Municipal utility districts promote development along cities’ borders

By Kathryn Eakens Friday, 06 November 2009

More homes built outside city limits as subdivisions fill up

PFLUGERVILLE — A decrease in new residential building permits is not uncommon in the current economic times. But Charley Ayres, vice president of business retention and expansion for the Round Rock Chamber of Commerce, said Round Rock’s 76 percent decline from May 2008 to May 2009 is a somewhat deceptive figure.

“If you just took the records at face value, it shows that Round Rock [residential] building permits were down,” Ayres said. “The truth of the matter is most of the subdivisions within the city limits are almost built out.”

The majority of the city’s available land is in areas such as Teravista and Paloma Lake, communities that are within Round Rock’s extra-territorial jurisdiction—the land a city is allowed to annex—but have not been incorporated into the city limits.

“Though those homes are continuing to go up and be sold, they’re not counted in Round Rock’s numbers. They’re just counted in the county’s numbers,” Ayres said. “It makes it look like the Round Rock numbers are extremely low when there are still new home permits being issued and there are still new homes being built. They’re just not technically in the city limits, but they’re still part of the Round Rock community and in Round Rock’s ETJ.”

Teravista and Paloma Lake are both classified as municipal utility districts, or MUDs. Separate entities from the cities bordering or surrounding them, MUDs are authorized by the Texas Commission on Environmental Quality to provide water and sewer service, recreational facilities and common area landscaping to residents by levying taxes and issuing bonds.

How does a MUD work?

MUDs, which are approved by the TCEQ, are formed when a landowner wants to develop an area outside the current reach of a city’s utilities. The developer, rather than the city, is responsible for the infrastructure, and then the MUD sells a bond to pay back the developer.

“So basically, we’re buying the water system from the developer,” said Tom Clark, general manager of Brushy Creek MUD, the oldest MUD in Round Rock’s ETJ.

Governed by an elected board of directors, MUDs often contract with nearby municipalities for water and wastewater services, trash collection, recycling, fire protection and law enforcement. The county in which a MUD is located provides street construction and maintenance.

Most MUDs simply function as neighborhoods on a city’s periphery. MUDs do not have the authority to create zoning or enforce homeowner restrictions, so any deed restrictions are enforced by the subdivision’s Homeowners Association.

“The MUDs in the Pflugerville area might have larger amenity centers, more comprehensive landscape corridors or things like that, but they don’t provide services beyond that level,” said Pflugerville development services director Trey Fletcher.

However, Brushy Creek—which has approximately 17,000 people living in the 2,500-acre MUD—functions more like a city within a city.

Like other MUDs, Clark said Brushy Creek initially provided only water and wastewater services. But as the community’s population grew, its developer began building parks and pools as well. Eventually, the MUD acquired the amenities from the developer through bond sales and assumed their maintenance and operations.

Clark said Brushy Creek—which employs 30 full-time and another 30 part-time staff members—has a $12 million annual budget to pay the debt service on its bonds and operate its facilities.

“We do basically everything that a city does,” Clark said. “We provide water and wastewater. We have 18 miles of trail, nine parks and three pools we maintain. We have a community center and even operate our own water plant.”

Williamson County provides Brushy Creek’s police protection and road maintenance, while the Sam Bass Fire Department provides fire and emergency services. Garbage service is handled through a contract with Round Rock Refuse.

MUDs as development tools

“What helps the city to some degree is MUDs are fairly self-sustaining,” Ayres said. “They collect their own utilities and their own MUD tax, so the city doesn’t have to spend as much on those homes as it does on homes within the city limits as far as infrastructure.”

MUD taxes are typically higher than those levied by cities, so the Texas Water Code requires that prospective residents receive a notice informing them the property is in a MUD and disclosing the tax rate.

Though a city does not collect taxes from homeowners living in MUDs within its ETJ, Ayres said the communities still have a positive economic effect.

“You are in the ETJ; you are in the school district; and you work and shop and play in Round Rock every day,” Ayres said.

Fletcher said MUDs have helped Pflugerville elevate the quality of single-family residential developments in the city’s ETJ.

Land within a city’s ETJ cannot be made into a MUD without the city’s consent. Fletcher said landowners work with the city to reach a consensus on guidelines for the development.

“We don’t have zoning in the county, so that’s the only mechanism we have to influence the quality of the development,” Fletcher said. “Those agreements have been working very well for Pflugerville in terms of elevating the quality of the single-family residential development, whether it’s through amenities, the housing stock itself or landscaping.”

However, Fletcher said Pflugerville is becoming less dependent on MUDs to finance development as it continues to grow.

“I think [having MUDs in Pflugerville’s ETJ] has been beneficial, but policy always needs to be reconsidered to be sure it’s in the long-term interest of the city,” Fletcher said. “As we’re growing we’re becoming more robust and visionary, and we are developing comprehensive policy plans to accommodate and fund growth.”

Municipal Utility Districts

• What is a MUD?
  • MUDs are entities, separate from cities, authorized by the Texas Commission on Environmental Quality.
• What does a MUD do?
  • A MUD can provide water and sewer service, recreational facilities and common area landscaping to residents by levying taxes and issuing bonds.
• Why do we have MUDs?
  • Formed in an area outside the current reach of a city’s utilities, a MUD’s infrastructure is built by the developer. The MUD then sells a bond to pay the developer back.

Source: Brushy Creek MUD, Texas Commission on Environmental Quality