Sunday, October 31, 2004

MUDdy Water Carrots: How the Promise of Easy Water Can Lead to Taxation Ruin and Even Lower Your Property Values

Excerpts from a letter to Lake Bridgeport Sandflat News
by Lake Bridgeport Resident, Karl Meek

The MUD board I served on in Houston in 1996 was a special taxing district with approximately 400 homes collectively valued at $160M, or about $400K per home. The MUD had an operating budget of $2.9M per year. The majority of the budget (about 70%) was designated for paying debt service (principal and interest) for the bonds issued by the MUD. The next major item of expense in the budget was paying a law firm, which was a requirement by the State, to represent the MUD in all legal matters; prepare and submit required reports to the State; and assist the MUD in conducting its day today business activities. Almost equal to the legal expenses as a budget expenditure was annual maintenance expense on the water and sewer systems. Given that our MUD was new, these expenses were relatively low compared to other older and more mature districts. As the system grew older we had plans for setting aside an emergency reserve fund that required us to set a tax rate to cover this budget item as well.

Our tax rate in 1996, which was reviewed and approved by the MUD Board of Directors, was about $1.80 per $100 assessed value and had gone down from its high of $1.95. The reason for the rate going down is that the developer had completed and sold more homes during the preceding year, thereby increasing the tax roles of the MUD. In addition, homeowners were charged for water, sewer and garbage rates based on water consumption. The MUD Board of Directors also set these rates annually. As best as I can recall, the water usage rate for our particular district were higher than most other MUDs as a means to encourage conservation.

The MUD in which I served as a director was in excellent shape financially, but in 1996 this was the exception rather than the rule in Houston. Because the tax rate is dependent on the speed with which a development is completed (more homes sold provides greater tax base) and the quality of the development and developer, if there is ever a problem completing the development on time due to economic conditions, or due to a poor reputation of the developer, the few home owners in the development could be saddled with very, very high tax rates to cover debt service of the bonds. State law specifies that MUDs set rates, whatever they calculate to be, to pay debt service. There is NO cap on MUD tax rates. As a result there were some MUDs in Houston that had rates approaching $10.00 per $100 of assessed value. This made it even more difficult for the development to "finish-out" and increase the its tax roles - a classic Catch-22. In many cases the only alternative the MUD had was to default on the bonds and declare bankruptcy, another reputation that a development or developer would want to avoid.

By pursing other communities in the area to join a MUD, a developer can use their existing tax base to help pay for the bonds used to build the infrastructure he needs without feeling the pressure to quickly build homes and expand the tax base on his own property to pay for what needs. Developers often pressure the existing homeowners in the surrounding area to vote in favor of establishing a MUD by selling them on the virtue of finally having a reliable source of water.

The MUD I served on in Houston did not build its own water treatment plant but rather used the bond money to build the water, sewer and drainage infrastructure for the development called "Twin Lakes". Our MUD built a pipeline to a nearby adjacent MUD who already had an existing water storage facility and sewer treatment plant. The adjacent MUD billed us monthly for our usage of water and sewer services. We recovered these costs through our monthly water usage billings to homeowners in Twin Lakes - a "water usage pass through arrangement" between MUDs. In effect the MUD in which I served did not have the overall responsibility for constructing, operating or maintaining a water and sewer treatment plant, but rather only had to maintain its water, sewer and drainage infrastructure within Twin Lakes.

I need to mention the impact a financially distressed or insolvent MUD would have on its home owners: Who would want to purchase a home in a taxing district that had tax rates that could approach $5-10 per $100 of assessed value, let alone want to purchase property to build a new home? A financially distressed MUD can actually lower property values, as was the case in Houston in 1996. Having a reliable and secure source of water simply will not offset the impact of excessively high tax rates on property values.

Water District Financial Management Guide

Note: Take a look at the code of ethics.

Did You Know???

“Nothing obligates private water suppliers to adhere to public comment because they are not required to comply with the Texas Public Information Act.”

Regulations for Private Water Suppliers are found in Chapter 291 of the Texas Administrative Code.


Groundwater district bubbles to the surface

Excerpts from Article Published Sunday, October 24, 2004
By Roy Eaton

. . .Texas Cooperative Extension Service water specialist Dr. Monty C. Dozier of College Station met with about a dozen people Thursday night in Bridgeport to discuss the pros and cons of groundwater control districts and how they could affect Wise County. . . .

The districts, which are established by the Texas Legislature or through a petition process, require a local board of directors and are funded by property taxes or user fees. The districts must create and implement a comprehensive management plan for groundwater in the area. Most are required to permit all water wells that produce more than 25,000 gallons of water a day.

“The plan must be restudied and readopted every five years,” Dozier told the group.

The districts have broad powers for a number of activities including research, closure of abandoned wells, water testing, regulation of well separation and production limits, defining rules for transfer of water and education and outreach services. Dozier said state law limits the maximum tax that can be charged by the districts at 50 cents per $100 valuation.“But there are only two districts in Texas who charge more than 7 cents per $100,” he said . . .

He explained the historic “rule of capture” that governs groundwater production in Texas. That means that a surface property owner has the right to “capture” all of the water under his land. “That’s how the water law is set up right now, but the legislature has the authority to change it,” Dozier said.

Wise County sits on top of the Trinity Aquifer, one of nine major water aquifers in Texas. In 1995, the Texas Water Development Board estimated that 200,000 gallons of water were being pumped annually from the Trinity while the aquifer was being recharged at only about half that. . .

He said that groundwater districts can regulate well spacing and state law says that water wells cannot be drilled within 50 feet of a property line or within certain distances of a septic system . . .
To create a groundwater district, county commissioners must petition the Texas Legislature to introduce legislation or 50 landowners can sign a petition asking for the district.

Either way, voters must decide if they want the district and approve a tax or fee plan to pay for it.

“Several districts have been created and are not in operation because voters turned down a way to pay for them,” he said. Dozier said that help in the creation of the district can come from the Extension Service, the Texas Water Development Board or the Texas Commission on Environmental Quality.

He did say that Wise County was in an area being studied as a possible “Priority Groundwater Management Area” and if the county is ultimately included the state can mandate certain requirements for groundwater usage.

Concerned Citizens of Wise County is an organization dedicated to the protection of our sources of water and the safety of our citizens through education and the active monitoring of Injection Disposal Well activity in Wise County Texas. Visit their Web site at http://www.concernedcitizensofwisecounty.com/

Landowners have until Nov. 15 to oppose high voltage transmission lines

WCM: Published Thursday, October 14, 2004

By Brian Knox

“Connecting power generated in West Texas to electric customers in North Texas is the reason for the proposed 345 kilovolt transmission line that will cross Wise County. . . If you are one of the approximately 650 landowners along one of the proposed routes, you have until Nov. 15 if you think you have a reason why that line should be built somewhere else besides on your property. . . A public hearing on TXU’s proposed 66-mile project, which would connect switching stations near Jacksboro and Denton, was held in Decatur last July. At that time, local landowners were given the opportunity to talk to TXU and Oncor representatives and provide feedback. . . . Affected landowners who have questions about the project should contact Holt at (214) 486-7800. More information on the proposed routes and the process of intervening or commenting on the project can be found in the public notice portion of the Messenger.”

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