The expenditure effects of municipal annexation

Abstract

Analyzing the provision of local public services in the context of a market for local government services has yielded numerous important insights into local first behavior (Martin and Wagner, 1978;Martin, 1977;Wagner and Weber, 1975). Any change in local government structure -institutional or legal -can be examined for its effect on the competitive conditions in this market and the degree to which it promotes or retards centralization (monopoly) in the provision of government services. The major advantage of decentralized service provision in a metropolitan area is the broader choice of public services offered to voters as compared to a single, centralized provider 1 (Tiebout, 1956). Martin and Wagner (1978) use the model of intergovernmental service competition to analyze the effect of one specific structural change in municipal services markets in California -enactment of the Knox-Nisbet Act in 1963 which created Local Agency Formation Commissions (LAFCO) in 57 of the state's 58 counties. 2 Each LAFCO is composed of appointed representatives from existing local government jurisdictions -the county and cities -and has the authority to accept or reject any proposed boundary change by a city or special district, including incorporation, annexation, consolidation, or dissolution. In effect, existing jurisdictions are given control over entry into the local government services market. Martin and Wagner argued that the LAFCOs have used this authority over boundary changes to severely reduce the number of new incorporations in California and to erect substantial entry barriers to potential competitors in local public service markets. They predicted that the effect would be a rapid growth in government spending due to the enhancement of the monopoly power of existing jurisdictions. Their empirical tests gave some support to this hypothesis -the advent of LAFCO reduced new incorporations by 42 percent and raised the level of spending in California counties 35 percent above what it otherwise would have been.The present study extends the initial work by Martin and Wagner. The LAFCO legislation not only reduced municipal incorporations, it also encouraged municipal boundary changes via annexation. LeGates (1970) Public Choice 36: 53-62 (1981) 0048-5829/81/0361-0053 $01.50.

Municipal annexation and local monopoly power

“…NOTES 1. Mehay (1981) has analyzed the expenditure effects of annexation under the Local Agency Formation Commissions in California. This paper extends and improves that research in several ways: (1) we develop a formal behavioral model to analyze the effects of annexation;…”

Fiscal effects of municipal annexation: Evidence from a large national sample of urban municipalities

“…Percent changes in total municipal revenues and expenditures per capita are common dependent variables in annexation research (Cho, 1969;Edwards & Xiao, 2009;Gonzalez & Mehay, 1987;Liner, 1992;Liner (2) MacGregor, 2002;Mehay, 1981). They offer a way to assess differences in the relative growth in revenues and spending between annexers and non-annexers.…”

“…Metropolitan government reformists view suburbanization and fragmentation of local governments as the fundamental problem of urban areas that results in the out‐migration of the rich to the suburbs and leaves the economically disadvantaged behind (Briffault, ; Rusk, , ; Stephens & Wikstrom, ). From this perspective, annexation improves municipal efficiency through economies of scale and lessens fiscal inequities by reducing tax base disparities (Edwards & Xiao, ; Liner, ; Mehay, ; Rusk, ; Stephens & Wikstrom, ). As a result of annexation, revenues go up, while spending decreases due to economies of scale.…”

Understanding the Complexities of Annexation

“…In his earlier analysis of over four hundred cities, Liner (1992) found that annexation activity is inversely associated with the growth of per capita police and fire expenditures and with municipal employment. This contrasted with the conclusions reached by Gonzalez and Mehay (1987) and Mehay (1981). Gonzalez and Mehay examined over three hundred cities in twenty-four southern and western states and found that cities with higher rates of annexation have higher expenditures per capita and higher municipal taxes.…”