Districts exercise sweeping powers
Backed by key GOP lawmakers, unchecked MUDs have $60B in debt
In Houston’s conservative suburbs, where local governments are loath to raise taxes, the thankless task of hiking revenues has fallen to hundreds of so-called municipal utility districts created for developers to finance water and sewage systems, roads and other amenities.
These MUDs, as they’re called, have virtually unlimited power in bright red, anti-tax Texas to sell bonds and levy property taxes.
The state’s leading tea party conservatives, Comptroller Glenn Hegar and Lt. Gov. Dan Patrick, have championed their creation in what ethics reformers say is a clear example of special interest influence in Austin.
All told, lawmakers who carry bills creating MUDs and other water districts have collected $3.5 million in campaign contributions since 2001 from law firms that specialize in creating those districts on behalf of developers or do bond work on their multimillion-dollar deals, a Houston Chronicle investigation has found. The Chronicle used a state database to pinpoint which law firms work for water districts. The data doesn’t
include developers, who also contribute large sums to legislators.
Both Hegar and Patrick say MUDs and other water districts have played a critical role in developing infrastructure and creating jobs. They deny campaign contributions have anything to do with the bills they’ve carried. But both also say they are concerned about surging property tax burdens levied by school districts, towns, cities, counties — and MUDs, their less accountable, largely anonymous first cousins.
MUD sand other water districts have to date issued more than $60 billion in outstanding debt and face almost no government oversight of their spending. While most voters know the names of their mayors and city council members, many have no idea who runs their local MUD — or even what a MUD is.
James Quintero, director of the Center for Local Governance for the Texas Public Policy Foundation, a conservative think tank based in Austin, wants the legislature to protect taxpayers by preventing local officeholders from “off-loading” the delivery of public services to MUDs and other “special purpose districts” that contribute to the property tax burden and often lack transparency.
Texas officials don’t even know how many special purpose districts there are in the state. The U.S. Census Bureau in 2012 put the number at about 2,600. It defines the districts as independent governments that “exist as separate entities with substantial administrative and fiscal independence from general purpose local governments” — everything from agricultural development districts to toll way authorities.
By far the most important class, at least when it comes to facilitating growth and development, consists of 949 MUDs that have sweeping powers unconstrained by state law or the state constitution to issue-tax-exempt bonds and raise taxes to cover developers’ infrastructure costs.
Developers and their lawyers hold enormous sway over how MUDs are created, assembling their boards and organizing the “electors” who must vote to ratify their existence and authorize maximum bond sales. Quite often, just a handful of these electors are responsible for authorizing hundreds of millions of dollars in tax-exempt debt.
A trade group for MUDs — the Association of Water Board Directors-Texas — said by enabling developers to recover their infrastructure costs through bond sales, home prices are lower because those costs are not passed on to buyers. But homeowners pay the cost of those bonds, plus interest, over 25 years in the form of higher taxes.
The explosive growth of MUDs — there are 620 in Harris, Fort Bend and Montgomery Counties — and surging property values have contributed to significant growth in local property tax bills, said former Comptroller Susan Combs, a Republican.
Combs doesn’t consider herself a foe of MUDs. “But you have got to tell people what you are doing and how you are spending money, and you owe it to them to be transparent,” she said.
Straddling Waller and Fort Bend Counties on 555 acres of former prairie land, the Willow Creek Farms Municipal Utility District provides an illustrative case study in how powerful lawmakers — in this case then-Sen. Glenn Hegar — receive sizeable campaign contributions to carry legislation creating MUDs for developers, even though the process is typically uncontested and receives scant attention in Austin.
Hegar, a Fort Bend Republican, filed the legislation two months into the 2007 legislative session. His bill had three hearings by legislative committees. Only one person testified – attorney Joe B. Allen, who was in favor.
Four years earlier, Allen had left the Vinson & Elkins law firm and started his own firm: Allen Boone Humphries Robinson. Based in Houston, the firm specializes in helping developers create MUDs and represents the most water districts in Texas at 350, according to state data.
Once the districts are approved by the legislature or the Texas Commission on Environmental Quality, developers usually recruit a few people to move on to the vacant land so they can ratify their creation and authorize the sale of bonds. ABHR will typically then go on to represent the districts, serving as their general counsel and handling their lucrative bond work.
ABHR ranks first in campaign contributions among law firms that do water district work, contributing $1.4 million since 2001 to legislators who have carried water district bills or served on committees that were in charge of approving them.
James Boone, ABHR’s managing partner, declined an interview request from the Chronicle. In a written statement, the firm said it is a civic duty to participate in the electoral process: “ABHR makes contributions to the political campaigns of candidates with a vision of the continued growth and development of Texas and the Texas economy.”
Hegar, elected comptroller in 2014, ranks second in the amount of campaign contributions, $110,394, from ABHR and other firms that specialize in MUDs and other water districts, and public finance. He ranked first among lawmakers in the number of water district bills that have become law.
Hegar said there was no connection between the 79 water district bills he filed that became law and campaign contributions from law firms representing developers and water districts.
As a candidate who said he favored eliminating property taxes when he ran for Comptroller in 2014, Hegar acknowledges that local government debt must be taken seriously. But he said special purpose districts have played an essential role in Texas’ population growth and development in recent years, particularly in Greater Houston.
In 2007, at its first board meeting, the Willow Creek Farms MUD chose ABHR as its general counsel and bond counsel.
Three years later, when Willow Creek Farms MUD sold its first bonds, the official statement provided to investors said the “district’s voters” had authorized the sale of up to $92 million of bonds to build water and sewage projects, parks, and roads.
Nowhere in the 113-page report — the public sector version of a bond prospectus — did it note that only two people voted in the election. The “yes” votes — Marc Heidemann and Mary H. Atkinson — could not be reached for comment. The practice, in which developers recruit people to move onto vacant land in mobile homes so they can vote in favor of MUD bonds, is referred to as “rent-a-voter.”
Over the past six years, the district has sold $28.7 million in bonds.
That has helped six companies, including Pulte Homes, develop nearly 1,000 single-family lots, with about 800 homes completed.
Four times, the MUD’s board has raised the portion of the property tax rate that’s used to repay bonds. Homeowners in Willow Creek Farms started out in 2007 paying $1,250 in taxes annually on every $100,000 in assessed home value. While that overall rate has declined to $1,095 per $100,000, taxes have gone up with the value of homes to the point that the MUD’s overall tax revenues have jumped from $404,000 in 2011 to $1.8 million last year. Harris County Improvement District 18 — best described as a super-MUD that includes the new Exxon Mobil campus — has benefited even more from a huge spike in property values in northern Harris County. It, too, was created by a powerful lawmaker, then-Sen. Dan Patrick, with little scrutiny and no opposition.
The bill that Patrick filed in 2009 to create the improvement district says its purpose would be to “promote, develop, encourage, and maintain employment, commerce, transportation, housing, tourism, recreation, the arts, entertainment, economic development, safety, and the public welfare in the district.”
In addition to granting the district authority to sell bonds and levy taxes to support all those endeavors, the bill sent a message to Harris County, barring it from cutting public services within the district’s boundaries.
As was the case with Hegar’s bill to create the Willow Creek Farms MUD, the only person to testify about Patrick’s legislation was Allen, who urged approval and is listed in legislative records as representing Springwoods Realty Co., which was the original developer.
After unanimous votes in the Senate and House, Patrick’s bill was signed into law by Gov. Rick Perry in June 2009.
ABHR became the district’s general counsel and also its bond counsel.
As was the case with Hegar, Patrick was a major recipient of contributions from ABHR and other law firms representing water districts or doing bond work on their deals — he ranked first, receiving $144,691, including $66,441 from ABHR.
Unlike Hegar’s Willow Creek Farms MUD, Patrick’s Improvement District 18 levies multiple taxes, including a 1 percent sales tax and a 7 percent hotel-motel tax, and receives additional tax contributions from Harris County.
Keith Elkins, a Patrick spokesman, said the lieutenant governor has “made it clear that lowering property taxes is his number one priority” in the upcoming legislative session and “any suggestion to the contrary is simply absurd.” Patrick carried legislation creating 15 special purpose districts, including Improvement District 18. Elkins said Exxon Mobil and Southwestern Energy have brought thousands of jobs, which he said “would not exist if District 18 had not been created.”
The district can sell up to sell $2.3 billion in bonds for road construction, water, sewer and drainage systems; parks and recreational facilities, fire fighting facilities, public parking, economic development projects, and transit. That vast bonding authority was authorized in two separate votes by four people.
From the start, the board set the tax rate for operating expenses at the $1,500 maximum per $ 100,000 assessed valuation that those four voters approved in a ballot issue. For property owners within the improvement district boundaries, that rate is the highest among local governments that tax there – edging out Spring ISD, 3.5 times higher than Harris County, and 14 times higher than the Lone Star College District.
While the overall property tax rate has remained steady during the district’s lifetime, the district’s board twice has increased a portion of the tax that goes to pay debt service on its bonds – from zero to $350 per $100,000 assessed valuation for 2013 and then to $770 for 2014.
A big chunk of the tax dollars have been used to pay principal and interest on bonds sold to reimburse developers for Exxon Mobil infrastructure and the first sections of Springwoods Village, which features homes close to an “urban center” with plans for shops, restaurants, offices and apartments.
Over the years, Allen Boone Humphries Robinson’s donations have shown how MUDs have become a source of campaign money for lawmakers, particularly when they become committee chairmen responsible for moving MUD bills.
Democratic state Sen. Royce West of Dallas received $15,990 from AB HR as chairman of the Inter governmental Relations Committee— but only $3,000 since he left the committee.
His successor, state Sen. Juan Hinojosa, a Democrat from McAl- len, fits the same pattern: Of the $25,532 that ABHR has donated to Hinojosa’s campaigns, $17,532 came during the only two legislation sessions he chaired the committee.
Ditto state Rep. Dennis Bonnen, an Angleton Republican, who received $7,654 from ABHR when he was chairman of the House Special Purpose Districts Committee, far more than he has received after leaving the committee in 2015.
The $3.5 million total contributed by law firms representing MUDs and other water districts pales in comparison to special interest money spent by other industries. But ethics experts said the $3.5 million is significant because bills creating the districts rarely face opposition or scrutiny.
“As a result of big contributions, lawyers and lobbyists will get good access to be able to ensure that their bills pass, thus ensuring that their clients’ interests are represented,” said Tom “Smitty” Smith, director of the Texas office of Public Citizen, a nonprofit consumer and environmental group.
One reform proposal that has been put forth by conservative groups would form a state board — similar to the Sunset Advisory Commission — that would examine the original goals of special purpose districts and decide if they should be dissolved or if other local governments could provide those services at a lower cost.
Another option would be to enable residents to vote, for instance, 10 years after a special purpose district is created whether it should continue or be disbanded.
At the minimum, said Quint ero, director of the Center for Local Governance for the Texas Public Policy Foundation, MUDs and other special purpose districts should be required to maintain websites so that citizens can have access to financial data.
“Where there is a lack of transparency, there often times is a lack of accountability and good governance,” he said.
Combs, the former comptroller whose campaigns received $44,000 in contributions from Allen Boone Humphries Robinson, said she found herself tangling with a determined foe when she tried to get a bill passed in 2013 requiring MUDs and other water districts to post budget and long-term debt data on the web: Allen Boone Humphries Robinson.
Combs recalled how Jody Richardson, an ABHR attorney who also is a lobbyist, “hated the bill, said it was just unreasonably difficult” — and seems to have succeeded in helping kill it. Reached for comment, Richardson said her role was “extremely limited” and ABHR had no role in the bill’s demise.
But Combs, referring to AB HR, the state’s leading water district firm, said “they didn’t think anybody needed it. Well, we had testimony that some MUDs had not operated well.”