SPECIAL DISTRICTS OVERVIEW

Sometimes referred to as “invisible government”, special districts are the fastest growing sector of government. Special districts have certain essential characteristics. They are organized entities, possessing a structural form, an official name, perpetual succession, and the rights to sue and be sued, to make contracts and to obtain and dispose of property. They have officers who are popularly elected or are chosen by other public officials. General governments usually are partisan, while special districts are non-partisan. Unlike most other governments or full service governments, special districts usually provide only one or two functions. The U.S. Bureau of the Census defines special districts as: “independent, limited purpose government units, which exist as separate entities with substantial administrative and fiscal independence from general purpose local governments.”

Reasons for Formation
Typical examples of special districts are school districts, irrigation districts, hospital districts, fire districts, water conservancy districts, weed control districts, improvement districts, lighting districts and special authorities for transportation, harbor development, warehousing, etc.. For the past 20 years or so new types of districts have evolved in such major cities as Philadelphia, Baltimore, Denver, Buffalo, Pittsburgh and Seattle. These districts break the traditional mold of a special district providing services to rural areas where no city government exists by being created inside the city limits. Business Improvement Districts (BID) are formed within the city to revitalize downtown areas and support community and economic development. Special districts are created for a number of reasons:

(1) existing units of government lack the authority to provide the service requested;
(2) existing units of government lack the financial flexibility required to provide the service requested due to rigid taxing and debt limitations;
(3) a unifunctional district can devote its attention to a particular problem or service requested, developing an expertise that otherwise might not be possible;
(4) special districts cover a limited service area thus allowing for greater local control.

It is a desirable policy to have the user of the service pay for the service. If a community wants roads, lights, sewer or water, the community forms a special district and the community pays for the desired service. Special districts often are the result of promotion by special interests which feel that they can control a district better than a unit of general government.

In many small rural areas of the State, a local district such as a fire district is the only formal government in the immediate area and the fire station the only public building other than perhaps a school building. The fire station becomes the gathering place to hold community meetings and functions. Everything from political forums to Christmas and wedding parties has been held in these local fire stations. They are a real source of pride for the local residents and the election of the local board members can become very active and competitive.

Problems
Public accountability dictates that it is necessary to have some level of control and uniformity with the creation, accounting, elections, auditing and reporting of special districts. In many states special districts have no uniform fiscal year, no uniform accounting method and boundaries are not clearly defined. Arizona’s problems with special districts have not been as severe as some states such as Colorado and Texas. In Arizona, all taxing districts have the same fiscal year, the County Treasurer is the treasurer for all special districts and in 1987 Arizona passed reporting requirements for special districts that mandates they must be audited annually and they must file an annual report. Failure to file the report within 180 days of the close of the fiscal year results in a penalty of $100 per day until the report is received.

Special districts can be problematic, however, by adding to the political confusion in that they provide more units of government to compete for the interest of voters. They also add another layer of property taxes, fees and assessments. They are managed by elected volunteers who often lack the expertise needed. Because special districts are unifunctional, they are often limited in the scope of service they can provide. Adding to the overall confusion is the fact that domestic water improvement districts are the only special district in Arizona in which a person who owns property in the district but does not reside in the district may vote in district elections so long as they are a qualified elector in the State. Funding is limited and revenues such as ambulance fees and sewer fees often are difficult or impossible to collect. Irrigation district taxes add confusion to the real property tax bills due to the fact they are taxed per acre and are not ad valorem tax. The irrigation tax, if any, is added as a special district tax at the end of the calculation to the secondary and primary taxes. Other special district taxes are secondary ad valorem taxes.

Fire district assistance tax (FDAT) is taxed countywide and distributed to all fire districts per county by the County Treasurer according to a state formula. Prior to the fire district assistance tax, fire districts received part of the auto license tax from the State but this was confusing and difficult to calculate. The FDAT is often controversial and debated by taxpayers since municipal residents consider they are double taxes by paying municipal tax for fire protection and FDAT for rural districts. Likewise taxpayers living outside fire district protection resent paying FDAT while receiving no protection. Counties receive many complaints about this tax; however, rural fire districts provide valued service not only to their service area but often times assist with firefighting on state and federal land.

Arizona’s largest problems have arisen from developers starting up subdivisions and issuing improvement bonds for roads, sewers, street lights, etc., and when the subdivision is unsuccessful, creating a default on bond payments. With Arizona being a growing state, special districts were promoted to allow growth to pay for itself but when the growth slows down or stops, problems are created. A moratorium on the formation of new districts was passed by the State Legislature in 1984, to allow time for a study on special districts to be conducted by the University of Arizona. State laws on special districts were strengthened at that time and the moratorium was lifted (Senate Bill 1124).

Not A New Idea
Special districts are not a new idea. Our founding fathers, George Washington, Benjamin Franklin and Paul Revere all served in volunteer fire companies. The first special district in Florida was a road district created under the Road, Highway and Ferry Act of 1822. Special district government actually originated in Rhode Island in the 1790’s. Thousands of districts have been formed since the early days. In comparison with many other states, at present the number of special districts in Arizona is not too large, but the numbers are constantly changing.