Counties splash billions on staff as projects are starved of cash

The National Treasury building, Nairobi. July 9th, 2020. [Elvis Ogina, Standard]

County governments spent at least half of the money allocated to them in paying salaries, a violation of the public finance management (PFM) laws.

The PFM Act limit their spending on salaries to 35 per cent of their budgets.

In some instances, counties are spending well over 60 per cent of their budgets on employee salaries.

And while this denied funds to development projects such as building and upgrading health centres, roads and schools, it did not translate to better service delivery to Kenyans.

High employee salaries are not the only public finance management violations that the counties committed in the financial year to June 2021.

They also failed to spend at least 30 per cent of their budgets on development. The counties also paid over Sh6 billion in pending bills that the Office of the Auditor General (OAG) had classified as ineligible in a 2018 special audit on pending bills.

This is according to a review of budget implementation in the year to June by the National Treasury. The review shows that while counties are quick to splash billions on unnecessary areas, they are also lagging in generating their own revenue.

“Over 50 per cent of the county governments’ total expenditures are going towards personnel emoluments,” said Treasury in the Budget Review and Outlook Paper (BROP) published last week.

“Ten counties namely Nandi, Nyamira, Kisii, Kiambu, Elgeyo Marakwet, Machakos, Embu, Vihiga, Baringo and Lamu had over 60 per cent of their total expenditures going towards personnel emoluments.”

It noted: “In this regard, the wage bill remains a major challenge hence the need for concerted effort to find viable solutions to keep the wage bill within the legal threshold.”

Treasury CS Ukur Yatani. [File, Standard]

Treasury observed the illegality of the high expenditure on salaries, noting that the PFM (County Government) Regulations of 2015 require that counties expenditure on emoluments for its public officers should not exceed 35 per cent of their total revenue.

The PFM Act also requires counties to set aside at least 30 per cent of their budget for development. While all counties – except for Nairobi – planned to spend at least 30 per cent of their budgets at the beginning of the year on development projects, only nine devolved units achieved this towards the end of the financial year.

Notable is Nairobi, which had spent just one per cent of its budget on development projects as of March 2021, and with just three months to the end of the financial year. Other counties that spent less than 10 per cent on development are Kisumu (9.1 per cent), Baringo (7.9 per cent) and Lamu (7.7 per cent).

“Actual expenditure for the first nine months of 2020/21 financial year on development spending was less than 30 per cent during this period for all other county governments except for Kajiado, Kakamega, Kitui, Mandera, Makueni, Marsabit, Mombasa, Murang’a and Wajir counties,” said Treasury.

Treasury noted that this was an improvement, with more counties having spent more on development over the 2020/21 financial year compared to the 2019/20 financial year. “Compared to the 2019/20 financial year, this is an increase from the five-county governments that had exceeded the 30 per cent on the actual development spending for the first nine months of the 2019/20 financial year.”

Counties also paid over Sh6 billion to contractors who had lodged them as pending bills despite earlier advice by Treasury and the Auditor General that they were ineligible.

Contractors had claimed Sh89 billion as pending bills from the various county governments. The OAG did a special audit and determined that Sh51.28 billion were eligible and Sh37.7 billion as ineligible.

Over the last financial year, counties had cleared Sh39 billion of the eligible pending bills but also paid Sh6 billion of the ineligible.

“Following the special audit conducted by the OAG in 2018, the National Treasury in collaboration with the Office of the Controller of Budget has continuously urged county governments to clear these audited pending bills,” said Treasury.

“As per OAG report, the total pending bills amounted to Sh89 billion out of which Sh51.28 billion were classified as eligible and Sh37.7 billion as ineligible.

13 counties disputed a total of Sh1.31 billion of the eligible pending bills. [Denish Ochieng, Standard]

However, 13 counties disputed a total of Sh1.31 billion of the eligible pending bills. The National Treasury has requested OAG to conduct a special audit as of June 30, 2020, as well as for the disputed pending bills.”

“As of June 25, 2021, county governments had paid a total of Sh39.8 billion (77.66 per cent) of the eligible bills. In regards to ineligible bills, counties formed pending bills verification committees which verified and paid Sh6.1 billion. The total outstanding bills, both eligible and ineligible as of June 30, 2021, stood at Sh43.04 billion.”

Despite the high spending on areas that did not yield much value for their residents, counties performed dismally in revenue collection.

All the counties had expected to collect Sh56 billion as their own source revenue (OSR) in the just-ended financial year. They however managed to collect Sh25.5 billion. “This represents 45.6 per cent of the annual OSR target in the 2020/21 financial year, which is a decrease from 48 per cent of the annual OSR target for a similar period last year,” said the Treasury.

“Only 16 county governments in the 2020/21 financial year were able to collect more than 50 per cent of their annual OSR target for the first three quarters of the financial year.”

It noted that the counties have been too ambitious in their revenue collection capabilities or overestimated the levies and taxes that their residents are in a position to pay.

This has resulted in setting unrealistic revenue collection targets year after year. “Despite the Covid-19, OSR collections did not deviate much from the collections in 2019/20 financial. Available data reveals that several counties have unrealistic OSR projections, indicating that there is need for more capacity building on areas of tax analysis and revenue forecasting,” said Treasury in the BROP.

The ministry said there are efforts to support counties in setting realistic OSR targets through the County Governments (Revenue Raising Process) Bill 2018 before Parliament.

“The objective of the bill is to regulate how counties introduce or vary fees and charges,” said Treasury.

“The rationale for the proposed legislation is to address the multiplicity of fees and charges and avoid infringement of Article 209(5) of the Constitution which provides that county government revenue-raising powers should not prejudice national economic policies, economic activities across county boundaries or the national mobility of goods, services, capital or labour.”