The County Allocation of Revenue Bill, 2024

SPECIAL ISSUE

Kenya Gazette Supplement No. 95 (Senate Bills No. 25)

REPUBLIC OF KENYA

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KENYA GAZETTE SUPPLEMENT

SENATE BILLS, 2024

NAIROBI, 3rd May, 2024

CONTENT

Bill for Introduction into the SenatePAGE The County Allocation of Revenue Bill, 2024 ......................................... 509

PRINTED AND PUBLISHED BY THE GOVERNMENT PRINTER, NAIROBI

509

THE COUNTY ALLOCATION OF REVENUE BILL, 2024 ARRANGEMENT OF CLAUSES

Clause

• 1 -Short title.
• 2 -Interpretation.
• 3 -Object.
• 4 -Equitable allocation of county governments' share of revenue.
• 5 -Budget ceilings for recurrent expenditure.
• 6 -Funding of transferred functions.
• 7 -Report on actual transfers.
• 8 -Books of accounts to reflect National Government transfers.
• 9 -Financial misconduct.
• 10 -Applicable revenue - sharing formula.

FIRST SCHEDULE:

ALLOCATION OF EACH COUNTY GOVERNMENTS' EQUITABLE SHARE OF REVENUE RAISED NATIONALLY, FINANCIAL YEAR 2024/2025

SECOND SCHEDULE: COUNTY

GOVERNMENT BUDGET CEILINGS OF RECURRENT EXPENDITURE IN FINANCIAL YEAR 2024/2025

THE COUNTY ALLOCATION OF REVENUE BILL, 2024

A Bill for

AN ACT of Parliament to provide for the equitable allocation of revenue raised nationally among the county governments for the 2024/2025 financial year; the responsibilities of national and county governments pursuant to such allocation; and for connected purposes.

ENACTED by Parliament of Kenya, as follows-

1. This Act may be cited as the County Allocation of Revenue Act, 2024.

2. In this Act -

'Cabinet Secretary' means the Cabinet Secretary responsible for matters relating to finance; and

'revenue' has the meaning assigned to it under section 2 of the Commission on Revenue Allocation Act.

3. The object of this Act is to -

• (a) ! provide, pursuant to Article 218(1)(b) of the Constitution, for the allocation of an equitable share of revenue raised nationally among the county governments, in accordance with the resolution approved by Parliament under Article 217 of the Constitution for the financial year 2024/25; and
• (b) ! facilitate the transfer of allocations made to counties under this Act from the Consolidated Fund to the respective County Revenue Funds.

4. (1) Each county governments' equitable share of revenue raised nationally, on the basis of the revenue sharing formula approved by Parliament in accordance with Article 217 of the Constitution in respect of the financial year 2024/25 shall be as set out in Column F of the First Schedule.

(2) Each county government's allocation under subsection (1) shall be transferred to the respective County Revenue Fund in accordance with a payment schedule approved by the Senate and published in the Gazette by the Short title.

Interpretation.

Cap. 428.

Object.

Equitable allocation of county governments' share of revenue.

Cap. 412A.

Cabinet Secretary in accordance with section 17 of the Public Finance Management Act.

5. The budget ceilings for recurrent expenditure for county governments for the financial year 2024/2025 shall be as set out in the Second Schedule.

6. (1) Where a county government has transferred a function to the National Government pursuant to Article 187 of the Constitution, the respective county executive in consultation with the National Government shall determine the cost of the transferred functions.

(2) The respective county assembly shall appropriate such monies as may be required for the transferred function in accordance with the determination made under subsection (1) and the allocation shall not be less than the amount appropriated by the county assembly in the preceding financial year.

(3) The monies appropriated under subsection (1) shall be transferred to the National Government.

(4) A National Government entity to which a county government function has been transferred shall submit a quarterly report to the Senate and the respective county assembly on the status of the discharge of the devolved function.

(5) The Auditor-General shall, no later than three months after the end of a financial year, prepare a special audit report on the financial and non-financial performance of an entity to which a county government function has been transferred.

(6) The Auditor-General shall submit the report under subsection (5) to the Senate and the respective county assembly.

7. The Cabinet Secretary shall publish a monthly report on actual transfers of all allocations to county governments.

8. (1) Each county treasury shall reflect all transfers by the national government to the county governments in its books of accounts.

(2) The estimates of revenue of each county shall Budget ceilings for recurrent expenditure.

Funding of transferred functions.

Report on actual transfers.

Books of accounts to reflect National Government transfers.

separately reflect the total equitable revenue share under section 4 of this Act transferred to the County Revenue Fund.

(3) A county treasury shall as part of its consolidated quarterly and annual reports required under the Public Finance Management Act report on actual transfers received by the county government from the national government, up to the end of that quarter or year in the format prescribed by the Public Sector Accounting Standards Board or in the absence of a format prescribed by the Board, in the format prescribed by the National Treasury.

9. Despite the provisions of any other law, any serious or persistent non-compliance with provisions of this Act constitutes an offence under the Public Finance Management Act.

10. For the avoidance of doubt the allocation of the equitable share of revenue to county governments under section 4 of this Act shall be in accordance with the third determination of the basis of the division of revenue among counties approved by Parliament pursuant to Article 217(7) of the Constitution.

Cap. 412A.

Financial misconduct.

Cap. 412A

Applicable revenuesharing formula.

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SECOND SCHEDULE (s. 5)

County Government Budget Ceilings on Recurrent Expenditure in Financial Year 2024/2025 (Figures in Kenya Shillings)

| County Government Budget Ceilings on Recurrent Expenditure in Financial Year 2024/2025 (Figures in Kenya Shillings) | County Government Budget Ceilings on Recurrent Expenditure in Financial Year 2024/2025 (Figures in Kenya Shillings) | County Government Budget Ceilings on Recurrent Expenditure in Financial Year 2024/2025 (Figures in Kenya Shillings) | County Government Budget Ceilings on Recurrent Expenditure in Financial Year 2024/2025 (Figures in Kenya Shillings) | County Government Budget Ceilings on Recurrent Expenditure in Financial Year 2024/2025 (Figures in Kenya Shillings) | County Government Budget Ceilings on Recurrent Expenditure in Financial Year 2024/2025 (Figures in Kenya Shillings) | |-----------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------| | S/No. | County | County Assembly Ceilings | County Assembly Ceilings | County Executive Ceilings | County Executive Ceilings | | S/No. | County | 2023/24 | 2024/25 | 2023/24 | 2024/25 | | 1 | Baringo | 828,250,102 | 853,134,270 | 628,507,168 | 811,330,131 | | 2 | Bomet | 826,903,256 | 748,458,555 | 525,981,274 | 675,271,762 | | 3 | Bungoma | 1,030,966,304 | 1,040,550,433 | 593,145,551 | 794,269,934 | | 4 | Busia | 890,557,352 | 891,698,127 | 565,353,297 | 740,954,156 | | 5 | Elgeyo-Marakwet | 688,567,522 | 701,876,015 | 540,143,817 | 682,571,452 | | 6 | Embu | 655,164,072 | 671,347,072 | 470,665,205 | 599,617,223 | | 7 | Garissa | 928,822,377 | 938,479,100 | 517,163,240 | 693,214,915 | | 8 | Homa-Bay | 951,617,005 | 967,160,105 | 612,652,603 | 807,946,650 | | 9 | Isiolo | 539,314,722 | 506,240,773 | 384,717,582 | 483,811,987 | | 10 | Kajiado | 836,365,718 | 825,532,961 | 543,625,285 | 705,785,753 | | 11 | Kakamega | 1,400,821,103 | 1,334,177,483 | 702,976,417 | 954,360,037 | | 12 | Kericho | 828,466,755 | 829,314,633 | 574,171,331 | 742,119,652 | | 13 | Kiambu | 1,352,347,776 | 1,282,416,186 | 689,615,145 | 937,949,817 | | 14 | Kilifi | 942,241,093 | 901,685,828 | 552,882,777 | 732,390,410 | | 15 | Kirinyaga | 673,319,674 | 685,609,542 | 463,453,685 | 591,357,406 | | 16 | Kisii | 1,112,890,743 | 1,114,637,995 | 635,010,868 | 842,938,395 | | 17 | Kisumu | 827,121,358 | 838,619,656 | 548,429,020 | 720,990,566 | | 18 | Kitui | 1,042,409,957 | 1,062,587,992 | 787,239,883 | 1,034,274,047 | | 19 | Kwale | 667,712,409 | 685,501,295 | 436,816,651 | 561,039,626 | | 20 | Laikipia | 545,809,049 | 548,716,069 | 429,430,142 | 543,968,003 | | 21 | Lamu | 493,148,394 | 507,472,589 | 349,978,277 | 439,219,777 | | 22 | Machakos | 1,021,331,660 | 1,028,153,264 | 618,887,863 | 817,384,477 | | 23 | Makueni | 882,052,960 | 870,638,166 | 597,330,868 | 772,648,310 | | 24 | Mandera | 983,911,204 | 955,086,307 | 537,192,934 | 709,410,958 | | 25 | Marsabit | 714,092,325 | 765,337,855 | 477,791,217 | 620,635,223 | | 26 | Meru | 1,105,946,626 | 1,110,234,818 | 802,472,137 | 1,046,885,894 | | 27 | Migori | 1,003,508,709 | 1,006,160,215 | 609,089,597 | 803,308,177 |

| County Government Budget Ceilings on Recurrent Expenditure in Financial Year 2024/2025 (Figures in Kenya Shillings) | County Government Budget Ceilings on Recurrent Expenditure in Financial Year 2024/2025 (Figures in Kenya Shillings) | County Government Budget Ceilings on Recurrent Expenditure in Financial Year 2024/2025 (Figures in Kenya Shillings) | County Government Budget Ceilings on Recurrent Expenditure in Financial Year 2024/2025 (Figures in Kenya Shillings) | County Government Budget Ceilings on Recurrent Expenditure in Financial Year 2024/2025 (Figures in Kenya Shillings) | County Government Budget Ceilings on Recurrent Expenditure in Financial Year 2024/2025 (Figures in Kenya Shillings) | |-----------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------| | S/No. | County | County Assembly Ceilings | County Assembly Ceilings | County Executive Ceilings | County Executive Ceilings | | S/No. | County | 2023/24 | 2024/25 | 2023/24 | 2024/25 | | 28 | Mombasa | 837,169,783 | 773,735,933 | 414,726,825 | 550,949,872 | | 29 | Murang'a | 830,709,033 | 841,956,442 | 633,050,405 | 822,212,796 | | 30 | Nairobi City | 1,924,120,608 | 1,685,111,836 | 640,180,465 | 924,648,890 | | 31 | Nakuru | 1,160,413,432 | 1,189,221,758 | 703,777,688 | 949,692,125 | | 32 | Nandi | 796,999,461 | 807,468,047 | 647,212,948 | 829,614,196 | | 33 | Narok | 911,202,495 | 912,668,217 | 545,667,285 | 715,936,269 | | 34 | Nyamira | 746,578,493 | 709,762,663 | 458,194,685 | 584,106,355 | | 35 | Nyandarua | 770,438,804 | 783,592,426 | 533,107,285 | 683,959,845 | | 36 | Nyeri | 776,126,610 | 784,822,168 | 605,347,631 | 779,895,747 | | 37 | Samburu | 593,254,286 | 611,949,367 | 482,789,720 | 611,274,116 | | 38 | Siaya | 775,678,151 | 784,422,102 | 540,322,777 | 701,924,604 | | 39 | Taita-Taveta | 681,840,554 | 706,520,871 | 439,488,905 | 567,140,475 | | 40 | Tana-River | 677,653,973 | 623,243,957 | 436,641,663 | 558,967,389 | | 41 | Tharaka-Nithi | 517,563,626 | 545,776,919 | 445,463,668 | 561,403,884 | | 42 | Trans-Nzoia | 685,259,476 | 700,394,742 | 427,107,865 | 557,198,937 | | 43 | Turkana | 966,834,859 | 895,679,650 | 526,961,505 | 704,903,707 | | 44 | Uasin-Gishu | 796,524,510 | 805,657,536 | 474,407,171 | 623,694,943 | | 45 | Vihiga | 714,071,318 | 724,667,651 | 487,678,963 | 628,658,777 | | 46 | Wajir | 992,922,326 | 918,609,870 | 599,569,960 | 791,932,190 | | 47 | West Pokot | 683,634,469 | 720,096,706 | 589,135,145 | 743,044,332 | | | Total | 40,612,656,492 | 40,196,186,165 | 25,825,556,393 | 33,756,814,187 |

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MEMORANDUM OF OBJECTS AND REASONS

The principal object of this Bill is to make provision for the allocation of revenue raised nationally among the county governments for the financial year 2024/25.

• Section 1 of the Bill provides for the short title while Section 2 defines the various terms used in the Bill.
• Section 3 of the Bill contains the objects and the purpose of the Bill which is to provide for the allocation of revenue raised nationally for the financial year 2024/25 as well as the transfer of the county allocations from the Consolidated Fund to the respective County Revenue Fund.
• Section 4 of the Bill deals with the allocation of equitable share of revenue raised nationally to each county government.
• Section 5 of the Bill provides for budget ceilings for recurrent expenditure for county governments in accordance with section 107(2)(a) of the Public Finance Management Act No. Cap 412A.
• Section 6 of the Bill provides for the modalities of funding of transferred functions.
• Section 7 of the Bill provides for the publishing of monthly reports by the national government, on actual transfers of all allocations to county governments.
• Section 8 of the Bill provides for the respective county treasury to reflect the total allocations from the national government separately in the County Finance Bill and reflect all transfers in the books of accounts.
• Section 9 of the Bill provides for the actions constituting financial misconduct.
• Section 10 of the Bill provides for use of the third determination of the basis of the allocation of revenue among counties as approved by Parliament pursuant to Article 217 (7) of the Constitution.

Dated the 25th April, 2024.

ALI IBRAHIM ROBA, Chairperson, Committee on Finance and Budget.

APPENDIX

EXPLANATORY MEMORANDUM TO THE COUNTY ALLOCATON OF REVENUE BILL, 2024

Background

1. This memorandum is prepared in fulfilment of the requirements of Article 218(2) of the Constitution and section 191 of the Public Finance Management Act, Cap. 412A, which require that the County Allocation of Revenue Bill tabled in Parliament be accompanied by a memorandum that: 2. (a) ! explains the revenue allocation as proposed by the Bill; 3. (b) ! evaluates the Bill against the criteria set out in Article 203(1) of the Constitution; 4. (c) ! provides a summary of significant deviations from the recommendations of the Commission on Revenue Allocation (CRA) together with the explanation for such deviations; 5. (d) ! explains the extent, if any, of deviation from the recommendations of the Intergovernmental Budget and Economic Council (IBEC); and 6. (e) ! explains any assumptions and formulae used in arriving at the respective shares under the County Allocation of Revenue Bill, 2022. 2. The memorandum is also prepared based on the approved Third Basis for Revenue Allocation among county governments pursuant to Article 217 of the Constitution.

Explanation of Revenue Allocation as Proposed by the Bill

3. The County Allocation of Revenue Bill, 2022 proposes to allocate to County Governments Ksh.370 billion in the financial year 2022/23 as equitable share of revenue raised nationally. 4. The county governments' equitable share of revenue was allocated among the county governments on the basis of the third revenue allocation criteria approved by Parliament in accordance with Article 217 of the Constitution.

Evaluation of the Bill against Article 203(1) of the Constitution Developmental needs of the county governments and their ability to perform the functions assigned to them:

5. County governments are allocated equitable share of revenue which is an unconditional allocation to enable counties have autotomy to

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plan, budget and implement development projects based on county priorities and account for the same.

6. The County Governments' equitable revenue share for FY 2024/25 is Ksh. 412.9522 billion and in addition, Article 209 of the Constitution has assigned counties revenue raising powers and as such counties are expected to improve and maintain sustained collection of their own source revenues (OSR) to supplement the equitable share allocation to ensure improved service delivery regarding functions assigned and transferred to them as contemplated under Article 203(1) (f) of the Constitution.

Economic Disparities within and among counties and the need to remedy them:

7. The horizontal distribution of County Governments' equitable revenue share allocation of Ksh. Ksh. 412.9522 billion for FY 2024/25 shall be based on the Third Basis Formula pursuant to provisions of Article 217. The Third Basis formula which is applicable from FY 2020/21 to FY 2024/25 has taken into account the following parameters; (i) Population (18%); (ii) Health Index (17%); (iii) Agriculture Index (10%); (iii) Urban Index (5%); (iv) Poverty Index (14%); (v) Land Area Index (8%); (vi) Roads Index (8%), and; (vii) Basic Share index (20%). The parameters take into account disparities among counties and aims at equitable distribution of resources across counties.

8. Further, it should be noted that Ksh. 7,852,814,725 billion has also been set aside for the Equalization Fund in 2024/25 which translates to 0.5 per cent of the last audited revenue accounts of governments, as approved by the National Assembly. This Fund is used to finance development programmes that aim at reducing regional disparities among beneficiary counties.

Stability and Predictability of County Revenue Allocations:

9. The county governments' equitable share of revenue raised nationally has been protected from cuts that may be occasioned by shortfall in revenue raised nationally. According to clause 5 of the DoRB 2024, any shortfall in revenue raised nationally is to be borne by the National Government.

Evaluation of Deviations from the recommendations of the Commission on Revenue Allocation

10. The Division of Revenue Bill, 2024 proposes to allocate county governments an equitable share of Ksh.391.1 billion from the shareable revenue raised nationally. The CRA also recommends County Governments' equitable share of revenue of Ksh.398.14 billion as an

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unconditional allocation to be shared among county governments on the Third basis of the formula for sharing revenue approved by Parliament under Article 217 of the Constitution.

11. The National Treasury's Recommendation is premised on the following seven criteria provided for in Article 203(1) of the Constitution; i.) National interest, ii.) Provisions in respect of the public debt and other national obligations; iii.) The needs of the national government, determined by objective criteria; iv.) The need to ensure that county governments are able to perform the functions allocated to them; v.) The fiscal capacity and efficiency of county governments; vi.) The desirability of stable and predictable allocations of revenue; and vii.) The need for flexibility in responding to emergencies and other temporary needs, based on similar objective criteria.

12. CRA Recommendation is based on the following- 2. (a) ! The national government, as a matter of policy, has commenced implementation of the following policies that require county governments to set aside an estimated Ksh.17.88 billion- 3. (i) ! Aggregation and Industrial Parks (CAIPs) that is being implemented jointly by the National and County governments on a 50:50matching basis. Each county is required to set aside Ksh. 250 million. This translates to resource requirement of Ksh.11.75 billion by county governments; 4. (ii) ! The Community Health Promoters (CHPs) is also being implemented on a matching basis of 50:50 between the two levels of government. With each health promoter required for every 50 households, county government require an additional Ksh. 3.2 billion for stipend; and 5. (iii) ! The Housing Levy deductions requires government to contribute one and half percent of employee remuneration to the Fund. Given the aggregate county government remuneration of Ksh. 195 billion, this translates to Ksh. 2.93 billion. 6. (b) ! The Commission in its FY 2024/25 recommendation on the sharing of revenue between the national and county governments recommended that Ksh. 398.14 billion be allocated to county governments as equitable share to enable county governments adequately fund their functions and offer comparable services.

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13. However, during consideration of the 2024 Budget Policy Statement approved by the House, the Senate made some key financial recommendations with regard to the division of revenue. Notably, the Senate recommended an allocation of Kshs. 415.9522 billion as equitable share to county governments for FY 2024/25 based on the following - 2. (a) ! Adjustment of the FY 2023/2024 revenue allocation by a growth factor of 6.4%. 3. (b) ! Further adjustment by repurposing of the scrapped MES programme allocation amounting to Kshs. 5.86 billion. 14. These adjustments take into account non-discretionary financial obligations relating to housing levy deductions, enhanced contributions to the National Social Security Fund (NSSF), certain contributions to the Social Health Insurance Fund (SHIF), wage drift as well as the need for counties to provide matching allocations for the County Aggregation and Industrial Parks and the Community Health Promoters programme. Further, resources for the transferred obligation to meet the cost of medical equipment programme.

Conclusion

15. The proposals contained in the Bill take into account the fiscal framework set out in the BPS for 2024/25 and are intended to ensure fiscal sustainability specifically against the backdrop of escalating expenditure pressure on the fiscal framework occasioned by increase in Consolidated Fund Services (CFS) and the persistent under performance of the ordinary revenue. 16. It is expected with successful implementation of the Third Basis formula from FY 2021/22 to 2024/25, county governments will now be able to plan, budget and spend in accordance with areas of need as envisaged in the formula as well as achieve their developmental needs.