4.4 Weaknesses in the structure of budgets at the county level

BOX 4.4

Weaknesses in the structure of budgets at the county level

County budgets are not able to answer four simple budgeting questions: What services are funds being spent on? Where are resources being spent? What are the resources allocated to service delivery facilities? What are the results of spending on services? These are discussed below.

The potential advantages of program-based budgeting are not yet being realized by counties, because their budgets are not of sufficient quality to relate funding allocations to planned services and the outputs of those services. Since FY2015/16, counties have been required to produce program-based budgets. The objective of this form of budgeting is to reduce the focus on inputs and increase the focus on outputs and outcomes—that is, what is being achieved in spending the funds allocated. However, a review of program-based budgets across five counties demonstrated major problems in how they were formulated, limiting their potential to bring any benefits.

Ministry salary and staffing reports are not pro-

gram-specific enough. Within ministries, salaries are typically allocated to the administration and support services program and not the sectors, services, and administrative units they are supporting. This means that the budget allocations to the program do not reflect the real costs of service delivery, making it hard to judge whether resources are well allocated or the desired results commensurate with the level of spending. For example, county budgets do not show the allocation of staffing between primary health facilities and hospitals. One county even showed all staffing under the office of the county secretary. outputs of those services. Furthermore, the outputs and performance indicators identified are often inconsistent with the subprograms to which they are assigned. This means it is difficult or impossible to relate the funds allocated to services and the outputs and targets proposed.

Indicators are inadequate for full program assessment. The indicators are not useful for assessing performance along the results chain and informing resource allocation decisions. Many of them relate to inputs, or to internal activities and work processes, and few relate to outputs and the quantity of services consumed by citizens. For example, an indicator for the number of “livestock feed centers established” is provided, but the number of farmers using the service is not. The “number of facilities supplied with health commodities and supplies” is provided, but the information on outpatient visits to health facilities is not. In addition, several departments have an excessive number of indicators. For example, Nairobi’s health department has 160 indicators, and Kisumu’s agriculture and health departments both have over 60, making it hard to work through which indicators are important for assessing performance and which are more tangential. A prioritized set of standard indicators to measure service delivery inputs, outputs, and quality would help inform decision-making.

Budgets are not facility- and location-specific.

Finally, budgets are not structured in a way that enables explicit allocation of resources to service facilities and the location of services. This makes it challenging for counties to ensure an equitable distribution of resources. Salaries, operational, and other funding are not explicitly allocated to service facilities, subcounties, and urban areas. The budget structure does not enable systematic allocation of resources to facilities. Consequently, recurrent budgets do not reflect the geographical distribution of resources within a county for service delivery.

Inconsistent budget formulations make con-

nections to outputs and indicators difficult. There are inconsistencies in the subprograms (and even programs themselves in some cases) used to formulate budget allocations, which do not reflect the levels of service being provided and are not well linked to the

Source: World Bank 2020b.

Excessive focus on capital projects Moreover, county planning and budgeting processes tend to focus on the selection of capital projects, not on recurrent spending and the delivery of services. This is true of both the executive-managed planning and budgeting stages and the legislative approval process by County Assemblies. In the latter case, scrutiny has focused on which ward-based capital projects to select rather than on the overall allocation of the budget to sectors to improve service delivery.

Elected officials in both the County Executive and the County Assembly often have electoral incentives to prioritize visible capital investments over less-tangible service delivery results. The result is that capital investments and recurrent services (to support those investments) are not effectively planned for, nor is much attention paid to how services are delivered. There are consequences for this inattention. For instance, in the agriculture sector, a focus on infrastructure investments and neglect of the operating budget has caused the quality of extension services to deteriorate in some counties. Similarly, in the rural water sector, the focus on distributing projects across wards is leading to a predominance of inefficiently small projects.

A focus on development spending in certain service delivery sectors may be distorting budget choices in some counties. For example, the requirement to spend 30 percent of the budget on development spending may be leading to poor budget choices in sectors such as health, early childhood development and education (ECDE), and agriculture. Development spending is effectively interpreted as capital spending. Counties are also constructing infrastructure without increasing the recurrent spending needed to operate them; for example, new health facilities are constructed, but no new staff are hired, and the medicines budget does not increase. At the same time, in other sectors that do need important infrastructure investments to expand services (such as water and urban, as discussed below), the 30 percent floor on development spending makes more sense.

The key issue here is that a blanket percentage floor on development expenditure does not make sense, and a more useful way forward would be to establish sector-specific guidelines that consider the characteristics of each sector. In all sectors, however, budgeting and spending guidelines need to encourage counties to allocate and spend more resources on operations and maintenance (O&M).

Inadequate resources for urban infrastructure Related to the focus on capital spending, conversely, there is evidence that larger, more urbanized counties may not be allocating enough resources to urban capital investments because of their other spending needs. In general, urban development requires relatively high amounts of capital expenditure on urban infrastructure—which is not happening under devolution. Instead, county spending has, in general, been dominated by staff emoluments and related costs as well as O&M.

Of the five most urbanized counties (Nairobi, Mombasa, Kiambu, Kisumu, and Machakos), three spent below the average percentage of total expenditure on development in FY2018/19 (figure 4.9). This implies that they are allocating insufficient resources to investments in urban infrastructure. Although conditional grants (such as the KUSP’s Urban Development Grant) make an important contribution to spending on urban infrastructure, counties are underspending on capital in urban areas. This does not promote urban development.