Emfuleni crisis highlights local government debt as Treasury cracks the whip

Daily Maverick

a day ago

The closure of the Emfuleni Local Municipality offices due to unpaid rent highlights the local government debt crisis, something Treasury hopes to fix by withholding grants from defaulting municipalities.
Residents of Emfuleni were unable to make payments or lodge enquiries at the municipality's Vanderbijlpark offices this week after they were locked due to the failure to pay the monthly R6.4-million rent.
According to the DA's Emfuleni caucus leader, Duncan Mthembu, this is a 'powerful symbol' of a nationwide crisis of municipal dysfunction and ballooning debt.
Freedom Front Plus Councillor Hein van der Lith said the property owner had closed the building, which has more than 100 offices, twice previously this year and three times in 2024. He said the closure follows a recent recommendation from the Gauteng Legislature's Committee on Cooperative Governance and Traditional Affairs (Cogta) to place the troubled municipality under administration.
Emfuleni was recently identified by Finance Minister Enoch Godongwana as one of 39 municipalities that have persistently failed to pay water boards and other parties such as pension funds, medical aids, SARS, the Auditor-General, and continues to adopt unfunded budgets.
The minister said he would suspend all grants to the 39 municipalities for the rest of the financial year due to their ongoing failures.
The DA's Mthembu said the closure of the Emfuleni offices meant 'residents have been left confused and stuck on how to proceed in getting assistance with payments and enquiries'.
Emfuleni is located in Gauteng and comprises areas such as Vanderbijlpark. Mthembu said this was 'nothing more but an abject failure in governance, and something as simple as communication. The municipality could not even inform residents of their offices' closure.'
Account attached
Emfuleni's problems have been compounded by Rand Water's decision to attach the municipality's bank account due to its R1.7-billion unpaid debt.
Emfuleni Municipality spokesperson Makhosonke Sangweni denied that the municipality had failed to honour its payment agreement with Rand Water, describing it as 'arbitrary'.
Emfuleni Finance MMC Hassan Mako said, 'The municipality is unable to access its bank account because Rand Water has attached the account, and this situation has persisted for two months.'
He said the municipality had considered taking the matter to court, but the mayor refused. Mako said the municipality had formed a special purpose vehicle (SPV) with Rand Water that would manage the water and sanitation services.
'However, Rand Water seems to be more focused on delaying the launch process by continuously attaching the municipality's accounts,' said Mako.
'The SPV project requires R1.3-billion, while Rand Water is owed R1.7-billion. Nevertheless, the municipality has committed to servicing the debt in tranches so that other service providers can be paid,' said Mako.
Describing the impact of having its bank account attached, Mako said, 'There is no diesel to pick up refuse. Contractors that were assisting us with cleaning illegal dumps are not paid and have left the sites. When offices are closed, it means workers are paid salaries for doing nothing, and municipal infrastructure projects are suffering.'
Emfuleni also owes Eskom R8.5-billion as at the end of June 2025.
'We believe the municipality is being held ransom by Rand Water, which negatively impacts service delivery. As a collective, we urge the mayor to lead by allowing this matter to be resolved in court in the best interest of service delivery,' Mako added.
Emfuleni's municipal debt came under the spotlight in a letter from Godongwana to Cogta Minister Velenkosini Hlabisa on the ongoing crisis in municipalities.
Gondongwana cracks whip on debt-ridden municipalities
At the end of June, Godongwana informed Hlabisa that he would invoke Section 216(2) of the Constitution against the 39 most dysfunctional municipalities for 'persistent non-compliance'. This section allows the National Treasury to stop the transfer of funds to an organ of state if it commits a 'serious or persistent material breach' of measures designed to ensure transparency and expenditure control.
According to Godongwana, Treasury has outlined a strict mechanism to force compliance: if any of the 18 defaulting municipalities fail to provide proof of full payment to their respective water boards within seven days of the 30 June letter, their Local Government Equitable Share (LGES) will be stopped.
This withheld equitable share will only be released in portions, with stringent conditions. The first portion must be strictly used to pay current water board accounts, with proof of payment required, before a second amount is released for arrears owed under a valid repayment arrangement.
According to the letter from Godongwana, if these conditions were not met, or if evidence of payments to institutions such as SARS, pension funds and other statutory third parties is not submitted, Treasury would approach Parliament to endorse the stopping of all LGES transfers for the rest of the 2025/26 municipal financial year. Municipal financial years run from 1 July to 30 June.
Treasury also plans to withhold conditional infrastructure transfers.
'It is advisable that, parallel to the LGES withholding process, Rand Water, Vaal Central, Lepelle Northern, and Magalies Water enforce their credit control policies to also attach the bank accounts of the defaulting municipalities to enforce a change in behaviour of these municipalities. The same applies to all the water boards, in order to avoid a similar situation and prevent escalating debt across water boards,' said Godongwana.
Earlier this year, Hlabisa told Daily Maverick the national government was sending a message to municipalities that 'it is time to pay'.
During his 2025 departmental budget vote debate speech, the Cogta minister said: 'We have concurred with Treasury to compel the payments for water boards and Eskom, and pay pension and medical aid contributions to third parties. Notably, the same principle will have to apply to all government departments who owe municipalities, they must be compelled to pay what is due to municipalities.'
Municipalities across the country owe Eskom almost R110-billion.
Writing in Business Live, Municipal IQ managing director Kevin Allan said the local government debt crisis was caused by poor governance, a lack of oversight, and weak administrative capacity.
'The suspension of grants, therefore, represents the Treasury's move from carrot to stick. But this approach is not without risk. Service interruptions, project delays and cash flow constraints may follow in affected municipalities. Residents could bear the brunt of deteriorating services, and protest action may escalate,' said Allan.
He described Treasury's decision as 'both bold and necessary'.
'The stakes are enormous. Without intervention, the escalating debt spiral could not only collapse local government, but destabilise national service delivery and weaken the country's fiscal standing,' Allan continued.
'Above all, municipalities must get back to basics. They must adopt funded budgets, bill accurately, collect revenue diligently and prioritise creditor payments. Professionalising financial management, insulating administration from politics and enforcing accountability are not optional – they are essential. DM