There has been a lot of misinformation made in person and on social media recently regarding the current discussions between the Lakes on Eldridge Community Association (the “HOA”) and Harris County MUD No. 341 (the “MUD”) about certain shared costs. While the MUD prefers to follow good business protocol by not discussing contract negotiations on the internet, we feel compelled to address the matter in this case so that our residents know the truth of the situation.
Brief Summary
The MUD owns the detention ponds (sometimes called the “Lakes”) within the community, which (in addition to being beautiful) serve a critical drainage function with interconnections to each other and to nearby Turkey Creek. A contract was set up many years ago that allows the HOA to treat the MUD-owned Lakes as HOA Common Area by placing improvements and landscaping on the Lakes and allowing residents to use/access them pursuant to HOA rules. In exchange, the HOA mows the Lakes and maintains the improvements and landscaping, and the MUD and the HOA share in the costs of such maintenance. The current dispute/negotiation centers around whether the MUD should be paying for other HOA expenses unrelated to MUD facilities, in effect subsidizing the HOA with government funds.
While the MUD might want to be generous, we must be good stewards of our taxpayers’ money, and be mindful of our primary responsibility to provide reliable water, sewer, drainage, and trash collection services. When property values decreased dramatically in 2018 after Hurricane Harvey, the MUD was put in a financial bind. The Texas legislature made things even worse in 2019 when it passed Senate Bill 2, a law restricting the MUD’s ability to generate tax revenue. To resolve this problem, the MUD approached the HOA to discuss the contract. Since the MUD had a long history of helping the HOA and the community each time it needed help (contributing an additional $100,000 per year after the clubhouse fire, and paying $250,000 for Harvey flood related household debris removal), the MUD assumed the HOA would respond in kind. That assumption was incorrect. HOA leadership at that time resisted any discussions, and instead repeatedly and publicly maligned the MUD.
However, despite all the challenges of the last couple of years, the MUD has continued to make payments to the HOA (over $130,000 in 2020, and over $105,000 in 2021). These payments have allowed the HOA to have budget surpluses both years. Ultimately, the best interests of the community are served when both the HOA and the MUD are financially solvent and able to operate within their budgets. No resident wants to be faced with unnecessary increases in dues, taxes or fees.
We know that there is a lot of “outrage” in the world these days, and it is sometimes difficult to tell how much of it is justified. So we wanted to post this summary to let our residents know what is really happening. The discussions with the HOA are in progress and the MUD is very hopeful that the HOA will be willing to work with us, and that we can soon reach a resolution that (i) prevents increases in HOA dues or MUD fees or taxes, (ii) promotes the proper maintenance of both MUD and HOA facilities, and (iii) allows both entities to have financial stability for years to come.
Thank you for your attention. For those who are interested, below we have provided more information about the history and the nature of the issue.
Sincerely,
Board of Directors
Harris County MUD No. 341
History
For 20+ years, the MUD and the HOA worked together well. From 1996 – 2017, despite many changes in local leadership, the MUD and the HOA maintained an outstanding working relationship. During the majority of those years, the MUD paid approximately $100,000 per year to the HOA to assist with lake expenses.
The MUD voluntarily increased its contribution by $100,000 to help the HOA after the clubhouse fire. In 2014, after a terrible fire burned down the HOA clubhouse, the HOA requested the MUD give them an additional $100,000 to assist in paying for the rebuild, and the MUD responded. The MUD voluntarily increased the annual contribution amount to the HOA by $100,000.
The MUD voluntarily paid $250,000 for debris cleanup after Hurricane Harvey. When Hurricane Harvey devastated the community and Harris County would not remove the storm debris piled in front of homes, the MUD responded again. The MUD contracted for the removal of all the debris at a cost of $250,000. This kept our community clean and particularly aided those residents without flood insurance. Many months later, the MUD received reimbursement from FEMA for this payment. However, at the time of the contribution, it was unknown if that reimbursement would be available.
The MUD has always tried to help the HOA and community. But, after Hurricane Harvey, it was the MUD that needed assistance.
Declining property values after Hurricane Harvey and new legislation caused financial instability for the MUD in 2019. After Hurricane Harvey, property values in the community fell drastically in 2018, 2019, and 2020. Because the MUD’s tax revenue is based on property value, this was devastating to the MUD’s financials. Although the Houston real estate market has recovered somewhat, it is not enough to restore to original property values. Today average property values in the community are still $30,000 below pre-Harvey levels. Additionally, in 2019, the Texas legislature passed Senate Bill 2, a law limiting a MUD’s ability to increase taxes to no more than 3.5% per year. The decrease in property value, coupled with a limit on the increase in taxes, created a perfect storm for a financial crisis. So, this time it was the MUD that needed assistance.
To try to reduce costs, the MUD launched an in-depth review of all expenses. The MUD informally approached the HOA about amending the Contract to lower the contribution amount, but the HOA Board at that time resisted granting the MUD’s request. The contract discussions began around two years ago. The MUD essentially requested that the contribution amount be revised to the level it was before the clubhouse fire amendment. The HOA leadership at that time refused to meet regularly or discuss the MUD’s needs. At one point it took 9 months to even get a response from the HOA. The inaction of that time is what has led to the length of these discussions.
During this time, the MUD also thoroughly reviewed the language of the Contract, and discovered that the Contract was not being administered properly. While the MUD had paid its monthly invoices from the HOA for many years in good faith, it had never investigated those invoices for proper applicability. When the MUD looked closer, however, it found a problem. The Contract states:
“…the District and the Community Association hereby agree to allocate expenses incurred by the Community Association in connection with its maintenance of the Detention Pond Tracts and the Detention Facilities (the “Detention Pond Expenses”) between the District and the Community Association in a manner consistent with the allocation set forth in the sample budget attached hereto as Exhibit C.”
The above language makes it clear that the MUD should only be sharing costs related to the Detention Ponds. The Contract even defines a term to describe those costs “Detention Pond Expenses”. However, the sample budget contained in Exhibit C provides several categories of costs that might not be Detention Pond Expenses. Obviously, the MUD finds it concerning that the HOA may have been improperly billing the MUD for many years. Ultimately though, we believe the real solution lies, not in bickering over the contract, but in finding a payment schedule that is fair, and keeps costs low for all residents.
Common Question
One common question we have heard is “Why can’t the MUD just absorb a bigger portion of the HOA expenses? Since some residents may be able to deduct a portion of any MUD tax increase from their income taxes, isn’t this the better option?”
There are several reasons that it is not necessarily the better (or even a permissible) option, some of which include the following:
- Starting first from a general perspective, the MUD Board knows it is required to be very careful about simply transferring taxpayer dollars to any third party to pay for its costs, particularly when (i) the third party is not governmental, and (ii) the costs are unrelated to MUD facilities. The MUD has no control over how the HOA spends its money (the vendors chosen, the contract prices, frequency, duration, etc.), and the HOA is not subject to the same government oversight or regulations as the MUD.
- More specifically, as a local governmental entity, the MUD is heavily regulated by various agencies of the State of Texas, which have very specific rules for every aspect of the MUD’s operations, including how its money can be spent. The MUD is not legally permitted to spend money on certain things the HOA does.
- Recent legislation and property value fluctuations have greatly impacted the MUD’s ability to generate revenue. After Harvey, property values in the area substantially declined. Since the MUD’s revenue is based heavily on value, this fluctuation impacted the MUD’s overall revenue tremendously. Additionally, Senate Bill 2, passed in 2019 by the Texas legislature, essentially prevents the MUD from increasing its overall tax revenue more than 3.5% in any given year. With inflation, this puts a significant burden on any MUD just to maintain its own facilities, much less to also subsidize its local HOA.
- The MUD also has commercial customers who should not necessarily have to bear the burden of expenses which only benefit residential property, and are unrelated to MUD function or facilities. It is difficult enough for small businesses to survive without adding additional tax burden.
Conclusion
In summary, both the HOA and the MUD are currently financially secure. The MUD remains committed to working toward a resolution for the good of all parties. While previous HOA leadership was not responsive to the MUD’s requests, and this caused the negotiations to drag on for too long, we are hopeful that the current HOA leadership will work with us and we can come to a resolution soon. If you have any questions for the Harris County MUD 341, please contact us at http://www.hcmud341.org/contact/, or come to a Board meeting any time – they are all open to the public.
