Different Places, Different Means
Municipal Utility Districts A Municipal Utility District (MUD) is a water district set up to provide water services to a defined geographical district. It is a statutory authority with the power to tax its residents for the infrastructure and water services it provides. These services are most often water services: freshwater, wastewater and storm water management.
History of MUDs
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Cohen, Howard M. Municipal Utility Districts in the Houston Metropolitan Area. Presentation for the Houston Bar Association Real Estate Law Section. May 16, 2012.
Much of the basic technical information on MUDs can be found in this paper: Cohen, Howard M. Municipal Utility Districts in the Houston Metropolitan Area. Presentation for the Houston Bar Association Real Estate Law Section. May 16, 2012. 94
Joe. B. Allen and David M. Oliver, Jr. Texas Municipal Utility Districts: An Infrastructure Financing System. Houston: Allen Boone Humphreys Robinson LLP. p.4. http://performanceurban planning.org/files/ MUDInfrastructure FinancingSystem.pdf 95
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In various forms, the right to set up a MUD has existed in Texas since the turn of the twentieth century; in its current form, it dates back to around the 1970s and was developed to finance new infrastructure in Texas, particularly the growing city of Houston. MUDs have been more widely used there, because the City of Houston and Harris County could see they would have been unable to finance the infrastructure required for substantial city growth. Some 2.2 million people in the wider Houston area live within a MUD.93 The MUD is created by law to provide water-related services within a defined district. Around 50% of MUDs are formed through an administrative process, where a proposal is put forward with ownership, financial, engineering, and legal plans. This is typically a rigorous process that might take up to 18 months, and is not unlike extensive new proposals for developments that are put up to councils in New Zealand. The other half of the MUDs are created by legislation. If the proposal is supported by a local congressman and senator, it can be attached to a bill in the Texas state legislature. Essentially, this is an American-style earmark whereby the MUD is created by an act of the legislature. The due diligence of these
MUDs is less rigorous than the ones created by the administrative route, but these MUDs reflect the will of the local community as expressed through elected representatives. The MUD still needs to undergo due diligence: and its engineering and financial standards still need to meet the legal requirements set by the state of Texas.94 Specifically, financial feasibility rules are set, but regulations of the Texas Commission on Environmental Quality (TECQ) need to be adhered to.95 A MUD has taxing powers, and is run by the elected representatives of its residents who must contract out development services to a developer to manage and build. A MUD can issue bonds off the back of existing value, once some value has been created. Typically, the bonds are issued for a period of 20 to 30 years.
How does it work? Since land in Texas counties cannot be zoned by law, anyone can propose to set up a new development on his or her own land, but they have to provide the infrastructure. The cities provide most infrastructure within city limits to which residents must hook up, but it is a different story outside the city. All manner of infrastructure needs to be provided in a new development: roads, footpaths, streetlights and water. However, most MUDs are only empowered to provide, and tax for, water infrastructure. In some cases this also means other amenities can be voted on by the resident owners, which are a kind of body corporate. The process is roughly as follows: a developer or group of landowners go through the process of turning some land into a MUD as described above (note: not all MUDs end up being developed). However, before that can happen some other steps need to be taken. To qualify