Fiscal Implications of the Transfer of Nairobi County’s Specific Functions to the National Government

Since the 2010 Constitution came into effect, several instances have put Kenyans at loggerheads regarding its implementation, especially when it comes to matters devolution, which might slow Kenya’s economic growth.

Not once or twice has the government made decisions which have raised legality issues with different commentators supporting whichever side their interests lie.

Recently, Nairobi Governor Mike Sonko handed four key county functions to the National Government throwing the county into a political and legal confusion, since the takeover was the first of its kind since devolution was born.

The reaction to the matter was immense as Kenyans were caught unaware since public consultation wasn’t adhered to as the constitution stipulates.

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The constitution, in various chapters and clauses, requires that public participation be undertaken at all levels of government before such official decisions are made.

How will the two governments implement the shared functions? What are the fundamental fiscal transfer issues that might cause implementation challenges? These are some of the critical questions among Nairobians.

Article 187(2)(a) of the constitution highlights that if a function or power is transferred from a government at one level to a government at the other level— (a) arrangements shall be put in place to ensure that the resources necessary for the performance of the function or exercise of the power are transferred.

According to Expertise Global Consulting firm that deals with Public Finance Management, the decision to was ill planned and it might have a serious financial implication.

Mr Victor Odanga – PFM Specialist, Expertise Global Consulting Ltd

In this situation, the framework under which the resources are to be transferred through is not provided for. Similarly, the special gazette notice dated February 25, 2020, that anchors the Deed of Transfer of functions only provides for where the functions shall be resourced from, which is the County Revenue Fund Account without providing for the disbursement modalities.

The 2019/20 fiscal year is underway, how will existing pending bills be paid including on-going commitments for the transferred functions?

The firm advises that it would be important for the Ministry of Devolution and Asal to allow the County to directly offset the verified eligible pending bills to the suppliers without transferring this responsibility to the National Government.

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Governor Mike Sonko handing over some County roles to National government at State House Nairobi

Additionally, the Constitutional provision on the law of subsidiarity would dictate that the County is allowed to retain the function of offsetting the pending bills considering they have direct contacts with the respective suppliers.

The County should retain this responsibility until the end of the current financial year after which the functional responsibility can be fully transferred and performed by the National Government.

Will the Nairobi City County disburse funds to the Ministry of Devolution and Asal for subsequent transfer to the relevant line Ministries for which the four functions have been transferred to?

On the issue of disbursement of sectoral allocations to the Ministry of Devolution and Asal by the County, the Constitution of Kenya does not explicitly provide for a bottom-up disbursement arrangement of funds from Counties to the National Government although Article 187(2) would bring that to effect in the event a County is transferring either of its function to the National Government.

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For this to be effectively implemented, it would be important for the two levels of government to strengthen the specific sector working groups for the purposes of ensuring adequate sectoral allocation during the county budgeting making process.

This will ensure inclusive county budgeting process of all the devolved functions while at the same time give the National Government the opportunity to identify the requirements for the transferred functions.

Will the Ministry of Devolution and Asal allow for the appropriation/expenditure of the funds through the County City Account and only provides for implementation oversight?

This process will ultimately help with the accounting, reporting and oversight on the County’s budget. While the County will not directly implement the transferred functions, the functions will still be budgeted for under the county’s vote and the total allocations transferred to the line Ministries for which the functions are implemented through by the Ministry of Devolution and Asal.

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The disbursements to the Ministry of Devolution and Asal shall be made on the basis of the approved Disbursement Schedule as highlighted in Section 17(7) of the PFM Act 2012. This is because Counties’ disbursements are made on a monthly basis by the National Treasury.

It is important to note there shall be no deduction of the County’s share of equitable revenue at source by the National Treasury. All expenditures regarding Counties functions shall be made directly through the County Revenue Fund Account.

While our opinion is based on the fiscal relations; we note that for this transfer of functions to be effectively implemented, the citizens must be given adequate opportunity to provide their views on the whole process.

Opinion written by Victor Odanga – PFM Specialist, Expertise Global Consulting Ltd

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