Learn › Powers, good practice and accountability
What districts may spend on, good practice, and accountability
What each kind of district is allowed to pay for, the limits that apply to all of them, what well-run boards do beyond the law, and who checks. Citations were checked against the official text of each statute. This is a plain-English summary, not legal advice.
What each kind of district may spend money on
A special district can spend public money only on what a law allows it to do. Which law applies depends on the kind of district. The table covers the main types you will see on this site. When a district's spending looks unusual, the first question to ask is: which section of its law allows this?
"Water Code" means the Texas Water Code; "LGC" means the Local Government Code; "Gov't Code" means the Government Code; "Const." means the Texas Constitution; "30 TAC" means TCEQ's rules in Title 30 of the Texas Administrative Code. Water Code chapter 49 sets general rules for water districts. It applies to every district created under Const. art. III §52(b)(1)–(2) or art. XVI §59, unless the district's own law says otherwise (Water Code §49.001(a)(1), §49.002).
| Type of district | What it may pay for | What needs voter approval (and which bonds need TCEQ / Attorney General approval) | Key limits |
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| Municipal Utility District (MUD) Water Code ch. 54 + ch. 49 |
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| Water Control and Improvement District (WCID) Water Code ch. 51 + ch. 49 |
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| Municipal Management District (MMD) Local Government Code ch. 375 |
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| Improvement district created by its own act Special District Local Laws Code. Example: Harris County Improvement District No. 14, ch. 3882 |
Every special-law district has its own chapter. Read it first. The HCID 14 example:
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| Joint-powers or regional agency created by contract among districts e.g. a regional water agency |
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Limits that apply to every district
- The Gift Clause (Const. art. III §52(a)). A political subdivision may not "grant public money or thing of value" to a private person or company. Texas Supreme Court decisions have read this to allow a payment only when it (1) serves a public purpose, (2) comes with enough control to make sure that purpose is met, and (3) brings the district a return benefit. A separate provision, art. III §52-a, lets the Legislature authorize economic-development loans and grants. HCID 14 relies on it (SDLLC §3882.003, §3882.106).
- Developer reimbursement (TCEQ rules, 30 TAC ch. 293). These rules apply when a district's bonds need TCEQ approval (Water Code §49.181).
- §293.43 (bond application): lists what the district must send TCEQ to have a project and its bonds approved, including an engineer's bond application report.
- §293.44 (cost sharing and other special rules): joint facilities that serve the district and others are shared by benefit, generally by each party's design capacity. Some costs (for example, engineering studies used for both district and private purposes) are shared equally. The district may not pay for facilities it gets no benefit from, and may not sign a binding contract with a developer for more than TCEQ approved.
- §293.46 (building before approval): a developer who builds before TCEQ approval needs a reimbursement agreement with the district first. Ineligible or improper costs are disallowed.
- §293.47 (developer's 30% share): in many districts, the developer must pay 30% of certain construction costs. Some districts are exempt, for example those whose debt is 10% or less of assessed value, or those with an acceptable credit rating.
- §293.50 (developer interest): interest on a developer's advances is generally limited to two years after final payment (up to five in some cases). The rate may not exceed the bonds' net effective interest rate.
- §293.51 (land and easements): easements for water, sewer and drainage lines inside the district are dedicated by the developer without payment. Land for plants, ponds and similar sites bought from a developer is priced at the developer's cost plus taxes and interest. In the floodplain, the price is the lower of that figure and an independent appraisal.
- §293.70 (reimbursement audits): before paying a developer from bond money, bond-anticipation notes or maintenance taxes, the board must hire a CPA to perform set procedures on every item. The report goes to TCEQ within 10 days after the board approves it.
- Competitive bidding (Water Code §49.273).
- Construction and equipment contracts over $150,000 must be advertised for sealed bids.
- Contracts over $25,000 and up to $150,000 need written bids from at least three bidders.
- Contracts of $25,000 or less need no bids.
- Work may not be split up to avoid these thresholds.
- Change orders that together raise a contract by more than 25% are allowed only for the reasons listed in §49.273(i).
- Personal and professional services are not covered (§49.278).
- MMDs follow the same rules for construction, equipment, materials and machinery, with the waivers in LGC §375.221. HCID 14 follows the Water Code rules without the ch. 375 waivers (§3882.213).
- Professional services chosen on qualifications (Gov't Code ch. 2254). Engineers, attorneys, auditors, financial advisors and other professionals may not be chosen by competitive bid. They must be chosen on demonstrated competence and qualifications, for a fair and reasonable price (§2254.003; Water Code §49.057(d)). Engineers are ranked on qualifications first, and the fee is negotiated after that (§2254.004). A contract made in violation of these rules is void (§2254.005).
- Investing public funds (Gov't Code ch. 2256; Water Code §49.157). The district must have a written investment policy (§2256.005; Water Code §49.199(a)(3)). The investment officer must report to the board at least quarterly (§2256.023), and investment officers must complete training (§2256.008).
- Budget, payments and annual audit. The board must adopt an annual budget (Water Code §49.057(b)). Payments need the signatures of a majority of directors, unless the board has authorized others by resolution (§49.151). A CPA must audit the books every year, within 120 days after the fiscal year ends (§49.191). The audit must be filed with TCEQ within 135 days (§49.194). TCEQ may review it and examine the district's records (§49.195–§49.196). Very small districts with no long-term debt may file a simpler annual financial report instead (§49.198).
Read the laws: Water Code ch. 49 · ch. 51 · ch. 54 · LGC ch. 375 · SDLLC ch. 3882 (HCID 14) · Const. art. III · Const. art. XVI
Good practice: what well-run boards do beyond the law
Each item below is labeled. Law means a statute or rule requires it, and the section is cited. Good practice means no law requires it, but it makes a board's decisions easier for residents to follow. A district that skips a good practice is not breaking the law.
- Law: written policies under Water Code §49.199. The board must adopt in writing:
- a code of ethics for directors, officers, employees and investment staff;
- a travel-expense policy;
- an investment policy;
- policies for selecting, monitoring, or reviewing and evaluating professional services;
- a uniform method of accounting for industrial development and pollution control bonds;
- policies on management information, including budgets for planning and controlling costs, an audit committee of the board, and uniform reporting standards.
- Good practice: budget versus actual at every meeting. Show what was budgeted, what has been spent, and the difference, line by line. Adopting an annual budget is law (§49.057(b)), and so is having a policy on using budgets to control costs (§49.199(a)(6)(A)). A monthly comparison is practice.
- Good practice: written reserve and debt policies. Set a target for operating reserves (for example, a number of months of expenses) and rules for when and how the district borrows. Only the investment policy is required by law (Gov't Code §2256.005).
- Good practice: competitive quotes below the bid thresholds. Get at least two or three written quotes even for purchases of $25,000 or less. The law requires no bids at that size (§49.273(f)), and three written bids between $25,000 and $150,000 (§49.273(e)).
- Good practice: re-solicit consultants every few years. Ask for statements of qualifications from engineers, attorneys, bookkeepers and operators on a set schedule, instead of keeping the same firms indefinitely. The law requires a policy on monitoring and evaluating professional services (§49.199(a)(4)) and selection on qualifications (Gov't Code §2254.003). A fixed re-solicitation cycle is practice.
- Good practice: ask about conflicts at every meeting. Put a standing agenda item where each director states any conflict with that day's items. The law requires a director with a substantial interest to file an affidavit and, in most cases, abstain (LGC §171.004; Water Code §49.058). It also requires conflicts disclosure statements about vendors (LGC §176.003), posted online if the district has a website (§176.009). A former director may not contract with the district for one year after leaving the board (Water Code §49.072).
- Partly law: post agendas, minutes and financial information online.
- A district that has a website must post its meeting notices and agendas there (Gov't Code §551.056(b)(8)). Water Code §49.063(d) lets a district instead have the county clerk post notices on the county's website.
- Taxing districts that meet the size tests must post board members, contacts, tax rates, meeting notices and minutes for the current and prior year, and the latest audit (Gov't Code §2051.202).
- Taxing units must post their budgets, tax rates and latest audit (Tax Code §26.18).
- Districts must report or make available their debt information (LGC §140.008; water districts can satisfy this through their audit filings under §140.008(g)).
- Good practice: cost-sharing agreements with an engineer's allocation exhibit. When a facility serves both the district and a developer or another district, attach a signed engineer's exhibit showing how each share was calculated. TCEQ's rule says joint facilities should be shared by benefit, generally design capacity (30 TAC §293.44(a)(2)). The exhibit is practice.
- Good practice: change-order caps. Set a board policy under which change orders above a set amount or percentage come back to the full board with the engineer's explanation. The law allows change orders adding more than 25% in total only for listed reasons, and lets the board delegate approval of changes of $150,000 or less (§49.273(i)).
- Good practice: independent review of developer reimbursement reports. Have someone without a stake in the payment check the report, for example a second engineer or the audit committee, and post a summary. The law requires a CPA to perform set procedures before a developer is paid, with the report filed at TCEQ (30 TAC §293.70). Review beyond that is practice.
Accountability: who checks, and what residents can do
Who oversees what
| Who | What they check |
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| TCEQ (Texas Commission on Environmental Quality) |
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| Attorney General |
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| Comptroller | Registers bonds after the AG approves them (§49.184(c); LGC §375.205(c)). It may receive and post district audits and debt information (LGC §140.008(g)–(h)), and it sets the format districts use to post tax-rate and budget information online (Tax Code §26.18). We did not find a statute giving the Comptroller power to approve or reject a district's tax rate. |
| County tax office and appraisal district | The appraisal district sets property values and keeps a property-tax database (Tax Code §26.17). The county assessor-collector posts tax-rate information on the county website (§26.16). Many districts hire their own tax assessor-collector instead (Water Code §49.059). Before adopting a tax rate, a district must publish notice of the meeting (§49.236). |
| The district's auditor | A CPA hired by the board audits the books every year (§49.191) and checks developer reimbursement requests before payment (30 TAC §293.70). An audit tests the financial records. It does not decide whether each expense was wise or within the district's powers. |
| Voters |
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| Courts and prosecutors |
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| State Auditor | May audit the finances of any district it decides needs an audit (Water Code §49.199(b)). |
What residents can do
- Ask for records under the Public Information Act (Gov't Code ch. 552). District records are covered (Water Code §49.065(b)). The district must produce information promptly (§552.221). To withhold anything, it must ask the Attorney General within 10 business days (§552.301). A district's financial records must also be open for inspection during business hours (Water Code §49.196(b)). If a district does not respond, you can file a written complaint with the county or district attorney (§552.3215(e)), and a requestor may sue for mandamus in some situations (§552.321).
- Attend meetings and speak (Gov't Code §551.007). A district board must let each member of the public speak on an agenda item, before or during the board's discussion of it. The board may set reasonable time limits, but it may not ban criticism of the board. If a MUD or other water district meets outside the district, five voters can ask it to meet inside or within 10 miles, once at least 50 voters live there. If the board does not act, they can petition TCEQ (Water Code §49.062(c)–(c-1)).
- Open Meetings remedies. An action taken in violation of the Open Meetings Act is voidable (§551.141). Any interested person may sue to stop, prevent or reverse a violation, and the court may award attorney's fees to the side that substantially wins (§551.142). Meeting in secret when the law does not allow it, or deliberating through a series of private conversations, can be a crime (§551.143–§551.145). Only prosecutors bring those cases; residents can report what they saw.
- Write to TCEQ about late or missing audits, developer reimbursements, bond-funded projects, or where meetings are held. Include the district's name and specific documents.
- Check conflict filings (LGC ch. 171 and ch. 176).
- A director with a substantial interest in a business or land affected by a vote must file an affidavit and usually abstain (§171.004). Knowingly failing to do so is a Class A misdemeanor (§171.003). A vote is voidable only if the measure would not have passed without the conflicted director's vote (§171.006).
- Directors file conflicts disclosure statements about vendors (§176.003), and vendors file questionnaires (§176.006). Both must be posted online if the district has a website (§176.009).
- In many water districts, developers, their employees and relatives, and the district's own consultants may not serve as directors (Water Code §49.052).
- How public money spent without authority can be recovered, and who can do it.
- The district itself can demand repayment and sue (Water Code §49.066(a); LGC §375.092(c)). Each director must post a $10,000 bond, payable to the district, that is conditioned on faithful performance of duties (Water Code §49.055(c); for MMDs, LGC §375.067(a)). Anyone who routinely handles district money must be bonded or insured (§49.057(e), (i)). Contractors post performance and payment bonds (§49.275). A professional-services contract made in violation of the qualifications-based selection law is void (Gov't Code §2254.005).
- TCEQ can disallow ineligible or improper developer costs (30 TAC §293.46) and must report signs of crime found in an audit (§49.195(e)).
- The state can seek civil penalties for missed filings (§49.003), and prosecutors handle crimes.
- Residents' own standing to sue is limited. Texas courts have generally allowed a taxpayer to sue only to stop an unlawful expenditure that is happening or about to happen. Recovering money already spent is generally a claim for the district or the state. In practice, residents can ask the board, on the record, to look into a payment and seek repayment; request the records; report concerns to TCEQ, the county or district attorney, or the Attorney General; and vote. Anyone thinking about a lawsuit should talk to a lawyer.
This is a plain-English summary, not legal advice.