COUNTY GOVERNMENTS AND THE CHALLENGES OF REVENUE ALLOCATION: PERSPECTIVES ON EFFICIENCY, SERVICE DELIVERY AND RESOURCE DISTRIBUTION

By Javas Bigambo

BACKGROUND
This paper looks at devolution in Kenya and attempts an assessment of how it has been designed, how it shall be implemented and how successful or challenging it promises to be in achieving the intended objective of being an instrument of promoting participation of the people and county governments in decision-making with regard to revenue allocation and appropriate resource distribution.

The paper specifies a working understanding of decentralization (devolution) and attempts to answer questions such as: (i) what are the practical reasons and objectives for devolution? (ii)Through what processes, modalities and mechanisms will revenue be allocated by the Commission for Revenue Allocation and how does such a process facilitate or constrain its implementation and success? (iii)if devolution was intended to promote participation in decision making in county governments, what was introduced in designing decentralized governance, to institutionalize participatory decision making?
The thrust of this paper is an in-depth analysis of the politics of revenue allocation cum resource control. The paper thus takes a cursory look at virtually all previous attempts at arriving at equitable formula.

As a governance tool, decentralization is based on the principle of subsidiarity , which assigns specific functions hitherto conducted by the centre (of an entity) to the lowest feasible subcentres on the periphery. In modern or post-independence Public administration, historically African countries have experienced fused, personalized and at best highly centralized governance systems and practices. In pre-colonial Kenya, paramount chiefs or traditional leaders represented basically all authority. During the colonial and immediate post-colonial periods governance was structured and practiced in a highly centralized manner so as to tighten the grip and control on power, retain loyalty and allegiance from the people.

The quest for Kenya’s new constitutional dispensation lies in the ground between two decades and 2010. That successful quest was the fruition of clarion calls by Civil Society Organizations (CSOs), the academia, lawyers, politicians and change enthusiasts to unshackle Kenya from decades of authoritarian presidency or rule by successive regimes and midwife a new era of responsive leadership, distributive power and devolved governments that would bring resources and leadership closer to the people. Devolution is a multi-dimensional approach that organizes governance and manages state power along multiple lines. It is a new entrant in Kenya’s constitutional lexicon which holds a great promise to the people of Kenya. It defines, distributes and constrains the use of state power along multiple lines by combining both vertical and horizontal dimensions. In essence, devolution forms the foundation for federal systems and structures of government and is founded upon the concept of decentralisation and devolution of power.
It may correspondingly be seen as a system of governance that devolves power from the centre to smaller sub government units at the local level in order to guarantee that all citizens equally enjoy the national cake. It can actually be described as the statutory granting of powers from the central government of a state to government at a sub-national level, such as a regional, local or county level.
The Constitution of Kenya heralds a major shift in the system of government unique to Kenya. One of the major changes introduced by the new constitutional dispensation is a new gov¬ernance style of devolved government that would see the introduction of different admin¬istrative units in a bid to ensure that service delivery is brought closer to the people. The new Constitution creates a new level of Gov¬ernment – counties – to mostly ensure that power is devolved to the people.
It is vital to understand the blueprint of the system of devolved government against the backdrop of the country’s complicated history which will also fundamentally shape the man¬ner in which it is implemented . Kenya’s de¬volution programme has been described as one of the most ambitious in the world, because it is transferring a substantial amount of power and resources to an entirely new level of government. In a turn, Kenya’s eight provinces and over 280 districts will be replaced by forty-seven brand new counties.
After promulgation of the Constitution of Kenya 2010, the government embarked on its implementation as outlined in its Fifth Schedule. A Cabinet Memorandum outlined the responsibilities for ministries as agents in the implementation, with the Office of the Deputy Prime Minister and Ministry for Local Government (ODPM & MoLG) designated the lead government agency on devolution. To fulfill this mandate, the ODPM & MoLG established a multi-sectoral and multidisciplinary Task Force on Devolved Government (TFDG) through Gazette Notice 12876 dated 25th October 2010.

The Case for Devolution in Kenya

One of the perennial problems which has not only defied all past attempts at permanent solution, but has also evoked high emotions on the part of all concerned is the issue of equitable revenue allocation. A devolved system of government involves the constitutional creation of two or more levels of government with assigned functions and resources. The levels of government are co-ordinate, but not subordinate to each other. None of the levels of government is an agent or at the mercies of the other. Each is established and cosseted by the constitution, with the functions and resources to be used for their discharge being set out and defined by the constitution.

The devolved system combines self-governance and shared governance at the local and national levels, respectively. Therefore when Kenya embraced the Constitution in 2010, Kenyans authorized this form of government to enhance resource distribution as a corrective measure for past injustices. These injustices were the offshoot of the centralization of political and economic power that got firmly rooted in Kenya in the period 1960s-1980s. Following constitu¬tional amendments in 1982 that concentrated power in the central government and president still further, the District Focus for Rural Development Program was introduced , as a means of involving lo¬cal people in development and sharing resources more equitably. Ultimately, the programme became a vehicle for presidential politi-cal patronage, undermined the role of local governments, and re¬sulted in little meaningful redistribution of economic development.

The Constitution on County Revenue Allocation

An underlying logic behind decentralization is that it enlarges subnational participation in decision making over interventions, and consequently enhances their local relevance and citizen participation in implementation. That is a fundamental strength entrenched in the Constitution. These measures should then expand the scope for efficiency and cost-effectiveness. The various types of decentralization are historical realities of management generated by theory and practice: the clearer the structure of decentralization, the greater the scope for efficiency.

Decentralization has three fundamental dimensions, which may occur independently or jointly: the administrative, the political and the fiscal . Since the promulgation of the new Constitution, county forums bringing together manifold stakeholders to discuss development and governance issues have been instrumental in demystifying devolved government, and deconstructing it for the greater understanding of all people. Several counties have key national public investments (Maasai Mara – Narok County; The Mombasa Port – Mombasa County; )and discussions on those investments that they will have control over should be held early enough to avert any conflict between national and county governments. In devolved federal units , there are two key principles that guide revenue allocation. The first is the vertical sharing between the federal or inclusive government and the other tiers of governments. The subject of such sharing schemes is the federally collected revenues. This is because the revenues generated within the jurisdictional areas of the units – states and local governments – are not subject to the national sharing formula.

Another principle of revenue transfer which is horizontal revenue sharing arises out of the variations in revenue generation capacities of the component units. Where the revenue raising capacities are low, heavier tax burden is imposed relative to higher revenue raising capacities area. This transfer is called “equalization transfer” . This transfer is necessary because higher taxation will scare away businesses and the economy of the unit will become more depressed. The CRA is yet to find a stable agreeable formula that can guide equitable revenue allocation.

The Constitution provides for a phased transfer of functions from national to county governments within three years after the elections depending on the capacity that the counties have. The Task Force on Devolution also made significant proposals to foster the smooth transitioning from National to county governments. If preceding investments and existing natural resources shall be critical in influencing the capacity levels of the counties and also predetermine the capacity of these counties to raise their own revenue for sustainability, will the skewed development amongst counties result in an initial backlash against the central government when disbursements are made to those with capacity? With the proposed formula for revenue allocation by the Commission for Revenue Allocation how will some counties sustain themselves given that such allocated revenue does not potentially suffice the development needs and gaps, overheads and requisite service delivery? The new Constitution mandates a devolution system that fundamentally differs from the kind of decentralization that has been function in Kenya since the colonial and post- independence period hitherto.
The Commission on Revenue Allocation (CRA) has recommended that county governments should receive an allocation Sh203 billion while Sh407 billions be given to the national government, and the Sh203 billion shall be distributed through a formula it has proposed. According to the formula, 60 percent of the allocation will based on population size, 20 percent on basic equal share, 12 percent on poverty level rate, 6 percent on the size of land and 2 percent on fiscal responsibility exercised by the county. The remaining 20 per cent will be shared equally among the 47 counties.

Going by the proposed formula, top beneficiaries in the allocations include Nairobi Sh11.7 billion, Nakuru Sh6.9billion, Kiambu Sh6.5 billion, Kakamega Sh7.3 billion, Bungoma Sh7.2 billion, Turkana Sh5.7 billion, Kisii Sh5.5 billion, Kisumu Sh4.6 billion, Kilifi and Kisii Sh5.5 billion each, Wajir Sh4.7 billion and Uasin Gishu Sh4.3 billion. Thus, at the tail-end of the disbursements are counties such as Isiolo Sh1.9 billion, Samburu Sh2.2 billion, Taita Taveta and Tharaka Nithi Sh2.3 billion each while Elgeyo Marakwet was allocated Sh2.4 billion, Laikipia and Tana River Sh2.6 billion each. This means Lamu, which is the smallest of the 47 counties in the country, will receive a paltry Sh1.4 billion to run its county business. Additionally, the CRA recommended that the Equalization Fund (0.5 per cent of the national Budget) to be disbursed from the 2013-2014 financial year when county governments will be functioning.
Previous decentralization Efforts (1999-2010)
This decade saw the introduction of devolved (geographically earmarked) funds in an attempt to address spatial inequality. The most no¬table were the Local Authority Transfer Fund, (LATF)-created through the LATF Act No 8 of 1998, the Road Maintenance Levy Fund, (RMLF)created through the Kenya Roads Act, 2007, the Rural Electrification Fund, created through the Energy Act of 2006 and the Constituency Development Fund, created through the CDF Act of 2003. Despite these piecemeal efforts to address inequality in resource distribution, political tensions remained high spilling over into the 2007 election crises and subsequent unrest, which proved to be the tipping point leading to demands for a new Constitution.

Interlinks between the National and the County Governments
Three types of inter-governmental relations involving county and national govern¬ment exist namely: county–municipal; inter-municipal; and national–municipal. Any laws developed will need to give a lot of consideration to the national-mu¬nicipal inter-governmental relations, especially in light of the current relationship between the Ministry of Local Government and the Local Authorities in Kenya.
Laws developed to define the role of local authorities ought to clearly dis¬courage any direct relations between national government and municipali¬ties, in exclusion of Counties. The role of the national government should only be mediatory in the event of disputes between a municipality and its mother County. In addition, explicit laws should be put in place to provide a coordinating mechanism for the national government to relate with munici¬palities, in light of urban areas where national government is a notable land owner with heavy influence through ownership of infrastructure. The law should also provide clarity on how the issue of concurrent jurisdictions be¬tween the county and national government will be handled at a practical level.
Bottlenecks and other considerations
According to the constitution, the devolved units are entitled to 15 percent of national budgetary allocation annually. However revenue has not been defined in the Constitution or the CRA Act, which has now occasioned controversy over the CRA proposed formula for revenue allocation. The Task Force on devolution submitted that the Constituency Development Fund, which constitutes 2.5 per cent of Government’s ordinary revenue, roads levies and the Local Authority Transfer Fund, should all be lumped together and disbursed to the counties.
At present, the devolution structure and resource allocation mechanism remains a highly contested area, especially in Kenya due to lack fairly logical common ground for the distribution. The devolved government structure in the new constitution is a product of highly emotive debates and several attempts at building consensus during the review process. It is expected that the devolved system of government should help to cure various historical injustices in respect to land rights and ownership and skewed resource distribution. Minorities, marginalized groups and communities in Kenya face various challenges.
First, the loss of land rights, historical injustices, includes exploitation of their resources without their participation or benefit. This is illustrated by the numerous court cases involving marginalised communities. Secondly, Kenya for many years has adopted the needs based approach to development, which, in the Kenyan context prioritised key development initiatives on immediate political gains . Consequently minority and marginalised groups were left out. Thirdly, by virtue of their numbers, the minority and marginalized communities and groups are unable to have their representatives win national elective office.
It would thus be proper if the revenue allocation across counties should factor in these critical issues. Such allocations would therefore seem most fair and attract less contestation if attendant issues of poverty index, numerical inferiority, climatic conditions, infrastructure development, economic status and historical injustices are the base alloy for developing the formula as well, for purposes of potentially optimizing development in the various counties.

While the guaranteed and unconditional transfer of 15% of national revenue for county governments is only a minimum, it remains to be seen if it will be adequate given that county governments will perform both decentralised government and typical local government functions. Local government in South Africa accounts for 25-30% of the national revenue but still with this figure, local government authorities are said to be struggling . While due regard must be given to existing local conditions in Kenya that are different from countries such as South Africa, there is need for accurate assessment of revenue needs for county governments in the new constitutional order to make certain that county governments meet the broad objectives of devolved government.

Conclusion
Effective devolution and revenue allocation can and shall enhance self-reliance of the county governments to a greater extent, and public participation in decision making at the county level. The strongest recommendation of this paper is that the 15 percent derivation quota should be tried and be seen to work. However, new thinking in Kenya, as evidenced by the disagreements over CRA’s proposed formula, is that even if revenue allocation is tinkered with to favour the resource-rich counties, the pervasive tradition of kleptocratic political leadership shall noteventually make proper sense of county resources. Integrative mechanisms should be adopted by CRA to ensure reduced or minimal squabbles over the formula, and get to practical ways of equitable revenue allocation.

The writer is a consultant at Interthoughts Consulting and can be reached on: jbigambo@interthoughts.co.ke

DEVOLUTION IN KENYA: BALANCING ISSUES AND RISK FACTORS FOR COUNTY GOVERNMENTS

By Javas Bigambo

Background
This paper purposefully and critically addresses and analyses the overall objective of the county governments in respect to the issues and challenges that they shall be faced with. It therefore undertakes the conceptual problematization of the ideals of devolved government, concepts and assumptions, with critical focus on the risk factors that the county governments shall inescapably face. There are many positive aspects of the new system of government as envisaged by the Constitution, but there are also major issues with certain design features, and the country faces considerable implementation challenges.
This paper is therefore premised on two assumptions. First, proper institutional mechanisms as by law established shall be fully embraced to facilitate the smooth transitioning for proper decentralization. Second, that in spite of all the precautionary measures, risk factors still are abound and need deeper reflections.
Devolution is a multi-dimensional approach that organizes governance and manages state power along multiple lines. It defines, distributes and constrains the use of state power along multiple lines by combining both vertical and horizontal dimensions. In essence, devolution forms the foundation for federal systems and structures of government and is founded upon the concept of decentralization and devolution of power. It may similarly be seen as a system of governance that devolves power from the centre to smaller sub government units at the local level in order to ensure that all citizens equally enjoy the national cake. It can actually be described as the statutory granting of powers from the central government of a state to government at a sub-national level, such as a regional, local or county level.
More significantly, Kenya’s reform moves beyond the typical approach of devolving new functions and resources; it recognizes the broader political and developmental role of county governments. The approach to devolution is explicitly integrated, incorporating strong administrative, fiscal and political elements in the reform process. By its provisions, the Constitution of Kenya 2010 seeks to reverse the centralized non -participatory governance paradigm by institutionalizing an embracing governance and leadership system based on integrity. It does this primarily by establishing an enabling normative framework. It provides for relevant governance institutions; checks and balances on the exercise of executive power; facilitative legislation; enhancing public participation in governance as a bulwark against abuse of power and tightening the process of recruitment, and retention of critical public officers.

As manifested in other countries, devolution is a process of giving political autonomy to administrative units that are already in place. By contrast, in Kenya, devolution will entail creating new political and administrative units at once. In the Kenyan situation, devolution carries the promise of a more equitable model of de¬velopment, almost the magic bullet. The prevailing feeling is that investments and services have been spread unequally across the country, often following political and tribal affiliations, thus fuelling resentment.

The Case of Devolution in Kenya
The practice and institutionalization of devolution in Africa is not unique to Kenya. Essentially decentralization in other countries in Africa like Rwanda and South Africa was a vital and urgent corrective measure, and was promoted in response to the political and economic problems in their history. In South Africa, promoting local governments was aimed at “rebuilding local communities and environments, as the basis for a democratic, integrated, prosperous and truly non-racial society” following the trauma of apartheid in the country.

In Rwanda decentralization was to “provide a structural arrangement for government and the people of Rwanda to fight poverty at close range, and to enhance their reconciliation via the empowerment of local populations” following the trauma of the genocide of 1994. As Mwabu Germano in his book “Decentralization and Devolution in Kenya” (2001) indicates, efficient delivery of public services in Africa and other developing regions has for a long time been hindered by highly centralized government bureaucracies. Recognizing the urgent need to achieve high economic growth, reduce income disparities, restore public confidence in government, cure historical injustices and other poverty-related inequalities, Kenyans pushed for enhanced decentralization of development initiatives through the adoption of the Constitution of Kenya 2010 that favours devolution.

Rationale and Principles of Devolved Government in Kenya

One of the objects and principles of a devolved government in accordance to the Constitution of Kenya 2010 in Article 174 is to recognize the right of communities to manage their own affairs and further their development. This will give the people a sense of identity and self empowerment. With this system of government, communities will feel recognized in their contribution to the growth of their own county and the country at large. The other principle is to promote protection and promotion of the interests and rights of minorities and marginalized communities. Hence the minorities will not feel sidelined. This will promote a sense of unity as they will not feel as though their needs have been ignored.

Article 174 therefore creates a new level of local government that marginalizes traditional provincial and district administration and effectively replaces the current structure of local governments that functions through municipalities and town councils, and replaces that with a well defined, structured and directed county government system enshrined in the Constitution, the supreme law.

Article 174 of the Constitution of Kenya identifies the objects of devolved government as the promotion of democratic and accountable exercise of power; fostering of national unity by recognizing diversity; giving of powers of self governance to the people and enhancing of the participation of the people in the exercise of the powers of the state and in making decisions affecting them; recognition of the right of communities to manage their own affairs and to further their development; protection and promotion of the interests and rights of minorities and marginalized communities; promotion of social and economic development and the provision of proximate, easily accessible services throughout Kenya; ensuring of equitable sharing of national and local resources throughout Kenya; the facilitation of the decentralization of state organs, their functions and services, from the capital of Kenya; and enhancement of checks and balances and the separation of powers. It is clear that the devolved system therefore not only brings government and resources closer to the people, but also gives powers and responsibilities to the people and leaders at the county level in decision making and determining the direction they want to go in development and politics.

As Nyanjom argues in his policy paper “Devolution in Kenya’s New Constitution (part of the SID series of publications, 2011), decentralization will most likely bring efficiency. This is predicated on the expectation that decentralizing functions to the lowest feasible level of decision making and implementation will optimize information flows and reduce transaction costs. Thus, a decision to devolve is often based on the failure of central government to deliver, such as in revenue collection or in service delivery; decentralization too will ensure equitable distribution of resources. According to Nyanjom, there shall be greater and impactful decision-making and involvement of the people in decision making, and revenue collected in each county shall be used to develop the same county. The recent controversial appointments of County Commissioners, for instance, were illegal. This is because it violets the requirement of public participation, transparent selection process and circumvented the Transitional Authority Act 2011, which sets guidelines on how all officers at the county level shall be appointed and their duties. The transitional Authority is also responsible to facilitate the development of the budget for county governments during the first phase of the transition period and also assess the capacity needs of national and county governments. Therefore, the effectiveness, efficiency and recommendations of the Transitional Authority shall highly be depended upon to ensure the smooth transitioning from the central to the devolved system, with minimal hiccups.

The defining feature of devolution is the transfer of political powers and autonomy to sub-national units which are in turn politically accountable to the local communities as opposed to the centre. In Kenya since independence, power has been concentrated at the executive, where the decision making was done, and distribution of resources was majorly determined by the wishes and political inclination of the president. In the Constitution of Kenya 2010, there is provision for the devolved system, anchored in law through the Transitional Authority Act 2012.. Having embraced a unitary system since its founding, there has been in operation a central system of government that had excessive power and control over local governments and other arms of government like the judiciary and the legislature. This has been changed, thanks to the decentralized system of government. Essentially, these new devolved features define forms of government such as like in federalism where sub-national units exercise some form of self-rule and shared rule based on some arrangements.

According to the Kenya Association of Manufacturers’ the new two-tier system of government introduces a new threshold for investment through counties and consequently enhances economic growth and service delivery to the citizens. Counties will be entitled to a minimum of 15 per cent of national revenue and the Division of Revenue Act will establish a “Chinese wall” between county and national govern¬ment finances. While this is greatly expected, it goes without saying that the success of the devolved system will strongly depend on positive collaboration between the county governments and the central government, the proper and incorruptible use of allocated revenue, proper internal checks and balances within counties, and the skills of the respective county leaders.

The functional county governments should be based on democratic principles and separation of powers; be availed reliable sources of revenue to enable them to govern and deliver services effectively; and must ensure that each of the genders have at least a third of the members of representative bodies in the county, (Article 175). Proper implementation of the county government framework in accordance with the broad principles in the constitution will enhance accountability, and intergovernmental relations between the county units and central government should be seen for the strength they have and not the weaknesses.

The contestation as to whether the Constitution-specific mechanisms that guide how the systems of county government shall come into place, especially the laws that guide and oversee smooth transitioning shall ease the risk factors remains sound. The political consciousness of the people at the county level still requires support through proper civic education to secure the effective public involvement in decision making in the affairs of the county, and the people need also to understand the Constitution gives them the right to participate in governance issues and decision making processes. In spite of the contention that the devolution process and transitioning is enshrined in law, the effective and functional devolution success goes beyond the hems of the law. The legislation must be complimented by political good will, popular support, people’s participation which must, which should come from a clear and comprehensive understanding of the essence of Kenya’s unique form of devolution and its attendant challenges.

It is imperative that the implementation of the devolved system of government creates and strengthens a system of government where dignity, human rights, transparency, accountability, social justice, gender, rule of law, equity and meritocracy reign supreme at all levels of government. For instance, the County Executive Committee, County Assembly and other necessary structures that shall be put in place possibly at the village levels, should be able to monitor and question spending, resource distribution, social welfare systems and processes, respect for human rights, access to medical care and that all appointments at the county level should be based on merit and not clanism or political affiliations and friendships. Chapter 12 of the Constitution on Public Finance, provides that there shall be openness and accountability, which, in fact, shall guide counties on financial matters and governance matters. The hope is that Kenya will become a more equal and economically balanced country, but making that hope a reality will take time, partic¬ularly given the current economic uncertainty.

Potential Challenges of the devolution process

Fundamentally, the success of devolution will require huge resources, public awareness, capacity building initiatives and highly committed personnel, institutions and organizations, founded on the national values as enshrined in the Constitution. The essence of devolution is that at the local level the people are allowed a certain flexibility within which they can make decisions that are unique to themselves and their locality. They are allowed a measure of self-governance at this level but at the national level, decision-making is shared.

One major administrative problem that many counties will face is their inability to realize fully the revenue that shall be due to them. As provided for in Chapter 12 of the Constitution on Public Finance, Article 201(b), provides that the public finance system to be put in place should actually promote an equitable society, and that the burden of taxation shall be shared fairly. Thus, the ratio between what will be reported and projected revenues shall potentially and significantly differ both between counties and between areas within the counties. The following factors provide some explanations for this wedge:
(1) poor administrative capacity to enforce the taxes;
(2) explicit and intentional tax evasion and resistance from taxpayers;
(3) corruption, including embezzlement of revenues;
National and county governance are vital in enhancing the effectiveness of this two-tier government, yet this cannot not wish away the myriad of challenges that this system attracts. These include;

Restructuring: Fate of Provincial/District Administration

The Constitution of Kenya 2010 does not devolve all public functions to the countries, so how the central government will operate at the local level to meet its ongoing obligations is important. There is no gainsaying of the fact that under the Constitution of Kenya 2010, the former Provincial Administration, taking the name and capacity as County Commissioners, will play complex and indispensable administrative roles than ever before. It shall coordinate inter-ministerial duties, manage the relationship between the national and county governments, and monitor the implementation of national policies and utilization of funds. This is what breeds the fear, as to how the County Commissioners will discharge their duties without causing many hiccups as to the order and structures of devolution established in the county which shall be run by the a governor elected by the people. It is proper that there should not be conflicting or overlapping mandate, rather, the public officers should handle their obligations complimenting each other’s capacity for the common good.
At present, there exists conflicting debate as to whether the governors and county commissioners shall have conflicting roles. Of course the Constitution provides that the county shall be headed by the governor, which therefore means, that in the effort to restructure the former provincial administration, the county commissioners should not seem to assume the overall leadership of the county to serve the interests of the central government. The strength of the Kenyan devolution system is that the counties are autonomous.
As Obuya Bagaka observes in his article “Restructuring the Provincial Administration: An Insider’s View” (SID Working Paper”, Articles 175 and 189 of the 2010 Constitution on separation of powers and respect for institutional integrity of each level of government respectively, PA officials such as sub-chiefs and chiefs may either be absorbed by the county governments or relieved of their duties given that most of what they do largely falls within county jurisdictions. On this score, it obliges the Transitional Authority to guide the relationship between the County Commissioners and the County Government.

Fiscal Functions of the Central Government with respect to Counties

The Constitution does not make it clear how counties will generate their wealth to ensure sustainability of their operations. Article 209(3) states that county governments only have powers to impose property taxes, entertainment taxes and any other tax that par¬liament may authorize them to impose. Given this provision, one would say that the spirit in the establishment of Counties ap¬pear more focused on distribution rather than creation of wealth.

According to the 2012 Budget Policy Statement issued by the Minister for Finance, there is proposed division of revenue between the national government and the county governments, where the national governments accounts for 80% equitable revenue share over the period of 2012/2013 financial year, while the county government financial transfers average 20%. So a bigger percentage of the national revenue collection and allocation shall be retained by the national government. In regard to fiscal allocations from the central government, the fate and wisdom of existing funds Local Authority Transfer Fund, Constituency Development Fund) and how they appropriately relate to the 15% county share of national revenues is guided by the CRA Act, and the fact that county governments will have to be participating in the budget making process by developing their preliminary budgets in a participatory process and forwarding to the national government.. Of course it is understood that the 15% revenue allocation to county governments comprise an enhanced consolidation of the LATF and CDF. Further, the adequacy of the 15% share to finance mandated functions is only in early stages of study and data, yet a critical review of the county government needs for local development and operational costs indicate that the 15% allocation may compel most county governments to function on lean budgets. This is premised on the fact that all counties do not have equal resource capacity or endowment, and not all can strongly raise their own taxes that can satisfactorily satisfy them. Further, the nature of the revenue sharing formula has raised heated debate and legitimate discontent among stakeholders and leaders from various counties, thereby casting aspersions as to the suitability of the formula proposed by CRA. Busia County leaders, for instance, have faulted the CRA for the limited funds allocated to it using inaccurate population figures that vary from the 2009 census results. CRA has later admitted that the population of Teso North had been factored into Bungoma County and not Busia County as should have been the case, regretting the happening which the CRA chairman stated that it shall be corrected. Other discontents arise from the paltry amount allocated to the very small counties, which can barely sustain operations.

Decision making process at county levels
While devolution creates opportunities for capital raising and financial intermediation, there are several levels of approval, and certain decisions will have to be endorsed by the Central Government – Involve /invite Central Government representatives in the county implementation committees;
Setting up of businesses within the counties may encounter a lot of bureaucratic procedures: Develop mechanisms to continuously update Central Government on plans and progress by the Transitional Authority, on the successes and impediments that are arising, and possibly recommending how they can be addressed. This can also be complimented by the duties of the county commissioners in collaboration with the county government.
Capacity: There are also possible challenges on capacity should financial services be devolved to county levels, especially in a specialized industries like capital markets; Overall training of personnel to serve at county levels through training institutions;
Change management: The constitution changes the ways of doing things in Kenya including business- Devolved governments across counties face diverse situations due to the different socio-economic conditions and cultural setups including the people’s mindset in favour of great development with increased people’s participation. It shall be instrumental for the civil society organizations to continue building linkages and oversight partnerships with governments, development partners, the judiciary and legislature, to ensure that systematic change management takes place.

Transition: Kenya’s devolution is a massive transition and requires taking stock of the current situation and making decisions about staffing counties and appropriately phasing in functions/resources; but there has been very little attention to strategy. The Commission on the Implementation of the Constitution (CIC) cannot deal with the details of devolution, and there is much debate over how to handle this (a transition authority has been established, but much debate over details of how it shall execute it mandate to eschew rough edges in the transition process in regard to public participation, especially in marginalized and remote counties such as Turkana. Among other responsibilities, the Transitional Authority is mandated to establish the status of ongoing processes, development programmes and, projects and make recommendations on the co-ordinated management, reallocation or transfer to either level of government during the transition period; ensure successful transition to devolved system of government as well as provide mechanism for the transfer of assets which may include vetting the transfer of assets during the transition period. Granted such mandate, the authority therefore is well placed to midwife and oversee the transition process, and how assets may be transferred to counties to facilitate effective functioning and smooth running.

The risks affecting the implementation of devolution in Kenya could be categorized as strategic, operational, institutional and funding. Strategic risks are perceived to be those that adversely affect the future shape and form of devolution in Kenya, especially in terms of their effect on the anticipated outcomes, in relation to the provisions of the constitution. These include misinterpretation of the CoK 2010 provisions in relation to devolution, political posturing and the electioneering processes as well as inadequate stakeholder understanding of the provisions and implications on devolution. On the other hand, operational risks relate to those that impact on the efficacy of the implementation of identified provisions in relation to the devolution processes. These include lack of capacity, poor public communication interventions, half-hearted implementation efforts and poor networks amongst key stakeholders.

Conclusion

There is undoubtedly room for greater or progressive tax administration at the county level for the national Kenya Revenue Authority. However, before considering the issue of capacity a more fundamental issue has to be considered, this has to do with the rationale to squeeze additional revenues from poorly designed taxes by the counties. The PMF Bill as guided by Chapter 12 of the Constitution on Finance provides mechanisms on taxation and financial management issues at the county and national government. Of course improved administrative capacity may increase the negative effects on the economy and society in general, and lead to more inferior outcomes than the present central system. This reasoning has implications for the sequencing of the reform activities that need to be well thought out and agreed upon before implementation. As it has been reflected by the Institute of Economic Affairs, the efficiency of a devolved system of government is efficient when the intergovernmental fiscal framework is welfare enhancing, incorporates incentives to encourage prudent fiscal/financial management at the government levels and responsibilities to tax and spend at the sub-national levels is accompanied by effective political authority.

The lack of effective and stringent controls may also by default facilitate embezzlement of county funds. In principle, financial controls through internal and external audits and stiffer penalties for culprits of corruption may functionally help to reduce the major risk factors.

REFERENCES
1. Oloo Adams (2006) Devolution and Democratic Governance: Options for Kenya. IPAR Discussion Paper Series. Discussion Paper No. 077/2006.
2. The Constitution of Kenya
3. Restructuring the Kenyan State: http://www.arrforum.org/index.php
4. http://www.cickenya.org/
5. http://www.crakenya.org/

About the writer:

Javas Bigambo is a consultant at Interthoughts Consulting in Nairobi, Kenya.

Email: jbigambo@interthoughts.co.ke