Why the 45pc revenue allocation that county chiefs seek is mission impossible

I can understand Cord’s desire for a referendum is driven by political expedience to create a campaign platform come 2017, and keep Jubilee preoccupied and therefore unable to dismantle the opposition.

But I cannot understand the Council of Governors’ feverish desire to hold a referendum. Nonetheless, both teams have one key issue in common – to raise the annual county allocation to 45 per cent of the most recent revenue collected.

Is this practical? A close look at the numbers will reveal that such a proposal is self-defeating and untenable.

The Constitution stipulates that counties ought to get at least 15 per cent of the national revenue based on the most recent audited accounts approved by the National Assembly.

Based on this, the total allocation for 2014/15 financial year of Sh28.5 billion represents 43 per cent of the most recent accounts adopted by the National Assembly – that of 2009/2010, when the national revenue was Sh529.3 billion.

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Computed on the basis of the current year’s projected revenue of Sh1.026 trillion, the county allocation will be 22.3 per cent. Now, the governors want this percentage to be at least 45 per cent.

If we take their argument based on the last financial year’s KRA revenue collection of Sh964 billion, the county allocation at 45 per cent will be Sh434 billion. That will leave only Sh592 billion of the projected revenue for the National Government.

In this year’s national Budget, two ministries alone, both critical, will take nearly Sh500 billion. The Ministry of Education, with its ever-growing demand for more resources to finance free education and recruit teachers, has a budget of Sh308 billion! Internal Security, Defence and National Intelligence Service combined have a budget of Sh174 billion.

So, if Security and Education take Sh482 billion, that leaves only Sh110 billion for the rest of the National Government’s activities, including 16 ministries, State agencies, constitutional commissions, the Judiciary, Parliament, and above all, the public debt and pensions.

EVEN MORE BORROWING

Let’s look at the key areas that cannot be wished away. The Consolidated Financial Services (CFS), which includes national public debt redemptions and pension payments, amount to Sh362 billion. Given the increasing deficit in our budget financing and the ageing public servants, this amount is bound to increase in coming years.

Transport and Infrastructure was allocated Sh169 billion. Does anyone dispute that the State needs to invest continuously in this sector to reduce the high cost of production?

The Ministry of Petroleum and Energy had Sh77 billion because of the need to increase power generation to 5,000 MW and bring down the cost of power. And the list goes on for other ministries.

Nearly 18 constitutional offices will spend over Sh12 billion. In all, CFS and these national institutions, agencies and ministries will require over Sh1.5 trillion this year.

Given the remaining revenue for the National Government at Sh592 billion against an expenditure of Sh1.5 trillion, it is clear the government will have to borrow nearly Sh1.0 trillion! This is obviously untenable economically, and before long, this country will go under from the debt burden.

The flip side is that if we do not borrow it, all these national institutions will be rendered non-operational, infrastructure will collapse, security will be compromised and education will be a mirage. It simply cannot be an option!

This analysis clearly demonstrates that the governors’ attempts to raise revenue allocation to 45 per cent will shut down National Government operations.

CAPACITY OF COUNTIES

Whether or not the period of the audited revenue is changed to the previous year, revenue can only be allocated on the basis of the criteria set out in Article 203, and the functions transferred to the counties.

Both levels of government have concurrent functions as well as exclusive functions. However, counties have limited technical capacity, both in terms of legislation, revenue generation and execution of major development projects. Last year, counties sought to collect Sh67 billion but only achieved half.

Since the counties receive nearly all their revenues from the National Government, it is imperative they demonstrate accountability through institutions such as the Controller of Budget, the Auditor-General, the Commission on Revenue Allocation and Parliament.

It is practical to steadily raise allocations to counties, based on the functions devolved, inflation and changing variables in service delivery. But counties must also enhance revenue collection and demonstrate spending prudence and accountability.

The current uncontrolled expenditure and waste is unlikely to engender confidence to channel much larger resources to the counties.

Mr Kerrow is the chairman of Finance, Commerce and Budget Committee in the Senate