Why devolved units are in financial woes

Counties remain trapped in a cycle of persistent financial distress, burdened with bloated wage bills, erratic disbursements from the National Treasury and chronic underperformance in collecting own-source revenue.

From service delivery disruptions to stalled development projects, the reality for many counties is fiscal dysfunction and dependence.

“The intention is to have the counties generate their own revenue, enough for development. But today, even giant counties such as Nairobi, Mombasa and Kisumu cannot stand on their own,” said governance expert Javas Bigambo.

Despite receiving more than Sh4.7 trillion from the national government since 2013, the devolved units continue to battle persistent cash crunches, with governors frequently threatening to suspend services due to a lack of funds.

The causes are systemic, complex and largely unresolved – pushing the county governments in a near-permanent state of financial instability.

The most glaring financial burden is the unsustainable wage bill.

An analysis by the Star and multiple oversight bodies—including the Auditor General, the Salaries and Remuneration Commission, Controller of Budget, and the Senate—has flagged widespread over-employment, irregular hiring and the presence of ghost workers in county payrolls.

A Senate Public Accounts Committee report, based on the Auditor General’s audit for the 2023-24 financial year, revealed that 36 counties exceeded the legal wage bill ceiling of 35 per cent of total revenue.

The worst offender was Kisii county, where 60 per cent of revenue went to salaries.

Governor Simba Arati’s own staff audit exposed 861 ghost workers across departments.

“Only 11 counties complied with the 35 per cent wage bill ceiling, while 16 counties exceeded 50 per cent of their revenue on wages, severely constraining operational and development budgets,” the report states.

Other counties with high wage bill ratios include Mombasa (57 per cent), Laikipia (55 per cent), Elgeyo Marakwet (55 per cent) and Nyeri (55 per cent).

Murang’a stands at 54 per cent, followed by Homa Bay and Nyamira (53 per cent each), Kisumu, Taita Taveta, and Machakos (52 per cent each) and Kericho, Bomet, Meru and Tharaka Nithi (each at 50 per cent).

According to Regulation 25(1)(b) of the Public Finance Management (County Governments) Regulations, 2015, no county should spend more than 35 per cent of its revenue on wages.

Yet, a recent SRC wage bill bulletin for quarter two of FY 2024-25, 41 of the 47 counties were in violation.

Only six counties—Kilifi, Tana River, Busia, Narok, Nakuru, and Kwale—met the recommended 35 per cent wage-to-revenue ratio.

Kilifi was the most compliant at 26.2 per cent, followed by Tana River (29.4 per cent), Busia (31.0 per cent), Narok (32.0 per cent) and Nakuru (33.0 per cent).

The Controller of Budget, Margaret Nyakang’o's latest budget implementation review report for the first half of the 2024-25 financial year revealed that the 47 devolved units collectively spent 47.7 per cent of their revenue on personnel emoluments.

This translates to Sh98.13 billion out of Sh205.32 billion in total revenue.

Nyakang’o warned that such high personnel emolument levels are squeezing out funds for development and operational needs.

Alarmingly, Sh7.06 billion of the payroll expenditure—representing seven per cent of the total wage bill—was processed manually and outside the government’s Integrated Payroll and Personnel Database, increasing the risk of fraud and ghost workers.

“County governments should ensure expenditure on personnel emoluments is contained at sustainable levels,” Nyakang’o advised.

Equally crippling is the erratic release of funds by the National Treasury.

While Section 17 of the PFM Act, 2012 requires the equitable share to be disbursed to counties by the 15th of every month, this is rarely honored.

As of May 2025, counties were owed more than Sh90 billion in delayed funds for March, April and May.

In late last year, the Council of Governors (CoG) threatened to shut down critical services, including healthcare, after a three-month funding delay.

“We demand that the National Treasury immediately releases the funds owed to counties, failing which county governments will have no choice but to shut down operations,”  CoG Chair Ahmed Abdullahi said.

In the last financial year, for instance, the Treasury failed to release Sh30 billion to counties in what the Treasury attributed to cash flow challenges.

In 2022-23, the counties received more than Sh60 billion at the tail end of the fiscal year – too late to absorb the entire amount.

Some monies for FY 2021-22, about Sh30 billion, were not disbursed until August of the same year, two months into the new fiscal year.

In the financial year 2020-21, Treasury had only released Sh123 billion of the total allocation of Sh316.5 billion.

The amount included arrears of Sh29.7 billion for the previous financial year (2019-20), meaning counties struggled with delays and inadequate services.

By end of 2021, the counties were yet to get Sh26.9 billion, against legal provisions requiring county cash to be disbursed without undue delay or deduction.

The previous years were no different as Treasury released money too late in the spending year –sometimes on the last day.

While Treasury blames cash flow challenges, critics point to systemic bias, with national government priorities allegedly taking precedence over counties.

The Commission on Revenue Allocation has proposed turning the Treasury into an independent, shared institution between national and county governments to address this structural unfairness.

“The Treasury should be re-established as a shared institution. We should create it as an independent office,” said CRA director Lineth Oyugi.

Despite the constitutional mandate to raise revenue locally, counties continue to underperform in collecting own-source revenue, relying heavily on the equitable share for recurrent expenditure—including salaries.

In the first half of FY 2024-25, counties raised Sh19.95 billion, only 24.9 per cent of the annual target of Sh80.2 billion, against a 50 per cent expected performance at mid-year.

Counties that reported the lowest performance against their annual target are Kericho, Kilifi and Machakos at 12.7 per cent, 10.5 per cen, and 7.4 per cent.

Only five counties achieved the target of 50 per cent namely; Samburu at 55.7 per cent, Elgeyo Marakwet (56.3 per cent), Isiolo at (62 per cent) Narok (63.9 per cent) and Nyeri at 71.4 per cent.

“The underperformance of own-source revenue collection implies that the counties could not implement some planned activities due to budget deficits,” Nyakang’o said.

Over the years, counties have failed to attain their own revenue targets, triggering big holes in their annual budgets.

"In all financial years, revenue collection has remained below target. On average, counties realised 63.5 per cent of their target,” CRA chairperson Mary Wanyonyi reported.

Counties typically collect local revenue from land rates, business permits, parking fees, building approvals and advertising fees.

“Many counties rely on nothing except exchequer releases for operations. Urban counties may be blessed, but rural counties have nowhere to generate revenue,” said Mombasa Governor Abdulswamad Nassir.

Audit reports continue to flag wasteful expenditure, particularly on travel, hospitality and non-priority spending, undermining service delivery.

Additionally, corruption remains a deep-seated issue. Several county officials—and even governors—have been arraigned or convicted in graft cases.

Former governors Moses Lenolkulal (Samburu), Ferdinand Waititu (Kiambu) and Daniel Waithaka (Nyandarua) have been convicted.

“The biggest threat to devolution is the National Assembly. The second is governors willing to play ball for personal gain,” warned Kitui Senator Enoch Wambua.