Money into a County's Revenue Fund will be raised from two main sources: through local taxation and service charge, and (as noted above in the introduction), from its share of the National Revenue as part of devolved funds. In the first case, the County government will be able to raise own revenues directly through ordinary taxation and through taxation for unique services that it offers . Part 3— Revenue-Raising Powers and the Public Debt, Article 209, excerpts:
209. (3) A county may impose— (a) property rates; (b) entertainment taxes; and (c) any other tax that it is authorised to impose by an Act of Parliament.
(4) The national and county governments may impose charges for the services they provide.
Much of this revenue stream was, previously, raised by local town and municipal councils, whose existence expired once County governments were formed to take over their functions after the March 2013 elections.
The very fact of Kenya's diversity is expected to pose an immediate challenge to the harmonisation of varying taxation regimes across the 47 Counties. National legislation is therefore expected to guide and set a fair and workable national taxation framework applicable across the Counties in keeping with national good:
209. (3) A county may impose— (c) any other tax that it is authorised to impose by an Act of Parliament.
(5) The taxation and other revenue-raising powers of a county shall not be exercised in a way that prejudices national economic policies, economic activities across county boundaries or the national mobility of goods, services, capital or labour.
The second source of County Finance is the share of devolved funds that every County is entitled to. The Constitution provides that at least 15% of National Revenue be allocated to the 47 Counties. Chapter 12 - Public Finance:
203. (2) For every financial year, the equitable share of the revenue raised nationally that is allocated to county governments shall be not less than fifteen per cent of all revenue collected by the national government.
The people's representatives (i.e, the National Assembly), will each year, legislate the actual percentage via the Division of Revenue Bill . Chapter 8 - The Legislature, Part 1 - Establishment and Role of Parliament:
95. (4) The National Assembly–– (a) determines the allocation of national revenue between the levels of government ........
218. (1) At least two months before the end of each financial year, there shall be introduced in Parliament–– (a) a Division of Revenue Bill, which shall divide revenue raised by the national government among the national and county levels of government ........
In other words, the National Assembly (NA) will determine how much of National Revenue is set aside for the Counties and how much is left with the National Government.
The Division of Revenue Bill, 2013 was passed in May. In the Bill, the Assembly proposed 25.5% of audited (2010/2011) national revenue, and an additional 7.2% from donor funding - (Conditional Allocations to County Governments - Allocations to finance county expenses relating to donor funded development programmes and regional referral hospitals as well as additional allocations to hold harmless the county governments are included as conditional allocations to county governments.) Division of Revenue Bill, May 2013)).
In the next stage, the representatives of the Counties (the Senators) would then be expected to legislate the criteria for the sharing of the portion that is set aside to be shared among all the 47 Counties:
96. (3) The Senate determines the allocation of national revenue among counties ........
218. (1) At least two months before the end of each financial year, there shall be introduced in Parliament–– (b) a County Allocation of Revenue Bill, which shall divide among the counties the revenue allocated to the county level of government ........
It is important to mention here for accuracy and clarity that in the long-term, the New Constitution actually requires the Senators to develop a 5-year policy framework on how the devolved funds are split among the 47 Counties:
217. (1) 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 county level of government.
For the short-term, i.e., during the constitutional transitional period however, the requirement is actually a 3-year policy framework as provided under Article 16 in the Sixth Schedule:
16. Despite Article 217 (1), the first and second determinations of the basis of the division of revenue among the counties shall be made at three year intervals, rather than every five years as provided in that Article.
As a Commission, the CRA is an interested party on behalf of the people's sovereignty, and must be involved in the design and formulation of the two Bills. Chapter 12 - Public Finance, Part 1 - Principals and Frameworks of Public Finance:
205. (1) When a Bill that includes provisions dealing with the sharing of revenue, or any financial matter concerning county governments is published, the Commission on Revenue Allocation shall consider those provisions and may make recommendations to the National Assembly and the Senate.
(2) Any recommendations made by the Commission shall be tabled in Parliament, and each House shall consider the recommendations before voting on the Bill.
Lest anyone should forget:
216. (1) The principal function of the Commission on Revenue Allocation is to make recommendations concerning the basis for the equitable sharing of revenue raised by the national government–– (a) between the national and county governments; and (b) among the county governments.
Thus the CRA and Parliament must closely liaise in the determination of how and what amounts of National Revenues are allocated to the Counties every 5 years, and each year, how much is allocated to each of the 47 Counties.
The New Constitution has guaranteed that money going into the Revenue Fund is predictable both in its amount and timing:
219. A county’s share of revenue raised by the national government shall be transferred to the county without undue delay and without deduction, .......
This explains, as we saw a short while ago in Article 218, why the two Bills containing the resolutions on how National and devolved funds are shared, must be considered and enacted in good time, i.e., under clear constitutional timelines:
218. (1) At least two months before the end of each financial year, there shall be introduced in Parliament–– (a) a Division of Revenue Bill, ....... (b) a County Allocation of Revenue Bill, .......
For the 2013/2014 financial year, the Senate adopted the National Treasury's proposal for a monthly cash disbursement schedule of devolved funds to be done by the 15th of every month. Of note is that the CRA had earlier proposed quarterly disbursement of the money. By the second disbursement of devolved funds on the 17th September 2013, none of the 47 Counties had managed to absorb more than 50 per cent of monies in their County Revenues, a concern that led the Cabinet Secretary of the National Treasury to urge these sub-national governments to speed up on their budget implementations. The first (delayed by legislation) tranche was made on the 30th of August.
There is a third potential source of County Finance; loans and grants:
212. A county government may borrow only— (a) if the national government guarantees the loan; ....... .
The fact that the Counties will be permitted to borrow is an indication of the liberal provisions of the New Constitution towards devolution. As the above sub-clause (a) of Article 212 shows, a sub-national government intending to borrow must secure guarantees from the National government. While some may feel that this requirement may compromise the independence of the Counties and their governments, it is perhaps a good thing since the National government (and Parliament) may be more inclined to take a wider national view of any implications arising out of the indebtedness of a County.
There exists a fourth possible source of money to the Revenue Fund:
202. (2) County governments may be given additional allocations from the national government’s share of the revenue, either conditionally or unconditionally.
This source includes those allocations that are given directly to a County as conditional grants from the Equalisation Fund:
202. (3) The national government may use the Equalisation Fund–– (b) ....... indirectly through conditional grants to counties in which marginalised communities exist.
As usual, the CRA must be involved:
(4) The Commission on Revenue Allocation shall be consulted and its recommendations considered before Parliament passes any Bill appropriating money out of the Equalisation Fund.
Lastly, the Constitution of Kenya 2010 provides for a fifth source of County 'Revenue' by way of transfer of emergency advances from the National Government-managed Contingencies Fund to Counties :
208. (2) An Act of Parliament shall provide for advances from the Contingencies Fund if the Cabinet Secretary responsible for finance is satisfied that there is an urgent and unforeseen need for expenditure for which there is no other authority.
The Contingencies and County Emergency Fund Act of 2011 establishes the framework for the operation of these transferred funds. The Act also allows Counties to create their own County Emergency Funds to which their Governments are permitted to make budget allocations i.e., for a rainy day. What is unclear from the Act however, is whether the National Government is permitted to spend such allocations directly on an emergency service that it may provide to a County, and perhaps recover the money later from the normal devolved funds to that County.
The discussion above on the 5 sources of County Revenue are captured in this infographic by the International Budget Partnership - Kenya, below:
Fig 1: Sources of Revenue for Kenyan Counties
In this section we have showed that the process of allocation of funds into the Revenue Funds of the Counties closely follows the general theme in the Constitution that demands the people be well represented in the allocation and management of Public Funds. This is achieved either through their direct participation or by resolutions and Acts of Parliament. We have also seen that the CRA plays an important role in that process as a protector of the people's sovereignty over Public Finance, thus underlining that theme.