REALIZING THE BENEFITS OF AN INNOVATIVE APPROACH TO LAND GOVERNANCE : THE CAPE TOWN, SOUTH AFRICA STORY

Transcription

1 REALIZING THE BENEFITS OF AN INNOVATIVE APPROACH TO LAND GOVERNANCE : THE CAPE TOWN, SOUTH AFRICA STORY Ruel Williamson Senior Director, International Sales Thomson Reuters, Tax & Accounting, Government This white paper originally appeared at the Annual World Bank Conference on Land and Poverty in Washington, D.C. on April 23-26, 2012.

2 Table of Contents Introduction... 1 GV GV GV Conclusion... 6

3 INTRODUCTION It is evident that property rates are meant to be a significant source of local revenue in South Africa. It was deemed important enough that the National government drafted and instituted legislation to outline the rules governing the use and implementation of a local property rates strategy. The Municipal Property Rates Act, (Act No. 6 of 2004) hereafter referred to as the MPRA, regulates the power of a municipality to impose rates on property; to exclude certain properties from rating in the national interest; to make provision for municipalities to implement a transparent and fair system of exemptions, reductions and rebates through rating policies; to make provision for fair and equitable valuation methods of properties; to make provision for an objections and appeals process; to amend the Local Government: Municipal Systems Act, 2000, so as to make further provision for the serving of documents by municipalities; to amend or repeal certain legislation; and to provide for matters connected therewith. Municipalities need a reliable source of revenue to provide basic services and perform its functions. Income derived from property rates are a vital source of revenue for the municipality. Revenue from property rates is used to fund services that benefit the community as a whole, rather than individual households. These services include installing and maintaining streets, roads, sidewalks, lighting, and storm drain facilities; and building and operating clinics, parks, recreational facilities and cemeteries. Revenue from property rates is also used to fund municipal administration, such as computer equipment, office supplies, and costs of governance, such as council and community meetings, which facilitate community participation on issues of Integrated Development Plans (IDP s) and municipal budgets. Municipal property rates are set, collected, and used locally. Revenue from property rates is spent within the municipality, where the citizens and voters have a voice in decisions on how the revenue is spent as part of the IDP and budget processes, which a municipality invites communities to input prior to municipal council adoption of a budget. The Constitution of the Republic of South Africa, (Act No 108 of 1996), entitles municipalities to impose rates on property in their areas, subject to regulation in terms or national legislation. The Constitution also enjoins local government to be developmental in nature, in addressing the service delivery priorities of the country and promoting the economic and financial viability of the municipalities, and in general to meet its obligations in terms of Section 152 of the Constitution of the Republic of South Africa, Local Government requires access to a sufficient and buoyant source of revenue necessary to fulfill its developmental responsibilities. Income derived from property rates is a critical source of revenue for municipalities to achieve their constitutional objectives, especially in areas that have been neglected in the past due to racially discriminatory, inadequate or inappropriate legislation and regulation. It is essential that municipalities exercise their power to impose rates within a statutory framework that not only enhances certainty, uniformity and simplicity across the nation, but also takes into account historical imbalances and the rates burden of the poor. The Constitution of the Republic of South Africa confers on Parliament the power to regulate the exercise by municipalities of their fiscal powers. Since the late 1990s the City of Cape Town has embraced the property tax as a vital part of its overall revenue policy. The City currently obtains 24% of its annual revenue through the billing and collection of property rates. From the first general valuation completed for the year 2000 through the third GV completed for the year 2009 the City has adopted a mass appraisal methodology valuation combined with that of continuous systematic improvement. It should be noted that undertaking the first GV for the year 2000 was a long and expensive endeavor (costing more than R110,000,000). The City had recently consolidated several smaller communities into the City of Cape Town and the data for each of these jurisdictions had to be re-collected and formatted into a single data source. This was accomplished primarily through a process of manual field data collection. The City had made the decision to utilize Computer Assisted Mass Appraisal (CAMA) techniques to help it manage both the massive amounts of data and the valuation effort involved in producing more than 500,000 values simultaneously for the GV. Moving from a system of manual valuations to a system that was capable of producing mass valuations for an entire jurisdiction forced the City to look at the bigger picture and the interrelationships involved in producing the necessary values. There are many inputs into a valuation system that are important for maintaining the City s valuation database.

4 Among these are: Permit data Property sales data Changes to property ownership Planning/Zoning changes GV2000 In GV2000, these valuation system inputs were either entered by hand via hard-copy transfer or not made available in a timely manner, if at all. This led to many viable discrepancies in the database and resulted in the City constantly being forced into a defensive stance to update data that had previously been communicated to another department within the jurisdiction. With a cost of R110 million and several years of hard work, the City produced its first general valuation in 2000 for 549,765 properties with an overall property valuation of R195,808,165,984. After GV2000 was completed the valuation office needed to handle numerous objections. This process was time consuming and drew the attention of media and civic groups. The City worked through the process and throughout used the opportunity to educate City Councilors, ratepayers and other interested parties. Data on the number of objections for the GV2000 were not kept, but estimates of 40,000 are considered accurate. This equates to 7.27% of the parcels having objections filed on their behalf. After a 24 month hiatus from producing new values the City was able to successfully complete one supplemental valuation each year from 2003 through The total amount spent on the GV and supplemental valuations was R123,308,000, which equates to approximately R224 per parcel. Again, it should be noted that these rates include procurement of software and a complete data collection exercise. EXPENDITURE NO PROPERTIES TOTAL PROPERTY VALUE GV ,765 R 195,808,165,984 AV2003 R 16,351,228,020 AV2004 R 9,702,467,301 AV2005 R 11,398,689,590 AV2006 R 10,056,519,600 TOTAL R 123,308,000 R 243,317,070,495 During the GV 2000 cycle the City used many personnel throughout the process in order to complete all tasks necessary. In total there was eight hundred seven (internal and external) staff involved in producing the general valuation and subsequent supplemental valuations.

5 GV2006 For GV2006, the City started on a process of removing barriers to information access and started building electronic interfaces to the requisite data centers (permits, sales, ownership, etc.). This allowed the department to have timely access to data and remove errors caused by manual data entry. These initial interfaces were basic and afforded the means to avoid mass data entry. It proved to be a vast improvement upon the previous system. For the department, this meant that valuations could now be done at a faster rate, as data was more accurate and timely. The department was able to complete five supplementary valuations between GV2006 and GV2009, more than twice as many per annum as done in GV2000. The result was more value going on the roll more in less time, thereby increasing revenues to the City while at the same time reducing costs. This solution was considered a two-fold success for the City and its revenue generation capabilities. The City also started to look at integration of spatial data during this GV and used the x/y coordinates as variables in the regression models increasing the overall accuracy of the valuations. The South African property market was flourishing during the years 2000 through 2006 and that led to rapid real estate value increases. In GV2006, the City valued 736,580 parcels with a total value of R654,036,337,700. This represented a 34% increase in the number of parcels valued and a 334% increase in overall value. Furthermore, continued use of the CAMA software system allowed the City to further refine its efforts to produce defensible values.

6 EXPENDITURE NO PROPERTIES TOTAL PROPERTY VALUE GV ,580 R 654,036,337,700 SV01 R 23,909,016,200 SV02 R 10,206,405,000 SV03 R 7,267,852,300 SV04 R 12,548,528,300 SV05 R 14,960,263,000 TOTAL R 54,704,000 R 722,928,402,500 The total amount spent on GV2006 and supplemental valuations was R54,704,000, which equates to R74 per parcel. This represents a 67% decrease in operational costs. In 2006, 51,469 parcels had official objections filed representing 7% of the total parcel count. In addition, there were another 50,000+/- parcels which required non-official objection processing. This GV cycle showed that the use of technology could push operational costs down while at least maintaining the same level of quality. The City employed four hundred seven people (internal and external) throughout the GV 2006 cycle which is 50.4% less people used then in the GV 2000 cycle. GV2009 In 2008, the City made the decision to move to a three-year general valuation cycle and started working on GV2009. Meanwhile, the City also decided to utilize technology to help drive its costs down and bring service levels up. At that time, the Valuation Department initiated the following programs: 1. CAMA system upgrade 2. Oblique imagery data capture 3. Interface upgrade The CAMA system upgrade allowed the City to move its software system into a packaged application support center and substantially upgrade its IT audit capabilities. Functional upgrades included a built-in workflow, built-in GIS integration, enhanced objection processing, enhanced audit trail capabilities, and document/image management functions. The oblique image capture project allowed the City to review data from an office environment for many processes, greatly enhancing productivity and reducing effort for simple verification tasks. The City also undertook an effort to update several interfaces. The GIS data was integrated directly into the CAMA system via Esri s ArcGIS Server which allowed real-time updates to be seen from within the CAMA application. The City also continued to upgrade its sales and property transfer interface as well. In GV2009 the City valued 785,919 parcels with a total value of R806,250,071,700. This represents a 6.69% increase in the number of parcels valued with a 23% increase in overall value.

7 EXPENDITURE NO PROPERTIES TOTAL PROPERTY VALUE GV ,919 R 806,250,071,700 SV01 R 12,937,259,600 SV02 R 11,722,865,737 SV03 R 12,512,695,991 SV04 R 8,867,903,681 TOTAL R 29,682,000 R 852,290,796,709 The total amount spent on GV2009 and supplemental valuations to date has been R29,682,000, which equates to R38 per parcel. This represents a 51% decrease in operational costs over the GV and SV costs from In 2009, 38,614 parcels had official objections filed representing 4.91% of the total parcel count and a 25% decrease from the GV2006 objections. During the GV 2009 cycle the City has used one hundred seventy-nine employees (internal and external) which is 43.4% of the total number of staff used during the GV 2006 cycle.

8 CONCLUSION It is clear by the data and operational audits performed to date that the City of Cape Town has met the requirements of the MPRA, has continued to become more efficient, and continues to drive down operational costs. However, what do the continued improvements in the valuation system mean for the City? First, the City will continue to use the integrated workflow to drive operational efficiencies. This will be accomplished by managing resources to ensure that quality and production levels are being met. It also enables management to use resources in the most productive manner possible. The City will continue to update and upgrade data quality. Using oblique imagery and spatial data analysis, the City will continue to refine data collection and incorporate locational elements into its valuation process. The City will continue do more with less aiming to complete the GV 2012 cycle using less personnel to do the same or more work. Lastly, since the successful implementation of the new accounting standards to ensure fair presentation and compliance with National Treasury guidelines, the City of Cape Town has had seven consecutive unqualified audit reports from the Auditor- General and achieved a new milestone by being the only municipality in the Western Cape of Africa to achieve a clean audit. These results are closely tied to the ratings policy which is responsible for a large percentage of the City s overall revenue intake. In addition, the global ratings agency Moody s International confirmed Cape Town s top rating of Aa2.za. This rating indicates a high probability of timely and complete payment of all liabilities. i i Local Government: Municipal Property Rates Act No. 6, 2004