Annexation agreements provide millions to MUDs, city of Houston

Annexation agreements provide millions to MUDs, city of Houston

In a region devoid of a central form of governance, limited purpose annexation agreements between the city of Houston and municipal utility districts have helped fund millions of dollars in improvements in Cy-Fair and other areas of unincorporated Harris County since 2003.

The agreements also tax residents outside of Houston and take the last available 1 percent of sales tax revenue from an area that could use the money for other purposes. None of the revenue received by the city is required to be spent within the taxed districts, according to city officials.

“I think at their heart, they’re a money grab by the city of Houston,” Harris County Judge Ed Emmett said. “And they get MUDs involved on the basis of, ‘We promise not to annex you.’ But the city of Houston isn’t annexing MUDs anyway.”

Limited purpose annexation was born out of the 1999 Texas Legislature, said Nicole Smothers, manager of the community sustainability division for the city of Houston. Through limited purpose annexation, cities and MUDs can split 1 percent of sales tax revenue in commercial areas where it is available, and the city agrees not to annex the districts for a period of time—usually 30 years.

Since the turn of the millennium, hundreds of MUDs across Harris County have entered into such agreements—by far the most of any region in the state.

“These water districts are being called on to provide services,” said Michael Cole, counsel for MUD No. 191 and the Fountainhead MUD in the Willowbrook area.

“You’re better able to serve the communities you represent through an additional revenue stream.”

Although utility districts receive property tax revenue and revenue through utility fees, MUDs would not be able to receive sales tax revenue without the help of LPAs.

A MUD can spend the sales tax revenue on whatever that district was authorized to spend money on by the Texas Legislature, Smothers said, whether it is water and sewer infrastructure, parks and pathways, public safety or roads.

“[LPA] was seen as a way to bring revenue to this community for its development,” said Barbara Thomason, president of the Houston Northwest Chamber of Commerce. “What makes LPAs a challenge is there are so many of them. Cooperation and collaboration between them is a challenge.”

While the MUDs are spending money within their boundaries, the city of Houston is not required to spend any of the revenue within the region that is partially annexed.

However, Smothers said MUDs can negotiate with the city of Houston for the city to provide certain services, such as law enforcement, fire protection and the running of domestic animals, as long as the services are reasonable. Cole said sales tax revenue provided to the city also helps pay for infrastructure that residents of these districts outside Houston use, such as roadways.

“[Houston] used to be able to annex those areas,” Cole said. “It’s not really able to annex anymore. It had to come up with some strategy for supplementing that lost income.”

One piece of legislation under consideration this session could change the funding formula for the strategic partnership agreements that accompany LPAs. House Bill 2389, co-authored by state Rep. Patricia Harless, R-Spring, would require both MUDs and cities to spend 50 percent of all funding from the agreements on infrastructure within the annexed districts.

“The city does nothing for the money they receive, and it’s been a constant concern of mine,” Harless said. “We have $6 million leaving District 126 every year to the city of Houston for nothing.”

Cole said he believes the MUDs and city would not have to provide funding for many of the infrastructure improvements if the county would increase property tax revenue to fund those improvements.

“It’s a little disingenuous [on the] part of the county to say they need the funds,” he said. “The county is basically not providing the services, and [it does not] have the political will to raise taxes by 1 or 2 cents to fund these services.”

Although revenue from the LPA agreements continues to rise, the number of LPAs has plateaued.

“We’ve had fewer [requests] in [recent] years from MUDs in part maybe because they exist where people have wanted them,” Smothers said. “The available sales tax also is a factor, as [Metropolitan Transit Authority of Harris County] takes 1 cent of the sales tax, and a lot of the [emergency services districts] through elections have taken the other cent.”

Even if the region does not see changes to LPAs in the near future, Emmett said Houston and Harris County need to consider changes to how the two entities fund and provide services to county residents.

“MUDs were created to be a bridge in unincorporated areas that would eventually be annexed by the city,” Emmett said. “If the city of Houston has no intention of annexing these areas, let’s find a way for the counties and MUDs to work together.”

By Matt Stephens
Matt Stephens joined Community Impact Newspaper in December 2012. A Tomball native and a graduate of the University of Texas at Austin, Matt joined as a reporter for The Woodlands team before being promoted to help launch the Spring | Klein edition in spring of 2014 and later to North Houston managing editor in late 2015. He has served as managing editor to the Phoenix and Nashville papers since August 2020.


 Redistricting is one of the items on the Texas Legislature's third special session, and the state Senate released proposed maps on Sept. 18. (Ali Linan/Community Impact Newspaper)
Texas Senate releases proposed redistricting maps as special session begins

Redistricting is one of the items on the third special session, and the state Senate released proposed maps on Sept. 18.

Cy-Fair ISD continues to see hundreds of COVID-19 cases confirmed weekly. (Courtesy Adobe Stock)
COVID-19 case confirmations down 14% week over week in Cy-Fair ISD

Nearly 3,000 cases have been confirmed on campuses since the start of the 2021-22 school year.

Cliff Woodward (center), co-founder of Cypress Creek Emergency Medical Services, hands the keys of CCEMS’ first ambulance to early CCEMS paramedic Richard Beasley (left) in 1975. (Courtesy Cypress Creek EMS)
Cypress Creek EMS, Harris County ESD 11 forge new paths after yearslong feud

On Sept. 1, the Harris County ESD 11 launched ESD 11 Mobile Healthcare to take over providing emergency services to over 600,000 residents across 177 square miles in its service area in north Harris County.

Texas Medical Center coronavirus updates: Daily average hospitalizations drop 15% week over week; ICU sees dip in number of patients

Coronavirus patients at TMC hospitals number 2,107, which in itself is an 11% week over week decline.

The sandwich chain offers hot subs, cold subs with fresh-cut deli meat, wraps and salads. (Courtesy Jersey Mike's Subs)
Jersey Mike’s Subs opening soon on Barker Cypress Road

The eatery offers a variety of cold and hot subs as well as wraps and salads.

At a Sept. 11 practice, Houston Girls Hockey Association teams took the ice to prepare for their first games the weekend of Sept. 17. (Courtesy Houston Girls Hockey Association)
New Houston-area all-girls hockey league set to play first games this weekend, Sept. 17-19

The league was created to give school-aged girls a chance to continue playing hockey through college, since young girls can often feel discouraged playing on co-ed teams, Director of Membership Valory Zeck said.

DATA: How population changed in Texas counties between census counts in 2010, 2020

Texas added nearly four million people between 2010 and 2020, according to the latest Census data.

Texas-wide public charter school system Harmony Public Schools will offer a full virtual learning option for eligible students. (Courtesy Harmony Public Schools)
Harmony Public Schools will offer virtual learning for K-12 students in Houston, Katy, Sugar Land, Cypress

Schools under the Harmony Public Schools umbrella may offer up to 10% of its student body a full virtual learning option.

The Barn at Frio Grill has food, drinks and live music. (Courtesy The Barn at Frio Grill)
15 live music venues to visit in Cy-Fair

With a growing live-music scene in their own backyard, Cy-Fair residents do not need to travel far to see talented artists perform.

Construction has begun on Elementary School No. 57. (Courtesy Cy-Fair ISD)
5 Cy-Fair developments to follow this fall

Construction is underway on these five local projects.

Q&A: Get to know Bobby Warren, Jersey Village’s newest mayor

Bobby Warren was elected mayor of Jersey Village in May. Check out our Q&A to see what he's been up to and what his priorities are moving forward.