The main funding source for county governments in Kenya is a large unconditional transfer mechanism known as Equitable Sharing, which provides more than three-quarters of the funds used by county governments.
Kenya’s Commission on Revenue Allocation (CRA) has a constitutional mandate to prepare recommendations on the horizontal sharing of the Equitable Sharing every five years. Based on Article 217 of Kenya’s 2010 Constitution, the Commission submitted its recommendation for the Third Basis (or third formula) in April 2019.
The Senate 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.
The Third Basis formula adopted by the Senate addresses two primary objectives: first, to enhance service delivery, and second, to promote balanced development.
The Third Basis relies on a total of eight allocation factors. The Third Basis uses five measures of service delivery need in line with the formula’s objective to enhance services delivery, notably: a health index (17%); an agriculture index (10%); population, as an indicator of need for other county services (18%); equal shares, reflecting the need for county administration (20%); and the number of urban households, as an indicator of need for urban services (5%). In addition, Equitable Share resources as distributed in proportion to land area (8%), rural access (8%) and poverty (14%) in line with the objective to promote balanced development.
The Third Basis will be used as the basis for the equitable sharing of revenue among county governments starting with the Division of Revenue Bill for FY 2021/22.
Political disagreements had prevented several earlier attempts to approve the formula. In approving the Third Basis, Parliament recommended 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 destabilize the functionality of county governments and disrupt service delivery.
Further details regarding the computation of the new formula are available on the website of the Commission on Revenue Allocation (CRA):