Why the Senate should reject the third generation revenue sharing formula

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By: Hassan Adow

Devolution remains the single largest contributor to the decision that made Kenyans vote for the CoK, 2010 overwhelmingly. They wanted resources and decision-making power be brought to the grassroots. There has been a popular view among majority of Kenyans that centralized system of governance only enriched few regions and there existed disparity in terms of allocation and distribution of resources.

To address these regional disparities, several decentralization attempts were made to have a break from the past order and herald a new beginning where authority is granted for self-governance. However, it was not until August 2010 that devolved system of government was ushered in. This has promoted social and economic development and provision of proximate and easily accessible services throughout Kenya.

Historically marginalized regions are now feeling part and parcel of this republic with the advent of devolution. Most counties that were once wished away as ‘economically unviable’ and were denied development on this basis are now given the platform to pick up their pieces and enjoying the fruits of this system of governance. Wajir County, for example, has launched its first ever tarmacked road in 2014 since independence. Mandera County, has its first ever successful Cesarean delivery in Takaba Sub- county hospital in 2015, something that only remained a mirage before the coming to birth of the county government. County governments have been able to give life to once neglected health facilities into institutions that can offer specialized services. This lends credence to the popular belief among Kenyans that devolution is the best thing that has ever happened to them.

However, it has emerged that there has been attempts by the Jubilee government to frustrate devolution. This has manifested itself through inadequate allocations and delayed disbursement of devolved funds leading to poor absorption of development expenditure and accumulation of pending bills. Despite many functions being devolved to the counties, the national government has continuously remained with resources that are by law should have been allocated to the devolved governments.

Kenya’s Commission on Revenue Allocation (CRA) which is mandated by Article 216 (1) (a) of the Constitution to make recommendations concerning the basis for equitable sharing of revenue raised by the national government between the national and county governments has not been doing enough to enhance allocations to the devolved functions due to pressure from the powers that be. Over 85 per cent of monies raised nationally is normally allocated to the National government while only 15 per cent is left for the counties to spend.

CRA is also mandated by law to determine how much of the total allocations will each of the 47 counties get based on agreed upon criteria that is fair and equitable. The Commission has used the Third Basis for revenue sharing to determine each county’s equitable share for the 2020/21 Financial year and has already submitted its recommendations to the Parliament. It recommends an allocation of Kshs. 321.74 billion to the county governments as equitable share. This translates to additional allocations of Kshs.
5.24 billion from Kshs. 316.5 billion in the Financial Year 2019/20.

The National Treasury through County Allocation of Revenue Bill, 2020 has recommended that county governments be allocated 316.5 billion shillings as equitable share exactly the same amount as the previous FY 2019/2020. The National treasury has cited as a reason for its recommendation the global economic crisis and stunted growth of the local economy as a result of COVID-19 pandemic. The County

Allocation of Revenue Bill, 2020 which is still before the Senate has based the allocation of the equitable share of revenue to county governments on the second revenue-sharing formula. This means that each county government will get the same amount of money it received as equitable share allocation for FY 2019/2020.

The ball is now in the court of the Senate to determine which basis of revenue-sharing formula to use as well as the amount to be allocated to county governments while reviewing the conflicting recommendations by the National Treasury and the Commission on Revenue Allocation.

On Monday 13th July 2020, the Senate will have a special sitting to deliberate and approve the County Allocation of Revenue Bill, 2020. The Bill was due for enactment two months before the end of the Financial Year as required by Article 218 (1) (b) of the Constitution. However, there is acrimony in terms of which revenue-sharing formula to adopt and this explains why the Senate is yet to pass this crucial Bill.

All eyes will be on the Senate as to whether or not it will rise to the occasion and defend devolution from being abused by some vested interests. The senate should determine the basis of revenue sharing by considering the need to ensure counties perform their functions, economic disparities within and among counties, affirmative action, the desire for stable and predictable allocations of revenues among others.

The Senate must desist any coercion by the Jubilee government or from some Senators towards the adoption of the Third Revenue-Sharing formula which is already discriminative and goes against the National Values and Principals of governance as espoused in Article 10 of the Constitution.

The third basis of revenue-sharing formula will significantly affect 18 county governments in terms of loss of revenue to the tune of 17 billion shillings. County governments that are negatively affected are mostly the historically marginalized counties that have been lagging behind in terms of development. For instance Wajir County will lose about 1.4 billion shillings, Garissa (Sh.484 million), Tana River (Sh1.5 billion), Mombasa (Sh1.6 billion) , Kwale (Sh995 million), Narok (Sh887 million), Isiolo (Sh.879 million), Mandera( Sh.2 billion) and Marsabit (Sh. 1.8 billion).

This means that these counties will scale down service delivery, unable to provide basic services like water and health even during this harsh economic time when the counties are grappling with the effects of COVID-19 pandemic. The Senate should therefore adopt a holistic view and approach this matter on ”Do no harm” maxim by shelving the adoption of this formula for further consultations.

The new formula is putting more weight on population with an index of 18 per cent based on the 2019 census which is already disputed by most of these counties that are set to be affected by the formula. The CRA overlooked the significance of land mass and failed to appreciate that the cost of service delivery is too high in counties that have huge land mass like Wajir, Garissa, Marsabit, Turkana among others as opposed to counties that only boast of population without commensurate land mass.

Counties with huge populations like Nairobi, Kiambu, Nakuru, Kakamega are the biggest beneficiaries under the new arrangement. These counties do have enhanced capacities and potentials to raise own source revenue because of existence of industries, factories and such other lucrative economic activities. ASAL and marginalised counties are bereft of these capacities and have therefore nothing to compensate any reduction in terms of equitable share allocation if the new formula is approved by the Senate.

The Senate therefore should look at the bigger picture and ensure that no county government is given less than what it received in the previous financial year. They should let the disadvantaged counties breathe and salvage them from the heavy knee on their “heads”.

CPA HASSAN ADOW is an Economist working with the County government of Wajir.

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