Counties are punching below their weight in generating own revenue, triggering fears of massive leaks or under-declaration of collections by top dogs.
The dismal performance has condemned nearly all county governments to a perpetual state cash shortage and over-reliance on the national government.
Most counties have accumulated huge pending bills as development suffers.
Nearly all counties, including those endowed with huge resources, have failed to hit their source revenue collection targets since 2013.
They include Nairobi, Nakuru, Mombasa and Kisumu city counties.
Others are Uasin Gishu, Trans Nzoia, Bungoma, Kiambu, Kajiado, Murang’a, Kisii and Kakamega, which either border city counties or have major towns.
In the first six months of the current financial year, for instance, Nairobi collected Sh3.69 billion, representing only 18.7 per cent of the Sh19.42 billion annual target.
Since 2013, Nairobi has collected the highest amount of own source revenue in absolute figures but has fallen short of its own targets.
Devolution experts say that with the properties in the city, Nairobi should generate more than Sh40 billion – enough to fund its annual budget without relying on the National Treasury.
“We set ourselves high targets, which was deliberate. We have automated all our revenue streams and the performance has been impressive,” Nairobi Governor Johnson Sakaja said.
The governor said January’s collection hit more than Sh1.5 billion, the highest-ever monthly collection. He said his administration was aiming to hit the all-time collection high since 2013.
“The other thing that has worked for us is that we now have a new valuation roll. Some counties still use valuation rolls from the 1990s and 1980s,” Sakaja said.
In the six months, Mombasa, the country’s second city, generated Sh1.62 billion in OSR, representing 26.8 per cent of the Sh5.25 billion annual target.
Kisumu collected Sh426.28 million or 18.7 percent of an annual target of Sh1.68 billion.
In total, all the 47 county governments collected merely Sh19.95 billion or 24.9 per cent of their annual target of Sh80.20 billion in the first half of the year.
“Most counties, especially those in the rural areas are struggling. They have not automated their collection or their level of internet penetration is very low,” Sakaja said.
During the period under review, the county governments collected Sh19.95 billion or 24.9 per cent of the annual target of Sh80.20 billion.
This amount is against an expected performance of 50 per cent of the annual target in the first half of the 2023-24 financial year.
The city counties are business hubs and boast prime properties, which are expected to generate billions of shillings in revenue for the devolved units.
Consequently, they are having huge deficits in their budgets, compelling them to drop crucial development projects and programmes key to transforming lives, or incur huge debts.
This has been worsened by the constant delays and erratic releases by the National Treasury.
The revelations have triggered concerns about whether local revenue collections are genuinely underperforming or revenues are simply under-declared.
"The real centre of abuse of office through corruption is how this OSR is managed by governors," Kakamega Senator Bonny Khalwale said.
He wondered how counties with relatively similar economies can collect revenues that are worlds apart.
"For example, the economy of Kakamega is very close to the economy of Bungoma. But Bungoma tells us that last year they collected Sh379 million. Kakamega, which is very close in more or less everything, collected Sh1.3 billion. Something is wrong," he said.
“Since 2013, the counties’ source revenue has only contributed to eight per cent of their total budgets, with 92 per cent being plugged by releases from the National Treasury,” Controller of Budget Margaret Nyakang’o revealed in a report tabled in a Senate committee recently.
County governments raised a total Sh344.4 billion in own source revenue between the financial years 2013-14 and 2022-23.
“In all financial years, the revenue collection has remained below target. On average, counties realised 63.5 per cent of their target,” Commission on Revenue Allocation chairperson Mary Chebukati revealed.
Over the period, the counties accumulated pending bills amounting to Sh156.34 billion (as at December 31, 2023).
Counties generate their revenue mainly from land rates, single business permits, parking fees, building permits and fees from billboards and advertisements.
In 2013-14, OSR contributed to 10.1 per cent of the county budgets while in 2014-15, the revenue accounted for 10.4 per cent of the budgets.
The contribution of OSR to the county budgets declined to 9.5 per cent in 2015-16, before slumping further to 8.1 per cent the following year.
In 2017-18, OSR accounted for 7.9 per cent of county budgets before increasing slightly to 8.3 per cent in 2018-19. OSR’s contribution to the budgets stood at 7.2 per cent, 6.9 per cent, 6.7 per cent and 7.3 per cent in 2019-20, 2020-21, 2021-22 and 2022-23, respectively.
The CRA report shows the counties collected Sh26 billion in their own source revenue against a target of Sh54 billion in the 2013-14 financial year.
The collections improved to Sh34 billion but still failed to meet the target of Sh50 billion in the 2014-15 financial year.
The following year, the counties raised Sh35 billion against a target of Sh51 billion before declining to Sh33 billion against a target of Sh58 billion in 2016-17.
In 2017-18, the counties collected Sh32 billion against a target of Sh49 billion, before hitting the all-time high collection of Sh40 billion against a target of Sh54 billion in 2018-19.
The devolved units collected Sh36 billion against a goal of Sh56 billion in 2019-20. They generated Sh34 billion from a target of Sh54 billion in 2020-21.
The counties generated Sh36 billion and Sh38 billion against a target of Sh60 billion and Sh57 billion in 2021-22 and 2022-23, respectively.
CoB Nyakang’o and budget experts attribute the perennial under-collection of own source revenue collation to a cocktail of factors.
International Budget Partnership country manager Abraham Rugo said that counties peg their own revenue targets to budget deficits.
“No county today can tell you the optimum revenue they generate because they don’t have records of properties, business and data that can help them determine the amount they can collect,” Rugo said.
He added OSR has taken a hit because of political considerations that forced counties to provide waivers and amnesties to defaulters, failure to update valuation rolls, and failure to declare revenue collected and expenditures at source – without sending them to the county revenue fund.
“In fact, counties will never hit their targets. Our Constitution says the main source of funds for counties is equitable share. That is why counties are not paying attention to their own collections,” he added.
Makueni Governor Mutula Kilonzo Jr blamed the tough economic situation that has forced many counties to provide waivers, leading to reduced collections.
“Overall, the economic situation is not good. We are doing payment plans for businesses so that we cushion them,” he said.
Nyakang'o attributed the low collections to weak enforcement and controls, low automation and unrealistic targets.
Nyakang’o said the lack of basic skills by revenue administrators in some counties and poor enforcement are denying the devolved units millions of shillings in revenue.
She said the deficit in skills and knowledge comes to bear on all revenue-related operations, but most dramatically, where collection and enforcement are concerned.
Most counties have failed to automate revenue collections and have decided to retain the manual system, which is prone to abuse.
“Generally, progress toward automation and integration has been slow,” Nyakang’o said. Even counties with more advanced ICT systems have not fully deployed them towards revenue collection and management.”
She said some counties are also setting unrealistic revenue targets, which leave a huge hole in their budgets.
“Since revenue projections form part of counties’ expected resources, failure to realise the projects implies budget deficits,” she said.
The Controller of Budget said some county governments are operating multiple revenue collection accounts, a major cause of leakages, including collection being spent at source – not banked in the revenue account.
Many counties have failed to disclose the number of commercial bank accounts they operate and the amounts deposited therein.
She said the lack of effective controls and audit mechanisms by the county governments has contributed to massive loss of revenue.