August 16, 2004
Property tax blues

This Sunday Chron article on property tax variances was a bit of a disappointment to me. I don't think it's any great secret that some municipalities in Harris County, like Southside Place, have lower taxes than others - I mean, isn't that the reason for Southside Place's existence? What else is there? I guess I was hoping for an article on why property valuations can vary so much within a neighborhood, but that isn't what I got. Alas.

The discussion of municipal utility districts (MUDs) was interesting enough.

Municipal utility districts, which install and operate water and sewer systems in many new neighborhoods outside incorporated cities, frequently charge homeowners $1.50 to $2.50 per $100 assessed valuation to pay off the costs of the infrastructure. That leads to neighborhood property tax bills that are wildly inflated for several years until the MUD costs come down.

The new neighborhoods of Village of Northgate Forest and Cypress Mill Park are the two most heavily taxed areas of Harris County, according to a Houston Chronicle analysis of county and Harris County Appraisal District tax records. Both have high MUD taxes, driving their overall tax burden skyward.

The total tax bill for a home in Northgate Forest, for example, is $5.36 per $100 assessed valuation, meaning a $500,000 home was taxed last year at nearly $25,000 after homestead exemptions. By comparison, a similarly valued home would have been taxed at about $11,000 in Houston or $9,500 in Southside Place.

The developers of Northgate Forest recognized they would have trouble attracting buyers with such high taxes, so they agreed to pay all but $1.25 of the subdivision's $2.79 MUD taxes.

"We knew that we could not sell these lots with a $2.79 or $3 rate," said Doug Shannon, the general manager of the Northgate Forest Development Company. "So that's why we subsidize it down to $1.25."

I don't have any problem with the concept of MUDs. Seems perfectly fair to me that new housing in previously undeveloped areas should be responsible for the startup costs of extending utility services like water to them. And I have no problem with developers subsidizing those costs for their customers. That's the free market at work, isn't it?

Questions that weren't addressed but which I'm curious about anyway: How does new development, especially dense townhouse development, in existing populated areas affect utility services? Is there a cost to extend or expand water and sewage to city blocks that now may have a lot more people living in them, and if so who's paying for it? I've been wondering about this since the inner-loop boomlet began.

Posted by Charles Kuffner on August 16, 2004 to Elsewhere in Houston | TrackBack

We are building a house in Mansfield and we have to pay impact fees for our new house before they will issue a building permit. There is a water impact fee for hooking up to the city water supply as well as road, park and sewage impact fees. These impact fees can be fairly signifcant too. For a 1" hookup to Mansfied City water it costs around $3000 (if I remember correctly). So I'm sure a townhouse development pays a pretty penny in impact fees in order to get their building permits.

Posted by: Tim on August 16, 2004 10:50 PM

The Chronicle article completely misses the point. Aseesment per $100 is interesteing but irrelevant. As houses in Southside Place are all assessed at three times the harris county average of course the tax rate per dollar of assesment is lower. That doesn't mean that total taxes paid per homeowner is lower. It's actually probably higher in Southside place per household!

I don't have the time but somebody should do a cost per household or per squarefoot of home and acompletely different ranking would be generated.
The ranking of MUD taxes per house would be completely different also.

Posted by: John Berner on August 17, 2004 12:16 AM

MUD's are a useful tool for developers. I live in Spring and the entire could not have been developed without the use of MUD's. Indeed, the Houston area leads Texas in the use of these arrangements as development tools.

What bothers me is that they are tools for transferring debt from one party (the developer) to another entity (the MUD). At the early stages of development, the developer controls both the entity acquiring debt (his company) and the MUD. I think this is a situation that without proper oversight can engender moral hazard and lead to excess debt being piled on a MUD with the knowledge that unsuspecting homebuyers will buy homes and thus shoulder the debt load.

Posted by: chris on August 18, 2004 2:02 PM

Referencing MUDs: I was under the impression MUD development costs were passed on to the homeowner in the form of a tax and (important)the tax rate would decrease once the initial development cost was paid. This does not seem to happen in most MUDs. Who is monitoring the MUDs?
What "Costs" are covered by the tax? I suspect the tax is a great deal for developers and the home owner just sucks it up and pays.

Posted by: Grady Joiner on December 10, 2004 12:30 PM