Tax Overlap


Overlapping Debt – The issuer’s proportionate share of the debt of other local governmental units that either overlap it (the issuer is located either wholly or partly within the geographic limits of the other units) or underlie it (the other units are located within the geographic limits of the issuer). The debt is generally apportioned based upon relative assessed values.

 Overlapping Local Government Debt and the Fiscal Common

In a complex federalist system, the interactions across levels of government have important fiscal implications. Municipal debt has become increasingly important as local governments turn to tax-backed bonds as a significant source of funds. In a system of local governments that have overlapping borders, fiscal interactions become a factor in issuing debt. In this system, debt acts as a fiscal common resource similar to traditional common-pool resources. Specifically, vertical externalities are created with multiple levels of governments issuing bonds backed by the same tax base. Empirical results show that on average an increase in the total amount of debt issued by subcounty governments increases the true interest cost paid by county governments on tax-backed debt. Furthermore, increasing the number of overlapping governments also increases the interest costs for county debt. These findings show support for analyzing debt capacity as a fiscal common resource and have implications for debt management strategies.

 

Overlapping government combinations (OGCs)

Counties, municipalities, school districts, and other special districts operate simultaneously within the same space, each providing their own set of local public goods. Residents of the same city can live within the boundaries of different counties, school districts and other special districts and thus receive (and pay for) very different quantities and qualities of public goods. Though there is a great deal of literature devoted to the variation of local public goods in a fragmented metropolitan region, there is none that cumulates the different local government types into units that represent the true bundles of local public goods that are provided to citizens and property owners.  The unique OGCs are compared to their underlying component governments with respect to property tax rates and school performance and are found to be statistically distinct.