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Transfers to Local Governments
Brief On Issues Of Transfers To Local Governments
Unconditional Grant | Conditional Grants | Equalisation Grant
Article 193 (1) of the Constitution provides that unconditional, conditional and equalisation grants be given to Local Governments. Unconditional and conditional grants are given to all local governments, while equalisation grant is paid to only least developed districts for giving subsidies or making special provisions so that they may be able to provide services to a national average.
Unconditional Grant
The aggregate amount of unconditional grant is derived using a constitutional formula. The formula provides that the amount to be given in a financial year should be the amount received in the previous financial adjusted for economic growth and the cost of added or subtracted services to local governments.
Allocation to each local government is on the basis of population (weighted at 85% ) and area (weighted at 15%).
The current concerns with unconditional grant is that it is insignificant compared to conditional grants (11.6% of total transfers to local governments in 2002/03) and has experienced very limited growth overtime. In some local governments, it is not even sufficient to pay salaries - the first charge in the accounts of government.
It is expected that the amounts available to the various local governments will grow following the on-going effort by government to streamline transfers to local governments under the Fiscal Decentralisation Strategy (FDS).
Conditional Grants
Conditional grant is the largest transfers given to local governments. The grant totalled 587.3 billion shillings in the financial year 2002/03, representing 87.8% of all transfers to local governments.
In the current financial year, 2003/04 there are 31 conditional grants mainly in five sectors namely; education, health, water, roads and agriculture . Each of these presents different conditions for access, management, utilisation, reporting and accountability. As a result, the management of transfers has become more complicated, more time demanding on both the local governments and central government, more costly to administer, monitor and supervise. As a result, awfully longer time are spent by both local and central government staff in paying to accountability details instead of actually delivering services.
The problem now is being addressed through the FDS, which established the Local Government Budget Committee (LGBC) and Local Governmewnt Releases and Operations Committee (LROC) under the chairmanship of the LGFC and the Ministry of Finance, Planning and Economic Development respectively.
The immediate issues being handled in the implementation of the FDS, and which are being tested in 12 districts and 3 municipalities as of 2002/03 are:
- Realigning sector policies with a view of reducing the numbers of grants in each sector,
- Introducing flexibility on grants with a view to giving local governments more discretion,
- Reviewing allocation principles and formulae with the view of introducing fair and poverty sensitive ones.
Equalisation Grant
This grant was introduced in the financial year 1999/2000 following studies carried out by the Commission. It is now providing subsidies to 34 districts and 40 urban councils.
The main concern with the grant is that the amount available to be transferred to local governments is less than 30% of the amount recommended by the Commission. Implying that we are equalising less than 30% of the disparities. In the current financial year, 2003/04 Shs 3.83 billion is available as equalisation grant - which is less than 1% of total transfers to local governments.
The other challenges facing the management of this grant include:
- Availability of reliable data at lower local government levels such as at sub-county and town councils
- Lack of appropriately costed standards of service delivery,
- Difficulty in effectively monitoring and evaluating how the money has been spent.
Introduction of Equalization Grants for Districts - March 1999Equalization Grants for Urban Councils - April 2000
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