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What You Need To Know About Municipal Utility Districts
What is a MUD?
A Municipal Utility District (MUD) is a political subdivision of the State of Texas authorized by the Texas Commission of Environmental Quality (TCEQ) to provide water, sewage, drainage and other utility-related services within the MUD boundaries.
How large are MUDs?
MUDs vary in size, but they generally serve master-planned communities of a few hundred households. Homes in Shady Hollow, Belvedere, Anderson Mill, and the Ranch at Cypress Creek in Austin are all communities with their own MUD, just to name a few. Overall, Texas has more than 1,200 special districts, many of which are located outside of city limits where there are no municipal services.
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.
What are MUD taxes?
Municipal Utility Districts are funded through bonds. Homeowners then pay off those bonds through MUD tax. As the debt decreases, MUD taxes may also decrease over time.
Will my taxes be higher in a MUD?
MUD tax rates, like all property tax rates, vary according to property values and debt requirements. MUD rates generally decline over time as the MUD is built out and operating and debt service costs are shared by more homeowners.
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.
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