Counties fail to meet revenue targets in the first five years of devolution

uTwo in five counties saw a dip in share of revenue targets achieved in the first five years of devolution, according to a Nation Newsplex analysis of county revenue data.
West Pokot County’s share achieved dipped by 76 percentage-points between the 2013/14 and 2017/18 financial years, the largest among the counties. It was followed by Nyamira (56), Busia (47), Marsabit (40) and Kericho (35).

The analysis shows that counties will have to innovate ways of generating more own-source revenue if they are to avoid over-reliance on Treasury disbursements which has led to a strained relationship between them and the national government.

However, 29 of them registered at least an increase in their share of revenue targets met. Tana River County saw its share of own-source revenue target achieved rise by 152 percentage-points, the highest in all the counties in the period under review. In 2013/14 fiscal year, it had achieved only 37 percent of its set target, collecting Sh31.5 billion, but achieved 188 percent of its goal in 2017/18 when it realised Sh56.6 million while aiming at Sh30 million. It was followed by Migori (81), Bungoma (69), Mombasa (54) and Kwale (52).

Total funds generated by the 47 counties was only 12 percent of their combined revenue sources (including allocation from Treasury and conditional grants but excluding cash balances) in the 2013/14 financial year, but that share has since fallen to nine percent in the 2017/18 financial year, according to the Office of the Controller of Budget reports. The trend of counties funding a smaller share of their budgets from their own revenue sources each year has continued even as Treasury’s annual disbursement to counties fails to grow as fast as the counties want it to.

Article 203 (2) of the Kenyan Constitution provides that counties receive, as equitable share, not less than 15 percent of all revenue collected by the national Government. This is calculated on the basis of the most recent audited accounts of national revenue received as approved by the National Assembly. County governments, through governors and senators, have argued that six years after the onset of devolution, the share should have grown much faster than it has. The highest share ever forwarded to counties is 18 percent, in the 2014/15 and 2016/17 financial years.

Lawyer Bobby Mkangi, who was part of the Constitution-making process, feels that even as counties are expected to generate revenue, the national Government should release more funds to the devolved units.

“The call for more monies to be put to devolution, especially at these early stages, is actually in order, because even as you construct a house, a lot of money is thrown into the foundation, but in our case we have the reverse,” he says.

He also adds that the notion that it is the national government giving counties money should be corrected. “This money also belongs to counties since the national government does not collect money from an entity called ‘national’, but it collects from people who live in counties and pay taxes,” he says.

In the 2019/20 budget, the government plans to send some Sh371.6 billion to counties, according to the budget policy statement. Since the beginning of devolution in 2013, the government has sent about Sh1.7 trillion to counties’ accounts as at December 31, 2018. Counties, on the other hand, have marshalled a total of Sh175.53 billion, an amount too small to take care of their unmet financial expectation of Treasury.

Besides, own-source revenue as a share of total revenue has either declined or stagnated for a majority of counties since 2013, indicating that they are becoming more reliant on revenue from the national government.

Thirty-eight counties saw a decline in the share of total revenue taken up by own-source funds between the 2013/14 and 2017/18 financial years. On the other hand, two stagnated and only seven registered growth, albeit marginal. Kisii County had the highest increase of four percentage-points, followed by West Pokot with three percentage-points, and Busia and Turkana with one percentage-point each.

At the centre of the decline in own sources’ contribution to total revenue are many counties missing their own-source revenue targets every year.
According to a Newsplex analysis of counties’ local revenue collection data up to December 2018, counties have collected only 56 percent, or Sh175.53 billion of the Sh313.51 billion they had targeted since 2013.

Between June 2013 and June 2018, there were only 17 instances out of 235 that a county collected the funds it had targeted or more. Four were in the 2013/14 financial year, eight in 2014/15, two in 2016/17 and three in 2017/18. Eight counties did not even get to half of their targets in the 2017/18 financial year, a drop from 21 five years earlier.

The Office of the Controller of Budget is yet to release the full year report for 2018/19 financial year.

Marsabit County holds the record for the highest share of revenue target ever achieved, collecting 205 percent of the funds it had hoped to mobilise in the 2014/15 financial year. Other top performances were 189 percent by Tana River in 2017/18 and 155 percent by West Pokot in 2013/14.

Between the 2013/14 and 2017/18 financial years, Homa Bay County did not miss in the top 10 list of counties that achieved the largest share of revenue targets. Baringo, Kericho and Marsabit made four appearances each.

In the most disappointing case, Bungoma County, in the 2013/14 financial year, aimed at Sh2.75 billion only to realise Sh182.7 million (seven percent), according to the Office of the Controller of Budget county report for the fiscal year 2013/14. This is followed by Kakamega’s 12 percent in the same year.

Another poor showing is Kisii, Garissa and Mandera, featuring in the bottom 10 list of counties achieving small targets in all the years.

While achieving or even surpassing revenue targets is commendable, the share of targets achieved, without indicating the actual amounts, can create a false impression of how the counties rank in resource mobilisation. However, as expected, the big-economy counties, in terms of Gross County Product (GCP), led in actual own-source revenue figures. In the fiscal year ending June 2018, Nairobi County had collected Sh10.1 billion, Mombasa Sh3.1 billion, Nakuru Sh2.3 billion and the fourth county, Narok, Sh2.2 billion.

In the bottom three are Lamu, Tana River and Mandera, all of which, according to data by the Kenya National Bureau of Statistics, are also among the bottom five counties in GCP.
According to the 2019 Budget Policy Statement by Treasury, “Globally, locally generated revenue is a key indicator of subnational governments’ fiscal autonomy, hence the need to strengthen contribution of own-source revenue to budgets of Kenya’s counties.”

A comparison between counties’ own-source revenue and their wage bills over the years shows that none has the capacity to settle such critical bills as workers’ salaries from its own funds even if they dedicated all of it for that. This means that a prolonged delay by Treasury to release funds would cripple human resources in the counties.

Inadequate revenue and late disbursement by the national government are two of the reasons counties accumulate billions in pending bills. A report recently released by the Office of the Auditor-General indicates that counties owed suppliers and contractors total of Sh51.28 billion as at June 30, 2019.

Improve revenue collection

The financial inadequacy displayed by the counties so far demonstrates that a lot more resources are required to implement devolution effectively. Apart from the national government allocating more funds to counties and counties addressing losses resulting from corruption and huge wage bills, counties will have to be innovative in their attempt to up their revenue – largely by taxing the same citizen that is already giving mostly to the national government.

The Commission on Revenue Allocation (CRA) has proposed the development of a curriculum to train county revenue staff on ways of boosting revenue collection.

This follows an assessment carried out in five counties (Nairobi, Wajir, Nyeri, Migori and Kwale) between 2015 and 2017 by the CRA in partnership with the European Union that showed that counties have a big challenge in tracking collected revenue and auditing accounts.

Eleven counties reached out for help in the 2017/18 financial year.

Even before the curriculum is out, the CRA and the Kenya School of Government have trained staff from some counties on enhancing revenue collection.