COUNTY GOVERNMENT OF NAIROBI CITY NAIROBI CITY COUNTY ASSEMBLY SEVENTH REPORT OF THE BUDGET AND APPROPRIATIONS COMMITTEE ON THE WORKSHOP HELD AT HILL COURT RESORT & SPA, NAKURU, KENYA Thursday 6th Sunday 9th March 2014 Facilitated by Nairobi City County Assembly
Background The Budget and Appropriations Committee has been given enormous responsibilities with respect to public finance management at the counties. In this regard, the Committee is mandated to consider various documents that are in line with the budget cycle. The Committee in the furtherance of its mandate organized for a workshop to enable members scrutinize the following documents that had been referred to it: i. Expenditure Returns for the County ii. The County Fiscal Strategy Paper for 2014/15 and the Medium Term iii. The Debt Management Strategy Paper iv. The Supplementary Estimates 2013/14 The aim of the workshop was to provide opportunity for the Budget and Appropriations Committee to engage the County Treasury on the documents the above documents. This was informed by the fact that as originators of the documents, the Executive had the better understanding of their contents and intentions. Topic1: Discussion on the Expenditure Returns for the County between July 2013 and January 2014 Presenter: Ms. Nancy Kiruri- Head of County Treasury (Budgeting) The Committee was taken through a report on the Expenditure Returns by the County Treasury which highlighted the various commitments that the County had entered into up to the time, the revenue figures while also comparing with the approved budget. The report noted that out of the approved budget of Ksh.25 billion, the actual revenue by the end of January 2014 including Central transfers (KSh.4.6 billion) was KSh.9.4billion. On expenditure side, the Committee was informed that the County Assembly had personnel costs amounting to KSh.657 million out of which KSh.325million had been committed leaving out about KSh.331million under personnel costs. The Governor s Office on the other side had spent nearly half of the approved budget under the personnel costs amounting to KSh.1.8billion. In total the County had committed nearly half of the allocations for this sub-head. The County Assembly had not committed about KSh.300million of the total allocation of KSh.400million for Operations and Maintenance while the entire Nairobi City County Assembly Budget and Appropriations Committee Workshop Report Page 2
County still had in excess of KSh.2.9billion shillings meant for Operations and Maintenance. The Treasury team highlighted to the Committee that the Legal Affairs Department and the Public Relations Department still had huge chunk of allocations not committed by end of January. To this end the Legal affairs department still had over KSh.14miillion not committed out of the total allocation of KSh.14.21million while the PR department was yet to spend two thirds of its total approved budget of KSh.52million. Members were also taken through the recurrent budget for the other sectors within the county including : ICT Finance, Administration and Economic Planning Environment and Forestry Sector Health Sector Physical Planning, Housing and Lands Education, Youth Affairs, Sports, Culture and Social Services Trade and Enterprise Development Public Service Management Agriculture, and Livestock Development Water, Energy and Sanitation On Debt Repayments, the County had committed to repay debts owed to KPLC, LAPTRUST, LAPFUND, NSSF, KRA, Staff Retirees, Contractors, Litigation, Loan and Overdraft and new salary structures amounting to KSh.2billion. On the development vote, the County Assembly had committed a total of KSh.43million out of the approved budget of KSh.562millionwith all those amounts committed to Chamber and Lounge Renovations. The Executive had on the other side utilized only KSh.1.1billion out of the total allocation of KSh.7.04billion. (See Annex 2 for the detailed presentation) The following issues were raised during Plenary: Low absorption rate in the procurement department: On this the Executive chiefs explained that this had been occasioned by the stringent procurement rules that reduced the utilization of such funds. The Governor s Office had spent more than the approved budgets: Members were concerned that the office had in many sub-heads spent a lot Nairobi City County Assembly Budget and Appropriations Committee Workshop Report Page 3
of resources over and above the amounts approved by the County Assembly. No amounts allocated for Ward Development in the revised budget: Members were informed that due to the time constraints, the Executive had seen it wise to push the amounts allocated for ward development to the next financial year, 2014/2015. The executive undertook to submit an extensive report on the same. Expenditures more than Revenues: The County Treasury informed members that the document captured Expenditure Returns which implied they were commitments and not actual expenditures as thought. The Executive explained that the Revenues for February would appear in the next report and would capture the areas that had not been captured. The Committee was also told that the County was intending to reintroduce garbage collection. The County Treasury was tasked to send to the Committee an updated document that captured the concerns of the Members. Topic 2: Debt Management Strategy Paper Presenter: Mr. Luke Gatimo- Chief Accountant The presenter started by informing members that debt remained one of the roadblocks that had thus far hindered the growth of County governments. Nairobi County had been running debt repayment for the better part of the last decade. It was noted that the county needed to run short and long-term securities, with long term instruments crucial for sustainable growth. The County hence intended to pursue policies that would keep the debt figures at sustainable levels. The meeting was informed that the County government had KSh.15billion in outstanding debt excluding the KSh.26 billion contingent liabilities. The total outstanding debt as at 30 th June 2013 therefore stood at KSh.40.15 billion. The County Treasury also highlighted to members the various reforms that had been brought forth by the Public Finance Management Act, 2012 in addition to the debt repayment plan for the next three years. Further the Committee was taken through the potential financing sources and how to implement the Medium Term Development Strategies in light of the prevailing debt figures. (See Annex 2 for the detailed presentation) Nairobi City County Assembly Budget and Appropriations Committee Workshop Report Page 4
The following issues were raised during Plenary: i. The terms of the loan and possibility of getting a bank to buy off the debts: the Executive reported that a board had been set to come up with ways of clearing off the debt. However, it was reported that international companies would have difficulties taking over the debts since that would require properly audited books of account and guarantee from the national government. At the moment the two were not possible. ii. Bonds: Members inquired onto how the Executive was planning to issue bonds and how that would affect the prevailing debt figures. The Executive explained that the Transition Authority was supposed to make sure the debts were cleared before the coming into force of County Governments and so it was a problem that each county had to handle separately. iii. Members said that the companies which were frustrating the efforts of the County Government needed to be blacklisted and made to account for the debt they had. iv. Possibility of repaying the loan and also losing the assets: Members were concerned that there was a possibility of the County Government incurring double loss by repaying the debt while at the same time getting its assets auctioned. v. Members feared that there was a possibility that the principal loan had been repaid by the Central government without notifying the County Government or the defunct City Council of Nairobi. In summary the Executive was directed to produce write-ups on the following within the following week: i. Breakdown of the creditors ii. List of overdrafts iii. Status of the NSSF and Laptrust negotiations Topic 3: Approval of Loan Facility Presenter: Mr. Gregory Mwakanongo- County Executive Committee Member(CECM) for Finance and Economic Planning The Executive Committee Member reminded members of the history of the loan accruals that have hang on the head of the County Government for the longest time. He stated that the Nairobi City Council debt portfolio as at 30 th June 2009 stood at KSh.30billion. He informed members that the defunct Council secured a KSh.5 billion loan facility from Equity Bank in the year 2011 that was repayable in 5 years. At the time there was still an outstanding balance of KSh.3.3billion. The Nairobi City County Assembly Budget and Appropriations Committee Workshop Report Page 5
CECM reported that the scheduled repayments of KSh. 978million for 2013 were not remitted due to the financial strain facing the county. The County was facing challenges that revolved around shortfall in revenue collection. This had necessitated the reduction in budget estimates from the approved KSh.25.2 billion to KSh.21billion. The high wage bill and reduced capital expenditure had necessitated the reduction in the burden of loan repayment. Based on offers from different banks, the Executive had seen it cheapest to do business with Kenya Commercial Bank. The Executive had hence resolved to assign the loan facility to KCB on a long term basis with the amount increasing to KSh.4billion out of which KSh.700million would be used to finance development expenditure. Further the Executive Committee Member informed the Committee that his team had resolved to allow KCB to collect revenues on behalf of City Hall and their branches within the County. They also agreed to negotiate with Equity Bank Limited to terminate the contract and have Kenya Commercial Bank buy off the loan facility. The Executive hence urged the County Assembly to consider the proposal and approve it after which guarantee from the National Government would be sought. (See Annex 2 for the detailed presentation) The following issues were raised during Plenary: i. Whether the County got the best deal with KCB: Members asked whether the County could not negotiate for a better deal that would to the very least attract an interest of less than 13%. Members even felt that KCB needed to embrace Corporate Social Responsibility and work with the County Government on more relaxed terms. ii. County banking with banks where the National Government has interest: Members asked whether the Executive had considered the prevailing policy that government institutions banked with banks where National Government had interest. Responding to the concern by members, the Executive explained that the policy was put into consideration while negotiating for the loan facility. iii. KCB take-over of County Cash Office: Members were concerned that the proposal would allow KCB to take-over the County Cash Office and turn precincts of City Hall into a commercial center with posters and other KCB Nairobi City County Assembly Budget and Appropriations Committee Workshop Report Page 6
advertising appearances. In response the Executive assured the Committee that the Cashiers would not be dismissed as they would be doing the daily reconciliations. Topic 4: County Fiscal Strategy Paper Presenter: Mr. Jimmy Kiamba- Chief Officer for Finance Participants were taken through the legal framework for the preparation of the Fiscal Strategy Paper. On this, it was noted that the County Treasury had prepared the document pursuant to Section 117 (1) and (6) of the Public Finance Management Act, 2012. The County Treasury reported that all measures had been put in place to ensure that the document was aligned to national objectives contained in the 2014 Budget Policy Statement as required by Section 117 (2). In addition, the County Executive stated to Members of the Committee that the Fiscal Strategy Paper was the product public participation, views from the Commission on Revenue Allocation and other interested groups within the County. On macro-economic policies and outlook the global economic forecast was anticipated to improve from 3% in 2012 to 4% in 2014 with Kenyan GDP expected to grow by more than 6% from 5% in 2013. During the same period inflation would be expected to below 5%. The interest rate would also ease while measures are put to reduce debt figures to under 45%. Specifically, the County would focus to be in line with Vision 2030 blueprint by achieving economic growth of not less than 10% by ensuring efficiency in resource mobilization, ensuring sustainable debt ratio, maintaining a sustainable development to recurrent ration, attracting investment in the County as well as embracing public private partnerships. On fiscal responsibility principles, the Treasury reported that the PFM Act, 2012 had set in a number of legislative reforms that set county wage bill limitations, prudent management of fiscal risks as well as guiding county borrowing practises. Fiscal responsibility as a key parameter determined the receivable proportion of revenue share among counties. The fiscal reforms that the County undertook to pursue in the medium term included introduction of integrated revenue collection management system; use of mobile money initiatives and internet payment systems; use of geo-spatial Nairobi City County Assembly Budget and Appropriations Committee Workshop Report Page 7
platforms to collect revenue; introduction of electronic car ticketing system; IPPD; IFMIS and concessional agreement to finance capital expenditures. The Chief Officer told the Committee that in the FY 2014/15 the County Treasury projected to raise a total of KSh. 27.24 billion from both internal and external sources. Out of this the County would aim to generate KSh.15.1billion in addition to the Commission on Revenue Allocation projected allocation of KSH.12.1billion. These would be used along the expenditure lines in the ratio of 30% and 70% for development and recurrent expenditures respectively. The fiscal risks that would slow the achievement of the fiscal objectives include inaccuracy of rates records, low collection of single business permits, insufficient collection of parking fees, under costing of building permits, rivalry on billboards and adverts and political interference. In summary the Medium Term Expenditure Framework budgetary process would focus on infrastructure, health services, education and youth development, finance and economic planning sector, environment, water and sanitation and the physical planning, housing and lands. (See Annex 2 for the detailed presentation) The following issues were raised during Plenary: i. Why stern action had not been taken against those interfering with revenue collection: The meeting was informed that politics had slowed down the expansion of the activities of the County and urged the participants to help in getting rid of it. Members agreed to support the county executive in this initiative. ii. Insufficient collection of parking fees: It was explained that e-payment would soon be introduced to reduce the revenue losses. The tender had originally been advertised but faced challenges and was temporarily suspended awaiting directions from the Attorney General and the Independent Procurement Oversight Authority. iii. Lack of record of the County Assets: The Executive explained that a board had been set up to compile a comprehensive list and value of all the city assets. iv. The issues with KeNHA on billboards: Members were reminded that the issues arose because the Roads Act, 2007 gave the Authority enormous powers over high-ways which extended even to the proceeds from those major roads. Nairobi City County Assembly Budget and Appropriations Committee Workshop Report Page 8
v. The high wage bill: The Executive explained that most of the high wage bill had been inherited and measures had been put in place to reign on it and ensure it is sustainable. They reported that reducing the recurrent budget would take both thorough audit and culture change. vi. Nairobi being expensive to live in: It was stated that the City being expensive both to live in and do business was not entirely a County Government issue. To address the problem, the Chief Office emphasized the need to develop infrastructure, move major offices away from the Central Business District and development of affordable housing. vii. Delay in salaries: Members were concerned that salaries for the County staff had been delayed and wanted to know the cause for the same. The Executive Chief Officer told members that the delay had been occasioned by the January transfer of IPPD from the Central to County Government. Topic 5: Nairobi City County Assembly Supplementary Estimates 2013/14 Presenter: Mr. Fred Macharia- Senior Finance Officer The Finance Officer started by taking members through the basis for the preparation of the Supplementary Estimates which he noted to be pursuant to section 135 (2) and 129 (3) of the PFM Act, 2012. He said the earlier had been prepared with no clear rationale since there had not been any precedence to rely on. In the course of implementing the budget, the County Assembly had experienced inadequate budgets for some programs, new budget lines came up, ward administration cost were found to be inadequate, failure in IFMIS and lack of proper training on the same, unreliability of revenue inflows from the County Treasury among others. In overall the supplementary budget for the County Assembly included an additional KSh.60million to cater for increase in Members emoluments; salaries of contractual employees; additional ward operational costs; committee services expenses and car loan and mortgage for Members. The following issues were raised during Plenary: Members were concerned that a lot of money had been allocated for foreign travel yet the members had been attending substantial foreign visits. The Committee recommended that if the amounts would not be utilised by the close of the financial year then there would be a resolution to reduce such allocations in the next budget. Nairobi City County Assembly Budget and Appropriations Committee Workshop Report Page 9
Topic 6: Nairobi City County Supplementary Estimates 2013/14 Presenter: Mr. Luke Gatimo- Chief Accountant The Committee was taken through the revised estimates for the County which proposed to reduce the total budget from KSh.25billion to KSh.21billion. All in all, the internal revenues that the county anticipated to raise internally had been anticipated to reduce from the projected Ksh.15billion to KSh.11billion. The reduction, the executive explained had been occasioned by the numerous court cases that had continued to hinder the smooth rolling out of the Finance Act, 2013. The Executive in the supplementary explained that they intended to revise the development budget from the approved KSh.7.6bllion to Ksh.3.4billion. However, the county had left unchanged the amounts allocated for debt repayments at Ksh.2.7billion. The revised budget would lead to a surplus of Ksh.1.97million. The following issues were raised during Plenary: 1. Missed revenue targets: Members were concerned that the County had greatly missed its revenue targets. On this the Executive explained that the court cases had continued to hamper efficient collection of revenues. 2. Reduced allocation for development: the Committee was concerned that the new figures would push the development vote below the statutory 30%. The Executive informed the Committee that they had consulted with the National Treasury who had concurred that the 30% referred to in Section 107 (2) (b) of the Public Finance Management Act, 2012 applied not in the current financial year but over the medium term. The Committee requested the Executive to deliver to it a written undertaking to confirm the legality and interpretation of the Section 107 (2) of the PFM Act. 3. Over-expenditure in some departments: It was explained that the implementation of the Collective Bargaining Agreement that had increased all county staff wages by between 45-65% had put pressure on the County finances. It was noted that there were some devolved functions which had not been accompanied with commensurate devolved funds. Nairobi City County Assembly Budget and Appropriations Committee Workshop Report Page 10
CONCLUSION The meeting ended with the following resolutions: 1. That the County Treasury address the glaring mistakes in the Expenditure Returns document and present a more complete document to the Assembly; 2. Further discussions to be held with respect to the County Fiscal Strategy Paper; 3. The Committee to deliberate on the Request for Approval of Loan Facility and note the County Treasury on the way forward; 4. The County Treasury to submit to the Committee a memoranda with respect to the Supplementary Estimates. Nairobi City County Assembly Budget and Appropriations Committee Workshop Report Page 11
ANNEX 1: LIST OF PARTICIPANTS Participants Members of the Budget and Appropriations 1. Hon. Michael O. Ogada, MCA Chairman 2. Hon. George O. Ochola, MCA Vice- Chairman 3. Hon. Osman O. Ibrahim, MCA 4. Hon. Kenneth T. Muroki, MCA 5. Hon. David N. Kairu, MCA 6. Hon. PetronillaNafula, MCA 7. Hon. Herman Azungu, MCA 8. Hon. EmmaculateMusya, MCA 9. Hon. JoashOmwega, MCA 10. Hon. Kennedy Oduru, MCA 11. Hon. NgaruiyaChege, MCA 12. Hon. Samuel Irungu, MCA 13. Hon. Victoria Alali, MCA 14. Hon. Maurice O. Akuk, MCA 15. Hon. BenedetteWangui, MCA 16. Hon. Isaac N. Ngige, MCA 17. Hon. Alfred Ambani, MCA Officers from the County Treasury 1. Mr. Gregory Mwakanongo Executive Member for Finance & Economic Planning 2. Mr. Jimmy MutukuKiamba Chief Officer for Finance 3. Ms. Nancy Karuri Head of County Treasury (Budgeting) 4. Mr. Joseph K. Ndungu 5. Mr. Omanga O. Kefa 6. Mr. Ngunjiri 7. Mr. Luke M. Gatimo Staff of the County Assembly 1. Mr. Fred Macharia Senior Finance Officer 2. Mr. Erick Otieno Clerk Assistant 3. Ms. Mercy Senewa Clerical Officer Nairobi City County Assembly Budget and Appropriations Committee Workshop Report Page 12