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MUDs and debt

Another story about the least-understood form of debt and taxation in Texas.

BagOfMoney

In Houston’s conservative suburbs, where local governments are loath to raise taxes, the thankless task of hiking revenues has fallen to hundreds of so-called municipal utility districts created for developers to finance water and sewage systems, roads and other amenities.

These MUDs, as they’re called, have virtually unlimited power in bright red, anti-tax Texas to sell bonds and levy property taxes.

The state’s leading tea party conservatives, Comptroller Glenn Hegar and Lt. Gov. Dan Patrick, have championed their creation in what ethics reformers say is a clear example of special interest influence in Austin.

All told, lawmakers who carry bills creating MUDs and other water districts have collected $3.5 million in campaign contributions since 2001 from law firms that specialize in creating those districts on behalf of developers or do bond work on their multimillion-dollar deals, a Houston Chronicle investigation has found. The Chronicle used a state database to pinpoint which law firms work for water districts. The data doesn’t include developers, who also contribute large sums to legislators.

Both Hegar and Patrick say MUDs and other water districts have played a critical role in developing infrastructure and creating jobs. They deny campaign contributions have anything to do with the bills they’ve carried. But both also say they are concerned about surging property tax burdens levied by school districts, towns, cities, counties – and MUDs, their less accountable, largely anonymous first cousins.

MUDs and other water districts have to date issued more than $60  billion in outstanding debt and face almost no government oversight of their spending. While most voters know the names of their mayors and city council members, many have no idea who runs their local MUD – or even what a MUD is.

James Quintero, director of the Center for Local Governance for the Texas Public Policy Foundation, a conservative think tank based in Austin, wants the legislature to protect taxpayers by preventing local officeholders from “off-loading” the delivery of public services to MUDs and other “special purpose districts” that contribute to the property tax burden and often lack transparency.

See here for past blogging on this topic, and be sure to read the whole story. Anyone who is surprised by the connection between MUD law firms and the politicians who push MUDs should probably go lie down in a quiet room for awhile. I know one should never read the comments, but I was struck by the number of commenters on that story who basically accused the Chronicle of being “anti-development” for having written this. I don’t doubt that MUDs are an effective mechanism for spurring development in currently undeveloped placed. The question I have is whether this is the best way to spur development in currently undeveloped places (*) or if perhaps a better mechanism may exist. To put it another way, if we could emulate Metro’s bus system redesign and start with a blank map of Harris County and its governmental entities and undertake the task of reimagining them all from the ground up, would we want to design something that looks like what we have now, or would we go a different direction? Call me crazy, but I think we’d gravitate towards the latter. That doesn’t mean that we can easily or pragmatically move in a different direction from where we are now, but it is worth reminding ourselves that what we have now, with its heavy reliance on this unhealthily symbiotic relationship of officeholders and niche law firms, not to mention millions of dollars in debt being ratified by elections in which literally two people vote, is not the only possible option. The Chron’s Chris Tomlinson has more.

(*) There is of course the completely separate question about whether it is a good idea to spur development in undeveloped places at all, or whether it would be better to spur it in already-developed places, with more investment in transit and other non-car modes of travel. That is a conversation that is very much worth having, but it would make Dan Patrick’s head explode, and so it is unfortunately beyond the scope of this blog post.

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6 Comments

  1. voter_worker says:

    Left undiscussed is why the two voters registered at the trailer parked in the proposed MUD always produce the desired outcome. Are they receiving some benefit in exchange for a correct vote? The entire edifice rests upon this factor and I’m surprised The Chronicle didn’t examine it more thoroughly. One also wonders if they even reside in the trailer, although since the standard for residency for voting purposes is so expansive that whether or not they live in the trailer is probably irrelevant.

  2. Mike says:

    The initial voters don’t obligate the Districts and future residents to any debt, all they do is essentially vote to form the District, confirm the first board members and then authorize a bond limit – a credit limit if you will.

    It’s also not true that the bonds are sold without oversight. Every District bond issue is reviewed by Texas Commission of Environmental Quality, which includes a review of the financial viability of the bonds. Then after this process, which takes can take from 4 months to a year, the office of the Attorney General of Texas has to approve the bond sale.

    As to whether how informed a resident is, that falls on them. The Board of Directors of MUD’s meet each month and like any other political process, the more public input and oversight, the better it is run. Any resident can run to be on the board, and if it is them versus one of the initial directors, the process has always been that the initial board member will step aside for the resident. It is a shame that most people don’t get involved with their MUD other than complaining on Facebook about their water bill, but that is the same with all levels of government and is part of the reason we are stuck with the main party candidates we have currently in the Presidential Election.

    As to whether they are necessary, cities don’t have the financial means to extend service to where development is and here in Houston, we don’t have the natural barriers such as mountains or large rivers that define other urban landscapes. Additionally, here in Houston water was easily obtainable in the past with relatively shallow water wells (which is why there are more MUD’s here than in Dallas or Austin where the aquifer is deep and rocky). Sure a Developer could spend the money on the front-end and not get reimbursed by a MUD or City, that is what is done in a lot of other places such as Florida. But then the house will cost an additional $25,000 to $30,000. Which will affect the affordability of the housing market.

  3. Ross says:

    Every time I see questions about where to spur development, I have to wonder just where the 600,00+ people that have moved here since 2010 would be living, absent all fo the new subdivisions.

    Kuff, are you willing to have your neighborhood taken by eminent domain to be redeveloped into high density housing?

  4. Bill Daniels says:

    @Ross:

    Good questions. Maybe we should just let the politburo tell people where and how they can live. Central planning for the win!

  5. Density is already happening in my neighborhood, indeed in most inner-Loop neighborhoods. No need for eminent domain.

    MUDs may well be good public policy. They’re certainly effective at doing what they are intended to do. For sure, some of the large numbers of people who are moving here will need to live in places that are current undeveloped, though I would argue there’s more such property inside the Beltway than one night think. I’m just saying that the proliferation of MUDs, like building toll roads in currently-empty areas, is a form of urban planning, of the sort that tends to get sneered at when applied to actual urban areas.

  6. Bill Daniels says:

    @Kuff:

    It would be interesting to know which of the larger rural landowners that had their land bisected by the new toll road were campaign contributors to the officials responsible for those toll roads. Suddenly, their low value land becomes valuable road frontage, plus they collect eminent domain money for the roadway easement.