CASH STANDOFF

Explainer: Lead-up to revenue formula impasse

Over four proposals before committee of i2 senators.

In Summary
  • The contentious third-generation formula – which is yet to be agreed on – attempts to establish a link between county revenue and service delivery.
  • The argument is that the proposed formula can be summarised as raising the population factor to 54 per cent, tipping those with high population for more county cash.
Senators outside the chambers after the Senate was adjourned on Monday, August 17, 2020.
Senators outside the chambers after the Senate was adjourned on Monday, August 17, 2020.
Image: EZEKIEL AMINGA

A committee of 12 senators is currently scrutinising over four proposals with a view to coming up with an acceptable third revenue allocation formula that will dictate how cash will be shared among counties.

The lot has before it, proposals by their three counterparts: Johnson Sakaja (Nairobi), Mithika Linturi (Meru) and Petronila Were (Nominated).

The committee is expected to hammer a deal following 10 stormy Senate sittings that have yielded no positive result. So, how did it get to this point?

 

The first generation formula, which was applied from 2012 to 2015, based county allocation on population at 45 per cent; basic equal share at 25 per cent; poverty index 20 per cent; land area eight per cent, and fiscal responsibility two per cent.

The second-generation formula, covering 2016 to 2019, did not depart much from the first formula.

It, however, raised the equal share by one per cent while poverty level metrics was reduced by two per cent. The Commission on Revenue Allocation introduced a development factor of one per cent.

The contentious third-generation formula – which is yet to be agreed on – attempts to establish a link between county revenue and service delivery.

In this regard, allocations are based on services, with health set to take up 17 per cent; agriculture 10 per cent; other county services 18 per cent; infrastructure at four per cent, and urban services at five per cent.

The argument is that the proposed formula can be summarised as raising the population factor to 54 per cent, tipping those with high population for more county cash.

The proposals were to be debated on Monday before the adjournment over the arrest of three lawmakers.

It sought to reduce the basic equal share to 20 per cent.

 

The proposal retained landmass factor at eight per cent; reduced poverty level criterion to 14 per cent; pegged fiscal effort (absorption of funds) at two per cent; and fiscal prudence at two per cent.

But in its review of the CRA proposal, the Senate Finance committee resolved that the allocation be based on other county services at 16 per cent; basic equal share at 20 per cent; agriculture at 12 per cent; health at 20 per cent; roads at seven per cent; urban services at four per cent; poverty level at 14 per cent; land area by five per cent; fiscal effort and fiscal prudence at one per cent each.

On its application, some 18 counties would be exposed to possible loss of Sh17 billion in share of revenue.

Murang’a Senator Irungu Kang’ata thus introduced an amendment to the proposal and recommended that the current second-generation formula be retained for two years, after which the third-generation formula would kick in. The Senate rejected the proposal.

Sakaja, under Team Kenya, sought to amend the Finance committee proposal where he identified the allocation of Sh316.5 billion as was in the 2019-20 fiscal year budget.

He said the new formula be applied to any money above the base allocation.

Meru’s Linturi amended Sakaja’s proposal suggesting that counties share Sh270 billion equally and Sh46.5 billion be shared based on the third formula. The two proposals had been adopted.

Senator Were proposed that county allocation be raised to Sh348 billion as the basis for applying the third-generation revenue formula.

This was to mean that anything below the amount was to be shared based on the second formula.

The proposals were to be debated on Monday before the adjournment over the arrest of three lawmakers.