The county chiefs, in multiple interviews with the Star, have revealed the counties are operating at the mercy of the commercial banks that have put them on life support.
Contractors and suppliers are abandoning the county governments due to non-payments as multi-billion projects as pending bills pile.
Makueni Governor Mutula Kilonzo Jr told the Star that counties credit worthiness has reduced to zero with suppliers and contractors running away from the devolved units.
"Nobody wants to do business with us. Nobody wants to touch counties. Banks are now the ones cushioning the counties. It’s unfortunate,” he told the Star.
The devolved units are also incurring huge interests from banks and penalties by statutory bodies due to unmet obligations brought about by the cash crisis.
“Devolution has never suffered the way it has suffered now. Devolution is in dire strains. This looks like an onslaught on devolution,” Nyeri Governor Mutahi Kahiga told the Star.
At the centre of the crisis is the perennial delay in the disbursement of funds from the National Government.
Currently, the National Treasury is yet to release Sh97.75 billion out of the Sh370 billion the devolved units were allocated with barely 35 days to the next financial year.
Governor Mutahi told the Star the persistent cash delays have hit hard the devolved units as they are unable to provide services.
“We are now affecting very many of our service providers, contractors and even to make it worse, hospitals run short of drugs. So, it becomes a very precarious situation that is very dangerous for counties,” he said.
The governor hinted at possible loss of lives in the county hospitals due to lack of essential commodities to save lives.
“I don’t have those statistics but sometimes along the line, these delays, a patient cannot be saved because there is no money to buy drugs,” he added.
Already, the county chiefs have threatened to shut down the county governments because of the cash problems that have grounded its operations.
Makueni boss Mutula Kilonzo Jr said there is a mass exodus of experienced staff from counties due to frequent salary delays.
He says development projects have also stalled as the counties cannot plan due to erratic disbursements.
“We cannot plan our work. But even worse is that our credibility [of counties] in terms of our development and partners is zero. People are now happy to work for the national government. They are not happy to work for counties," Mutula stated.
“In reality, we cannot work on a cash basis with our contractors. Increasingly, some of them are saying we cannot survive. I have so many instances where so many people say we cannot deal with counties,” he said.
In the long run, Mutula regretted, the devolved units will have no choice but to shut down, a scenario that would be a big blow to the Kenyans who tirelessly fought for devolution.
“It’s terrible. It’s very bad and this cannot become the practice, otherwise the constitution doesn’t make sense, PFM Act doesn’t make sense. Everything is unpredictable,” he protested.
Kisumu Governor Anyang’ Nyong'o concurred with his colleagues, adding that even the counties' capacity to deal with emergencies such as floods has been hampered.
The governor said failure to remit taxes also attracts the wrath of the Kenya Revenue Authority.
"Issuance of agency notices by the KRA and or attaching county governments' bank accounts without consideration of the status of disbursement. KRA also imposes penalties due to late payment of taxes occasioned by the delays," Nyong'o told the Star.
Mombasa Governor Abdulswamad Shariff said commercial banks, some exploitative with huge interest rates, have become the hope for the counties to pay salaries and run other basic operations.
“What is happening right now, there has been a problem. I don’t think that there is a county right now that is operating without the support of banks. There is none actually,” he said.
On one hand, the national government is saying people should not borrow and on the other, they are not releasing money to us, Abdulswamad noted.
On Thursday, Controller of Budget Margaret Nyakang'o said the delayed disbursements are affecting development in the counties.
“It’s true, if the disbursements are delayed, then there is skewed spending towards recurrent. And in particular, we are talking about recurrent personnel emolument. You cannot tell me that you can go and do development when people don’t have salaries,” she said.
The country’s budget boss stated there has been a trend in her quarterly budget implementation report where counties shun development for recurrent due to cash delays.
“In fact, we are reporting that in development in the first quarter, the absorption was at six percent and 11 percent in the second quarter,” she added.
Nyong'o corroborated Nyakang'o’s assertions, stating the devolved units have been confined to payment of salaries alone without doing any development.
“The effect of this is that we cannot spend on development plans. If you plan to build a house and you said you want to start in January, and you don’t get money until March, that’s a delay of three months that affects what you plan to do in future. That disruption of development is costly to the counties,” he said.
Nyong'o disclosed that the counties have accumulated huge pending bills in the process, putting them at risk of court cases by the contractors and suppliers.
A report by the COB revealed the counties had accumulated Sh157 billion in pending bills as at March 31, 2023.
“What counties are saying is that if you don’t receive the money due to you regularly, you definitely accumulate pending bills,” the Kisumu County chief said.
“If we are paid now money that we would have been paid three months ago, that solves the problem of three months ago, not now. That is why the cash crisis continues,” he added.
On Wednesday, the Treasury released Sh29.6 billion to clear arrears for March.
Allocations for April and May totalling to Sh33.3billion and Sh31.45 billion respectively are still pending.
Some Sh33.30 billion for June has also fallen due.
The law requires the Treasury to disburse funds by the 15th of every month for the following month.
However, this has not been the case with the Treasury delaying the disbursements for up to four months.
Treasury CS Njunguna Ndungu has often cited cash flow challenges caused by underperforming revenues and huge public debt obligations for the delayed releases.
But the counties have also been on the spot for underperforming own-source revenues that have triggered their overreliance on the national cake.
