Our view: choose the asset structure before the financing label
A campus is stalled because its first tenant cannot support the cost of infrastructure sized for the whole development. Forming a municipal utility district may be worth testing, but it is not the opening decision. First establish which assets should serve the public utility system, which remain private, and what portion is needed now. A district is useful when its public purpose, infrastructure responsibilities and revenue model fit that split. It is not useful when its only job in the model is to turn an unfunded cost into an assumed reimbursement.
Texas framework: a district is a government, not a developer account
Texas Water Code Chapter 54 governs general-law MUDs, including creation, city-consent provisions and tax-supported bonds. Section 54.601 provides for an annual ad valorem levy supporting tax-backed debt. The district’s particular powers, required elections and applicable approvals must be established. TCEQ oversees water districts and reviews certain infrastructure bond issues. Those powers do not amount to automatic approval of a campus, an assured water supply, or authority to operate an unrestricted retail electricity business.
Texas Water Code Chapter 54: creation, consent and bond provisions
The hidden trade: lower initial private cost can become a tenant obligation
Our proposed evaluation follows the cost all the way through the lease. An owner may receive reimbursement while the property carries district taxes or service charges. A tenant considering total occupancy cost will not treat that as free infrastructure. Model the developer’s recovery and the occupier’s recurring burden together. Include the outcome if valuation is lower than expected, the second tenant is delayed, or some costs are excluded from the approved funding route. A financing structure that only works with every future phase leased is not a recovery plan for today’s blocked phase.
Do not underwrite reimbursement as cash already received
Separate sponsor-funded construction from any later district acquisition or reimbursement. Have public-finance and legal advisers establish eligibility, valuation, approvals, borrowing constraints and timing. Model a slower assessed-value or revenue base, delayed district financing and a later tenant that never arrives. The sponsor must be able to carry the interim obligation without treating an expected reimbursement as an unconditional receivable.
Specify the asset after transfer
Document which assets are transferred, the acceptance standard, easements, defects obligations and the entity responsible for operation and replacement. Public ownership may support a useful financing and service structure, but the campus still needs enforceable service capacity and a working operator. If the structure does not fit the first phase, compare a smaller private package or an agreement with the existing provider.
The owner’s situation
An illustrative three-phase campus has an anchor tenant, a potential second tenant and an unfunded regional water extension. The initial utility package includes a trunk main, storage, wastewater works and drainage that can serve more than the anchor. The developer proposes to advance construction and recover eligible costs later through a MUD. The land is not yet included in a confirmed district delivery arrangement. The owner needs to decide whether to pursue an existing district, support creation of a new district, or fund a smaller first phase directly.
What we need to establish
Commission a public/private asset map, engineer-supported demand and service limits, title and easement review, the serving-provider position and an authority memorandum from district counsel. Obtain a cost schedule separating potentially eligible shared works from tenant equipment and private works. Ask the financial adviser to model realistic valuation, tax and revenue assumptions, approval dependencies, issuance costs and reimbursement timing. No release should rely on an informal expectation that the district will acquire the works.
The options we would test
What owners should do
Our proposed execution sequence for this assignment:
Separate the systems
With engineers and the provider, define public mains, storage and treatment interfaces separately from private distribution and tenant systems. Establish phase demand, pressure, quality and acceptance boundaries.
Design the partnership
Bring the owner, district, utility, counsel and financial adviser to a common asset and cash-flow schedule. Define ownership at each stage, procurement obligations, cost eligibility and the party responsible for overruns.
Make reimbursement conditional in the model
Maintain distinct cases for no reimbursement, delayed reimbursement and approved recovery. Document the prerequisites that move a cost from potentially eligible to approved and ultimately paid.
Carry delivery through transfer
Advance the agreed easements, designs, approvals, construction interfaces and acceptance record. Assemble the acquisition or reimbursement evidence while the works are being delivered, not after the budget has been spent.
How we protect the decision
Our commercial recommendation is to separate three approvals: permission to investigate the district route, permission to advance privately funded works, and acceptance of any district acquisition or financing. Each has its own spending limit. An approved concept must not authorize unlimited advance funding. Independent district governance and required public processes remain real constraints, even when the developer is paying the initial bills.
What completion looks like
The accepted outcome is a funded, provider-supported shared-infrastructure package with a documented owner, operator and phase-service obligation. If reimbursement is part of the route, its conditions and unresolved risks are explicit. If the district route fails its gates, the owner has an executable smaller phase or a deliberate stop decision before irreversible spend.
What we would track
- Unfunded shared cost at each release
- Potential versus approved versus paid reimbursement
- Tenant occupancy cost including district burden
- Capacity accepted for the opening phase
Use a MUD to establish a durable infrastructure owner and a supportable financing route. Do not use it to conceal a funding gap.