Today, the Austin City Council approved an ordinance to abolish the Northwest Austin Municipal Utility District No. 1 (the “District”). I have served as the District’s general counsel since 2002.
The District has had a rather fascinating ride since its creation in 1987. The Texas Water Commission, a predecessor agency to the Texas Commission on Environmental Quality, created the District by an order after the original developers negotiated with the City of Austin (the “City”). The District is located within the Austin city limits. This District, like other MUDs, is a financing mechanism that developers use to fund utility infrastructure and require home owners to pay back that cost with their taxes that pay off the long-term tax free bonds that the MUD issues.
When the City and the developers entered into an agreement authorizing the District’s creation, state law required them to allocate the respective taxes charged to District residents by the two taxing entities. So the District and the City charged the District’s residents full tax rates. Usually MUDs that are created inside a city limits pay a lower city tax rate as the MUD performs certain services and of course, has to have a high enough rate to repay the bonds. In the District’s case, those services included operating the 13.7 acre Trailhead Park and managing 400 or so acres of conservation lands set aside for endangered species mitigation for the Canyon Creek development.
In addition to the full taxation, the city negotiated to receive all of the District’s water and sewer lines, and ultimately, Trailhead Park. This full taxation continued unchallenged until some principled and determined residents sought and won positions on the District’s board of directors.
The Districts directors who served during that time period included Bill Ferguson, Don Zimmerman, Karen Temborius, Allen Weiss, Ed Swarthout, George Frederickson, Rob Ratcliff, Russell Hill and Chris Bowers.
The board of directors began putting pressure on city officials, who ultimately acceded to provide a water rate reduction equivalent to one-half of the District’s debt service to District residents in exchange for about 200 acres of the 400 acre District conservation lands. This transaction occurred after the District and some residents filed suit against the City claiming that the 1987 creation agreement illegally failed to allocate the City’s and District’s taxes. While the District was careful to make it clear that this transaction was separate from the lawsuit, clearly it was the lawsuit that brought the City to the table (along with strong and persistent activism from the board and some key residents).
The District lost the first round at the Travis County District Court, but won on appeal at the Austin Court of Appeals after several years of waiting for the opinion. The Texas Supreme Court declined to consider the City’s appeal, and after the City exhausted all rehearing options, the City informed the District in December, 2009 that the City intended to dissolve the District. Cities may dissolve MUDs that are wholly located within their city limits, provided that they assume all liabilities and assets of the MUD.
Had the City just taken that opportunity at the beginning of the litigation, the City could have avoided millions in legal fees. Instead, as a result of the litigation, and follow up litigation filed by District residents against the City to stop the illegal tax collection, the City agreed to pay the legal fees to the District’s lawyers (Greg Coleman of Yetter, Warden & Coleman took the case on a contingency basis, and the District’s residents were never in danger of having to pay those fees), plus an undisclosed amount of fees and expenses incurred by the City in the litigation.
Although they paid decades of unfair taxes, the end result for District residents is favorable. The settlement agreement that Greg Coleman and his team (including Chris Ward and Marc Tabolsky) negotiated requires the City to refund all of the District’s taxes paid by District landowners for 2009. Anticipating the dissolution, the District’s board drew from its operating fund reserves and made significant improvements to Trailhead Park (new sod on the fields, irrigation upgrades, a new play scape, a repaved parking lot, and upgrades to the pavilion) and the trails behind the park. The District also sold its remaining conservation lands to the Canyon Creek Homeowners Association (it was required to sell any assets at fair market value) so that they would remain in local control and not under the thumb of the City. Finally, the board ordered refunds of remaining operating account funds to 2008 taxpayers (as noted above, the City is refunding 2009 taxes).
The District created history in 2009 when it won its case before the U.S. Supreme Court, Northwest Austin MUD No. 1 v. Holder. The case successfully challenged the U.S. Justice Department’s refusal to allow the District to bail out from the requirements of Section 5 of the Voting Rights Act. The District became the first non-county political subdivision in the nation to win independence from the preclearance stigma of Section 5, which requires certain jurisdictions to prove that any proposed change in rules or procedures affecting voting is not discriminatory. Gregory S. Coleman of Yetter, Warden & Coleman of Austin argued the case and also took this case at no cost to the District and its taxpayers. I was honored to be seated with Mr. Coleman and his partner Christian Ward at the counsel’s table during the arguments before the Supreme Court.
So there is now one less taxing entity in Austin, and the property owners in that area are all the better for it. They will, over the next two and a half decades, save over $16 million in property taxes. They have a strong board of directors, dedicated to limited taxation, to thank for that savings.
