Ruto, governors' summit offers space to strengthen devolution

It is always surprising that the headlines in our budgeting process focus on only one of our 48 governments; the national one. Without scandals, we tend to ignore our 47 county governments.

Which is probably why we hear little real debate around the proposed national and county equitable shares for the forthcoming 2023/24 fiscal year. As we head into a National and County Government Coordinating Summit ("The Summit", comprising the president and all 47 governors) over the next couple of days, disagreements between and across multiple parties on this equitable share will dominate the order of business, or at least that is what our media wants us to believe.

To quickly recap, the Council of Governors (CoG) recently opposed two recommendations on the overall 2023/24 equitable share for all counties. The first one - from the Commission of Revenue Allocation (CRA) as an apparently non-binding advisory - came in at Sh407 billion. If the correct timelines were followed, then this would suggest that the National Treasury ignored this number when preparing its currently draft Budget Policy Statement (BPS) and its own recommendation was a total equitable share of Sh380 billion, or Sh27 billion (seven per cent) less than CRA's.

Taken aback by these proposals, CoG stated that they were looking at a minimum of Sh425 billion for 2023/24, or Sh45 billion more than the Treasury position. This is not a random number. The current (2022/23) equitable share is Sh370 billion. Sh425 billion represents a 15 per cent increase over this current number. But why 15 per cent? Well, if the BPS projects 17 per cent ordinary revenue growth between the current and forthcoming financial years, then wouldn't the same rationale apply to counties? Besides, a Sh10 billion (2.7 per cent) increase cannot possibly help counties cope with the effects of inflation, and the growing need to deal with local emergencies.

For the record, national equitable shares indicated by CRA, Treasury and CoG are Sh2.15 trillion, 2.18 trillion and 2.14 trillion respectively - an overall spread of Sh40 billion - while Treasury's Sh7.5 billion allocation to the Equalisation Fund is less generous than CRA's by Sh1.2 billion.

Once we move beyond Treasury's language of "no money", we will find technical reasons. The first is that shareable revenue should be based on the latest audited accounts approved by Parliament. The 2023/24 allocation uses audited revenues for 2017/18. Let's place this in context. National and county accounts should be audited within six months of year end, and approved by Parliament three months later. Simply, because 2022/23 is ongoing, the allocation should be based on approved 2021/22 accounts at our most optimistic, and 2020/21 accounts in the worst case.

Let's offer perspective from 2014/15, devolution's second full financial year. Incredibly, the revenue calculation was based on 2012/13 accounts, as was that for 2015/16. 2016/17 to 2018/19 calculations were based on 2013/14 accounts; 2019/20 on 2014/15; 2020/21 on 2016/17 (2015/16 accounts were never used) and 2023/24 will follow 2022/23 in applying 2017/18 accounts.

The only surprise is that it is shocking that we are not as shocked as we should be with this picture.

Consider here the constitutionally-mandated 15 per cent threshold to counties that leaves national government with 85 per cent of the cash. So more recent audited revenues should offer bigger shares to counties earlier than is currently happening. That this is not the case is unconscionable.

Indeed, as is usually the case, we should not be further surprised to listen to Treasury proclaim - using older audited revenues - that they have far surpassed that constitutional threshold when, in reality, they are operating at the margins. It is easy to see why the infamous Building Bridges Initiative sought to fix this opacity of smoke and mirrors by raising the threshold to 35 per cent.

While the first reason feels like "swings and roundabouts", the second and more sneaky one from Treasury does this by "sharing of shareable revenues". This fiendish calculation is always annexed to the Division of Revenue Bill but not the Act. It is a masterpiece in financial sleight of hand.

We start with ordinary revenues. Then we quickly make a dash towards the constitution for reference and immediately subtract four items - national interest, public debt, other constitutional obligations and emergencies (including the equalization fund). That's the first, pre-sharing level of sharing. The second level shares what is left between national and county governments. Except that all items in the first sharing are national government, so the more that is there, the less to share later. In current 2022/23, items of national interest include enhanced security, fertilizer and school exam fees plus youth empowerment, national social safety nets and primary school digital literacy.

Indeed, the calculation for 2022/23 was such that Sh1.6 trillion went to those first four items before the balance of Sh540 billion from Sh2.14 trillion in revenue was shared as Sh375 billion (including grants) to counties and the rest - Sh165 billion - left for poor national government! Again, there may be swings and roundabouts in the calculations but why apply this mask in the first place? It is as if there is a deliberate design to ring-fence national from counties and not the other way round!

If we go back to CoG's perspective, then we see how simpler arguments make more sense. Taken on the face of it, as they have noted, this is the first time that Treasury has proposed a Sh380 billion 2023/24 share for counties that is less than 15 per cent of 2023/24 ordinary revenues (yes, audits notwithstanding). The fuller picture is that Treasury's proposed equitable share represents a rise of three per cent when the national government wage bill rises by seven per cent to Sh600 billion even as national development spending shoots up by 33 per cent, and debt service by 22 per cent.

As a logical picture, it is difficult to believe that, more than ten years into devolution, the 47 county government equitable share is still dwarfed by every major national budget line (wages, O&M, development, debt interest, total debt service) and is only twice the bill for public pensions. In percentage of GDP, the equitable share was as high as three per cent in 2020/21 and 2.7 per cent in 2021/22 rising to 2.8 per cent in 2022/23 (supplementary 1) but falls to 2.3 per cent in 2023/24.

Remember those falling proportions the next time you hear that counties are our growth centres.

If there is a conversation that the Summit headed by President William Ruto needs, it must go beyond recent failure to agree on numbers at an Intergovernmental Budget and Economic Council (IBEC, not IEBC) that seems to spend more time on the "B" for budget than the "E" for economic.

It is also beyond Deputy President Rigathi Gachagua's recent remarks to Senate on limited county cash "even if you take off our trousers and smack our backsides". As DP, remember that he chairs IBEC and its high-level membership including CoG and national/county-level Treasury ministers.

It is interesting that, despite reporting requirements that ultimately end up in Parliament and for the general public, we haven't seen much of what either the Summit or IBEC does for Kenyans. In an access to information context, there is little public understanding of their deliberations.

That's a story for another day. Today's story isn't really about the numbers either. What's really missing is the working intergovernmental forum - Summit or IBEC - that goes back to basics.

Beginning with conversations on the link between the national medium-term plan and 47 county integrated plans, including sectoral and spatial plans, in a way that gives us the integrated plan for Kenya. Or the integration of national and county purpose so as to synchronize projects from national flagships to county initiatives, within a framing that considers the role of regional economic blocs or regional development authorities. Even simpler, the long-promised integrated own-source revenue management system to support county efforts to boost their internal revenues.

It is interesting that Treasury's BPS document speaks to outstanding county issues that the Summit or IBEC could quickly address. Transfer of functions, assets and liabilities. More legislation to strengthen cooperation between the two levels of government. Reminder to rollout the integrated revenue management system mentioned above. Real action to establish revenue sharing frameworks for minerals and natural resources (CRA has made specific proposals for 2023/24 that CoG broadly agrees with but Treasury remains in legislative mode). These are a few examples.

All of this warns us not reduce devolution and the fate of counties to a perennial debate on the equitable share when, in fact, we still lack the single, unified picture of progressive government. The missing link seems to lie in how to get our intergovernmental relations - read Summit and IBEC - to better support our constitutional idea of "independent but interdependent" governments.

Might the current money debate offer our Kenya Kwanza leaders this game-changing opportunity?