The Fiscal Consequences of Special District Consolidation: Evidence from California

The number of governments in the United States has increased steadily since the 1970s, driven by the proliferation of special districts. This growth has fueled concerns over the efficiency of public service provision, as many metropolitan areas rely on a fragmented network of jurisdictions to deliver services. However, due to a lack of exogenous variation in the number of districts, isolating the causal impact of government fragmentation is challenging. To overcome this obstacle, this paper exploits California's Cortese-Knox-Hertzberg Local Government Reorganization Act of 2000, which established procedures for the consolidation and annexation of cities and special districts. Using synthetic control methods, I show that the Act reduced the number of special districts in the state by more than 30 percent. Despite this consolidation, the total amount of local government spending in the state remained unchanged, with the decrease in the number of governments offset by a corresponding rise in spending among the surviving districts. Efforts to reduce fragmentation may have limited fiscal impact unless they target districts where overlapping functions or scale inefficiencies are most pronounced.