Four options Senate has to resolve impasse on counties’ cash

 Members of Senate in session at Parliament Building Nairobi on  January 29, 2020. PHOTO | DENNIS ONSONGO | NATION MEDIA GROUP

What you need to know:

  • In Kenya’s devolution architecture, the CRA recommends but it is the Senate that determines the formula.
  • . Kenyans can recall that after a long and protracted negotiation, county governments got an equitable share of 316.5 billion in 2019/20 and it is the same amount they will receive in 2020/21.

A story is told about a wealthy merchant who had three sons and in his will he divided his wealth equally among them, except for his most-treasured camels. The merchant had 17 camels, which he divided among the three sons as follows: the eldest son was to be given half the camels, the middle son was to be given a third of the camels and the youngest son was to be given one ninth of the camels.

The challenge was that it was not possible to divide 17 into half, one-third or even to one-ninth. The three sons started fighting each other for their fair share of the camels. Unable to resolve the dispute among themselves, they went to a wise man for advice.

The wise man listened to the sons’ dilemma and after understanding the situation, he brought out one of his camels and added to the 17 and now they had 18.

REVENUE ALLOCATION

He then read the deceased merchant’s will and divided the 18 camels. To the eldest son, he gave half the camels (nine), the second son a third of the camels (which is six) and to the youngest son a ninth of the camels (which is two). The wise man successfully distributed 17 camels and took back his own camel. The Senate faces a similar challenge tomorrow.

One of the critical roles of the Senate is to determine the framework for equitable sharing of revenue among the 47 counties. In determining that framework, it is expected that the Senate will consider the recommendations of the Commission on Revenue Allocation (CRA).

Notably, this mandate of the Senate is to be discharged every five years. This means that every cycle of the Senate will have only one opportunity to discharge this key mandate.

The second framework for revenue-sharing among county governments lapsed in the financial year 2018/19 and in the framing of the constitution it was expected that the third basis would kick in to share revenue from the year 2019/20 for a period of five years.

In Kenya’s devolution architecture, the CRA recommends but it is the Senate that determines the formula.

It has been more than one year since the CRA tabled its recommendation for the third basis for revenue-sharing for consideration by the Senate. The House has not reached a consensus yet, and that explains why the County Allocation of Revenue Act (CARA) 2020/21 has not yet been enacted.

Akin to the challenge of sharing 17 camels among three sons, the period it has taken to reach a consensus at the Senate demonstrates the magnitude of the challenge at hand.

RETAIN FORMULA

In the coming week, the Senate has to determine the 3rd formula and in so doing they have at least four options: (1) Senators can vote to retain the current formula which runs on 2009 population census and poverty levels; (2) They could also vote to retain the current formula but update the population to 2019 census and poverty to 2015/16 levels; (3) They could also adopt the CRA proposal; (4) Senate has an option to recommend a different formula all together.

For the first time since the onset of devolution, the equitable share to county governments did not increase in 2020/21. Kenyans can recall that after a long and protracted negotiation, county governments got an equitable share of 316.5 billion in 2019/20 and it is the same amount they will receive in 2020/21.

This means that any change in the formula is a zero sum game. For this reason, only the first option would keep county equitable allocation to each county at the current level. Option two represents the worst case scenario and the Senate is aware. An increase in the equitable share allocation to counties would have provided the fiscal headroom to cushion the losers.

In light of the fixed equitable share allocation to counties, the Senate will require a wise person and an 18th camel to pass the third generation formula. The adoption of the third formula will pave way for the enactment of CARA 2020/21 in good time to avoid service disruption of service delivery at the county level.

Here is a summary of the CRA recommendation to the Senate

The recommendation by the CRA (see table above) seeks to achieve four broad objectives: First is to align funding to functions assigned to county governments to enhance service delivery.

The second objective is the need to address developmental gaps and economic disparities among counties. In addition, the framework seeks to create incentives for county governments to adhere to principles of fiscal responsibility and to optimise their capacity to raise own revenue.

Dr Kiringai is the chairperson, Commission on Revenue