This week’s “Daily Journal” guest columnist is Daren Bakst, Legal and Regulatory Policy Analyst for the John Locke Foundation.
The purpose of forced annexation isn’t to bail out cities. This may come as a surprise to some municipalities. Most of them probably know this, but that hasn’t stopped them from using the economic health of cities as the justification for maintaining the state’s backward annexation law.
To clarify, forced annexation refers to unilateral actions by municipalities to force individuals from unincorporated areas into the municipalities, without any type of redress regarding the merits of the annexations.
Currently, a special House committee is considering how to reform the annexation law. Past study commissions, which comprised mostly pro-forced annexation members, simply tinkered with the law. We’re well past tinkering.
The current committee has an advantage that none of the other previous study commissions had: The North Carolina Supreme Court has developed a clear statement outlining the primary purpose of the annexation law. In the 2006 case, Nolan v. Village of Marvin, the Court explained:
The primary purpose of involuntary annexation, as regulated by these statutes, is to promote “sound urban development” through the organized extension of municipal services to fringe geographical areas. These services must provide a meaningful benefit to newly annexed property owners and residents, who are now municipal taxpayers, and must also be extended in a nondiscriminatory fashion.
Quite simply, the purpose is to provide unincorporated areas meaningful municipal services. The annexation commission and the state legislature need to ask one simple question: Are cities using the annexation law to meet this clear purpose? When cities consistently annex areas that don’t need services and ignore areas that do need services, the answer is clearly in the negative.
Forced annexation proponents, primarily the North Carolina League of Municipalities, continue to throw out the economic health argument for keeping forced annexation. To buy into that argument, it would require legislators to ignore the failure of the law to meet its primary purpose.
It’s even worse than that, though. The beneficiaries of the annexation law presumably were supposed to be individuals that live in unincorporated areas. Cities were supposed to provide the benefits. However, the law has been flipped on its head. Individuals living in unincorporated areas are providing the benefits to the cities.
Minor tinkering with the annexation system will ensure that the law continues to fail to meet its primary purpose. There’s an inherent flaw in the system. Cities have virtually unchecked power to annex whatever areas they deem beneficial to the cities.
If city leaders were doing their job, which is to represent the interests of their own residents, they always would annex areas that would have the most financial benefit to the city. They would identify areas that would require the least amount of services while providing the city tax base with the largest amount of wealth. This isn’t to say that all annexed areas will be wealthy, but all these areas would provide financial benefits to cities. Cities also would ignore areas that actually need meaningful services because of the high costs of providing those services. As annexation victims know, the actions we’d expect from cities are exactly what happen in practice.
Even when municipalities can’t provide reasonable services, this doesn’t deter municipalities. In the Nolan case, the Village of Marvin tried to annex an area by providing, as the Court stated, “part-time administrative services, such as zoning and tax collection.”
The village argued that it was providing the same amount of benefits to its own residents, so the services offered should satisfy the requirements for annexation. The Court disagreed and held that municipalities must confer “significant benefits on the annexed property owners and residents.”
Assuming, though, that the primary purpose of forced annexation is secondary to the well-being of municipalities, the economic health argument still doesn’t hold up. First, we have to assume that the ends justify the means — cities should be able to use undemocratic means to bring more money into the city.
Second, we also have to ignore the fact that the Local Government Commission, which reins in a lot of municipal mischief, has nothing to do with the financial health of municipalities.
Third, we also have to ignore any other external factors and the fact that causation hasn’t been demonstrated between forced annexation and economic health. We just have to take the League’s word that forced annexation is good for municipalities.
One should expect that stealing from a neighbor to help with credit problems would make North Carolina cities unusually wealthy. Interestingly, though, when examining municipal bond ratings, North Carolina cities are financially healthy, but not unique.
Professor David Lawrence from the Institute of Government writes in his annexation book that North Carolina has six cities with AAA bond ratings. Those six cities are among the top seven largest cities in North Carolina.
He mentions that Connecticut actually has the most cities with AAA bond ratings: seven. As it turns out, Connecticut doesn’t have any type of annexation at all. For some reason, Lawrence downplays Connecticut’s success because the seven cities aren’t the larger cities in Connecticut (though three of the cities rank among the top nine). It’s unclear why bigger cities are more important than other cities.
The big city distinction doesn’t hold up. Using the same source as Lawrence, a 2003 Standard and Poor’s study, Minnesota has five AAA bond-rated cities. Four of those cities also are the four largest cities in Minnesota, a state that doesn’t have forced annexation.
Other states with at least four AAA bond-rated cities include Massachusetts (six — it has no annexation of any kind), New Jersey (five), Illinois (four), and California (five). None of these states has forced annexation, except Illinois in extremely rare situations.
The House committee studying annexation has a unique opportunity to recommend real changes to the annexation law that would ensure that the purpose of the law is achieved. If the committee remembers that forced annexation is supposed to benefit — not punish — residents of unincorporated areas, the committee will be on the right track.