Does the charter form lead to lower borrowing costs? Examining the case of California local governments

Abstract

In this paper, we examine the impact of the charter form of government on the borrowing costs of local governments. A substantial amount of research has been undertaken to date in which scholars have investigated the determinants of borrowing costs for governments.However, little research has been conducted hitherto on the impact that the particular form of government -a key issuer characteristic -has on determining its specific borrowing costs. We hypothesized that a chartered government is more likely to be able to reduce its borrowing costs when it is benefiting from the municipal bond market; a government's flexibility and professionalism is desirable. We tested this hypothesis by using city and county government bond data from California that dates from 2003 to 2015. In our findings, we show that the financial flexibility that is afforded by a charter helps local governments to improve their credit ratings and to lower their borrowing costs.

Home rule and municipal revenue stability: New evidence from Texas

“…Using three fiscal ratios (efficiency, intergovernmental, and debt service burden), McDonald (2015) finds that home rule charters helped improve Florida counties’ financial well‐being for the period 1980–2012. Moreover, Kim et al (2022) find that chartered (i.e., home rule) cities and counties in California have lower borrowing costs. In what follows, we discuss two possible mechanisms through which home rule may affect municipal revenue stability.…”