Senators have begun discussions on amending the law to allow municipalities to retain part of the revenue they generate, in a move aimed at easing their heavy reliance on county governments and donor support.

During a session on Wednesday, the Senate County Public Investments and Special Funds Committee said it was ready to sponsor changes to the Urban Areas and Cities Act, 2011, to ensure that municipalities are financially empowered to carry out their functions.

The committee is chaired by Vihiga Senator Godfrey Osotsi.

This discussion comes at a time when most municipalities in Kenya do not have financial autonomy despite collecting millions of shillings in revenue for counties. Many still rely heavily on external funding, especially from the Kenya Urban Support Programme (KUSP), which supports 59 municipalities across 45 counties.

Through KUSP, municipalities receive over Sh300 million for urban infrastructure, institutional development, and smart city projects. However, the lack of direct financial control has limited their operational effectiveness.

Kericho Governor Eric Mutai, who appeared before the committee, said the Urban Areas and Cities Act must be amended to allow municipalities to keep and use the revenue they collect.

“My proposal is a law to ring-fence what municipalities collect for their own use. Imagine municipalities having to write a letter to the county public service board just to recruit staff, yet they have their own board. They cannot even recruit a casual,” said Dr Mutai.

He referred to the Facilities Improvement Financing (FiF) Act, 2023, which gave health facilities the right to retain and spend revenue from user fees, insurance, and other sources.

Before this law, all health-related revenue was sent to the County Revenue Fund (CRF). According to Governor Mutai, a similar model can help municipalities directly address their needs, including staffing, service delivery, and facility maintenance.

He told the committee that his government had already transferred several functions to the Kericho Municipality — including solid waste management, street lighting, flood control, and non-motorised transport.

However, he noted that the funds to support these services had not been moved.

In the last financial year, the county allocated Sh55 million to the municipality  Sh38 million for development and Sh17 million for recurrent costs. Despite generating its own revenue, the municipality must remit all collections to the CRF before receiving a share back from the county.

“The municipality collects revenue but remits it to the County Revenue Fund, from where the county government then disburses a portion back,” said the governor.

“We must admit we have not yet achieved complete independence. I will consult with my Cabinet to ensure that resources follow the functions assigned to the municipality.”

Senator Osotsi said municipalities are a major source of revenue for counties, which is why many devolved units are hesitant to let go of financial control.

“Many counties have been clinging to these functions because implementing the law as it stands would see counties lose their own-source revenue,” he said.

Nominated Senator Peris Tobiko called for collaboration between senators and governors to come up with a clear revenue-sharing system.

“We must come up with a formula to share revenue raised by municipalities – determining what percentage they should retain for operations and what should be transferred to counties,” she said.

Osotsi urged Governor Mutai to formally present the proposal to the Council of Governors so that it can be included in a broader review of the Urban Areas and Cities Act.

“As a committee, we are ready to sponsor the amendments and present them before the Senate for consideration,” said Osotsi.