A Municipal Utility District (MUD) is one of several special districts authorized by the Texas Commission on Environmental Quality (TCEQ) to provide water, sewage, drainage, and other utility-related services within their boundaries. A MUD allows a developer to fund infrastructure in a different way. Texas has over 900 municipal utility districts, with 60% in Houston.

A developer or a majority of property owners in an area can petition the TCEQ to create a MUD. To ensure the MUD’s success, a developer must pay or put a letter of credit equal to 30% of the cost of subdivision utilities. The Board of Directors of a MUD has no authority over developers unless they are voting residents.

The MUD is governed by a Board of Directors elected by property owners and overseen by the TCEQ. Staff, business associates, and family members may not serve on the MUD Board of Directors. The Board sets policies for its residents and utility customers. A MUD may impose and collect all necessary charges, taxes, and fees.

MUD taxes are used to pay off the MUD’s bonds. MUD taxes may decrease as debt decreases. MUD rates may decrease over time as the MUD expands and more homeowners share operating and debt service costs, but this is dependent on ongoing expenses and the Board of Directors’ direction. In addition to your monthly MUD water and sewage bills, you will also receive an annual tax bill. Your MUD tax is a deductible property tax if you itemize on your federal income tax return. Many MUD boundaries are outside city limits, so residents pay MUD taxes instead of city taxes. MUDs within city limits will double tax residents.

Trinity Falls (McKinney), Light Farms (Celina),

The Public Improvement District Assessment Act, found in Chapter 372 of the Texas Local Government Code, created a PID as a development financing tool. It allows cities to assess and collect special assessments on property within their borders or extraterritorial jurisdiction (ETJ). The PID authorizes the issuance of bonds secured by special assessments levied on all benefited properties to fund improvement projects. PID bonds can be used to reimburse the developer for eligible infrastructure before the first home is sold. PIDs are not subject to TCEQ approval and are governed by the local government, removing concerns about board turnover and board integrity. If a city chooses to annex a property within a PID, it is not required to pay the assessment, and it does not affect the city’s debt capacity or credit rating.

PIDs are similar to MUDs (e.g. water and wastewater infrastructure and other utilities). For example, a PID can be used for public safety/security or for affordable housing, among other things. PID assessments are tax-deductible, so some developments use them instead of HOAs.

Taxes do not pay PID bonds. Unlike MUD taxes, assessments are fixed once the bonds are sold. A buyer would know the annual assessment bill. Unlike taxes, assessment fees cease upon bond repayment. Tax deductibility of PID assessments

Mustang Lakes (Celina) and Creeks of Legacy are two PID neighborhoods (Prosper).