Understanding how Kenya's public finances are managed is essential for informed public debate, especially in a country with a devolved system of government. Kenya operates under two levels of government—national and county—and the revenue they generate is pooled into a central account known as the Consolidated Fund (CRF). From this fund, resources are divided between the national government and the 47 county governments, a process governed by two key pieces of legislation: the Division of Revenue Act (DORA) and the County Allocation of Revenue Act (CARA). 

This process is not just about numbers; it directly affects the services people receive. The distribution of resources is based on a formula that considers factors like population, poverty levels, land area, and fiscal responsibility. The ongoing debates about the "Forty Formula" and the annual Division of Revenue Bill are crucial as they determine how much money each level of government and each county will receive. 

The Senate, guided by recommendations from the Commission on Revenue Allocation (CRA), plays a pivotal role in shaping these formulas. The goal is to ensure equitable development across Kenya, so every county has the resources needed to provide essential services like healthcare, education, and infrastructure. 

Evolution of Revenue sharing formulas 

The revenue-sharing formula has evolved over time, reflecting Kenya's changing socio-economic landscape. However, it remains a contentious issue, as counties with fewer resources push for a greater share, while others resist changes that could reduce their allocation. Here's a breakdown of how revenue is allocated: 

1. Revenue Sharing Between National and County Governments 

Division of Revenue Act (DORA): This annual legislation outlines how the total revenue collected by the national government is divided between the national and county governments. It sets the percentage of revenue allocated to each level of government based on the national budget and fiscal considerations. 

2. Revenue Allocation to Individual Counties 

County Allocation of Revenue Act (CARA): This Act, which follows DORA, specifies how the revenue allocated to county governments is distributed among the 47 counties. The distribution is based on a formula that considers various factors to ensure fairness and address regional needs. 

3. Key Components of the Revenue Sharing Formula: 

• Population (45%): Allocates funds based on the population of each county, ensuring that larger populations receive more resources. 
  
  
• Basic Equal Share (20%): Provides every county with an equal share to ensure that all counties have a minimum level of funding. 
  
  
• Poverty Levels (18%): Distributes funds based on the poverty rates in each county, with poorer counties receiving more to address socio-economic disparities. 
  
  
• Land Area (8%): Allocates additional funds to counties with larger land areas to cover the higher costs of service delivery over vast regions. 
  
  
• Fiscal Responsibility (2%): Rewards counties that demonstrate prudent financial management and accountability. 
  
  
• Development Factor (1%): Promotes balanced development by considering the level of existing infrastructure and services. 
  
  
• Urban Services (1%): Provides extra funds to counties with large urban populations to address the higher costs of urban service delivery. 

4. Legislative Approval Process 

Senate and National Assembly: The revenue-sharing formula must be approved by both the Senate and the National Assembly. This process involves debate and potential revisions based on recommendations from the Commission on Revenue Allocation (CRA) and public input. 

5. Evolution of the Formula 

First and Second Generations: Early formulas focused on basic factors like population and land area. 

Third Generation: The current formula introduces adjustments to better reflect socio-economic realities and balance development needs.