Inside sabotage and supremacy wars that led to county cash crisis

A fierce power struggle and legal showdown involving Treasury Cabinet Secretary Ukur Yatani, members of the National Assembly, senators and governors led to the cash crunch that plunged counties into a crisis.

That the interpretation of the law was as varied as those interviewed, with the buck being passed around with dizzying speed, highlighted how bureaucracy and legalese stall government processes as Kenyans suffer.

Mr Yatani insisted Treasury had no legal basis to effect partial disbursements to the counties pending Senate approval of the contentious revenue formula and the County Allocation of Revenue Bill.

“There is no law that empowers us to release 50 per cent of the equitable share of the national revenue to the counties. We remain guided by the AG’s advisory that in a situation like this, it’s the National Assembly that can authorise Treasury access the 50 per cent, which they are yet to do despite our prompting through a letter over a month ago,” Mr Yatani told the Nation.

Parliament's authority

Attorney-General Kihara Kariuki had advised Treasury that the express authority of the National Assembly is required for withdrawal of funds from the Consolidated Fund.

This view was supported by Mr Nzamba Kitonga, the chairman of the Committee of Experts that wrote the Constitution.

“The National Assembly must pass a resolution to authorise the disbursement by Treasury,” Mr Kitonga suggested.

Following Treasury’s letter to the National Assembly, Minority Leader John Mbadi drafted a motion that sought a House resolution for the disbursement of 50 per cent of funds allocated to the counties based on last year’s County Allocation of Revenue Act. 

“It’s not true that we have not acted on Treasury’s letter. I drafted a motion but last week the Speaker ruled it would not suffice. That a Statute is needed,” Mr Mbadi clarified yesterday.

Speaker Justin Muturi explained Article 206(2) of the Constitution requires that money may be withdrawn from the consolidated fund only in accordance with an appropriation by an Act of Parliament.

Fund withdrawal

But in case of delays in passing an Appropriations Bill, the constitution authorises withdrawal from the Consolidated Fund for the operations of the national government through a process referred to as “vote-on account” in parliamentary parlance.

This direct authorisation that does not require passage of any additional legislation to effect the withdrawal, however, cannot apply to counties, Mr Muturi ruled. 

The Speaker informed the House that, after consulting his Senate colleague Ken Lusaka, they had concluded that replicating the “vote-on-account” procedure for the county governments would require a new law.

“The concern the Leader of Minority party seeks to resolve is extremely valid, but a “vote-on-account” in respect of funds for county governments is not tenable at the moment,” he concluded.

Mr Muturi explained Senate had the key to unlock the stalemate in the form of a legislation that had originated from the National Assembly but stalled in the other House – the Public Finance Management (Amendment) Bill 2019.

Speedy passage

The Speaker then tasked National Assembly Majority Leader Amos Kimunya and Mr Mbadi, the Minority Leader, to consult with their colleagues at the Senate, Senators Samuel Poghisio and James Orengo to ensure speedy passage of the bill.

“When we reached out to the Senate leadership, they told us they would have a breakthrough (on the revenue formula) this week,” Mr Mbadi said last Thursday.

He, however, accused the Senate of sitting on the Bill that would have spared counties the troubles.

“The Senate is sitting on a Bill to amend the PFM Act to allow counties get half of their allocation. This Senate is letting Kenyans down. Some of us had reservations about the Senate but we were told wait. Now see where they have got the country, we are only hearing about bribes there,” Mr Mbadi charged.

Asked why the Senate was yet to pass the Bill, former Majority Leader Kipchumba Murkomen, a member of the special committee negotiating a comprise on the third basis for revenue sharing, replied: “No need, that matter is coming to an end.”

Senators eventually struck a deal on the revenue formula last Thursday. The County Allocation of Revenue Bill, which is in the final legislative stage in the Senate, will be passed this week to end the protracted legal process.

However, the governors insist there were no legal hurdles to stop Treasury from making partial disbursements, instead alleging a plot to undermine devolution.

“The law is being misused, violated and the confusion at the Senate is contrived,” said Laikipia Governor Ndiritu Muriithi.

Mr Muriithi said the Supreme Court, while deciding on a stalemate on enactment of Division of Revenue Bill last year, had observed that, in the event of an impasse, the percentage of the money to be withdrawn should be based on the equitable allocation to counties in the Division of Revenue Act of the preceding financial year.

“Basically, the Constitution cannot contemplate interruption of government operations,” the governor argued.

He cited the PFM Act Section 134 (1), which sanctions partial withdrawal of funds to finance county operations.

The Act states: “If the County Appropriation Bill for a financial year has not been assented to, or is not likely to be assented to by the beginning of that financial year, a county assembly may authorise the withdrawal of money from the County Revenue Fund.”

The best way of stifling counties is to deny them money.

Machakos Governor Alfred Mutua argued that, even where a county assembly has not approved the budget, the county government is allowed to draw half of the amount to avoid paralysis, as has happened in his county before.

“The best way of stifling counties is to deny them money. This is calculated to weaken devolution,” Dr Mutua said.

The governor alleged sabotage to settle political scores.

“There is a plan to make President Kenyatta look like a failure who is unable to manage the affairs of the state. I ask the President to issue an executive order to resolve the cash crisis. He should not be a by-stander,” Dr Mutua said.

“At no time should the government fail to provide services because of a stalemate. This is part of an ongoing campaign to retain the status quo in the country but Kenya is ripe for change,” he added.

No reason

Law Society of Kenya President Nelson Havi agreed with the governors that Treasury has no reason to refuse to make partial disbursements based on the previous year’s allocations.

“This is indecision. He has to pay,” Mr Havi said.

And it emerged a proposal that would have forestalled the current crisis had been floated five years ago, but the last Parliament never bothered to address it.

Relying on the PFM Act, the Treasury Cabinet Secretary had drafted the Public Finance Management (National Government) Regulations 2015, which provided for the transfer of the equitable share of national revenue to the counties before the approval of a County Allocation of Revenue Bill.

The regulations stated that if the Bill is not approved, the Controller of Budget may authorise withdrawals of up to 50 per cent from the consolidated fund based on the last County Allocation of Revenue Act.

In 2015, when the regulations were tabled, a government bill prepared by the AG at the request of the Treasury was introduced in the National Assembly by the then Majority Leader, Mr Aden Duale.

The Public Finance Management (Amendment) Bill 2015 had a new clause that effectively sought to authorise a “vote-on-account” for county governments in the event that passage of a County Allocation of Revenue Bill was delayed.

The Bill lapsed with the 11^th Parliament.