Management arrangements

Precinct management arrangements will depend on the following factors:

The ability and desire of property owners to provide additional and/or higher levels of service than what the metro provides as standard, where ability and desire refer to the ability and willingness of property owners to pay additional amounts for additional and/or improved service delivery:

A City Improvement District (CID) or Special Rating Area (SRA) is a legal mechanism to levy additional property rates to finance the provision of additional services within a given area, in instances where property owners have both the ability and desire for additional and/or improved services.
There may be marginalised areas that do not have the financial means to establish CIDs. In these instances, precinct management becomes a blended municipal/community partnership.

Ownership of land within the precinct and associated arrangements, with three main scenarios:

The precinct as a whole is owned by one property owner – in this instance, the owner is fully responsible for all precinct management functions and has a high degree of discretion about which precinct management functions will be performed, and to what standard, within the bounds of Township Conditions of Establishment, title deed rights, zoning rights, municipal by-laws and other relevant legislation.
Multiple individual owners with full title, who can opt for shared precinct management arrangements through CIDS or not.
Property owners buy into an estate (precinct) and become members of a management association with pre-established rules and conventions.

This section focusses on CIDs as a mechanism for co-ordinated and enhanced precinct management, as well as precinct management arrangements in marginalised areas without the financial means to fund additional services.

City Improvement Districts (CIDs)

What is a CID or SRA?

A City Improvement District (CID) or Special Rating Area (SRA) is a legal mechanism to levy additional property rates to finance the provision of further services within a given area. The majority of property owners in a defined geographic area approach the municipality with a business plan to establish a CID, clearly stating the defined geographic boundaries of the CID and the focus areas of the CID. A focus area can be enhanced security within the precinct, improved waste management, greening initiatives or any other precinct management function.

The community of property owners then establishes a not-for-profit company (NPC) to deliver the services as per the approved business plan. Delivery is financed through additional property rates levied by the metro and paid over to the NPC.

CIDs established within a well-considered metro policy framework positively contribute to cities in the following ways:

They are service delivery-oriented and support the objectives of the Constitution for local government
They offer an alternative funding solution for urban management and strengthen land value capture
They concretely contribute to participative urban management and governance
They strengthen community agency and pride
They generally result in positive social, environmental and economic impacts

Note that the existence of a CID does not relieve a municipality from providing basic services within the boundaries of a CID. The CID is only responsible for additional services or higher levels of service than what the municipality would normally provide.

Legal framework

CIDs or SRAs are enabled through the Municipal Property Rates Act (Section22) and the Municipal Systems Act (Section 85).

Section 22 of the MPRA allows a municipality to determine through Council resolution an area within that municipality as a SRA and levy an additional rate on property in that area for the purpose of raising funds to improve or upgrade that area. Before determining a SRA, a municipality must:

consult the local community on the proposed boundaries of the area and the proposed improvement or upgrading of the area; and
obtain the consent of the majority of the members of the local community in the proposed SRA who will be liable for paying the additional rate.

When a municipality determines a SRA, it must indicate how the area is to be improved or upgraded by funds obtained from the additional rate and must establish separate accounting and other record-keeping systems for the revenue generated by the additional rate and the improvement and upgrading of the area.

A municipality may also establish a committee composed of persons representing the community in the area to act as a consultative and advisory forum for the municipality on the improvement and upgrading of the area, provided representivity, including gender representivity, is taken into account when such a committee is established.

Section 85 of the Municipal Systems Act refers to SRAs as “internal service districts” and state similar requirements for CIDs. However, Section 86 of the Systems Act further requires a municipality to develop and adopt a policy framework for the establishment, regulation and management of an internal municipal service district.

Benefits and advantages

CIDS directly add value within their geographic boundaries through monetary and other in-kind contributions over andabove rates and service charges payable to the municipality. In this sense, they cannot be accused of countering efforts at redistribution. Further and under normal circumstances, as a result of their actions and contributions, property values will likely increase and the municipality will receive additional income in the form of higher property rates income. CIDs also create employment especially for lower skilled people in activities such as security and cleaning, with these incomes assisting families and neighbourhoods elsewhere in the city. Finally, well-managed and attractive CIDs have the ability to attract fixed capital investment and tourism with economic benefits beyond the boundaries of CIDs.

A CID offers benefits to the community in that district/precinct as well as to the metro:

Figure: Notable benefits of CIDS

Benefits To The Community

Community determines its own service levels and standards
Control over own money levied for application in the CID
Directors of NPC are property owners
To be spent in own CID only as per approved Business Plans
Full community participation at AGMs

Benefits To The Metro

Enhanced service delivery
Strengthening of the rates base
Combats urban degeneration
All upgrades and improvements at the cost of the property owners
Improved and sustainable urban management

Guidelines for CIDs

Following are some key guidelines to assist metros to establish a policy framework for CIDS:

Figure: Guidance for the establishment of Metro CID Policy

Policy item	Guidance
CID establishment principles	The establishment of a CID must be supported by the majority of the community. Once the CID is established, participation becomes mandatory as does financial contributions. Therefore majority support is required as per the requirements of the MPRA and the Municipal Systems Act. The minimum threshold for majority support is >50%, though a city may establish different levels of minimum majority support thresholds for different areas (e.g. commercial, industrial and residential) The success of a CID will be highly dependent on the ability of the community to pay additional levies to finance the operations of the CID. Ensure that the municipal payment rate of the community meets a minimum target e.g. in excess of a 97% payment rate. It is doubtful that levying additional property rates will be successful where historic payment rates are below expectations. The objectives and services to be offered by the CID must respond to the needs of the community in that district and must be informed by an urban management survey. These needs and services must be incorporated into the CID’s business plan for approval. The CID to be managed by a not-for-profit (NPC) company. Each property within the geographic boundary of the proposed CID is allocated one vote for establishment of the CID. Municipal valuation as per the municipality municipal general valuation roll or supplementary valuation rolls determines members’ additional property rates to finance the CID budget. CID additional property rates can only be collected by the metro, and the metro must maintain separate accounting capability for rates collected and disbursed to CIDs. Additional rates to be spent only in that CID and only as per approved Business Plan. A CID may be dissolved by a vote of 50% plus 1 vote per property. The metro CID policy should stipulate the validity period of the CID, typically between three (3) and (5) years.
CID establishment process	The community that wishes to establish a CID forms a steering committee of property owners in good standing with City, delineates the proposed geographic boundaries of the CID and communicates its intent to establish a CID to the metro. The metro assesses the payment / arrears profile within the proposed area of the CID to ensure that the minimum payment threshold as per the CID policy is met, before the steering committee continues with the establishment process. The steering committee conducts an urban management survey to establish community needs and priorities. The steering committee prepares a business plan informed by the results of the urban management survey. The steering committee holds a public meeting to gather support for the establishment of the CID as per the needs and priorities articulated in the business plan. Provided that the steering committee gathers the minimum support required for the establishment of the CID as per the metro’s CID policy, the steering committee lodges an application for the establishment of the CID with the metro. Upon receiving the CID application, the metro assesses whether minimum establishment criteria as per the metro’s CID policy have been met. If satisfactory, the metro publishes the application inviting comments and any objections to be lodged. Following conclusion of the objection phase, the metro considers comments received and submits a recommendation to Council for consideration. Once Council approves the establishment of the CID, the metro communicates the formal decision of Council in writing to the steering committee that then proceeds with the establishment of the CID. The metro will not bear any of the costs incurred by the steering committee in establishing the CID.
CID NPC establishment	Following written confirmation from the metro that the CID has been approved, together with a copy of the relevant Council resolution, NPC establishment action include: - Finalisation of the CID business plan, inclusive of the implementation plan and budget, over the period for which the CID - Registration of a Non-Profit Company (Company and Intellectual Property Commission (CIPC) registration) - Registration with SARS, application for tax exemption and obtaining tax clearance - Elect a Board of Directors inclusive of political representation on Board as observer with no voting rights - Clear rules of conduct must be prepared and enforced to ensure that political representatives on boards remain observers and do not intervene with the affairs of the Board. - Supplier registration - Opening of a bank account - Design and launch of the CID website Communication of the above by the NPC to the metro, inclusive of the necessary documentation.
Funding model and arrangements	The community fully funds both the establishment process and service delivery as per the approved business plan – no funding will be received from the metro for additional services as per the CID business plan. Contributions per property owner are based on municipal property valuations – flat rates are not allowed. The metro determines the cent in the Rand per CID and also establishes a cap on additional rates to ensure affordability for ratepayers. Both of these items to be approved by Council. Only the metro can collect the additional rates for CIDs, this function cannot be fulfilled by the NPCs established. The metro needs to make a policy decision as to whether it pays the NPC on a monthly all of the additional fees collected, or whether it pays the NPC on budget based on the approved business plan and forecasted revenue. In the latter case, should the metro elects to pay the NPC based on budget, the metro may elect to retain a reasonable percentage as provision for bad debts. If there is a surplus in the retention, the NPC is refunded at the conclusion of the financial period. The metro should ideally not charge for billing or collection fees. Both the metro and the NPC must regularly report on financial matters and submit audited Annual Financial Statements.

Where cities receive high volumes of applications for CIDs, or where several CIDs are in operation, consideration should be given to establish dedicated capacity within the city to process and evaluate CID applications, to liase with CIDs and ensure compliance, and attend to related matters.

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