Devolution: Why pending bills still have counties in chokehold

Controller of Budget Margaret Nyakang'o. [Elvis Ogina, Standard]

Any talk of devolution, and counties will likely feel incomplete without the mention of pending bills.

Over the last decade, the counties have engaged contractors to undertake different development projects but their payments to the companies has failed to keep pace with the contracting.

The failure by counties to pay has been a major concern for businesses and has seen many of them face the auctioneer's hammer.

In certain instances, undue stress owing to pressures from delayed payments by counties as banks push for loan repayments, employees and suppliers demanding for pay has been claimed to be pushing entrepreneurs to an early grave.

As of March this year, counties owed Sh159.7 billion to different contractors, according to the Office of the Controller of Budget (CoB).

Some of the bills have remained unpaid for years. This is despite the Public Finance Management Act required them to make "debt service payments shall be a first charge on the County Revenue Fund". The law also requires counties to budget for finalised and signed contracts before considering new projects.

"As of 31st March 2023, county governments reported outstanding pending bills of Sh159.73 billion. The Nairobi City County reported the highest level of pending bills at Sh102.81 billion," said the Controller of Budget in the quarterly report tracking budget implementation by county governments.

"Other counties with high level of pending bills are Wajir at Sh5.38 billion, Kiambu at Sh5.33 billion, and Mombasa at Sh4.91 billion."

The outlier, according to the report, were Elgeyo Marakwet and Nyeri that had cleared all or majority of the outstanding pending bills.

"The Controller of Budget advises county governments to settle the eligible pending bills as a first charge on the budget in line with the law," says the watchdog.

Economic managers at the National Treasury recently termed the mountain of pending bills as a "fiscal risk" that might derail the turnaround of the battered economy and scuttle efforts to improve the livelihoods of Kenyans.

A fiscal risk is the possibility that an event at an industry level could severely hurt the economy.

Thorny issue

Consequently, the William Ruto administration is alarmed by the potentially massive damage that the pending bills - seen by the Treasury as a ticking time bomb - could do to the economy.

So thorny an issue are pending bills that the president of the Kenya National Chamber of Commerce and Industry, Eric Ruto, has in the past said he would push for a review of the Public Procurement and Disposal Act.

He wants the law to have clauses that require government agencies to make prompt payments on delivery of goods and services.

Many of the chamber's members are affected by the pending bills having been contracted to deliver different projects by counties - as well as other government agencies - but face delayed payments. "We will lobby for the review of the Procurement Act to criminalise awarding tenders to businesses without money to pay. This will ensure there are no pending bills going forward while the existing bills will start to earn interest," he said.

But even as pending bills appear like the insurmountable challenge that counties face, it is not the only one.

The devolved units have been collecting measly amounts from the taxes and levies that they impose on their residents.

During the annual budget-making process, the counties have always set ambitious targets and perennially fail to meet them.

The underperformance of the own source revenue (OSR) has affected delivery of service in the counties.

According to the CoB, during the reporting period, county governments generated a total of Sh28.77 billion from OSR, which was 46.6 per cent of the annual target of Sh62.10 billion.

Twenty-two counties recorded below 50 per cent performance, the report said.

The underperformance of own-source revenue collection implies that the counties could not implement some planned activities due to budget deficits.

The Controller of Budget advises county governments to enhance revenue collection strategies to realise the OSR targets and fully implement the approved programmes.

Some counties bosses agree.

"You have one core thing that keeps sticking out around called own source revenue projection, which projection you are told that you have the capacity to raise; for instance Sh4 billion," said Nyeri Governor Mutahi Kahiga.

"If you are stupid enough you shall take that huge projection as what you shall use for your budgeting."

You will be in a lot of trouble. Nyeri has never realised this (own source revenue). This is going to be the first year we have realised about Sh1.2 billion.

"So, I could say Sh4 billion will allow me to engage contractors because it's in the budget, but I will never have that money at the end of the year. So that is a challenge."

Delayed disbursement

CoB also identified delay by the National Treasury to disburse the equitable share of revenue to counties as a major stumbling block for devolution.

The counties were allocated Sh370 billion as equitable share of revenue raised nationally to finance their budget over the last financial year. According to CoB, Treasury had disbursed Sh183.15 billion as at March 31 this year.

This was just about half of what the counties were expected to get over the financial year. By March, the counties should have received 75 per cent (or about Sh277.5 billion) of the equitable share.

Treasury had also channeled another Sh29.6 billion, which was arrears of the equitable share from the previous financial year.

"The amount disbursed by the National Treasury of Sh183.15 billion represented 49.5 per cent of the 2022-23 financial year equitable share of Sh.370 billion," said CoB.

"At the end of the first nine months, counties had not received their January, February and March 2023 allocations, amounting to Sh92.50 billion."

The failure to disburse the funds has in the past seen county government employees go without salaries for months, affecting delivery of public services.

"Failure by the National Treasury to adhere to the approved disbursement schedule of funds to county governments adversely affected budget implementation, as shown by low expenditure on development activities, which was Sh29.32 billion compared to the budget allocation of Sh169.92 billion," said CoB.

"The National Treasury should ensure compliance with the approved disbursement schedule of funds to county governments to ensure effective budget implementation."

Despite the delays in the 2022-23 financial year, Treasury disbursed all the funds to the counties by June 30.

"We have received 100 per cent of our equitable share," Council of Governors chairperson and Kirinyaga Governor Anne Waiguru chair confirmed when she delivered her state of devolution address during the devolution meet in July.

At the tim, she noted that this was unlike last year when counties "crossed the financial year with a balance of about two months."

Counties has in March said they had gone four months without Treasury disbursing their equitable share, which was threatening to paralyse their operations.

Delays in disbursing the money, coupled with underperformance of OSR meant that county employees were going months without salaries while residents had to suffer delivery of public service.

Despite the challenges that counties have faced over the decade they have existed, many agree that they have delivered on some of promises that devolution was expected to live up to.

"It is said that one decade is long enough to change the looks of mountains and rivers , indeed the make and look of the counties that we see now is very different that the ones of 2013.

"The journey from local authorities to fully fledged county governments have been eventful," said Ms Waiguru during the devolution conference.