Special Districts: A Common Solution to Political Pressures Stemming from City-County Fiscal Inequalities

Abstract

Fiscal inequalities between cities and counties have long strained intergovernmental relations between these general purpose local governments. Historically they have tended to be competitive in their search for revenues but this competitiveness changed to greater cooperation as a consequence of the taxpayer revolts of the 1970s. Both cities and counties favored creation of special districts (with taxing power) to relieve some of the pressure on their own property tax structures. Traditional theories of government fragmentation have maintained that creation of special district governments further widens city-county fiscal inequalities; however, newer theories suggest the opposite. Through an analysis of increases in special districts and changes in city-county property tax level differentials, this study shows that creation of special taxing districts in the 1970s reduced property tax level differentials between cities and counties—an important economic and political effect in an age of taxpayer revolts aimed at city, county, and state property taxes but never at special district taxes.