Conflicts of interest abound in special districts as solutions fail

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Special Districts Conflict of Interests

Call it a slip of honesty.

During a trial in which a Montgomery County man was accused of illegal voting in a special utility district, the defense counsel questioned the validity of two voters who were said by the state to have voted legally in the same election.

Like the defendant, the legal voters were temporary residents.

But, “they had money,” said David Glickler, the lawyer representing the state Attorney General’s office.

Such is the power in special districts around the state, often outposts of undeveloped land that are owned by developers, who in turn create mini-governments that tax new residents to cover the costs of development.

Lawmakers approved 50 more special districts in 19 counties in the last legislative session. Thirty-two of the new districts were created to facilitate water and other infrastructure. Others are municipal management districts, which tax locals in exchange for expanded services that government can’t or won’t provide. In a handful of others, roads will be built as the population expands.

Six of the districts created this session were in Montgomery County, while 12 more were located in sprawling Harris County, the third largest county in the U.S.

State Sen. Brandon Creighton authored or sponsored 13 measures authorizing districts this session. Creighton is the executive vice president of the development group Signorelli. In 2015, he carried a bill to create a district that would benefit SignorelliCreighton declined an interview request.

The chummy, albeit lawful connections between developers, lawmakers, and other interests have created a tension between the advantages and disadvantages with regard to special districts.

Since 2011, the number of special districts in Texas has increased 20 percent. As the district boom has taken effect, the legislative process under which they are created has taken criticism.

Wealthy landowners, often composed of corporate conglomerates, are allowed to buy land and float money that will put taxpayers on the hook if things go south, the story goes.

“It’s become a tool for developers to get carte blanche and do whatever they want,” said Paul Lazzaro, former vice president of marketing and public affairs for The Woodlands Development Co. in Montgomery County, where special districts have exploded in the past few years. “It was just an evolution, and rather than the legislature doing anything to fix it, they didn’t. And the developers became like teenagers, figuring they can get away with something, then they try to get away with something more. And they have.”

Lawmakers prepared this year for another round of district creation with the pre-session report from the House Committee on Special Districts that praised the ability of the state to create the regional carve outs.

“By allowing developers to appropriately respond to housing demand in an equitable regulatory environment, MUDs assist developers in providing a housing supply to properly accommodate housing demand in Texas markets,” the report states.

Proponents add that special districts are done in a way that keeps housing prices low while providing residents with a safe, managed community.

“The rate of growth in this state would not allow the cities and counties to keep up,” said Jim Gaines, chief economist of housing development at Texas A&M University’s Real Estate Center. “And a private developer could not afford to amortize the cost of building infrastructure as it would drive prices too high. So this is the system to make it work, and it has.”

Critics harp on the power given to well-heeled special interests in of many of the special districts.

In committee hearings for the districts that were approved this session, support came exclusively from developers, lobbyists, or lawyers connected to the district being proposed.

Most hearings during this session were, as in the past, rote. When a Chinese developer, HB American Group, successfully presented its case to the House Committee on Special Purpose Districts to create a district in Conroe, Texas, HBAG attorney Timothy Green simply walked up to the lectern and expressed support for the project — as did David Nemeth, who said he was representing the district.

WATCH: Districts go through the House Special Purpose District Committee

In the new crop of districts, directors were named in the creating legislation. In all such cases, these directors stand to benefit from any action taken, including eminent domain and the issuing of debt.

Directors in the newly created North Hays County Municipal Utility District #2 includes a general contractor manager, a real estate advisor, a residential planning designer, and an engineer.

Legislation creating another district in Harris County appoints a realtor and an industrial engineer.

“Wouldn’t you want someone who knows this stuff on the board?” Gaines said. “An ordinary citizen is going to get lost in there. And the initial board eases out after the district gets up and running.”

Reform of the process has never been a priority in Austin, even with the growing chorus of opponents, who speak of secretive meetings, elections, and procedures.

“Yes, these districts can in some cases do a better job of informing people of the when and how of elections and of people knowing how the money is being approved and used,” said state Rep. Jim Murphy (R-Houston), who chairs the House Committee on Special Purpose Districts.

For example, he said, notice of elections in special districts should be posted to a secretary of state site, much like those of the many other public bodies in the state.

In some cases, board meetings for utility districts are held outside the district.

Denton County Commissioner Hugh Coleman, a seasoned foe of special districts, drafted legislation that would require public meetings to be held on the grounds of the district.

The measure, House Bill 2012, “went down in flames.”

“No one would even give it a hearing,” Coleman said. “But you have these districts and board members…voting on money issues at a remote place in some cases.”

Also failed was a measure requiring people voting in special districts to live in those districts for at least a year and a bill that would determine how to fold a district after it has served its purpose.

A measure to disband the Chisholm Trail Special Utility District, which in 2014 transferred its operations to the city of Georgetown, also went nowhere despite a Senate Research Center analysis identifying that the district’s handling of water was removed due to “chronic mismanagement.”

The district continues to exist today, providing more fodder for critics.

The system for developing residential tracts of Texas is not perfect, but “the alternative to special districts is that nothing happens,” Gaines said. The gripes about powerful interests, the lack of transparency, and the potential to put taxpayers on the hook for private debt are live wires, he noted.

But it’s either grow with the system or sit back.

“Pick your poison,” Gaines said.

Steve Miller can be reached at [email protected].

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