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Below is the HillCo client report from the September 23 House Special Purpose Districts Committee hearing.

The committee met to consider the following interim charge:
 
Conduct a comprehensive review of existing special purpose districts in the state. Study how special districts interact with other local governments and local taxpayers during and after their creation. Examine circumstances under which special districts are accountable to local taxpayers and make recommendations on ways to increase spending transparency among districts.
 
 
Beth Hallmark, Office of the Comptroller

  • The Comptroller’s website provides many good resources for transparency within special districts
  • State and local debt has been a focus of the Comptroller’s recent transparency efforts
  • Chair Dennis Bonnen asked what the Comptroller’s office has on improvement districts
    • Not a lot
  • Bonnen noted that is an area of concern regarding protection of taxpayers; is anything being done to study those districts
    • It is part of the long term strategy to look at all special purpose districts
  • Elizabeth Barrett with the Comptroller’s office noted information is collected for improvement districts under the category of water districts
  • Rep. Eddie Lucio asked if there is any information the office cannot get because of current reporting requirements
    • The problem is more that there is not one single source that all entities are reporting to
  • Lucio asked if there are entities out there that are not being captured in Comptroller reports
    • There could be potentially
  • Lucio asked for a list of those entities not being captured in reporting
  • Bonnen asked how an improvement district is created, how they levy a tax and how they can be dissolved
    • Can get that information
  • Bonnen noted one of his school districts has a large bond election going on; he is finding that there isn’t a lack of awareness about bonds, but transparency is lacking within special purpose and improvement districts; the Comptroller should be honing in on the areas in which people are less knowledgeable
  • Rep. Carol Alvarado asked if there are any trends within districts
    • Have not analyzed any trends
  • Alvarado noted if all the data is being collected anyway, there should be someone studying it to determine trends and patterns
  • Bonnen noted the discussion has not been surrounding how districts are created, operated and dismantled; that needs to be part of the discussion
  • Rep. Doug Miller asked if there is any way to tell in Comptroller reports which debt was voted on by taxpayers and which debt was not
    • Try to make that information clear on the website that the debt is voted on by the public
  • Miller asked about fees versus taxes
    • Lucio noted some districts collect a tax, some collect ad-valorem tax, some collect an assessment and some collect a user fee
  • Bonnen noted there is a bigger question, are we creating greater transparency by making websites to show data or are we creating greater transparency by not creating special purpose districts and asking cities and counties to provide these services; many times when special districts are created it is because a city wants someone else to do a job the city should be doing
  • Lucio noted many times they are created out of necessity because of unincorporated areas in counties and counties not being authorized to pass ordinances
  • Rep. Ed Thompson asked if the dates that special purpose districts were created on are tracked; many times the districts push out a lot of debt to keep from being annexed into a city; perhaps they should be subject to a sunset date
  • Bonnen noted before that is considered it must be determined how difficult it is to undo these districts in the first place
  • Bonnen noted that Texas Municipal League says that cities don’t want to create the districts but do not have the money to provide the necessary infrastructure so they ask that the districts be created; Bonnen believes that is garbage because the city can just raise their tax to bring in more money
  • Alvarado noted she believes the districts are created to complement what cities do so blanket generalizations cannot be made

 
Linda Brookens, Texas Commission on Environmental Quality

  • TCEQ has jurisdiction over districts that are water type special districts; they can be created by the legislature, county commissioner courts or TCEQ
  • Bonnen asked about improvement districts
    • Those are under TCEQ if they have anything to do with water, wastewater, drainage, power, etc.
  • TCEQ reviews all aspects of special districts including capacity to serve their population, current and projected tax rates, and/or fees; TCEQ performs bond reviews and inspections of facilities as well as ensuring there are enough homes to support potential debt
  • Rep. Jonathan Stickland asked what happens if a district does water projects as well as other projects
    • TCEQ’s authority stops at the environmental aspects and bond issues

 
Justin Ring, Association of Water Board Directors of Texas

  • Organization represents Municipal Utility Districts
  • Represent nearly 600 MUDs around the state
  • MUDs handle water, sewage, drainage, and sometimes parks and roads
  • MUDs are one of the most open and transparent parts of government
  • Officials are elected by the residents and are answerable to TCEQ, the county and the state legislature
  • MUDs are an efficient way to establish infrastructure in the state
  • Stickland asked how the association is funded
    • Primarily through membership dues
  • Stickland asked if people are being taxed and their money is being used for lobbyists
    • There is no taxpayer funded lobbyist

 
Scott Norman, Texas Association of Builders

  • Special purpose districts are filling a need in unincorporated areas where services are not available as well as in areas where cities are not providing necessary services and additional services are desired
  • Developers are the first users of the districts and they need water, sewage and roads to get around when developing neighborhoods
  • The services are either going to be paid for by all the residents of a city or they can be paid for by just the population of the special district by creating one
  • Stickland asked if the current set up is good and encourages investment or if it is falling too much on the taxpayer
    • The taxpayer is going to pay for it either way; either through district taxes or through increased housing prices because developers have to fund infrastructure themselves
  • Stickland asked if it would be a long term problem if the model was switched from special purpose districts to developer pays
    • There would be a housing shortage because builders and developers would not be able to put the finances together quickly enough to support population growth
  • Rep. Matt Krause asked about pros and cons for moving from a special district system to a system in which the city or county is responsible
    • It is not as easy a process as is being implied to create a special purpose district; counties have not historically been in the business of building roads and water pipes; if cities wanted to take on that burden it would probably be welcomed  by developers and builders
  • Thompson asked about MUDs adopting building codes
    • For unincorporated areas, builders build to the international residential code; if they are building in a city they build to the standards of that city; builders like uniformity in code and if MUDs are creating their own codes it would just add to the number of codes builders have to familiarize themselves with
  • Lucio noted the problem is probably more surrounding how MUDs work 5 or 10 years down the road when the developer is gone
  • Bonnen noted cities are not in the speculative development business and that is good; without special districts how does that development happen
  • Stickland asked how often it happens that there is only one person in an area voting on creation of a district or the tax rate
    • Not sure

 
Carl Gustafson, Self

  • Owns property that has been brought into an improvement district in the Houston area
  • Improvement districts can be created with as few as 25 signatures from residents of the district
  • Bonnen noted there is a stark difference between improvement districts and other districts
  • Alvarado noted management districts require a certain percentage of signatures of the residents of a district rather than just a flat number
  • There is no validation of signatures once they are collected
  • Bonnen noted the district does validate the signatures themselves but they are not validated externally
  • In order to dissolve a district there must be 75% of the residents in agreement to do so, not just 75% of voters
  • There must be a template for creating improvement districts so that they can be measured against other districts
  • The threshold for creation of a district is extremely low and the threshold to dissolve is extremely high; there must be some moderation
  • Bonnen noted there is also a governance issue; probably most of the time the same consultant who helps to create the district is managing it and getting paid for both; if a strong governance structure is created, all of the other issues should resolve themselves

 
James Quintero, Texas Public Policy Foundation

  • The state is entering pre-crisis levels of local debt
  • When people vote on bond issues and are educated about the issues that is fine; when they don’t know what is going on or what debt levels their cities and school districts already have it is harmful
  • Lucio noted that he appreciates transparency but interests must be balanced; informing voters of per household costs of bond projects at the polls will deter affirmative votes for important public projects that need to be completed
  • Stickland noted that too much information on a ballot can never be a problem
  • Bonnen would rather see the ballot background information mailed to voters’ homes rather than included on the ballot; he doesn’t completely oppose the idea of including candidate/bond information at the ballot box
  • There are 1,900 special purpose districts in the state; a considerable amount of those districts don’t even have a website that would allow them to inform voters

 
Colleen Vera, Self

  • In Harris County special districts are elected
    • 2 problems- lack of clear limits; no checks and balances or oversight
  • The witness discussed the emergency services district she resides in
  • Bonnen made the point that the ESDs are elected; if you don’t like what they’re doing vote them out
  • Also concerned about the lack of transparency with ESDs; can’t even find contact information for the ESDs 5 members

 
Trey Larry, Allen Boone Humphries Robinson LLP

  • The number of MUDS are growing as well as the amount of local debt; at the same time, Texas is growing and there is a need for these services to keep up with growth
  • More people live in unincorporated Harris County than do in the City of Houston; this illustrates the need for special purpose districts
  • The benefit of the MUD model is to take the private capital from private infrastructure and invest it into infrastructure in a way that cannot be done otherwise