Nairobi to gain big from new revenue allocation method

Nairobi will take the largest chunk of cash meant to reward counties for striving to meet revenue targets, if the proposed new formula of sharing county revenue is approved.

This emerged Thursday as the Commission on Revenue Allocation (CRA) released details showing that the fiscal responsibility criterion on cash subdivision stresses achievement of targets as a major factor.

The capital city will receive more than three times the cash allocated to the second best county, Nakuru, as CRA moves away from sharing the fiscal responsibility funds equally.

CRA is recommending that half the amount meant to incentivise counties to be prudent and productive be based on how the entities achieve revenue targets, while the other half is shared equally.

However, besides the targets, other principles under fiscal responsibility including prudent management of fiscal risks (such as overspending or under-spending) and a reasonable degree of tax predictability were not mentioned.

“Unlike before, some counties will receive more and others less because if you had revenue targets which you did not hit then you have to be penalised for it,” said Ms Rose Osoro, a commissioner with CRA.

She noted that some counties had merely inflated their revenue targets in order to balance their budgets, an act that would now see them lose out. Counties are not allowed to run a budget deficit.

Nairobi, with revenues of Sh10 billion against a target of Sh11 billion, was the best performer which could see it allocated Sh475 million compared to Nakuru’s Sh155 million if CRA’s numbers are accepted by both the legislature and the executive.

Tana River, Marsabit and Lamu will receive the least amounts.

CRA has been criticised for lowering the weight allocated to fiscal responsibility at a time when county governments are reported to be using public funds badly.

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Ms Osoro disclosed that CRA officials were split on the decision to lower the weight to one per cent from the previous two per cent.

Public opinion was for the weight of the incentive to be increased but the commission also faced the need to introduce new parameters, forcing it to scale back on the fiscal responsibility criterion.

Ms Osoro was speaking at a workshop called to discuss the proposed new revenue allocation formula. Some economists criticised sharing part of the fiscal responsibility money equally, arguing that the method negated the purpose of rewarding prudence.

Analysts at public finance NGO International Budget Partnership said equal sharing of the responsibility money amounted to duplication of the basic fund which is shared equally among the counties.

IBP also pointed out that the formula was skewed to rewarding counties currently collecting more because they had ability to achieve their targets.

Nairobi, for example, was able to more than double the vehicle parking fee this year.

IBP recommended that the formula be made to reward counties that grew their revenues by the highest margins. “Counties should be rewarded when they make an effort to raise money on their own and spend it wisely,” said Jason Lakin of IBP.

The formula has been forwarded to the Senate for approval.