The ‘new’ Constitution grants counties the freedom to generate revenue to implement their functions. The counties also receive money from other sources to support their operations. The sources of county government revenue in Kenya include revenue generated locally, revenue received from the national government, and revenue sourced externally.
The sources of county government revenue in Kenya
Article 209 (3) of the Constitution empowers the county governments to impose two types of taxes and charges. These sources of county government revenue in Kenya are property rates and entertainment taxes. The county governments can also impose charges for any services they provide in accordance with the stipulated laws.
All these sources of county in Kenya constitute the local revenue. The county governments impose the rates and taxes through the Finance Act.
The equitable share is the money parliament shares vertically between the national and the county governments. The money comes from the revenue the national government raises nationally. The Senate then divides the equitable share of revenue allocated for the counties among them. The equitable share is the biggest of the sources of county revenue in Kenya.
The equitable share for the counties should not be less than fifteen percent of all the revenue raised by the national government. The most recent audited revenues by parliament should form the base for this threshold of 15 per cent.
The Senate uses a formula developed by the Commission on Revenue Allocation (CRA) to divide the equitable share among the counties.
The equitable share allocated to the counties is unconditional. The county governments can spend the money without any restrictions from the national government.
The county governments can receive additional allocations from the national government’s equitable share of revenue. These additional allocations are known as conditional allocations or conditional grants.
They are conditional when the national government imposes restrictions on how county governments will spend them. They are unconditional when the national government does not impose any restrictions concerning their expenditure.
Most of these additional allocations are conditional allocations or grants. The county governments should spend them on specific items in the budget. They cannot divert them for other purposes.
The conditional grants include the Equalization Fund (Article 204) that currently benefits 14 counties that CRA categorizes as marginalized. Other examples are money for Level Five hospitals and leasing of medical equipment.
The national government may require the county governments to put up “matching” funds to receive a conditional grant. For example, the national government can allocate a conditional grant of 80% to a county government to build a health facility. The national government may then require the county government to raise the other 20% as a condition to receive the rest. If the county government in question cannot raise the ‘matching’ funds, then it may miss the conditional grant completely.
It is also important to note that not all counties receive some conditional grants. For example, only the counties with level five hospitals receive the grant for level five hospitals. In addition, only 14 counties receive the Equalization fund.
Loans as sources of county government revenue in Kenya come from external sources or private lenders. The external sources include foreign lenders such as multinational corporations. The County Governments can borrow or access loans, which they repay with interest.
However, the counties must meet two conditions in order to access the loans. First, they can only access a loan if the national government guarantees the loan. That is, the national government should be willing to repay the loan if the county government is unable to repay. Second, the county assembly must approve any loans that the county government intends to borrow.
Parliament should come up with legislation to prescribe how the national government should guarantee loans. The county governments should also not borrow beyond the limits set by the County Assembly.
Donor funding as one of the sources of county government revenue in Kenya involves aid from international donors. The international donors provide the aid in form of grants. As with the national government, the international donors can also request counties to put in ‘matching funds’ to receive a grant.
Such international donors include USAID and DFID. The donors can send the money directly to the counties as conditional grants or through the national government.
Apart from ‘matching’ the funds, the donors may also require the counties to increase accountability mechanisms or improve the capacity of county staff in monitoring and expenditure of donor aid.