Statutory Division of Public Assets following Local Government Reconfiguration: An Economic Analysis

In this paper a problem is addressed that arises when the boundaries of local governments change: how to distribute the assets of the reconfigured local government. Many state statutes apportion assets according to relative property value. Such statutes, however, raise important economic and legal issues in local public finance. Specifically, fundamental issues arise concerning what assets should be apportioned, how assets should be valued, and whether division formulas prescribed by state statutes achieve their stated objective of dividing according to past contribution. In this paper these issues are addressed by means of simple present-value formulas, and it is demonstrated that most state statutes only rarely achieve their stated goals. The paper concludes with suggestions for a more equitable division process.