Cities and counties are constructs of their respective states. Counties are almost always created by state constitutional decree. Cities are municipal corporations created by state legislative action. Regardless of the method of creation, states exercise significant control over what cities and counties can and cannot do. From the taxes levied to debt issuances to services that can or cannot be provided, the state determines the role of local governments within its borders. States have been pre-empting local policies at an increasing rate. The National League of Cities has documented a number of these actions. Popular targets are restrictions locally imposed minimum wages (24 states), paid leave (18 states), and public provision of broadband internet (17 states). Of these three, North Carolina is included in all. There are many other areas where states have been pre-empting local actions. This top-down view suggests that local governments have little ability to chart their own course. However, this isn’t quite right. There are many ways that cities and counties push back against state policy. In the news now, Sanctuary Cities in Texas are pushing back against new laws restricting their actions. This is a highly visible example; however, cities and counties often have other options that are less visible.
One of these less visible options is to create new local governments that are outside of the restrictions imposed on cities and counties. Special districts are an example. Special districts are the most numerous form of local government in the United States and the fastest growing. Since 1952, special districts have grown approximately 210 percent with an average annual growth rate of 1.9 percent. Over the same period, general purpose local governments (cities, counties, towns/townships) grew only 5.5 percent with an average annual growth rate of 0.09 percent. Special districts are reasonably unique in US local governments as their boundaries can take on any form, they can overlap any local government, and are easily created relative to municipal incorporation. These characteristics makes special districts an incredibly flexible means of providing public services.
Suzanne Leland (UNCC) and I were interested to see if states restrict the fiscal actions of cities and counties, do they create special districts to take up the slack? We assume that cities and counties respond to the demand of their citizens for the kinds of services they want to consume. When a state policy restricts the ability of a city or county from satisfying those demands, they attempt to satisfy them in another manner. We expect this activity to be greater if a city or a county has been granted significant leeway in delivering services by their respective state. Using data from the US Census Bureau, we find among cities in urban counties, the reaction to the imposition of a potentially binding tax and expenditure limitation when those cities also have leeway in satisfying citizen demands is to create special districts at a rate higher than they otherwise would. This result would seem to confirm our initial hypothesis. The results are also encouraging. Cities appear to be responding to the demands of their citizens and go out of their way to attempt to satisfy those demands when they are fiscally restricted.
The big question is why does this matter all? If services just are being shifted from cities to special districts, there shouldn’t be any impact on service delivery, right? Not necessarily. Research has shown that service delivery via special districts isn’t always optimal. The ability to overlap other local governments including other special districts typically leads to issues. There is generally a lack of coordination between overlapping governments driving up both taxing and spending to higher than normal levels. Special districts are often not very transparent and some research has suggested they may go out of their way to limit political participation. If we really care about responding to the demands of citizens, this predilection is less than ideal.
Returning to the original question, do cities and counties attempt to circumvent state policy? In short, yes. This would seem to run counter to the narrative that cities and counties are more or less helpless in their battle against state pre-emption. However, like many things in public policy, there are tradeoffs. Cities have devised a method of pushing back against state fiscal limits; however, the end result is less than ideal. Services are still being provided but in a less transparent and accessible manner. Unfortunately, the research into the impacts of service delivery in a more specialized manner (i.e. by special district) is rather thin so we do not have a complete understanding of how this arrangement operates in terms of outcomes. However, what is clear is that the trend toward more specialized governance shows little to no sign of abating. It is here to stay and may provide a less than ideal mechanism for local governments to get around state restrictions on their autonomy.
This is adapted in part from a working paper by Christopher Goodman and Suzanne Leland entitled “Do Cities and Counties Attempt to Circumvent Changes in Their Autonomy by Creating Special Districts?” available at SSRN. Christopher Goodman is an assistant professor of public administration at the School of Public Administration at the University of Nebraska at Omaha. His research focuses on local public finance, political economy and urban policy. More information on his research including copies of working papers and recent presentations can be found at his website, www.cgoodman.com.