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Abstract: 

Local governments have long provided goods and services using debt financing. Most citizens are aware of the general-purpose governments that serve them, such as counties and cities. Fewer know about special-purpose districts, local governments authorized by the state to provide specific goods and services. A geographic area is often served by multiple, geographically overlapping jurisdictions, all drawing on the same resource base for debt repayment and thereby affecting debt affordability. This study builds on previous models of debt burden by incorporating overlapping general purpose and special district jurisdictions. The results suggest two findings: first, multiple overlapping jurisdictions restrict debt growth; second, the debt burdens associated with metropolitan districts are greater. Given that comprehensive oversight of local debt creation and repayment is largely a function of the markets, it is important for all market participants—borrowers, lenders, and third-party credit rating agencies—to be able to evaluate the effects of overlapping jurisdictions on debt affordability.

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Affiliations:  1: University of Colorado, Denver.