171. (1) The accounting officer of an urban area or city is responsible for the management of the revenue received by that urban area or city in accordance with section 172. (2) The accounting officer shall — (a) for the purposes of collection systems consistent with this Act and the Urban Areas and Cities Act, manage the urban area or city’s credit control and debt collection policy; (b) immediately inform the County Executive Committee member for finance of any payments due to the urban area or city by a State organ in respect of city or urban area tax, or services, if such payments are regularly in arrears for periods of more than thirty days; and (c) take all reasonable steps to ensure that any funds collected by the urban area or city on behalf of another organ of state is transferred to that organ of state within three days and that such funds are not used for purposes of the city or urban area. Financing of urban areas or cities. 172. Subject to the Constitution and any other Act of Parliament, and with the approval of the County Assembly, an urban area or city may be funded through any of the following sources— (a) revenue arising from rates, fees, levies, charges and other revenue raising measures which is retained by the urban area or city for the purpose of defraying its costs for providing services; (b) revenue allocated by the county government to the urban area or city;. (c) investment income; (d) grants and donations; or (e) borrowing as provided for under section 140 of this Act. Criteria for 173. (1) In allocating funds to the urban areas or cities The Public Finance Management Act, 2012 161 allocating funds to urban areas or cities by county governments. under section 172 (b), the county government shall use objective criteria reflecting the service demand and responsibilities of the urban area or city.

(2) The objective criteria to be prescribed in county legislation, may include, among others, adjustments for- (a) the proportional population, calculated as the population of the urban area or city divided by the total population of the county; (b) the relative area, calculated as the area of the urban area or city divided by the total county area; (c) the relative poverty levels based on objective measures of relative poverty; (d) the relative per capita revenue collection estimated as urban area or city per capita revenue collection divided by the County per capita revenue collection; (e) an objective measure to account for price differentials in providing similar services in the urban area and city relative to the rural areas of the county; (f) a minimum amount to ensure effective delivery of essential services and responsibilities assigned to the urban area or city; and (g) incentives to encourage urban areas and cities to exercise prudent financial management as well as transparency and accountability in public financial management.

(3) In approving the criteria in subsection (2), the County Assembly will seek the recommendations of the Commission on Revenue Allocation Principles to be observed by urban areas or cities in managing public finances. 174. The accounting officer of an urban area or city shall observe the following principles in managing public finances of that entity— (a) the actual expenditure on the personnel shall not exceed a percentage of their allocation to be prescribed by the County Assembly; (b) on an annual basis the urban area’s or city’s recurrent expenditure shall not exceed its revenue; (c) in the medium term, the recurrent expenditure may not exceed a percentage of total revenue, which will The Public Finance Management Act, 2012 162 be approved by the county assembly; (d) an urban area’s or city’s debts are maintained at a sustainable level; and (e) over the medium term, the proceeds of borrowing by an urban area or city are used only for purposes of financing development expenditure and not recurrent expenditure. Budget and budget process for urban areas or cities.

175. (1) An urban area or city shall develop a strategic plan based on the integrated development plan that is consistent with the County Fiscal Strategy Paper. (2) The strategic plan along with any further guidelines from the County Treasury on the county budget process shall form a basis for development of the urban area’s or city’s budget proposals. (3) No later than the 30th August of every year, the County Treasury shall issue budget instructions to the urban areas or cities. (4) The instructions shall prescribe the manner, form and timing in which the budget requests shall be submitted and subsequently reported on.

(5) The urban area or city shall on the basis of the instructions in subsection (3) and (4) prepare and submit budget requests to the County Treasury upon approval by the Board in sufficient time, in the case of cities and municipalities, for their approval as part of the annual county Appropriation Bill. (6) The budget estimates in subsection (5) shall include the current services budget, representing the cost of maintaining the urban area or city services at current levels. (7)The budget submission shall also contain new services requests, covering one-time expenditures for the construction and maintenance of facilities in the urban area or city. (8)The County Treasury shall evaluate the budget proposal and make recommendations to the urban area or city to enable the preparation of the itemized annual budget The Public Finance Management Act, 2012 163 for consideration and approval by its Board.

(9) In preparing the strategic plan in subsection (1) and the annual budget estimates in subsection (5), the accounting officer of an urban area or city— (a) shall ensure that the public is given an opportunity to participate in the preparation process as outlined in the second schedule of the Urban Areas and Cities Act, 2011; and (b) for that purpose, may publish guidelines for public participation. (10)The Accounting Officer of each urban area or city shall— (a) publish and publicise the strategic plan within seven days following its adoption; and (b) publish and publicise the annual budget estimates within twenty one days after the county assembly has approved the budget estimates. Response to delays in approval of annual budgets by urban areas or cities.

176. (1) If the annual County Appropriation Act for the financial year has not been assented to or is not likely to be assented to by the beginning of the financial year, the relevant county assembly may authorise the withdrawal of funds from the County Revenue Fund for the purpose of meeting expenditure of an urban area or city in accordance with subsection (2). (2) Funds withdrawn under subsection (1) — (a) may only be used to meet expenditure necessary to carry on the services of the urban area or city during the financial year concerned using the estimates submitted to the county assembly for approval; and (b) may not exceed in total one-half of the amount included in the estimates of expenditure submitted to the county assembly for approval. Borrowing by urban areas or cities. 177. (1) An urban area or city may borrow only— (a) from the county government; (b) through its county government; or (c) by way of a bank overdraft. The Public Finance Management Act, 2012 164

(2) Any borrowing by an urban area or city shall be subject to such terms and conditions as the county assembly may impose, and in the case of paragraph (b), in accordance with the provisions of section 140 of this Act. Conditions in which urban areas or cities may receive grants. 178. (1) An urban area or city may receive a grant or donation from a development partner only with the approval of the County Executive Committee member for finance concerned, and only as provided under section 138 of this Act.

(2) The grants referred to in subsection (1) shall be expended in accordance with the strategic plan as provided for under section 175. (3) As soon as possible after receiving the grant or donation, the recipient shall notify the County Executive Committee member for finance and the Cabinet Secretary of the receipt. (4) If a project that is being financed by a grant or donation from a development partner requires county government funding, the project may only be started when— (a) the required funding has been appropriated in accordance with this Act or is otherwise authorised by legislation; or (b) the County Executive Committee member for finance has given a written authorisation for the project to begin.

(5) The recipient of a grant or donation from a development partner shall record the amount or value of the grant or donation in its accounts. (6) Subject to Article 229(4) of the Constitution, the recipient of a grant or donation from a development partner shall administer and account for the grant or donation by using government financial and accounting laws, rules and regulations and, administrative procedures, accounting and auditing procedures, or any of its financial accounting rules and procedures for accounting for the receipt or expenditure of money that are specified in, or referred to, in any agreement between the recipient and the development partner.