Cash crisis looms as formula holds Sh316bn for counties
The Senate has once again stalled in enacting a formula that would have enabled county governments to share equitably the Sh316.5 billion allocated in fiscal 2020/21.
The delay portends a looming financial crisis in the devolved units, with critical services like health and water provision amid the Covid-19 disease, among those to be affected.
The impending crisis has been caused by the Senate’s lack of commitment to have the third basis formula approved in time after the expiry of the second basis formula that has been in place for the last three years.
Without the third basis formula, the billions can’t be shared among the 47 devolved units from July 1, as it will be unconstitutional.
POPULATION
Nominated Senator Isaac Mwaura, the Senate Finance and Budget Committee vice-chairman, said the formula ought to have been enacted in time.
“We needed to have passed the formula before the end of this month. The formula must guarantee fair distribution of resources and population must be key,” Mr Mwaura said, noting that Kenya is urbanising at a fast rate and in the process creating new forms of marginalisation that must be addressed.
The new formula was developed by the Commission on Revenue Allocation (CRA) after the expiry of the second basis formula and presented to the Senate last December.
The Constitution provides that the formula must be approved first before the County Allocation of Revenue Bill 2020 is considered.
THE IMPEACHMENT
Today is supposed to be the last sitting day of the Senate to consider the impeachment of Kirinyaga Governor Anne Waiguru among other matters before proceeding on recess.
This means that if the Senate agrees to form a select committee to look into the impeachment charges against Governor Waiguru, it may adjourn and only reconvene at a special sitting to consider the report of the committee.
If it decides that the whole House considers the impeachment, then it will have to forego the recess at least for the time being by altering its legislative calendar.
Interestingly, the issue of the third basis formula is not among the matters to be transacted in the House, according to the Senate Order Paper, a schedule of business to be transacted by the House at a sitting.
But yesterday, Makueni Senator Mutula Kilonzo Jnr downplayed the possibility of a crisis in the counties, noting that the Senate may even consider postponing the recess.
“It’s not a given that we will go on recess,” Mr Kilonzo said even as he admitted that approving the formula is a long and tedious process because of the drastic changes it causes to the second generation formula.
“This formula is causing ripples in at least 24 counties that stand to lose from what they are getting currently,” he added.
Fears now abound that the delayed passage may attract litigation against the Senate for contravening the Constitution and causing unnecessary delays in disbursing monies to the counties.
The recent advisory by the Supreme Court stated that the county governments can only access up to 50 per cent of their allocation in the event that passage of the Division of Revenue Bill is delayed.
The advisory was, however, silent on what happens if the enactment of the County Allocation of Revenue Bill is delayed.
DIVISION OF REVENUE BILL
The two revenue Bills are enacted annually with the Division of Revenue Bill providing for the sharing of revenue collected between the national and county governments.
The County Allocation of Revenue Bill provides for the equitable sharing of resources from the national government among the 47 county governments.
It was, however, withdrawn at the debate stage in April this year to pave the way for the enactment of the third basis formula.
The Constitution provides that, once every five years, the Senate shall, by resolution, determine the basis for allocating among the counties the share of national revenue that is annually allocated to the counties.
The third basis formula is a radical shift from the first and second as CRA has proposed the expansion of parameters for the shareable revenue among the counties.
Its implication is that counties that have been receiving a higher allocation because of huge land mass as well as high poverty levels, will see a reduced allocation under the new formula.
The health index has 17 per cent, Agriculture 10 per cent, county population 18 per cent, basic share index 20 per cent, land area 8 per cent and rural access at 4 per cent.
The others are poverty 14 per cent, urban households 5 per cent, fiscal effort (revenue collection) 2 per cent and prudent use of public resources at 2 per cent.
According to the Public Finance Management (PFM) Act, the County Allocation of Revenue Bill is to be introduced in the Senate within seven days of the enactment of the Division of Revenue Bill, which was signed into law by the President on March 18.
The PFM Act provides that disbursement of funds to the counties shall be done in accordance with the cash disbursement schedule, which must be approved by the Senate and published in the Kenya Gazette not later than May 30, every year.
The schedule is to be considered 15 days after the passage of the County Allocation of Revenue Bill.
The delay means that the counties will not pass their budgets by June 30 as required by the PFM Act because they do not know how much they will get.
The first basis formula was passed on November 27, 2012, by the National Assembly as the Senate had not come into being.
It was meant to serve three financial years but instead went on to serve four financial years.
They include 2013/14, 2014/15, 2015/16 and 2016/17.
The formula was largely tailor-made to reward poverty and as such counties slackened on development as they competed to be poor so that they could get enhanced allocation.
The second basis formula was passed on July 6, 2016, to serve for three financial years- 2017/18, 2018/19 with the 2019/20, the current financial year, being the last.
The second basis formula saw a reduction on the basis for poverty index from 20 per cent to 18 per cent.
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