Fiscal Impact of Annexation Methodology on Municipal Finances in North Carolina

Municipal annexation is the most common form of local government boundary change and can have profound impacts on the annexing municipality as well as the area being annexed. While urban scholars have often touted the economic benefits of annexation for municipalities, little research has been conducted on the effect of annexation type on the economic well-being of a municipality. Do voluntary annexations result in a larger economic windfall for annexing municipalities? Do involuntary annexations cost more? This study examined more than 6,000 annexations conducted by North Carolina municipalities between 1990 and 2000 in order to explore the impact annexation methodology had on municipal fiscal health. The results reveal that during the study period annexation resulted in a decrease in municipal fiscal health for North Carolina municipalities and that involuntary annexation had a particularly detrimental effect. This finding contradicts much of the previous research on the economic benefits of annexation for municipalities.