A new state law, Senate Bill 6, which went into effect Dec. 1, is making it difficult for some cities to annex property within their extraterritorial jurisdiction, or ETJ, but Lewisville officials said the law does not pose a threat to the city’s plans to annex Castle Hills in 2020.
The new law requires cities to gain voter approval prior to annexation.
Historically, Texas cities could annex property within their ETJ—or land outside city limits they are legally allowed to incorporate—without the permission of the people who live in the ETJ.
City Manager Donna Barron said although the city could hold elections to gain voter approval from people living in the ETJ, there is an exception to SB 6 that would allow Lewisville to bypass gaining voter approval.
If the area to be annexed has a municipal utility district, or MUD, covering it and the MUD has contracted with the annexing city under a strategic partnership agreement, or SPA, then an election is not needed, Barron said. Lewisville has an SPA with each of the eight Denton County Fresh Water Supply Districts that make up Castle Hills.
“The only reason we would annex under an SPA rather than a regular annexation is because it saves the cost of multiple elections because each district would have to have an election,” she said. “And we know that [if we held elections]it’s going to pass because we know people want to be annexed into Lewisville from Castle Hills.”
However, Barron said with another legislative session in 2019 the law could change again to include a provision that could prevent the city from utilizing the SPA to annex.
Eric Stanley, president and Chief Operating Officer of Bright Realty, which is the developer of Castle Hills, said he would be in favor of Lewisville annexing Castle Hills.
“I can’t speak for all of the residents in Castle Hills,” he said. “I’m a resident, and generally speaking, I’m in favor of it at least based on how discussions [between the city and Castle Hills]are going. The residents as well as the commercial businesses would potentially receive a reduction in their property tax bill.”
Why wait until 2020?
In 1996 the city of Lewisville and Bright Realty entered into a development agreement in which the city would agree to do certain things for Castle Hills, and Lewisville would annex the development at a point when it would not negatively impact the city’s tax rate.
Lewisville Director of Finance Brenda Martin said although Castle Hills is one development, its residents do not have the same tax rates. Each of the water districts, besides District 1A, have separate boards of directors, debts, payment plans and tax rates, which are much higher than Lewisville’s 43.6 cents per $100 valuation.
District 1A does not have a tax rate because no one lives there, and it only contains developer-owned land, Martin said. District 1A is the managing district and sets the budget for the other districts.
Martin said each district’s property tax rate depends on how much debt the particular district owes. District 1B—the first to develop—has the lowest property tax rate at 69 cents per $100 valuation.
The newest districts, 1G and 1H, have the highest property tax rates—$1 per $100 valuation, which is more than double Lewisville’s property tax rate.
Because of these high property tax rates, Lewisville would not be able to annex Castle Hills this year without raising residents’ property tax bills. Barron said by 2020 most of the districts’ debt will be low enough for the city to annex Castle Hills.
“We believe we can annex all the districts except G and H by 2020 without an impact to our tax rate,” Barron said. “But we are still looking at G and H. We are working on a different method to cover that debt and think we can do it through a tax increment financing [zone], or a TIF.”
Barron said the city prefers to annex all the districts at one time.
“It’s a lot of issues [if you don’t bring them in at the same time],” she said. “The provision of services becomes difficult. For example the water system— how do you bring in some and not the others?”
The benefits of annexation
When annexed into Lewisville the approximately 15,000 people who live in Castle Hills today will see a significant tax reduction, Barron said. When built out in 2031, Castle Hills is projected to have 28,000-30,000 people.
Deputy City Manager Eric Ferris said another benefit for Castle Hills is Lewisville will take over Castle Hills’ services instead of Castle Hills having to create it piecemeal through a combination of county, city and private contractor services.
“We don’t really have any enforcement powers other than state laws through the penal code,” he said. “We don’t have inspection services or code enforcements because [the Castle Hills development is]out in the county.”
The county fire marshal is in charge of fire safety compliance, the county sheriff’s office handles animal services, and the state completes health
“We will take over and provide health inspections, code enforcement, permitting enforcement and all of the other services that we currently provide to Lewisville residents and businesses,” Ferris said.
Stanley said he views Castle Hills being able to use the city’s police and fire services without a contract as a benefit.
Lewisville police and fire departments currently respond to 911 calls in Castle Hills, a service that the city is reimbursed for on a per-call basis.
“We are not contracted for regular patrol of Castle Hills,” Barron said. “Now, [Castle Hills] can also pay for higher levels of service, which they occasionally do. Let’s say they want us to come out and set up traffic enforcement—we can do that, but it’s an additional fee.”
Ferris said although Lewisville owns all of the roads, water and sewer lines in Castle Hills, the city does not use any of its capital improvement money or conventional bond money to pay for infrastructure maintenance instead Castle Hills’ districts pay for it. When annexed, the city will pay.
Castle Hills residents are not the only ones who will benefit from the annexation, she said.
“[The annexation would] bring in a lot of property value on to [Lewisville’s tax] roll, which long term will be healthy for the city,” she said.
In November the median sales price for Lewisville homes was $276,750 compared to Castle Hills’ $493,500.
Barron said when the city went through its planning process for its 2025 plan, officials heard from the public that residents wanted more housing variety, which is what Castle Hills would bring.
“You have gated communities there, you have high-end townhomes, high-end single-family homes, so it’s just that next level of housing that we need,” she said.
Martin said with the additional property tax revenue from Castle Hills, there is less of a chance City Council will need to look at increasing property tax rates in the near future.
Additionally she said adding Castle Hills to Lewisville’s city limits gives the city more acres to develop and attract larger developments.