‘Broke’ City Hall seeks loan to pay staff
“Broke” City Hall has reached out to Cooperative Bank for a “soft loan” of Sh160 million to help pay salaries.
The move comes amidst delays in payment of the July salaries of the close to 6,000 county employees not seconded to the Nairobi Metropolitan Services (NMS).
In an agreement approved by the County Assembly on Tuesday, the County’s Treasury made a request of approximately Sh160 million to Cooperative Bank to go towards the payment of the salary as well as statutory deductions.
In the letter, submitted to the assembly on August 2, 2021, Finance CEC Allan Igambi said the Ann Kananu-led administration is unable to pay salaries for July due to delay in uploading of the budget for the financial year ending June 30, 2022.
The County Treasury was therefore seeking for the assembly’s thumb of approval to go ahead and execute a Memorandum of Understanding (MoU) with Cooperative Bank to ensure timely payment of salaries to public and state officers serving within the rank and file of the county government.
“This county assembly approves the MoU between Nairobi County government and Cooperative Bank provided that the agreement shall not be varied, altered or amended in any way without the authority of the assembly,” read in part the report by the Budget and Appropriations committee.
Further, the committee said the approval depended on the implementation of the agreement not in any way resulting in extra financial burden to the county.
“The committee observed that the employees will be paid in time at no extra cost as provided for in the agreement,” added the report.
The committee’s chairperson Robert Mbatia said the new development came about to cushion the county government against perennial delays in payment of salaries to its staff which has always been precipitated by the July and August budget loading delays or tussles at the county government.
“It was thought that to cushion all that, “It has happened before and we have been going to the bank back and forth. So we thought we have to have a working framework going forward. The bank will be advancing money to pay staff, not seconded to NMS, right away as long as the county shows it has made requisition and confirmation we have the money in its account,” said Mr Mbatia.
He explained that Section 142(1) of the Public Management Act, 2012 provides that a county assembly may authorise short term borrowing by county government entities for cash management purposes only
Moreover, section 142(2) decree that any borrowing under subsection (1) may not exceed five percent of the most recent audited revenue of the entity.
“The County Treasury in their submission informed the committee that the payroll advances would amount to approximately Sh160 million excluding the county assembly which is within five percent limited provided by the law. The advances will be repaid monthly.
According to the agreement, the deal shall continue for a period of 24 months and shall renew automatically annually automatically unless terminated earlier in accordance with the terms of the agreement.
Upon expiry of the initial term, the agreement may be renewed by mutual agreement between the two parties.
The Bank will be expected to offer payroll management services such as facilitate the opening of salary processing account and after necessary confirmations, process the payment of the employees’ salaries, third party payments and statutory deductions also will be applied.
“This will be at no cost to the county save for commissions associated with the payroll processing as per the Bank’s tariff as may be published time to time and are to be borne by the employee. The processing of the payroll will be within three days of the receipt of the same from the county government.”
On the county’s part, apart from the approval by the assembly, is expected to provide the bank evidence of transfer request to CBK prior to processing of the payroll, inform the bank immediately upon receipt of the funds from the CBK and make payment to the salary account held with the Bank by the 20th day of the subsequent month.
Further, the Finance CEC shall ensure settlement of the salary account by the 10th day of the subsequent month as no salary/payroll shall be processed before settlement of the last due account to the Bank.
“The bank shall charge 0.5 percent late payment fee for any amount that shall remain outstanding after 30 days from the due date of settlement,” reads the MoU.