Page 5 - ABHR MUD BOOK 2022

The use of MUDs to develop necessary infrastructure is not new—far from it, in fact.
Constitutional authority for the modern concept of MUDs dates back to 1904 and 1917,
when Texas voters approved amendments providing authority for the creation of

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conservation and reclamation districts. By the mid 20 century, MUDs had become an
important tool for homebuilders in areas of the State where no water and wastewater
infrastructure existed.

MUDs have evolved over time to suit the needs of their residents. This includes
legislatively-expanded powers to provide necessary services, such as trash collection,

additional public safety, and the construction of roads and parks. But though the model
has evolved, its core function remains the same: MUDs induce developers and
homebuilders (and their banks and investors) to invest private capital in public
infrastructure. No other form of local government and no other model for developing
infrastructure harnesses investment of private capital the way the MUD model does.
The result is a housing market with an unprecedented capacity to grow while offering
homes at prices that are the envy of consumers nationwide.

In addition to ensuring low home prices to homebuyers, MUDs also afford their
residents the opportunity to participate in a localized neighborhood democracy.
Elected board members of MUDs must own property or reside within the district and
oversee all actions of the MUD. Though MUDs exist as official political subdivisions of
the State, their actions and operations more resemble a small business—albeit a
business with no employees or offices. Typically, a MUD board oversees the work of

several contractors working together to benefit the district, including a utility operator,
a bookkeeper, an auditor, engineers and an attorney. Much like the private sector,
contractors serve at the pleasure of the board and can be relieved of their duties at any
time. The result is a low-overhead, low-cost model of local control that couldn’t serve
as a brighter contrast to other forms of government.

The creation of MUDs directly correlates with the supply and demand of the local real

estate market. When a developer determines an opportunity in the market, he or she
brings private capital to the table and accepts the risk associated with market
participation. MUDs allow for reimbursement of this initial capital. And this promise
of reimbursement to the developer, if the developer performs, is the centerpiece of the
inducement for a developer to invest private capital in public infrastructure. A
developer who performs by delivering public infrastructure and private development is

assured reimbursement for all or some of the costs associated with water, sewer,
drainage, road, and park infrastructure. Without the certainty of reimbursement for

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