What You Need To Know About Municipal Utility Districts (MUD)

What is a MUD?

MUD stands for Municipal Utility District. A MUD's principal duty is to provide water, sewage, and stormwater drainage services in regions where municipal services are unavailable. MUDs are typically funded by the issuance of bonds, which are then serviced by taxes imposed and collected by the MUD. A MUD might be established for a fresh new community located just outside of Houston's public water services.

How Does It Help Me?

MUDs are a frequent approach for new communities to be built in Texas in locations where city services are not yet available. MUDs have made a significant contribution to the affordability of new homes in Texas as well as the state's dynamic growth rate.

MUDs enable more neighborhoods to be established in Houston, Dallas/Fort Worth, and many of their surrounding areas. This means that there are more options for builders and developers to produce new housing for families and individuals at a variety of price points.

How are new services funded?

MUDS are supported by bonds or investments issued by the State of Texas and paid to the MUD to build the infrastructure required to deliver water and sewer services to homeowners. These bonds are paid down as the MUD collects taxes from the community's citizens. This is known as a MUD tax, and it is included in the homeowner's property taxes.

How much is the MUD tax?

Municipal Utility Districts are supported through bonding. Homeowners then pay off the bonds through MUD tax. MUD taxes may be reduced as the debt is reduced.

The MUD tax can be up to $1.40 of total property taxes (property taxes typically range from $2.1 to $3.68 per $100 of assessed value). So, for a $300,000 home, the MUD tax could be as much as $4,200 annually. This is usually paid through escrow, so homeowners don't have to worry about submitting payments directly to the city.

MUD taxes will always be greater in a brand new development since new infrastructure must be developed. The MUD tax then diminishes over time as the bonds are paid off. The MUD tax can be completely eliminated in 20-30 years.

Who manages and operates a MUD?

A MUD is overseen by the Texas Commission on Environmental Quality (TCEQ), which ensures that all operations, services, and infrastructure comply with local and state rules. The MUD is run by a five-person board. The members are first appointed by the TCEQ; but, as the community grows, people can run for the board. Property owners in the MUD have voting rights and can elect board members for four-year terms. Every MUD must additionally employ consultants such as an engineer, attorney, financial advisor, and operator.

Reference:

1. https://www.jbgoodwin.com/buying/municipal-utility-districts/

2. https://www.historymaker.com/blog/what-is-a-mud-tax-and-why-does-it-matter

3. https://www.har.com/consumer_knowledge_video/video/detail/what-is-a-mud-district/2156