WHAT IS A MUNICIPAL UTILITY DISTRICT (“MUD”)?
A municipal utility district, or MUD, is a political subdivision of the State of Texas, like a county or school district, created by the Texas Legislature or Texas Commission on Environmental Quality. A MUD is created by the State over a limited area to provide water, sewer, drainage, park and recreational facilities, and roads.
WHAT DO MUDS DO?
MUDs provide municipal services in areas not in a city, where a city cannot afford to extend these services itself, and/or where the city wants the new development to bear the costs of the new infrastructure for the development.
GENERAL INFORMATION ABOUT MUDS IN TEXAS
Texas has more than 1,200 active special districts, and more than 1,700 total special districts, the majority of which were created over land outside of city limits. More than 1 million Texans live in special districts like MUDs.
MUDs have been used to develop numerous master-planned community, including The Woodlands, Clear Lake City/NASA, First Colony, Sienna Plantation, Cinco Ranch, Shadow Creek Ranch, Bridgeland, Cypress Creek Lakes, Fairfield, Copperfield, and your community, Lake Pointe.
WHAT LAWS GOVERN THE OPERATION OF MUDS?
MUDs in Texas are heavily regulated political subdivisions. Unlike Home Rule Cities, which have all powers unless expressly taken away, MUDs can only exercise those powers expressly granted to them in the Texas Water Code or other specific law.
MUDs derive their authority from the Texas Constitution. They are regulated by the Texas Commission on Environmental quality, the Texas Attorney General (Public Finance Division), cities, counties, and the United States Environmental Protection Agency. MUDs are subject to the Texas Open Meetings Act and Public Information Act. In addition, MUD Board members are subject to conflicts of interest, nepotism, penal code provisions, ethics guidelines, gift laws, etc.
HOW DOES A MUD OPERATE?
A MUD is governed by a five-member Board that is initially appointed by the Texas Commission on Environmental Quality and later elected by residents of the MUD. Like all statewide elections, only registered voters may vote.
The MUD hires professional consultants to advise the Board and assist with the day-to-day operations of the MUD, much like City staff.
WHAT IS THE ROLE OF A DEVELOPER IN A MUD?
- Requests creation of the MUD by the Texas Legislature or the Texas Commission on Environmental Quality.
- Drives the need for water, sewer, and drainage facilities based on its land plan and development schedule.
- Funds and constructs private infrastructure necessary for development (internal streets, signage).
- Advances the MUD all the funds it needs to construct the MUD’s facilities.
GENERAL INFORMATION ABOUT ISSUING BONDS
At the direction of the Board, and with the assistance of the MUD’s engineer, attorney, and financial advisor, the MUD submits a bond application to the Texas Commission on Environmental Quality (TCEQ). The TCEQ approves the projects for reimbursement to the developer and the amount that the MUD can reimburse to the developer for those projects. The Texas Attorney General then reviews the bonds to ensure compliance with Texas law.
This is a highly regulated process (streets must be completed; sufficient water, sewer, and drainage capacity for all the growth projected; enough value on the ground to support the bonds).