The Fiscal Consequences of Special District Consolidation: Evidence from California

The number of governments in the United States has increased steadily since the 1970s, largely due to 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, identifying the causal impact of government fragmentation is challenging. To address this challenge, 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 total number of local governments in the state by seven percent relative to its counterfactual trajectory, driven by a 15 percent decline in the number of special districts. Despite the relative decline in the number of governments, the total amount of local government spending in the state remained unchanged, suggesting that the slowing growth in jurisdictions was offset by higher spending per government. Efforts to reduce fragmentation may have limited fiscal impact unless they target districts where overlapping functions or scale inefficiencies are most pronounced.