How to simplify the county revenue allocation formula
The Sunday Nation
Nairobi,
30 November 2014
Last week I established that the proposed formulas for sharing county revenues on the basis of fiscal responsibility and level of development are unnecessarily complicated. I suggested that, since the amounts available are small – only one percent of the total allocation in each category – there is need to simplify the calculations.
Now the Commission on Revenue Allocation (CRA) measures fiscal responsibility by comparing a county’s own revenue (r) to its total expenses (e). The same can be used in a simpler method as follows:
First, divide own revenue by total expenses (r/e) for each county. Second, add up all the r/e ratios from the 47 counties – let’s call this total R/E. Third, divide each county’s r/e by the total R/E – call this quantity F.
In the fourth and final step, the quantity F is multiplied by money available for distribution, that is, one per cent of Sh300bn = Sh3bn. Even though it looks complicated at first sight, this is a much simpler method than the one proposed by the CRA.
The net effect is the same – a county that is able to raise more money for itself gets more from the central government. This will encourage county governments not only to collect more money “in-house”, but also to keep expenses low.
The proposed calculation under the development factor is even more complicated than that of the fiscal responsibility. The net effect is to give more money to those counties that have less development.
Under this parameter, the CRA has identified three indicators of development. They are education, which gets 25 per cent of the development funds (= Sh7.5bn in our example), health (50 per cent = Sh15bn) and infrastructure (25 percent = Sh7.5bn). I don’t have enough space in this column to explain how CRA does its calculation – it’s that complicated! So, I will just give my suggestion of a simpler method.
My method follows similar steps as those I used in the simplified fiscal responsibility calculation. The education indicator is the ratio of total children in the county to the number enrolled in school. This way, the smaller the number in school, the higher this indicator will be; and so, the greater the funds allocated.
For the health indicator, I use the ratio of a county’s population to the number of health workers. Again, the smaller the number of health workers, the higher this ratio will be and so the greater the amount of money given.
Under the infrastructure indicator, the CRA uses roads, water and electricity. I think that only one of these is necessary and I choose the easiest to measure; that is roads. Thus I suggest the ratio of length of unpaved classified roads to length of all classified roads in the county. The more unpaved roads in a county, the more money it gets.
The simplifications that I suggest here will not only make it easier to calculate but also easier to understand for the general public.
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