Page 26 - ABHR MUD BOOK 2022

The Truth About MUD Regulation, Oversight, and Transparency

• MUDs are highly regulated by the State of Texas.
• In fact, MUDs are the most regulated form of local government.

TCEQ Regulation and Supervision
• The Texas Commission on Environmental Quality (TCEQ) regulates MUDs and has
continuing supervision over MUDs. This TCEQ regulation is broad-based and
meaningful.
• The TCEQ has extensive rules regarding the design, construction, and financing of
water, sewer, drainage, and park infrastructure. MUDs are required to follow these
rules.
• In the late 1980’s the TCEQ rules were amended to require TCEQ review and approval
of MUD bonds for financial feasibility. The “feasibility rules” impose strict tests to
ensure that MUDs can support the bonds proposed to be issued.
o As a result, no MUD has defaulted on any MUD bonds since the
implementation of the TCEQ feasibility rules.
o Bond ratings agencies cite the TCEQ’s process of reviewing and approving
MUD bonds as an important reason for favorable MUD bond ratings.
1
• MUDs must submit to TCEQ’s review and approval of:
o Plans and specifications for water and sewer infrastructure,
o Bond projects,
o Bond financial feasibility, and
o Construction contract documents and change orders.
• Before any water, sewer, drainage or park project can be financed or paid for by a
MUD, a TCEQ onsite inspection is required.
• Before a MUD may reimburse a developer for the cost of MUD infrastructure, the
TCEQ requires an examination into all expenditures by an independent auditor. A
MUD may only pay for the costs validated in the report issued by the auditor.
• Additionally, the TCEQ requires regular and routine filing of information, including:
o “District Registration Forms,” which provide names and contact information
for the MUD, and
o “District Information Forms,” which provide boundary, tax, and bond
information for the MUD.
• The TCEQ may review the annual audit report of each district and may raise
objections, make determinations, or make recommendations. If the audit report
indicates that any law has been violated, the TCEQ is required to notify the
appropriate county or district attorney and the attorney general.
• The TCEQ maintains a database of the information collected from MUDs and other
water districts – the “Water District Database.” This information is available online at
https://www14.tceq.texas.gov/iwud/.
•

1 Lessons Learned from the 1980s Allow Texas Municipal Utility Districts to Maintain Stable Credit, Standard & Poor’s
Ratings Direct on the Global Credit Portal, June 11, 2012.

Association of Water Board Directors – Texas