Only more revenue will break stalemate

Senators return to the House for a record eighth time on Tuesday to try and reach an agreement on the contentious third basis for sharing revenue among counties.

What is the cause of this deadlock?

The new formula has varied the parameters and weights upon which the revenue is shared. In aggregate, it allocates 65 per cent of the revenue for enhancing delivery of public services, 31 per cent for promotion of balanced development and four per cent to incentivise revenue collection and fiscal prudence.

Due to these changes, it has been perceived to reallocate funds from the poorer, less populated and historically marginalised counties to relatively richer and more populated counties.

Debate amendments

Under the new formula, at least 17 counties have their revenues cut.

On Tuesday, the Senators are expected to debate amendments proposed by Senator Johnson Sakaja and Senator Mithika Linturi.

Sakaja proposes that the formula used for FY 2019/20 continue to apply for equitable share not exceeding Sh316.50 billion and that the third-generation formula apply for equitable share above Sh316.50 billion.

Linturi’s amendment is closely related to Sakaja’s but only lowers equitable share for which the second-generation formula will apply to between Sh250 billion and Sh270 billion.

The exact amount is still under negotiation. It’s worthy to note that the 316.5 billion available for counties in FY 2020/21 is the same amount received in FY 2019/20.

The impact of Covid-19 is projected to worsen revenue collection beyond FY 2020/21, dampening hopes for more revenue in the next FY.

In conclusion, the senators may not achieve their goal of ensuring that no county gets less funds than is currently receiving using the Sakaja’s and Linturi’s proposed amendments.

Avoid disruption

In this context, the recommendation of the CRA that called for a phasing-in of the formula to avoid disruption and setting aside 15 percent of the equitable share increment to cushion counties which are bound to lose their equitable share in a quantum in excess of five percent is more persuasive.

This approach ensures that county governments perform their functions and guarantees stable and predictable allocations of revenue as provided in article 203(d) and (j) of the Constitution.

Counties should focus on strategies which enhance own source revenue generation to reduce over-dependence on the exchequer releases. The devolved units should also ensure public funds are used in a prudent and responsible way.

Mr Nyangi is the head of research at the Institute of Public Finance-Kenya. Email: [email protected]