Separating facts from fiction on devolution, 10 years on 

A mid-week debate on a leading morning TV show with a leading academic and two other colleagues highlighted just how sharply divergent perceptions of devolution remain 10 years on. Some believe there are far too many counties and that devolution is wasteful and counties corrupt.

The immediate trigger of the debate was that members of county assemblies have been agitating for higher pay.

Counties are increasingly dependent on the national government, the academic charged, as they are collecting less taxes than the local authorities they replaced. Nothing could be further from the facts!

First, counties do not depend on the national government. The Constitution shares out the taxes we pay between the two levels of government. It does so because the key functions are shared between the two levels of government.

National security and defence, foreign policy and national referral hospitals are national government functions. Health services (except national referral), agriculture, urban and rural roads are county government functions. It is not the role of the State Department of Health to build level-three hospitals or pretend to provide primary healthcare as they are trying to do now. The roles of each level are spelt out in Schedule 4 of the Constitution.

The reason the national government is able to hold counties to ransom is that they control the Kenya Revenue Authority, which collects the taxes, and the consolidated fund, into which all taxes are paid. The National Treasury prioritises national government cash needs over those of counties, then blames shortfalls in revenue collection for delayed disbursements.

The leadership of the Council of Governors and the Senate have recently floated the idea of a Sh100 billion county bond to be issued and the proceeds used to clear the backlog of disbursements to counties. While there is nothing wrong with the government issuing a bond — after all government borrows every week — the idea reinforces the notion that the consolidated fund belongs to the national government! 

Disbursement schedule 

A better idea is for the Central Bank of Kenya (CBK) and the Controller of Budget to adhere to the Division of Revenue Act, and to the County Allocation of Revenue Act (CARA). Each year, the precise amount to be disbursed to counties is laid out in the Division of Revenue Act. Further, the CARA has a schedule showing the amounts to be disbursed to each county every month.

The CBK and the Controller of Budget should not be waiting for a National Treasury officer to tell them when and what amounts to disburse, rather they should follow the schedule. To be clear, the Constitution does not give preference to national government disbursements. Rather, it demands that a minimum of 15 per cent of taxes collected nationally be promptly disbursed to the counties. It also doesn’t give a maximum percentage, as resources should follow functions.

Our academician friend noted that counties’ pending bills are now at Sh159.8 billion, although he did admit that pending national government bills are much higher at Sh570 billion. He suggested this is because both levels of government are living beyond their means. On this, we agree. 

But pending bills are also an accounting problem. Development projects take more than one year to complete. But because the public sector uses cash accounting, all unfinished work as of June 30 shows up as pending bills. With counties undertaking increasingly bigger projects, and with larger budgets, the absolute size of the pending bills is growing. A better analysis would include an assessment of how much of the bills are settled each year.

The Constitution anticipates that counties will borrow. The purposes for which they can borrow are also restricted to development projects, and the amount is capped at 20 per cent of revenue in the most recently audited and approved financial statements. So far no county has borrowed. Laikipia completed the process to issue a bond but the request for approval of the treasury guarantee has been languishing in Parliament for about a year. 

County bonds will be the same as municipal bonds, which are quite common around the world. Investors can also rely on ratings when considering these investments. So far five counties have been rated.

The debate then turned to corruption in counties vis a vis the national government. The allegation was that procurement is skewed in order to raise campaign funds or reward previous supporters and donors. There is no evidence that malfeasance is higher in counties. In fact, it appears to be the other way around. Every day, the media is exposing one scandal after another at the national level.

The current ugly spat was sparked by the expose of the crooked edible oils deal. The officials have responded by calling the media unprintable names. 

But facts are stubborn. Favoured brokers have been contracted to import edible oils and grains duty-free. They then sell the same to a government agency, Kenya National Trading Corporation, at prices higher than the commodities are selling in the local market. The parastatal will likely be stuck with expensive commodities they cannot sell. The brokers will have long made their money and moved on.

Just why have the governors been reduced to begging the national government to make disbursements? The first lot of governors did better on this issue. My lot made a strategic mistake by agreeing to a détente with the national government. The current excellencies seem to have adopted our misguided strategy. As for reputation, well, centralists have never believed in devolution.

@NdirituMuriithi is an economist