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The Senate Committee on Intergovernmental Relations met on August 14 to take up interim charges related to Extraterritorial Jurisdiction (ETJ) limitations, expansion, and notification, and also the potential development of a uniform template or standardized language governing Municipal Management Districts (MMD)

This report is intended to give you an overview and highlight of the discussions on the various topics the committee took up. It is not a verbatim transcript of the hearing, but is based upon what was audible or understandable to the observer and the desire to get details out as quickly as possible with few errors or omissions.

 

ETJ Limitations and Notice: Review the existing regulatory authority granted to home-rule municipalities within the extraterritorial jurisdiction (ETJ), including practices used by cities to expand ETJ boundaries, and whether proper notification is provided to property owners added to a city’s ETJ following an annexation proceeding. Determine the limitations that need to be placed on a city’s authority within the ETJ to better protect the private property rights of individuals and landowners, and ways to notify individuals of the impact of being within a city’s ETJ. Develop a statewide rule and minimum requirements for such notifications.

Balis Dailey, City of Grapeland Mayor

  • Introduces Clint Dailey to present on the City of Grapeland

 

Clint Dailey, City of Grapeland

  • Many general law cities have seen a decline in population and sales tax
  • Grapeland has seen urban migration, farming and ranching leaving the city, and aging population, all contributing to lowering population
  • Aging population has also meant Grapeland has suffered negatively from property tax relief
  • Proposes a bracketed bill pertaining to Grapeland removing the city from being subject to certain code sections limiting ETJ authority/annexation
  • Grapeland has experienced several effects due to lack of ETJ authority: wastewater well near city water, waste disposal plants, business utilizing city services, etc.
  • Grapeland could expand with lessened limitations and become a prosperous community with more tax revenue
  • Huffines – So you’re asking for the ability to forcibly annex property owners?
    • I am, but also looking for another solution; sales tax is the important component
  • Huffines – Businesses could voluntarily annex their property
    • Voluntarily yes, no incentive for them to do so
  • Lucio and Dailey discuss the location of Grapeland, Grapeland is positioned on the 287 corridor and has potential for growth
  • Lucio – What percentage of the population is employed?
    • Balis Dailey, Grapeland – Only 10% of the population is employed within the city, 90% of those coming into the ETJ to work live in outside areas
  • Lucio – What’s your school population?
    • 5%
  • Lucio – And your senior population is over 50%?
    • Yes

 

Victor Gonzales, City of Pflugerville Mayor

  • Pflugerville is one of the fastest growing cities
  • ETJ is 39 square miles, growth started in 2006, 130 came through in 2006-2007 which spurred economic growth and housing boom
  • Pflugerville has been trying to keep up with this trend by extending ETJ East to match with School District and Emergency Services District
  • SB 6 created a ‘little diversion’ and has reversed planning on growth
  • Legally Pflugerville would have to provide services at expense of taxpayers to outlying areas which is not equitable, not wanting to use special districts due to effects on tax burden
  • ETJ and CCN are the major tools available, not contesting SB 6, but looking for ideas for growth planning
  • 4,000 residents in the ETJ area
  • Garcia – What are you asking the committee to do?
    • Looking for ways to deal with annexation, do not want to bypass the vote, but would like a management tool to allow Pflugerville to move forward and accommodate growth
  • Menendez – So what you’re saying is as the CCN holder, you have a legal obligation to extend services throughout the ETJ at the expense of current residents; some might say the CCN promulgated as a resource is now a liability
    • That is correct
    • Initially made investments close to $58 million in water utility services, need to ensure this is applied and utilized in the right way
  • Menendez – Should ask city manager to look at what annexation of ETJ would look like, could also look at fix to existing law that could address CCN issue
  • Huffines – Did the city request the jurisdiction of the area of CCN from TCEQ?
    • Yes
  • Huffines – Can you remove CCN and areas of ETJ?
    • Yes
  • Huffines – So this isn’t a trap that you’re in, but it’s a situation you want to be in
    • I don’t consider it a trap, but rather planned growth; unintended consequences of SB 6 have led to this situation as Pflugerville grows
    • Will be a major challenge to handle growth for whatever governmental entity is there
  • Huffines – You have limited purpose annexation powers? So you can negotiate annexation with property owners?
    • Correct
  • Menendez – So the reason you extended ETJ was to mirror growth of School District and Emergency Services District?
    • Correct
  • Menendez – So you’re trying to plan for this ahead of time?
    • Yes, made some plans with school regarding infrastructure at the edge of ETJ to ensure public safety
    • But, with growth of district, may not be able to keep up with them
  • Menendez – Road growth is important in your area of the state?
    • Correct
  • Bettencourt and Gonzales discuss MUD election, boards elected from within MUD
  • Bettencourt – Does the TCEQ perform a financial review of CCN applications, etc.?
    • Unsure
  • Bettencourt – I think the answer to that would help you with the prior questions; it does not appear you are in a forced expense, you do have tools to prevent the cost
  • Bettencourt – We think we have a bill that allows the public the important step of voting before annexation, this was the purpose of SB 6 and is the key
    • Majority of residents in our CCN/ETJ perceive themselves as residents of Pflugerville, we need to carefully manage that expectation
    • Working cooperatively with water suppliers to make sure representation of services are from a city or community
  • Bettencourt – Has there been an issue with approaching a MUD about annexation at this time?
    • Have not approached this yet

 

Darrin Coker, Pearland City Attorney

  • Pearland’s population has continually grown over his time as City Attorney, majority of residents are in Brazoria County, with some in Harris, etc.
  • 3rd largest city in the Houston MSA & the fastest growing city in the MSA, 2nd fastest growing city in Texas
  • Rapid growth creates challenges at local and state level
  • Had annexations planned in 2017 & moved forward on several to come in ahead of SB 6 & protect city infrastructure investments in surrounding areas
  • Have concerns about annexation plans that will not move forward, city expansion of infrastructure will be stopped, but tax burden will be moved to city residents; also concerned about fragmented development in ETJ
  • Practically, there will be continued growth in the ETJ, issue is how this is planned for and handled; municipalities
  • Huffines – The services provided in the ETJ were the city’s decision?
    • Correct, many cities do this & many in expectation that the areas surrounding the city would be incorporated
  • Huffines – CCN service area is also your choice?
    • Yes
  • Huffines – If a landowner wants to be part of your city, you can find a way to annex them in?
    • Correct
  • Menendez – Asks Grapeland, so your concern in your city is an ability to recoup some sales tax and the ability to protect your city from noxious use around the city?
    • Balis Dailey, Grapeland – Yes, also important to growth, especially with expectation of 287
    • Extremely difficult to protect the city and grow without annexation authority
  • Menendez – There was a large percentage of your population over 65?
    • Clint Dailey, Grapeland – 36%
  • Menendez – So 500 of your city’s population is over 65& you had 500 students?
    • 5% of the students live inside the city
  • Menendez – And I thought SB 6 created an exemption for small cities
    • There is no exemption
  • Bettencourt – Would now not be the time to ask residents in the ETJ if they would like to be annexation, given the services that have been provided
    • Pearland – Unfortunately there is a stigma associated with annexation
  • Bettencourt – What is your tax rate?
    • 68 cents
  • Bettencourt – Who is the number 1 growth city in Texas?
    • Frisco
  • Lucio – Would ask the witnesses to list the 3 most common-sense reforms that would help cities have the tools to better address needs
    • Wil provide that to the committee

 

Bettencourt comments that he plans on bringing back SB 488, ballot integrity bill, due to City of Houston ballot language dispute

 

Phil Crone, Dallas Builders Association

  • Housing construction costs are rising due to labor and increased regulation, impact is greatest on those who can least afford houses
  • Housing affordability is part of what is driving Texas’ overall growth, affordable housing allows workers to come in from out of state
  • Shares experience with individuals near McKinney, McKinney required inspections, etc. of land in ETJ and also turnover of several acres; would have obstructed use of property without media involvement
  • Many landowners in the ETJ are similar & unaware of their rights; notice can empower property owners and increase certainty/affordability of property
  • Bettencourt – Common-sense step, you need to tell taxpayers and homeowners of the condition of their property
  • Bettencourt – Shares experience with 2 projects that are similar in 2 different municipalities, one experienced difficulties while the other did not
    • Differences in fees and inspections, etc.
  • Lucio – So your testimony is that currently cities are enforcing building codes in ETJs?
    • Several cities in the Dallas that were doing it, several backed off due to Lakewood Village case and McKinney issues
    • Still seeing this pop up in other cities
  • Lucio – Would think that the city has a service obligation for areas building codes are enforced in, this is where annexation could come in; seems like there is a major conflict here
  • Huffines – Voters in ETJ do not get to vote for city council, seems disingenuous to apply ordinances like building codes to ETJ property owners
  • Huffines – We’re talking about private property rights, if the individuals in the ETJ sue to secure those rights, what would they win?
    • Essentially the ability to build their home, many face the choice of a large amount in fees, but a larger amount in court costs
  • Huffines – Seems ironic that if they want to litigate against a municipality is that they are fighting with their own money & their justice is getting the city to back off from breaking the law
  • Huffines – Property owners can’t receive damages due to immunity, really is no recourse when you get overrun by government
  • Huffines – Can you explain the Lakewood Village case in Dallas?
    • Decided by Texas Supreme Court, involved individual in ETJ of general law city
    • City was insisting on being able to perform inspections and post standards and fees, individual asserted and court agreed that the city could not do this
    • City was also charging well outside the market rate for the inspections
  • Huffines – And we need clarity in code on what a city can enforce in the ETJ regarding building standards
    • Part of the solution; also can look at how cities get paid by developers and gain new rate payers with expansion of services
    • Many different tools that vary from location to location
  • Huffines – Would it be fair to say that developers create all the infrastructure in the subdivision
    • Developers will put in the vast majority of the infrastructure and then contract with city to place connecting roads
  • Huffines – And cities have capital impact fees the reimburse for the placement of ‘backbone’ infrastructure
  • Huffines – City is not really out any costs when development occurs; they also charge inspection fees
  • Huffines – Cities want more control and authority over these areas, this is driving the cost of housing up across the state
  • Bettencourt – Agrees with concept that individuals are needing to assert their rights and cities take no consequences for going after these individuals
  • Bettencourt – SB 488 reintroduction next session will have penalties included for cities to combat this
  • Bettencourt – Also re-filing SB 655, another notice bill; no reason not to have notice and transparency
  • Lucio – Are you testifying that the concern of cities requiring building code adherence in the ETJ is an ongoing current problem? If so, I would like to know the specific cities requiring this
    • Was something we were seeing from quite a few cities in the Dallas area and stopped after legal battles, but have heard from colleagues in Houston of continuing issues with at least one city
    • Notice should do a lot to cure this

 

Bryan Mathew, Texas Public Policy Foundation

  • In the Lakewood Village case, court determined there was no statutory grant of authority for general law cities, but they left the issue open for home rule cities
  • SB 655 notice bill was an excellent notice bill, hopes it is supported again; when a city’s corporate boundaries expand, property owners may not know they are now in the city’s ETJ
  • New issue has arisen with development agreements where in turn for no annexation, property owners agree to certain stipulations
  • Cities have interpreted certain provisions allowing ETJs to be determined according to a non-annexation agreement, a few cities have ‘stacked’ these agreements to bypass unwanted areas and annex outlying areas
  • Should look at this and correct so non-annexation agreements do not allow this
  • Garcia – So you’re suggesting the annexation should be contiguous?
    • Yes
  • Garcia – To me, this leads to staggered development and would be challenging for local governments to deal with, should remedy the bypass

 

Scott Houston, Texas Municipal League

  • Seems that there is a narrative spun where cities are an ‘evil empire’ looking to take control, but more accurate to say they are interested in development of local neighborhood
  • ETJ authority has always been very limited, only extended voluntarily or in concert with annexation that pushes out the ETJ
  • Cities are aware generally that they can’t regulate building in an ETJ, cities could be enforcing building cods in concert with development agreements
  • While it is true that cities like Pflugerville do not have to undertake CCN, etc., question remains who will deal with growth in these outlying areas; some would say no regulation is needed, but development will ultimately have an impact on the city
  • Most people are moving to areas in and around cities, may make sense to have these populations benefit from the comprehensive development planning provided by cities
  • ETJ voting for city council is a tough issue, but SB 6 annexation limitation may make this a non-issue
  • In regard to the comments from TPPF, TML does not dictate this type of expansion, only tells cities how to comply with the law
  • Law clearly states that these areas are contiguous to areas that would be subject to ag agreements that avoid annexation
  • Menendez – Isn’t it true that cities will also create non-annexation agreements to incentivize businesses?
    • Correct
  • Menendez – One of the benefits of cities is zoning, protects investments of new homeowners
  • Menendez and Houston discuss the difficulties of ETJ authority, Houston relates experience living on a property which co-residents assumed was within city limits & expected land use protections

 

Municipal Management District Uniformity: In conjunction with the appropriate legislative departments, determine whether the development of a template or standardized language for the creation of municipal management districts would provide a more effective means for legislators to ensure new special purpose districts conform to accepted standards and contain appropriate taxpayer oversight.

Trey Lary, Allen Boone Humphries Robinson

  • Committee has considered and standardized new special districts over the course of many years; supports general idea of standardizing special district templates
  • Provides history of MUD template, MUD template has been very effective, easier to read & digest bills when they follow a format
  • MUD template has seen wide support, has been tweaked and updated as needed
  • First discussion of expanding this to MMDs in 2010, blockade has been the relative uniformity of MUDs and unique situations of MMDs; e.g. Houston area MMD would be much different than residential suburban MMD
  • In 2010 Committee decided template wouldn’t be practical, but instead standardized certain language to b included in each MMD bill; this standardization has been successful
  • Can likely standardize more sections of typical MMD bill, could also borrow sections from the MUD bill, but need to keep in mind the practical differences between these two types
  • Garcia – Is there a checklist or guide for standardization of MMD language? What history can you give us on TIRZs and what language can you give us for those?
    • MMD language has a table of contents of a typical bill & then goes through those that have been standardized, can be a format
  • Garcia – Is this updated before each session?
    • Yes, virtually Committees have looked at needed updates in every session since standards were created
  • Garcia – Okay, now tell me about TIRZs
    • TIRZs are different in that they are not bills, but created by general law by cities
  • Garcia – So the only group that can be a template are the MUDs?
    • MUDs by definition have the most standard set of services, easiest of the special districts to have completely uniform and standard, MMDs are less uniform by nature
  • Garcia – And then the MMDs have standards, but the TIRZs are a local issue?
    • Yes, language about bonds and taxes could be standardized for MMDs, for instance; open to working on additional aspects that could be standardized

 

Howard Cohen, Schwartz, Page & Harding

  • Focused on nuances between MUDs and MMDs and why templates are easier for MUDs
  • MUD purpose is very narrow, MMD purposes are much broader; e.g. urban revitalization, water service, rail service, etc.
  • Project and needs of project largely drive structure of MMD bill, standardized provisions to date have focused on the most common provisions
  • Challenge is balance rigidity of approved template with the need for flexibility given diverse use of MMDs; asks Committee to be mindful of need for flexibility
  • Bettencourt – Should we not even try to have a template for MMDs? Will have a bill on dissolution of MMDs, would like help on the front end as this will need to apply to all MMDs
    • Real benefit of the template is more for the Committee use rather than the practitioners
  • Bettencourt – What about the taxpayers
    • From the taxpayer’s perspective, application of MMDs is largely if it has been put on existing property or newly brought property
    • Formulation of template is beneficial to Committee and taxpayer for standardization
    • From the practitioner standpoint, helps to know limits, but current standard language has worked
    • Lary – Absolutely for standardizing as much as possible within bills, but nature of MMDs means the standardization needs more flexibility than a MUD bill
    • Would need more choices or variants, important to consider
  • Bettencourt – Need to recognize the obvious, fundamental differences between the two; question of whether MMDs need boards, for instance
    • Great issue where there is no longer uniformity & an example of where flexibility comes in
  • Bettencourt – I think we absolutely need elected board members, we need to look at the broad brush of applications; important to look at basic functions, but will keep insisting on this point
    • Will continue to work with you on this subject
  • Bettencourt – Could have a generic outline that applies or a template for this; at least in outline, wouldn’t necessarily need to describe all powers and duties
  • Garcia – Which provisions or topics could we standardize?
    • Currently, part of the language covers improvement projects, law enforcement, eminent domain, etc.
  • Garcia – What about some of what Senator Bettencourt raised?
    • Bettencourt is right on the administrative potion, could borrow bond language, roads, water, sewer, etc. from MUDs and have the two be more similar
  • Garcia – What about dissolution? 10-year plan, 20-year plan? Reviews, audits?
    • Important to separate what is done in a special act and what is done in general law to apply to all districts
    • There is current law on dissolution of all districts, I agree that dissolution & similar belongs in general law on principal
    • Will always be subjects like dissolution that are better addressed in general law than on a spot basis
  • Garcia – Only commercial property tax holders that pay the assessment for MMDs?
    • Varies greatly from district to district, different MMDs have different finance methods depending on goals; would be one of the most difficult areas to standardize
  • Garcia – So who pays the assessment initially, developer who buys the raw land?
    • Yes, just like a MUD would work in raw land development project
  • Garcia – Are there many of these compared to others?
    • Can get this info to you, more recent ones have been in the raw land context, likely 50/50
  • Garcia – Seriously?
  • Bettencourt – Yes, this is why it is a concern of mine
  • Garcia – Seems odd that you would form a MMD for raw land
    • Cohen – MMD has become a very widely used tool that covers mixed-use developments
  • Garcia – Seems to me that the developer has responsibility for absorbing that cost & assessment should be on commercial taxpayers and not the residential
    • Many times this is a preference of the city & what type of district they wish to see
    • More often than not it is because a proposed project will have a great deal of activity & it is known that extensive services will be needed & one MMD is created instead of a MUD and MMD

 

Val Perkins, Foley & Lardner

  • There are some instances where powers need to be granted to MMDs where the bill would need to be not template
  • Shares examples of MMDs that needed unique provisions
    • Hotel development on Lake Houston was approved for an MMD, needed template language plus special district powers, e.g. navigation district powers for shoreline development, road district powers for bridges, etc.
    • Doesn’t need to be a template bill, should be cautious of attaching taint of “non-template” bill though so need to be sure that if a template is developed that it will not encompass all needs
    • 3,000-acre district near Denton, needed rail districts powers

 

Bryan Mathew, Texas Public Policy Foundation

  • Issue with MMDs is that they be done according to certain principles, whether this is doesn’t through template or general law; TPPF thoughts on what should be included
    • Financial transparency, MMDs should have website and public posting of financials
    • MMDs are unique in that they operate in service & improvement plan as well as assessment plan, need other plans in order to continue; would like this to continue
    • Needs to be a clear process for dissolution
    • Also need to be another layer of reviewing petitions, petitions could be presented to city to check validity of signatures, needs to be an alternative to MMD board petition
  • Huffines – Template is a good idea; do you think the legislature should have a role in setting maximum tax rate
    • Perkins – You do already have this by virtue of supervisory power granted to TCEQ and agency rule adopted pertaining to maximum tax rates
  • Huffines – We basically rely on TCEQ to review financials and then set the rate
    • Yes, they have quite an extensive process of application review
    • Independent state review distinguishes our bonds from other states, rating agencies and underwriters value this highly
  • Huffines – Should the legislature be more definitively involved in figuring out tax rates?
    • No
  • Bettencourt – We have maximum rates for cities, etc., so if Sen. Huffines had a maximum rate bill, you would object to it?
    • Cohen – I think the existing system has worked extremely well, historically MMDs have declining tax rates
    • Lary – Not about objecting or not, more about trying to understand goal or objective
    • Perkins – Agrees
  • Bettencourt – Had Montrose MMD that was clearly broken, were you involved in this one?
    • Lary – Not financial advisors, were hired on a limited basis to evaluate petitions
  • Bettencourt – By any measure I understand, this MMD was broken, based on petition response, etc.
  • Bettencourt – I think there should be a dissolution clause, even if it is a repeat of general law; important to have the principle in the bill
  • Bettencourt – Issue with Montrose MMD was that they wouldn’t recognize the obvious and acknowledge effort to dissolve
  • Bettencourt – Would like a structure that gets rid of outliers, is there disagreement on that?
    • Perkins – No, but would like to make clear that differentiation in powers does not create outliers
  • Bettencourt – I think the TPPF principles are easy steps we can take

 

Public Testimony

Gerald Nobles, Texas and Southwestern Cattle Ranchers Association

  • Has lived in and around Midland for generations, was forced to leave Midland due to environmental conditions; bought property in another area of the state near Brady
  • Tried to sell portions of the property, were within 3 miles of the North-South runway of the Midland airport
  • Were directed to contact city due to ETJ, found a buyer under initial industrial zoning, but city changed zoning to residential, etc.
  • Mayor of Midland wanted to annex portions for promise of delivering water and forgiveness of ad valorem taxes on the sale, this went through
  • Sold portions of the property to a developer, the spaceport came into Midland and zoning changed again, Midland EDC bought the property and zoning was changed back to ag use
  • Tried to seek legal help, was told that the fight would be long & expensive
  • Received no notice of changes throughout process
  • Bettencourt – Notice bills were designed to take care of this and make sure you got notice, this sounds like municipal government at its worst; seems capricious and arbitrary to the taxpayer
    • TSCRA fully supports the notice
  • Huffines – Example of how municipal governments can and do operate sometimes, they fail to take into consideration the financial and emotional impact on taxpayers; this is not uncommon and there isn’t much recourse, exploring measures that would help taxpayers

 

Algenita Scott Davis, Houston Downtown Management District

  • Provides a history and overview of the Houston Downtown Management District, developed in response to issues with public safety and cleanliness in Houston
  • Garcia – Was curious about your MMD plan, 5-year plan? How is it reviewed?
    • Public notice is posted every 5 years, board takes a look at the plan through public hearing, property owners are invited
    • Also run surveys every other year
  • Garcia – Do you have oversight from the city?
    • City council approves appointments to the board
  • Garcia – Any oversight on the 5-year plan?
    • No, public hearing and notice
    • Also participate in an aspirational downtown plan
  • Garcia – And yours is one where only commercial owners are assessed?
    • Yes
  • Bettencourt – This started out as a commercial district, but there are condo property owners getting taxed now?
    • Property owners of these condos, building owners may pass this on
  • Bettencourt – Should consider elected representation due to increased owners, would like you to get back to the committee regarding this

 

Daphne Scarborough, Stop the District

  • Has been involved in several MMD lawsuits, also involved in a dissolution that is ongoing
  • Presents handout with recommendations
    • 50%+1 standard use to be the norm, but has changed; no have little to no representation and MMDs are established without input
    • Incorporate dissolution clauses into MMD bills
    • Should be careful of MMDs reconstructing themselves, if an MMD is dissolved then they need to come back with 50%+1 before re-enacting legislation is allowed
    • Petition verification should be looked at, possibly through the Secretary of State
    • Denominator/numerator issue is still ongoing, until 2011 only commercial properties were taxed
    • Board of directors representation
  • Bettencourt – Likes the very logical points, if MMDs are dissolved and want to reconstitute it needs to have higher scrutiny

 

Joyce Wiley, East Aldine Management District

  • Presents history and overview of East Aldine Management District, public services and infrastructure in the area has benefited greatly
  • Garcia – Example of an MMD that works, but important to keep an eye on all of them; have you faced any obstacles?
    • Haven’t faced any obstacles necessarily, not sure where we fit in this template
  • Garcia and Wiley discuss future plans of the MMD
  • Bettencourt – Are you an appointed or elected board?
    • Both, notice is sent out given an opening & procedure is decided, goes to commissioner’s court for approval
  • Bettencourt – With your level of activity, you are close to a small municipality

 

Anton Sinkewich, East Downtown Management District

  • Main thing should be to consider purpose and scale of MMD, certain things are inherently nonstandard
  • Provides background on East Downtown Management District in Houston

 

Theola Petteway, Greater Southeast Management District

  • Provides background on Greater Southeast Management District in Houston, created by action of community coming together and developing a community plan

 

Closing Comments

  • Lucio – Will be working on report, will notify if a wrap-up hearing is needed