Municipal Property Rates Bill: deliberations

Meeting report

LOCAL GOVERNMENT SELECT COMMITTEE
2 March 2004
MUNICIPAL PROPERTY RATES BILL: DELIBERATIONS

Chairperson: Mr B J Mkhalipi (ANC)

Relevant Documents
Municipal Property Rates Bill [B19B - 2003]

SUMMARY
The Committee questioned why a councillor from the neighbouring municipality is allowed to bid for a valuation job whilst a councillor within the municipality is forbidden to do so. The Department explained that councillors are forbidden from bidding for valuation assignments within their municipalities due to perceived political interference On the other hand as the number of professional valuers is limited, it was decided that qualified councillors from other municipalities should be free to apply for valuation jobs. The Committee was reminded that the King II Report on conflict of interest provides that councillors within the municipality must be kept out of the valuation process.

The Committee was concerned about the accuracy of the aerial inspection and mass valuation. The Department explained that there are cases where due to many physical obstacles a physical valuation is impossible hence one has to resort to an aerial inspection to gather accurate data. In yet other cases the property profile is such that there are striking similarities hence the need to carry out a mass valuation in order to save on costs. The market value of a property is mainly influenced by its location and the aerial survey only enables the council to gather the necessary data that would facilitate an accurate valuation.

MINUTES
Department delegation led by Ms Jackie Manche - Deputy Director General Institutional Reform and Support, Mr Mzilikazi Manyike Chief Director Municipal Finance Policy, Mr Peter Vaz Department resident advisor, Dr. Petra Bouwer Department legal advisor. Mr Ben Dorfling represented SALGA. The Chair asked the Department to continue taking the Committee through the Bill clause by clause.

Chapter 4
Mr Mzilikazi Manyike noted that in terms of the new process, each municipality must appoint a municipal valuer to value all rateable properties in the municipality, to prepare the valuation roll and to submit the roll to the council. Two or more municipalities may by agreement appoint the same person as municipal valuer. A person who is not a municipal official may be appointed as municipal valuer only through an open, competitive and transparent process. A municipal valuer must be a person registered as a valuer in terms of the Property Valuers Profession Act (Act No. 47 of 2000), but that a councillor may not be appointed. Municipal valuers would replace the existing valuation boards.

Chapter 5
This provides for the criteria in terms of which property must be valued. Mr Manyike explained that the general principle is that property must be valued according to its market value, that is, the amount the property would realise if sold in the open market by a willing seller to a willing buyer. The techniques that may be used must accord with generally recognised valuation practices, methods and standards, and also the provisions of the Bill. These include aerial photography and computer-assisted mass appraisal systems.

Chapter 6
This regulates the contents and processing of valuation rolls. It requires all rateable property to be listed on the roll, together with relevant details about each property and the owner. He noted that once a valuation roll has been completed and submitted by the municipal valuer to the municipality, the municipal manager must without delay give notice in the media. The notice will state that the roll is open for public inspection and that any person who wishes to lodge an objection against any entry on the roll may do so within a stated period. All objections received must then be considered and decided by the municipal valuer.

Mr Manyike said that where the municipal valuer agrees with an objection, the valuation roll must be adjusted accordingly. Where an adjustment in the valuation of a property is more than 10 per cent upwards or downwards, the matter must be referred to the valuation appeal board for review. The lodging of an objection does not, however, defer liability for payment of rates. Where, however, an adjustment to the valuation roll following a successful objection affects the amount of the rate payable by the owner, the municipal manager must calculate the difference and either repay or recover the difference from the owner. The municipal valuer's decision on any objection is not final, and an objector who is not satisfied with the decision, may appeal against the decision to the valuation board.

Discussion
The Chair asked the Department to clarify the utility of Clause 39.

Mr Manyike explained that Clause 39 would ensure that the people municipalities hire are qualified professionals and that this dispensation would protect the process from political influences and hence preserve the integrity of the valuation exercise.

Mr Mokoena (ANC) sought an explanation for the 7am to 7pm timing. He expressed concern that most households would be unable to attend the valuation exercise.

Mr Manyike said that the 7am to 7pm timing was a compromise reached between two extremes. The practical reality is that some property owners are at work between these hours. It is important that the owner should be present when the valuation report is being compiled. Some people were of the view that timing should be left open-ended. This was rejected in favour of the present compromise.

Mr Mokoena said that the practical realities affecting ordinary people dictates that this exercise should be carried out during normal office hours.

Mr Manyike said that the original time was 5pm but after several representations were made to the Portfolio Committee, the time was changed to 7pm latest.

Ms Ngondlo (ANC) said that the sense she gets from Clause 39(b) is that a councillor from another municipality could qualify as a valuer. She wanted to know why a councillor from the neighbouring municipality was preferred to one within that municipality.

Mr Manyike replied that councillors are forbidden from bidding for valuation assignments within their municipalities due to perceived political interference. On the other hand due to the limited number of professional valuers registered with councils it was decided that qualified councillors from other municipalities should be free to apply for valuation jobs.

Mr Relane referred to Clause 39(2) and said that jurisdictional issues can present some serious practical problems. He proposed that the entire sub-clause be removed since Clause 39(a) covers the envisioned scenario.

Mr Manyike clarified that councillors from other municipalities qualify for appointment as valuers only to the extent that they are dully registered valuers.

Mr Dorfling disagreed with the proposal that 39(b) should be removed. He felt that were the sub-clause be removed, there would be a conflict of interest - which mischief Clause 39 hopes to address.

Mr Ngondlo said that the cardinal norm is that officials with a conflict of interest on a matter should recuse themselves and this should suffice to cover that concern. She faulted the argument that one is denied serving one's municipality due to perceived political inclinations. She noted that professional services that are offered by councillors should be seen as value-adding and not otherwise.

Mr Manyike made the point that there are clauses that cover the question of conflict of interest. The only concern around councillors was the perceived political interference in the valuation process.

The Chair wanted to know whether the principle that one recuses oneself from a vested interest would suffice to cover the perceived political interference.

Mr Manyike replied that the matter regarding one having to recuse oneself was already covered where the Bill deals with ordinary valuers. All that Clause 39 aims to achieve is to protect the integrity of the valuation process. This aim would be defeated where politicians are allowed to take part in the exercise.

Dr Bouwer clarified that Clause 43(5) deals with the actual valuation where the municipal valuer has an interest. However Clause 39 deals with a situation where an elected councillor would attempt to influence council to appoint the councillor as the municipal valuer.

Mr Relane (ANC) submitted that the law is incapable of addressing the practical realities that confront municipalities in their day to day operations.

Mr Dorfling reported that the King II Report on conflict of interest provides that councillors must be kept out of the valuation process. If councillors were to be made part of the valuation exercise, the move would defeat the very objective of preserving the integrity of the process.

Ms Ngondlo said she would have preferred the route of building appropriate checks and balances to guard against political interference than locking out qualified councillors from the valuation exercise. She averred that municipalities are aligned in such a way that it is still possible for a councillor from the neighbouring municipality to exert political influence in the operations of another council.

Dr Bouwer pointed out that councillors are deeply involved in the appointment of the private valuer and that it would be risky to allow them to bid for the job.

Ms Manche said that the Municipal Finance Management Act deals with the supply chain and that Clause 1 and 2 bar councillors from serving on tendering processes. The clauses also protect people who disclose corrupt activities to the MEC.

Mr Mokoena agreed with Ms Ngondlo that checks and balances would have been more appropriate than a blanket discrimination against councillors.

The Chair said that legislation cannot address issues of morality. The remedy for this kind of social malady must be found elsewhere. The Bill had reasonable built-in checks and balances to guard against corrupt activities. He ruled that the issue should be flagged for the present.

Mr Mokeona referred to Clause 42(2) and wondered what becomes of the poor occupier who has no access to the requested information.

Mr Manyike explained that the actual owner of the property is the only person who could provide the relevant information.

Dr Bouwer clarified that a distinction should be made between where a request for disclosure of information is made and where a general inquiry about information is made. Where inaccurate information is supplied in the former scenario, this amounts to a criminal offence but the latter only attracts payment of costs.

Mr Mokoena referred to Clause 44(2) and expressed concern that ordinary people such as interpreters would be caught up in the ethical standards that should affect only professional valuers.

Mr Manyike agreed that Clause 44(2) indeed covers everyone involved and has access to the information. He added that the process would be devoid of integrity if this safeguard were not built into the legislation. He pointed out that the law cannot cover every conceivable situation and that it is incumbent upon valuers to communicate this position to their juniors.

Mr Ralane said that valuers are governed by the professional code of conduct which does not apply to their assistants. Some way must be designed to cover junior people accompanying the valuers.

Mr Manyike admitted that these are practical issues but that most of the support staff are contracted by the valuers who exercise authority over them and not the council.

Mr Relane pointed out that Clause 45 carry serious cost implications for the municipalities.

Mr Mokoena questioned the accuracy of the mass valuation in relation to physical examination of a property before a valuation report is compiled. Ms Lubidla (ANC) also expressed concern about the accuracy of the aerial inspection and mass valuation. She argued that the two methods could easily overlook the many new property developments that are taking place in the ghetto and discourage people from setting up new developments in these areas.

Ms Manche explained that the Bill makes provision for a number of scenarios that give the municipal valuer the necessary flexibility to decide on the best method for a given set of circumstances. The method that is used must, however, accord with the rating policy. There are cases where due to many physical obstacles a physical valuation is impossible hence one has to resort to an aerial inspection to gather accurate data. In other cases, there are striking similarities in the property profile hence the need to carry out a mass valuation in order to save on costs. She pointed out that indeed the market value of a property is mainly influenced by its location and noted that the aerial survey only enables the council to gather the necessary data that would facilitate an accurate valuation exercise. The aerial inspection/survey would only be available to municipalities that can afford it.

The Chair asked if the council in this case would consult the community on the form or method of valuation that is appropriate for a particular locality.

Ms Manche replied that the valuation exercise is a matter for the professional valuer to determine. The municipality plays no part in this technical exercise save for giving policy guidelines.

Dr Bouwer reminded members that the method to be applied in the valuation exercise are merely tools of trade and that the valuers are governed by a code of conduct in this undertaking. It is for the valuer to make a determination as to the best method in the given scenario.

Ms Ngondlo acknowledged the fact that the valuer would require these tools of trade but repeated the concern that the question as to whether a particular method would produce accurate results has not been properly addressed.

Mr Mokoena said that in the past people were forced to stay in inaccessible areas and that it is not right to fly over their properties and claim that the valuation report is accurate.

Mr Dorfling offered that it is standard practice that as much as possible each municipal authority keep a plan of an aerial view of its rateable area. This aerial photography would normally assist council to pick out properties that have had improvement. This was much cheaper than going from house to house to conduct a physical inspection. He emphasised that this was only one of the tools - not the only one. He added that valuers are professionals who must take responsibility where the public or council interests are prejudiced.

Mr Vaz said that issues to do with the cost of the valuation exercise would be sorted out at the tendering stage. He noted that mass valuations are much cheaper over time. He revealed that in the recent past there had been a marked reduction of objections at appeals due to the mass appraisals in the Western Cape.

Ms Manche said councils have a record of each property in their jurisdiction and that for the most part the council would be in a position to tell what improvements have taken place on what property. Aerial photography would help in detecting who has made improvements without council approval.

Ms Ngondlo referred to 46(3)(b) and wanted to know why certain machinery had been excluded from valuation.

Ms Manche advised that 46(3) and (b) should be read together. She explained that the listed fixtures are considered to be part of the property and that is why they are valued. In instances where machinery is not attached to the property, it is excluded from valuation.

Dr Bouwer pointed out that the exclusion came about after a submission by the Institute of Valuers. There is a legal principle that when something is permanently fixed to the property it forms part of that property hence the need for valuation.

Mr Dorfling said that it is a question of principle that one does not value equipment that can easily be moved away from the property. Only permanent fixtures should be valued for rating purposes.

Ms Ngondlo wanted to know whether the same principle applied to the mining industry.

Mr Manyike repleid that as a policy the government has excluded the mining sector to avoid the possibility of double taxation. He pointed out that there are many instances where mining activities criss-crossed provincial borders.

Ms Manche explained that it is international practice not to rate the mining industry noting that precious stones that are found underground fall under the national government in terms of taxation.

Ms Ngondlo referred to Clause 48(2) and suggested that the method of valuation used should be added to the list.

Ms Manche explained that the method of valuation was irrelevant. What was important was the market value of the property.

Mr Mokoena observed that Clause 50(5) is a classic case of one being a judge in his own cause. He questioned the rationale for the municipal valuer to object to a valuation report which the valuer presided over. The Chair agreed that in this instance the council would be discrediting its own valuation process.

Ms Manche explained that the municipal valuer does prepare the valuation report but that it is possible that due to human error certain information could be overlooked. The law makes provision for this margin of error in order to perfect the process. She added that council's objection would be reviewed in term of its own merits just like any other ratepayer.

Dr Bouwer said that Clause 51(b) makes provision for the determination of objections based on facts especially where additional material has come to the knowledge of the municipal valuer. In such instances the municipal valuer is empowered to expeditiously deal with such matters.

Mr Dorfling agreed with Dr Bouwer that indeed it is expedient for the municipal valuer to be empowered to dispose of such minor objections at the initial stage.

Ms Ngondlo asked if the council sits to adopt the roll as prepared by the municipal valuer.

Mr Dorfling pointed out that the valuation process is independent of council operations and that this arrangement is deliberate in order to safeguard the integrity of the process.

Ms Manche added that it is of critical importance that the roll remain the product of the municipal valuer in order to give credence to the valuation roll.

The Chair noted that a municipality, being one of the stakeholders, is allowed to participate in the objection and appeal processes.

Ms Manche clarified that an objection must relate to a specific property in a specific area and not to the valuation roll as a whole.

The Chair announced an adjournment at this point. He indicated that deliberations for the following day might last the entire day.