Invisible Government: Special Purpose Districts in Texas Cicely Kay LBJ School of Public Affairs Texas Water Policy December 6, 2014 Introduction There are several levels of government in the United States that carry out a range of public services to its citizens. As more service providing has become the responsibility of local governments, the utilization and establishment of special purpose districts has become more widespread and important. These districts provide mechanisms and revenues to sustain development in fast-­‐growing Texas. This has become increasingly important as citizens move out of rapidly growing urban centers into smaller cities and extraterritorial jurisdictions. Special purpose districts are able to provide infrastructure and services to areas that cities or counties are unable or unwilling to service. However, as these special districts proliferate across the state, their growth has gone largely unchecked. Management and financing mechanisms, including hefty tax rates to pay for large bonds, are approved with little electoral participation or knowledge, and citizens sometimes move into these districts unaware of their existence. While special purpose districts are important mechanisms to allow for growth in previously undeveloped areas, they are themselves a form of government. As such, citizen participation, transparency and accountability should be ensured during the creation and subsequent operation of these districts. Levels of Government in the United States The United States Constitution was adopted based on the principal of federalism -­‐ that the federal government’s powers are limited to those specifically laid out in the U.S. Constitution. All other powers, unless otherwise expressly restricted, lie with the states or the people. The powers expressly granted to the federal government include the authority to declare war, levy taxes, and regulate commerce; over the years the U.S. Supreme Court expanded those powers to include other implied ones. Throughout all of this, it was still understood that certain powers relating to health and safety, and property issues remained the responsibility of the states. This was because it was thought that the states could more Kay 1 easily regulate and control these issues. The states have the sole power to create and develop local governments, which includes all divisions under the state level including counties, municipalities and special purpose districts. Local governments were utilized to encourage political education and participation on a smaller, more accessible scale and to be able to respond to and provide for diverse and specialized local needs.1 In 1872 John Forrest Dillon, an American jurist, authored a treatise on the power of states over municipal and local governments. Entitled Municipal Corporations, it established a principal that has been cited in various United States court decisions when determining the rights and powers of local governments.2 Judge Dillon had started this train of thought in the 1868 Clinton v. Cedar Rapids and the Missouri River Railroad decision stating, "Municipal corporations owe their origin to, and derive their powers and rights wholly from, the legislature. It breathes into them the breath of life, without which they cannot exist. As it creates, so may it destroy. If it may destroy, it may abridge and control.”3 From this Dillon’s Rule was established as precedence, where local governments only have the powers that are expressly granted to them by their state legislature, those that are implied by that grant of power, and those that are indispensable to the municipality’s existence and function.4 Special Purpose Districts The most basic, and lowest, level of local government is the special purpose district. These districts are areas of the state, county, municipality or other political subdivision that have been divided for electoral, political, judicial or administrative purposes. These districts were originally created as a way to deal with urban sprawl. Suburban residents and developers wanted to create entities that could provide their own infrastructure and have the ability to levy taxes for limited purposes, like road construction, and water and sewage treatment. These districts are given significant powers, which include the power to impose 1 Flores, Gregorio III and Michael Kelley and Roberta A. Ritvo and Natasha Borges Sugiyama. “Fiscal Capacity of Texas Cities Policy Research Project: Local Government Structure and Function in Texas and the United States.” 2 Ibid. 3 Clinton v Cedar Rapids and the Missouri River Railroad. (24 Iowa 455; 1868) 4 Flores, Gregorio III and Michael Kelley and Roberta A. Ritvo and Natasha Borges Sugiyama. “Fiscal Capacity of Texas Cities Policy Research Project: Local Government Structure and Function in Texas and the United States.” Kay 2 and collect taxes; to acquire, purchase, sell or lease real or personal property; borrow money; sue and be sued; and contract with other governmental entities. Some special districts are even granted the power of eminent domain.5 Districts must comply with rules laid out in their enabling legislation, and also must comply with applicable state and federal laws, such as the federal Clean Water Act.6 Special purpose districts are governed by the Commissioners Court of the County in which they were created, or by a board of directors either appointed by the governing body or elected at large. This board of directors has the authority to hire officers, agents and employees. The Texas Constitution authorizes the creation of special districts for limited purposes and authorizes those districts to issue bonds and levy taxes to pay off the bonds. Bonds must be approved by a vote of a two-­‐thirds majority of the citizens residing in that district, and the amount of issued bonds may not exceed one-­‐fourth of the assessed valuation of the property in the district. The Legislature may authorize the collection of taxes for things such as improvement of rivers, creeks and streams; construction, maintenance and operation of graveled or paved roads; and the construction and maintenance of lakes, reservoirs, canals, dams, and waterways. The most common type of special district is an independent school district but in recent decades the ones most created are water and wastewater districts, and improvement and economic development districts.78 The Texas Constitution authorizes the creation of special purpose districts and various statutes outline the procedures for their creation, governance, structure and powers of the districts. Some statutes outline the provisions relating to all special purpose districts, and some statutes create and govern individual districts. In the 2003 Legislative Session House Bill 3508 created the Special District Local Laws Code, whose purpose is to publish and revise local laws that govern individual special districts. The Special District Local Laws Code is made up of six titles organized by subject area, which are: General Provisions; Environment and Sanitation; Health, Development and Improvement; 5 Ibid. 6 Galvan, Sara C. “Wresting with MUDs to Pin Down the Truth About Special Districts.” 7 Langham, Laura and Corey Roy and Austin Valentine. “Invisible Government: Special Purpose Districts in Texas.” 8 Galvan, Sara C. “Wresting with MUDs to Pin Down the Truth About Special Districts.” Kay 3 Transportation; and Water and Wastewater.9 Under Title 6, Water and Wastewater, the following districts are allowed to be created in the state: drainage, fresh water supply, special utility, irrigation, levee improvement, municipal utility, river authorities, districts governing groundwater, water control and improvement, water improvement, seawall commissions, municipal water, water power control, and districts with combined powers. By far the largest portion of special purpose districts in the Water and Wastewater section are Municipal Utility Districts, followed by districts governing groundwater (typically Groundwater Conservation Districts), and Water Control and Improvement Districts.10 Growth of Special Purpose Districts and their Taxing Powers in Texas As of 2011 there were nearly 2,300 special districts in Texas, not counting school systems. That number had quadrupled since 1952, according to the U.S. Census Bureau, and gone up by a quarter in the last 30 years alone. Water districts in particular saw an uptick in creation after a 1995 Attorney General decision to stop detailed investigations of water district elections, severely limiting the state’s oversight of the districts. These special purpose districts range in size from the very large to the very small. A district that manages Houston’s two major hospitals for the poor and uninsured collects $530 million in property taxes a year, and the North Fort Worth Water Control & Improvement District No. 1 serves just a few people and collected $85 in property taxes in 2008.11 In 1992 special purpose districts accounted for one-­‐third of the entities with the power to levy property taxes; by 2010, special purpose districts made up more than 40 percent.12 9 Langham, Laura and Corey Roy and Austin Valentine. “Invisible Government: Special Purpose Districts in Texas.” 10 Tex. Special District Local Laws Code. 11 Peebles, Jennifer. “Growing governments: How ‘special districts’ spread across Texas with limited oversight and accountability – but with plenty of power to tax.” 12 Combs, Susan. “Texas, It’s Your Money: Your Money and the Taxing Facts.” Kay 4 Unlike municipalities and counties in Texas who have a tax rate cap on the amount of property taxes they can collect from their constituency, special purpose districts that collect property taxes have various tax rate caps. Depending on the district’s purpose, they may impose a property tax and/or a sales and use tax. There are additional user fee-­‐
funded special purpose districts with no taxing authority. Beginning in 1995, five districts began to levy sales taxes. By 2011, there were 193 special purpose districts levying sales taxes across the state – an increase of over 3,000%.13 In 2013 alone 76 bills were passed to create new water related special purpose districts, and 25 bills were passed to amend existing water related districts.14 History of Water Districts in Texas The rapid growth of special districts across Texas can be explained by several factors, but mostly the unwillingness or inability of counties and cities to deal with growth and its various associated issues.15 The history of the development of water districts in Texas can be told through the various forms of financing power granted to local governmental 13 Combs, Susan. “Texas, It’s Your Money: Your Money and the Taxing Facts.” 14 Carlton, John. “Special Purpose Districts: Current Issues.” 15 Flores, Gregorio III and Michael Kelley and Roberta A. Ritvo and Natasha Borges Sugiyama. “Fiscal Capacity of Texas Cities Policy Research Project: Local Government Structure and Function in Texas and the United States.” Kay 5 entities in the state as Texas grew and established itself. In 1895 the municipal bond law was passed giving cities the authority to issue tax-­‐supported bonds to acquire a water supply. Financing had to be within the tax limits prescribed by the Constitution. In 1904 a constitutional amendment was passed by Texas voters authorizing the Legislature to pass laws permitting counties, districts and other political subdivisions of the state to issue bonds in an amount not to exceed one-­‐fourth of the total assessed value in the district for the “improvement of rivers, creeks, and streams to prevent overflows and to permit the navigation thereof or irrigation thereof…” Additionally, the Legislature was authorized to permit any county, district or other subdivision to levy a tax at a rate sufficient to pay the principal and interest on such bonds. The state experienced massive flooding from 1912-­‐
1914 and Texans realized there was a real need to confirm the State’s duty to not only prevent floods but also store the floodwaters for later use. This led to legislation passed in 1917 that allowed water districts to operate with unlimited bonded indebtedness. This practice continued until the 1950s and 1960s when Legislators began to scrutinize water districts in Texas amid concerns the districts were vulnerable to abuse because they were relatively easy to create and had minimal transparency and unlimited tax and bond powers. In the past twenty years, however, the Legislature has taken steps to make it easier for developers to create water districts by streamlining the process.1617 How Are Water Districts Created? To establish a special purpose district, developers typically need a city’s approval before the Legislature can approve the request to build in the city’s extraterritorial jurisdiction. If the city denies the developer’s request for approval of district creation, the landowner can petition the city to extend its infrastructure to service the area. If further denied, the applicant can petition the Texas Commission on Environmental Quality (TCEQ) to approve the district. The benefit of a legislatively approved district is the district's ability to build roads. A district approved by TCEQ does not have this authority. A further benefit to legislatively created districts is the ability of legislators to write specific stipulations granting, or not, powers to the district. For example, a district could be given the authority 16 Galvan, Sara C. “Wresting with MUDs to Pin Down the Truth About Special Districts.” 17 Allen, Joe B. and David M. Oliver, Jr.. “Texas Municipal Utility Districts: An Infrastructure Financing System.”
Kay 6 to issue bonds and impose fees or taxes, but prohibited from exercising the power of eminent domain.1819 As of late 2014 the most prominent form of water districts in Texas were Water Control and Improvement Districts, with 205 active in the state, and Municipal Utility Districts, with 920 active statewide (see table below). Information provided by the Texas Commission on Environmental Quality Water Control and Improvement Districts Water Control and Improvement Districts (WCIDs) were created by the Legislature in 1925 and 1927 to provide an entity with broader powers than those given to existing Water Improvement Districts. Water Improvement Districts created under the 1917 Conservation Amendment may engage in irrigation, drainage, flood control, reclamation, preservation of water resources, development of forests and hydroelectric power, sewage disposal and navigation. WCIDs are statutorily able to provide for the improvement of rivers, creeks, and streams to prevent overflows; to permit navigation or irrigation; or for the construction 18 McPhate, Christian. “New districts keep towns on their toes: Union Park just one of the latest special districts in county.” 19 Galvan, Sara C. “Wresting with MUDs to Pin Down the Truth About Special Districts.”
Kay 7 and maintenance of pools, lakes, reservoirs, dams, canals and waterways for irrigation, drainage or navigation. District areas may cover more than one county, and do not have to be contiguous, however districts in more than one county require a majority vote of electors in each county to be included in the district. Otherwise, a petition can request the creation of the district and must be signed by persons who own more than 50 percent of the land in the district. If there are more than 50 property owners, the petition is sufficient if signed by 50 of them.20 If the land in the district lies in one county, the county commissioners court considers the authorization of the district. If the land lies in two or more counties, the TCEQ must approve the creation of the district. Once approved, the commissioner’s court or TCEQ appoints five directors who serve until their successors are elected or appointed. Once established, districts are statutorily authorized to construct necessary works and improvements, including culverts and bridges; to enter into contracts, mostly contingent on voter approval; to transfer water rights, sell waterpower privileges and surplus water, and pump water to another district; and to add land to the district. Additionally, WCIDs can issue bonds that must be approved by two-­‐thirds of the voters.21 Municipal Utility Districts Like the other types of special districts, Municipal Utility Districts (MUDs) have become a favored form of government in Texas. The Constitution was amended to provide for the establishment of water districts at the beginning of the twentieth century, and modern MUDs were authorized in 1971 when Chapter 54 of the Texas Water Code was established. As of 2007 about 950 MUDs existed in Texas, with the average MUD size about 525 acres.22 MUDs were initially created as a type of conservation and reclamation district under the 1917 Conservation Amendment. This gave the Legislature the power to create these districts for purposes such as irrigation, flood control and water supply. At the time, the main purpose of MUDs was to assist residents who lived in unincorporated areas where no utility district or water and sewage infrastructure existed. Most of the first MUDs covered 20 Langham, Laura and Corey Roy and Austin Valentine. “Invisible Government: Special Purpose Districts in Texas.” 21 Ibid. 22 Galvan, Sara C. “Wresting with MUDs to Pin Down the Truth About Special Districts.” Kay 8 multiple counties and were delineated by watersheds and other natural and topographical features. In the 1970s the Legislature began creating districts that only covered a single landowner’s property. Since this time most MUDs have been created for the sole purpose of assisting developers to establish communities in previously undeveloped areas. Many residents in Texas began spreading out from urban centers into rural areas without existing infrastructure.23 MUDs provide a wide range of services to their residents. These districts engage in the supply of water, irrigation, conservation, drainage, solid waste collection and disposal, infrastructure building such as roads, wastewater treatment and recreational facilities such as parks and pools. Customers residing in a MUD can be required to use the districts solid waste services as a condition for receiving other MUD services. A MUD may also contract with private companies to pay for solid waste and recycling services. MUDs issue bonds to pay to provide these services and infrastructure, and set the tax rates necessary to pay these bonds. While MUDs are allowed to develop and establish recreational facilities, they may not issue bonds to pay for such amenities.24 According to a presentation by the Carlton Law Firm at the 2013 Texas Water Law Superconference, any MUD bills passed by the Legislature during the 2013 Legislative Session utilized a template for drafting the enabling legislation. There are three primary committees that MUD bills are heard in: the Senate Intergovernmental Relations, the House Natural Resources, and the House Special Purpose Districts Committees. The MUD template includes: description of purpose and boundaries; governing body provisions; powers and duties; municipal consent; eminent domain limits; division of territory; financing; and findings required for local bills.25 Case Study: Harris County While the proliferation of special districts has occurred across Texas, it is particularly prominent in Harris County. In the last decade Harris County has seen 105 new districts established that assess a property tax. As of 2007 about five hundred MUDs comprised 23 Ibid. 24 Langham, Laura and Corey Roy and Austin Valentine. “Invisible Government: Special Purpose Districts in Texas.” 25 Carlton, John. “Special Purpose Districts: Current Issues.” Kay 9 over 210,000 acres of land, or about 329 square miles. 26 There are numerous other districts in unincorporated areas of the county assessing a property tax. State Representative Patricia Harless (R-­‐Houston) conducted a survey of her district in 2008 and found that 28 special districts had collected roughly $23 million in sales taxes from her neighborhood alone. The Representative’s own property tax bill lists 10 separate entities that impose taxes on her home. Advocates of special districts in Harris County credit these entities with fixing problems plaguing neighborhoods across the county. They view these districts as essential partners to local government as Houston, with no zoning, needs programs to prevent neighborhoods from collapsing when revenues decrease or neglect becomes widespread.27 There are, however, critics of these districts, particularly in Harris County where they are so prominent. In 2011 a petition with 998 signatures was organized to dissolve the Montrose Management District. Property owners in the district cited frustrations that revenues were going towards web-­‐page design, lawyers, consultants and marketing. Advocates for dissolution claimed petition signatures represented 78 percent of the property owners assessed in the district; only 25 signatures were on the petition creating the district. In November 2011 the Montrose District board rejected the petition saying it required 75 percent of all property assessed in the entire district, not just the commercial property. Dissolution advocates are suing the district, and the district has hired attorneys to defend itself. Ironically, these advocates pushing for dissolution of the district they live in are now paying both sides of the legal bills.28 Representative Harless’ district is mostly outside Houston city limits and she blames annexation agreements signed by the city of Houston for encouraging creation of special districts countywide. Municipal Utility Districts, she says, sign agreements to give the City half of a cent of sales tax they create under the condition the City postpones annexation for 25 years. She also lays some of the blame on the Legislature she is a part of for not properly funding essential services such as, among other things, volunteer fire departments, which has led to the creation of local emergency service districts. Further, 26 Galvan, Sara C. “Wresting with MUDs to Pin Down the Truth About Special Districts.” 27 Hart, Patricia Kilday. “Special purpose districts’ assessments prove taxing.”
28 Ibid. Kay 10 legislators are influenced by the industry that has sprung up around special districts. According to the Texas Ethics Commission, there are more than 550 individuals or groups registered as lobbyists for special districts.29 Case Study: Denton County Not too many years ago Denton County in the northern part of the state was rural and agriculturally based. Generations of residents had cultivated the land known as horse country. Now, thousands of people, particularly from the Dallas-­‐Fort Worth area, have spread into the countryside, seeking the small-­‐town lifestyle. What were once fields and empty roadways have turned into suburban development with thousands of rooftops and shopping centers. The infrastructure for these developments have typically been managed and financed by special purpose districts.30 In 2010 Denton County Commissioner Hugh Coleman proposed a moratorium to stop the creation of special taxing districts in the county. Commissioner Coleman wanted county officials to pause the fast growth of special purpose districts in the county and assess the current situation. The Commissioner noted that unintended consequences were high tax rates and the need for law enforcement. A Texas Attorney General opinion determined the county could not enforce traffic laws in the special districts, which, he claims, have led to public safety issues in the district. He also noted concerns for districts potentially neglecting their infrastructure needs and duties.31 Further, the proliferation of districts on the outskirts of cities boxes in municipalities and essentially forces them to annex typically large developments should they want to grow.32 Illustrating the issues of these districts operating under the radar is the example of a MUD in North Texas that had paid off their debt in 2010, yet the MUD board continued to meet and tax its residents. It took a court order and an election to dissolve the district. Many residents felt the district had not tried to let the public know of its existence. “We had no idea there was a board that met every month,” said Mary Arceneaux, a resident of 29 Ibid. 30 McPhate, Christian. “New districts keep towns on their toes: Union Park just one of the latest special districts in county.” 31 Lewis, BJ. “Coleman scrutinizes special districts.” 32 McPhate, Christian. “New districts keep towns on their toes: Union Park just one of the latest special districts in county.” Kay 11 the district in Corinth, near Denton. “They had meetings, they were spending our money, they had elections, and we never did find out. That’s how they kept the same people in there on the board for 15 to 20 years.”33 Positives and Benefits to Special Purpose Districts While there have been concerns cited regarding the proliferation of special districts in the state, supporters have cited many benefits to this level of government. Numerous special districts provide services to communities that existing cities or counties are unable to subsidize. In some instances cities may have the desire to develop an area, but are unable to raise tax rates and debt to pay for infrastructure and services due to statutory tax ceilings. Cities and counties are sometimes also restricted politically in terms of how much revenue they can generate. The entities provide a way for residents living outside of city limits to get government services they need, such as infrastructure, water, wastewater and ambulance services. Some cities appreciate the ability to annex these special purpose districts once they are built out. This allows the municipality to bring into their boundaries a community (and with it their property taxes) they didn’t have to provide costly infrastructure to develop. The residents benefit because annexation means city services, both public and safety related. It also allows these residents to vote in city elections. Further, Texas political culture tends to call for minimal government. Special districts provide a mechanism for providing government services without existing governmental entities assuming responsibility for them, reinforcing the appearance of limited government. This insulates local public officials from citizen complaints about inadequate service deliverance, or mandatory taxes.34 Jody Richardson has been a lobbyist helping create special districts since 1982. She attributes the increase in special districts in Texas to land development becoming more “sophisticated.” “The consuming public wants stuff,” Richardson said. “They don’t just want a house. They want a house in a master planned community, with hike-­‐and-­‐bike trails and amenities. All of that costs the developers money. And they need to put them in 33 Miller, Steve. “Special districts, special favors: An insider network of favors surrounds these proliferating governments in Texas.” 34 Flores, Gregorio III and Michael Kelley and Roberta A. Ritvo and Natasha Borges Sugiyama. “Fiscal Capacity of Texas Cities Policy Research Project: Local Government Structure and Function in Texas and the United States.” Kay 12 place to attract homebuyers.” Phillip Savoy, of Austin-­‐based Murfee Engineering Co., said in a 2011 hearing regarding districts that his group has “built an entire engineering business on putting together the process to create these districts. We have found a mechanism to allow communities to expand their infrastructure. Without putting the tax burden on the whole community, it goes to the people who live in the district.”35 Negatives of Special Purpose Districts While there are benefits to special districts, there are also many critics of these governmental entities. Critics of special purpose districts claim they are used solely to allow developers to borrow millions of dollars at the same low interest rates that governmental entities enjoy. Further, while Texans have relied for years on special districts for services that local governments cannot provide, the establishment of special districts has evolved into a web of self-­‐dealings and relationships between firms and developers who make a living off of the districts, and the lawmakers who authorize and establish the districts.36 Many argue that there is a lack of transparency and accountability in the establishment and management of these special districts. Often, residents do not realize they are purchasing land and homes in a special purpose district, nor do they have readily accessible information on the boards that run the districts. Therefore, those that are making decisions regarding infrastructure and tax rates in a district may be shielded from criticism or questions. Additionally, depending on the enabling mechanism used to establish the district, the governing board may be appointed instead of elected, leaving residents without an opportunity to hold the board accountable. Further ensuring a lack of checks-­‐and-­‐balances, once districts are established there is virtually no supervision by the state.3738 35 Miller, Steve. “Special districts, special favors: An insider network of favors surrounds these proliferating governments in Texas.” 36 Peebles, Jennifer. “Growing governments: How ‘special districts’ spread across Texas with limited oversight and accountability – but with plenty of power to tax.” 37 Flores, Gregorio III and Michael Kelley and Roberta A. Ritvo and Natasha Borges Sugiyama. “Fiscal Capacity of Texas Cities Policy Research Project: Local Government Structure and Function in Texas and the United States.” 38 Galvan, Sara C. “Wresting with MUDs to Pin Down the Truth About Special Districts.” Kay 13 The argument that special purpose districts increase greater citizen participation also falls short when examining the establishment and governing of districts. While they are sized such that it may be easier to know someone on the board and take advantage of opportunities for community building, it is typically developers and not the general public that determines when districts are formed, how big they are, and who governs them (at least initially). Once districts are formed, few actually vote in board elections or take an interest in district actions. The absence of public participation leads to unchecked actions and special interest powers. Also troubling is the fact that elections for establishments of these districts, combined with the ability to issue large bonds and tax rates to pay for them, are typically voted on by very small numbers of voters.3940 Ellen Witt, former deputy attorney general for legal counsel in the Office of the Attorney General of Texas, feels people aren’t aware of the existence or power of special districts. The districts often do an inadequate job of posting their public meetings, she said, and usually use a website with a .com address rather than the .gov that is used with other taxpayer-­‐funded entities. “People don’t understand that these are government entities,” Witt said. “For people to hold government accountable, they need to know that a group is a government entity to begin with. Many of these are operating under the radar. And they don’t seem to want the public to know they exist.”41 Though there are more than 3,000 special districts in the state, and these districts bring in billions in tax dollars, less than 10 of them have been placed in the State Comptroller’s transparency leadership circle. This designation certifies an entity has met certain standards for publishing easily accessible information, including financial, about the district on the Internet for the benefit of the general public.42 Further troubling is the amount of debt these entities are accruing. According to the Texas Bond Review Board (BRB), the largest percentage increase in debt from 2001 to 39 Flores, Gregorio III and Michael Kelley and Roberta A. Ritvo and Natasha Borges Sugiyama. “Fiscal Capacity of Texas Cities Policy Research Project: Local Government Structure and Function in Texas and the United States.” 40 Galvan, Sara C. “Wresting with MUDs to Pin Down the Truth About Special Districts.” 41 Miller, Steve. “Special districts, special favors: An insider network of favors surrounds these proliferating governments in Texas.” 42 Peebles, Jennifer. “Growing governments: How ‘special districts’ spread across Texas with limited oversight and accountability – but with plenty of power to tax.” Kay 14 2011 is in special purpose districts. The BRB collects data on state and local government debt as required by statute. This includes tax-­‐and-­‐revenue supported bonds, certificates of obligation, and any lease purchases valued at more than $250,000 or with a term longer than five years. Based on reported debt information, local debt outstanding was more than $192.7 billion in 2011, while state debt was about $40.5 billion. Of total local debt outstanding, special purpose districts debt accounted for $18.2 billion, while water specific districts accounted for $30.3 billion, or almost 16 percent of all outstanding local government debt in the state. About 35 percent of water district debt is tax-­‐supported, while the entities’ revenues (from user fees) back 33 percent.43 Recommendations Actions can and should be taken by Texas’ Legislature to improve special district processes and management. In the 2013 Legislative Session Rep. Dennis Bonnen (R-­‐Angleton) filed House Bill 3397 that would have required special purpose districts in Texas to conduct a comprehensive review of the district at least once every six years. The bill required the governing body, after conducting the review, to publish a written self-­‐evaluation report and make it available to the public and ensure its posting on the Internet. Should the 43 Combs, Susan. “Texas, It’s Your Money: Your Money and Local Debt.” Kay 15 district not already have an Internet website, it would be required to establish one, or a social media site solely run by the district. It also required the governing body to hold a public hearing on the self-­‐evaluation and post notice of said hearing. This legislation would have gone far to improve accountability and transparency for special purpose districts in Texas. HB 3397 passed the House unanimously on May 2, 2013. It was referred to the Senate Finance committee on May 8th, and subsequently referred to the subcommittee on Fiscal Matters by Chairman Tommy Williams on May 10th. The bill never had an opportunity for a hearing in the subcommittee before the end of the 83rd Legislative Session and therefore did not pass the Senate.44 Texas’ taxpayers and property owners have a right to adequate and easily accessible information regarding the taxing entities to which they pay taxes. This piece of legislation would have provided that, and deserves another opportunity during the 2015 Legislative Session. There are various other ways that special purpose district rules and regulations could be modified and strengthened to provide for improved transparency and accountability. The following are policy-­‐related recommendations to achieve that goal: •
Require city approval prior to special purpose district annexation of land in a city’s extraterritorial jurisdiction (ETJ). Currently, a district may annex land in a municipalities’ ETJ without approval from that city. Cities have various power and control over their ETJ that have allowed for the type and amount of development they desire and plan for their community. The power to annex this land into the district’s territory essentially negates any of these future plans. •
Require a certified copy of the order creating the district to be filed with the county clerk’s office in county deed records. Requiring these documents to be filed in the clerk’s office would ensure citizens purchasing homes in districts are aware of the entities they would be regulated by and pay taxes to. This action would serve to improve the accountability and transparency of districts. •
Require all water district approvals to complete land evaluations. Evaluating land conditions, topography and water sources (both surface and ground) would ensure districts are fully aware of their existing natural resources and that developers pursue sustainable development. To further strengthen this recommendation, it is suggested that these land evaluations be required to be completed by accredited scientists. 44 Tex. H.B. 3397, 83d Leg., R.S. (2013) Kay 16 •
Require clearly written, signed affidavits when voting in an establishing election. The 1995 Attorney General’s ruling to cease investigations into district establishing elections opened the door for a proliferation of district creation. Previously, if a very small number, such as 5 or 10, voters voted in a district election, the Attorney General would investigate the election to confirm the validity of all votes cast. Requiring signed affidavits confirming eligibility when voting in a district’s establishing election would help to affirm the legitimacy of elections without reinstating time and cost intensive investigations. •
Require obvious postings of signs with information of the existence of a special purpose district, including its boundaries, and of district board meetings, board member contact information and more. Many residents who reside in districts are not aware of their existence, the board members who make decisions regarding their neighborhood and the taxes they pay, or the meetings where these decisions are made. Posting clear signs with this information, most beneficially at the entrances of these districts, would improve accountability and awareness of districts. This would serve to increase citizen engagement and participation in the governmental entity they live in that is in most cases invisible. Conclusion The creation of special districts in Texas is unlikely to diminish any time soon. Each year more of these forms of local government are created to address problems for which cities and counties lack the ability or desire to address. Creating special districts is relatively easy, and the desire of local government officials to pass the burden of service providing and taxing onto these entities will lead to their continuing proliferation for many decades to come. Modifications can be made in the management and establishment of districts to improve accountability and transparency. Special districts serve an important role in local government and are necessary for the sustainable and responsible growth and development of Texas; however, they can and should be strengthened and held accountable to the residents residing in their boundaries. While special districts supply needed infrastructure and services to areas not being serviced by existing governmental entities, they are typically unable to adequately deal with complex issues such as water quality and quantity management and flood prevention. The existence of special districts is a disincentive for city and county governments to finding solutions for these area-­‐wide problems. City and county governments would benefit from collaboration with special Kay 17 districts to ensure proper development and growth. Further collaboration from the community in the form of effective public policy and rules would allow for a level playing field in the development of neighborhoods in which citizens live and raise their families. Kay 18 Resources Allen, Joe B. and David M. Oliver, Jr.. “Texas Municipal Utility Districts: An Infrastructure Financing System.” http://westten.com/docs/texas-­‐municipal-­‐utility-­‐districts-­‐an-­‐
infrastructure-­‐financing-­‐system.pdf Carlton, John J. “Special Purpose Districts: Current Issues.” Presentation to the 2013 Texas Water Law Superconference. November 21, 2013. Clinton v Cedar Rapids and the Missouri River Railroad. (24 Iowa 455; 1868) https://supreme.justia.com/cases/federal/us/110/27/case.html Combs, Susan. “Texas, It’s Your Money: Your Money and Local Debt.” Texas Comptroller of Public Accounts – Data Services Division. September 2012. Combs, Susan. “Texas, It’s Your Money: Your Money and the Taxing Facts.” Texas Comptroller of Public Accounts – Data Services Division. August 2012. Flores, Gregorio III and Michael Kelley and Roberta A. Ritvo and Natasha Borges Sugiyama. “Fiscal Capacity of Texas Cities Policy Research Project: Local Government Structure and Function in Texas and the United States.” University of Texas – LBJ School of Public Affairs. September 15, 1997. Galvan, Sara C. “Wresting with MUDs to Pin Down the Truth About Special Districts.” Fordham Law Review. 2007 Hart, Patricia Kilday. “Special purpose districts’ assessments prove taxing.” The Houston Chronicle. February 3, 2013. Langham, Laura and Corey Roy and Austin Valentine. “Invisible Government: Special Purpose Districts in Texas.” Senate Research Center Publication. October 2008. Lewis, BJ. “Coleman scrutinizes special districts.” Dallas Morning News. December 28, 2010. http://www.dallasnews.com/incoming/20101228-­‐coleman-­‐scrutinizes-­‐special-­‐
districts.ece McPhate, Christian. “New districts keep towns on their toes: Union Park just one of the latest special districts in county.” Dallas Morning News. November 10, 2014. http://www.dallasnews.com/news/community-­‐news/lewisville-­‐flower-­‐
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