Explanation of the Third Basis for Revenue Sharing Among County Governments
The third basis for equitable sharing of revenue among county governments (popularly known as the formula) is based on the provision of Article 217 of the Constitution, read together with Article 216 and the Fifth Schedule Section 16.
The role of the Commission is to prepare a recommendation and submit to Parliament in accordance with the provisions of Article 217. The Commission submitted its recommendation in April 2019. The Senate made a determination and approved a revised Third Basis for revenue sharing among the counties on 17th September 2020 which was unanimously approved by the National Assembly on 24th September, 2020.
What does the basis approved by Parliament in September, 2020 entail?
The basis approved by the Senate is based on the revenue sharing framework summarised in Table one:
Table 1: Framework of the Third Revenue Sharing basis
| Public Sector Function | Constitutional Functions & Powers | Indicator of Expenditure | Weight |
| Objective 1. Enhance services delivery | |||
| 1.1 Health | · County health services | Health index | 17% |
| 1.2 Agriculture, livestock & fisheries | · Agriculture, livestock and fisheries
· Animal control and welfare |
Agricultural index | 10 % |
| 1.3 Other county services | · Pre-primary education, village polytechnics, homecraft centres and childcare facilities.
· Cultural activities, public entertainment and public amenities |
County population | 18 %
|
| 1.4 Public Administration | · County planning and development
· Implementation of specific national government policies on natural resources and environmental conservation · Ensuring and coordinating the participation of communities in governance at the local level |
Basic share index | 20%
|
| 1.5 Urban Services | · Urban services and environment
ü Control of air pollution, noise pollution, other public nuisances and outdoor advertising. ü Fire-fighting services and disaster management. ü Control of drugs and pornography. · County public works and services for storm water management, water and sanitation services |
Urban households | 5 % |
| Objective 2. Promote balanced development | |||
| 2.1 Infrastructure | · County transport
· Trade development and regulation |
Land area
Rural access index Poverty |
8 %
8 % 14% |
How will the third Basis be implemented?
The implementation of the Third basis is in two parts:
1. Allocation Ratio
This ratio is based on the equitable county allocation for the FY 2019/2020. The ratio is a county’s allocation as a proportion of the sum total of all counties allocations for financial year 2019/2020.
2. Formula
The formula consists of 8 parameters as shown below that are drawn from the framework in Table 1:
Formula = 0.17* Health Index_i
+0.10*Agriculture Index_i +0.18*Population Index_i
+0.20*Basic Share Index_i+0.05*Urban Index_i
+0.08*Land Area Index_i+0.08*Roads Index_i+0.14*Poverty Index_i
The third basis has two components, the allocation ratio and the formula:
County allocation=(0.5*Allocation Ratio+0.5*Formula)*Equitable share
The approved basis provides that 50 per cent of the equitable share be shared among the counties based on the 2019/2020 allocation ratios. The remaining 50 per cent be shared based on the formula as approved by Parliament.
Parliament in approving the third basis recommended for a phased-in implementation that is pegged on the equitable share to counties being at least Kshs. 370 billion. The phasing–in is meant to ensure that the implementation of the Third revenue sharing Basis does not destabilise the functionality of county governments and disrupt service delivery.
Given that in financial years 2019/2020 and 2020/2021, equitable share allocation to counties remained the same at Kshs. 316.5 billion, Parliament recommended that the 2019/2020 county revenue allocation ratios be used to share revenues among counties in the financial year 2020/21. In effect, allocations to counties for the FY 2020/2021 remained the same as in the financial year 2019/2020.
The implementation of the Third Basis will therefore commence in the financial year 2021/22 when the equitable share allocation to counties is expected to increase by Kshs.53.5 billion to Kshs. 370 billion.
