Salaries eat up devolution funds as 39 counties flout wage bill law

Parliament has exposed how widespread disregard for public finance regulations is sinking counties deeper into a wage bill crisis.

For years, debate over Kenya’s swelling public wage bill has largely focused on the national government.

But a fresh probe shows that the pressure point may be shifting to the counties, where data paints a picture of county governments increasingly consumed by the cost of paying workers — leaving less money for roads, health facilities, water projects and other services that citizens expect from devolved units.

The report by the National Assembly’s Budget and Appropriations Committee has revealed that 39 of Kenya’s 47 counties are failing to comply with the legal requirement that spending on salaries should not exceed 35 per cent of their total revenue.

The Samuel Atandi chaired committee is now flagging widespread non-compliance with legal limits on spending for salaries across county governments.

“The Budget Policy Statement flags the high wage bill as a major risk to county fiscal sustainability, with only eight counties complying with the 35 percent personnel emoluments requirement,” said Atandi in the report.

The findings place county governments at the centre of renewed scrutiny over public sector wage costs, even as the national government grapples with ballooning debt servicing obligations and slowing revenue growth.

According to the committee, counties spent an average 41.4 percent of their total revenue on wages in the 2024-25 financial year, significantly above the statutory threshold.

Of the 47 only eight counties managed to remain within the 35 per cent ceiling, while 10 spent more than half of their revenue on personal emoluments.

Counties spending more than half of their revenue on staff compensation include Bungoma, Nyeri, Machakos, Baringo, Tharaka-Nithi, Kajiado, Taita-Taveta, Embu, Nairobi and Homa Bay.

Such spending patterns, the committee warns, leave limited fiscal space for development projects, infrastructure expansion and service delivery.

“The high wage bill remains a major risk to county fiscal sustainability,” the committee noted, pointing out that excessive personnel costs undermine the core objective of devolution.

Members of Parliament acknowledged that county governments inherited large workforces during the early years of devolution, limiting flexibility in restructuring payrolls in the short term.

“While acknowledging limited short-term flexibility in managing inherited wage structures, the Committee emphasizes deliberate workforce optimization and strictly targeted recruitment to address genuine capacity gaps without undermining development spending,” Atandi said.

However, they urged counties to adopt deliberate workforce optimisation strategies, including targeted recruitment only in areas with genuine capacity gaps.

The continued expansion of county wage bills is increasingly squeezing development expenditure, with analysts warning that the trend risks turning devolved governments into salary-paying entities rather than engines of local growth.

Under the PFM Act, counties are required to keep their personnel emoluments below 35 per cent of their total revenue to ensure that adequate funds remain available for development and service delivery.

But the latest figures suggest most counties are struggling to meet the threshold.

The committee cautioned that unless the trend is reversed, counties may find themselves unable to sustain development programmes, particularly as fiscal pressures intensify across the broader public sector.

The report also highlights structural weaknesses in county finances, particularly the continued reliance on transfers from the national government.

Counties have struggled to significantly grow their own-source revenue (OSR), which includes income from local taxes, fees, licences and service charges.

The committee noted that OSR collections remain low relative to total county budgets, making devolved units heavily dependent on equitable share allocations from the national government.

While some counties have recorded modest gains through administrative measures such as digitised revenue collection systems, lawmakers warned that these improvements may not be sustainable without deeper reforms.

“It is noted that sustaining recent gains will require a transition from short-term administrative measures to deeper structural reforms, cautioning against over-reliance on Facility Improvement Funds (FIF) as a substitute for comprehensive and sustainable OSR enhancement strategies,” the report states.

They also cautioned against overreliance on Facility Improvement Funds (FIF), which are revenues generated by health facilities, noting that these funds should not substitute comprehensive strategies for strengthening county revenue bases.

Beyond the wage bill concerns, the report paints a worrying picture of growing financial obligations within county governments.

By the end of the 2024-25 financial year, counties had accumulated pending bills amounting to Sh183 billion, according to the committee’s findings.

Of this amount Sh127.5 billion relates to recurrent expenditure while Sh56.3 billion relates to development projects

On average, these arrears represented about 30 percent of total county-approved budgets, pointing to widespread cash flow challenges and weak financial management.

The committee singled out Nairobi County, which accounts for nearly half of the total pending bills.

Lawmakers described the continued accumulation of unpaid obligations as evidence of fiscal indiscipline and weak budget execution, especially considering that the national government has been disbursing the equitable share to counties in full.

Despite the concerns, counties are set to receive Sh420 billion as their equitable share for the 2026-27 financial year.

The allocation is part of the projected Sh2.9 trillion shareable revenue, which will be distributed between the national government, county governments and the Equalisation Fund.

Under the proposed distribution Sh2.472 trillion will go to the national government, Sh420 billion will be allocated to county governments and Sh9.6 billion will be set aside for the Equalisation Fund.

The county allocation represents 21.9 percent of the most recent audited national revenue, exceeding the constitutional minimum requirement that counties receive at least 15 percent of audited revenues.

The funds will be distributed using the Fourth Basis revenue-sharing formula, which considers population size, basic equal share, poverty levels and geographical area.

The committee noted that fiscal constraints at the national level also influenced the size of allocations to counties.

Public debt servicing costs are projected to reach Sh1.54 trillion in the 2026/27 financial year, equivalent to 53.1 percent of total shareable revenue.

Other mandatory obligations such as pension payments and funding for constitutional offices are also tightening fiscal space.

These pressures mean both levels of government must exercise greater financial discipline to maintain fiscal sustainability.

Beyond the equitable share, counties will also receive additional allocations estimated at Sh75.69 billion in the coming financial year.

This includes Sh18.3 billion from the national government’s share of revenue and Sh57.4 billion financed through loans and grants from development partners.