A Municipal Utility District (MUD) is a political entity created under Texas State law, specifically, Chapter 54 of the Texas Water Code. MUDs are governmental organizations that provide water, sewage, drainage and a few other essential services to an unincorporated area to allow development of that are to occur. There are over 1500 MUD districts in the state of Texas.
How is a MUD created?
A majority of property owners in the proposed district petitions the Texas Commission of Environmental Quality to create a MUD. The TCEQ evaluates the petition, holds a public hearing, and grants or denies the petition. After approval, the TCEQ appoints five temporary members to the MUD’s Board of Directors, until an election is called to elect permanent Board members, to confirm the MUD’s creation, and to authorize bonds and taxing authority for bond repayment.
How does a MUD work?
The publically elected Board of Directors manages and controls all of the affairs of the MUD subject to the continuing supervision of the Texas Commission of Environmental Quality. The Board establishes policies in the interest of its residents and utility customers. A MUD may adopt and enforce all necessary charges, fees and taxes in order to provide district facilities and service.
Does a MUD have taxing authority?
Yes, a MUD may levy and collect taxes, issue bonds, charge for services, condemn property, enforce restrictive covenants and make regulations to accomplish its purposes. In the greater (unincorporated) Houston area, there are more than 600 MUDs, most of which provide services to one or two subdivisions/residential developments and the commercial properties immediately surrounding those developments.
Some MUDs will have higher tax rates than the city or other MUDs. This is indirectly proportional to the age and size of the MUD. MUDs that have been around for a few years and have bonds that have been paid down by the taxpayers of that MUD will have lower rates. MUD property tax rates range from zero to $1.50 or more per $100 of your property’s assessed value.
In addition to annual property tax assessed by the respective MUD, you can expect to receive a monthly bill each month for water and sewage.
How do MUDs provide for parks, pools and recreation facilities?
In addition to their common functions of water and wastewater service, MUDs are legally empowered to engage in conservation, irrigation, electrical generation, firefighting, solid waste collection and disposal, and recreational activities (such as parks, swimming pools, and sports courts). A MUD can provide for itself the recreational amenities that are approved by the Board of Directors and funded by the District.
What is a developer’s responsibility to MUDs?
Developers must petition the Texas Commission of Environmental Quality to create a MUD. Developers are prohibited from serving or placing employees, business associates, or family members on the MUD Board of Directors. Developers must pay for or put up a letter of credit equal to 30% of the cost of subdivision utilities. This requirement ensures against “fly-by-night operators” who are not committed to the success of the MUD. The “30% rule” also offers protection to MUD residents in the event that a subdivision is not built according to schedule. Unless they are voting residents within a MUD, developers have no authority or control over the MUD’s Board of Directors. If they are voting members of a district, they have the same power to vote and attend Board meetings as any other resident.