It has been six years since the country adopted the devolved system of governance. During this period, Parliament has approved the first and second basis for revenue sharing. The Constitution provides that the first and second basis for revenue sharing be made on three year intervals and thereafter in five year intervals. This now means the third basis for revenue sharing will apply this year and will be in place for the next five financial years.
To illustrate, the proposed third basis has four main objectives underpinning this formula. The first broad objective is to enhance service delivery; the second is to promote balanced economic growth. The third and fourth objectives are to promote county fiscal performance and reward counties for optimising revenue collection, and the prudent management of financial resources, respectively.
To achieve these objectives, notable changes have been included in the revised formula. They are motivated by the need to strengthen the link between the constitutional mandates of the counties, and the intergovernmental fiscal transfer system. And make no mistake. There remains is an absolute need to closely match funding to expenditure needs of the county administrations.
This proposed approach provides a clear and transparent funding norm for different county functions and services. This year, the equitable share to the counties is Sh314 billion. The Commission is now recommending that the equitable share to the county governments be increased to Sh335 billion for the year 2019-20 to enhance service delivery.
The third basis proposes measures of expenditure needs aligned with devolved services. Health is assigned a weight of 15 per cent. The population in need of public health services is defined by county population, excluding the population covered by health insurance. Outpatient visits and inpatient equivalent days that reflect service demand at health facilities. Every Kenyan without health insurance is assigned an equivalent of Sh1,035, every outpatient visit Sh123 and inpatient days Sh540.
Agriculture is assigned a weight of 10 per cent. Each rural household is assigned an equivalent of Sh5,200.
Water is assigned a weight of 3 per cent. Every household without access to clean water is assigned an equivalent of Sh3,219.
Urban services are assigned a weight of 3 per cent. The expenditure need for urban services is measured as the urban population in each county. Each urban resident is assigned an equivalent of Sh826.
All other county services are assigned a weight of 18 per cent. The expenditure need for all the other devolved services such as early childhood education and technical and vocational training are measured using population. Every Kenyan is assigned an equivalent of Sh1,562 for all the other services. I would like to point out that we utilised data from government agencies in undertaking this analysis. The Kenya National Bureau of Statistics is currently preparing for the 2019 Census. Once the results from this census have been tabulated, population-based indicators will be updated accordingly.
County public administration is assigned a weight of 20 per cent, meaning every county is allocated Sh1.4 billion for public administration.
The second objective is to promote balanced growth taking into account the need to close infrastructure gaps in lagging areas. We propose three indicators to proximate the expenditure needs for this objective. First is the road network and is assigned a weight of 3 per cent. Every kilometre of road is assigned an equivalent of Sh82,746.
The second indicator is land area in square kilometres and assigned a weight of 8 per cent.Counties with greater land area has greater infrastructure needs and incurs higher costs to deliver county services. Each square kilometre of land area is assigned an equivalent of Sh46,103. The third measure is poverty, which is assigned a weight of 15 per cent. Every poor Kenyan is assigned an equivalent of Sh3,064.
The third and fourth objectives emphasise on county fiscal performance. These two objectives are not expenditure needs but are geared towards rewarding counties for effective revenue collection, and the prudent management of financial resources..
For the measure of prudent public financial management, the Commission will prepare an Annual County Financial Management Index. As this index is not population-weighted, each county will reap the same reward for engaging in sound financial management practices regardless of its budget size or population size.
Kenyans should devote themselves and without restraint in debating this formula and giving the commission their views, there is no Magic Bullet formula that can solve all the 47 county funding needs but there is one that will provide the right framework for devolution to succeed, and we strongly believe this is it.
DR JANE KIRINGAI, chairperson, Commission for Revenue Allocation