Kenyans need to be involved in revenue sharing debate

For the last couple of years, my organisation, International Budget Partnership Kenya, has pushed to democratise the revenue-sharing process.

Our argument has been that unless Kenyans have an informed, transparent discussion about how we share resources, the promise of the Constitution will not be realised.

For this reason, we spent most of October visiting different counties, explaining to people how the current revenue sharing formula works, and then debating how it should work. In order to focus people on the principles of sharing fairly, rather than their own self-interest in seeing their county receive more, we put them through an exercise using fictitious counties.

We gave people data on three counties (Hapa, Kule, and Zamunda) and Sh10 billion to divide between them. Then we asked them to share this money fairly among the three using key principles of need, capacity and effort. We documented what they said in our new film, A Measure of Fairness, which we released last Thursday. The film is available on YouTube and our website (http://internationalbudget.org/kenya/).

We found that, when properly guided and given such a task, citizens can have robust and meaningful debate about the formula. We believe this approach is superior to the approach that is often taken by government agencies in engaging the public.

A few points that emerged from our discussions in Nyandarua, Narok, Isiolo, Uasin Gishu, Taita Taveta, Nairobi and Siaya are worth mentioning before considering the new CRA proposals.

First, there was broad agreement that needs should be at the core of the formula, and this is in line with the current approach. However, in most places, citizens preferred to use direct measures of need (such as data on health facility visits or incidence of disease) than generic proxies, such as population.

While population is important, it is not specific enough to identify population needs for those services that counties are meant to provide.
Second, citizens felt that the formula should do more to take into account both fiscal capacity and fiscal effort. Again, there was broad agreement that those counties that can raise more of their own revenues should receive less in national transfers, but that those that make more of an effort to increase their own revenues should receive more. People felt that the weight attached to fiscal responsibility should increase.

Do these views help us to assess what the CRA has proposed? I believe they do. First, CRA has introduced a new “development” parameter in the formula, which is meant to gradually replace the poverty measure.

This parameter begins the process of substituting general measures with specific measures of need. Although it tries to do too much with too little weight (only one per cent of the formula), it is replete with specific variables on access to water, sanitation, education, health, roads and electricity. We can quibble about some of the measures, but they open the door to a much wider conversation about replacing indirect measures (not just poverty, but population) with more direct and legitimate measures of demand or need for services.

ONE PER CENT

The CRA has also made some changes to fiscal responsibility that touch on issues raised by citizens. First, it has reduced the weight on this parameter to one per cent. That goes against everything we heard from the public. Apparently, even within CRA, they were divided on this issue.

CRA has proposed dividing this parameter in half and giving 50 per cent of it on an equal share basis to support setting up of public finance systems, while the remainder is intended to reward counties that raise more local revenue. The first half of this lacks a sound basis.

The equal share component is basically for administrative support, presumed to be equal across counties. The formula already has a 25 per cent equal share for such things, and we believe that is too high to cater for the few things that are equally priced across counties (such as governor salaries).

So the idea that still more is needed for financial systems is hard to fathom. Counties should instead be given this share based on how well they comply with transparency provisions of the Public Finance Management Act, such as whether they publish their quarterly budget implementation reports or operate a County Budget and Economic Forum.

The other part of this parameter gets closer to the issues of capacity and effort that citizens thought should be incorporated into the formula. However, by rewarding counties with high local revenues we are actually giving more to those with more fiscal capacity, like Nairobi and Nakuru. Instead, we should reward fiscal effort, measured in terms of the percentage change in local revenue collection over time.

The two per cent for personal emoluments in the formula is an important step to cushion counties with high inherited wage costs, but should be done through a conditional grant so that it does not become an entitlement.

Dr Lakin is the Country Manager, International Budget Partnership