A municipal management district and county that contracted with the City of Arcola to develop an 83-acre tract using tax increment financing under Chapter 311, Tax Code, has successfully obtained emergency relief pending a decision of the Houston [1st] Court of Appeals.

In re Fort Bend County, Texas; and Arcola Municipal Management District No. 1 (No. 23-0396) stems from the city’s decision to disannex 83 acres of land, the tax revenue from which the city and Fort Bend County had previously pledged to the district for development of the land under a Chapter 311 agreement. Under that agreement, the district promised to design, finance, and construct water, sewer, drainage, and parks. In return, the city and county agreed to reimburse the district by way of an 85% share of the property taxes levied and collected from the land. Based on this pledge, the district executed agreements with contractors and sought to issue bonds. Apparently reneging on the deal, the city noticed a September 26 city council meeting to consider a proposed ordinance to disannex the tract, which would of course have the effect of eliminating financing for the development agreement. The district countered by filing suit and obtaining a temporary restraining order against consideration of the ordinance at the meeting. When the city put the issue on the agenda for its succeeding meeting, the district, with Fort Bend County’s intervention, moved for a temporary injunction. The city responded with a plea to the jurisdiction, which the trial court granted.

The district and county immediately appealed to the Houston [1st] Court of Appeals, but at the same time the city scheduled a Saturday meeting to consider the ordinance. The following Monday, the district and county sought emergency relief from the court of appeals to preserve the status quo and the court’s jurisdiction over the appeal. The court requested a response from the city on Monday, November 13, but as of today has not yet ruled. On November 14, the district and county filed for emergency relief (a protective mandamus order) from SCOTX, just hours ahead of another city council meeting called to adopt the disannexation ordinance. SCOTX granted a stay, pending a ruling from the court of appeals.

The question before the court of appeals, and potentially SCOTX, is whether the district and county could, according to their petition, “obtain meaningful injunctive relief forcing the City to re-annex the property. Even is such relief is available,” they continue, “the City will not be able to recapture the lost tax revenue that it should have paid to the District in the meantime (which could be years).” The broader question involves the ability of local governments that, for whatever reason, sour on a Chapter 311 project, to do what Arcola is attempting to do and, when sued, plead governmental immunity. According to Relators, this potential will “wreak havoc on municipal bond markets—not to mention the ordinary Texans who rely on improvements that these taxes (and the bonds) fund. At the very least, Relators argue, the court should receive full briefing on the merits for purposes of a full appellate review.

Does this case implicate the viability of Chapter 311 as a whole or is it confined to peculiar local circumstances that may make it unlikely to repeat itself? It’s hard to say, but we suspect that SCOTX wants to err on the safe side and make sure the issues get a full airing.

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