Municipal Utility Districts

What is a Municipal Utility District?

A Municipal Utility District (“MUD”) is a type of District that functions as an independent, limited government which assists in financing road, utility, drainage, and related infrastructure. Managed by a board elected by property owners within the MUD, a MUD may issue bonds for authorized improvements, including to reimburse a developer for the improvements. 

How is a MUD funded?

A MUD can issue bonds to pay for the infrastructure.  The bonds are not an obligation of the City and are paid for solely by the residents within in the MUD, typically through the levy of an ad valorem tax.  The Texas Commission on Environmental Quality (TCEQ) has final authority on how much and what bonds a MUD can issue (except in the case of bonds issued for road improvements or for refunding purposes).  The Attorney General of Texas also reviews bond issuances.  A MUD may issue bonds for any purpose authorized by the Texas Constitution and other applicable laws, including Chapters 49 and 54 of the Texas Water Code or, if the MUD were legislatively created, by the MUD's creation legislation.  Additionally, MUD bonds secured by ad valorem taxes must be approved by the MUD's qualified voters.  An annual audit of the MUD is required to be done by an independent CPA.  A copy is required to be provided to the City Administrator.  Prior to the sale or offer to sell any bonds of the MUD, the MUD must certify compliance with the applicable ordinance or resolution consenting to the creation of the MUD agreements.

What is the City’s role in MUD creation?

The City has the power to consent or not consent to a MUD created in the City Limits or ETJ.  The City has the authority to comment and negotiate during MUD creation in the City Limits or ETJ but the final decision maker on the creation of a MUD and its bonding is the TCEQ (and the Texas Legislature for legislatively created MUDs).  If the City does not consent to the MUD, then the applicant may attempt to have the MUD created by the Texas Legislature, with the City's lack of consent addressed through a petition process governed by Chapter 54 of the Texas Water Code.  When the City is able to negotiate during the creation, the City is able to better ensure quality infrastructure is constructed and monitor the amount of bonds and the size of the MUD.

Can the City dissolve a MUD?

For most MUDs in the ETJ, under state law, the City Council may dissolve a MUD upon the approval or consent of a majority of voters or landowners in accordance with Chapter 43 of the Texas Local Government Code. Such election or petition process, however, does not apply to districts subject to a strategic partnership agreement with the City. 

Once dissolved the City takes over all obligations and assets of the MUD. It is generally the City’s policy not to annex or dissolve a MUD in its ETJ until at least 90% of the developable acreage within the district has been developed with water, wastewater treatment, and drainage facilities, amongst other requirements.

Guidelines for dissolving MUDs within the City’s ETJ can be found in the Strategic partnership agreements below. 

Strategic Partnership Agreements