Attorney-General Kihara Kariuki has advised the Senate to seek out the National Assembly and record a settlement that will see Treasury release funds to counties.
The two Houses have long disagreed on the crucial Division of Revenue Bill that allocates funds to the two levels of government.
Whereas the National Assembly has proposed that counties get Sh316 billion, the Senate wants them allocated Sh335 billion.
AG Kariuki said the settlement should be recorded to ensure counties continue offering essential services pending enactment of the bill.
The Senate sought Mr Kariuki's advisory opinion through its Committee on Finance, which demanded to know whether there is a legal mechanism through which Treasury can advance funds to the devolved units.
This was in light of reports that most counties are facing a cash crunch due to Parliament's failure to enact the bill.
The government's chief legal adviser said there is no legal basis for such an advancement.
He told the committee that the only way out is the petition the Council of Governors filed, seeking an advisory on the process of enactment of the Division of Revenue Bill.
“We are of the considered opinion that the Senate and the National Assembly may avail themselves of the opportunity afforded by the petition in the Supreme Court to record and amicable settlement,” Mr Kariuki said in the advisory to the Senate.
“The settlement should be on such appropriate terms as may be acceptable to all parties to the proceedings and adopted as an order of the Supreme Court. This shall constitute sufficient legal basis for advancing funds to county governments.”
The two Houses have disagreed on the exact amount in of funds that should go to the counties as equitable shareable revenue in the 2019/20 financial year.
The National Assembly and the National Treasury are together in their proposal to grant counties Sh316 billion because of poor performance in revenue collection in the last financial year.
The Senate, through the support of the Commission on Revenue Allocation, wants counties to get Sh335 billion based on Treasury's economic projections for the financial year.
The Division of Revenue Bill is the legal instrument that divides revenue between the two levels of government.
It is only after its enactment that counties can prepare budgets and appropriation bills which authorise withdrawals from County Revenue Funds once enacted.
Mr Kariuki advised Parliament to take the necessary legal steps to facilitate disbursement of funds to the devolved units to alleviate the increasing risk of a shutdown.
One of the options the AG offered Parliament is for the two Houses to amend the law and authorise disbursement of Sh310 billion, or part of it, without prejudicing the petition in the Supreme Court.
“Our promise of Sh310 billion is premised on the fact that it is the minimum amount available and which is not contested by any of the parties. What is in contention is whether the amount should be increased,” the AG said.
The second option, the AG said, is for the two Houses to consider quick enactment of Public Finance Amendment Bill, 2019.
This will empower the Senate to divide among counties 15 per cent of all revenue collected nationally in the event that the Division of Revenue Bill is not passed by June 10 in the preceding financial year.