In Summary
  • Because all counties would face some fixed costs of running their local government, 25 percent of the revenues are to be shared equally among all counties
  • The current allocation approach is however not satisfactory because it does not take into account the cost of various services that county governments are expected to deliver

In 2010, Kenyans enacted a new constitution, which established of a system of devolved government with 47 lower level county governments. The operation of the county governments started soon after the March,2013 elections, which included the election of county governors, deputy governors and representatives.

These 47 new county governments are now in charge of overseeing some functions, such as the provision of health care pre-primary education and maintenance of local roads that were previously the responsibility of Kenya’s national government.

In turn, these county governments will receive a share of national revenues. County governments will also be expected to mobilize revenue from other sources within their counties, such as taxes on property and entertainment.

Kenya’s Commission on Revenue Allocation (CRA) is supposed to recommend to the National Assembly the basis for equitable sharing of revenues raised nationally. Specifically, it will decide how much revenue will be divided between the national government and the county governments, and how much each county government will receive.

It has already been agreed that 84.5 percent of the revenues will be allocated to the national government while 15 percent is allocated to county governments. The remaining .5 percent is designated as an equalization fund.

Therefore, the main task for the commission has been trying to determine how much of the 15 percent each of the 47 counties will get and how to distribute this 15 percent in an equitable and fair way.

This task is not easy because, given the differences across the counties, any allocation criteria is likely to favour some counties over others. Last year, the Kenyan National Assembly accepted the CRA’s recommendation to allocate the revenues to county governments.

LARGER COUNTIES

The allocation formula implies that counties will receive a larger share of revenue the higher their population totals, the greater the poverty rate of their citizenry, and the larger they are in terms of land mass.

Because all counties would face some fixed costs of running their local government, 25 percent of the revenues are to be shared equally among all counties. Another 2 percent of revenue is provided as an incentive for fiscal responsibility, and will be initially shared equally among the counties.

The idea is that those counties that manage their resources better and are more effective in mobilizing their own resources will be rewarded by receiving a higher share of the resources under the fiscal responsibility parameter.

Recently, there has been a heated political debate on the appropriate share of national revenue that should be allocated to county governments and also on the best way to allocate the devolved revenues amongst the county governments.

Unfortunately, the debate has not been well grounded on the principles of resource allocation, Furthermore, discussions on the appropriate allocation of revenues amongst county governments has not been informed by the implications of the various alternative allocations.

This week, the Africa Growth Initiative at the Brookings Institution launched a Revenue Sharing Calculator that provides an easily accessible tool that shows how revenues are allocated to different county governments according to the agreed upon allocation criteria. The tool provides an easy way to navigate and compare the allocation across the counties.

More importantly, the calculator provides policymakers and citizens the means to conveniently explore how allocations change under different scenarios and when the share of revenues to county governments is changed. Policymakers and citizens may want to compare different allocation scenarios to determine the best way that resources should be allocated depending on the overriding objectives.

By simply selecting alternative weights for the various parameters, it is possible to demonstrate how allocations would vary across the counties. The calculator provides for more informed debates on resource allocation and revenue sharing in Kenya. (see http://www.brookings.edu/research/interactives/2013/kenya-resource-sharing)

The current allocation approach is however not satisfactory because it does not take into account the cost of various services that county governments are expected to deliver.

In regard to allocation to county governments, there is need to go beyond the generalised approach and instead focus more specifically on the cost of delivering specific services that are under the management of the county governments. This will require in-depth analysis of data to capture the variations in the delivery costs across various counties.

MKimenyi@brookings.edu