Only amending Article 203 - not formulas - will ensure equity
Although the absolute equitable share has progressively increased over the years, its proportion to ordinary revenue has been on a decline
The Senate
On Tuesday, August 4, Senators agreed to adjourn debate on the formula and instead seek to achieve consensus outside the House. One of the reasons why there is an impasse is that the debate took a narrow political trajectory of losers and winners. But the argument that no county should be getting less money than it has been getting before is not only fallacious and anchored on populist politics.
For the country to achieve equitable resource allocation, it cannot put in place mechanisms that marginalise populace counties in the guise of uplifting the traditionally marginalised counties. With the average per capita allocation being about Sh6,000 per person, there is no reason why populous counties should get the minimum while the so labelled ‘marginalised’ get up to four times.
The country is in agreement that some sections of this country were highly favoured through political patronage in the past. However, after 7 years of devolution, the question we need to address is what has been achieved with the Sh1.8 trillion spent so by the counties so far. What priorities did the individual counties set for themselves? Is the money allocated going the needs of those counties? If they lacked hospitals, what has been done so far to increase capacity?
But the current debate aside, funds must be sent to counties to meet specific needs and this is what the formula must be about. But at the same time, the country is in agreement that the national government has been starving counties of cash not only allocating limited resources but by also delaying disbursement.
This is not what was envisaged in the making of the 2010 Constitution, and specifically the provisions related to revenue allocations found in Chapter 12 on Public Finance. The Constitution talks of ensuring that counties are able to perform their functions and while dealing with economic disparities, there is a need for economic optimisation of each county.
Article 203 of the Constitution outlines the full criteria to be met when determining the equitable shares between the national government and the county governments. Further in 203(2), it specifies that the county governments must be allocated not less than 15 per cent of all the revenue collected by the national government with a rider in Article 203(3) that this revenue must be the most recent audited revenue accounts as approved by the National Assembly.
The approvals since the onset of devolution have been above 15 per cent since the last audited and approved revenue accounts are those of 2014/15 at Sh1.03 trillion. However, revenue collected by the national government has been on a rise with the 2019/20 financial year recording Sh1.45 trillion. Although the absolute equitable share has progressively increased over the years from Sh190 billion in the 2013/14 financial year to Sh316 in the 2019/20 financial year, its proportion to ordinary revenue is on a declining trend from a high of 23 per cent in the 2015/16 financial year to 18 per cent in the 2019/20 financial year.
This slow growth in the proportion of equitable share has contributed to the current impasse over the revenue formula that the Commission on Revenue Allocation gave Senators. With the equitable share remaining at the same level of Sh316 billion, it becomes impractical for the CRA formula to be applied without hurting some counties. Since the population is also a factor, the data from the 2019 census also has a critical role thus making it hard to cushion the losing counties.
And this is why it is probably a good time for Kenya to have a conversation on amending Article 203 to ensure that the equitable share is raised from 15 per cent. The national government takes comfort on the fact that with the most recent revenue accounts having not been audited and approved by the National Assembly, it can claim to be giving the counties their minimum share.
Let us illustrate how the national government can take advantage of Article 203 to deny counties money. In the 2020/21 financial year, the revenue target is Sh1.88 trillion with 15 per cent being Sh282 billion which is way below what counties are being allocated. Therefore retaining the equitable share at 15 per cent, can easily help the national government legally starve counties of money.
This would be detrimental to devolution as the country has learnt from the ongoing debate that counties have different needs and unique circumstances where no one size can fit all. There is an important discussion here that the country must have before it is too late and a similar national government like the present one that really does not care about devolution comes and undoes all the progress made.
Therefore, even if Senators give the country an acceptable formula to break the current stalemate in the coming days, the country will only be treating the symptoms. Kenya must bite the bullet and make an amendment to the Constitution to allow more money to flow to the counties and thus ensuring each specific county's needs are adequately met. All counties are unique and there cannot be equity until such a time when we have enough money to share among them. Of course, there is the issue of mismanagement and misappropriation that needs to be addressed both at the national and the county levels.
Historical perspective on how we got here
So how did Kenya come up with the “not less than 15 per cent” in the Constitution? And why did it base it on the “latest audited and approved accounts”?
According to the Committee of Experts report published on October 10, 2010, “the amount allocated to the county level of government must be at least 15% of the revenue raised by the national government in the previous financial year.” However, their own draft constitutions never indicated this but instead based the 15 per cent on the “latest audited and approved accounts”.
The discussions in Naivasha during the Parliamentary Select Committee on the Constitution Review Process point us to how the then Finance Minister Uhuru Kenyatta (now President) managed to convince his colleagues to retain the allocation at 15 per cent. Uhuru also asked MPs not to lock the figure leaving room for flexibility so that a government could give more than the 15 per cent share to the counties. This has been the premise that the current administration has been using to claim to be giving counties “a lot” of money.
It was on January 28, 2010, at the Great Rift Valley Lodge that Uhuru convinced the MPs to retain the proposal by the Committee of Experts. Uhuru and Narc-Kenya leader Martha Karua also led the MPs in adopting the reduction of the Equalisation Fund from one per cent to 0.5 per cent. The ODM team at the talks which included now Deputy President William Ruto (then Agriculture Minister) and former Bomet Governor Issac Ruto (then Chepalungu MP), was proposing that the amount be raised to 20 or 25 per cent. Former Senate Speaker Ekwe Ethuro and Mbita MP Millie Odhiambo were others who supported at least 20 per cent for the devolved funds.
The debate, however, dwelt more on whether the Constituency Development Fund (CDF) would be part of the money that was to be devolved from the National Government to the management by the Counties. These discussions are contained in the Hansards of the two-week retreat in Naivasha.
“Mr. Chairman, Sir, what I wanted to say is that we should say not less than 20 per cent. You know CDF is not part of these Counties. We get it from the national fund. Anyway, if that is the case, all I would want to do here is, provided that the five per cent for CDF is also locked in here,” William Ruto said.
The then Parliamentary Select Committee on the Constitution chairman Abdikadir Mohammed however said that they should agree on that CDF is part of devolved funds and that whatever figure they agree on then it is deducted out of that.
In his contribution, Issac Ruto stated; “They are taking 15 per cent if it is not less than 20. Not less than 20 means you can give us 25 per cent. It depends on you. But if you are including CDF there then we go back to 25 per cent.”
According to the Hansard, Ruto told the meeting that he has received advice from the “DPM” (Uhuru) that the 15 per cent would be doubling the amount that was already going to Local Authority Transfer Fund and CDF. At this point, Abdikadir asked Uhuru to explain the advice which appeared to have “tempered” Ruto.
“If we can agree not less than 15 per cent and we have a clause that goes that: Not less than 15 per cent of revenue collection and to avoid, because that has been one of the big problems, to avoid the problems that we have had with CDF: We say calculated on the basis of the last audited accounts that have been approved by parliament. The big problem here is if we do it on the basis the way we do CDF, we calculated on the basis of Budget; if you do not hit targets and you have already committed the money you end up in a problem. So, want it to be based on the last audited accounts,” Uhuru told his colleagues.
Karua also supported Uhuru’s proposal saying that since Parliament was the one to pass the Division of Revenue Bill, it would be free to push the amount, if need be. She added that the 15 per cent was enough good for Counties as there was a lot of work still to be handled by the National Government.
After the explanations William Ruto said; “Mr Chairman, Sir, I think I am persuaded to accept 15 per cent. But they are consulting too loudly. 15 per cent is fine but we want to say that this money shall then be going direct to those counties because they have previously gone through the Ministry of Local Government; that 5 per cent, the actual amount that reaches down there has been one per cent. So, the Counties have been stuffed.”