Texas MUD: A Private Equity Field Manual

Locked hypotheticals #

Read this box before the narrative. Premises are locked. They are not market comps. Assumptions are labeled. Fetched figures are cited in parentheses.

Derived from premises. Land-plus-plat basis = $40,000 per acre ($10,000,000 / 250).

Assumptions (not fetched). Change these in the Excel models. Do not treat them as comps.

Fetched parameters used in the math. Collection 90% and debt-service reserve 25% of next year's requirement (30 TAC §293.59). Default developer share 30% on listed water, wastewater, drainage, and recreation construction (30 TAC §293.47). Combined projected tax cap $1.50 per $100: Montgomery County is named in 30 TAC §293.59(k)(3)(A). Walker County is treated as Harris County for bond feasibility under Tex. Water Code §49.181(f-1), so the same $1.50 test is used. First published forward-funding CAB rate 7.50% (Land Advisors 2023). Gulf Coast–Brazos Bottom rural median $11,698 per acre (TRERC 2026). That region includes Montgomery and Walker.

Verdict for the investment committee #

Buy the land for location and lot proceeds. Use the MUD to recover a share of public water, sewer, drainage, and often roads. Do not underwrite the MUD tax as fund yield.

On the locked hypothetical, with labeled assumptions, the MUD tax rate is not the main return lever once you clear about $1.00 per $100. Lot price is.

• At $180,000 per net lot, five-year MOIC is about 3.46x if $1.00 or $1.50 tax and reimbursement lands in year 5 (47% IRR, assumption set).
• At $0.50 tax, reimbursement drops to $3.84m and MOIC is about 3.18x (45% IRR).
• At $120,000 lots, profit after cost-bound reimbursement is $12.56m. Lot price still moves the outcome more than the last 50 basis points of MUD tax.

TCEQ caps the combined projected tax at $1.50 per $100 in Montgomery County by name. Walker County is treated as Harris County for bond feasibility, so the same $1.50 test is used. Your 1.50% case sits on that cap. Walker CAD already posts a district at that cap: New Waverly Municipal Utility District #1, total $1.50 in 2025. (30 TAC §293.59; Tex. Water Code §49.181; Walker CAD 2025).

What a Texas MUD is #

A Municipal Utility District is a political subdivision of Texas. TCEQ calls water districts "local governmental entities" that provide limited services. (TCEQ 2019).

Statute creates a MUD under Article XVI, Section 59 of the Texas Constitution. Operating law is Water Code Chapter 49 (all districts) and Chapter 54 (MUDs). (Tex. Water Code §54.011); GI-043 table of authorities.

A MUD may supply water, collect waste, and control storm water. It may also provide parks, subject to Chapter 49. (Tex. Water Code §54.201).

Most districts may incur debt, levy taxes, charge for service, contract, take easements, and use limited eminent domain. (TCEQ 2019)

Creation has two doors. TCEQ may create a general-law district after a landowner petition. The Legislature may create or alter a district by special law. (TCEQ 2019; (Lloyd Gosselink 2025).

The TCEQ petition must be signed by a majority in value of title holders, by appraisal-roll value, not by head count. On raw land that one sponsor controls, that group is small. (Tex. Water Code §54.014).

TCEQ grants the petition only if the project is feasible, practicable, necessary, and a benefit to the land. It must weigh tax rates, utility rates, and effects on drainage, water quality, and total tax load. (Tex. Water Code §54.021).

Land in a city or a city's extraterritorial jurisdiction needs written city consent before it enters a district. A city may not demand annexation as the price of consent. Land inside city limits never enters a district without that written consent. (Tex. Water Code §54.016).

Why it works this way #

Texas grew faster than cities could extend pipe. The Conservation Amendment lets the State create small governments that build water, sewer, and drainage on raw land, then tax the new value.

The sponsor fronts the works. The district later sells tax-exempt bonds and pays the sponsor for eligible costs. Future owners retire the bonds through an ad valorem tax on every tract in the district, "regardless of the services received by each landowner." (TCEQ 2019)

Voters must approve tax-backed debt. Ballots read "For District" / "Against District." The election happens before any bonds. (TCEQ 2019; (Tex. Water Code §49.102).

That is why a confirmation election can occur when almost nobody lives on the tract. The statute requires an election inside the proposed bounds. It does not wait for rooftops.

A director may not be a developer of property in the district, or an employee of that developer. (TCEQ 2019)

TCEQ must find each bond project feasible before most issues. (Tex. Water Code §49.181). Feasibility is not an opinion that the equity deal is a good buy. It is a tax-rate and completion test.

The Notice to Purchaser puts the tax and the bonded debt in front of a buyer before a binding contract. If the seller skips it, the buyer may terminate. (Tex. Water Code §49.452); GI-043, "Notice to Purchaser."

Tax, bonds, payback #

Walk the cash, in order.

1. Sponsor buys land and plats (the $10m). This layer is not on the §293.47 construction list.
2. Sponsor builds eligible public works and, unless waived, pays at least 30% of listed water, wastewater, drainage, and recreation construction. Plants and some regional lines are often 100% district items. (30 TAC §293.47).
3. Utilities and roads that support the bond issue must be 95% complete. At least 25% of projected house and building value must exist before the district advertises the first issue. (30 TAC §293.59).
4. TCEQ issues a feasibility order. The district sells bonds. Proceeds reimburse eligible costs.
5. The board levies a debt-service tax each year on appraised value. Owners pay. The sponsor does not collect this tax as coupon.

Projected tax-rate tests use a 90% collection rate. The cash-flow table must keep a debt-service balance of at least 25% of next year's requirement. The projected rate must be level or falling. §293.59(k)(2).

Combined projected tax must not exceed $1.50 per $100 in Montgomery County. Walker County uses the Harris feasibility tests under §49.181(f-1). Combined no-growth tax must not exceed $2.50. §293.59(k)(3)–(4).

What unrestricted means north of Harris County #

The tract is not in Harris County. It is in Montgomery County or Walker County. That change does not break the MUD statute. It does change the land-use overlay.

Texas counties have limited land-use power. That power "does not include zoning but does include platting and a list of specific topics." Platting outside city limits "may not affect use or residential density." TRERC, Wilson, Ground Rules (Pub. 2438, 3 Mar 2025).

Walker County Planning and Development publishes subdivision regulations, a plat application, floodplain forms, driveway-culvert rules, and on-site wastewater forms. It does not publish a county zoning map. (Walker County Planning).

The City of Huntsville does maintain an official zoning map. Inside those city limits, municipal zoning applies. Unincorporated Walker land is not on that map unless it is annexed. (Huntsville Zoning Map).

The City of Conroe does not have a zoning ordinance. It issues a Letter of No Zoning. It still enforces subdivision rules, building codes, floodplain rules, and an ETJ. (City of Conroe 2026).

Montgomery County Engineering adopted Development Regulations on 4 March 2025 and a Drainage Criteria Manual on 26 August 2025. It takes plat submittals and inspects subdivisions. (Montgomery County Engineering).

If a Montgomery subdivision will use private sewage, Environmental Health requires TCEQ 30 TAC 285 planning materials, a floodplain map, soils, and a drainage plan, with a written decision in 45 days. Buyers must be told a Permit to Construct and a Notice of Approval are required. (Montgomery County Subdivision Review).

Houston's ETJ is "essentially a five-mile band" around city limits, except where another city or ETJ already sits. Inside that band Houston may impose Chapter 42 and may consent to MUD creation. That can still bind a southern Montgomery parcel. It is a GIS fact, not a county-wide fact. Do not assume Houston ETJ covers Walker County. (Houston Planning Annexation).

City consent for a MUD still applies if the land is in a city or a city's ETJ (Conroe, Willis, New Waverly, Huntsville, Magnolia, and others). That list is not Houston-only. Tex. Water Code §54.016.

So "unrestricted" still is not "no rules." Underwrite: county vs city vs ETJ; Huntsville zoning vs Conroe no-zoning; recorded restrictions; floodplain; OSSF vs plant; MUD city consent.

Commercial and residential on the same tract #

On unincorporated Montgomery or Walker land, Texas counties do not zone use (TRERC 2025). Commercial and residential uses can sit on one tract as a zoning matter. That is not a permit.

Two city files differ. Huntsville keeps an official zoning map. Conroe does not have a zoning ordinance. Do not treat those cities as the same overlay. Willis, Magnolia, and New Waverly zoning is [unverified] in this pack. City or ETJ consent under §54.016 still applies if the tract is inside those bounds.

The MUD tax is ad valorem. A pad and a house in the same district both pay the posted rate on taxable value. GI-043 is explicit: the debt tax is levied on all property based on appraised value.

Montgomery County MUD 162's 2025 split is a local illustration of a contract-tax stack ($0.68 M&O + $0.67 contract). Do not import its absorption onto a Walker County 1-acre book. (MCMUD 162 2025).

Constraints that still kill a use here: floodway, Montgomery or Walker OSSF planning if there is no plant, TxDOT access on I-45, city or ETJ plat control, Huntsville zoning if inside those limits, and recorded restrictions.

A 250-acre, 1-acre product is native to this belt. It can run on OSSF if the county planning materials pass. It can also justify a plant. That choice is an engineering file. [unverified as to a named tract.]

Verified tax-rate comps (this belt first) #

Pull Montgomery and Walker posted rates first. Harris rates below are metro illustrations. They are not site comps. Do not import counts such as "900 MUDs" from memory.

(Walker CAD 2025; MCMUD 162 2025; Woodlands Water taxes; HCMUD 502 2024; HCMUD 150).

The user's 0.50%–1.50% band is not empty in this geography. $0.04–$0.24 is a mature Woodlands posted range. $1.35 is a live Montgomery near-cap. $1.50 is a live Walker CAD total for New Waverly MUD #1.

Bridgeland and Sienna current CAD rates remain [unverified] in this pack. The Woodlands rates above are fetched.

The locked $10m / 250-acre model #

Premises stay premises. $10,000,000 buys land and plat work on 250 acres of 1-acre lots. Horizon is five years.

That is $40,000 per acre. TRERC's Gulf Coast–Brazos Bottom rural median in 1Q2026 is $11,698 per acre, and is nearly flat year-over-year for tracts larger than 180 acres. (TRERC 2026). The $10m stake is 3.42 times that rural median. Price it as fringe development land, not as a farm comp.

Labeled assumptions, not fetched facts:

• Net-to-gross 80% → 200 net lots.
• Horizontal $40,000 per net lot → $8,000,000.
• 60% of that horizontal is 70% reimbursable (in-district lines). 40% is 100% district (plants/regional).
• Eligible reimbursement = $6,560,000.
• Finished 1-acre lot $180,000 base; home AV $450,000 at build-out.
• M&O slice $0.15 per $100, informed by MUD 150 ($0.20) and MUD 502 ($0.14), not a rule.
• Municipal coupon 5%, 25-year level debt, 90% collection, 25% DS reserve, 2% issue cost.

Formulas (see model/mud_returns.py):

I&S rate = max(total MUD rate − 0.15, 0.10)
annual levy = (I&S / 100) × AV × 0.90
par = levy × (1 − (1.05)^−25) / 0.05
net proceeds = par − 0.25×levy − 0.02×par
reimbursement = min(eligible, net proceeds)

Full-build AV at $450,000 × 200 = $90,000,000.

Tax-rate cases: $0.50, $1.00, $1.50 #

Once the tax supports the eligible stack, a higher rate does not raise sponsor proceeds. It raises unused capacity, or it funds more works (roads, recreation) that you add to the eligible list.

If horizontal cost is much higher than $40,000 per lot, the $1.50 case can start to bind on tax again. Re-run model/mud_returns.py before you treat $1.00 and $1.50 as equivalent.

Five-year cash at $180,000 lots (assumption), land out at t=0, horizontal with sales, reimbursement in year 5:

Forward funding raises IRR by pulling cash forward. It cuts undiscounted profit because of the 7.50% CAB rate on the first published deal. (Land Advisors 2023).

Lot-price sensitivity at cost-bound reimbursement:

The five-year clock #

Traditional reimbursement is slow by rule, not by custom.

Section 293.59(k)(7) requires 25% of projected improvement value in place before the first issue is advertised. Section 293.59(k)(6) requires 95% completion of the financed underground works and of the roads that serve them.

Under a 1-year house lag and the lot schedule 20 / 40 / 50 / 50 / 40, cumulative houses are 0%, 10%, 30%, 55%, 80% of 200. The 25% test is first met in year 3. Year 1 reimbursement is not available on this path.

Trade press describes traditional MUD payback as stretching "up to 20 years in some cases." That is a vendor interview, not a TCEQ clock. (Bisnow).

Forward-funding CABs, first sold in Texas in November 2023, monetize a future reimbursement. The first deal reimbursed part of $42.4m of already-built eligible works at 7.50%. Bisnow reports Launch DFA volume above $683m since 2023 for Hillwood, Starwood, Johnson Development, and Megatel. The same article says the bonds run through a New Hampshire conduit.

What breaks a five-year hold #

1. Lot price. At $120,000 the model profit is $12.56m. That is still the load-bearing assumption. No HAR 1-acre series was fetched this session.
2. Absorption of 200 one-acre lots in five years. Schedule is an assumption. If sales slip, the 25% test and the exit both slip.
3. City consent in a Conroe, Huntsville, Willis, New Waverly, or other ETJ. §54.016 can delay or condition creation. A city may not require annexation as consent, but it can still fight service and plans.
4. Wrong overlay. Huntsville zones. Conroe does not. Houston Chapter 42 applies only if GIS shows Houston ETJ. Mixing those files is an underwriting error.
5. Walker cap path. Read §49.181(f-1) with 30 TAC §293.59. A 293.59-only read puts Walker at $1.00. That is the wrong test.
6. Floodplain and OSSF. Montgomery Environmental Health and Walker On-Site Wastewater both require planning materials before lots on septic can be sold as a subdivision.
7. Horizontal cost above $40,000 per lot. Then $1.00 may no longer cover eligible works. The $1.50 case can then matter until the $1.50 cap binds.
8. Unused 1.50% capacity is not cash. Capacity above eligible cost does not reimburse land.
9. Board conflict rules. A developer may not sit as director. (TCEQ 2019)
10. Forward-funding credit and conduit risk. First CAB 7.50% versus a 5% municipal assumption in the model. Mixing those rates without a haircut overstates IRR.

Underwriting list #

Before an IC memo on a Montgomery or Walker "unrestricted" tract with a MUD path:

1. County (Montgomery vs Walker), city limits, and ETJ. Conroe, Huntsville, Willis, New Waverly, Magnolia, and Houston ETJ (southern Montgomery GIS only) are different files.
2. Zoning overlay: Huntsville official map if inside those limits. Conroe Letter of No Zoning if inside Conroe. County land does not zone.
3. Recorded restrictions. County no-zoning does not void a deed restriction.
4. Floodplain and detention yield. Net lots are not 250 until the engineer says so.
5. Sewer: plant, interconnect, or OSSF. Montgomery Subdivision Review or Walker On-Site Wastewater if no public sewer.
6. City consent paper under §54.016 if in a city or ETJ (not only Houston).
7. Petition math: majority in value, not head count.
8. Eligible-cost matrix under §293.47: what is 70%, what is 100%, what is never reimbursable (land).
9. Feasibility file: combined projected tax versus $1.50 (Montgomery named; Walker via §49.181(f-1)); 95% complete; 25% value-in-place.
10. Posted comparable rates: Walker CAD and Montgomery CAD for the specific district. New Waverly MUD #1 2025 = $1.50; MCMUD 162 2025 = $1.35; Woodlands Water 2025 residential $0.0424–$0.2400. Harris MUD 502/150 are metro illustrations only.
11. Notice to Purchaser form and bonded-authorization totals.
12. If the hold is five years, model traditional year-3+ reimbursement and, separately, a conduit forward-fund with a 7.5% haircut. Do not blend them.
13. Lot-price and absorption book. That book moves MOIC more than the last 50 basis points of MUD tax once you are cost-bound.

Sources #

Parenthetical names in the chapters match this list. Each URL returned HTTP 200 on 20 August 2026.

• TCEQ. 2019. Texas Water Districts: A General Guide (GI-043). https://www.tceq.texas.gov/downloads/water-districts/guidance/gi-043.pdf
• TCEQ. Water Districts hub. https://www.tceq.texas.gov/waterdistricts
• Tex. Water Code §54.011 (creation under Art. XVI §59). https://texas.public.law/statutes/tex._water_code_section_54.011
• Tex. Water Code §54.014 (petition by majority in value). https://texas.public.law/statutes/tex._water_code_section_54.014
• Tex. Water Code §54.016 (city / ETJ consent). https://texas.public.law/statutes/tex._water_code_section_54.016
• Tex. Water Code §54.021 (TCEQ findings). https://texas.public.law/statutes/tex._water_code_section_54.021
• Tex. Water Code §54.201 (powers). https://texas.public.law/statutes/tex._water_code_section_54.201
• Tex. Water Code §49.102 (confirmation election). https://texas.public.law/statutes/tex._water_code_section_49.102
• Tex. Water Code §49.181 (TCEQ bond approval). https://texas.public.law/statutes/tex._water_code_section_49.181
• Tex. Water Code §49.452 (Notice to Purchaser). https://texas.public.law/statutes/tex._water_code_section_49.452
• 30 TAC §293.47 (developer 30% contribution). https://www.law.cornell.edu/regulations/texas/30-Tex-Admin-Code-SS-293-47
• 30 TAC §293.59 (economic feasibility; $1.50 cap; 25% test). https://www.law.cornell.edu/regulations/texas/30-Tex-Admin-Code-SS-293-59
• City of Houston Planning. Annexation / ETJ (five-mile band; Chapter 42 and MUD consent). Use only for a southern Montgomery GIS hit. https://www.houstontx.gov/planning/Annexation/
• City of Houston Planning. Development Regulations; no-zoning letter dated 6 January 2026 (metro contrast, not the site file). https://www.houstontx.gov/planning/DevelopRegs/
• Harris County Engineer. Platting FAQ (metro contrast). https://oce.harriscountytx.gov/Services/Permits/Platting
• Harris County MUD 502. 2024 tax-rate letter (metro illustration). https://www.hcmud502.org/general/understanding-the-2024-tax-rate-changes-for-harris-county-mud-502/
• Harris County MUD 150. Posted tax rates (metro illustration). https://www.hcmud150.com/tax-rates/
• Krebs, L. D., and T. Su. 2026. Texas Rural Land Markets, First Quarter 2026. Texas Real Estate Research Center. https://trerc.tamu.edu/reports/texas-rural-land-markets-first-quarter-2026/ · PDF
• Land Advisors Organization. 2023. First MUD forward-funding capital appreciation bond. https://landadvisors.com/news/first-ever-mud-forward-funding-capital-appreciation-bond-completes-sale-in-texas/
• Bisnow. Launch Bond / MUD forward funding (quoting Carter Froelich). https://www.bisnow.com/dallas-ft-worth/news/capital-markets/launch-development-finance-advisors-offer-tool-to-bridge-the-gap-between-infrastructure-expenditures-and-revenue-repayments-128495
• Klein, D. 2025. A critical evaluation of water and wastewater entities. Lloyd Gosselink. https://www.lglawfirm.com/a-critical-evaluation-of-water-and-wastewater-entities-for-the-commercial-and-residential-developer/
• Wilson, R. 2025. Ground Rules: Understanding Land-Use Restrictions. TRERC Pub. 2438. Counties do not zone; they plat. https://trerc.tamu.edu/wp-content/uploads/2025/02/GroundRules_TG.pdf
• Montgomery County Engineering. Development Regulations (adopted 3 Apr 2025) and plat/drainage pages. https://www.mctx.org/departments/departments_d_-_f/engineering/index.php
• Montgomery County Environmental Health. Subdivision Review (private sewage). https://www.mctx.org/departments/departments_d_-_f/environmental_health/permitting/subdivision_review.php
• Walker County Planning & Development. Subdivision regulations, plat, floodplain, on-site wastewater. https://www.co.walker.tx.us/department/index.php?structureid=28
• City of Huntsville. Official Zoning Map. https://www.huntsvilletx.gov/944/Official-Zoning-Map
• City of Conroe. Land Use & Area Plans (no zoning ordinance; Letter of No Zoning). https://www.cityofconroe.org/services/community_development/planning/land_use_area_plans.php
• Woodlands Water. Historical MUD tax rates (Montgomery). https://woodlandswater.org/taxes/ · 2025 rate news
• Montgomery County MUD 162. Transparency (2025 ad valorem $1.35). https://www.mcmud162.org/transparency/
• Walker County Appraisal District. 2025 adopted tax rates (New Waverly MUD #1 total $1.50). https://walkercad.org/adopted-tax-rates/ · PDF

Bridgeland and Sienna current CAD rates are [unverified] in this pack. Lot prices, net-to-gross, and $40k/lot horizontal are assumptions, not comps.

Excel models and printable PDF #

Download the working files. The Excel workbooks use the locked premises on the first sheet. Change yellow input cells. Do not treat yellow cells as fetched market data.

• tx-mud-returns-model.xlsx — five-year cash, tax cases, lot-price sensitivity, value-in-place test.
• tx-mud-bond-capacity.xlsx — tax rate × assessed value → levy, par, net proceeds, reimbursement cap.
• tx-mud.pdf — printable copy with parenthetical citations.