Canyon Creek residents win partial victory in ‘double taxation’ MUD case

The Third Court of Appeals has rejected the City of Austin’s argument that its 21-year-old agreement with the Northwest Austin Municipal Utility District No. 1 legally allows the city to charge property owners in the Canyon Creek neighborhood the same rate as other city taxpayers because they are also responsible for payments to the MUD.

 

Several individual residents and the MUD itself sued the city over what they called “double taxation” six years ago. The lawsuit revolves around an agreement between the city and the MUD developer signed in 1987.

 

In the mid-1980s, the city lost a battle to stop formation of the 2,300-acre Northwest Austin Municipal Utility District No. 1. The City Council then signed an agreement with Nash Phillips/Copus, the MUD developer, allowing the city to collect the full amount of property taxes upon annexation of the area. In the meantime, the MUD would build water and wastewater infrastructure and the city would provide water and wastewater service.

 

In a mixed ruling, the court upheld the primary claim of the MUD and protesting residents, that the 1987 agreement with the city was an “allocation agreement” under the Texas Water Code. But the court also ruled that only the MUD — not individual property owners — had standing in the suit, and reversed a ruling assigning attorneys fees to the city.

 

Assistant City Attorney Ann Morgan, chief of litigation, said the city would be carefully studying the ruling for a possible appeal. “It is a very complicated ruling, and we need to take a long look at it to understand all that’s in it,” she said. “We don’t know yet whether or not we will appeal the ruling, and we may need to enter into negotiations with the MUD to resolve another part of it.”

 

It is possible that the city will decide to appeal the case to the Texas Supreme Court on the main issue. It is also possible that the individual plaintiffs—who will not be able to recoup their expenses if the appeals court ruling stands—may want to appeal. Also, the court did not order Austin to return tax money already collected.

 

However, if neither side appeals the city and the MUD will have to negotiate a new tax rate for residents of Canyon Creek since this court has ruled that they cannot both charge those taxpayers more than other city taxpayers pay.

 

The Third Court overruled Travis County District Judge Lora Livingston in making its ruling on the Water Code issue. She issued that ruling in 2002.