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After two-decade absence, MUDs may be on upswing

Tuesday, February 15, 2011 by Elizabeth Pagano

With a recent surge in applications for Municipal Utility Districts, known to friend and foe alike as MUDs, the city is considering changing its policy on how it deals with them. Austin Water Utility’s Bart Jennings briefed Council last week on the proposed policy.

 

Until recently, the city had received few applications for new MUDs. Virginia Collier, principal planner for Austin’s Department of Annexation and ETJ Planning, told In Fact Daily that she could only think of one, Sunfield, in 2004. The city fought Sunfield’s application.

 

Currently, the city has six MUD applications, all within the Desired Development Zone northeast of Austin. Five of those are for a planned 2,000-acre development, Pilot Knob, and one is for the Fossil Creek development. (The city has also received an application for a Municipal Management District, which is similar to a MUD.)

 

In recent years, the city has encouraged developers to create Public Improvement Districts (PIDs), as opposed to MUDs. However, recent changes to how PIDs are financed has made the creation of MUDs a more appealing option for developers than they have been for some time.

 

The city does not collect property tax from either MUDs or PIDs until they are dissolved. The defining difference between the two designations, though, is that a PID is a geographically-defined area, while a MUD is a governmental entity and a sub-division of the state.

 

PIDs cannot be created without City Council’s consent. This is not true of MUDs, which can be created without council consent, either by special legislation or through the Texas Commission on Environmental Quality (TCEQ.)

 

Former City Attorney Andy Martin spoke with In Fact Daily and put these recent proposed changes into context. The city annexed several MUDs in the 1990s, assuming their debt and creating what Martin termed “a very difficult political issue.” Since then, “Austin’s general policy has not been supportive of MUDs,” said Martin, in a vast understatement.

 

As a point of reference, Jennings told council that there are 17 MUDs remaining in the city’s extraterritorial jurisdiction. Of those, TCEQ has created nine.

 

By working with developers to grant consent for MUDS, the city might gain more control over the development process than it has by opposing them.

 

“Because MUDs can potentially be created over the city’s objection, working with the developer might enable the city to obtain extraordinary benefits, and enhance the interests of the city not otherwise provided through creation of the MUD without the city’s consent,” said Jennings. “In addition, the developer may ultimately save time and money by working with the city to meet the city’s expectation.”

 

Some of the limitations the city seeks to impose on MUDs, in addition to the provision of extraordinary benefits, involve potential changes to the governing boards of MUDs by limiting their organizational structure, imposing term limits, including a Council-appointed representative, and requiring a Council consent agreement to operate.

 

Jennings also detailed a requirement that the MUD have a comparable tax rate to the city so that “when the natural life of the MUD comes to an end, residents within the district don’t have rate shock or a tax-based disincentive for city annexation.”

 

City staff would review applications on a case-by-case basis to asses the effect of the development on the interests the city. The city would take action to oppose the MUD creation if the developer continued to seek creation of a MUD after being denied consent by City Council.

 

Council Member Bill Spelman pointed out that those requests would be useless if the TCEQ disregards the city’s wishes.

 

“The only way we can prevent TCEQ from allowing a MUD to be created is if TCEQ finds that any requests we are making in our negotiations with the developer are reasonable?” Spelman asked.

 

He continued with the line of thought after receiving affirmation that this was true. “What is our gauge as to what it is that the TCEQ will consider to be reasonable?” asked Spelman. “How do we know what reasonable means in this context?”

 

“I think the reasoning behind allowing the city to put conditions on its consent to MUDs is because that infrastructure is supporting land-use growth patterns that are eventually going to be absorbed when the city annexes the district,” answered Assistant City Attorney Sharon Smith “So my take on the way that would be applied would be that if the conditions were within that umbrella, then that would be considered to be reasonable.”

 

With pending MUD applications for the first time in so many years, a vote for the adaptation of a new policy is likely to be promptly tested.

 

“Given that you are negotiating with two MUDs and an MMD right now, the reason for our passing this policy in advance of negotiations is to provide you with appropriate guidance,” said Spelman.

 

“That’s something that we would really like to have from Council,” said Jennings.

 

Council is scheduled to formally consider the new policy at this week’s meeting.

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