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Annexation shines spotlight on utility district power

Profile image for By John D. Harden / Staff Writer
By John D. Harden / Staff Writer

The recent annexation of an 800-acre development in Pilot Point by Smiley Road, a municipal utility district near the city, has exposed a power many regional leaders were unaware utility districts held, and left some leaders worried.

Developer and property owner Van Nichols originally sought to enter an agreement with the city of Pilot Point to develop a utility district in the city’s extraterritorial jurisdiction.

But the talks fell through, and Nichols petitioned for his property to be annexed by the owners of Smiley Road, another nearby district.

The noncontiguous annexation sent local officials scrambling to determine whether or not a utility district had the power to annex property without state legislation or the Texas Commission on Environmental Quality’s review or approval.

But according to the Texas Water Code, which sets regulations for utility districts, it is permitted. According to the code, owners of a district can choose to annex contiguous or noncontiguous properties if petitioned.

For six months, Nichols negotiated with Pilot Point officials and talks finally fell through last month.

“It became clear that we would not be able to reach an agreement with the city, so we elected to include the property in an existing district as our next best alternative,” Nichols said.

Officials say they are now worried that districts will begin to sprout across the county without any oversight.

“One of the problems with these districts is they have the ability to condemn and annex additional property, leaving the door open for something completely different than what was originally agreed upon,” Pilot Point Mayor Pete Hollar said.

Local leaders’ concerns have developed just days after a bill designed to help cities and counties monitor utility district growth was signed by the governor on June 13.

House Bill 738, which was authored by Rep. Myra Crownover, R-Denton, will give county officials the authority to review any plans or petitions for a pending district before it is sent to the TCEQ.

But the bill does not address districts created by the annexation of another district.

Utility districts are government entities that are usually created by state legislation, a county or the TCEQ.

After districts are created, residents of the districts can vote to approve additional powers, including the ability to set tax rates, collect property taxes, issue debt, build roads and perform construction.

Sometimes those powers are discussed and agreed upon at the local level, but additional powers can be granted at the state level.

Some districts even have the power to divide into multiple districts, according to state legislation.

“I just assume they would have to follow the same rules of annexation as a city. What they are claiming is not legal under the laws governing municipalities,” Hollar said.

The Texas Water Code states that a utility district’s main purpose is to help communities develop water infrastructure.

However, in recent years, developers have begun using the districts to help support the development of large residential and commercial developments.

They have been called “hidden governments” by state officials, according to an interim Texas Senate report. But experts believe it’s unlikely that state lawmakers will make any changes on how they operate.

It’s an unpopular idea to dictate what landowners or developers can or cannot do with their property, said Sara Bronin, author of a 2007 law review paper that analyzed the operation of utility districts.

However, many people still favor utility districts because, when used correctly, they are effective in helping build a community, said Wayne Feiden, a city planning consultant.

“But if poorly planned, these districts can lead to quick but inefficient development,” he said.

JOHN D. HARDEN can be reached at 940-566-6882 and via Twitter at @JDHarden.