Special utility districts such as a Municipal Utility Districts (MUD) are financing vehicles for the construction of roads, utilities, drainage, etc., that are highly regulated by the State of Texas. These costs are funded through revenue bonds, which are paid off by taxes and user fees levied on homes and commercial property within the district. One of the most significant benefits of these districts are lower priced homes.
The benefits of municipal utility districts and how their taxes work have been explored in previous blogs. Now we’ll take a look at when the bonds are paid off and when municipal utility districts taxes can go away.
A Developed MUD District
It is common and expected for MUD taxes to decline as bond debt goes down and more people move into the MUD, sharing the operating and debt service costs. Taxes start declining well before a bond is paid off — especially in a fast-selling community — but it typically takes decades before the entire debt is eliminated. When that debt is cleared and the MUD taxes are able to support the cost the city might have to provide services the MUD has been providing, the city annexes its extra-territorial jurisdiction where the district is located and MUD taxes and services are replaced by city taxes and services.