General Information
The residents of South Shore Harbour live in one of six municipal utility districts (mud). The land comprising the districts was annexed by League City in 1962.  A map of League City showing the various mud districts located within its city limits can be seen here (In PDF Format. You must have Adobe Acrobat Reader to view this map).

All mud districts contracted with the city in one way or the other at the time consent to form the district was given, but according to the city's annual budgets only muds 2,3 and 6 received an allocation of the city's taxes collected from their districts. If you are a resident of one of these three muds then you should read the entire text of this page as well as the links to enable you to get a complete understanding of why and how you may be entitled to file a claim for damages.

  About MUD Districts

In a make believe world, mud districts provide a valuable service.  They provide a mechanism whereby people who live in rural areas can have access to water and sewer services.  (For a more comprehensive analysis of mud districts click here [PDF Format])

In the real world, however, mud districts provide a way for developers to make millions on nominal investments at taxpayer expense and cities to shirk their responsibility to provide services to its residents even though these same residents pay taxes to the city.

Consider the case of South Shore Harbour Mud No. 6.  In 1981, the 608 acres comprising the district were valued by the city for tax purposes at approximately $1,000.00 per acre.  For purposes of this scenario, assume a one-half of one percent tax rate.  Using this tax rate, the city would generate $3,040.00 annually in taxes from this district.  The city of course could extend water and sewer lines to the area, thereby increasing the value of the land and consequentially raising its tax base but this would require a substantial investment of city funds. 

Assume further that the owner of this 608 acres would like to develop it for residential purposes but either does not have the capital to develop it or does not want to use his own money. Enter the mud district. 

After the petition to create MUD 6 was filed a development  projection was submitted to the Texas Water Commission. After development, total valuation anticipated for tax purposes for the same area jumped from $608,000 to $221,380,000.  Using our one-half of one percent tax rate the city now generates $1,106,900 taxes annually from the district simply by consenting to the creation of the mud district.  And how was this development financed?  From the proceeds of the bonds issued by the district totaling $25,000,000 which the residents of the district pay back through mud taxes.  (League City has a history of stiffing MUDS.  We have provided a series of letters from Felix McDonald, Chairman and Dick Whittington, Deputy Director of the Texas Department of Texas Resources chastising former League City Mayor, Joe Lamb for his unfairness in dealing with Galveston County MUD 6.[PDF Format]  Galveston County MUD 6 was formed prior to the enactment of H.B.1974[infra] and subject to prior law).

The developer makes millions selling lots.  Each lot sold for $20,000 to $30,000 to the various builders in the district.  The builder would then pass this cost along to the home buyer.  Remember the developer started with property worth $1,000 per acre?  Now, thanks to the generosity of the mud residents,  it was able to sell 552 lots (see development projection above) for a minimum of $20,000 each generating a profit of $11,040,000 at taxpayer's expense.  This is approximately twenty times what the property was worth prior to the creation of the mud district and this does not include the profit made on patio homes (254), townhouses (500) and commercial property. 

So what remedy, if any, do the taxpayers of these mud districts have to prevent this double taxation?  Enter House Bill 1974.

   House Bill 1974

House Bill 1974 (H.B.1974) was passed by the Texas Legislature on August 27, 1979.  This bill provided that when the city gives its consent to the formation of a mud and at the same time requires a contract, the contract must contain an allocation of taxes and revenues of the mud or the city from taxable property in the district to ensure the total ad valorem taxes collected by both do not exceed ad valorem taxes assessed by the city. The city may require a contract when the municipal utility district would include land already wholly within the city limits or within its extra-territorial jurisdiction. (For the full text of House Bill 1974 click here [PDF Format].) 

Tom Leonard, an Austin attorney and co-author of the bill, testified before the House Committee on Natural Resources in support of the bill that the allocation agreement was not mandatory but required if the city wanted to participate in the planning and future obligations of the district. Former State Representative, William "Bill" Blythe, who proposed the bill stated in a recent interview that it was designed to prevent exactly what is being done here: stop the double taxation in mud districts.

The contract containing the allocation agreement must be entered into prior to the first issuance of bonds in order to apprise the purchaser of the source and amount of funds available for repayment of the bonds.

In order for H.B.1974 to apply, an examination of the history of each district is necessary to determine if in fact a contract between the city and the district was required to be entered into prior to the first issuance of bonds.

  History of the Districts

For a history of each district relative to this controversy click on the district number. MUD 2; MUD 3; MUD 6. 

  Nature of the Controversy

When the various districts were formed most if not all had contracts to provide the city with water, sewer and water drainage systems. The city would allocate a portion of the taxes it received from the residents of the district and pay to the district.  Those contracts did not ensure that the total taxes collected from the taxable property in each district by the city and the district did not exceed an amount greater than the city's ad valorem tax upon such property.  In other words, the ad valorem taxes assessed by the city was all the two could collect together but could be divided in any manner agreed upon.  The contracts did just the opposite.  They allocated a portion of the city's taxes to the districts and authorized the district to assess ad valorem taxes.  This double taxation has existed since the inception of each district.   These contracts constitute a conspiracy to defraud the taxpayers of the district.

A claim for reimbursement should be presented to the City of League City, each municipal utility district and South Shore Harbour Development for the recovery of all taxes fraudulently collected as well as to enjoin double taxation in the future.

  How Much Longer You Can Expect to Pay Mud Taxes

We have secured the balances on the bonds from the financial records of League City as of September 30, 2003. How much longer you will have to pay mud taxes if left unchecked depends on the balance remaining on the bonds in your district.  A recap of the balances from these records are as follows:

Using the same rate of decline over the above four year period a simple extrapolation reveals another twelve year payment of mud taxes for Muds 3 and 6.  The figures on Mud 2 are impossible to predict since the bonds have continuously increased year by year.