Yes, the county wage bill is high, but we need to know why if we are to address it

Wednesday June 14 2017


By Jason Lakin

The past couple of years have seen considerable hue and cry about the size of the wage bill at the county level. Too much of this discussion has eschewed reliance on basic facts.

My organisation recently trained its sights on the issue of county wage bills, and found that the issue is systemic and rooted in history more than choice.

County governments are responsible for far less of the problem than is often assumed: No more, we estimate, than 6 per cent of the total wage bill as of 2015/16.

This goes against the grain of much debate on this topic, which tends to blame counties, and particularly governors, for exploding their payrolls. So how do we arrive at our conclusions?

It is worth noting at the outset that we do not dispute that wage bills are high. In 2015/16, they amounted to 40 per cent of revenue across all counties, and this average conceals variation across counties, with some much higher.

The average exceeds the maximum in the public finance regulations, which limits wages to 35 per cent of revenues.

Whether this level is too high in any objective sense is another story: While the wage bill is higher than allowable, many counties have too few health workers (for example), and solving that problem can only drive wages up further.

Bulging wage bills

The question is why the wage bills in the counties have reached these levels. Current wage bills are the result of the following factors:

The cost of devolved staff (such as health workers), the cost of staff inherited from local authorities, the cost of new county structures (such as county assemblies), the cost of any mandatory wage adjustments over the past several years from the Salaries and Remuneration Commission, and finally, the cost of new workers, or increased wages, due to county decisions since 2013.

Without knowing anything at all, it should be obvious that there are more areas on this list that are outside of county control than within it. Whether those areas are substantial drivers of cost remains to be shown.

Our analysis looks at this issue over three years, but to simplify here, let us examine this list in 2015/16. Recall that total wage share of revenue in that year was 40 per cent. What are the components of that 40 per cent?

We estimate that just under half (19 per cent) is attributable to the costs of devolved staff (such as health workers). Devolved staff were transferred with their pay packages to counties, and it was not (and is not) easy to change their pay terms even after absorption by counties.

We estimate that an additional 5 per cent of the 40 per cent is attributable to inherited local authority staff. This figure is based on an estimate of pay before devolution, but it is probably too low, as we know that many local authority staff negotiated new collective bargaining agreements just before devolution, and we do not know the impact of those on the total package.

Anecdotally, these agreements substantially inflated the inherited wage bill.

So far, we are at 24 of the 40 per cent. Another nine per cent is attributable to the cost of new county structures (governors, assemblies, etc).

These are largely mandatory costs, determined centrally by the SRC, which cannot be altered by the counties. This takes us to roughly 33 per cent.

Finally, in 2015/16, SRC introduced upward adjustments in remuneration that affected counties. The National Treasury and the Commission on Revenue Allocation disagreed about how much counties should be given to cover these costs.

Our understanding is that Treasury wanted to give counties less not because they disputed the true cost, but because they felt that counties should bear more of it.

We were not able to confirm the exact cost, however, so we settle for a range of estimates, which brings us to between 34 and 37 out of the 40 per cent we are chasing.

This means between three and six per cent of the 40 per cent is attributable to county hiring and pay decisions. That amounts to between Ksh10 and Ksh18 billion ($173 million) of a Ksh119 billion ($1.1 billion) payroll.

That is not trivial, nor does it mean that counties are blameless, but if we want lower wage bills, we need to do more than point fingers at governors.

Collective national action

We need collective, national action. So far, though, national action has been in the wrong direction. Firing redundant staff inherited from other parts of the government is costly and legally treacherous.

The Capacity Assessment and Rationalisation of Public Sector process was meant to tackle this, but failed.

SRC has mandated, rather than curbed, escalating pay and benefits for the public sector in recent years. And then we have the health worker settlement, and the ludicrous case extending MCA pay. So you tell me: Who is to blame?

Jason Lakin is Kenya country director for the International Budget Partnership. E-mail: [email protected]