Report

Annexation and the Fiscal Fate of Cities

David Rusk

Findings

An analysis of the relationship between the annexation patterns and fiscal health of the nation’s largest cities shows that:

  • A city’s ability to annex land from its surrounding county is a primary determinant of its fiscal health. Cities with greater abilities to annex have much higher bond rating scores. Of cities in large metropolitan areas, every city that expanded its boundaries by as little as 15 percent between 1950 and 2000 had a high bond rating in 2002. Conversely, all cities with low bond ratings are those that had been unable to expand their boundaries.

  • The ability to annex land varies widely by region and state. Most high-bond-rated cities are located in “big box” states (primarily in the South and West) where land is more easily annexed. Most low-bond-rated cities are in “little box” states (primarily in the Northeast and Midwest) where land is more difficult, or impossible, to annex.

  • Annexation is far from an outmoded, dying practice. During the 1990s, about 90 percent of the central cities that could annex additional land did so. Collectively, in just one decade they expanded their municipal territory by more than 3,000 square miles.

The flexibility to annex surrounding land and communities was more important to a city’s bond rating (a sign of fiscal health) than the area’s poverty rate or median household income. Annexing land, therefore, appears to be an important route to economic health and development for the nation’s urban areas. State legislatures can play a vital role in ensuring the fiscal viability of their state by reviewing, and revising if necessary, state land development, zoning, and annexation laws. With careful planning, states can promote more compact development, preserve farmland and natural areas, and encourage reinvestment in older residential and commercial areas.

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