As public finance advisor to the Committee of Experts (COE), I was the principal author of the “layman’s draft” of Chapter 12 of the Constitution of Kenya 2010.
On the matter of revenue sharing, the 2010 Constitution uses the word “basis” as opposed to “formula.” There is in fact no reference to “formula” anywhere in the articles on revenue sharing. This is on purpose. The reason is as follows: There are two basic models of fiscal equalisation, namely the formula and the institution model. Systems that use formulas do not have standing institutions such as the Commission for Revenue Allocation (CRA). Formulas are developed by ad hoc technical teams and passed into law. When the law is due for revision, another ad hoc team is constituted to do so. Formulas are problematic for the very reasons that are playing out now. Once enacted, they put the country in a straightjacket that it is forced to live with until the next revision is due.
We were alive to the fact that the history of inequitable “sharing of the national cake” as we call it, is a highly emotive and divisive issue and, indeed, one of the core grievances identified in the Agenda 4 items of the National Accord. We recognised that the country would be on a learning curve for a considerable period and, anticipating that the allocation process had the potential for exacerbating instead of healing ethnic divisions, we felt that we needed a credible authoritative team of “honest brokers” to navigate the country through the transition. The “original sin” of the current standoff is that the CRA adopted the very formula for which it had been envisaged as an alternative.
The current dispute centres on whether to put more weight on population or on geography in the formula. This dispute, as far as the spirit and letter of the constitution is concerned, is completely misplaced.
The overarching principle to be used as a basis for revenue allocation is spelled out in the Principles of Public Finance (Article 201), specifically 201(b) which states that “the public finance system shall promote an equitable society” and 201(b) (iii) which says that “expenditure shall promote the equitable development of the country, including by making special provisions for marginalised groups and areas”. (emphasis mine).
“Equitable society” and “equitable development” are defined by outcomes such as income per person, life expectancy, school enrollment and education outcomes, access to healthcare, etc. Put differently, this part of the “social contract” that we entered into in August 2010 obliges the state to redress the legacy of inequitable development, marginalisation and exclusion, and to pursue development convergence across the country. While development disparities may persist for different reasons, no community or part of Kenya is entitled to more development than the other using public money. Any distribution of public resources which portends reinforcing these disparities, or creating new ones, is unconstitutional.
We envisaged the “basis” as a goal-oriented process that would arrive at five-year development convergence targets followed by estimation of the resource distribution required to meet those targets. To illustrate, according to the last Demographic and Health Survey (2014) the national under-five mortality rate was 52/1000, lowest in Central at 42/1000 and highest in Nyanza at 82/1000. The mortality rate in North-Eastern stood at 44/1000, slightly above that in Central. Nyanza and Central are equally populous. It is evident that neither population nor geography captures the health inequality that needs to be addressed. The correct “basis” for allocation in this case is the resources required to bring Nyanza’s child survival rate to the national average.
Similarly we know that Northern Kenya is grossly underserved in terms of infrastructure. Marsabit County (66,000 km2, Pop. 460,000) is 45 times larger than Kirinyaga (1,500 km2, Pop. 610,000). What would be the rationale for allocating infrastructure money in Marsabit and Kirinyaga based on population?
At 16,000 km2, the amount of land classified as of high agricultural potential (1000mm rainfall p.a.) in Marsabit is one-third bigger than the five counties of the old Central Province (12,000 km2). This potential is underexploited, while that of Central is more or less exhausted. Where, then, should more agricultural development money go?
We envisaged the CRA as a think tank that would provide technical support of this nature to the Senate and also facilitate building a consensus not just within parliament but with the citizenry as well. This, however, does not preclude the process using models and formulas as technical tools but the final product tabled in the Senate for adoption should be a consensus document. This must necessarily begin with objectives, that is, what we are setting out to achieve. For instance, if we set a target of a maximum child mortality rate of 40/1000, then it follows that the gap between the baseline and the target should be the basis for revenue allocation. If we are not agreed on the destination, then it is doubtful that we can agree on the route.