Scoping Analysis of Revenue Generating Capacity and Potential of the Kiambu County, Kenya
United Nations Human Settlements Programme (UN-Habitat)
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EXECUTIVE SUMMARY
This document reports the results of UN-HABITAT’s scoping mission 10-15 February 2014 to Kiambu County as a follow up of the first UN-HABITAT mission 23 December 2014 meeting with Kiambu Governors and team. The main aim of the scoping mission is to discuss and look for areas of intervension for Kiambu county’s revenue enhancement in the context of devolved governance (political, administration and fiscal) mandated by Kenya Constitution 2010. At the implementation stage, this devolution is being consolidated to harmonize it with the legacy systems to find an optimum, fair and productive system architecture. Inevitably, the 14 devolved functions to County governments raise a fiscal gap that requires the county governments to creatively and immediately find ways to enhance their revenues within a situation of human resources and current institutional capacity that needs significant investments for improvement.
The scoping mission went to Kiambu met with various stakeholders from Deputy Governor and ministers to senior staff of key operations including a representative of Kiambu manufacturing business sector and legal and human resources consultants. The mission also visited and discussed the matters with Association of County Government Kenya and resource persons in the Ministries of devolution and finance Kenya central government. This then faciliated the Mission to observe the strength, weaknesses, opportunities and threats related to Kiambu and specifically for Kiambu revenue enhancement program. The obsevation led the Mission to conclude that there are 25 subsystems that need to be improved and they can be clustered into three main areas: (i) integrated revenue management, (ii) local economic development and income generation and (iii) public participation.
The identified main areas form a three-prong approach for Kiambu revenue enhancement program. In the long run, the integrated revenue management focuses on institutionalizing revenue policy to revenue budget cycles, revenue administration and revenue mobilization strategies. In the short run, the focus shall be on immediate revenue enhancement and the most plausible object is property tax by upgrading fiscal cadaster followed by automation of billing and collection using ICT and implementation of effective enforcement for payment compliance and enacting internal accountability.
For local economic development and income generation it shall focus first on establishing an effective institutional framework of public mandate, legal authority, economic assets and management capacity while simultaneously preparing viable projects. And, in the long run Kiambu local economic development shall leverage its potential assets through various innovative business models and better assets management.
Similar to local economic development, in the short run public partipation needs to be institutionalized through rigorous structures and procedures employing various effective methodologies. And, simultaneously public and service accountability as the main part of Kiambu county government’s social fabric is a key performance indicator of public participation. Public participation is really needed in Kiambu revenue enhancement program Page | 2
for two reasons. First, with intensive public participation any introduction of revenue management program will have a manageable and anticipated resistance. Second, public participation shall also improve community readiness to support the program.
These conceptual frameworks are then dimensioned into programs that consist of three components following the clustered identified areas of interventions. Each component discusses the program’s background, goal, strategy, expected outputs and outcomes and inputs needed. These components are subjects for discussion between UN-HABITAT and KCG for further cooperation.
In the final part of this report, the Mission proposes a framework of implementation and program management with a note that this is Kiambu county government’s program and UN- HABITAT is here to assist. A specific feature of this implementation framework is the establishment of innovation unit responsible to acquire, assimilate, transform and exploit any knowledge, networks, assets and opportunities possesed or accessed by KCG for its citizen wellfare improvement. And finally, the Mission concludes with five steps ahead to follow up this Mission’s report.
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TABLE OF CONTENT
Cover page 1 Executive summary 2 Table of content 4 List of Annexes and Graphs 5
I. INTRODUCTION 6 History of engagement UN-HABITAT and Kiambu County Government (KCG) Context of the mission: devolved government and in search of closing fiscal gap Process of the mission
II. RESULTS OF THE MISSION 8 Expectation of KCG toward UN-HABITAT intervention Purposes of KCG revenue enhancement program Important notes in relation to KCG revenue enhancement program Key observations made by the mission’s consultants Three identified intervention areas of KCG revenue enhancement program Three prong approach: a conceptual framework of prioritized areas of interventions III. DIMENSIONING CONCEPTUAL FRAMEWORKS INTO PROGRAMS 29 Component A: Integrated revenue management Component B: Local economic development and income generation Component C: Public participation
IV. IMPLEMENTATION FRAMEWORK 41 Proposed implemenation framework and Program Management What’s next?
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List of Graphs:
Graph 1 Three identified areas for KCG revenue enhancement Graph 2 Three prong approach to revenue enhancement and upgraded service delivery Graph 3 The sequence and relations of the outputs of integrated revenue management Graph 4 The interrelation between governance institutinos and economic institutions Graph 5 Principles of LED Strategy Graph 6 The basis for creating a county government development platform Graph 7 Implementation framework and program management
List of Annexes:
Annex 1 List of data needed, areas of concerns and requested persons to meet Annex 2 Actual mission itinerary and persons met Annex 3 Preliminary observation on potential areas of intervention Annex 4 Managing transition for revenue enhancement Annex 5 Thika at the Cross Roads Annex 6 Integrating Finance Management across County Government
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I. INTRODUCTION
History of engagement
This report presents views of the assigned scoping consultants Dr Yoel Siegel and Dr Marcelino Pandin to the request of Kiambu County Government (KCG) on revenue enhancement program and as a follow up of the meeting between UN-HABITAT mission and Governor of Kiambu on 23 December 2013. The focus of the consultant assignment is to scope potential areas of improvement for Kiambu county’s own source revenue which if it is all possible the selected core areas of intervention will then be turned into joint programs in a formal engagement between UN-HABITAT or other technical support providers and KCG. It is also expected that the lessons learnt from this initiative aim to contribute as policy inputs to Kenya national policies in strengthenin the on-going devolution process.
Context of the mission: devolved government and in search of closing fiscal gap
Under its new constitution, in March 2013 Kenya government devolves 14 functions to its counties include agriculture, health services, control of all kind of pollution,cultural activities,county transport, animal control, trave development and regulation, county planning and development, preprimary education-village polytechnics-homecraft centers-childcare facilities, natural conservation, public works and services, firefighting services and disaster management, control of drugs and pornography, and participation of communitiy.
As counties become the focal point of devolution, all legacy systems and human resources of previous local government structures will be redesigned, reintegrated and repositioned at county level and below including their hierarchical relations with Kenya central government. Kiambu county’s executive branches are still in consolidation looking for a lean, productive and sound structure and competent staff to deliver accountable public goods and services.
Political devolution has taken its place effectively from county assembly to sub-county, constituency and ward, whereas fiscal devolution is still at the final stage to be governed by new laws and regulations of a sound government fiscal architecture such as intergovernmental transfer formula, county financial act etc. This transition period inevitably triggers not only opportunities for innovative ideas but also at the same time operational puzzlements with more responsibilities, inherited staff either from previous local government authorities or central government agencies and an avoidable duty to explore new own source revenues to fill an ever challenging fiscal gap.
Projected average Kiambu county government (KCG)’s fiscal gap 2013 to 2018 is between Kshs 2.8 Billion to Kshs 4.1 Billion (USD 34 Million to 40 Mllion) annually. And to fill the gap and have a fiscal sustainability, KCG needs an investment of Kshs 1.5 Billion (USD 18.2 Million) to develop systems and put in place supporting infrastructures to generate sufficient revenue till 2017. It has prepared Kshs 150 Million and expects external supports of Kshs 1.35 Billion. UN-HABITAT may provide technical assistance to support KCG intention to close the fiscal gap. For that a UN Habitat scoping mission of two external consultants has Page | 6
been dispatched to Kiambu 10-15 February 2014 to discuss prioritized areas of revenue enhancement identified by KCG team and explore new core areas if any for further interventions.
Process of the scoping mission
The scoping mission was conduted following five steps below:
First, the Consultants reviewed any available documents on Kenya and Kiambu including UN-HABITAT mission report meeting with Kiambu Governor and then prepared a list of data needed, areas of concerns and persons to meet (see Annex 1)
Second, the Consultants were briefted by UN-Habitat’s team on Kenya’s latest context of devolution, KCG’s profiles, needs, concerns and perceived requests.
Third, the Consultants conducted a 4-day field visit to and in-depth interviews with KCG and related ministries in Kenya central government ( see Annex 2 for the actual itinerary and persons met).
Fourth, the Consultants prepared and presented a preliminary observation on potential areas of intervention for KCG team’s comments and inputs and then discussed it with UN- HABITAT on way forward (see Annex 3 for the presentation ppt.file)
Fifth, the Consultants finalized a draft scoping mission report (this document) as a deliverable to UN-HABITAT for further discussions with Kiambu County Government.
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II. RESULTS OF THE MISSION
The mission notes the expectation of KCG toward UN-HABITAT’s involvement, clarification of purposes of KCG revenue enhancement program and critical issues in regards to this program. Then, the Consultants share their key observations, identified areas of interventions and its conceptual frameworks before turning them into dimensioned programs in the next part.
Expectation of KCG toward UN-HABITAT intervention KCG expects that any intervention related to revenue enhancement shall address: - System development of KCG’s productive, transparent, accurate revenue management that responsive to Kiambu dynamic growth in terms of population, urbanization, economic development and political landscape. - Reduction in revenue leakages - Linkages of revenues with service provision, local economic development and public accountability and participation - Automation of revenue management system as part of KCG e-government - Access to available fundings for system improvement, capacity building etc.
Purposes of KCG revenue enhancement program The mission notes that the program intends to achieve three main purposes i.e. 1. Increased revenues to deliver better services to Kiambu citizens. 2. Improved capacity to administer revenue management system innovatively and accountably with an expanded tax base 3. Expanded own local revenue sources to meet local needs and ensure stable and predictable local revenues
Important notes in relation to KCG revenue enhancement program
- It is believed that existing local revenues from property taxes are collected from 70% of potential property tax payers,and only 40% of the total amount of its potential values. In other words, the property taxes were collected only 28% of its penetrable potential. - Given other Kenyan counties’ previous experiences, introduction of any new revenue sources shall anticipate the dynamic of local social responses and internal reesistance through a robust change management approach. In response to this request, the Consultants include a framework of managing the program in a transition period (Annex 4) - KCG may update its county cadaster in coordination with Ministry of National Land, but land valuation shall be conducted by government or registered private valuers. KCG will determine its final rate based on its budget needs to finance service provisions and the dynamic of local political contexts. - It is recognised by local business communities and local government staff that there are underutilized KCG assets that may be leveraged as new sources of KCG’s revenue such
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as sport stadium, market, public houses and several natural sources for water-based industries.
Key observations made by the mission’s consultants
Strengths - KCG has a full comprehension on linking its revenue to service provisions - High commitment of top management as shown by KCG HE Deputy governor - Kiambu strategic locations as a transportation and logistical hub (Annex 5) - Some parts of Kiambu maybe favorite places for affordable housing for those who are working in Nairobi - The sub-county administrators have a good grasp of the issues and are generally well connected to the local level - Strong support from Business commnunities to promote service level agreement
Weaknesses - Incompleted data - Weak capacity to analyse and strategize partly because unavailability of data and partly because data is aggregated and thus not accessible for analysis - In some functions, the available human resources cannot match with job’s requirements - Public participations are still at the procedural mode without clear accountability of follow up and results - Undeveloped infrastructure and lack of institutional tools to ensure improvement especially regarding water and sewage - Most of the automated systems are still stand alones and unintegrated
Opportunities - Underutilized KCG assets such as stadium, market, public housing, waters etc - Undercollected property taxes - Initiative for upgrading IT is already underway - Growing businesses and urbanization and especially the creation of new neighborhoods - There are ‘star’ employees with great ideas within KCG to lead transition period - There is underutilized potential for coordinating financial management with functional departments (Annex 6) - Agro-processing businesses are still underdeveloped
Threats - In this transitional period,the government fiscal architecture is not yet legislated to support its full functions at county level. Any county initiatives may be not in harmony with the legacy systems of previous constitution
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- central government’s unrealistic expectation on county fiscal capacity - real estate pressures on land value for residential communities is "eating away" at agricultural lands that are still the economic base of the county - spending structure of county because of legacy systems and human resources is more toward employee remuneration rather than development and better service delivery. During the transition period some "ghost workers" cast a shadow and can hinder the improvement of functioning - Social resistance maybe triggered easily without a better prepared communication strategy - Political pressure may also damage any initiatives to raise revenues for better services - Freerider phenomenon of existing systems and security issues - As the metropolitan areas grows the issue of security increases. This could greatly reduce the use of the public sphere and negatively affect the process of development - The lack of publically owned land is a major obstacle to infrastructure development and reduces the ability of the county to act as entrepreneur - The process of devolution has greatly weakened the municipal level and runs the risk of losing the direct connection with the different communities, thus disempowering them rather than increasing their access to public resources. This is a threat to the effectiveness of sub-county staff as well
Three identified areas of KCG revenue enhancement Using this mission’s methodology, there are three potential areas identified for KCG revenue enhancement i.e. (i) improvement of revenue management system, (ii) boosting local economic development and (iii) increase public participation.
Graph 1 Three identified areas for KCG revenue enhancement
As described in Graph 1, a good integrated revenue management system will ensure that all potential revenues collected in an efficient and effective manner with accountable process and results, whereas boosting local economic development and income generation leverages untapped local potentials which in turn strengthening KCG revenue stream and widening tax base.
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The role of public participation is to warrant that the revenues stream is stable, predictable and clearly aligned to public services in a fair and accountable manner. Also, by and large, public participation in KGC affairs will reduce stakeholders’ resistance toward proposed changes to a manageable level and simultaneously increase commnunity readiness to adopt any new initiatives to enhance local revenues for a better service delivery. Kiambu county is clearly needing this approach.
The three identified areas are basically creating a three-prong approach to revenue enhancement and upgraded service delivery in Kiambu county. In each of the areas there are subsystems that interact each other to function and deliver performance as seen in Graph 2.
For integrated revenue management system as described in Graph 2, the Mission spots nine focused subsystems, whereas for local economic development and income generation the Mission reveals at least five business potentials for local economic development and the need to establish a county government development corporation to coordinate and speed up implementation. And, in the area of public participation, the Mission was exposed to the need not only structures and procedures of inclusive engagement between government and its constituents, but also the process of participation that shall guarantee service accountability.
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Graph 2 Three prong approach to Revenue Enhancement and Upgraded Service Delivery
Local Economic Development and
Income Generation
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Three prong approach: a conceptual framework
Below is the elaboration of conceptual framework for each identified areas for intervention. This conceptual framework will then be elaborated into programatic intervention later in Part III.
A. Conceptual framework for integrated management system
Kiambu government comprehends completely on the need of an integrated revenue management to have a stable, predictable and accountable stream of revenues. The system shall accommodate the coordination of revenue policy, revenue budget cycles, revenue administration and revenue mobilization strategies in a concerted effort with other line ministries and agencies within the county government. The responsibility of county to provide services to their citizens and for that it is given a power to raise revenues in intertwined functions with other ministries with a note that it shall be in harmony. The system shall also be integrated with Kenya central government and other counties’ systems so that they are aligned, synergized and productive to promote Kenya national interest s, development strategy and competitiveness anticipating the dynamic of local and natinoal political and economic contexts and shocks from external environments.
County revenue policy: the draft finance act
As the devolutioin is searching its optimum shape at Kenya central and county governments, the country’s overall fiscal architecture is still at a stage of being formulated and intensively discussed such as formula of intergovernmental fiscal transfers or the discretion of county to legislate their own financial affairs to finance the delivery of their mandated public services. Under this transitional period, county governments are actively preparing their finance acts that govern revenue policy before Kenya previous constitution’s legacy systems are not yet harmonized with the latest one Kenya Constitution 2010. Consequently, risks of future coordination failures are remaining at large though opportunities for county governments to financially self-sustained from their own sources are now available but yet untapped. However, a sound fiscal devolution is that finances should follow functions they are mandated to run and provide and not to misappropriate allocation such as unnecessary entertainment budgets.
On the revenue aspect, the County’s draft finance act should ensure the revenues are looking for means to enhance revenues, identified accurately and updated the tax payers and subscribers, and collected revenues in efficient and equitable manner while at the same time broadening efficiency in administering the revenues so that any taxes, user charges, fees or levies can be the lowest possible to reach citizen affordability level and open as much as possible to access services. To be successful, the draft act shall govern a credible enforcement system, the tariff setting that ensure county on going concern on its financial affairs including subsidy policy, activity based cost accounting system by which unit cost can be identify accurately and timely, possibility of outsourcing revenue collection and the opportunities for public private partnership. And, two other important points that need to be Page | 13
included in the finance act in regards to integrated revenue management are revenue performance monitoring and evaluation up to its impact on efficiency, income distribution, affordability and revenue mobilization. The revenue mobilization ensures that there is a linkage or rationale between sources of revenues and service delivery. And, beneficiaries of those services are paid by those are benefiting.
Kiambu’s finance act should be aware that setting low tariffs in the spirit of protecting the poor may have adversed affects such as over consumption by the rich, low quality of services lead to loss of revenues to sustain services and then force the poor to buy expensive services from alternate sources like the case of waters in many other developing countries. In other words, the finace act shall govern the subsidy policy as such to anticipate this matter.
Revenue budget cycles
The second major component of an integrated revenue management is managing revenue budget cycles that consist of at least seven steps: forecasting, setting expendiutre limits, budget preparation-negotiation-approval-execution-and evaluation. Main key aspects in managing these cycles is ability to project future revenue sources to avoid fiscal deficit, control of the overestimate assumptions on revenue levels, political dynamics during budget approval, effectiveness of collection and operating within the county’s capacity to generate revenues, On the issue of revenue performance that includes monitoring and evaluation, following best practices Kiambu revenue collection efficiency shall be done on monthly basis followed by corrective actions based on objective indicators. Tools for accurate billing and strong enforcement together with sufficient human resources shall be made available for this strategic function. Any efficiency initiatives shall consider the principle of value for money in which the benefits of an improvement initiative shall far exceed its associated remedial costs.
The structure of revenues for a local government is varied from one to another depending on their mandated functions in its devolved governance, size, economic condition, urbanization, population and its composition. So does to Kiambu. But one could observe that the structure of local expenditures to total public expenditure is somewhere between 11% (Bolivia), 45% (Denmark) and above 50% (China, Turkey, Indonesia, Brazil). This means the fiscal transfer from Kenya central government to counties shall be formulated as such it is sufficient to top up local revenues in financing the delivery of the devolved 14 functions.
Local governments often miss its revenue potential within their administrative boundaries mainly because overdynamic and unproductive of political processes, lack of reliable and updated data and low institutional capacity. There is a main question of what is the best stable and predictable revenues for Kiambu county? Different economies will have its own rationale but maybe for Kiambu, the answer may lie in the optimized property taxes besides business- related levies as a result of local economic development and utilization of government assets. Colombia experience is as case in point (Ruiz and Valejos, 2010). Page | 14
Bogota city in Colombia revaluated 1,212,000 properties with a cost of USD 7.8 Million or USD 6.8 per property in 2008-2009. The field survey took 35% of the total budget, whereas economic analysis and information technology/administration spent 23% and 42% consecutively. This initiative resulted in the increase of the city’s cadater value by 47% from USD 66.5 billion in 2008 to USD 98 billion in 2010. So the net leverage of the upgraded cadater’s costs is nearly 400% in potential revenue increase. This is in line with Bahl et al (2010)’s proposition that property revaluation is not cheap, but the effect of of not doing revaluation regularly may even more costly to the revenues collected.
Revenue administration
The third element of an integrated revenue management is revenue administration that includes identification and registration of tax payers, subscribers and beneficiaries, billing, collection and enforcement of payments. Automation of the administration process with information technologies may support accurate, timely and accountable revenue administration. As people hate to wait or walk for a long distance or waiting for hours, availability of payment contact points either online or face to face may help to increase compliance level and reduce costs of transations, which in the end lower the tax rate.
One thing that is really important in enforcing payments is the incentive and disincentive policy. Also, the existence of fair, transparent appeal system together with effective communication strategy between county and its constituency on the use of collected revenues may help to increase payment compliance. However, internal accountability within the county also plays a very important role to avoid the leakages, informal payments and inefficiency of revenue administration costs. For Africa context, Action aid in 2011 notes that potentially 30%-70% more revenues can be billed and collected at local levels if the revenue administration is conducted in a professional manner.
Revenue mobilization strategies
The fourth element of integrated revenue management is revenue mobilization strategies. This is when revenue department comes in an intensive contact and coordination with line and sectoral ministries. Basically there are four strategies to mobilize the collected revenue that Kiambu may adopt through its systems and procedures: connecting revenue collection to service provision, charging cost of service provision to beneficiaries, ensuring user charges to expenditures aggregately and or by services, improving revenue collection efficiency using historical or benchmarking results and better communication strategies.
The mission’s observations and this conceptual framework
The mission observed that this conceptual framework presents in KCG but they are weak or not working in day to day practices. Using the framework, the misson identified nine subsystems of KCG revenue management system that need to immediately be improved.
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These subsystems are revenue base management, spatial plan and land management, cash flow stability, ICT, cost recovery, revenue performance including monitoring and evaluatin, resource mobilization strategy and communication strategy. To address these issues, the Mission suggests that the conceptual framework provides an umbrella context for the immediate revenue enhancement program to fill the fiscal gap. With that in mind, the proposed revenue enhancement program will focus on short to medium term outputs as seens in Part III Component A of this report.
B. Conceptual framework for LED
The devolution of power, control, and management of resources is a critical element necessary for development to take place. It allows for combing the forces of top down direction and use of institutional resources while freeing up the energy of bottom up more entrepreneurial initiatives (both private and public).
The Challenge facing Kiambu County beyond the preliminary commitment to undertake an LED program involves:
Getting the mandate and public legitimizing to initiate a locally crafted development strategy. This includes mobilizing support of political and community leaders around shared goals of collective wellbeing while satisfying specific interests and needs. It involves negotiating shared understandings and rules of collective action that form the basis for promoting economic development that rests upon the mobilization and leveraging of local resources Creating the right mix of the economic ventures initiated by the county government to stimulate local development: infrastructure, leveraging public lands into development with private partners, creating enterprise centers, and others Identifying, adapting, and establishing organizational/governance frameworks for the ongoing management of development processes in the different phases (start-up, institutionalization, and ongoing operation) Creating the financing instruments, public/private partnerships, financial support services, and tax revenues/incentives, bonds, land banks and other tools
Creating the conditions for local economic development – the public mandate
Often the most difficult and overlooked aspect of promoting local economic development is in creating the political and social conditions necessary for development processes.
There is a close overlap between political institutions and economic institutions which when brought together create the context for local economic development.
Graph 4 The interrelation between Governance Institutions and Economic Institutions
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The creation of conditions for development is not the functional development itself. It is building the essential foundation upon which development takes place. This can be a time consuming process during which expectations for immediate "results" can sidetrack and undermine the very basis of the development initiative. Similarly trying to produce these immediate concrete results often requires reliance on "outside" powers and resources that ignore the critical mobilization of local assets – economic, natural, and social necessary for creating a local value chain.
This requires the county government to adapt its functioning to include tasks above and beyond those of service provision, legislation, regulation, and enforcement. It necessitates a change in thinking and operation of public institutions – going from budgets which are expenditure oriented to using public funds at least in part as investments. This transition involves not only internal organizational adjustments but also needs to be publicly mandated. It is to be a proactive initiative by the county government to mobilize people to jointly act for the promotion of LED. It is a calling for a cooperative effort which almost by definition is a recruiting process of potential partners. The role of both public and professional leadership here is critical. They are the conveners.
Identifying specific resources and opportunities
A fundamental principle underlying strategy of LED being recommended here is based upon identifying local resources, human, social, and natural that can be leveraged into economic assets that lead to development and revenue enhancement. It is furthermore predicated upon the recognition, as presented above, that inclusive political and economic institutions create the opportunities that enable development ventures to come to fruition.
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Graph 5 Principles of LED Strategy
The assets based strategy of development is well documented both on the conceptual and on the practical level. It is a strategy that stands in stark contrast to a needs based strategy that leads to an endless cycle of demand for more and more services (to meet ever growing needs). It is also a strategy that does not rely upon the "trickle down" of macroeconomic development, but rather promotes action that is essentially bottom up and proactive. This grows out of a recognition that all too often macroeconomic development tends to be extractive at least in relation to local economies (local here can be either/or community or national depending upon the scale of the macroeconomic venture). Thus LED needs to be entrepreneurial and opportunity oriented rather than problem solving and aid oriented.
Likewise this approach focuses not only on human capital, skills and competencies, but also on the political-economic context and the institutional arrangements that structure peoples' access to resources. It also addresses the socially constructed "economic reality" that a priori sets the "rules of the game" by which people assume their economic roles.
This leads to an analysis of the "hidden" assumptions that often inhibit LED. As such recommendations for action and projects combine both specific local economic ventures and an adaptation of those social-economic and political (control over resources) institutional structuring of economic activity.
In order to expand the opportunities for development, it is important to combine increased physical access to resources with social-psychological access to center of power (socially constructed economic reality). In parallel opening up the institutional control of resources (financing, land rights, mineral extraction rights, etc.) also contributes to increased opportunities for development.
It is important to emphasis here that LED is not divorced from national/centralized institutions such as constitutional "rules". These "rules" are needed for stability and to ensure "rights". It is the degree to which "rights of access" are guaranteed and made available to broad populations (or limited to elites) that enables or limits economic development opportunities. This type of access can be seen, for example, in the regulation of resource utilization, availability of financing, and in the allocation of budgets for quality
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education/training. In Kenya, the changes in the constitution and the process of devolution have set the stage for creating opportunities for LED.
This is to be a self assessment undertaken together with the key local players of the economic opportunities. The objective here is to attain a shared understanding of the way the community functions as a collective and It is a process of making the implicit assumptions of obstacles and opportunities explicit and reviewing their validity from different perspectives. It means looking at problems not only as obstacles but also as possibilities. This places the emphasis on mapping resources that can possibly be transformed into economic assets rather than undertaking the more common approach of a needs assessment. As such it is goals and results oriented rather than deficiency oriented. People are viewed as partners, not just participants or consumers. Such an assessment process needs to be facilitated in a collegial manner in which local knowledge and outside expertise are mobilized. This is both a process of visioning and learning in which people make their values and aspirations explicit while simultaneously looking at social, physical, environmental, and economic resources that can be leveraged.
In the scoping three preliminary areas of opportunity have already been identified:
1. Project/venture promotion that grows out of publically owned lands by the county
Extensive lands in the markets that are in prime real estate locations Publically owned housing that is highly undervalued in terms of rents and in terms of the potential for joint ventures with private developers and upgrading of housing Public facilities such as the arena can be utilized for multiple urban purposes e.g. parking, festivals, commercial supplementary businesses The intention is not one of relocation of current businesses or tenants, but rather an upgrading and some internal relocation within the specific project area.
2. Utilizing the geographic location of Kiambu County along the major trans-Africa transportation corridor and leveraging the agricultural based economy in proximity to the capital city of Nairobi (see Annex 5)
logistical service centers around the transportation industry Leveraging the Agro-processing industry and the creation of County managed industrial parks Organizing the farmers in an effective forum to promote common interests and development (see newspaper clip)
3. Leveraging the construction industry into LED Identification of strategic location of economic anchors and land use/allocation policy - Integration of LED into urban extension planning planning as tool for leveraging land values for LED in new residential neighborhoods Linking residential demand with infrastructure development
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Dealing with the issue of waste management (liquid and solid) as a resource rather than as hazard, e.g. recycling sewage into water for agriculture and processing solid waste into a source for fertilizer and energy. Especially here there is potential for public economic action that could reduce costs to agriculture and agro-processing.
The critical factor in these examples is structuring such potential ventures to optimally utilize local resources and plowing the "profits" back into the local economy.
Creating the institutional framework for LED
All of these components need to be integrated into an institutional development framework and tailored to the specific context. This critical factor in the potential success of a local economic development initiative is optimally a local government economic development framework (possibly in cooperation with a private business or with a community organization – depending upon the type of ventures to be initiated).
Institutional adaptation, primarily regarding Kiambu county's role in becoming a leader of local economic development needs to explore:
creation of county government development framework better utilization of county government statutory authority and better linkage of national policy with local planning aimed at LED leveraging national regulations for compensation to land owners for relocation initiation of professional support service to SME's and job training programs especially aimed at youth planning the city to further promote local economic development use public ownership of land (purchasing land or acquiring land in lieu of unpaid taxes) and then leverage it with private partners into LED anchor projects
Graph 6 The basis for creating a county government development platform
Establishing a county government development platform needs to rest upon the legal authority to create such a mechanism, identifying the specific resources that can become Page | 20
economic assets, the ability to be given a clear political mandate to manage the relevant public resources and ability to mobilization professional management. Such a development entity will serve as the integrating body that brings together public resources, private investment, and social capital. The County Governments Act explicitly provides the legal basis for creating such a development entity in section 6.5.b:
6. Powers of county governments (1) As an entity exercising constitutional authority, a county government shall be a body corporate with perpetual succession and shall have all the powers necessary for the discharge of its functions. (2) Without prejudice to the generality of subsection (1), a county government may— (a) enter into a contract; (b) acquire, purchase or lease any land; or (c) delegate any of its functions to its officers, decentralised units or other entities within the county. (3) A county government may enter into partnerships with any public or private organization in accordance with the provisions of any law relating to public or private partnerships for any work, service or function for which it is responsible within its area of jurisdiction. (4) All contracts lawfully entered into under this section shall be valid and binding on the county government, its successors and assigns. (5) To ensure efficiency in the delivery of service or carrying out of a function for which the county government is responsible, the county government may— (a) establish a company, firm or other body for the delivery of a particular service or carrying on of a particular function; or (b) contract any person, company, firm or other body for the delivery of a particular service or carrying on a particular function.
The structuring of ventures will need to be tailored to the conditions and opportunities as they arise and fit into the development strategy. It is the positioning of the development platform that affords it a relative advantage. It sits on the interface between public resources of land, infrastructure, public financing, natural resources, public services and private resources of investment funds, businesses, entrepreneurial initiative, marketing capacities. Success in stimulating local economic development rests to a great extent on the ability to craft public – private ventures that utilize the relative strengths of each sector in a manner that creates Page | 21
added value which is reinvested (directly in new ventures and indirectly through jobs and taxes) as opposed to a dynamic of extracting the collective wealth and exporting.
The establishment of a county government development platform also opens up the opportunity to enlisting local professional talent in the area of planning, economics, and management that often do not enter the public sphere due to the lack of budgets and generally lower salaries (though this is sometimes offset by job stability). Because such development platforms need to be designed from the start as income generators they can pay for quality staff from the beginning. Thus they are also a factor in attracting and sustaining some elements in top of the work forces.
Furthermore the income generated from the ventures needs to be reinvested in a manner that creates a development fund within the platform. A certain percent of the revenues need to be earmarked for future ventures – the development platform is not to be "milked dry" of its revenues for other public services, but primarily for taking on new ventures that will contribute to economic stimulation that will help the local economy to grow and that will lead to an expanded tax base in the future for improved public services.
Financing tools
It is important to emphasize that public financing as in private financing is based upon investing in income producing ventures that can repay the start up expenditure from income that will be generated in the future. The difference between public and private investment is the level of acceptable risk. Often the primary risk of public investments is more on the management and political level than on the business side. Essentially the income generated is based upon future taxes, which by definition are not a voluntary purchases, but legal obligations. Thus the public investment in compulsory infrastructures, such as sewage and water is less a business risk and is primarily limited to being a community or political risk (the inability to enforce tax collection).
Not only infrastructure projects can be financed in this manner, but also anchor projects for leading and stimulating local economic grow. The upgrading and expanded use of a public attraction or facility such as the soccer stadium can be done on the basis of a public investment whose return will come from future increased tax revenues and rents to be paid by the new business located in commercial space of an expanded stadium. The placement of commercial businesses within the stadium could create a "captive market" of people attending sports events who can then easily access commercial services in the same location.
Similarly the city can use public funds to purchase land possibly in cooperation with a private investor and then leverage that ownership into an income producing venture such as an industrial park. The intention is both to stimulate economic activity and return the public investment that can again be reinvested to promote other such ventures.
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In addition to the mechanisms for financing public infrastructures there needs to be mechanisms to enable financing from private investors and public institutions that will be accessible to a broad range of the population who can become small and medium size entrepreneurs. Often banks in developing countries charge rates of 19 and 20 percent for business loans. Clearly this is a major obstacle for local economic development. A return of 12 percent on many businesses is considered quite acceptable and often real-estate ventures are set around the 20 percent return. In cases of interest rates that are equal to or above return on investment there is no incentive or possibility to initiate local ventures.
One of the mechanisms for enabling the reduction of interest rates by formal financial institutions is the use of government guarantees of loans to small and medium size businesses that meet criteria of business viability (despite limited collateral available to the entrepreneur). In essence the government provides a default safety net to the financial institutions. This reduction of risk is the basis for the reduction in interest rates to a level that is economically viable for start-up/expanding small and medium size businesses.
Additional investment incentives can be structured like those of the Community Reinvestment Act for banks in the USA, that required by law to extend credit at fixed rates to people in the catchment area of the bank as a reinvestment from profits that stem from the local population.
Along similar lines some financial institutions provide philanthropic funds to encourage local development (housing and business). These funds are used to guarantee loans (similar to government guarantees or pay for support services to entrepreneurs who then use the bank for financing the ventures.
Infrastructures can be financed in a number of ways and in different constellations. In some cases the costs can be covered over time through taxes or fees based upon the economic activity generated or made possible by the infrastructure itself. In other cases the infrastructure needs to be part of overall development costs on a regional or national basis that will need to be paid, for the most part, by the public/government.
Specifically infrastructure costs can be covered by five types of mechanisms:
Development taxes that are levied by local government upon the private entrepreneurs are used to cover the specific infrastructure related to a given site and venture (including the add-on cost for upgrading the general infrastructure in the city/region – e.g. more sewage purification capacity or power generation). Development fees that are calculated to cover the infrastructure costs. The difference here is that it not a tax based payment but a project based transaction. This can be carried out by local government (or agency of government) or by the entrepreneur under supervision/regulation of a statutory agency (local government engineer or other). Betterment taxes that are a function of the increased value of the land that stems from the improvement of the infrastructure. In many ways this in part a capital gains tax, Page | 23
but one that is levied upon realization of the construction rights and economic potential that comes from the infrastructures. A fourth type of financing which is actually beyond the costs of infrastructure, but whose income can also be used to cover development costs of high expense infrastructure, is the leveraging of public resources – land, water, minerals or other, are made available to private initiatives. This could be structured as a straight "sale" or "leasing" of the public good or used as the equity in a joint public-private venture that generates income to the public coffers. It could also be a BOT (build operate transfer) venture in which the private entrepreneur is given the right to operate a public service in return for financing the construction cost of the infrastructure/facility. (This is particularly appropriate for sewage treatment, energy, and industrial park developments) A last type of relatively new way of financing infrastructure is community investment projects in which communities raise small amounts of funds from large numbers of people who expect to benefit either directly or indirectly from the improved infrastructure. The form of such investment can vary from a "community capital venture fund" to cooperative ownership of a small sewage plant owned by a community. This is especially appropriated for projects such introducing higher quality residential projects in areas that are distanced from treatment plants.
Lastly is the provision of tax benefits to capital venture funds that specialize in high risk LED projects. Here the government offsets some of the risk for a portion of the venture capital funds investments by giving a tax right off against potential losses.
C. Conceptual framework for Public Participation
The issue facing Kiambu County is how to institutionalize the processes for public participation. The constitution places much emphasis on the need for democratization and thus requires the county governments to develop the procedures necessary to turn these principles into local government management. Furthermore in sections 90 and 91 of the County Governments Act some guidelines are made explicit:
90. Matters subject to local referenda (1) A county government may conduct a local referendum on among other local issues— (a) county laws and petitions; or (b) planning and investment decisions affecting the county for which a petition has been raised and duly signed by at least twenty five percent of the registered voters where the referendum is to take place. (2) The Elections Act (No. 24 of 2011) shall apply, with necessary modifications, with regard to a referendum referred to under subsection (1). 91. Establishment of modalities and platforms for citizen participation The county government shall facilitate the establishment of structures for Page | 24
citizen participation including— (a) information communication technology based platforms; (b) town hall meetings; (c) budget preparation and validation fora; (d) notice boards: announcing jobs, appointments, procurement, awards and other important announcements of public interest; (e) development project sites; (f) avenues for the participation of peoples’ representatives including but not limited to members of the National Assembly and Senate; or (g) establishment of citizen fora at county and decentralized units.
In addition sections 92 to 102 deal with issues of communication, civic education, and minority rights.
Often the dialogue regarding public participation focuses on conducting "stakeholder meetings". The concept public participation being presented here focuses more on creating an ongoing partnership between local/county government and the many communities in its jurisdiction. This approach is based upon recognition of the need to create and use different organizational and community settings for different types of cooperative undertakings. As such some forms of public participation are short term and issues focused, while others are long term and require ongoing institutional resources.
This approach requires a mapping of the specific frameworks and the delineation of the appropriate procedures and methodologies in different functional settings. Some examples that are appropriate to Kiambu County include the following:
Economic Development Commission o Formulation of policy recommendations o Economic development program initiation o Serve as the forum for public involvement in area wide economic development programs Council of school committees o Act as an networking and exchange forum o Area wide project initiation and resource pooling o Lobbying o Forum for public input to issues of education Youth Board o Serve as a public advisory board to youth programs o Serve as a forum for identifying needs and opportunities for promoting youth livelihood o Provide program oversight CBD coalition o Testing ground and framework for accompanying and assessing pilot projects for service improvement, revenue enhancement, and CBD upgrading o Cooperative project promotion amongst businesses and with the county Page | 25
Environmental "watch dog committee" o ID major environmental hazards o Promote public awareness of eco-system services and their critical role in sustainable development o Review the functioning of environmental regulatory agencies at the community level Planning Advisory Board o review plans in while in their inception stage o serve as the formal forum for citizen input to development plans and specific major projects o Assess the alignment of specific plans with strategic development goals as seen in the eyes of the public o Provide a public mandate to promote development in a sustainably sound (if not always popular) manner looking at social impact, economic impact, and environmental impact
It is important to emphasize that public participation and stakeholder meetings need to include a wide range of methodologies. Town meetings have become particularly popular as a means of meeting the requirement for public participation. But there are advantages and functions of varying forms of public participation, which need to used depending upon the role and function of participation in different contexts. Some of the following methodologies could be used to reach different objectives and matched to the different frameworks described above:
Public – professional task forces for in depth assessment and policy formulation Public hearings to give individuals a chance to present before a panel of "experts" or decision makers to share a different perspective before programs/projects are implemented Public round table sessions can serve as a way of gathering information on a more personal and intimate level where the participants hear not only themselves and the county but also each other in manner that fosters their interaction and networking Workshops for targeted groups who have vested interests that will be effected by a plan or program Ward meetings that can enable a cross fertilization within the political process Using the media to inform the public Using surveys to inform decision makers
By combining a framework analysis with a methodology tools box the county will be able to build a matrix of that matches the different organizational forums with the appropriate combinations of methodological tools.
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An additional dimension of public participation in the county is the implementation of a service delivery contract linked to revenue generation. This would require addressing a variety of issues:
Which services are conducive to service delivery contracts For which services are there the organizational capacities to deliver upgraded services that will meet delivery standards in Kiambu county What type of institutional mechanisms are needed to ensure the linkage between services and revenues both on the delivery side and on the revenue collections side
There is therefore an important element of community development work that will need to be undertaken in parallel with the different instrumental and functional aspects of this program which is more economically and service provision oriented.
The outcome of this integrated approach to public participation is intended to enable the county to design the ongoing framework for interaction between community and the county government.
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III. DIMENSIONING CONCEPTUAL FRAMEWORKS INTO PROGRAMS
Having discussesd the above conceptual framework of the three areas of intervention, then this part dimensions the framework into three component programmatic interventions.
COMPONENT A: Integrated revenue management system
Background
The mission observes that existing revenue management system has plenty of opportunities for improvement. Out of the nine focused subsystems of integrated revenue management in Graph 1, there are three main issues need to be addressed by KCG both in short and medium terms : updated data such as fiscal cadaster, capacity to analyse for better policy making and system integration. The mission also acknowledges that this system needs an effective human resource system , for instance consistent internal disciplinary and fair remuneration policies, and political supports to reach its full function. Through public participation, both effective human resource and political supports can be channeled to strengthen the system.
The goal
The main goal of having an integrated revenue management is to have sufficient, easy to administer, stable and predictable income sources to finance Kiambu county in delivering quality public services in an accountable manner. This integrated system covers from revenue planning, forecasting/trend analysis, approval, execution, revenue performance and revenue mobilisation strategy. It also includes revenue impact analysis on distribution of income, affordability of taxes and charges and efficiency of revenue identification, billing and collection, and enforcement. This integrated revenue management shall also be arranged so that it will not compete with other counties and central government’s policies.
The overall strategy
To achieve the above goal, KCG may adopt three strategies below:
1. The system is formulated as a main part of overall KCG’s transformation program and be directed by Kiambu’s longterm strategic development and investment plan 2. The system is developed through modular basis and in stages operating under a strong but flexible platform supported by information technologies. 3. The system is benchmarked to available best practices suitable for KCG’s needs and demands and implemented according to the advancement of local absorptive capacities . International organizations may open access to the sources of knowledge and tools through technical asssistance.
These strategies shall be implemented under three principles in a sound fiscal devolution that the scoping mission identified necessary for Kiambu:
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1.finances should follow function by which KCG should be able to access the resources required to finance the 14 functions of public services that they are mandated to provide. 2.KCG public services should be clearly aligned to the local revenue sources needed to finance them in a fair and accountable manner 3.KCG public services should be financed directly or indirectly by their subscribers, tax payers or beneficiaries
These principles are in line with Kenya Constitution 2010 Chapter 11 Part 1 No.175 point B on the principles of devolved government: ‘county government shall have reliable sources of revenue to enable them to govern and deliver services effectively’.
The strategies and principles are then implemented at programmatic levels through nine focused and prioritized subsystems of revenue based assessment, spatial plan and land management, information and communication technology for revenue management, cost recovery in setting up tariff, cash flow stability, revenue performance including monitoring and evaluation system, communication strategy between KCG and its constituents in regards to tax, charges and service delivery and revenue mobilisation linking revenue collection and service provision. To systemise the implementation of these strategies and principles, this mission proposes ten outputs below with its core activities, outcomes and inputs required to deliver the outputs.
Program for this component Expected Outputs Output 1: Tools for revenue base assessment are available and sufficient local capacity to use the tools Benchmarked best practices for tools of revenue base assessment Develop tools that suit to Kiambu’s needs and situations Train selected KCG staff to master the tools
Output 2: Baseline data of tax payers, subscribers and beneficiaries is available Develop practical baseline indicators on existing taxpayers, subscribers and (if possible) beneficiaries Approximate the actual number of beneficiaries and potential number of tax payers to get a clear picture on the true performance of revenue enhancement at later stage
Output 3: Updated baseline data is available together with its in-depth analysis Update databases (registers) of taxpayers and service subscribers either through self- reporting compulsory program (tax sensus), direct field survey and or third party sources of information Run an in-depth analysis of the updated databases on actual and potential collection by services and tax sources to identify problems, opportunities and challenges that required actions for improvement, revenue collection efficiency and cash flow stability
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Output 4: platform for indicators/metrics of revenue sources is established Upgraded the nomenclature system for taxpayers, subscribers and beneficiaries If necessary update street addres system Both are needed for accurate and timely billing, collection and enforcement of KCG revenue sources
Output 5: minimum standards for service delivery and unit cost is set Establish minimum standards for KCG services and evaluate its current status Calculate unit cost per services, actual cost and the services’ efficiency performance Review the tariff and rate then identify ‘hidden subsidies or inefficiency’ Review cost recovery and subsidy policies, if any, in regard to the delivered services Develop benchmarks indicators regarding unit costs for KCG services Consider applying total cost of ownership (including O&M) of the services’ facilities. Conduct revenue impact analysis on affordability, distribution of income and efficiency of revenue administration and cash flow stability.
Output 6: county fiscal cadaster is updated with a GIS platform Upgrade spatial plan and land management Update KCG fiscal cadaster that includes data on property owners, characteristics of the properties and valuations, using a GIS platform to automate electronically and as part of KCG e-government system.
Output 7: Billing and collection system is upgraded with automated system Reenginer the existing ‘stand-alone’ billing and collection systems and procedures for all charges, levies, penalties, fees and taxes so that it creates an integrated system with faster, better, cheaper, safer and accountable performance. Modernize the supporting hardware, software, office equipment and working space Conduct staff training to handle the upgraded automated system
Output 8: Incentive and disincentive for tax compliance is ready to implement Develop a transparent and accountable system of incentives (reward) for early payments and disincentive (penalties) for in arrears to promote compliance Implement this tax compliance program including enforcement strategies in a robust change management approach Develop and implement an effective, transparent, fair and accountable appeal system
Output 9: Communication and participatory strategy is ready to be executed Formulate messages and communication channels that have the most desirable impact Collect FAQ by Kiambu citizens and communicate the answers via KCG communication channels Design and distribute effective media of communication (website, brochures, annual reports, specific project factsheets etc) Page | 30
Set a help desk in town halls or strategic locations and train the officers to answer citizens’ concerns on how the KCG uses their collected taxes, fees and charges including subsidies and unit costs.
Output 10: Revenue performance system and mobilisation strategy has been formulated Develop revenue budget performance indicators (functions, effectiveness, accuracy, cost efficiency and retrieval time) Develop and implement revenue performance monitoring and evaluation Develop alternative remedial actions for any substantial differences Develop and implement revenue mobilisation strategy: o Linking cost of service provisions to beneficiaries o Linking user charges to expenditures by services (unit and agregate) o Develop revenue tracking system o Establish one-stop-shop for better services
The sequence and relations of the 10-outputs can be seen in Graph 3 below.
Outcome The overall outcome of these ten outputs is that all developed systems are functioning and delivering performance so that KCG revenue increases significantly and the cost of managing revenue system decreases, so that annual fiscal gap maybe closed in the medium term.
Inputs for the integrated revenue management system
Main activities to design and implement the 10-outputs elaborated above are: - Review and reengineer related policies, business processes and standards - Update data - Upgrade current systems then automate them - Implement a pilot project
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Output Type of input Amount Agent Responsible
Review existing policiesConsulting, TA 22 days Habitat Processes and standard Designing policy A joint exercise consultants 60 days Habitat framework, systems & and procedures 110 days County KCG staff time from various branches Professional Training 2 three-day Habitat/County workshops
Updating baseline data Consultant TA 30 days Habitat and in-depth analysis Staff time especially 250 days County fiscal cadaster (selected locations only as a pilot project) Automating the systems Consulting TA on 20 days Habitat specification 60 days County Staff time as resource persons 180 days County
IT consultant and developer
Implement a pilot Consulting TA on pilot 30 days Habitat project project management
Staff time to execute the 180 days County project
IT consultant 60 days County
Community work staff 90 days Habitat and County
COMPONENT B: Local economic development and Income Generation
Background
In the case of Kiambu County the primary focus is on "revenue enhancement". Understandably the need to ensure adequate income to survive in the immediate future is of critical importance. In order, however, both to promote sustainability and expansion of the revenue base together with the work being done on improving collections an important medium and long range program of Local Economic Development is an important component of the program. In the long run these two dimensions intersect at the points of wealth creation for the county as a whole.
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The goal
The purpose of this component of the program for revenue enhancement is promoting local economic development that leads to creating the conditions for a vibrant private sector and to promoting a financially viable county government. In Kaimbu County there are considerable economic resources that can be leveraged towards this goal including its geographic location near the capital city, its broad agricultural economic base, and the rapidly growing real-estate construction, to name a few. This will also include the advancement of civil society institutions and informal sector activities whose economic contribution to the revenue base are often under developed.
Local economic develop lead by Kiambu county will use be based upon using economic entrepreneurial tools to achieve goals of public wellbeing that can be measured against the objectives of job creation, new locally owned businesses, improved infrastructures, and a broader economic base for the provision of community and county services.
The Overall Strategy
The strategy of action being proposed here has four elements
Creating the conditions for local economic development including the social-political context and the physical infrastructures Identifying specific resources and opportunities that can be leveraged into income producing assets both directly through economic ventures and indirectly through expansion of the tax base Creating the institutional framework for LED tailored to Kiambu County Crystallizing the financial mechanisms to promote local economic development.
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Programs for this component
Outputs
A. Output 1: Securing the mandate for Kiambu County Government to undertake an LED program Undertaking a facilitated self assessment o factors that contribute to or inhibit the cooperation needed economic growth o Identifying the specific economic benefits can accrue to the county through cooperative economic action Defining the role and function of Kiambu County Government as the promoter of LED
B. Output 2: A local economic development strategy Identifying key stakeholders and mobilize those people who are interested in joining forces to undertake a still not clearly defined endeavor of economic development. Assessment of opportunities and constraints - identify specific resources and potential ventures that can lead local economic development. Identification of 3-4 local development anchor projects that can serve as the focal points to create a local value chain of economic development. Formulating land use planning that guides the development process will need to be rooted in statutory regulations that are integrally linked to the economic development strategy.
C. Output 3: Establishing a Local Economic Development Mechanism Mapping the different potential mechanisms for county lead LED and defining the operation functions of the county government in the area of LED. Feasibility studies and business plans of chosen projects (identified in part in the economic strategy). Gearing up of appropriate organizational and legal frameworks based upon projected business opportunities and strategies, thus creating generic frameworks that can use a variety of legal and financial tools.
D. Output 4: Tool box of financial instruments Overview of financial tools available to county and local government under the new constitution and different acts – of parliament: County Governments Act, Ratings Act, Procurements Regulations, PPP and others Matching financial tools to different areas of development: Infrastructure, joint land development, business promotion, service development and others.
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Setting out development strategies in 3-4 selected projects as the basis for undertaking full business plans.
Outcomes 1. Increase institutional capacity of the county government to generate local economic development 2. The operational promotion of income generating local economic development ventures Graph 7 LED Schematic Structure and Context
Inputs for the LED initiative
Undertaking an LED initiative involves work on three levels:
1. Facilitating a self assessment and formulation of a local economic development strategy together with key players: economic leaders, public and community leaders, local government professionals, and other external actors. The outcome is more of a shared understanding of a bottom led development process and the underutilized potential that already exist within the city/community.
2. The establishment and adaptation of organizational frameworks for promoting local economic development. The task is to translate the mandate given in the assessment stage into a formal organizational framework and mechanism for action. It involves utilizing the legal-statutory regulations and designing viable projects that are economically sustainable.
3. Helping to structure specific development ventures and guide their implementation. This begins with assessing the potential of different opportunities identified during the assessment and transforming them into economically, politically, and organizationally viable ventures. It requires a difficult balancing act of achieving social – public wellbeing goals but also Page | 35
creating public wealth that is to be managed by a dedicated economically oriented development framework. The task here is to provide professional guidance both on the level of business plans and venture structuring (BOT, Joint venture, franchising, and others) and on the strategic level of ensuring the achievement of economic development objectives that the venture is to achieve.
4. In all these areas of activity it is important to include staff training to better harness local capacities and strength the sustainability of the program.
Output Type of input Amount Agent Responsible
Securing Mandate Consulting TA 8 days Habitat
Staff time – requires 40 days of County involvement of staff from accumulated various departments time
LED Strategy Consulting TA 20 days Habitat
Staff time including 50 days County Planning, ICT, and other 3-4 two day County/Habitat Staff training workshops
Establishing an Consulting TA 30 days Habitat LED Mechanism Consulting for business plans 20 – 30 days per County/Habitat – requires economist and project engineering/planning team
(infrastructure/land use assessment and costing)
Staff time including legal, 30 days overall finance, and planning plus 20 days per County project
Financing Tool Consulting TA 25 days Habitat Box Staff time: finance, legal, 50 days County planning
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COMPONENT C: Public Participation
Background
Processes of public participation are frequently lumped together under the heading of "stakeholder" meetings. This has led not only to confusion and lack of standards, but to frustration and paralysis of programs through legal actions by "un-included" groups.
An underlying principle of public participation being proposed here is to strengthen the correlation between the level of participation and the level of reciprocal influence and responsibility of the parties and stakeholders. That is to say if there is an increase in costs then those who have "pay" should have maximum levels of participation in the decision making and monitoring. Similarly those who are most affected by public decisions or have the greatest responsibility for implementing such decisions should have the strongest public voice and feedback. In Kiambu County this relates to decisions regards tax rates and fees, land use policies, and LED promotion as well as community services in education, youth, and health. This principle would be particularly important in developing infrastructures where the community or developers bear the primary costs.
The Goal
The goal here is to improve the capacity of the Kiambu county government to actively engage its citizens and business community in taking shared responsibility for the development of the region and improving the quality of life. This component will focus on both meeting the legal obligations under the new constitution and adopting optimal practices for creating an effective community – county government partnership to improve services and promote socio-economic wellbeing.
The Overall Strategy
Out of the scoping process the direction for promoting "Public Participation" which has emerged is composed of three parts:
Exploring the different frameworks through which participation can be fostered and leveraged into public commitment and involvement Designing the different modes and mechanisms for participation appropriate for different situations Using procedures of public participation to develop a service delivery agreement that links the commitment and provision of agreed upon levels of service to public with the increase in revenue generation
Programs for this component
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Outputs
Output 1: Assessment Review of current practices and procedures Review of legal and public obligations for participation Identify different situations and opportunities for participation by functional and geographic area Analyze different organizational frameworks that can serve as the settings for public participation such as ongoing already established such a county committees and ad hoc forums (this is to be done in cooperation with stakeholders) Crystallize the operating principles for public participation
Output 2: Document/manual of agreed upon frameworks and procedures for public participation that are legally anchored Develop a matrix of frameworks and procedures Validate the matrix with different groups of stakeholders Formalize the legal anchors and county legislation Document procedures for participation by functional and geographic area or framework
Output 3: Service Delivery Agreement Identify services to be targeted for service delivery agreement For each chosen service, establish service standards and time-frames for service provision – to be done with functional departments and with community input Design unit cost analysis and revenue source identification Design the mechanism for linking service delivery to revenue collection Establish a joint professional-public review process and procedures for improvement/learning Design a community contact/service center to provide ongoing interaction between individuals/service consumers and the county government that is efficient and effective (This should be linked to the ICT revenue collections system)
Outcomes Improved service delivery of selected services Better community/citizen satisfaction Regular and improved flow of revenues that are linked to these services
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Inputs
Output Type of input Amount Agent Responsible Assessment Consulting TA 8 days Habitat Staff time 14 days County
Staff Training 2 three day County/Habitat workshops Community Habitat work specialist 20 days
Community Leadership County/Habitat training 4 two day workshops
Community County work staff 100 days Manuel Consulting TA 20 days Habitat Staff time 40 days County including legal advisor 10 days Habitat Community work specialist Service Delivery Consulting TA 30 days Habitat Agreement Staff time 30 days County Community work specialist 10 dyas Habitat
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IV. The Implementing Framework
Ultimately the success of a program for revenue enhancement depends upon the political and professional management of the Kiambu County Government. The initiative presented in this document outlines a process of support to the county government, which has the responsibility for the program's management and implementation. Therefore the framework being suggested in Graph 8 positions the county staff and leadership in the key positions.
A steering committee chaired by the Governor and composed of representatives from the Kiambu County, UN-Habitat, and the National Government is needed to guide the program and oversee its progress. Furthermore the steering committee would deal with issues regarding policy development and recommendations for operational changes.
In order to ensure continuity and project integration across the different functional departments and levels of government, it is proposed to have a team leader with time specifically dedicated to managing the program.
The consultants are to be responsible for designing program methodologies and would serve as professional resources in their specific areas of expertise (accessing additional professional resources as needed).
Based upon an operational work plan to be agreed upon specific program coordinators will need to be designated to develop and implement the different components of the program e.g. revenue system management, community involvement and partnerships, local economic development initiatives, and others. It is suggested that such program coordinators be chosen based upon their interest and responsibilities in the related functional areas within the county government. These elements of the program for revenue enhancement need to be closely designed and integrated into the ongoing work of the county and sub-county departments. As such it is important to optimally involve existing staff and have them take on leadership roles whenever possible.
During the scoping we quick came to recognize a number of committed and talented professionals. We also came to recognize that the process of transition has created a situation of flux at personal/professional level – a reality that is inherent in any such major change. On the negative side this creates a combination of anxiety, stress, and sometimes withdrawal. On the positive side it opens up possibilities for creatively and initiative. We are therefore proposing as part of the program management an innovation unit that would review and support creative initiatives that could foster progress in the three areas of action (Integrated Revenue Management, LED, and Public Participation). This unit would help support on project basis creative initiatives of the professional staff. The unit could serve both as a forum for exchanging new ideas, and as a gateway to project resources.
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Graph 8 Implementation framework and program management
Next Steps
In order to move forward from scoping to program implementation there a number of immediate steps to be taken:
1. Review of the scoping document by UN-Habitat and Kiambu County Government (March 10-17).
2. Decision regarding program components for implementation – prioritizing the Three Prong Program and its different proposed activities. This would also include removal of activities that are not relevant (or being undertaken in a different framework), as well as additional elements that may have been overlooked. It is suggested to have a working session on the 17th or 18th March (Dr. Yoel Siegel will be in Kenya on those dates) if possible.
3. Establishment of management framework – steering committee, team leader, and consultants. (April)
4. Preparation of operational programmatic work plan including funding sources, phasing (short term, midrange, long term), detailed plan for short term tasks, and division of responsibilities. This is also to include identifying of "quick wins" that are immediately doable and also to include identifying CSF'S (critical success factors) in need of immediate attention (April-May)
5. Budget and resource agreements – Long term commitments and short term contractual arrangements. (May - June).
6. Beginning implementation of first phase elements of program and initiation of first pilot projects. (June ….) Page | 41
Annex 1 List of data needed, areas of concerns and requested persons to meet
A.From Dr Yoel Siegel’s perspective: Project scoping Income generation for local/county government
Goal of scoping Reviewing existing studies on tax potential (property tax, betterment tax, etc. ) waste collection and treatment fees, and other fees for services and based on further interviews and observations, identifying concrete measures to exploit untapped municipal revenue sources Outputs: Differential feasibility analysis of the potential for tax and other revenue sources (not yes or no, but what and how). Concrete recommendations and road map to UN-Habitat and Provincial and local authorities to translate potential income generation into real revenues
Primary points for assessment 1. Understanding the degree of political commitment and constraints 2. Identifying the potential of different legal institutional tools/regulations that can be leveraged for income generation 3. Assessing the organizational capacity to undertake income generating programs 4. Assessing the technical capacity – existing information management and professional skills 5. Understanding the degree of community support/resistance for income generating actions – levers and obstacles for change 6. Identifying local government/county capacity to deliver specific services/improvements together with the community as funds are collected
Specific information targets (Information sources) Understanding the degree of political and public support Documentation of formal decisions, Interview with senior professionals and elected officials (Governor, Council members, town clerks, community leaders, CBO'S) o Assessing the political culture – degree of commitment to public wellbeing o Identifying "potential champions" for promoting local economic development o Assessing conflicting interests that prevent income generation o How best to position income generating mechanisms
Identifying key local government organizational capacities Interviewing town clerks/city managers, treasures, mangers of city sewage and water works corps. city planners, welfare staff o Professional resources o Management skills o Existing experience: e.g. water and sewage agencies/companies
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Exploring feasible designs for optimizing income generation in an integrated manner with economic development and planning mechanisms Interviewing donor aid agencies and planners o Legal/organizational mechanisms/frameworks
Economic base Identifying economic opportunities Documents regarding development projects and plans; Existing tax regulations on resource extraction o Development initiatives . Infrastructure construction o Business community organizations: especially PPP experiences o Natural resource leveraging . Land development . Mineral and other types of extraction o Smallholder . Agriculture . SME's What legal regulations can be leveraged interviewing legal advisors and treasures o Taxation o Institutional authority o Regulator powers and mechanisms What community institutions and organizations can be leveraged Interviewing community leaders and business community representatives o CBO'S o Political/community mechanisms (understanding the constellation of interests)
B.From Dr Marcelino Pandin’s perspective: SCOPING FOR KIAMBU REVENUE ENHANCEMENT PROGRAM
GOAL : To increase tax and non tax revenue of Kiambu through new sources, reduced cost and loss of administering revenue . collaborative governance and effective communication, without reducing public service quality
SPECIFIC OBJECTIVES: Identify potential sources for enhancing tax and non tax revenue of Kiambu (scoping) Discuss revenue enhancement trategy for Kiambu in which UN Habitat ‘s intellectual capital and networks (modalities) may be leveraged for preparing revenue enhancement plan and implementation
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INFO/DATA NEEDED: General data: Profil of Kiambu’s budget in the last 3 years (budget structure) with a detailed on revenue side Kiambu revenue business model (how services are provided and the payment made) – just to get an overall picture of the total system and later this is critical if process reengineering is needed Number of potential and current subscribers and tax payers incld its data base system and how it is updated or maybe a plan for data cleaning ?? Kiambu’s system of estimating revenue Any reports/studies/reviews on analyzing Kiambu’s budget (losses, uncollected, evasion, underutilized assets, etc.) e.g. a study on why people do not pay taxes in Kiambu. Phenomena of recurrent revenue (other revenues- inaccurate estimation or results of balloon budgeting) --- check municipality budget structure.
Local revenues
Kiambu’s own source revenue (see Annex 1 for itemized areas of enhancement) Taxes on new economic activities? Tariff/rate/charges/fees/rent setting (service level-ability /willingness to pay- subsidy?) , check unit cost per services Existing or digitalization plan of fiscal cadastral system including street addresss system, ownership registration, land and building regular re-valuation ??? or undervaluation issues (area or value based system??) VAT, GST, personal income tax, professional licence, selective sales taxes (fuel /vehicle registration etc), fines and penalties Induce competition in land auctions for max muni revenue? Applicable in Kiambu? Yield from PPP or special purpose corporations (either dividends or surplus/profit made) Donation and public contribution??? Efficiency of revenue admin issues: o Identification and registration of local residents liable for payments o updating data (see general info needed) o Issues in assessment, billing, delivery, collection, payment and enforcement incld losses / evasion (property taxes, metered services –water etc) o Incentives to reward early complilance with tax payments and user charges? o Disincentives or penalties for late payment of user fees and local taxes? o Accounting and audit system of local reveneu o Level of HR related to local revenue (training)/local institutional capacity o IT system related to local revenue (incld GIS, accurate and timely billing, ) o Issues on Revenue collection efficiency (such as credit control policy, appeal system ,,,,) Page | 44
o Communication strategy and program related to county revenue and customers (tax payers and subscribers) o Revenue performance monitoring and evaluation Related policy tools: o Effective enforcement o Cost recovery and subsidy or service provided o Standard cost and service level o Affordability of users charges o Outsourcing revenue collection or franchising public services to 3rd party for efficiency and better revenue o PPP – equity participation??
Local assets
How effective and efficient Kiambu;s assset management Two strategies of land based financing: converting county land into money or converting county power into money (LVC) Packaging County land to investors? Current revenue from municpality assets (leasing or privatizing) Land value capture (LVC) taxes or levies (increment/betterment/valorization taxes) – development rights, betterment levies, urban transfer obligation, capital gain sharing, PPP , muni corporations specifically land development corporation?, urban development investment corporation? or county development bank? Any other opportunities to leverage local assets or potential new economic activities?
External sources
Grants from Donors? Recent devt: shall be related to trade, investment and job creation Regulations on Liquidity borrowing, loan, bond, equity or hybrid form, Specialized institution: municipality development funds (MDF) Specific project-based bond..... which projects in Kiambu? Regulations on Sub-sovereign debt, guarantees, special purpose vehicle (SPV) Kiambu’s borrowing or fiscal capacity? Risk and credit rating?
Metropolitan / collaborative governance and revenue enhancement
Regulations on metropolitan arrangement or collaborative governance in relation to revenue enhancement or sharing resources, cost, talents, etc. Sharing resources (hospital, water treatment etc) Sharing talents for specialized services (an efficient team to serve several munies) Cost sharing (efficient tax collection) Mobilization of multiple funding sources/Pooling financial resources (pooled MDF at metropolitan level) ______Page | 45
Areas of enhancement within OSR (just a check list for searching opportunities)
Current revenue: 1. Property tax (rates) on land and/or buildings (non residents, absentee owner, split rate property tax etc) 2. Tax on the transfer of immovable property 3. Tax on motor vehicles 4. Local sales tax and/or tax on the sale of local products (or surcharge) 5. Tax on local businesses and services 6. Tax on electricity consumption (surcharge) 7. Tax on non-motorized vehicles 8. Tax on tourism, hotels, restaurants and entertainments 9. Tolls on roads, bridges, etc., within the limits of the local government 10. Charges for public works and public utilities like waste collection, drainage, sewerage and water supply 11. Charges for markets and rents for market stalls 12. Charges for the use of bus stations and taxi parks 13. Fees for approval of building plans, and erection and re-erection of buildings 14. Fees for fairs, agricultural shows, cattle fairs, industrial exhibitions, tournaments and other public events 15. Fees for licensing of business, professions and vocations 16. Fees for other licenses or permits, and penalties or fines for violations 17. Fees for advertisements 18. Fees on sales of animals in cattle markets 19. Fees for registration and certification of births, marriages and deaths 20. Fees in respect of education and health facilities established or maintained by the local government 21. Fees for other specific services rendered by the local government 22. Rent for land, buildings, equipment, machinery and vehicles 23. Surpluses from local commercial enterprises 24. Interest on bank deposits or other funds
Capital revenue: (also see related regulations) 1. Potential for asset sale 2. Dividends 3. Betterment fees 4. Contribution
External revenue: (check related regulations) 1. Liquidity borrowing 2. Loan 3. Bond 4. Equity
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Annex 2 Actual mission itinerary and persons met
Sunday, 09 February2014 : -Briefed by strategic advisor of UN-HABITAT Regional Office for Africa and the Arab states
Monday, 10 February 2014: -Met Kiambu County Government’s HE Deputy Governor, Minister of Finance and planning and her team at Thika townhall -Visited IT department and cash office -Site visit to Thika markets, parking booth, public housing, stadium and water and solid waste company -Visited acting Ruiru sub-county administrator (interim townclerk) and (passing) Ruiru’s industrial park.
Tuesday, 11 February 2014, met with: - Kiambu County’s legal consultant - PiC for acceleration program of property re-valuation and rating - all administrators of Kiambu sub-counties - Subcounty town planner /Kiambu spatial planner
Wednesday, 12 February 2014, met with: - HR Consultants for Kiambu county government - Chairman of Thika’s association of manufacturers/member of National Association of Manufacturers -Secretary General Association of County Government Kenya (ACGOK) -Department of Devolution, Ministry of Devolution Kenya -ICT director of Kiambu County Government
Thursday, 13 February 2014 - The mission consultants’ presentation to KCG’s HE Deputy Governor, ministers and staff (see Annex 3 for the distributed presentation material) - Met Director of UN Habitat Regional Office for Africa and her staff
Friday, 14 February 2014 Consultation with UN Habitat Urban Finance Branch
Saturday, 15 February 2014 The Consultants consolidated and analysed the available data and overall observation on areas of interventions for revenue enhancement. Field work of the Mission adjourned.
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List of Persons met:
Kiambu County Government 1. HE Deputy Governor Gerard Gakuha Githinji 2. Minister of Finance and Planning Ms Mary Nguli 3. Deputy County Secretary – Operations Mr Benson Maina Mbari 4. Head of County Treasury Mr John Gitau Mwangi 5. Finance officer Mr Ndegwa Mukaburu 6. Accountant Mr Joseph Mambo 7. Revenue Officer Mr Patric Mwangi 8. Senior Accountant Mr Joseph Mukabi 9. ICT Director Douglas Njiraini 10. PiC Acceleration of property valuation and Rating/Finance officer Mr Boniface Munayu 11. Consultant Legal Affairs Ms Mary Chege 12. Consultant HR Mr James T. Kariuki 13. County Planner Mr Samuel Makali 14. Acting townclerk Ruiru Ms Susan 15. All administrators of Kiambu sub-counties 16. Road transport and public works Mr Eng Njeni Nburu 17. Office of the Government Mr Sammy O. 18. Environment officer Mr Andress Nihimani 19. CEC IAROS/ICS Mr Wilson M.Morda 20. Youth and Sport division, Mr Moches Waikenda 21. CEC Edu, Culture and Social Ms Esther Ndirangu
Business Communities Representative 22. Chairman Thika Assoc of Manufacturers/member of National board Mr Rajan D. Shah
Kenya Central Government 23. Department of Devolution, Ministry of Devolution of Kenya Mr Charles 24. Assoc of County Government of Kenya (ACGOK) Secretary General Mr Hamisi Mboga
UN-HABITAT 25. Director Regional Office for Africa Dr Axumite Gebre-Egziabher 26. Coordinator Urban Finance Branch Dr Gulelat Kebede 27. Strategic Advisor Kenya Urban Sector Regional Office of Africa and the Arab States, Mr Grace Lubaale 28. Communication and outreach officer Mr Paul
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Annex 3 Preliminary observation on potential areas of intervention (presentation material
Annex 4
In formulating and implementing initiatives for revenue enhancement within a certain timeframework, the above matrix anticipates the absorptive capacity of Kiambu County government and other stakeholdes to adopt and accept new arrangements during the transition period of devolution.
The arrangement will go through stages of leveraging existing opportunities and modalities, then to integrate systems within and between county and sub-counties, afterward to enforce compliance before ensuring that the system is run smoothly by skill proficient government and citizens, which then institutionalized within their social fabric.
As an illustration, in short term tax billing and collection is improved wtih voluntary compliance such as a brochure in the billing explaining how and where the collected taxes are spent. But, in the medium term, this will be imposed by coersive compliance such as denial of services if a person has not payed their obliged taxes. For the longrun, the enforcing compliance will be promoted as part of community social fabric.
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Annex 5
Thika at the Cross Roads of Opportunity
The potential for creating a Logistics center lies in the location along the Trans-Africa Highway and its proximity both to Nairobi and to the farmlands of Kiambu County.
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Annex 6
There is awareness of the potential for integrating financial management with the different functional departments of the county. This could enable both an optimizing of control and introducing a more entrepreneurial culture of work.
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