MUD 537 Letter to Residents - 2025 Overview

The purpose of a MUD is to provide the developer with an alternative way to recover their costs for the construction of infrastructure, such as water, sewer, drainage, road, and park facilities, rather than including those costs in the price of the homes.

Harris County MUD No. 537 (“MUD 537”) was developed by Hines, Inc. (the “Developer”) in accordance with the Texas Commission on Environmental Quality (“TCEQ”), State, and City of Houston (the “City”) rules and regulations. MUD 537 was formed by the Texas Legislature pursuant to an Act of June 14, 2013, 83rdLeg.,R.S.,H.B. 3943 (codified in Special Districts Local Laws Code Ann. Chapter 8488)

MUD 537 is a political subdivision of the State of Texas created to provide and construct essential services such as water, wastewater, storm drainage, roads and parks. Formation of MUD 537 enabled affordable residential development in an area where the City would not invest in infrastructure and community development. MUD 537 is governed by a 5-member Board of Directors (the “Board”) elected by the registered voters who live in MUD 537. All 5 Board members reside in MUD 537.

MUD 537 operates pursuant to Chapters 49 and 54 of the Texas Water Code and the rules and regulations of the TCEQ .

The largest influence on property taxes is the repayment of the debt service on the Bonds that have been issued to reimburse the Developer for the construction of the public infrastructure to serve MUD 537 Other impacts on the tax rate include the cost to maintain and operate the infrastructure, property valuation as determined by the Harris Central Appraisal District, and consultant costs, such as Engineer, Attorney, Operator, Auditor, and Tax Assessor.

First, let us review some basics about what a Municipal Utility District (MUD) is and does.

• A MUD may issue bonds to reimburse a developer for authorized improvements and future maintenance of these improvements.
• A MUD may collect property taxes and user fees received from the water and sewer services operated by the MUD to repay the debt and perform operations and maintenance.
• A MUD may provide enhanced services for their residents such as parks and solid waste service.
• An intercity MUD relies on a City (such as the City of Houston (the “City”)) to provide police, fire and emergency services.
• A MUD may be created by an adoption of a district creation bill by the Texas Legislature and approval by a City.
• A MUD may hire professional staff to manage, maintain and oversee operations.

Let us describe the highlighted words noted in the previous paragraph.

• Bonds – MUD 537 has issued bonds to reimburse the Developer for water, sewer, drainage, and park infrastructure. In addition, MUD 537 has issued bonds to reimburse the Developer for improvements to Old Katy Road.
• Water and sewer – MUD 537 is an independent authorized water supplier. Since the MUD is within the City boundaries, MUD 537 purchases all water from the City. MUD 537 discharges all the sanitary sewer waste to the City. The waterline and sewer lines are owned by MUD 537 and operated and maintained by a professional water operation company, SiEnvironmental.
• Drainage – MUD 537 owns and maintains the above and below ground drainage system which includes the canals and detention (amenity) pond. These structures were designed to prevent flooding in accordance with current design standards at the time MUD 537 was created.
• Roads – Since the community is gated, the internal roads are considered private, and the ownership and maintenance of such roads are the responsibility of Somerset Green HOA (the “HOA”).
• Elected – MUD 537 has five Board members. Members are elected on four-year rotating cycles by the registered voters in MUD 537. An election was recently held in May 2024 to elect two new Board members. The next election is in May 2026.
• Reimbursement – MUD 537 has issued $19,670,000 in road, water, sewer, drainage, and park bonds to reimburse the Developer for all eligible development costs. The reimbursement was in accordance with TCEQ’s rules and regulations with repayment structured to ensure no tax rate increase. In fact, for the first time since the District began levying taxes, the Board lowered the 2025 tax rate to $0.49. The latest bonds were approved in November 2023 and were issued for park improvements constructed by the Developer.
• Collect – All bond debt is the responsibility of the property owners in MUD 537. The Board oversees the collection of ad valorem taxes and payment of bond indebtedness. The taxes are collected yearly, along with other taxing authorities in Harris County.
• Solid waste services – MUD 537 outsources and manages the collection of trash and recycling to GFL. The cost for trash collection is paid from MUD 537’s tax revenues and is not included on resident’s water/sewer bills. MUD 537 contracts with GFL to collect trash twice weekly and recycling once weekly, which is twice what the City provides its residents.
• Professional staff – MUD 537 is a small utility district. It does not have the usual professional staff needed to operate and maintain water and sewer plants. Therefore, MUD 537 hires consultants to provide legal, engineering, tax collection, audit, and other management services. MUD 537 has engaged SiEnvironmental to manage and maintain the water and sewer systems. SiEnvironmental also reads the residential water meters and bills and collects for each resident’s monthly water/sewer usage. The responsibility of the other infrastructure in the community was transferred to the HOA. Accordingly, the HOA performs the operations and maintenance of this infrastructure.

MUD 537, your MUD, is a unique entity serving the residents of Somerset Green. The Board, elected by Somerset Green registered voters, oversees many important roles.

1. Bond debt and ad valorem taxes.
   The MUD 537 Board sets its budget in April or May of each year. The fiscal year begins June 1. The budget includes debt payments, maintenance and operation expenses, and other material costs. Subsequently, in October, the Board sets the ad valorem tax rate (or levy). The ad valorem tax is a tax based on the assessed value of your property. The Harris Central Appraisal District (“HCAD”) determines the assessed value of property for MUD 537.
   The tax levy is set at a level to cover the approved budget, which includes the bond debt and maintenance and operation expenses. When MUD 537 was created, the Developer and the Board set the initial tax rate at $0.50. The Board has been committed, and remains committed, to minimizing the extra cost of living in MUD 537 and still cover the necessary costs to build an outstanding subdivision inside the City.
   The Board recently approved the 2025-2026 budget, which will allow the Board to lower the tax rate to $0.49 for 2025. The Board continually works to keep your taxes at the lowest rate possible.

2. Flood control and mitigation.
   The storm sewer system, canals, and detention pond were designed to minimize, if not eliminate, the risk of flooding within Somerset Green. The system is working as designed. Somerset Green has experienced several serious flooding events, including hurricanes, tropical storms, and heavy thunderstorms, without any flooding. Note: ponding on the street and below the curb is part of the flood mitigation system and should not be confused with actual flooding that may occur over the curb and onto yards.
   The flood control system works in the following way:

   • Flood water collects in the streets and drains into the inlets.
   • The inlets drain into the storm sewers.
   • The storm sewers drain into the canals and detention pond.
   • The detention pond’s two discharge pumps discharge water into the drainage ditch south of the district and east of the car dealership.
   • The detention’s emergency discharge pipe discharges additional water into the ditch (mentioned above). The ditch discharges into TxDOT’s I-10 drainage system south of Katy Road.

3. Administration.
   The Board oversees an outstanding group of consultants. These consultants provide legal, bookkeeping, tax collection, engineering, audit, and other crucial services. As an independent governmental agency, MUD 537 is required to comply with State, TCEQ, and City laws, rules, and regulations. All meetings must be open to the public. Notices of the meetings are sent out a minimum of 3 business days before any meeting. The Board cannot meet in private, except to discuss pending litigation, security, and personnel matters. The Board cannot meet and make decisions without a quorum of three (3) Directors.
   The meetings are held within two miles of the subdivision, and MUD 537’s legal representative produces meeting minutes and maintains all records.
   The Board approves all the expenses of MUD 537. A professional bookkeeping firm receives and reconciles expenses and accounts. The firm prepares checks for all approved expenses. These checks are signed personally by a minimum of three Directors. The process ensures all expenses are thoroughly reviewed by the Board. Additional oversight comes in the form of a formal audit each year by an independent auditing company. The final audit is submitted to the TCEQ and Texas State Comptroller.
   MUD 537 does not have regulatory or policing powers. The HOA has regulatory powers prescribed in its bylaws.

MUD 537 was created in 2013. Since its inception MUD 537 has:

• Never increased the initial $0.50 tax rate and, in fact, lowered the 2025 tax rate to $0.49.
• Made annual payments on the bond debt from the creation and infrastructure construction of MUD 537. The current outstanding bond debt of $17,975,000 is scheduled to be fully paid by April 1, 2049.
• Maintained a modest budget.
• Saved approximately $100,000 by enforcing the conditions of the interlocal water supply agreement with the City.

Negotiated the removal of the back flow preventors on the City meters to maintain sufficient water pressure and minimize the number of boil water notices within MUD 537. MUD 537 is one of two groups making Somerset Green the best subdivision in Houston. MUD 537 coordinates closely with the HOA to make living in Somerset Green an excellent choice. As originally conceived, MUD 537 takes a subsidiary role to the HOA on most resident matters. The HOA is better suited to responding to the immediate needs of the residents. In the end, all costs to keep Somerset Green beautiful and functioning at the highest level come directly from the residents in the form of MUD 537 taxes and HOA fees.

How has MUD 537 contributed directly to the HOA to benefit residents during the current MUD 537 fiscal year (June 1, 2025 -May 31, 2026)?

• Contributed $30,600 to the HOA’s Landscaping Budget
• Contributed $12,000 to the HOA’s Security Budget
• Assumed direct financial responsibility for the Lake Management Contract valued at $28,600.
• Assumed indirect financial responsibility of both the Landscaping and Security Contracts from the HOA, resulting in a net savings from Sales Tax Expense of $42,000.
• Manages the two well permits secured by the Developer during the development of the subdivision. These two wells provide all the HOA’s landscaping water supply. The significance of these wells is the savings of millions of gallons of water, resulting in a savings to the HOA and residents in excess of $100,000 annually.

Future Projects

The Board is coordinating with the City in multiple ways to ensure that there is adequate water pressure inside MUD 537. The Board constantly monitors the water pressure provided by the City. MUD 537 notifies the City if pressure drops below a minimum level. The Board is considering designing and constructing a water pressurization system to increase water pressure when the City is unable to provide acceptable pressure levels. The estimated cost to install this system would exceed two million dollars ($2,000,000). Before committing to this project, the Board is considering several other options. The Board is currently negotiating the purchase of a parcel of land immediately adjacent to Somerset Green, along Old Katy Road, that would house a pressurization system should it be budgeted and approved by the Board.

The Board of Directors takes considerable pride in making Somerset Green one of the best subdivisions in Houston. Keeping taxes low, picking up trash twice as often as the City, decreasing debt quickly, and providing water/sewer service at the lowest possible cost are our priorities.

Thank you for your confidence and support.

Regards,

Jim Balock
Nancy Tuner
Francine Stefan
William Sherwood
David Kahn

Board of Directors
Harris County Municipal Utility District No. 537