How counties share revenue

 By MUNGAI KIHANYA

The Sunday Nation

Nairobi,

16 November 2014

The Commission on Revenue Allocation [CRA] has published the proposed new revenue allocation formula and sent it to the Senate for consideration for adoption. The new distribution method is an improvement on the older one in that it has added two new parameters, namely development and personnel emolument factors.

One of the biggest criticisms leveled against the CRA is that it does not explain to the general public how it arrives at the amounts of monies that are sent to the counties. But it is not alone in this; the Energy Regulatory Commission [ERC] has also been criticized for not explaining how it decides the prices of petroleum announced each month. Today, I want to help the CRA on that front. I will deal with the ERC formula on another day.

The proposed CRA formula has 7 factors, namely; Population (which will be assigned 45% of the money), an Equal Share (25%), Poverty Index (18%), Land Area (8%), Fiscal Responsibility (1%), Development (1%) and Personnel Emolument (2%).

The calculation of the amount that will go to each county is done in two stages. In the first stage, each parameter is treated as a basket into which the corresponding money will be placed.

For example, suppose that in the 205/16 financial year, there will be Sh300bn available for distribution. In that case the population basket will get 45% of Sh300bn = Sh135bn; the Equal Share one will get 25% = Sh75bn and so on.

In the second stage, the counties withdraw monies from these baskets depending on the individual score in each parameter. The Equal Share basket is the easiest to deal with. The Sh75bn is simply divided by 47 and so each county gets Sh1.596bn.

The Sh135bn in the population basket is first divided by the number of people in Kenya as recorded in the most recent census (for now, 2009). That is, Sh135bn divided by 38,610,097. The answer is Sh3,496 per person. The withdraw then done at the rate of Sh3,496 per person living in each county as recorded in the same census (2009).

The poverty index basket gets Sh54bn (18% of Sh300bn). This money is divided by the total number of people classified as poor in the whole country. Again, this is based on the most recent official statistics.

The counties then withdraw monies depending on the number of poor people living there – the same way as in the population basket only that this time only the poor people are considered.

For the land area, the money in the basket (8% of Sh300bn = Sh24bn) is divided by the surface area of the country (582,650 square kilometres). Then each county withdraws Sh41,191 per square kilometre of its surface area.

In the current formula, the fiscal responsibility basket was shared equally amongst the counties. In the proposed method, this parameter is defined explicitly. I shall explain how it is worked out next week.