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Indiana Law Journal

Document Type

Article

Publication Date

Fall 2025

Publication Citation

101 Indiana Law Journal 187

Abstract

The United States is awash in local governments. Not only does every state create local governments, but every state relies on those local governments to carry out the day-to-day functions of government. These local governments, though, are not the state. They are distinct legal entities vested with their own legal personhood. That is, they sue and are sued, they own property, and they enter into contracts—all in their own names.

Many rich accounts detail the historical reasons why local governments arose. But a different, theoretical question remains: What can a state achieve with local governments that it cannot achieve without them?

This Article offers one answer to that question, namely, municipal finance. Specifically, this Article shows how certain financial aims become achievable for a state only if the state creates a legal person distinct from itself. By creating such local governments, states often can obtain more federal funding, can borrow more, and can receive more favorable debt terms than if the state itself had undertaken the same endeavor.

The Article’s conceptual contribution—highlighting the connection between municipal finance and local governments as legal persons distinct from the state—sheds light on a range of issues. It offers a way of thinking about the relationship between local governance and local government, a window into the relationship of municipal finance and corporate finance, and an angle on fiscal relationships between states and local governments.

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