Senators back plan to give municipalities control over their own revenue

Senators have revived debate on a proposed legal amendment that would give municipalities the right to manage part of the revenue they collect, to reduce their financial dependence on county governments and improve service delivery.

During a session held on Wednesday, the Senate County Public Investments and Special Funds Committee said it is ready to push for changes to the Urban Areas and Cities Act, 2011, to allow municipalities to retain a share of their income for operational use.

This comes against the backdrop of funding gaps and cash flow struggles faced by many municipalities despite their critical role in managing urban services.

At present, municipalities continue to rely heavily on donor programmes such as the Kenya Urban Support Programme, which supports 59 municipalities across 45 counties.

Through the programme, they receive over Sh300 million in development support for projects such as urban infrastructure upgrades, smart city systems, and institutional capacity building.

However, the municipalities have no authority over the local revenue they collect on behalf of the counties.

Appearing before the committee, Kericho Governor Eric Mutai made a strong case for granting municipalities financial autonomy.

He said the time had come to change the law so that municipalities can directly utilise the funds they raise, arguing that the current model frustrates their ability to deliver services.

“My proposal is a law to ring-fence what municipalities collect for their use. Imagine municipalities having to write a letter to the county public service board just to recruit staff, yet they have their board. They cannot even recruit a casual,” Mutai said.

He pointed to the success of the Facilities Improvement Financing Act passed in 2023, which allows health facilities to retain and use their revenue from user fees and insurance reimbursements.

Before the Act, all health-generated income was pooled into the County Revenue Fund, making it hard for facilities to respond quickly to service delivery needs.

Governor Mutai said a similar approach should be applied to municipalities.

He told senators that his administration had already devolved functions such as stormwater drainage, waste management, street lighting, and maintenance of pedestrian infrastructure to the Kericho Municipality, but the resources required to perform these tasks had not been transferred.

In the last financial year, the municipality received Sh55 million from the county – Sh38 million for development and Sh17 million for recurrent needs.

The Governor said the funds were still managed through the county system despite being raised by the municipality.

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“The municipality collects revenue but remits it to the County Revenue Fund, from where the county government then disburses a portion back,” Mutai said..

“We must admit we have not yet achieved complete independence. I will consult with my Cabinet to ensure that resources follow the functions assigned to the municipality,” he added.

Committee chairperson and Vihiga Senator Godfrey Osotsi acknowledged that financial control remains a major barrier to the independence of municipalities.

He said counties were reluctant to fully implement the Urban Areas and Cities Act because they do not want to lose revenue streams controlled at the devolved level.

“Many counties have been clinging to these functions because implementing the law as it stands would see counties lose their own-source revenue,” Osotsi said

Nominated Senator Peris Tobiko called for a clear and fair formula to guide revenue sharing between counties and municipalities.

She said the law should define what portion of the revenue a municipality is allowed to retain and what should be submitted to the county treasury.

“We must come up with a formula to share revenue raised by municipalities, determining what percentage they should retain for operations and what should be transferred to counties,” she said.

Senator Osotsi urged Governor Mutai to submit the proposal through the Council of Governors so that a structured review of the Urban Areas and Cities Act can be undertaken. He said the committee is committed to sponsoring the necessary changes in Parliament.

“As a committee, we are ready to sponsor the amendments and present them before the Senate for consideration,” said Osotsi.