Is Treasury undermining devolution?

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In the past few weeks, County Assemblies (CAs) have expressed discontent with the constitutionality of the regulations published under the Public Finance Management (PFM) Act and questioned whether these regulations undermine devolution structures.

With the upcoming tabling of the budget in Parliament on April 30th, various CAs’ representatives claim that these regulations have greatly limited their ability to revise budget estimates proposed by the county executives. They also claim that the regulations have placed restrictions on the amount of county revenues that they can access for their expenses. Overall, they claim that these regulations inhibit proper oversight on county public finances as mandated by the constitution.

However, these regulations seem to have been set in place to limit the wasteful expenditure that counties have become so notorious for by setting clearer guidelines on budgeting and management of county public finances. They could be well justified in light of increasing public outcry on expenses such as foreign travel by MCAs.

Published in 2015, the two contentious sections in the regulations spurring these debates state that:

25 (1) f. the approved expenditures of a county assembly shall not exceed seven per cent of the total revenues of the county government or twice the personnel emoluments of that county assembly, whichever is lower.

And

37 (1) Where a county assembly approves any changes in the annual estimates of budget under section 131 of the Act, any increase or reduction in expenditure of a Vote, shall not exceed one (1%) percent of the Vote’s ceilings.

These regulations have been in effect since mid-2015, however the debate has been brought to the forefront by the fact that the budget formulation process is coming to a climax with the tabling of the budget in Parliament next month.

FACT CHECKED:
Claims by CA representatives, such as those reported in the Daily Nation, that the Treasury CS is creating laws are unfounded as he followed due process in tabling the regulations in Parliament in March 2015 for approval. The PFM Act clearly provides an allowance for the Cabinet secretary to create regulations under the act generally, and specifically to curb wasteful expenditure, and both Houses of Parliament must approve these within 15 sitting days, otherwise they are assumed to be approved automatically.

According to the Hansard, the Senate considered the regulations with regards to county finances and approved them. This ongoing debate therefore comes too late and begs the question why the lawmakers gave approval for the regulations to be gazetted if they went against the spirit of devolution. What is more surprising is that the Senate did in fact make specific recommendations to amend the sections above but it seems that they proceeded to approve the regulations with the initial limitations.

In relation to the first contentious section, it is worth noting that, based on the current financial year budget, CAs would have expected a maximum allocation of approximately 25.3 billion shillings, equivalent to 7% of the aggregate budget estimates for the 47 county governments (amounting to 361.13 billion shillings). Further, analysis by IBP Kenya on how much it costs to run a county, county assemblies should spend approximately 27.4 billion shillings in 2015/2016 (approximately 7.6% of the aggregate budget for the 47 counties).
If we take the case of Nairobi County, the county government in 2014/2015 budgeted to spend 25.59 billion shillings translating to an expected 7% allocation of Kshs. 1.79 billion to the county assembly. When compared to actual budgeted expenditure by the Nairobi CA in 2014/2015, as provided by the Office of Controller of Budget, the 7% allocation is prudent as the county budget actually allocated Ksh1.78 billion towards the CA. Assuming a similar allocation pattern across counties, the 7% limit could very well be justified. However, estimates based on twice the personnel emoluments may be lower than the 7% limit for some counties and this could bring the expenditure cap lower.

The Star, erroneously reported that Section 25 (1) f. leaves the CAs without say over 93% of county budgets. This interpretation is wrong as the budget process as stipulated in the PFM Act clearly spells out that CAs must approve and pass the prescribed allocations for the county to spend in that fiscal year. This in effect means that no county can spend monies that are not approved by CAs thus giving them 100% oversight or a significant say in the matter of how county monies should be spent.

The second contentious section in the regulations speaks to the limits to increasing spending in each vote by 1% when approving budget estimates. A vote here could mean the budget allocation to health, infrastructure, water services etc. Jason Lakin in his article succinctly points out why this could be problematic depending on the interpretation of the section. While this section may seem severely limiting, again the budget process as prescribed in the law provides CAs as well as the public, other opportunities to make recommendations to budget ceilings per vote or program. However, the CAs correctly point out that it is their constitutional right to amend the budget after it is tabled in the assemblies and before it is passed.

While we cannot conclusively determine that indeed these regulations undermine devolution, CAs should instead hold the Senate to account for passing these regulations, when they had the opportunity to protect counties’ financial independence at the national level.

 

Leo Mutuku is the PesaCheck Fellow. PesaCheck is the first ever media-focused budget and public finance fact checking initiative. 

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