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Governance Structures and Financial Authority in Submunicipal Districts

Implications for Fiscal Performance

Robert J. Eger III and Richard C. Feiock

May 2010, English

Submunicipal governments are established or chartered by the state or city and operate like private corporations with oversight boards. They have the authority to adopt corporate names, make bylaws, establish offices, and bear legal liability independently. Owing to these unique arrangements, the governance structure of a submunicipal government has an important bearing on its financial management and in turn on the city budget. In this paper, Robert J. Eger III and Richard C. Feiock, evaluate the impacts of the governing board’s structure on both revenues and expenses, focusing on three factors: (1) the size of the governing board; (2) the degree of board professionalization (measured in terms of whether members are full-time or salaried); and (3) the number of elected and appointed members on the board. They use a random effects regression model and a panel data set for submunicipal governments from 1970 to 2002 to analyze these issues.

Eger and Feiock find that only appointed members have a significant positive relationship with intergovernmental transfers. Board size and professionalization have no significant effect. They explain these outcomes as a result of the inability of submunicipal governments to influence higher-level governments’ budgets. Expanding the size of the board and the number of appointed and salaried part-time members will increase own-source revenues. Full-time boards, however, decrease own-source revenues. This may be because salaried board members focus more on the ability of the organization to generate funds. Having a large number of board members on the payroll will also increase operating expenses, thus rendering the net financial impact ambiguous. An increase in the appointment of non-Hispanic white members seems to reduce own-source revenues, an outcome that needs to be explored in future research.

This paper was presented at the Lincoln Institute’s Land Policy Conference of 2009 and is Chapter 9 of the book Municipal Revenues and Land Policies.