Government spokesman Isacc Mwaura (Photo courtesy Education News)

Background on Kenya’s County Revenue Sharing Post-Devolution

Following the promulgation of Kenya’s 2010 Constitution, the country transitioned into a devolved system of governance, aimed at decentralizing resources and decision-making. This shift led to the establishment of the Commission on Revenue Allocation (CRA), tasked with ensuring equitable distribution of national revenue among the 47 counties.

The revenue-sharing framework is guided by Article 203 of the Constitution, which outlines the principles that determine how funds are allocated. Over the years, the CRA has developed different formulas, known as Bases, to distribute resources equitably while taking into account population size, poverty levels, land area, and specific county needs. The latest proposal under review is the Fourth Basis, which seeks to address emerging challenges in revenue allocation.

CRA’s Proposed Adjustments to the Revenue Sharing Formula

The CRA has initiated a review of its Third Basis for revenue allocation, citing inconsistencies in sectoral data and the need for a more refined approach that aligns resources with counties’ actual functions.

“The Commission notes with concern the instability in sectoral data collected by MDAs,” the CRA’s report states, emphasizing the need for more reliable data to support equitable distribution. The current framework is guided by principles of stability and predictability as mandated by Article 203 (1) of the Constitution.

An analysis of the previous allocations reveals that during the 2020/21 and 2021/22 fiscal years, the equitable share formula remained relatively stable. However, in the 2021/22 to 2024/25 period, revenue distribution retained 50% of the Second Basis formula, allocating KSh 158.25 billion across counties. The Third Basis incorporated parameters such as population, poverty levels, and land area, but still faced criticism over certain inefficiencies.

Challenges with the Current Formula

One major challenge cited by the CRA is the overreliance on population-based metrics across multiple sectors, such as health, agriculture, and infrastructure. This overlap has led to data inconsistencies, potentially distorting allocation fairness. Additionally, the Third Basis has been criticized for not sufficiently aligning revenue distribution with the actual devolved functions of counties, leading to inefficiencies in public service delivery.

Emerging Considerations for the Fourth Basis

As part of the Fourth Basis review, stakeholders have proposed new parameters for revenue allocation. These include factors such as economic growth, fiscal effort, water and sanitation, affirmative action for smaller counties, environmental sustainability, security, and disaster management.

However, the CRA has dismissed some of these proposals due to unreliable data, particularly in the blue economy and environmental performance sectors. Additionally, recommendations related to fiscal effort and prudence were rejected, as they had been previously declined by the Senate.

Despite these limitations, some new elements have been incorporated into the draft Fourth Basis. These include an economic output incentive based on Gross County Product per capita and enhanced affirmative action to ensure smaller counties do not receive reduced allocations.

The revised framework also introduces a stabilization mechanism to prevent counties from experiencing funding cuts compared to previous allocations, thus ensuring continuity in county programs.

Implications for County Allocations

Preliminary simulations indicate that counties such as Nairobi, Kakamega, and Mandera may see slight increases in their allocations due to their economic and demographic dynamics. Conversely, counties with relatively stable development indicators, such as Kiambu and Machakos, may experience minor adjustments.

The Fourth Basis aims to strike a balance between equity and efficiency, ensuring that revenue allocation fosters development while addressing disparities across counties. By refining its approach, the CRA seeks to enhance service delivery, promote economic growth, and uphold the principles of devolution.

As the CRA finalizes its recommendations, county governments and policymakers will play a crucial role in ensuring that the revised formula aligns with constitutional principles and delivers tangible benefits to all regions.