Special Districts - Conflicted But Invisible

Special districts are an important and growing form of local government, and yet they often fly beneath the radar. In fact, I've only mentioned them once 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.


According to the essay Wrestling with MUDs to Pin Down the Truth about Special Districts by Sara C. Bronin (Fordham Law Review, Vol. 75, p, 3041, 2007), 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 2007 report, 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:

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.

More specifically, according to the Texas Commission on Environmental Quality,

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.

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

---