Magnolia officials discuss possibility of permitting in-city MUDs

A number of local officials gathered for a special meeting and joint planning workshop at City Hall Dec. 11 to discuss the possibility of creating Magnolia's first in-city municipal utility districts for future development.

Katie Sherborne, attorney at Allen Boone Humphries Robinson LLP, led a presentation with Gromax Development President Paul Grohman. Sherborne and Grohman have overseen the creation of several MUDs in the Katy and Pearland areas respectively. The special meeting included City Council members, the Planning and Zoning Commission, as well as the economic development corporation and community development corporation boards.

"With an in-city MUD you have all of the city authority, permitting, zoning if you've got it and they have to go through planning," Sherborne said. "[The city] exercises control as if the MUD wasn't there, but [receives] the benefit of this financing vehicle, so you won't have to go out and use your bonds to pay for that construction."

In the Katy area, Sherborne said she has seen great success regarding community development projects, such as trails and green spaces with in-city MUDs. A typical MUD may charge residents an estimated $1.50 of combined city and MUD taxes per $100 assessed valuation determined by a board of homeowners and market studies carried out by the Texas Commission on Environment Quality, she said.

"Some go a little bit higher and some go a little bit lower [with taxes]," Sherborne said. "It just depends on the market. No one wants to build a community where everyone says the taxes are too high. The last thing the TCEQ wants is bonds they can't pay back. With the bonds, developers typically we get 100 percent reimbursement."

The benefit of in-city MUDs includes the lack of risk associated with the city since the developer would instead take on the responsibility of funding utility lines and other responsibilities, Sherborne said. The MUD will not issue bonds for projects if there is no financial backing through taxes, so the developers have a high incentive to produce quality communities to be reimbursed for the funds, she said.

Grohman said it is much easier to develop communities inside the city limits through MUDs rather than having developers petition the city for utilities and to be annexed at a later date. In Pearland, Grohman said MUDs have changed the face of development, increasing total property valuations from $550 million in 1992 when he first moved to the area to about $7 billion now.

"I'm a real advocate of cities, but it's real hard for them to do the same job as cheaply as a developer could typically do because they have all types of resources [cities] don't have," Grohman said. "I can't tell you how many times we wanted a road project or utility project [to be constructed by] a developer because it was cheaper in the long run."

As part of the in-city MUD structure, the infrastructure is typically built and paid for by the MUD developer and handed over to the city for ongoing maintenance, Sherborne said. Engineers are involved, and the projects would still receive the oversight and approval from city leaders before moving forward, she said.

In addition to in-city MUDs, there are extraterritorial jurisdiction MUDs that are located outside of city limits in an area that may be annexed in the future. Other MUDs can be created using land in no city's ETJ, which is a rare occurrence in the Greater Houston area, Sherborne said.

"We've got several muds just outside our ETJ," Magnolia City Administrator Paul Mendes said. "In areas like the Woodard tract [near FM 1774 and FM 1486], there are three MUDs out there. We are having negotiations with these folks regarding [the city providing] water and sewer and annexation."

Grohman said the ability to create in-city MUDs will bring additional development to the Magnolia, increase the overall tax revenue and allow the city to provide better services.

City Council members took no action regarding whether to permit or deny in-city MUDs at the Dec. 11 meeting. The topic will likely be discussed as an agenda item at a later date. Mendes said the in-city MUDs could go into effect as soon as 90–180 days after receiving City Council approval.


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