Housing construction in The Woodlands in 2023. The number of special purpose taxing districts has nearly doubled since 1998, reaching 2,300 last year and far outpacing the state’s population growth.
Jason Fochtman/Staff photographer
Gov. Greg Abbott recently told a room of GOP faithful that he is determined to stop cities and counties from raising property taxes, slamming Austin for proposing a rate hike to raise $110 million to spend on parks, public safety and social services.
“Do you think they’re spending your money in the rightful, conservative, judicious way right now?” Abbott said. “Of course not. What they need to do is start cutting what they’re spending, as opposed to continuing to raise your taxes.”
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It’s a pitch the Republican governor has rolled out often as he gears up to run for a record fourth term in office. But while cities and counties have been a frequent target of Abbott and other Texas leaders, a large and growing chunk of many Texans’ tax bills has mostly been ignored: the thousands of special purpose districts that operate across the state.
The districts — which encompass an enormous variety of government functions, from wildlife management to health care to waste disposal — have largely avoided the same rate limits that lawmakers have put on other taxing entities, even as more Texans pay property taxes to a special purpose district than ever before.
The number of special purpose taxing districts has nearly doubled since 1998, reaching 2,300 last year and far outpacing the state’s population growth.
Those districts are collecting a greater share of the state’s total property tax revenue — nearly 16% in 2023, up from 13% the year before, according to the latest available data from the Comptroller.
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In sum, they collected more than $12.7 billion in taxes in 2023, up from $3.1 billion two decades before. That’s a larger jump than those for cities and counties during that two-decade period.
Roughly half of the state’s special purpose districts are municipal utility districts, known as MUDs, which are especially prevalent in fast-growing parts of the state, where developers use them to issue bonds to build outside city limits and impose taxes to pay off that debt.
In some areas of the state, homeowners in MUDs are charged triple the tax rate as those who live in city limits.
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State Rep. Erin Zweiner, who represents Hays County, the fastest growing county in the state, said special districts make up the vast majority of her tax bill. She said her constituents are often shocked by what they owe to the districts, which can charge for everything from water to emergency services — things that historically have been provided by cities.
“What’s so frustrating to me watching this process is it feels like we’re just slowly reinventing cities,” said Zweiner, a Democrat who has pushed legislation to regulate municipal utility districts more closely.
‘An explosion of MUDs’
A spokesman for Abbott said in a statement that “all taxing entities need to live within their means, not exploit loopholes and raise property taxes without voter approval.”
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In 2019, lawmakers capped the amount cities and counties could raise property tax revenues from year to year without voter approval at 3.5%.
State Sen. Paul Bettencourt, a Houston Republican and tax attorney who has been the Legislature’s leading champion for property tax relief, arguedthat the 3.5% limit should apply to all special purpose districts, as well as cities and counties. (Bettencourt did not reply to an interview request.)
But the final bill contained numerous exemptions, including for junior college districts and hospital districts.
The bill also exempted smaller special taxing districts with maintenance and operations tax rates of 2.5 cents or less per $100 of taxable value. The latter category applies to more than two-thirds of special purpose districts, according to data from the Comptroller’s office, meaning those districts can increase revenue by up to 8% before needing voter approval.
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MUDs are also exempt from the cap because property taxes are used to pay back voter-approved debt. (Some MUD bonds have been approved by as few as two residents.)
The strict revenue cap placed on cities and counties could have contributed to the growth of special purpose districts, said James Quintero, the policy director for the taxpayer protection project at the Texas Public Policy Foundation, a conservative think tank that has advocated for the caps.
Quintero called for more state-led oversight of the districts.
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“I see a lot of utility in developing targeted governmental units that are intended to address a particular problem,” he said. But he added that many of these districts are created and then forgotten. “You have layer upon layer of governmental entity imposing a tax burden on the taxpayer, and the state really never comes back to assess, well, is the problem that the special district was created to solve, is that problem gone now?”
During an interim hearing in 2024, lawmakers agreed that the proliferation of special purpose districts was a problem and had contributed to rising property tax bills across the state.
This summer, Abbott called lawmakers back to further rein in local taxing. Lawmakers nearly passed a bill to lower the revenue cap in larger cities and counties to 2.5%. One Republican pushed an amendment to include municipal utility districts, which account for 48% of special districts in the state.
“In rural Texas, we’re seeing just an explosion of MUDs,” said state Rep. Andy Hopper, a Decatur Republican serving his first term in the House. “MUDs as you might know are direct competition for cities and there’s no reason they should be exempted by this bill.”
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The House agreed and added MUDs to the bill, but the Senate stripped them out, along with a series of other tweaks in the House aimed at broadening its reach. The House shot down the changes and the bill died before the session ended.
Zweiner said it was an example of the growing appetite to target MUDs.
“I think folks from these fast-growth areas are starting to get frustrated with the lack of accountability,” she said.
Many experts say that MUDs have been an efficient and fast way to handle massive population growth outside of Texas’ booming metros. “It’s flexible, that you can put the infrastructure where the demand is much more efficiently,” said Jim Blackburn, an environmental attorney and professor at Rice University.
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But many residents who live in MUDs are surprised to learn their tax rates aren’t set by cities. Boards are elected by local residents, but members aren’t required to live or meet in the district.
“There’s many of them who just write a budget on a postcard and say, this is our budget, and we’re going to spend this,” said Adam Haynes, the policy director for the Texas Conference of Urban Counties.
Most MUDs are located on the outskirts of Houston, in Harris and Fort Bend counties, but over the past decade, they have proliferated statewide.There are currently 1,441 active MUDs across the state, according to the Texas Commission on Environmental Quality — up from 960 in 2018.
“Everybody and their grandparents are frustrated over the rise in property taxes, the way Texas deals with property taxes,” Haynes said. “Yet the fastest growing segment of the cause of property tax increases is largely going unconstrained.”
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A confusing maze of taxing districts
There are more than 30 kinds of special purpose districts in Texas, covering a broad swath of government functions: water and wastewater management, economic and community development, health and safety, agriculture, transportation, and education.
Most levy a property tax; some can also levy a sales tax. Some are created by an act of the Legislature; others by petition to local government, which can call an election.
Generally, special purpose districts are governed by a board elected by voters in a particular area, but they can also be overseen by a county commissioner’s court, or a board appointed by local elected officials. The result can be a confusing tangle of governance, difficult for voters to navigate.
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In Santa Fe, outside Houston, residents may pay taxes to eight or nine different governments, Galveston Tax Assessor-Collector Cheryl Johnson told a Senate committee in 2019.
“It took me phone calls and research and about six to eight hours just to find out when those public hearings had been held for those eight governments,” Johnson said. “And if it was hard for me, and I knew who to call, I can’t imagine what it would be for a mother and a father with children, coming home from work, trying to feed their kids, and then trying to figure out … how do they testify at a meeting at 8 a.m. and one at 7 p.m.? And one’s Monday, one’s Tuesday, one’s Thursday.”
According to research by the Texas A&M Real Estate Research Center, special purpose districts aren’t raising property tax rates any faster than other local governments. There are simply more of them, each one charging a different tax.
A 2014 report by the Texas Senate Research Center called special purpose districts “the invisible government of Texas,” noting that the “large number of special purpose districts and the narrow functions they offer limit the availability of information regarding the various districts, which could decrease accountability and transparency.”
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There is no centralized database or state agency that oversees special purpose districts. That’s a problem, said Quintero of TPPF. He said the legislature should create a sunset review process for special purpose districts, as is required of most state agencies every 12 years.
“There has to be some comprehensive mechanism that governs this suite of government so we’re not simply creating governments and forgetting about them,” he said. “The absence of reliable data and any sort of comprehensive review mechanism means we simply don’t know if the rate of government creation is good and necessary.”
