an approved budget. Temporary measures maintain functionality until proper governance is restored.

3. Encourages Accountability

The consequences outlined in Section 26 incentivize municipal councils to approve budgets on time, as failure to do so could result in the council being dissolved and external control being imposed.

4. Protects Public Resources

With strict limits on withdrawals and oversight from the provincial MEC for Finance, Section 26 ensures that funds are used efficiently and only for critical expenditures.

How Section 26 Aligns with the Constitution

Section 26 complements Section 139(4) of the Constitution, which empowers provincial governments to intervene in municipalities that fail to meet their obligations. This alignment underscores the importance of good governance and the role of provincial oversight in maintaining municipal accountability.

Implications of Non-Compliance

  1. Dissolution of Council:
    The municipal council may be dissolved, leading to a temporary loss of local governance.
  2. Provincial Oversight:
    The province takes control of the municipality’s finances, reducing local autonomy.
  3. Delayed Development:
    Without an approved budget, long-term projects and service delivery initiatives may face significant delays.

Conclusion

Section 26 of the MFMA ensures that municipalities prioritize budget approval and maintain operational continuity even in challenging circumstances. It provides a balance between fiscal discipline, accountability, and the need to safeguard essential services for the public.

The CAN Team