An empirical assessment of local autonomy and special district finance in the US

ABSTRACT

In this article, we interpret local autonomy as a dimensional concept that includes local government importance, local government discretion, and local government capacity. Using longitudinal data from 1962 to 2012 covering all 50 states in the US, we examine how different dimensions of local autonomy affect the expenditure levels and debt levels of special districts. We find that the levels of debt and spending in special districts are lower when local governments have greater revenue diversification. However, fiscal decentralisation in the dimension of local government importance promotes the growth of special district finance. Moreover, our findings on local government discretion suggest that imposing too many fiscal constraints can affect the fiscal independence and capacities of local general-purpose governments. These constraints may also lead to the more extensive use of the fiscal power of special districts that are not subject to fiscal limits.

KEYWORDS:

• Local autonomy
• special district
• public finance

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1. We acknowledge that we are unable to collect data on revenue bonds issued by special districts from the Census of Government.

2. There is a need for testing for cross-sectional dependence in STATA in cases where N is larger than T in the panel data models (Hoyos and Sarafidis 2006). Phillips and Sul (2003) and Sarafidis, Yamagata, and Robertson (2009) also suggest that testing for cross-sectional dependence is important in estimating panel data models.

3. The mean VIF for this model is 1.47. For more information on VIF, please refer to O’Brien, R.M. (2007); and Paul Allison’s blog in 2012: https://statisticalhorizons.com/multicollinearity.

4. Due to space limitations, the correlation matrix for the independent variables is available upon request. The correlation coefficient between local TELs and revenue diversification is about 0.43, and the correlation between revenue diversification and service function is about 0.33. Otherwise, the correlation values among variables are much lower.

5. These measures on TELs, home rule, and debt limits are time-variant variables.

6. Amiel, Deller, and Stallman (2009) assigned point values to local governments in each state based on each of the following six categories: The type of the TEL, whether the TEL is statutory or constitutional, growth restrictions, method of TEL approval, override provisions, and exemptions. The sum of these points for the six categories created local TEL values at the state level.

7. Local debt limits data are collected from the Advisory Commission on Intergovernmental Relations (1993b). Because the data from ACIR are only valid up to 1990, the authors updated these data to include any changes since 1990.

8. Additional details about the method of constructing the state citizen ideology index can be found in Berry et al. (1998).

Additional information

Notes on contributors

Yu Shi

Yu Shi is an assistant professor in the Department of Public Administration at University of North Texas (UNT). She specialises in state and local government financial health, fiscal federalism, municipal fiscal policy, local government autonomy, interlocal collaborative management, financial emergency management, and intergovernmental relations.