What is a PID?
Texas cities, or local governments, historically use collections from property taxes and sales tax revenues to fund, or provide security for municipal bonds, in order to pay for public improvements. An example of municipally funded public improvements that are crucial to sustain residential development are water and wastewater services. Cities in Texas can pay for necessary public improvements to sustain residential development by creating a Public Improvement District or PID. A PID (generally) is a statutory method that imposes an assessment on purchased property within a defined district, and in the case of a property destined to be subdivided into homes, an assessment will be charged to each new homebuyer. The homebuyer upon purchase is responsible to pay an annual (amount) assessment for a specified number of years upon purchase. Payment of this assessment directly finances specific improvements constructed within the Public Improvement District. In essence, current property owners or city residents do not fund construction of improvements in a newly constructed neighborhood, the new homeowners foot the bill.
Public Improvement Districts are governed by the Texas Local Government Code Chapter 372, also known as the PID Act. A “PID” may be initially funded through either cash or bonds, both secured by liens against the property that is constructed or improved. Bonds are issued based on the property’s appraised value, and determined by property size, and potential improvement to land value.
The PID Act lists projects that can be funded by PID assessments, and these include: landscaping; fountains; lighting; signs; street and road acquisition, construction, and repair; sidewalks; right-of-way acquisition; pedestrian malls; art; libraries; parking facilities; mass transportation facilities, water and wastewater facilities; drainage facilities; parks and the “development, rehabilitation, or expansion of affordable housing”.
The statute also recognizes the acquisition of real property in connection with an improvement, special supplemental services for improvement and promotion of the district, and the payment of expenses that are incurred in establishing and operating the PID as statutorily authorized projects.
A recent 2021 Texas Attorney General opinion letter addresses issuance costs of general obligation bonds and confirms such costs can be defined as additional authorized projects for a PID in Hutto, Texas.
For a bond funded PID, upon issuance of bonds, the bonds are paid back via the collection of the special assessment amounts, payable in annual installments. This assessment is issued to homeowners (and must be paid by the owners) within the improvement district in addition to real property taxes. Unlike a property tax, a special assessment is only levied for a set number of years established by the PID Service Plan. The PID Act requires payments must be made over a minimum period of five (5) years, however it is not uncommon for residential property payment of assessments often spans 30-35 years.
The PID Act requires a Service Plan or Service Assessment Plan which must be approved by city council. Original creation of a PID occurs pursuant to a PID Petition.
Generally, the following required steps are necessary to create a PID including:
preparation of a feasibility report,
a public hearing before city council,
city council must also approve by resolution the advisability of the proposed improvements,
city staff or an advisory board or a PID consultant work to address the projected costs of the improvements and the annual debt service.
This is followed by preparation of an assessment plan, and an assessment roll that sets out the assessment against each property within the PID. City council must also pass an ordinance levying the assessment and payment method on the properties in the district.
The PID Act states that failure by a property owner to pay an assessment creates a lien against the property and is a personal debt of the property owner—– which is not unreasonable as the PID Act includes necessary safeguards to ensure transparency and requires public involvement (hearing), council approvals, resolutions, feasibility studies, and more importantly property within a PID clearly benefits from the improvements created by the Texas PID Act.
Please do not rely on this article as legal advice. We can tell you what the law is, but until we know the facts of your given situation, we cannot provide legal guidance. This website is for informational purposes and not for the purposes of providing legal advice. Information about our commercial and business litigation practice can be found here.
