Everyone seems to agree that state corporations are in need of reform. We have heard less about this lately, as the fanfare around the Presidential Task Force report has subsided, and the Government Owned Entities Bill is “undergoing internal review and stakeholder consultations,” in the Kafkaesque phraseology of the Commission for the Implementation of the Constitution.

Nevertheless, in the public debate about the fate of state corporations, relatively little attention has been given to the degree to which these corporations perform devolved functions or what to do about it. We understand little about how much money these corporations spend, or what the implications are for the money available to both levels of government.

My colleague John Kinuthia and I have just completed an analysis of these corporations using the 2012/13 budget. The reason for using this budget is that it is the last budget with all functions of government in one place. It is therefore the best (and only) option for getting a sense of how much money these corporations control relative to the cost of national and county functions.

That said, determining how much money goes to state corporations is no mean feat. Treasury used to produce an Annex that summarised all spending by state corporations, but discontinued this a few years ago. The Annex was always flawed and never comprehensive, but it gave citizens, and parliament, a rough sense of total spending on these corporations.

These days, one must go line by line through the budget books trying to discern transfers to state corporations with little guidance. Some corporations are not mentioned at all in the programme-based budget.

So, after painstaking combing of the 2012/13 line item budget, what did we find? 

In 2012/13, some 132 state corporations received direct funding from the budget. These state corporations were allocated over Ksh350 billion in public funds. This was nearly a third of the total budget for all ministries, departments and agencies, and nearly half of all the money that government allocated to development.

Not surprisingly, given the heavy development focus, the majority of this funding (58 per cent) is in the infrastructure and energy sector. A substantial share (16 per cent) is in education, followed by water (8 per cent).

It is clear from this that we cannot talk about the budget, or the revenues available for anything, including counties, without considering very seriously the role of state corporations. But the overrepresentation of state corporations in development spending also suggests a challenge — these bodies depend heavily on foreign loans and grants.

Almost 40 per cent of state corporation budgets are funded externally. This is significant because it implies that quick and radical changes to state corporations may not be possible without affecting their funding. 

For example, if a state corporation that relies heavily on donor funding is devolved, it does not automatically mean that the corporation’s budget will be devolved. Donors may decide against providing funding once it is passed to counties.

Even those donors who would like to support county functions may not want their funding to go through the “equitable share,” the large unconditional grant (the so-called 15 per cent) that comprises the core funding to counties for devolved functions. They may instead prefer to give this money through a conditional grant to ensure that it is still used for whatever the initial intention was.

That was the position taken by Danida this year when it opted to “devolve” its funding for the health system through counties, but by giving them a conditional grant rather than leaving that money to counties to do whatever they like. 

Given that a large share of state corporation budgets are for national functions, and some share is also externally funded, what share is available to be devolved to counties? The Task Force did an analysis of the corporations it thought should be devolved, focusing mainly on water, regional development, and roads.

It isn’t clear if the Task Force thought these corporations should be 100 per cent devolved, but assuming that it did, and removing the foreign funding, this would leave about Ksh29 billion to be devolved. 

We looked afresh at the list of state corporations and concluded that there were others that could be performing devolved or shared functions, including some that were identified by Treasury in 2012/13, but ignored by the Task Force. When we took all of this together and removed external funding, we found that the maximum that could be discussed for devolution was about Ksh62 billion.

However, this includes some funds for shared functions that should not all be devolved (such as electrification).

At the same time, as we have argued repeatedly, one must consider whether simply devolving funds for water boards or regional development authorities is the right approach to ensure that regional issues are dealt with regionally in a way that does not undermine services.