The Economics of Municipal Utility Districts for Land Development

Abstract

The location and pace of housing development within a metropolitan area has traditionally been affected by the availability of basic utility services: water, sewage, drainage, electricity, telephone, and gas. In areas where these services did not exist, development simply did not take place. The extension of public utilities has been a means for controlling where urban growth occurs (Frieden 1979). In most communities, these utilities-notably, water, sewage, and drainage-are under the control of municipally owned companies. Urban development normally depends on the willingness of these companies to extend utility lines to serve new developments., Municipal Utility Districts (MUD's) offer an alternative to regional utility companies (RUC's) for providing primary utility services.2 The purpose of this paper is to examine the economic advantages and disadvantages of MUD's, with particular reference to their comparative role in the growth of two major Texas cities-Dallas and Houston. MUD's represent a type of Special District found in many communities which provide municipal bond financing for hospitals, roads, utilities, or other urban service. The motivation for singling MUD's out for special study is that, unlike other Special Districts, they can be established by the private sector-primarily by developers. The literature on MUD's is sparse. Mitchell (1973) and Tees (1971) have addressed the usage of MUD's for urban growth, along with their background and political success. More recently, a Rice Center Study