Page 78 - ABHR MUD BOOK 2022

Municipal Utility Districts Concentrated in Metro Houston to create a MUD by the same. TCEQ has established detailed
paying at least 30 requirements to create, fund and operate
percent of the cost a MUD. Following some MUD bond
of the subdivision defaults that occurred during the oil bust
utilities or provid- of the 1980s, probably the biggest change
ing a letter of cred- involves more rigorous evaluation and
it. Typically, the approval processes of the economic
developer funds feasibility analyses that support the esti-
the initial cost of mates of future property values and tax
building the water/ rates to back any bond issues.
sewer facilities and
operations—and Q. MUDs were particularly prevalent
drainage improve- in Houston. Is that still true?
ments where MUDs are located all over Texas but
necessary—and have been used extensively in the Hous-
the MUD issues ton metro area. Houston experienced
bonds. The devel- unprecedented population growth in the
oper is reimbursed 1970s through the first half of the 1980s,
from the proceeds. during the oil boom. None of the local
The level of MUD communities had the financial capac-
bond indebted- ity to deal with the pace of growth for
ness assumes a housing. Without MUDs or something
projected prop- like them, Houston would probably be
erty tax base as another very-high-cost housing market
the subdivision similar to the major markets in Califor-
is developed. The nia. MUDs were not as plentiful in the
SOURCE: Texas Commission on Environmental Quality, 2016.
MUD becomes the Dallas–Fort Worth metroplex because
MUDs have been crucial in allow- owner and operator of the utility and has much of the growth occurred in existing
ing an adequate housing supply and an independent board of directors. small towns and incorporated areas.
keeping home prices lower than in other
high-growth states. Without MUDs, or Q. Are MUDs still the best way to Q. Given the oil price decline, what’s
some other means of financing local finance and maintain community the outlook for housing construction
infrastructure to accommodate a rapidly infrastructure? in Texas?
expanding population and escalating The debate on the best way to The outlook for residential construc-
housing demand, new-home construc- finance local, community infrastructure tion remains strong despite the effects of
tion would be severely limited and much generally involves who pays for future lower oil prices on the general economy.
more expensive and overall housing growth—current residents or future The demand momentum built up over
costs would escalate. That’s what hap- residents. Most communities want and the past five years from job creation and
pened in such high-growth areas as solicit growth through economic devel- rapid population growth will push the
California and Florida, where supply was opment efforts and other initiatives. housing market through at least the rest
constrained by local infrastructure de- For existing residents, it may mean of this year. A greater number of young
velopment and highly restrictive, costly higher property tax rates or current people are forming new households and
land-use regulations. user fees to pay infrastructure capital looking to enter into homeownership as
In Texas, the Texas Commission on development costs to provide services to they marry, have children and wish to
Environmental Quality (TCEQ) oversees future residents. Current residents often move beyond renting.
the creation of MUDs, which provide want the future residents to pay for the As demand has risen, affordability
water, sewage treatment, drainage, facilities that newcomers will need and has become an ever-pressing issue for
garbage, firefighting and other services to use. MUDs allow subdivision develop- intraurban as well as suburban housing.
a defined area—all or part of a proposed ers to front the initial utility capital costs Higher land and materials costs, coupled
subdivision or community development. and get reimbursed by taxing the future with relatively short labor supply, caused
A MUD may issue bonds, levy and col- property owners. new-home prices to expand rapidly. In
lect property taxes, charge for services order to produce even moderately lower-
provided, condemn property, enforce Q. What is the current status of priced housing, land developers and
restrictive covenants and make other creating a MUD? What has changed homebuilders have been forced to move
necessary regulations to accomplish its from previous housing cycles? further out into the suburbs and away
purposes. Over the years, the specifics of creat- from incorporated areas.
A developer may petition the TCEQ ing a MUD have remained essentially

Southwest Economy • Federal Reserve Bank of Dallas • First Quarter 2016 9