The Constitution professionalizes and democratizes the budget-making process. On the one hand, it ensures Parliament benefits from the technical insights of the Commission while debating the revenue sharing and allocation Bills. On the other, it safeguards the legislative authority of Parliament by requiring that both Houses pay due regard to the recommendations without necessarily being bound.
By David Wanjala
The Supreme Court of Kenya, in an advisory opinion, has finally settled, among other vital issues, the controversy of whether recommendations by the Commission on Revenue Allocation (CRA) are binding on both the National Assembly and Senate during deliberations on the Division of Revenue Bill and the Appropriation Bill.
Council of County Governors and all the 47 County Governments moved the Court July last year seeking an Advisory under Article 163(6) of the Constitution on 25 issues. The Article gives the Court a mandate to “give an advisory opinion at the request of the national government, any State organ, or any county government with respect to any matter concerning county government.”
The Court, after dismissing a preliminary objection by the Speaker of the National Assembly, the second interested party, consolidated the issues into four thus: whether recommendations by the CRA are binding upon both Houses in deliberations on the Division of Revenue Bill and the Appropriation Bill; what happens when the two Houses fail to agree on a Division of Revenue Bill, thereby triggering an impasse; whether there should be timelines within which the National Government should release the equitable share of revenue to County Governments and; whether the National Assembly can enact an Appropriation Act before the enactment of a Division of Revenue Act.
The background of the application lies in a dispute between the National Assembly and the Senate regarding the Division of Revenue Bill for the Financial Year 2019/2020. The Court also gave an advisory on a similar controversy – Speaker of the Senate and Another vs. the Attorney General and four others No. 2 of 2013. The Court avers that had the Bill been enacted into law in accordance with the Constitution and its Advisory in the matter, it is highly unlikely that the applicants therein would have sought yet another Opinion from the Court.
CRA made recommendations, in the exercise of the powers conferred upon it under Article 216 of the Constitution, concerning the basis for the equitable sharing of revenue between the National and County Governments for the FY2019/2020 proposing, among others, that the equitable sharable revenue for the counties would be Sh335.7b. These recommendations were submitted to the Senate, National Assembly, the National Treasury, County Assemblies, and Executives. On its part, however, the National Treasury, in a published Budgetary Policy Statement, set the equitable sharable revenue for counties at Sh310b and tabled the same in the National Assembly on 14th February 2019 as per Section 25(2) of the Public Finance Management Act.
Aggrieved by the National Treasury’s proposal that significantly reduced the equitable revenue for counties, the applicants rejected the proposal and insisted on both Houses going by CRA’s recommendation. The National Assembly, reading from the same script with the Treasury, would have none of it, even as the Senate agreed with the CRA. Both chambers of Parliament adopted hard-line positions giving birth to a persistent impasse that stretched well into the beginning of the FY2019/2020.
In the meantime, the National Assembly enacted the Appropriation Act based on the estimates of revenue and expenditure that had been tabled. Consequently, the Appropriation Act was passed before agreement upon, and enactment of the Division of Revenue Bill into law.
An earlier version of the Division of Revenue Bill approved by the National Assembly based on the Budget Policy Statement, reads the Court’s Advisory, had been lost, having been rejected by the Senate, and the resultant mediation having failed to produce concurrence between the two Houses.
“Between the July 16 and 17 of 2019, when the Court was already seized of this matter, two different versions of the Division of Revenue Bill were published by the two Houses namely, the Division of Revenue Bill No. 2 of 2019 published by the National Assembly on 16th July 2019, and the Division of Revenue Bill of 2019, Published by the Senate on 17th July 2019. The National Assembly version of the Bill set the equitable share for Counties at Sh316.5b while the Senate version set it at Sh335.67 Billion.”
It is from the preceding that the Supreme Court derived the four issues. The divergence between the National Assembly and the Senate, where the former did not go with the recommendation of the CRA as the latter agreed with the said recommendation, gave rise to the issue of whether CRA’s recommendations are binding. On the other hand, failure of the mediation process under Article 113 of the Constitution, during the deliberations regarding the earlier National Assembly version of the Division of Revenue Bill, resulted in an impasse that almost brought the operations of the Counties to a halt. This gave rise to the issue of what happens in the event of such a deadlock?
The term recommendation, according to the Court, is the operational yardstick. The Court agreed with the school of thought that the term should first and foremost be accorded its literal and natural meaning, which is, in general terms, a suggestion or proposal for a specific course of action and does not ordinarily bind the person to whom it is addressed. “It is for the recipient to determine what import to attach it.”
The Court, however, appreciated the fact that the recommendation in question originated from a Chapter 15 Commission, which the Constitution accords an essential place in the country’s governance; to protect the sovereignty of the people, secure the observance by all State organs of democratic values and principles; and promote Constitutionalism. As such, the Court found it inappropriate to categorise CRA’s recommendations to Parliament during the deliberations on the Revenue and Appropriation Bills as mere suggestions or proposals.
“There can be no doubt, therefore, that the Commission has a central role to play in the Division of Revenue Bill, the latter being the legislative instrument that actualizes the equitable sharing of revenue between the two levels of Government. Such recommendations are to be accorded serious consideration by both Houses while debating the Division of Revenue Bill,” the Court opined.
The Court took cognizance of Art. 205 of the Constitution, which stresses that when a Bill that includes provisions dealing with the sharing of revenue, or any financial matter concerning County Governments is published, the CRA shall consider those provisions and may make recommendations to the National Assembly and the Senate and that such proposals shall be tabled in Parliament, and each House shall consider them before voting on the Bill. Art. 204 insists that CRA shall be consulted and its recommendations considered before Parliament passes any Bill appropriating money out of the Equalization Fund.
Article 218 (1) of the Constitution provides that: At least two months before the end of each financial year, there shall be introduced in Parliament, a Division of Revenue Bill, which shall divide revenue raised by the National Government among the national and county levels of Government per this Constitution; and a County Allocation of Revenue Bill, which shall share among the counties the revenue allocated to the county level of Government on the basis determined in accordance with the resolution in force under Article 217. 218 (2): Each Bill required by clause (1) shall be accompanied by a Memorandum setting out an explanation of revenue allocation as proposed by the Bill, an evaluation of the Bill in relation to the criteria set out in Article 203 (1), and a summary of any significant deviation from the Commission on Revenue Allocation’s recommendations, with an explanation for each such variation.
As such, the Court concluded that where either of the two Houses passes a Bill envisaged under Article 205 of the Constitution without considering the recommendations of CRA, the resultant legislation would be unconstitutional. Where, too, the National Government appropriates money from the Equalization Fund without consulting the Commission, the resultant law would suffer a similar fate. The same result would obtain, the Court says, where the National Assembly passes legislation authorizing the National Government to appropriate money from the Equalization Fund without considering the recommendations, if any, by the Commission on Revenue Allocation.
Recommendations of CRA, therefore, are no ordinary suggestions or proposals. Are they, however, binding upon all the entities to which they are addressed? Can an entity to which the CRA’s recommendations are addressed deviate from them? Does “consider” mean the same as “to be bound?”
From the provisions of Article 218 (2) of the Constitution, the Court concludes that Parliament can indeed deviate from the recommendations of the CRA while debating the allocation and sharing Bills. And in so doing, only a significant deviation has to be accompanied with a memorandum explaining the variation.
Both Houses of Parliament, the Court avers, are given considerable latitude by the Constitution not only to explain the revenue allocation in the Bill(s) but also to critique the Bill(s) in the context of the objective criteria set out in Article 203 (1). Even the Commission of Revenue Allocation itself, the Courts says, has to be guided by the stated criteria in making its recommendations.
“It is our considered opinion that the recommendations by the Commission on Revenue Allocation are not binding upon either the National Assembly or the Senate. What the two Houses cannot do, however, is to ignore or casually deal with such recommendations. To hold otherwise would elevate the Commission above Parliament in the legislative chain,” the Court concluded.
The Court held that the Constitution, through several of its provisions, professionalizes and democratizes the budget-making process. On the one hand, it ensures that Parliament benefits from the technical insights of the Commission’s recommendations while debating the revenue sharing and allocation Bills. On the other hand, it safeguards the legislative authority of Parliament by requiring that both Houses pay due regard to the recommendations without necessarily being bound.
Parliament and the Commission, the Advisory reads, may not always agree on the equitable share of revenue due to County Governments. What is critical is that all the parties in this process, including County governments, must be guided by the objective criteria set out in Article 203 (1) of the Constitution. Given this reality, it cannot always be assumed that the CRA will always recommend a higher figure of equitable revenue for the Counties than that approved by either the National Assembly or the Senate. “A time may very well come when the county governments would rather go by the National Assembly’s proposals than the Commission’s.”
The stalemate between the two chambers of Parliament over the Division of Revenue Bill lasted until July 2019, several mediation processes pursuant to Article 113 of the Constitution having failed to yield. The impasse was resolved three months into the FY2019/2020, occasioning a delayed release of funds by the exchequer to the counties and seriously affecting their budgetary and implementation cycles. What would have happened had the impasse defied all the mediation processes?
This, the Supreme Court says, is a real constitutional crisis, which, if not resolved judicially, has the potential to cripple the operations of county governments.
The applicants and the Speaker of the Senate, submitting that the business of the Government should not come to a stalemate because of disagreement between the two Houses, urged two options as feasible in resolving the problem. One, the Supreme Court should refer the matter to the High Court for resolution under Article 165 (3) (d) of the Constitution. The High Court, once so moved, would then issue directions for the allocation of equitable revenue due to counties based on the recommendations by the Commission on Revenue Allocation. Two, the Court should fall back on the Division of Revenue Act of the preceding Financial Year and order that 25 percent of the equitable revenue due to the Counties in that year, be immediately released to the Counties pending resolution of the impasse.
The Court found the first option untenable because, one, it would defeat their holding that recommendations by CRA are not binding and two, that approaching the High Court in that manner would fundamentally shift the revenue allocation function from the Legislature to the Judiciary, radically upsetting the doctrine of separation of powers.
“Budget making and allocation of revenue, are functions essentially reserved for the Executive and the Legislature. Courts of law should only come in to protect the authority of the Constitution and the law where necessary,” the Court argued.
The second option by the applicants, even though appearing practical and logical, the Court avers that it was not derived from any “principle or deeming provisions of the Constitution. Even an Advisory Opinion “must be anchored within the general value system and architecture of the Constitution.”
The Supreme Court, in this regard, falls to Article 222 of the Constitution, which sets out interim measures for purposes of preservation of continuity in Government in the event the President, for whatever reasons, fails to assent to an Appropriation Act passed by the National Assembly. “The Constitution,” the Court argues, “does not countenance a paralysis in Government. Is it conceivable that the same Constitution would condone the crippling of the affairs of County Government, occasioned by gridlock in the two Houses over the Division of Revenue Bill?”
Although there appears to be a lacuna in the Constitution as to what should happen in the event of an impasse in Parliament such as the one we have witnessed, Article 222, the Court says, provides, albeit by implication, a practical way forward.
Should an impasse occur due to the failure of the mediation process, occasioned by the lack of concurrence between the two Houses over the Division of Revenue Bill, the National Assembly shall – to meet the expenditure necessary to carry on the services of the County Government during that year until the Division of Revenue Act is assented to – authorize the withdrawal of money from the Consolidated Fund. “The monies so withdrawn shall be included, under separate vote(s) for the several services in respect of which they were withdrawn. Each County Assembly would have to re-adjust their respective budgets and appropriation bills accordingly.”
How about the percentage to be withdrawn? While the withdrawal of money for the National Government under Article 222 is based on a portion of the estimates of expenditure for that year, the same method cannot apply to the County Government, since the estimates do not include the equitable revenue share due to counties. It would be legally untenable too, to base that percentage on the Division of Revenue Bill, “as the Bill is not only the subject matter of the controversy but is also yet to pass into law.”
The Court thus rules that the percentage be based on the equitable allocation to Counties in the Division of Revenue Act of the preceding financial year at 50 percent of the total equitable share allocated to the Counties in the Division of Revenue Act. This is in keeping with the spirit of Article 222 (2) (b) of the Constitution. Should the 50 percent exceed the total equitable share proposed in the Division of Revenue Bill, the percentage to be withdrawn from the Consolidated Fund shall not be less than 15 percent of all revenue collected by the National Government pursuant to Article 203 (2) of the Constitution which provides that for every financial year, the equitable share of the revenue raised nationally that is allocated to County Governments shall not be less than 15 percent of all revenue collected by the National Government.
“It is our perception that this way forward safeguards the functionality of county governments while allowing Parliament to resolve the impasse through a second mediation under Article 113 of the Constitution. It preserves the authority of the Constitution by protecting its principles and values, and promotes the doctrine of separation of powers by locating the solution to a potential impasse squarely within the arena of Parliament,” the Court says in the Advisory Opinion and urges the Speakers of Parliament to initiate necessary legislative action to give normative form to this arrangement, which finds favour with Article 190 (1) of the Constitution that provides that “Parliament shall by legislation ensure that county governments have adequate support to enable them to perform their functions.”
The applicants also decried the inordinate delay in releasing the equitable revenue by the National Treasury. So severe is the delays that they at times receive their exchequer releases at the end of the financial year when for all practical purposes, they can hardly utilize the funds. They urged the Court to set strict timelines within which the National Treasury must release funds to County Governments and proposed 14 days after the Division and Allocation of revenue Acts have been assented to.
Article 219 of the Constitution requires that the transfer of equitable revenue to counties shall be affected without undue delay. It, however, stops short of prescribing a specific time limit. It, the Court avers, allows for a degree of flexibility on the part of the National Treasury in effecting monetary transfers to counties, and the Court did not want to interfere with that latitude given the complexities involved.
“We would be hesitant to interfere with this arrangement, given the complexity and elasticity of the subject matter. We don’t think that this Court is the appropriate forum to determine with precision, when monies due to counties, should be transferred,” the Court opined but cautioned the National Treasury against abusing the latitude stating that any delay in releasing funds to Counties has to be justifiable and must be explained in good time at a forum convened for that purpose by the National Government.
“To release funds at a time when the same cannot be realistically utilized in the implementation of county projects as per their budgets constitutes a violation of the Constitution,” it warned.
Appropriation Act vs. Division of Revenue Act
This issue arose from the fact that before the resolution of the impasse between the two Houses of Parliament over the Division of Revenue Bill, the National Assembly nonetheless proceeded to enact the Appropriation Act according to Article 221 (6) of the Constitution. The enactment had the potential of unlocking funds from the Consolidated Fund for expenditure by the National Government. At the same time, the Counties remained in limbo as long as the impasse over the Division of Revenue Bill persisted.
These two pieces of legislation, the Supreme Court avers, are inextricably linked to the budget-making process as provided for by the Constitution and the Public Finance Management Act, and any determination of which of them takes priority over the other must keep track of the sequencing of the budget-making process.
From the various Articles of the Constitution, including Articles 201, 202, 218, and 221 in which the subject matter is anchored, the Court says it is not adequately clear as to which of the two Bills takes precedence.
“What is not in doubt however is that once enacted, the Division of Revenue Act divides the revenue raised nationally between the two levels of Government, while the Appropriation Act authorizes the withdrawal and application of monies from the Consolidated Fund by the National Government,” the Court says, adding that both the Division of Revenue and the County Allocation of Revenue Bills are to be introduced in Parliament at least two months before the end of each financial year; while the estimates of revenue and expenditure of the National Government are also to be submitted to the National Assembly, at least two months before the end of each financial year.
As such, the justices of the Court deduced various conclusions. One, the Appropriation Bill cannot be introduced into the National Assembly, unless the estimates of revenue and expenditure have been approved and passed by that House. Two, the Appropriation Bill comes into life after the Division of Revenue Bill since the latter would already have been introduced into Parliament at least two months before the end of the financial year. The estimates of revenue and expenditure must logically be based on or, at the very least, be in tandem with the equitable share of revenue due to the National Government, as provided for in the Division of Revenue Bill. Lastly, the Appropriation Act must be based on the equitable share of revenue due to the National Government as provided for in the Division of Revenue Act. What, they wondered, would the National Government be appropriating, if not its share as determined by the latter?
The cabinet Secretary Finance, as Chief Budget Officer of the Executive, submits the estimates of revenue and expenditure to the National Assembly, based on the National Government’s share as provided for in the Division of Revenue Bill. The National Assembly, on its part, has to approve the estimates of National Government expenditure and the estimates of expenditure for the Judiciary and Parliament based on the Division of Revenue Act.
Section 39 (3) and (4), the Court says, fortifies the foregoing position, and it leaves no doubt in the mind of the Justices that the National Assembly cannot enact an Appropriations Act before adopting the Division of Revenue Act.
On the would-be controversy of the current Appropriations Act – whether it is unconstitutional – the Court ruled that their determination is prospective and not retrospective. Should Parliament, however, ever enact an Appropriation Act before the Division of Revenue Act in the future, “such an Act would be of doubtful constitutional validity.”
While advisory opinions may, generally not bind the issuing Court or other courts below it in the hierarchy, the Supreme Court of Kenya in the Matter of Advisory Opinions of the Court under Article 163(3) of the Constitution – and – in the matter of Section 21(2) of the Sixth Schedule of the Constitution – and- in the matter of the Interim Independent Electoral Commission As the Applicant – S.C. Const. App 2/11 opined that where a government or State organ requests an Opinion, it is to be supposed that such an organ would abide by that opinion.
“The Opinion is sought to clarify a doubt and to enable it to act in accordance with the law. If the applicant were not to be bound in this way, then it would be seeking an Opinion merely in the hope that the Court would endorse its position. Otherwise, the applicant would consider itself free to disregard the opinion. This cannot be right. Such an advisory opinion is binding as much as any other decision of the Supreme Court.”