According to CinemaBlend:
Sebastian may have been li’l, but his impact on this town, and the Parks Department, was anything but li’l.” For reasons that are completely unclear to outsiders (and to poor Ben Wyatt), the miniature horse Li’l Sebastian was an icon of Pawnee, the star attraction at the Harvest Festival and big enough to impress even Joan Calamezzo. When he died, half of Pawnee wore black armbands in remembrance; even Ron Swanson, ever stoic, choked up remembering the little guy– “Half mast is too high. Show some damn respect.”
Though Li’l Sebastian was old, he was gone too soon, and his funeral was the mark of a life well-lived– tribute songs, 14th-century Italian poems, an In Memoriam slideshow produced by Entertainment 720, and most memorably, a torch-lighting ceremony powerful enough to burn Ron’s eyebrows clean off. Even well into the winter, Leslie was comforted during her ethics trial with her own stuffed Li’l Sebastian– which, not quite coincidentally, you can buy for yourself at NBC.com. Li’l Sebastian may have never had to answer questions like “Who are we? Where are we going in life?”– because he was a horse– but for some reason he inspired the citizens of Pawnee, and that was enough.