Board members of Denton County Fresh Water Supply District 11-A have filed a lawsuit against the developer of their district, claiming the developer violated contract agreements by applying for lower tax appraisals to pay less in taxes.
District officials said the tax waivers have resulted in the district’s missing out on potential property tax revenue. Officials are seeking $230,000 from Navo South Development Partners Ltd., the developer of the district in the Paloma Creek area.
John Turner-McClelland, Fresh Water Supply District 11-A president, said developers and homebuilders in the district have written agreements with the Texas Commission on Environmental Quality to forgo favorable tax appraisals and waivers.
To maximize tax revenue, TCEQ regulations require developers and homebuilders to enter into written agreements to forgo tax appraisals in an effort to pay off debts water districts usually incur from issuing bonds. And the waivers only apply to issuing bonds through TCEQ.
“Navo South is subject to a number of these waiver contracts, and has been since 2003,” Turner-McClelland said. “The contracts are valid for 25 years. However, we recently learned that Navo South and a number of homebuilders in the district were routinely applying for favorable tax treatment in order to pay significantly lower taxes.”
Attorneys for the developer did not return calls for comment.
District officials said the suit does not include the homebuilders as defendants or ask for interest or attorneys’ fees.
“We are currently evaluating with our attorneys adding the homebuilders to the lawsuit and also seeking interest and attorneys’ fees,” Turner-McClelland said. “A decision should be forthcoming, which could significantly increase the damages owed to the district for violation of the agreements.”
Fresh Water Supply District 11-A is one of five districts in the Paloma Creek development, located along U.S. Highway 380.
Like cities and school districts, freshwater supply districts are political entities that can construct infrastructure, set boundaries, set tax rates and have their own board members.
The directors’ duties are similar to that of a city council; they manage the business affairs of their district.
Matt Mildren, a spokesman for Provident Realty, which sold the land to Navo South for the development and serves as the master developer for Paloma Creek, said the lawsuit could have a negative effect on the entire community.
“Any time you have any negative press or a lawsuit, it never looks good,” he said.
But Mildren said Provident Realty doesn't have a stake in the lawsuit itself.
“We don’t have anything to do with what’s going on there,” he said. “That’s between that developer and the district.”
Turner-McClelland said that for months the district attempted to recover the past amounts from the developer without litigation, but they were unable to reach an agreement.
“We are hoping the developer and homebuilders will do what is right,” he said. “Of course, when the largest property owners in a district don’t pay their fair share of taxes, the homeowners are required to make up the difference. This is what was happening in our district.”
JOHN D. HARDEN can be reached at 940-566-6882 and via Twitter at @JDHarden.