Senate panel overhauls CRA’s proposed revenue-sharing formula

A Senate committee has recommended a complete overhaul of the proposed revenue-sharing formula among counties by the Commission on Revenue Allocation to ensure no county loses revenue.

In the report tabled in the Senate, the Finance and Budget Committee has introduced a new baseline allocation and tweaked the parameters, removing some and adjusting the weights attached to them.

Thirty-one counties are losing revenue in the proposed formula by the CRA.

The panel, chaired by Mandera Senator Ali Roba, has set the current year’s allocation of Sh387.42 billion as the baseline allocation.

This means no county will receive less than what it got in the current financial year in subsequent financial years.

It establishes Sh387.42 billion as the minimum amount the 47 counties can receive from the national share of revenue.

This amount shall be subjected to the current formula, thus ensuring no county gets less than the current allocation.

“The committee recommends that the fourth basis for allocation of revenue under article 217 (1) of the Constitution for FY 2025-26 to 2029-30 be approved as follows," the report states.

“The first Sh387.42 billion (being county equitable share for FY 2024-25) be shared among counties based on the baseline allocation factor derived from each county’s allocation for FY 2024-25.” 

The committee has proposed that any extra allocation, beyond the baseline, be subjected to a new formula.

According to the committee’s new formula, the basic (equal) share has been weighted at 35 per cent, up from 22 per cent proposed by CRA.

The poverty index, which the commission had given a weight of 14 per cent, has been reduced to 12 per cent.

Appearing before the committee two weeks ago, governors said the parameter only seeks to reward poverty, adding the framework had a sunset clause.

“We should not be seen to be rewarding poverty….. that the poorer you are the more money you get,” Mombasa Governor Abdulswamad Nassir said.

The committee has allocated geographical size a weight of eight per cent, capped at 10 per cent, down from nine per cent proposed by the commission.

Population, which has been the most controversial index in the political scene, has been retained at 45 per cent. The committee has dropped the ‘income distance’ index, which the commission had assigned a weight of 13 per cent.

“The data used to generate the Income Distance index is not directly derived from each county. The KNBS applies a top-down approach to determine each county’s contribution to GDP,” the report says.

In addition, the committee dismissed ‘a stabilising factor’ introduced by the commission to caution the counties from losing revenue.

In CRA’s formula, the commission proposed that the National Treasury and Parliament allocate the counties a minimum of Sh417 billion to ensure no county loses revenue.

However, the committee said it would be prudent to address the transition effects from one basis to another using a scientifically generated deviation parameter.

Already, the National Assembly has allocated Sh405 billion to the counties. The Senate, on the other side, has proposed an allocation of Sh465 billion.

If approved by the House, the new framework will dictate revenue sharing among the counties for five years, from 2025-26 to 2029-30.

Article 217 of the Constitution says the revenue-sharing formula should be reviewed every five years.

However, the Sixth Schedule of the Constitution further provides that the first and second determinations of the basis of the division of revenue among the counties be made at three-year intervals.

In the first framework, there were five parameters, with the population given the heaviest weight.

The population was weighted at 45 per cent, equitable share at 25 per cent, poverty level at 20 per cent, land area at eight per cent and fiscal effort at two per cent.

In the second-generation formula, the population was weighted at 45 per cent, the basic share at 26 per cent and the poverty level at 16 per cent.

Others are land area at eight per cent, fiscal responsibility at two per cent and development index at one per cent.