Municipal Utility Districts in Central Texas

Abstract

In most cases, a city provides water and wastewater service within its boundaries, but when development occurs outside city limits or when the city cannot provide services, there must be some method for paying for the water and wastewater services. In Texas, a developer can create a Municipal Utility District (MUD), which is a political subdivision authorized by the Texas Commission on Environmental Quality (TCEQ) to provide water, wastewater, drainage and other services within its boundaries. In this arrangement, the infrastructure is paid for through bonds; and these bonds are then paid back through a tax levied on the homeowners within the MUD boundaries. Developers often form MUDs when there is not another financially feasible option for the infrastructure. Often the city nearest to the MUD may feel that it is losing developmental control and can see MUDs (that have bond debt) as a hindrance to growth through annexation. In the city of Austin, MUD development allowed development to occur in sensitive areas in which the city did not wish to see growth. In 1997 the city eradicated many MUDs through annexation, in which the city assumed significant MUD debt. With substantial growth and a new state highway under construction, MUDs are still continuing to form in the Central Texas Region. Without a clear plan and significant regional cooperation, Austin has little control over the development of MUDs. But with regional cooperation and a vision for future growth, MUDs can become a funding mechanism for accommodating healthy and well planned growth consistent with a larger vision.