Amid a cash crunch and funding gaps among administrative units, senators are now considering a law change to ring-fence revenue collected by municipalities to run their operations.
This comes at a time when many municipalities have not yet been granted financial autonomy by county governments, leaving them largely dependent on donor funding despite collecting millions in revenue for counties.
The municipalities depend on funding from the Kenya Urban Support Programme (KUSP), which supports 59 municipalities across 45 Kenyan counties.
The municipalities benefit from funding for urban infrastructure, institutional strengthening and smart city projects, receiving more than Sh300 million in development funding.
On Wednesday, the Senate County Public Investments and Special Funds Committee said they are ready to propose several amendments to the Urban Areas and Cities Act 2011, to allow municipalities to retain a certain percentage of the revenue they collect for their operational costs.
Appearing before the committee, which is chaired by Vihiga Senator Godfrey Osotsi, Kericho Governor Eric Mutai said that the time has come to amend the Urban Areas and Cities Act to give municipalities the power to retain and use the revenue they collect.
The Urban Areas and Cities Act, 2011. Specifically, the Act stipulates that municipalities and cities should be managed independently, with their own boards and managers overseeing day-to-day operations.
Municipalities play a key role in implementing urban development projects, enhancing governance, and improving service delivery.
Citing the example of the Facilities Improvement Financing Act 2023, the county chief said that the amendments must grant municipalities such financial autonomy.
Governor Mutai told the committee that FiF law was done to protect hospitals and the same should be done for municipalities to give them the autonomy to collect revenue and run their functions.
“My proposal is a law to ring-fence what municipalities collect for their use. Imagine municipalities have to write a letter to the county public service board to be able to recruit yet they have their own Board. They cannot even recruit a casual,” said Mr Mutai.
The law gave public health facilities financial autonomy to manage revenue generated from health services by allowing such facilities to retain and use funds collected through user fees, insurance payments, and other sources, which were previously consolidated in the County Revenue Fund (CRF).
The development enables the facilities to directly address their needs for service delivery improvements, maintenance, and equipment upgrades.
Dr Mutai pointed out that his administration has gazetted several functions to Kericho Municipality, including solid waste management, street lighting, storm drainage and flood control, maintenance of non-motorised transport, among others, however, resources have not been transferred to follow the functions.
He cited for instance that in the just ended financial year, the county government had to give the municipality Sh55 million to support its operations with Sh38 million for development and Sh17 million for recurrent expenditure.
“The municipality collects revenue but sweeps it to the county revenue fund where the county government will then disburse back some,” said the governor. “We must admit we are not there in terms of complete independence. I will indulge my Cabinet to ensure we also transfer attendant resources to follow the functions given to the municipality.”
Mr Osotsi said municipalities remain one of the sources of county revenue and that is why most devolved units do not want to grant the municipalities financial autonomy.
“Many counties have been clinging to the functions because implementing the law will see counties lose their own source revenue,” said the ODM deputy party leader.
Nominated Senator Peris Tobiko added that senators and governors should agree on the best formula that works across board so that municipalities work and become sustainable.
“We must come up with a formula to share the revenue raised by municipalities. For instance, what percentage the municipalities should retain to enable them run their operations and what should be transferred to counties,” she said.
Senator Osotsi advised the governor to present the proposal to the Council of Governors so that the council can scrutinise the Urban Areas and Cities Act and propose amendments to give clarity on matters of revenue and staffing, among others, between the counties and municipalities.
“As a committee, we are ready to carry the amendments and present them before the Senate for consideration,” he said.
