Friday, February 12, 2016

Cash challenge and use in the 3 years of devolution

In April 2016 we will congregate in the Meru county for the 3rd Devolution Conference. There we will reflect on what has become of our national experiment and to what extent we have been true to the ideals of decentralization that saw us favour it as an appropriate model for advancing our country. On the eve of the first devolved units, Chrispine Oduor and thought about some of the challenges that county governments were likely to face. I reflect on some of them in the upcoming pieces.

An upfront challenge was on finances, in terms of raising sufficient cash and using it in the right and accountable way.  A key principle in the constitution Art. 175 is that counties will have a reliable source of revenue. The said resources are to be used in an accountable way (Art. 201). Counties have at their exposure about four revenue streams – the equitable share from the national revenue; own revenues from taxes and fees charged from services rendered; Conditional grants from the national government for specific services; and borrowing from domestic and international sources. Certain counties are also likely to benefit from the national government equalization fund (Art. 204) that is supposed to help bring services such as infrastructure and electricity to standards enjoyed in other parts of the country. Own revenue collection was going to be a challenge especially those with a weak resource base to raise enough revenues that will enable them perform the devolved functions and deliver services to the citizen was a concern given the weak performance of Local authorities that preceded them. The equalization fund was likely to be so thinly spread. One expected that the county governments would seal the revenue loopholes through automation and updating of asset rolls.

On use the available cash would be strained by the wagebill and other overheads. While we expected counties to ensure better service delivery, the conversation on the controls for the county wage bill needed to take place. First there was the concern of balance between state officers (Governor, the CEC members and the CA members) and public officers (civil servants) pay as this would serve as a motivation factor and may affect service delivery. Secondly is mechanisms of ensuring that the wage bill is sustainable but at the same time lucrative enough to attract highly skilled professionals into those positions. In the event that the wage bill is uncontrolled then we may end with the current scenario of Las spending up to 90 per cent of their revenue on salaries and salary areas (part of debts). The expectation was that the recommendations of the Salaries and Remuneration Commission would be taken seriously and implemented. In practice we have seen such recommendations opposed by politicians who instead pushed for highly unsustainable wages and the attendant allowances. Not to mention the corruption that comes with it.

The equitable share was going to be complicated by lack of clarity on the devolved functions and which of the two governments is supposed to perform which functions. While the constitution broadly stipulated the functions of either government, the actual work lay in the unbundling of functions. This is a task that the Transition Authority (TA) attempted with limited success given what they termed lack of cooperation from the national government (NG) ministries. Of course it was expected that some of the NG actors would push back. But why should this be? The constitution principle provides that finance follows functions, which means that resources would be allocated to the government performing the function. I imagine that some NG officials worried that a proper unbundling process would reveal that some functions were redundant, duplicated or at most delivered at the county level. This would mean that resources are allocated to the counties and thus loss of control. I also think that some corrupt tendencies thrive on confusion as money gets allocated to the same purpose through different channels. Lastly I have often wondered to what extent the county officials were interested in the unbundling business. Would it make them more susceptible to accountability demands by laying bare what they are responsible for and hence the resources they have allocated to them.    

A related matter was on debt management. County Governments inherited debts and other liabilities, local authorities and other bodies such as the regional water service boards- that provide water services in the rural and urban areas- had already incurred. These boards had been obtaining loans to provide services and county governments to take up these liabilities. That affected the starting balance sheet of counties.  The expected increase in wage bill would inevitably lead to more borrowing. This means that the national government will increasingly commit more resources to service the loans and hence can only increase county allocations so far up. There is no indication since that the county governments have been able to address the debt challenge. If anything some have been considering to borrow much more.

We have observed numerous debates every year on the amount of the equitable share that should be allocated to counties. This has been reduced a political fight that is settled politically as the numbers are not based on some firm functions performance structure. Internal revenue collection while expanding remains not sufficient. This partly is due to poor records and corruption. Automation has been slow and in some places the process objected in courts due to flouting of tendering processes. To what extent Kenyans are committed to pay taxes and public service user fees remains to be established, especially in situations where they are not very satisfied with services rendered. As for wage bill and attendant allowances is high and unsustainable.

Continued in the next blog post..

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