Special Districts - Conflicted But Invisible

Anonymous

Wed, 01/14/2009 - 09:19

Conflicts

Special districts are an important and growing form of local
government, and yet they often fly beneath the radar. In fact, I've
only <a href="http://www.cityethics.org/node/449" target="”_blank”">mentioned them once</a>
in my blog. And most citizens have no idea what they are or that they
exist in their area (I myself can't name one in my area). For this reason,
conflicts of interest involving special districts also remain, for the
most part, invisible.

Special districts are set up for all sorts of things. Here, for
example, is a list of the California special district associations. 
 
<div>Association of California Water Agencies 
California Association of
Public Cemeteries 
California Association of
Recreation and Park Districts 
California Association of
Sanitation Agencies 
California Rural Water
Association 
California Special Districts
Association 
Fire Districts Association
of California 
Mosquito and Vector Control
Association of California 
</div>
 
According to <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=985082" target="”_blank”">the
essay</a> Wrestling with MUDs to Pin Down the Truth
about Special Districts by Sara C. Bronin (<a class="textlink" href="#">Fordham Law Review, </a><a class="textlink" href="#">Vol. 75, p, 3041, 2007)</a>, there are 35,000 special
districts in the U.S. with about $123 billion in revenues annually, and
with about $217 billion in debt (for those wondering what MUDs are,
they're municipal utility districts, designed to supply water to
unincorporated areas of Texas. Depending on whom you ask, there are
between 400 and 500 of them in the Houston area alone. The most famous
one, NAMUDNO, is the subject of my one blog piece that mentions special
districts; a voting rights case involving it is before the U.S. Supreme
Court). 
 
According to <a href="http://www2.census.gov/govs/cog/2007/ct.pdf">a 2007 report,</a> there are 179 general purpose local governments in my state, Connecticut, and 453 special district governments involved with water, sewer, fire, electricity, housing, beaches, transit, and combinations of these. 
 
The basic ethics problem that many special districts have is that they
are created by interested parties. Bronin focuses on this problem in
her introduction:<ul>

Typically, developers—not the general
public—determine when MUDs are formed, how big they are, and who
governs initially. Once MUDs are created, few people bother to vote in
MUD board elections or take an interest in district affairs. In the
absence of public participation, MUDs’ ability to influence the state
law that governs them goes unchecked.</ul>

More specifically, according to the Texas Commission on Environmental
Quality,<ul>

The developer is the major force behind
the creation and development of a district. . . . He may obtain a
financial commitment from a loan institution, hire engineers to draw
plans, employ attorneys to create the district, nominate the initial
board of directors, and oversee construction within the district.</ul>

A specific description of the petition process for creating a MUD shows
that conflicts of interest are not the exception, but the rule: 
 
Even cities with power to reject a
proposed MUD are reluctant to do so because a MUD creates development
without an immediate cost to the city; the city can later annex the
land to augment its tax base. Another reason for high MUD application
approval rates [about 99%] is that the voter pool for the confirmation
election usually consists of a small group of property owners who are
handpicked by the developer. In practice, the developer often builds a
few structures or installs mobile homes during the early phases of
development; the developer then leases the underlying land at a nominal
rate to a group of individuals he hopes will become the initial board
of directors. These individuals then sign the petition to the TCEQ,
become “voters” in the MUD, and elect themselves permanent directors.

The same goes for other sorts of districts. For example, according to
Bronin, fire service and equipment firms play a major role in creating
fire districts. But others most likely involve fewer essential
conflicts. 
 
This is not a matter of the fox watching the chicken coop. This is a
matter of the fox overseeing the building and management of the chicken
coop, and selecting the farmer. 
 
In states that enforce local government ethics at the state level,
special districts are covered. But who would know enough to file a
complaint? In other states, there are state rules that apply to special
districts, but rarely any enforcement mechanism. And where ethics is
left to local governments, I assume that few special districts have
their own ethics codes and ethics commissions. Why would something that
starts life as one big conflict of interest show any interest in
preventing people from being abusing their positions? 
 
Special districts are the deepest, darkest part of local government. I
will have to look into them more. If you know something, please share
it in comments to this blog entry or send me a blog entry of your own. 
 
Robert Wechsler 
Director of Research-Retired, City Ethics 
 
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