counties’ share of national revenue will shrink slightly this year

Saturday February 21 2015

In my last column, I promised to continue discussing Kenya’s Budget Policy Statement 2015 by considering how much money the counties would get under National Treasury’s proposal. So let’s have a look.

First, recall that every year, counties may receive both unconditional and conditional funding. Unconditional funds are given primarily through the “equitable share,” which is the pot of money that is distributed according to the Commission on Revenue Allocation formula.

Funds given through the “equitable share” can be used in any legal way that the counties would like; there are no strings attached. There are also funds that can be given conditionally. Conditional funds, at least in theory, are given for specific things with specific criteria for their use.

For example, we have an existing grant for regional hospitals given to counties hosting Level 5 facilities. In theory, that money can be used only for that purpose. In addition, in most countries, conditional grants may come with other conditions.

For example, a conditional grant may require that a county also put in “matching” funds. For instance, a county may receive a grant for 75 per cent of the cost of some service, such as a hospital, and be expected to put in 25 per cent on its own. If it refuses, it may not receive the grant.

In the past three years, it is fairly easy to see how much counties have received from the equitable share: The amount was Ksh190 billion in 2013/14, and Ksh227 billion in 2014/15. Treasury proposes to raise this figure to Ksh254 billion in 2015/16.


How was this latest figure arrived at?

Treasury have taken the previous year’s figures as a new baseline (in this case, Ksh227 billion) and then modified this figure in two ways.

First, they have added about Ksh3 billion for additional functions transferred to counties since last year (agriculture/livestock and polytechnics) and they have then inflated the whole thing by about 10 per cent for growth in overall national revenues. It is not clear how the 10 per cent was derived.

One of the big questions people will be asking is: “What percentage of revenue is this?” This is, after all, at the heart of the various referenda pushes from governors and opposition. Treasury says that the figure constitutes 33 per cent of the 2012/13 audited accounts.

To remind ourselves, the controversy last year was related to the fact that in calculating these percentages as per the Constitution, we must use the last audited and approved accounts. As of last year, these were from 2009/10.

Using 2009/10 audited accounts, the percentage last year was 43 per cent. It is not clear whether we have more recent audited and approved accounts this year or not. Treasury refers to 2012/13 as last audited, but does not say whether they are approved.

As I have shown before, however, this is a sterile debate. What we should be focused on is the share of county revenue in total revenue each year. This is for two reasons: First, we have always met the constitutional threshold, because it is quite low, and second, because what matters is what county governments have in the current year relative to what was available in the previous year, not what was available five years ago.

From the numbers, Treasury is proposing to give counties about 21 per cent of current year shareable revenues for 2015/16, compared with 22 per cent of shareable revenues in 2014/15 (this is still true at the more recent negotiated figure of Ksh258 billion reported in the media).

The complicating factor is the set of conditional grants. Last year, proper conditional grants actually given to counties were minimal, only about Ksh2.6 billion for health facilities. (This excludes donor money managed by national government on behalf of counties, which I do not consider county revenue).

This year, the conditional grants have expanded, with some money for roads from the fuel levy, and a new grant for leasing medical equipment. In addition, free maternity has been brought into the division of revenue. However, this was already given as a conditional grant and should not be counted as an increase.

How do we compare total revenues to counties last year and this year? In 2014/15, we should add to the Ksh226.6 billion equitable share the Ksh2.6 billion in conditional grants for health facilities, as well as the free maternity grant (Ksh4 billion). In 2015/16, we can then include the free maternity grant of Ksh4.6 billion, the medical leasing grant of Ksh1.98 billion, the Ksh2 billion for hospitals, and the Ksh3.3 billion for roads.

This gives us roughly Ksh233 billion in 2014/15 and Ksh266 billion in 2015/16. Taking these figures as a share of total shareable revenue, counties received 23 per cent in 2014/15 and would take 22 per cent in 2015/16.

The bottom line? A small decrease in funding for counties as a share of total revenue.

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