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BRIEF ON THE SECOND BASIS FOR EQUITABLE SHARING OF REVENUE AMONG THE COUNTY GOVERNMENTS

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March 10, 2016

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A. INTRODUCTION

  1. Article 216 mandates the Commission to make recommendations on the equitable basis for revenue sharing among county governments.
  2. Article 217 (1) mandates the Senate to determine once every five years the basis for allocating among counties the share of national revenue that is annually allocated to county government.
  3. The Sixth Schedule Section 16 provides for preparation of the first and second basis of sharing revenue be made at three year intervals.
  1. The first formula was approved by the 10th Parliament in November 2012.
  1. The Formula  has  been  used  to  share  revenue  for  financial  years 2012/13; 2013/14; 2014/15 and 2015/16.

B. SECOND REVENUE SHARING FORMULA

rev share

 

 

 

 

 

 

 

C. PARAMETERS AND RATIONALE FOR THEIR CHOICE

Population

  1. Population is a good measure of expenditure needs of a county.
  2. It is a simple, objective and  transparent  measure  that  ensures predictability.
  3. Article 203 (1) (j) provides for stable and predictable allocations of revenues to counties. The population parameter guarantees this predictability  and  also  ensures  equal per  capita  transfers  to  all counties. Besides, use of population in the formula also ensures that counties are able to perform the functions allocated to them.
  4. The data used for this parameter is based on the 2009 population census.

Basic Equal Share

  1. Provision of a basic equal share in a transfer system in meant to guarantee a minimum funding for certain key functions, such as administrative costs of setting up and a running a government.
  2. This is based on the assumption that a number of expenditures are, to some extent, similar for all county governments.

Poverty

  1. A poverty index provides a measure of welfare of citizens.
  2. The parameter uses the poverty gap i This ensures that the poorest of the poor get the highest allocations.
  3. Poverty index is  a  good  proxy  of  developmental  needs  and economic disparities among counties.
  4. Use of this  parameter  in  the  formula  guarantees  allocations  of revenue to disadvantaged areas which also happen to be the counties with the greatest need  in line with Article 203 (1)(f)(g)(i).
  5. The data used in the second recommendation for this parameter is based on the 2009 data from the KNBS. The highest change in allocations to various counties arises from the change on the data on poverty gap from 2005/06 used in the first formula to that of 2009 in the recommendation for the second formula.

Land Area

  1. A county with a larger area has to incur additional administrative costs to deliver a comparable standard of service to its citizens.
  2. The use of the size of a county (land area) as a parameter in the formula   for   sharing   of   revenues   compensates   counties   for additional costs incurred in providing services.
  3. The parameter is based on the actual proportion of size of county relative to the country.
  4. The changes   arising   from   this   parameter   in   the   second recommendation are as a result of uncapping of land. The first formula capped land between 1% and 10%.

Fiscal Responsibility

  1. County governments receive transfers, collect and utilize public resources. Fiscal responsibility entails implementation of sound economic and budgetary practices to ensure citizens get value for money.
  2. The first formula allocated two percent of the shareable revenue equally across all counties for the last four financial years. The allocations were to enable counties set up financial management systems and achieve fiscal prude
  3. The changes   arising   from   this   parameter   in   the   second recommendation are as a result of utilization of data on increase in county own sources revenues per capita between financial years 2013/14 and 2014/15.
  4. In using this parameter, the Commission seeks to provide incentives to counties to optimize capacity to raise revenue and encourage fiscal prudence, in accordance with Article 216 (3) (c) and Section 107 of the PFM Act 2012.

Development Factor

  1. This parameter considers access to water, electricity and roads, to capture economic disparities and developmental needs of counties.
  2. This parameter compliments the parameter on poverty to ensure that counties with the greatest developmental needs get additional resources to bring services to the level enjoyed in other counties in accordance with the provisions of Article 203(f),(g).

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