With the rampant growth of the Dallas-Fort Worth region, developers are relying on special utility districts to finance the construction and maintenance of public infrastructure such as roads, utilities, drainage, etc., rather than covering those costs through lot premiums. The result? Lower home prices with a high level of amenities.
But how do these special utility districts — Public Improvement Districts (PIDs), Municipal Management Districts (MMDs) and Municipal Utility Districts (MUDs) — actually work?
Trinity Falls is located within McKinney MUD 1 and McKinney MUD 2, so we’ll talk specifically about funding for Municipal Utility Districts. Funds used to build public infrastructure within a MUD are obtained through the public sale of tax-exempt municipal bonds. The MUD provides for the payment of the principal and interest on the bonds through ad valorem taxes on all taxable property in the MUD, which is paid by homeowners and landowners within the MUD. These taxes are considered property taxes for IRS purposes.
These districts — including the Trinity Falls MUDs — are typically located outside city limits within an Extra Territorial Jurisdiction (ETJ). Because of this, homeowners do not pay city taxes.
Declining MUD Taxes
The tax rate for a MUD district does typically decline as the bond debt goes down through the years and more people move into a MUD district, sharing the operating and debt service costs. It can take up to 30 years for a MUD bond to be repaid.
More information on Trinity Falls’ Municipal Utility Districts can be found here.
This is the second of a three-part series on the what, why and how of special utility districts. Stay tuned for the next article, which will explain what happens when a MUD dissolves.