Why counties should rethink their infrastructure financing

Our 47 counties stand at a crossroads in how they finance and deliver critical infrastructure. For years, overreliance on exchequer allocations and donor funding has slowed progress, leaving flagship projects underfunded or incomplete.

The result is a persistent mismatch between ambitious development plans and the resources available to implement them. When President William Ruto stood before the gleaming new Homa Bay County Headquarters this week, the occasion might have looked like a standard ribbon-cutting. In reality, it marked the unveiling of a financing innovation that could redefine how counties deliver infrastructure.

The significance lay not in the scale or aesthetics of the building, but in how it was funded, through a Tenant Purchase (lease-to-own) arrangement between Homa Bay County and the County Pension Fund (CPF). This model allowed the county to take immediate possession of the facility while spreading the cost over manageable instalments, avoiding crippling upfront expenditure and bypassing the delays of waiting for national transfers or donor pledges.

The President described it as “a moment that other counties can learn from,” and with good reason. In the 2023/24 financial year, development expenditure accounted for just 24.4 per cent of total county budgets, Sh109.2 billion, while recurrent costs consumed the rest. Salaries alone swallowed nearly half of county spending, with operations and maintenance taking another 29 per cent. Although the law mandates that at least 35 per cent of county budgets go to development, most counties consistently fall short, resulting in delayed projects, deteriorating facilities, and frustrated constituents.

Closing this gap requires a shift in mindset. Waiting for a larger equitable share or sporadic grants will not deliver the infrastructure counties need. Instead, counties must adopt financing structures that unlock development within current fiscal constraints. The CPF Tenant Purchase model offers a compelling pathway. It works by establishing an Infrastructure Financing Fund at the county level, legally ring-fencing specific revenues to secure investor repayment. CPF handles the design, financing, construction, and maintenance, while the county takes immediate possession. Payments are made over time, and ownership transfers upon completion of the agreed term. The arrangement complies fully with the Constitution, the Public Finance Management Act, and the County Governments Act.

The model is highly adaptable. For non-commercial assets such as schools, roads, or administrative offices, repayments are funded from taxes and fees. Semi-commercial facilities like hospitals, water systems, and economic zones can be financed through blended models combining public and private capital.

Counties should create a dedicated Public-Private Partnership (PPP) financing vote within their budgets, with a recommended minimum allocation of six per cent of development funds. The National Treasury must tighten regulations on tariff ring-fencing and strengthen the management of own-source revenue, providing the payment security investors require. In addition, counties should explore aggregation models, pooling projects through sector- or region-based vehicles, to reduce risk, lower transaction costs, and attract larger-scale financing. At CPF, two aggregation frameworks are already in the pilot stage. The first, a Water Sector Fund Special Purpose Vehicle, targets reductions in non-revenue water and investments in renewable energy for water service providers.

The second focuses on urban infrastructure digitisation, modernising markets, parks, roads, sewerage, and street lighting, supported by a blend of conditional grants and own-source revenues. These pilots aim to build investor confidence in county payment capacity and demonstrate the viability of long-term partnerships.

Kenya’s infrastructure future will not be determined by policy pronouncements or donor conferences alone. It will be shaped by counties that secure predictable payments, protect their revenue streams, and prioritise projects. Homa Bay’s headquarters project is proof of concept, lawfully financed, on time, within budget, and aligned to service delivery priorities. Recent legislation enabling counties to amend their laws and adopt such mechanisms has opened the door wider; now, county leadership must walk through it.