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Taming the Rising County Wage Bill

County Governments are facing rapidly declining own source revenue and stagnated Equitable Share. This calls for the need to reorient county expenditure strategies in order to facilitate the response to crucial spending needs, most especially over the COVID-19 pandemic. On the other hand, counties over the years have been experiencing large increases in their wage bill. Year on year, the Office of the Controller of Budget (OCoB) notes with increasing alarm, an ever-rising county personnel emoluments (P.E.) expenditures as one of the main challenges affecting effective budget execution.

While counties have embraced various austerity measures that may be useful in lowering their spending, there has not been a proven strategy put in place to contain the bloated wage bill. In this context, we will look at some of the possible strategies counties can explore to reduce the bill and create more opportunities for economic growth in their budgets.

The data shows that counties are pushing way past the wage bill thresholds

Based on the County Public Finance Management (PFM) Regulations, 2015 Section 25. (1), the County Executive Committee Member for finance sets a limit on the county’s expenditure on wages and benefits for its public officers pursuant with the approval of the County Assembly. Such a limit is expected not to exceed 35% of the counties’ total revenue.

The aggregate wage bill of all 47 counties surpassed the set limit in 2016/17  at 36.4%. This increased in the following year when it almost hit 40%. Of note, the 36.7% wage bill ratio recorded in 2018/19 underlines that it is not correlated to total revenues. The wage bill declined by almost 3% while total revenues increased by 16%  compared to the previous year.

Diagram 1: On average, the wage bill expenditure to TR has expanded at a rate of 2.8% in the six years under review.

Source: Office of the Controller Budget -Budget Implementation reports

Given the current COVID-19 crisis, it is expected that there will be a significant decrease in overall county revenues. This will push the wage bill ratio much higher in the coming years considering that according to the previous trends, the wage bill always has an increasing trend.

Diagram 2: On average, twenty-one counties have not adhered to the wage bill threshold of 35% (data for FY 2013/14 -2018/19)

Over the years, Nairobi County has most deviated from the wage bill threshold by 18.8%. The county’s total revenue has expanded at a rate of 5.5% while the wage bill grew faster at 6.9% during the period under review.  Mandera County registered the lowest ratio at 18.6%. Its total revenues and wage bill increased by 16.3% and 20.9% respectively.

Mandera and Nairobi are amongst the counties with the highest total revenues –  Nairobi ranked 1st and Mandera ranked 6th during the period.  However, Nairobi County has maintained its wage bill above 50%, unlike Mandera County which has retained its wage bill below 22%. In the case of Mandera County, we can learn that it has a significantly lower number of the workforce despite receiving revenues high enough to sustain additional staff.

Diagram 3: P.E expenditures have “crowded-out” development expenditures.

Since 2013/14, the wage bill has steadily increased, while development expenditures have has unsteady growth.

During the electioneering period of 2017/18, development expenditures grew by -35.3% compared to the previous year where they had declined by -0.1%. On the contrary, the wage bill maintained its growth rate of 15.4% compared to 10.5% recorded in FY 2016/2017.

Diagram 4: Since the onset of Devolution, counties have recorded the highest employment rate within the public sector.

The economic survey 2020 indicates that there was an overall growth in public sector employment of about 2.6% in 2019 compared to 1.2% in 2018. Counties are the third-largest employer in the public sector after the Teachers Service Commission, and Ministries & other extra-budgetary institutions. Counties’ employment level rose from 131.9 thousand jobs in 2013 to 190 thousand jobs in 2019 translating to the highest employment rate of 7.63%.

Given the above, it seems counties are playing a leading role in creating jobs despite the fiscal responsibility numbers indicating otherwise. So, does the end justify the means?

Common challenges causing the high employment rates in the counties.

  1. Budget allocations not observed: More often than not, recruitments are done haphazardly without reference to county plans or budgets resulting in unregulated supplementary budgets to realign the vote heads.
  2. Engagement of casual workers: The Office of the Auditor-General has regularly cited instances where the counties have retained these casual workers on the payroll throughout the year when their contract should have been terminated or converted.
  3. Unplanned promotions: There has been a clamor for higher salaries and allowances which is usually attained through promotions. Unfortunately, these unplanned promotions are executed without following due diligence, consequently exerting pressure on the wage bill.
  4. Mass recruitment of lower cadres: The majority of the counties prefer employing officers in the lower cadres (support staff and enforcement officers) than employing officers at higher grades. This is a way for holders of political office to garner support and fulfill promises made on the campaign trail. Lower cadre officers are recruited in hundreds and deployed to departments without clear roles. These lower cadres take up a large chunk of the wage bill.
  5. Ghost workers: Counties have been undertaking human resource audits (staff headcount) in a bid to confirm the existence of ‘ghost’ workers – mostly fraudsters who are in the payroll but do not work for the county. Reports around the counties have found that these misalignments arise largely from unupdated payroll systems leading to loss of colossal amounts.

Recommendations to mitigate the rising wage bill

There are some strategies that the counties can employ to address the growing wage bill, as follows:

  1. Counties should encourage regular consultations between the County Treasury and the Accounting Officer on wage bill management. PFM (County Governments) Regulations, 2015 Sect. 119. (3) requires that the Accounting Officer of a county government should ensure that the personnel cost of all appointees, as well as promotion and salary increments, be met within the budgetary allocation voted for by the county government entity. Also, the Accounting Officer should certify the correctness of the payroll at least once every month – Sect. 120 (3).
  2. The CPSB should widely consult with the County Treasury while implementing its mandate. Further, Sect. 119 (4) of the PFM Regulations emphasizes that the CPSB shall only approve the establishment of new public service positions after getting confirmation of the availability of budgetary provisions from the County Treasury.
  3. The engagement of casual workers is an effective way of creating jobs since there is no long-term commitment involved. However, the above provisions need to be strictly observed to avoid the possibility of retaining these casual workers on the payroll beyond their contract period which also may lead to unnecessary litigation. The Employment Act 2007 Sect. 37 explicitly highlights terms under which casual employment can be converted to a term contract. That is; if the work has been continuous for a month, or the work performed by the casual worker cannot reasonably be expected to be completed within three months. Then again, under the County Government Act Sect. 74, the CPSB is required to regulate the engagement of persons on contract, volunteer and casual workers, a staff of joint ventures, and attachment of interns in its public bodies and offices.
  4. Counties should strengthen performance management to reward productivity and performance. This will slow down the pace for seeking staff promotions hence reduce pressure on the wage bill. The County Government Act succinctly describes matters to be considered by the CPSB during appointments, promotions, or re-designation. Sect. 65 (2) requires that CPSB should ensure promotions are undertaken based on merit, fairness, and transparency.

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