New formula for sharing revenue between the counties is realistic

The Commission for Revenue Allocation (CRA) has finally released the proposed formula for the sharing of revenue between counties for public input. One of the saddest things about public discourse in Kenya is the relative disinterest that Kenyan intellectuals and opinion leaders exhibit on such critical issues. I have perused the newspapers and social media blogs since the CRA published the proposed formula to see if there were any useful analysis on the proposal. Shockingly, other than some complaints by some County leaders who believe their counties are going to lose from the proposed formula, there has been little debate on this issue. Maybe it’s just early days and I will be pleasantly surprised in coming weeks.

As I have argued before, Kenyans must recognise the reality that we are increasingly a rule based country. Even though a part of our national DNA is to defy rules, the rules exist nevertheless and they form critical parts of the building blocks for our new Republic. These rules require public discourse because if properly applied, their implications on society will many times be more important more than who wins the Presidency or other political office.

Back to the formula. Unlike the two previous formulae based on basic criteria, that is population, land size, poverty and equal share, the current proposal, though still recognising the place of population, poverty and land size goes a different route and links allocation of revenue to service delivery. Even if one disagrees with the weights given to each category of services, the new approach is a more realistic assessment of expenditure needs than population and land size generalised as was the case with the previous formulae. In the current proposal, different functions and services provided by counties are given specific weights. The largest of these is health which has been given a weight of 15 per cent. The determination of health needs is then assessed on the basis of the proportion of uninsured citizens, outpatient visits and inpatient equivalent days which are combined to form an index of health expenditure needs. Agriculture, a function of counties is assigned a weighting of 10 per cent. The expenditure needs in this respect is based on the total number of rural households. The new formula proposes a 3 per cent weighting for water and another 3 per cent for urban services based on the urban population per county. All other county services, which are given on the basis of population, are weighted at 18 per cent.

It is clear that though population remains the most important consideration in determining revenue needs, the same has been disaggregated to allow a more specific allocation based on actual services. Remembering the fights over population, I expect a lot of contestation in this category of criteria on the validity of the micro-data that CRA will use to determine the allocation.

The formula retains an equal allocation for all counties at 20 per cent which is in recognition of the reality that there are certain services whose costs are equal between counties. It also retains the poverty criteria at 15 per cent. Criticism has been leveled at this criteria as it appears to be a disincentive to growth but CRA’s argument is that it merely recognises the need to promote balanced growth around the country. Land area has also been retained at 8 per cent. Many complaints have previously been lodged against this component of the formula as it seems to allocate revenue to land not people. The allocation is however not to land but a recognition of the overwhelming cost of delivering services to geographically vast Counties.

Finally, the formula allocates a minute 2 per cent weight to own source revenue collection. This will benefit counties with more revenue collection options but it is small enough not to raise contestation. It will act as a necessary incentive to counties to use all available means to increase own source revenue collection. While the formula is not perfect, it is a move in a positive direction and I pray that the principle of it will be retained even if we adjust some of the weights which may not reflect reality.