Dr. Blake Bennett – Associate Professor & Extension Economist, Texas A&M AgriLife Extension Service
Public Improvement Districts (PIDs) are becoming more prevalent across Texas. Given recent changes to real estate transaction notice requirements, a firm understanding of PIDs, their benefits, and how they impact the real estate transaction is vital to the success of real estate professionals. A brief description of PIDs and requirements for notice is discussed below.
What is a PID?
A PID stands for Public Improvement District and represents a partnership agreement between a city and private sector. PIDs provide specific property owners with additional services from the city. The property owners can include any type of property (residential, commercial, retail, etc.). The additional services are paid for by PID assessments on the property within the district and can include security, common-area maintenance/cleaning, district promotion and landscaping just to name a few. The city provides these services and is repaid for the additional expense through an assessment on the property within the district.
Required PID Notice
Effective 9/1/2021, sellers of property located within a PID are required to provide new statutory notice to buyers1. This notice must be given to prospective buyers before executing the contract either separately as an addendum or as a paragraph of the purchase contract, and applies to all real estate sales transactions. Prospective buyers are required to sign the notice and it must be recorded once signed.
If sellers do not provide the required notice, buyers will have the right under the statute to terminate the contract at any point prior to closing. Failure to provide the required notice prior to closing to a buyer may give the buyer a right to sue for damages under the statute, but a notice being executed at closing removes the ability of buyers being able to sue for damages. Also, sellers, title companies, real estate brokers, and examining attorneys are not liable for damages to buyers for failing to provide notice to buyers if the PID service plan was not filed by the city or county with the county clerk in accordance with the statute or for unintentionally providing a notice that is not the correct notice under the circumstances.
How to Find an Existing PID
One simple approach a realtor can take when trying to determine if a property is located in a PID is to ask the seller/client. Alternatively, PID assessment values can be found on the tax notice if the tax collector is collecting the PID assessments. The information may also be obtained by contacting the city or looking on the city’s website.
Benefits of a PID
PIDs can provide very valuable services for the properties within the district. Some specific examples include:
- The Lake Highlands Public Improvement District of Dallas is supplementing the Dallas Police Department services with off-duty Dallas police officers in the area2.
- The Vintage Township Public Improvement District of Lubbock, Texas was created in part to provide lighting, street signs, park features, street trees and irrigation, drainage, as well as streets and alleys3.
You would think that these additional services would result in higher property tax values with an active PID; however, Central Appraisal Districts do not include a PID in their assessment of value for property suggesting there may be a difference in assessed and market values of property.
How Are PIDs Created?
PIDs are authorized to be created under two Texas statutes. These statutes are Subchapter A, Chapter 372, Local Government Code, and Chapter 372, Local Government Code.
To create a PID, property owners must petition the city. To qualify, owners of taxable real property representing more than 50% of the appraised property within the proposed district and either more than 50% of the property owners or owners representing more than 50% of the land area within the district must sign the petition4. The city will review a petition making sure it complies with state statues and hold a public hearing regarding the proposed PID. Within six months of the public hearing, the City Council can authorize the PID.
Is the PID a Property Tax?
A PID is not a tax on property owners. PIDs represent a special assessment. However, PIDs can work similar to a property tax because the assessment may be based on a rate per $100 of value of property. PIDs may also structure the assessment to be based on a flat rate based on the size of the property within the district.
How Are PID Assessments Paid?
Paying PID assessments vary according to the respective PID. Some PID payments are collected by the County Tax Assessor/Collector with other property taxes. Other PIDs may designate a trustee to collect the PID payments. In certain situations, mortgage companies include PID assessments within the property owner’s escrow payment and pay the assessment when ad valorem taxes are paid.
PIDs generally have a defined life span that is set at the time the PID is approved by the City Council. PID assessments can normally be paid in full at any time, or in annual installments.
Upon the transfer of ownership of a property located within a PID, assessment obligations may transfer to the new property owner for the remainder of the life of the PID.
In situations where PID assessments are not paid, the management of the PID can take legal action such as placing a lien or foreclosing on the property.
1 Relating to certain procedural requirements for public improvement districts and transfers of property located in public improvement districts. H.B. No. 1543. 6/4/2021.
2 Lake Highlands Public Improvement District. “Safety.” Retrieved from: https://lhpid.org/safety/. Retrieved on 9/19/2021.
3 The Vintage Township Public Improvement District, City of Lubbock, Texas. “Service and Assessment Plan.” May 9, 2007. Retrieved from: https://www.municap.com/texas-docs/Vintage/Vintage%20PID-%20Service%20and%20Assessment%20Plan%20(Original).pdf. Retrieved on: 9/19/2021.