Do Cities and Counties Attempt to Circumvent Changes in their Autonomy by Creating Special Districts?

Abstract

This study uses forty years of data from the US Census of Governments to examine the impact of changes in local autonomy on the creation of the fastest growing form of local governments, special districts. Using fixed effects regression specified at the urban county and metropolitan statistical area level, we find that restrictions of fiscal autonomy of cities is associated with creation of new special districts. When the limits on fiscal autonomy interacts with grants of functional autonomy, amplification occurs. We find no analogous effects for county governments. These two findings are consistent with the circumvention argument made in the local autonomy literature.

Unfunded Mandates and Fiscal Structure: Empirical Evidence from a Synthetic Control Model

“…There has been substantial interest in the role of special districts and other quasi‐government entities as means to circumvent other state imposed constraints on local governments, particularly tax‐expenditure limits. The evidence on this subject is mixed (see, e.g., Billings and Carroll ; Carr ; Cheung ; Goodman and Leland ).…”

Beyond Borders: Governmental Fragmentation and the Political Market for Growth in American Cities

“…Thus, areas that are more vertically fragmented tend to utilize tax abatements at a lower rate. Cash-strapped local governments in the United States have become more reliant on special districts to provide public goods and services as they have faced greater constraints on fiscal autonomy (Goodman and Leland 2019). We would be hesitant to recommend that adding layers of government may be a way to mitigate the inefficient use of development incentives, given that it complicates easy lines of accountability and transparency for citizens, but it does suggest that there are mechanisms which can reduce the competitive pressures to use these policies.…”

Local Government Fragmentation: What Do We Know?

“…It appears the lack of coordination between many overlapping jurisdictions leads to an overly large local government system, well beyond what is efficient or demanded by residents. While many overlapping special districts may not be the most efficient system, there is some evidence that local governments use such arrangements to circumvent state-level restrictions on their actions (Goodman and Leland 2019). 4 If this evidence is correct, it would suggest the proliferation of overlapping governments is a means for local governments to continue to provide public services demanded by its citizens, albeit more inefficiently than if those services were produced in house.…”