Page 30 - ABHR MUD BOOK 2022

The Truth About MUD Debt

• Critics of the development of public infrastructure to support growth and
development are quick to claim that local government debt in Texas is higher
than in many other states and growing.
• Generally, criticisms of the amount of local government debt fail to recognize the
roles of state versus local government set forth in our Texas Constitution.
• Critics also fail to distinguish between the types of local government debt issuers
and the purposes for which that debt is being issued.
• Texans have always believed that the government closer to the people is the most
representative. Texans have always valued local control and have viewed
central government with skepticism.
• In Texas, issuing debt for infrastructure development is largely the role of local
governments, not the state.
• In many other states, the state raises revenues, levies taxes, and issues debt and
then appropriates the funding to the local government. In these states, there is a
powerful central government, often supported by a state income tax, with weak
local government. These states have low local government debt – but at what
price?
• MUDs play an integral role in developing infrastructure to supply utility and
basic services to accommodate local growth and development. The sole purpose
of MUD bonds is to pay for this infrastructure.
• MUDs do not issue debt to pay for pension or other operating costs, thus leaving
“Legacy Infrastructure” and not “Legacy Liabilities”.
• Every dollar of MUD debt is self-supported by an independent and self-
contained tax base that is determined by the Texas Commission on
Environmental Quality (“TCEQ”) as being sufficient to pay the principal and
interest on the debt at a tax rate approved by the TCEQ.
• No homeowner or other property owner located outside the MUD is required to
pay for any part of the debt issued by the MUD.
• Even so, MUD bonds comprise only a small part of Texas local government debt.
• According to state data, local governments have approximately $218.4 billion in
outstanding debt. Critics of local debt usually inflate this figure by also adding
1
interest to this figure, which may or may not be paid over the life of the bonds.
2
• The amount of bonds outstanding for Houston Area MUDs as of year-end 2015
was $9.29 billion.
3
• Compare this amount to the City of Houston’s amount of outstanding debt of
$12.8 billion as of March 31, 2016.
4

1 See Texas Bond Review Board, 2016 Annual Report, Table 1.8.
2 Local government bonds are often paid off early before maturity or periodically refinanced, thus significantly
reducing the amount of interest paid on the debt.
3 Municipal Information Services, Dr. Ron Welch.

Association of Water Board Directors -- Texas