The National Treasury has slapped county governments with a Sh46.35 billion budget cut in the wake of Covid-19, triggering a new war front with governors.
The decision was made after Treasury revised its revenue projections with the pandemic taking a heavy toll on Kenya Revenue Authority targets.
The shocker is contained in the Division of Revenue (Amendment) Bill, 2020 and County Allocation of Revenue (Amendment) Bill, 2020 submitted to Parliament for consideration by Treasury CS Ukur Yatani.
The move will likely plunge counties into a deeper financial crisis.
Counties have diverted substantial chunks of money to fight coronavirus, even as locally generated revenue plummet.
In the new plan, Treasury plans to cut county equitable share of revenue raised nationally by Sh30 billion and reduce conditional grants by Sh16.35 billion.
The move has triggered a fierce protest from governors and some senators who have termed it "anti-devolution".
“County governments have come a long way fighting for devolution because of the erratic flow of cash from the national government. Parliament should not agree to the proposal,” Council of Governors chairman Wycliffe Oparanya told the Star.
All the 47 governors are expected to meet today to take a common stand.
Senators Cleophas Malala (Kakamega) and Mutula Kilonzo Jr (Makueni) criticised the decision.
“The President announced the other day that county governments will receive Sh5 billion to fight the virus. How then does he take away Sh46 billion?” Malala asked and vowed to shoot down the amendments.
Mutula said it would be unconstitutional to slash the allocation as the supreme law ring-fences county funds.
Article 219 of the Constitution states that the county’s share of revenue raised nationally by the national government shall be transferred to the county without undue delay and without deductions, unless where the transfer has been stopped as provided for in the same Constitution.
Yatani said the cuts have been necessitated by a shortfall in revenues raised by the KRA because of the Covid-19 crisis.
If approved by Parliament, it will be a blow to the counties which have also suffered a Sh5.8 billion budget deficit following the Treasury’s move to reallocate the equalisation fund meant for marginalised counties to fight the virus.
The decision also comes at a time the counties’ internal revenue collections are under-performing owing to the closure of markets and other business premises.
According to the CS, the pandemic has hit hard revenue performance, with the taxman projected to realise a Sh233.8 billion shortfall this financial year.
“The projected revenues raised nationally for the financial year 2019-2020 have dropped significantly, due to unforeseen impacts of the Covid-19 pandemic by Sh233.8 billion,” Yatani said, justifying the amendments in the County Allocation of Revenue (Amendment) Bill 2020.
The shortfall, he said, has forced Treasury to revise the overall budget from the initial Sh1.87 trillion to Sh1.64 trillion.
“In this regard, the national government share of revenue raised nationally has been adjusted downwards by Sh203.8 billion. This shortfall in the share of the national government revenues has been partly covered by the adjustment of development and Consolidated Fund services budget for the financial year 2019-2020,” Yatani said.
He said Treasury will bear a disproportionately higher share of the shortfall of Sh203.8 billion or 87 per cent.
The shortfall will be offset by expenditure reduction in ministries, departments and agencies by putting in place austerity measures.
The CS reiterated that the revised equitable share allocation, from Sh316.5 billion to Sh286.5 billion for counties, translates to 27.6 per cent of the last audited accounts which is above the constitutional threshold of 15 per cent.
“Consequently, it is expected that the county governments should also revise their budgets downwards to reflect the shortfalls and comply with the revised schedules,” he said.
On the conditional grants, the CS proposed the removal of Sh16.5 billion financed by development partners - a dismal absorption rate.
This will create fiscal space in the fiscal framework for 2019-20 to allow for mobilisation of resources towards addressing the Covid-19 crisis.
The grants include money meant for level 5 hospitals, development of county headquarters and Road Maintenance Levy Fund.
If the amendments are endorsed by Parliament, Nairobi, Kakamega and Kilifi and Turkana counties will be the biggest losers.
Nairobi, which had initially been allocated Sh15.79 billion, will lose Sh4.67 billion in equitable share. The city will even lose further if Parliament endorses Yatani's proposal to transfer Sh3.17 billion equitable share and some Sh608 million grant retained in the national government for the transferred functions.
“A total allocation of Sh3.8 billion to the Nairobi City County Government for the financial year 2019-20 shall not be transferred to the county revenue fund, but shall instead be retained in the Consolidated Fund for appropriations to meet the cost of the transferred functions,” Yatani said.
Kakamega county will lose up to Sh987 million, Kilifi will forgo Sh990 million, Turkana will lose Sh999 million, Nakuru will surrender Sh993, while Mandera will lose Sh969 million from its original equitable share.
Other big losers will be Bungoma (Sh843 million), Kitui (Sh837 million), Nakuru (Sh993 million), Mombasa (Sh669) and Kisumu (Sh648 million).
Machakos will lose (Sh735 million), Migori (Sh642 million), Uasin Gishu (Sh600 million) and Tana River Sh555 million.
Last year, the National Assembly and Senate engaged in a prolonged dispute after the former slashed the devolved units' equitable share allocation by Sh4 billion.
- mwaniki fm