Senate report flags gaps in county revenue allocation

Article 96 of the Constitution mandates the Senate to represent counties and protect their interests, particularly in determining the allocation of national revenue among county governments.

In the spirit of devolution, the equitable distribution of resources remains central to enabling counties to deliver on their constitutional mandates. While the Senate has undertaken this task diligently, challenges remain in ensuring fairness, efficiency, and transparency in revenue allocation.

According to a recently published report, delayed disbursements, disputes over national versus county government functions, and inconsistencies in the application of revenue-sharing formulas are some of the notable challenges that have undermined the allocation process.

The Process of Allocation of Revenue to County Governments between FY 2013/14 and FY 2021/22, which was launched alongside three other publications, examines the revenue allocation process and highlights the procedures followed in Parliamentspecifically in the Senate in applying the provisions set out in the Constitution and the Standing Orders.

“The publication is of interest to parliamentary practitioners in Kenya as well as scholars in public finance, as it seeks to serve as a focal point for Senate procedures on the subject. It may also inform further research and analysis with a view to amending statutes and Standing Orders to further streamline the process,” noted Clerk of the Senate, Jeremiah Nyegenye, during the launch.

In undertaking this mandate over the last 10 years, the Senate has identified areas within the public finance legal framework that require reform to ensure effective allocation of resources to county governments, as envisaged under the Constitution.

Among the proposals is an amendment to the Public Finance Management Act the primary legislation governing the management of public resources to include detailed legal provisions relating to the funding of transferred functions. This would ensure certainty in the transfer of funds and strengthen accountability mechanisms.

In 2020, the County Executive of Nairobi City County transferred some of its functions to the Nairobi Metropolitan Services through a Transfer of Functions Deed, in accordance with Article 187 of the Constitution. However, Article 187(2)(a) provides that constitutional responsibility for the discharge of a function remains with the body to which the Constitution assigns that function.

On this basis, the Senate, in considering the County Allocation of Revenue Bill for the 2020/21 financial year, introduced provisions relating to the transfer of functions. These included requirements for the costing of transferred functions, appropriation of adequate funds by the county assembly for their execution, and reporting procedures on the use of funds in discharging those functions.

“The County Allocation of Revenue Bill is an annual Bill whose provisions apply only to the financial year to which it relates. Therefore, the Public Finance Management Act, as the primary legislation governing public resources, would be better suited to contain detailed legal provisions on the funding of transferred functions. This would ensure certainty in the transfer of funds and accountability mechanisms,” the report states.

The report also calls for amendments to the Public Finance Management Act to require the Cabinet Secretary for the National Treasury to submit a memorandum explaining how resolutions adopted by the Senate on the Budget Policy Statement (BPS) have been taken into account.

This is because the Senate’s participation in the consideration of the BPS is crucial to the determination of vertical resource allocation.

Article 203(2) of the Constitution provides that, for every financial year, the equitable share of revenue raised nationally and allocated to county governments shall not be less than 15 per cent of all revenue collected by the national government.

However, the report observes that the 15 percent threshold is not representative of the actual cost of service delivery at the county level, and recommends that the costing of functions assigned to both levels of government be finalised.

“This would provide a more accurate estimate of the resources required to run government services in each county and, in turn, ensure adequate vertical and horizontal resource allocation.”