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Special Districts and Local Government Debt: An Analysis of 'Old Northwest Territory' States

Special districts potentially offer a way for local governments to issue more debt than allowed by debt limits. This research examines the relationship between the number of special districts in a county and local government debt levels. Using data from states formed from the Northwest Territory and controlling for other local governments, demographic, and fiscal factors, we find that the number of special districts in a county is positively related to local government debt in four of the five states examined (Indiana, Michigan, Ohio, and Wisconsin). The results for Illinois were insignificant.