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Counties' funding reduced by Sh9 billion

Auditor reveals that country’s cumulative revenue hit an all-time shortfall

In Summary

• In 2018-19, the base was set at Sh314 billion which the National Treasury now says it won’t meet.

•Auditor says counties start spending revenue at the source.

Governors at Delta House, Nairobi during a past press briefing.
Governors at Delta House, Nairobi during a past press briefing.
Image: MAUREEN KINYANJUI

Low revenue collection has returned to haunt counties in the wake of a Sh9 billion funding cut.  

The situation, as captured in the Division of Revenue Bill 2019, has seen the base allocation of county governments' equitable share reduced to Sh304 billion. 

However, counties have some reprieve in a Sh5.04 billion added to the allocation as adjustment based on the fiscal framework, as well as Sh5.76 billion Equalisation Fund. 

 
 

MPs are on recess and on their return, they will prioritise the 2019-20 budget for which the bill is key. 

In 2018-19, the base was set at Sh314 billion which the National Treasury now says it won’t meet, citing shortfalls in performance of revenue raised nationally since 2015-16. 

In this regard, counties will receive Sh371 billion, being the share of revenue; conditional allocations by the national government (Sh14.16 billion), Road Maintenance Fund (Sh8.98 billion), and donor grants (Sh38.7 billion). 

The allocation presents a Sh25 billion variation from the proposed allocations by the Commission on Revenue Allocation.

The commission proposed that county governments be allocated Sh335.7 billion as an unconditional fund to be shared on the basis of the latest approved formula. 

The formula takes into account population (45 per cent), land area (8 per cent), poverty (18 per cent), basic equal share (26 per cent), fiscal responsibility (2 per cent) and development factor (1 per cent). 

For CRA, counties were entitled to Sh314 billion in equitable share and a Sh21.7 billion adjustment for revenue growth in the financial year 2019-20. 

 
 

But Treasury CS Henry Rotich explained, in an earlier proposal to the Budget and Appropriations Committee led by Kimani Ichung’wa (Kikuyu MP), that the adjustment was after the country’s cumulative revenue shortfall hit Sh374 billion. 

The largest shortfall of Sh195 billion was reported in 2018-19, bringing into focus, weakness of the national and county governments to marshal resources. 

Counties have been on the spot over weakness in revenue collection by Auditor General Edward Ouko and Controller of Budget Agnes Odhiambo. 

The budget controller in her Half Year Report for Financial Year 2018-19 said counties generated Sh15.37 billion against a target of Sh51 billion between July and December 2018.

“The under-performance of own-source revenue collection implies that some planned activities may not be implemented in the financial year as budgets will not be fully financed,” Odhiambo warned. 

The report revealed that Nairobi collected far more (Sh3.8 billion) compared to its close competitors Narok and Nakuru at Sh1.84 billion and Sh1.55 billion respectively.

Ouko, in numerous audit reports, has reprimanded county governments for not only failing to meet revenue targets but also spending the same at the collection source. 

Audit reports for 2018-19 seen by the Star had cases of counties either failing to account for revenue collected or employing ICT systems that don’t work. 

In what now exposes a split between the National Treasury and CRA, counties have also lost a further Sh12.5 billion in differences occasioned by additional conditional allocations financed from national government revenue. 

The two entities have differed on their proposed allocations for free maternal healthcare, leasing of medical equipment and cash for cities. 

Whereas CRA sought Sh4.3 billion to be set aside for funding maternal healthcare, the Treasury has not allocated the same but has floated an equal amount as a special grant to the National Hospital Insurance Fund. 

NHIF is expected to cater for free maternal healthcare to be disbursed as reimbursement to county governments. 

CRA had also proposed Sh9.4 billion for medical equipment lease but the Treasury put the figure at Sh6.2 billion, having spent Sh3.2 billion to clear arrears owed to suppliers. 

The National Treasury also declined a proposal by the commission to allocate Sh5 billion to finance five cities; Nairobi, Mombasa, Kisumu, Nakuru, and Eldoret – dashing their hopes of getting budget lines for fixing key amenities in towns within their jurisdiction. 

Instead, the five have been allocated Sh11.5 billion in World Bank funding for the Kenya Urban Support Programme as an urban development grant. 

The Treasury says the money will be spent on unique services such as sewerage, water reticulation, solid waste disposal and stormwater drainage functions provided by these cities. 

“However, it should be noted that these services are part of the devolved functions and county governments should be encouraged to plan and budget for them,” the bill says. 

The bill tabled in the National Assembly says that only Sh369.9 billion is left to finance other national government needs such as defence, roads and energy.

In that regard, Sh27.9 billion has been proposed for the purchase of police vehicles, helicopters and defence whereas Sh11.1 billion is to be set aside for irrigation and fertiliser.

The committee has okayed the Treasury's proposal for Sh16.2 billion to fund youth empowerment programmes and Sh26.3 billion for older persons, OVCs, presidential bursary, child welfare and severe disability.

The bill further proposes that Sh8.4 billion be set aside for primary schools digital literacy and Sh4.1 billion for KCSE and KCPE examination fees. 

At least Sh585.7 billion has been proposed for paying public debt, Sh109 billion for pension and constitutional salaries; Sh261 billion for constitutional commissions; Sh6.3 billion for Auditor General and CoB; and Sh39.5 billion for Parliament. 

A further Sh8.7 billion has been proposed for State Law Office and ODPP; Sh5.9 billion to be shared between EACC, Political Parties Registrar, Witness Protection Agency, Ombudsman, IPOA, and NGEC. 

It is proposed that the Judiciary be allocated Sh18.9 billion; earmarked funds (Sh40.8 billion) and Sh1.4 billion for the Strategic Grain Reserve.

The proposed equitable share allocated to county governments is factored on 30 per cent of Sh1.03 trillion, being the latest audited revenues for the financial year 2014-15.

(Edited by R.Wamochie)