Treasury slashes counties’ Budget share by Sh32.5bn

Commission on Revenue Allocation (CRA) chairman Micah Cheserem at a past Press conference. FILE  NATION MEDIA GROUP

By EDWIN MUTAI

In Summary

• County governments will receive Sh32.5bn less than the Sh231.1bn that CRA had determined as their share of the national revenue in the 2013/14 financial year.
• This leaves the 47 county governments with Sh198.7 billion to share and spend on devolved functions.
• Sharing of the money is based on total revenue of Sh920,375,000,000 with the national government taking Sh721.8 billion and Sh3.4 billion going to the Equalisation Fund.

The Treasury has set up county governments for a difficult financial year with a deep cut in their Budget allocation beginning July 1.

County governments will receive Sh32.5 billion less than the Sh231.1 billion that the Commission on Revenue Allocation (CRA) had determined as their share of the national revenue in the 2013/14 financial year.

This leaves the 47 county governments with Sh198.7 billion to share and spend on devolved functions, including remuneration of county executive, county assembly, county public board members and provision of key services such as health and agriculture.

Sharing of the money is based on total revenue of Sh920,375,000,000 with the national government taking Sh721.8 billion and Sh3.4 billion going to the Equalisation Fund.

The proposals are contained in the Division of Revenue Bill that National Assembly Majority Leader Aden Duale presented to the House on Tuesday evening.

The Treasury says that the difference between its figures and CRA’s recommendations “stem from the different approaches used in the computation of the county governments’ equitable share.”

The Constitution requires that the Treasury explains any deviation from CRA’s recommendations but leaves the final decision to Parliament.

The Treasury says that despite the differences in its recommendations and those of the CRA, the proposed allocation is above the minimum constitutional threshold of 15 per cent of the total ordinary revenue.

“The county governments’ needs are financed to the tune of Sh198.6 billion which is equivalent to 32.7 per cent of the most recent audited accounts for financial year 2010/2011 amounting to Sh608.1 billion,” the Bill says.

But the Treasury’s decision puts it on a collision course with CRA, which maintained that the Sh231.1 billion it recommended was the counties’ rightful share of the national revenue.

(Read: Cheserem names 14 counties to benefit from equalisation budget)

“The big picture is that we want county governments to get enough money to start off. The Sh231.1 billion is 25 per cent of the total Sh920.4 billion sharable revenue in the next financial year,” said CRA chairman Micah Cheserem.

The Treasury says in the Bill that CRA had erred in failing to give effect to the criteria set out in Article 203 (1) of the Constitution which demands “equitable distribution of resources between the two levels of government.”

The Treasury argues that Article 216 of the Constitution requires CRA to “promote and give effect to the criteria set out in Article 203 (1) in its recommendations.”

That section of the law requires CRA to take into account the national interest, public debt and other national obligations, the needs of the national government, the fiscal capacity and efficiency of county governments among other criteria in determining equitable share of revenues that is due to the two levels of government.

Mr Cheserem said CRA had agreed with the Treasury in recommendations submitted to Parliament last year that 25 per cent of the total sharable revenue goes to counties leaving 75 per cent with the national government.

“The Treasury’s figures have not changed from what it proposed last year. We will go to the Parliamentary Committee on Budget and Appropriation to defend our position. In fact the Senate wants the figure raised to Sh250 billion,” Mr Cheserem said, drawing the lines for the battle ahead.

It remains to be seen how politicians in both houses will balance their obligations to the voters who elected them and are highly supportive of county governments with their loyalty to the national government.

Mr Cheserem said the commission will make known its official stand on the matter once it reads through the reasons the Treasury has given for setting aside only Sh198.7 billion for counties.

(Read: Treasury gives Sh198.7 billion for county governments)

“In determining the vertical allocation of county governments for 2012/13, the CRA starts with a base of Sh203 billion which is then increased by 14 per cent to get the figure for 2013/14 of Sh231.1 billion. The figure for 2012/13, however, has several problems,” the Treasury says in the Bill.

The Bill further says that CRA had recommended the transfer of Sh202.7 billion to the counties while the Treasury set the figure at Sh185.5 in the 2012/13 financial year.

In the next financial year, CRA recommended that Sh231.1 billion be transferred to counties while the Treasury placed the figure at Sh198.7 billion — meaning that the Treasury has simply decided to go with its own recommendation.

The Bill must be scrutinised by Parliament’s Budget Committee, debated and passed by the National Assembly before ultimately getting the Senate’s approval.

The Treasury has in its explanation of the deviation faulted CRA’s costing of devolved government functions saying the Sh148 billion allocation is not consistent with the Budget.

“The National Treasury’s estimate of the cost of functions for 2012/13 is Sh185.5 billion, including allocations to county governments for the last four months of the financial year, as derived from the Budget approved by Parliament.”

The Treasury further faults the CRA’s Sh36.3 billion estimate for remuneration of county executives and assemblies as well as administrative expenses, terming them overstated and not supported by a clear basis of costing.

“Furthermore, these estimates do not reflect the new lower salary structure gazetted by the Salaries and Remuneration Commission (SRC),” the Treasury argues, saying its own estimates of salaries for county and executive and members of county assemblies are based on the new SRC salary structure. “Administration costs are assumed to be 30 per cent of total remuneration.”

The Treasury also argues that it was not clear how CRA arrived at a figure of Sh18.4 billion being the 10 per cent contingency for the expected tendency by national government ministries to hold onto functions at the centre.

It says CRA’s quest to increase allocations for county governments without indicating which ministries’ allocations should be reduced risks opening a financing gap of Sh18.4 billion.

“It should be noted that it is the responsibility of the Transition Authority to ensure ministries do not hold onto functions that have been devolved,” the Treasury argues in the Bill.

CRA has also come under sharp criticism for assuming that the total revenue, including loans and grants, form the equitable share and are therefore sharable using the formula approved by Parliament.

“Loans and grants are subject to contractual agreements and relate to specific projects and therefore cannot be diverted to other uses or to other counties,” the Treasury says, revisiting the argument that was at the centre of its battle with civil society groups during the enactment of the Public Finance Management Bill.

The Treasury said it excluded costs relating to funding regional referral hospitals in computing the counties’ equitable share choosing instead to provide for it as conditional transfers.

CRA is once again criticised for assuming that money for the institutions that provide services to more than one county should be shared among the 47 counties.

Other conditional transfers excluded in the equitable share are donor support to counties amounting to Sh16.3 billion, Sh10 billion for expenses relating to regional referral hospitals and Sh17.3 billion additional amount to ‘hold harmless’ counties.