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Salaries and allowances eat up lion’s share of county revenue

FINANCIAL STANDARD
By Frankline Sunday | February 16th 2016
President Uhuru Kenyatta addresses the press alongside some of the country’s 47 governors during the National and County Government State Lodge, Nyeri County, last Thursday. A report from the Controller of Budget released last week shows that counties’ high wage bills funds are eroding the potential benefits of devolution (MOSE SAMMY/STANDARD]

The high cost of paying county government officials’ salaries and allowances is eroding the gains of devolution.

It is also laying the foundation for a future debt burden for the country’s 47 counties, the latest report from the Office of the Controller of Budget for the first quarter of the 2015-16 financial year has shown.

This reality check comes as Kenya takes stock of three years of establishing the semi-autonomous county governments in a bid to decentralise political and economic power.

A look at spending reports from the 47 counties over the last three years shows a huge chunk of the financial resources sent to run the regions each year is used up in salaries and allowances instead of development projects.

The Controller of Budget’s report covering July to September last year shows nothing has changed.

Over the reporting period, the Controller of Budget authorised withdrawal of Sh56.48 billion from County Revenue Funds (CRF), representing 15.6 per cent of total county governments’ budget estimates for 2015-16.

From this amount, personnel emoluments — which include salaries and allowances — took up 56 per cent (Sh25 billion) of county government resources. This is an increase from 51 per cent that went towards staff costs over a similar period last year.

Grim picture

Nairobi City County had the highest wage bill at Sh3.29 billion, followed by Nakuru at Sh1.17 billion and Kakamega at Sh1.05 billion, the data released last week showed.

Tana River, Lamu and Mandera counties incurred the lowest expenditure on personnel emoluments at Sh217.21 million, Sh164.51 million and Sh131.35 million, respectively.

Some counties used up almost all their recurrent expenditure on staff costs. These included Embu, Tharaka Nithi and Nyeri, which spent 88.6 per cent, 88.4 per cent and 88.1 per cent, respectively, of their recurrent allocation on salaries and allowances.

The new figures paint a grim picture of the state of devolution in a week the President and Council of Governors sought to present devolution as being a fully functional system.

The Controller of Budget called attention to the ballooning wage bill in the counties, which shows no sign of abating, and in some cases, is in total disregard of central government oversight.

At least seven counties (Homa Bay, Kisii, Meru, Migori, Mombasa, Nyeri and Trans Nzoia) were reported to have exceeded the recommended maximum monthly allowance set by the Salaries and Remunerations Commission (SRC) of Sh124, 800.

And in the 2014-15 financial year, at least 10 counties, including Nairobi, Homa Bay, Mombasa, Machakos and Kilifi, were found to have spent money against the Controller of Budget’s approval.

The financial situation has been worsened by the fact that county governments have also ranked poorly in absorbing funds budgeted for development.

In the first quarter of 2015-16, county governments spent just 23 per cent (Sh10 billion) of their budgets on development activities.

This represented an annual absorption rate of 6.4 per cent for development expenditure, a decline from 8.5 per cent recorded over a similar period last year.

Opportunity cost

This poor absorption of development spend means that badly needed social systems and services like schools, dispensaries and markets are not being built, despite being budgeted for. This stunts counties’ economic growth and well being.

According to the Treasury, the last two financial years have seen an increase in idle cash resources held by counties, predominantly in their respective CRF accounts held at the Central Bank of Kenya (CBK).

According to the 2016 Budget Policy Statement released by the Treasury early this month, a total of Sh39.2 billion remained unused by the counties at the beginning of the 2014-15 financial year.

“A big proportion of this balance was held in counties’ bank accounts, with the rest either in the form of accounts receivables (essentially imprests and advances to public officials which were not surrendered or accounted for) or cash,” reads the report.

At the beginning of the current financial year, the fund balance brought forward is said to have dropped marginally to Sh34.2 billion, most of it again in CRF accounts at the CBK or in commercial bank accounts.

The lack of uptake of endowment funds carries a hefty opportunity cost, meaning that taxpayers eventually end up losing money by forgoing the value of what the money could have achieved if it had been spent.

With the county governments set to receive the fourth tranche of scarce taxpayer resources in the coming financial year, concern is mounting that the current pattern of expenditure will defeat the noble intent of devolution.

However, in their defence, county governments have routinely complained that the central government has not been disbursing finances in time, and that they lack adequate capacity to run public finance management systems.

An analysis of expenditure by month in the first quarter of the 2015-16 financial year indicates counties spent Sh4 billion in July, and then Sh24 billion in September.

This increase in expenditure coincides with increased disbursement of the equitable share of revenue raised by the national government and conditional allocations for Level 5 hospitals.

“There have been some issues raised about the central government delaying in disbursing finances and also issues of capacity, but I think counties are running out of excuses,” said Kwame Owino, the head of the Institute of Economic Affairs (IEA).

He added that the heavy spending on personnel emoluments and absorption of recurrent expenditure negates the argument of a lack of capacity.

“You can’t spend so much on salaries and say you can’t absorb development expenditure because of lack of capacity, and soon Kenyans are going to ask, ‘Then why are these people being paid?’,” he said.

Mr Owino, however, said the central government bears some responsibility for not completely following through with the transition process.

“The Ministry of Planning and Devolution has a core mandate to facilitate the transition into the devolution process given its complexity, but the priorities for that ministry have gone to other areas, like the National Youth Service.”

Delayed Disbursements

According to economist and current managing director of KenInvest, Moses Ikiara, county governments should be out of the learning curve by now.

“The challenge in absorption of funds for county governments in the past has been delayed disbursements, but by this time, officials should have known how the planning and procurement process in Government works,” he said.

But before completely dismissing the idea of devolution, Dr Ikiara said, Kenyans need to appreciate that it has not been a totally disastrous undertaking, given the scale and time it takes to implement the administrative system.

“If you compare Kenya’s devolution process with other countries and what we’ve done in the last few years, you will find that we have actually done well,” said Ikiara.

“Three years might seem like a lot of time, but I also think that the expectations for Kenyans when devolution was being thought up might have been too high.”

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