What is a Water District?

A water district is a local government entity—a special district–that provides water and sewer service and even roads, and other, limited services that cities provide. These special districts are usually called municipal utility districts (MUDs), water control and improvement districts (WCIDs), or something similar. Texas, and other states, have many special districts, like school districts, that collect fees and taxes in a set area to provide services to the area. MUDs are the most common type of water district in Texas. Texas first created MUDs starting in the late 1960s. MUDs and other water districts caught on in the Houston area in the 1980s as development outpaced the growth of the City of Houston. Today, over 950 MUDs exist in Texas along with around 400 other water districts. Most of these are water districts are created in the area around the city, called the extraterritorial jurisdiction (ETJ).

The History of Water Districts

The Texas Legislature created its first special districts in the 1890s to facilitate navigation and irrigation. During the 1920s and 1930s, Texas created river authorities to facilitate water supply projects and electricity generation projects. Other special districts deal with flood control, water quality, subsidence, groundwater regulation, and emergency services. The laws concerning these districts are generally found in the Texas Water Code, Title 4.

Creating a Water District

MUDs and most other water districts start off as privately funded development and cannot be created without receiving many approvals. To start, water districts are created by an act of the Texas Legislature or a petition to the Texas Commission of Environmental Quality (TCEQ). Water districts then need approval from the city with control over the ETJ, the TCEQ (again), and the Office of the Texas Attorney General (OTAG). Texas Water Code, Chapter 54 covers MUDs, which have proved the most dynamic water district.

Water District Bonds

Once the developer builds enough infrastructure and sells enough properties and gets TCEQ and OTAG approval, the water district sells bond and buys all qualifying water, sewer, drainage, roads, and other infrastructure. The MUD can sell bonds only if the developer builds to a high enough standard and attracts enough residents. The developer gets reimbursed years faster than having to wait until all the houses are sold. MUDs sell public, tax-exempt bonds that have much lower interest rates than private finance. Homebuyers and developers pay much higher interest rates on debt than water districts. Selling the public infrastructure to the MUD means that home prices are around 15% lower because infrastructure costs are lower and not priced into the houses.

District Boards

After obtaining approval by the TCEQ, MUDs and most other water districts appoint a temporary five-member “developer” board. After the developer sells bonds, MUD board directors must run for reelection and must be residents. So water districts, with few exceptions, are run by residents relatively quickly after the MUD sells bonds.

Water District Size & Longevity

Water districts generally serve communities of a few hundred to a few thousand households, although some MUDs are much larger. Water districts continue to operate and maintain the infrastructure unless and until the area is annexed by a city. In some areas where city annexation of MUDs is less common, MUDs have transitioned into perpetual government entities that are owned by the areas they serve. By establishing a MUD, communities can develop in areas where municipal services are not available. Communities may decide that they would like to reorganize by being annexed into an existing city or incorporating into a new city—however, the former is rare, and the latter is even more so.

Residents and Water Districts

Typically, residents are not present at the creation of many special districts. However, residents “vote to approve” by purchasing a property in the special district. MUD disclosures, including tax rates and other information, are required in Texas real estate transactions. MUDs are efficient, compared to cities and counties. Cities and counties typically focus on current voters rather than future voters. MUDs overcome this local inertia by relying on private investment and action. The TCEQ will only allow a MUD to sell bonds after enough residents have moved into the MUD, which is an effective way to balance public and private interest. Current residents near to a water district do not pay for this infrastructure, which reduces resistance of current residents to new development.

Advantages of Water Districts

Compared to cities and counties, water districts have low overhead costs and offer more tailored services. Unlike cities and counties that have employees and associated costs, most MUDs contract with outside consultants for services, meaning that they have little or no long-term obligations other than the low-interest bonds. If the consultant is not performing adequately, the water district boards can and do select new consultants. Water districts are smaller, so they can offer services the residents want and avoid services residents find less valuable. If the residents of one MUD wants to build a recreation center or park or offer recycling and the residents of a MUD next door does not, the MUD next door is free to abstain. This government is “closer to the people” and provides advantage over cities, where decisions are more remote and services must be more uniform.