Progress at the county level The COVID-19 pandemic impacts on cities and

overnight or even in three years all nonperforming inherited liabilities accumulated over a decade or longer.

The recommendations at the start of this subsection are in full harmony with the final recommendations of the IGRTC (2018, 89) but present slightly revised proposals:

• Develop and implement liabilities workout implementation plans that should factor in county and national government budgets, supported by regulations if necessary. • List specific national government interventions (with monetary numbers) such as waivers on interest and penalties and planned financial support by national government entities (mainly the National Treasury). • The liquidation period should be three financial years. However, this statement needs clarification. The elimination of nonperforming liabilities should be done in one year with workout agreements that may include, among other things, cash transfers, asset swaps, and debt restructuring by turning current dues to long-term loans (instead of repaying all dues in three years). • Agreements should be made with trustees of pension schemes on modalities to clear nonperforming inherited liabilities, which may include write-off of penalties, and converting net liabilities into long-term loans, and thus eliminating nonperforming statutory deduction liabilities. • The national government should support an alternative out-of-court dispute resolution mechanism to avoid lengthy and expensive court procedures.

Considering these options, IGRTC should keep working on a liability resolution national framework and program with broad estimated aggregate figures that reflect specific options and modalities for a workout of inherited nonperforming liabilities. Developing such a program requires strong involvement of the National Treasury and especially NALM and continues negotiations with key stakeholders such as counties and national government entities.

PROGRESS AT THE COUNTY LEVEL

Most counties have reacted positively to the challenges of a troublesome asset takeover, many on a “learning by doing” modality because of a lack of clear and practical guidance, shortage of money, and issues regarding the TA centralized asset verification and transfer program discussed in chapter 1.

NCC achievements and plans in developing a framework and instruments for managing county assets

The NCC government has been working at the forefront of devolution reforms, including on establishing a framework, adopting instruments, and managing assets as a good bearer on a daily basis. The main actions and results include establishing an Asset Management Directorate (AMDR); drafting an AM policy, strategy, and initial plan; drafting terms of reference for an AM advisory committee to support strategic management of assets and the work of AMDR; and starting verification and workout of inherited liabilities years before the national legislation ruled establishing CALCs and commencing verification and workouts in 2018.

The NCC government established the first AMDR in Kenya in 2016; this is evidence of recognition of the importance of and the need for professional and high-level management of county assets. AMDR was established under the Finance and Planning Department with a squad of qualified staff. AMDR early on had started drafting programs for improving AM, including drafting an initial AM policy, strategy, and plan. It also organized a large workshop for leaders of all service and functional departments to sensitize top management about modern AM and lay out and discuss plans toward establishing a reliable and pragmatic framework for NCC. AMDR also started to position itself toward other departments and service sectors, albeit in a modality that leans toward accountingoriented AM. AMDR also early on had approached international donors (including the World Bank) to seek technical assistance to boost AM knowledge and professional capacities on a fast-track mode. The main results to date include the following (some will be discussed in more detail in part II):

• A well-established AMDR exists with qualified staff. • AMDR became the secretariat of the Nairobi CALC with the pivotal role of organizing and managing field verifications, despite the small budget assigned. • A draft county AM policy was created, the first of its kind in Kenya (appendix A). • A draft AM strategy was built on the key strategic documents, such as county vision, County Strategy 2015–25, master plan, detailed development plan (appendix B). • A first AM plan focused on establishing an initial AM framework, entities, and instruments (appendix C). • The Nairobi City County Government (NCCG) has become an informal leader and guide on AM; its results and documents have informed and inspired other counties to start working on AM more systematically. • AMDR drafted a terms-of-reference statement for establishing a high-level strategic AM advisory committee to scrutinize, support, and propose strategic AM decisions for top county administration and governing bodies, and also to back AMDR in county administration (appendix D). • AMDR completed several AM trainings for various county entities. • NCCG has managed to appropriate a budget for and drafted a terms-ofreference statement for hiring a qualified firm for tagging and registering fixed assets.

AMDR has apparently made substantial, logical, and systematic efforts toward developing an internal legal and regulatory framework, system, and procedures for modern AM in NCC. However, most of these drafts failed to reach approval by the higher governing bodies (County Assembly, county cabinet, governor), in part due to the subsequent second county elections after devolution in 2017. The outgoing governing bodies and personnel were busy with elections and postponed dialogue and decisions on AM, and then the incoming county governments and governors initiated a substantial rotation of high-level staff and put AM reform among lower-priority actions. Despite a low level of support by higher governing bodies of the counties, NCCG and AMDR have achieved substantial progress on many key fronts, summarized below.

Land assets. In 2017, NCCG with AMDR, under the Nairobi Metropolitan Services Improvement Project of the World Bank, commenced a mass valuation of land parcels in NCC jurisdiction, aiming at revision of the property tax roll.

This comprehensive mass valuation uses GIS and GPS technology with geopositioning of each land parcel (about 230,000 parcels), measuring land sizes, and developing GIS map layers for clear identification and verification of parcels.

Mass valuation of land assets has three major implications on AM. First, besides private land for taxation, it has verified all public lands, including parcels owned by NCC and national government entities, thus providing a clear and precise register for NCC land assets that also helps subsequent verification of buildings, plants, and infrastructure assets. Second, it provides updated market values for NCC land parcels, making a separate land valuation for AM purposes unnecessary and making a quantum leap toward modern AM way ahead of other counties in Kenya. Third, the identification of private and national government properties helps detection of parcels and owners regarding inherited arrears on property tax, rents, and leases, including CILOR claims; this will help in the managing and workout of an enormous stock (K Sh 53.7 billion) of inherited current assets.

Liabilities. NCCG early on started the workout of inherited nonperforming liabilities, including (1) verification and payment of all verified inherited overdue staff emoluments; (2) announcement of a verification program for trade creditors who had to reconfirm their claims with supporting documents for NCC AMDR scrutiny and paid most verified inherited claims; (3) appointment by the Finance Department of a dedicated debt management team that has taken over verification of inherited bank liabilities and promotes uninterrupted servicing of verified domestic loans and proper accounting of financial liabilities, with annual reports to the National Assembly on the status of all NCC liabilities; and (4) an approach by NCCG to statutory creditors to settle claims if excessive penalties are annulled, but negotiations failed due to the rigidity of creditors.

Current assets. NCCG started a program for managing current assets well before the CALCs were established. Actions include (1) verification of property tax arrears that has reached only partial success due to lack of documents and unresolvable discrepancies between the files in the Finance Department and in the LAIFOMS accounting system and (2) approaching the national electricity and other companies to collect the wayleave (right-of-way) fees, but negotiations have failed due to noncooperative behavior by national entities. NCCG has also approached ministries and other national entities to collect overdue compensation in lieu of rates (CILOR), but negotiations again failed, so overdue CILOR collectibles still represent a large part of inherited current assets for Nairobi. These are significant items, because these claims are not only substantial but also suitable for working out NCC’s liabilities vis-à-vis other national entities in a chain of swaps. This is a quite common approach in public and corporate practices and was well used in settling assets and liabilities at the transition of Eastern European municipalities.

Disputed assets. NCCG has approached DoD to settle a long-disputed case that the predecessor CCN had already taken to court without success. According to the claim, the CCN had purchased in free-market transaction a large parcel (900 hectares) of land for a housing development. However, DoD has taken over this land for defense and housing purposes without compensation. NCCG hired a valuer in 2018 to establish the present value of that land, and estimated it at about K Sh 33 billion, then approached DoD to negotiate fair compensation (not necessarily this estimated value if the parties reach agreement). However, DoD showed unwillingness to negotiate despite hard evidence on the claim. This case again underscores the need for a national policy on approaching asset transfers