The Division of Revenue Bill (DoRB), 2021 proposes to allocate to County Governments Ksh.409.88 billion in the financial year (FY) 2021/22, which relative to the financial year 2020/21 allocation, reflects an increase of Ksh.53.5 billion or 16.9 %. This allocation comprises;
- equitable share of Ksh.370 billion;
- additional conditional allocations from the share of National Government revenue amounting to Ksh.7.53 billion; and
- additional conditional allocations from proceeds of loans and grants by development partners amounting to Ksh.32.34 billion.
County Governments’ Equitable Share
The bill proposes to allocate County Governments’ an equitable share of revenue raised nationally for the financial year 2021/22 of Ksh.370 billion. This is premised on Parliament having approved the third basis for allocation of the share of national revenue among the County Governments in September, 2020 on condition that the formula’s implementation would be preceded by a Ksh.53.5 billion increase in the Counties’ equitable revenue share.
The proposed County Governments’ equitable share of revenue raised nationally for the financial year 2021/22 is arrived at by:
- adjusting the Counties’ FY 2020/21 allocation (i.e., Ksh. 316.5 billion) by Ksh 36.1 billion or 11.4 percent. This growth derived from anticipated improvement in revenues raised nationally in FY 2021/22 when the effects of Covid-19 pandemic are expected to ease. This increase is expected to facilitate post covid-19 economic recovery at the counties as well as ensure sustained service delivery by the devolved governments; and
- converting four existing conditional grants to County Governments into unconditional grants, and allocating the respective amounts totaling Ksh. 17.4 billion towards the Counties’ FY 2021/22 equitable revenue share. The four conditional allocations are:
- Road Maintenance Levy Fund (RMLF);
- the level-5 hospital grant;
- the compensation for user fees foregone; and,
- the grant funding rehabilitation of village polytechnics grants.
Among other benefits, the National Treasury anticipates that the proposed conversion of conditional grants will afford the Counties more autonomy to budget and prioritize allocation of resources.
Conversion of the four conditional allocations to Counties’ equitable revenue share as proposed above has several advantages.:
- it will afford the Counties more autonomy to budget and prioritize allocation of resources.
- it will achieve a more consolidated approach to funding of devolved functions, while also enabling better tracking of performance and attribution of outcomes.
- it will help to address a number of challenges which are currently being experienced including suboptimal absorption of conditional allocations (which arises due primarily to difficulties faced by many Counties in adhering to the underlying conditions); and failure by Counties to allocate sufficient resources in areas receiving supplemental funding by the National Government through conditional allocations.
The Third Basis Formula
The fact that the approved third basis for allocation of the share of national revenue among the County Governments is now effectively linked to devolved functions (specifically with weighted parameters for health, roads and agriculture) means that it is now possible to achieve policy objectives of some conditional grants directly through the equitable share. In health and agriculture, for instance, the new parameters to be used in distributing the equitable revenue share among Counties closely resemble those currently being used to distribute sectoral conditional allocations.
The Third Basis formula which should be applicable from FY 2020/21 to FY 2024/25 has taken into account the following parameters;
- Population (18%);
- Health Index (17%);
- Agriculture Index (10%);
- Urban Index (5%);
- Poverty Index (14%);
- Land Area Index (8%);
- Roads Index (8%), and;
- Basic Share index (20%).
Currently, besides the composite of equal share, the allocation criteria for the rehabilitation of village polytechnics conditional grant is also based on total trainee enrolment in the respective county governments, which is similar to the use of population parameter in the Third Basis for Revenue Sharing among Counties. This means that village polytechnics being a devolved function, and also a composite of the population parameter of the formula should be directly financed from each County’s equitable share of revenue.
The above proposed Equitable Share for FY 2021/22 of Ksh.370 billion is equivalent to 27.3 percent of the last audited accounts (Ksh.1,358 billion for FY 2016/17) and as approved by Parliament.
The proposed allocation meets the requirement of Article 203(2) of the Constitution that equitable share allocation to counties should not be less than 15 per cent of the last audited revenue raised nationally, as approved by the National Assembly.
Allocation of Each County Governments’ Equitable Share of Revenue Raised Nationally in the Financial year 2021/22
|Allocation ratio||Equitable Share||0.5 (Allocation Ratio*)||(Equitable Share**-0.5 Allocation Ratio) *(Formula*** )||Total Equitable Share****|
|Allocation ratio||Equitable Share||Allocation ratio||Equitable Share|
|Column A||column B||column C||column D||column E||column F||column G = D+F|
*This refers to the Sharable Revenue allocated to counties in the financial year 2019/ 20 of Ksh. 316.5 billion. Thus, the allocation to county governments under this component is one half of the equitable share allocated to county governments in FY 2019/20 amounting to Ksh. 158. 25 billion.
** This is the equitable share of revenues raised nationally allocated to county governments in FY 2021/22 amounting to Ksh. 370 billion. Once you net out one-half of the amounts of Allocation Ratio or Ksh.158.25 billion from the Equitable share of Ksh. 370 billion, the resulting balance of Ksh. 211.75 billion shall be allocated among county governments using the Formula.
*** Formula= 0.18*Population Indexi+ 0.17*Health Indexi+0.10* Agriculture Indexi+0.05*Urban Indexi+0.14* Poverty Indexi+0.08*Land Area Index 1+0.08*Roads Indexi +0.20* Basic Share Index
**** Total Equitable Share or county Allocation = 0.5 (Allocation Ratio) + ((Equitable Share-(0.5 Allocation Ratio)) *(Formula).