Glimmer of hope for counties as Senate and National Assembly Edge Closer to Revenue Deal

Kenya's devolved governance system has received a significant boost following a breakthrough agreement between the National Assembly and the Senate on the equitable sharing of national revenue for the 2026/27 financial year. After initial divergences, with the National Assembly proposing Kshs 420 billion and the Senate advocating for Kshs 450 billion, a mediated settlement ultimately secured Kshs 428 billion for county governments. This resolution, culminating in the assent of the Division of Revenue Bill, 2026, averts a potential fiscal crisis for counties and provides much-needed certainty for the planning and delivery of devolved services. The agreement underscores the critical role of inter-parliamentary dialogue and constitutional mechanisms in fostering fiscal stability and inter-governmental harmony in Kenya.

The intricate dance of fiscal federalism in Kenya recently saw a crucial step towards resolution, offering a glimmer of hope for the nation's 47 county governments. Following protracted negotiations, the National Assembly and the Senate have reportedly moved closer to an agreement on the equitable sharing of national revenue. Initially, the National Assembly proposed an allocation of Kshs 420 billion for counties, while the Senate sought a higher figure of Kshs 450 billion. Through a process of negotiation, the National Assembly increased its offer to Kshs 425 billion, and the Senate reduced its demand to Kshs 440 billion, signaling a narrowing of the gap.

This convergence ultimately led to a mediated settlement, with President William Ruto assenting to the Division of Revenue Bill, 2026, which formally allocates Kshs 428 billion as the equitable share for county governments for the 2026/27 financial year. This resolution is not merely a budgetary allocation; it is a fundamental affirmation of Kenya's devolved governance structure, ensuring that counties can fulfill their constitutional mandates in service delivery. The successful mediation underscores the resilience of Kenya's inter-governmental fiscal framework, despite inherent tensions, and provides critical stability for devolved units.

The timely enactment of the Division of Revenue Act is paramount, as it forms the bedrock upon which county budgets are formulated and implemented. Without a clear and agreed-upon allocation, counties face significant operational paralysis, impacting essential services such as healthcare, agriculture, and local infrastructure. This article delves into the legal framework governing revenue allocation in Kenya, analyzes the implications of the recent agreement, and highlights key considerations for legal practitioners navigating the complexities of devolved finance.

The allocation of national revenue in Kenya is governed by a robust constitutional and legislative framework designed to promote an equitable society and ensure the effective functioning of both national and county governments. Chapter Twelve of the Constitution of Kenya, 2010, particularly Articles 201 to 219, outlines the principles of public finance and the mechanisms for revenue sharing. Article 201 mandates openness, accountability, public participation, and the promotion of an equitable society, including the equitable sharing of nationally raised revenue.

The Commission on Revenue Allocation (CRA), established under Article 215, plays a pivotal role by making recommendations on the equitable sharing of revenue between the national and county governments, and among the county governments. These recommendations, while influential, are not binding on Parliament. The Division of Revenue Bill (DoRB) is introduced annually in Parliament to divide revenue raised nationally between the two levels of government, as stipulated by Article 218. This Bill is then followed by the County Allocation of Revenue Bill (CARB), which determines how the equitable share is distributed among the 47 counties, based on criteria recommended by the CRA under Article 217.

The Public Finance Management Act, 2012 (PFMA), provides the statutory framework for the effective management of public finances by both national and county governments, detailing the budget process, financial reporting, and oversight responsibilities. Complementing this is the Intergovernmental Relations Act, 2012 (IGRA), which establishes a framework for consultation and cooperation between the national and county governments, and mechanisms for resolving intergovernmental disputes. These legal instruments collectively form the backbone of Kenya's fiscal devolution, aiming to ensure that resources follow functions and that counties are adequately resourced to deliver on their devolved mandates.

The recent agreement on the Division of Revenue Bill, 2026, for the 2026/27 financial year, which settled on an allocation of Kshs 428 billion to county governments, represents a critical resolution to a perennial point of contention between the National Assembly and the Senate. The initial proposals saw the National Assembly offering Kshs 420 billion and the Senate demanding Kshs 450 billion, reflecting the divergent priorities and perspectives of the two houses. The subsequent movement to Kshs 425 billion by the National Assembly and a reduction to Kshs 440 billion by the Senate demonstrated a willingness to compromise, ultimately leading to the mediated figure. This process of negotiation and mediation is enshrined in the Intergovernmental Relations Act, 2012, which provides mechanisms for resolving disputes between the two levels of government.

The successful mediation averted a potential constitutional crisis, reminiscent of the 2019/2020 financial year stalemate, where the Division of Revenue Bill was not enacted in time. In that instance, the Supreme Court of Kenya issued an advisory opinion, clarifying that while the Commission on Revenue Allocation's recommendations are not binding on Parliament, mechanisms exist for interim withdrawals from the Consolidated Fund to prevent county paralysis during an impasse. The Court advised that in such an event, the percentage of money to be withdrawn should be based on the equitable allocation of the preceding financial year, with a cap of 50% or not less than 15% of all revenue collected by the National Government, depending on the circumstances. The current resolution demonstrates a legislative commitment to avoid such a scenario, ensuring uninterrupted service delivery at the county level.

The Kshs 428 billion allocation, anchored on an estimated Kshs 2.9 trillion in shareable revenue, is a significant increase from previous years and surpasses the constitutional minimum of 15% of the latest audited national revenue. For instance, the 2019/2020 allocation of Kshs 310 billion represented 29.8% of the then-audited revenue. This increased funding is crucial for counties to implement their devolved functions, which include healthcare, agriculture, water services, county transport, and early childhood education. However, the Council of Governors had advocated for an even higher allocation, proposing Kshs 534 billion for the 2026/27 financial year, citing increased responsibilities and financial constraints. This highlights the ongoing tension between the resources available and the expanding mandates of devolved units.

Furthermore, the Division of Revenue Act, 2024, for the 2024/25 financial year, allocated Kshs 387.4 billion, with the 2025/26 allocation set at Kshs 405.1 billion, demonstrating a consistent upward trend in county funding. The current Kshs 428 billion for 2026/27 represents an increase of Kshs 13 billion from the 2025/26 allocation. This stability and growth are vital for long-term planning. The Act also includes provisions for variations in revenue, stipulating that any shortfall in actual national revenue will be borne by the national government, while any excess accrues to the national government. This provision offers a degree of financial predictability for counties, shielding them from revenue underperformance at the national level. The subsequent County Allocation of Revenue Bill will now detail how this Kshs 428 billion is distributed among individual counties, based on a formula that considers factors like population, poverty indices, land area, and fiscal responsibility.

The successful resolution of the Division of Revenue Bill, 2026, and the assent to an allocation of Kshs 428 billion for county governments for the 2026/27 financial year, marks a significant achievement in Kenya's devolution journey. This agreement provides critical financial certainty, enabling counties to finalize their budgets and continue delivering essential services to citizens without the threat of fiscal paralysis. It underscores the maturity of Kenya's bicameral Parliament and inter-governmental relations mechanisms in navigating complex fiscal negotiations.

For legal practitioners, this development brings a renewed sense of stability in advising county governments, national government agencies, and private entities engaged in contracts and projects at the devolved level. The clarity on revenue allocation facilitates more predictable budgeting, procurement processes, and project implementation. Lawyers should remain vigilant regarding the timely disbursement of these funds, as delays have historically impacted county operations. Furthermore, attention should be paid to the forthcoming County Allocation of Revenue Bill, which will detail the horizontal sharing formula, and ongoing efforts by counties to enhance their own-source revenue generation, which remains a crucial aspect of fiscal autonomy and sustainable development. The continuous evolution of fiscal decentralization in Kenya necessitates a deep understanding of these legislative and constitutional dynamics to effectively advise clients operating within this framework.