Texas PIDs: How Public Improvement Districts Pay for Development

Somebody has to pay for the streets, pipes and ponds before a single lot can sell. In the Houston area that is usually a municipal utility district. In many fast-growing suburbs elsewhere in Texas, including the two North Texas cities below, it is a public improvement district: a city or county levies an assessment on the lots that benefit, and the assessments repay the developer who built the improvements.

Here is how a Texas PID is created, what it can pay for, how the developer gets the money back, what the buyer is told, and where the deals go wrong. Every figure below comes from the statute, city policies or public bond documents.

What a PID is

The law is Chapter 372 of the Local Government Code, the Public Improvement District Assessment Act. It lets a city or county finance an improvement that confers "a special benefit on a definable part" of its territory, including a city's extraterritorial jurisdiction, and charge the cost to the property that benefits.

That is the key difference from a tax. A PID levies an assessment: a specific amount allocated to each parcel, recorded in an assessment roll and paid in annual installments. It is not a rate applied to whatever the house is worth.

How a PID is created

A PID starts with a petition, and on a raw tract the petitioner is usually the developer. Under §372.005, the petition must be signed by:

• owners of more than 50% of the appraised value of taxable property liable for assessment, and
• either more than 50% of the record owners or owners of more than 50% of the area.

When one developer owns the whole tract, both tests are met by one signature. The city then publishes and mails notice at least 15 days before a hearing, and has six months after the hearing to authorize the district by a majority of the whole council. A written protest from the owners of two-thirds of the property, by count or by area, stops the improvements.

A county can create a PID too, but a home-rule city can object within 30 days if the land is inside its limits or its ETJ.

What a PID can pay for

Section 372.003 lists the eligible improvements. For a residential developer, the ones that matter are:

• streets, sidewalks and rights-of-way
• water, wastewater and drainage facilities
• parks, landscaping, lighting and signs
• land acquisition for any of the above
• the cost of administering the district

Roads and parks sit in the same assessment as the pipes. A MUD needs extra powers, separate elections and debt caps for roads and parks, which our Texas MUD guide explains.

The service and assessment plan

Every PID runs on a service and assessment plan, the document that says what will be built, what it costs, and how the cost is split. Under §372.013 it must cover at least five years, and the city must review and update it every year.

The split is where a plat becomes money. Section 372.015 allows assessments "equally per front foot or square foot," by value, or any other way that charges equal shares to similarly benefited property. Both residential PIDs below assess by lot size, so a 60-foot lot carries more than a 40-foot lot. Our front-foot pricing guide covers the arithmetic behind width-based charges.

How the assessment works

The council levies the assessment by ordinance and can make it payable in annual installments for as long as the debt lasts. Three rules in §372.018 shape the deal:

• Interest is capped. The assessment may not carry interest more than half a percentage point above the rate on the debt.
• It is a first lien. The assessment ranks ahead of every claim except ad valorem taxes, it runs with the land, and the unpaid balance survives a tax foreclosure.
• It can be prepaid. "The owner of assessed property may pay at any time all or any part of the assessment."

How the developer gets paid

Section 372.023 allows improvement costs to be "paid or reimbursed," and gives three main routes:

• A reimbursement agreement. The developer builds, the city accepts the improvements, and the developer is repaid from assessment installments as they come in. The obligation can be assigned without the city's consent, so it can be pledged or sold, much like a MUD receivable.
• Reimbursement bonds. The developer builds first, and the city issues PID bonds once the improvements are accepted. The bond proceeds repay the developer in one lump.
• Construction bonds. The bonds are sold up front and fund the work. Investors carry more risk, so the rates are higher.

PID bonds are revenue bonds payable from the assessments, not from the city's general taxes. They must mature within 40 years, and they can fund a reserve and capitalized interest.

Two recent North Texas deals

Both of these come from the limited offering memoranda for the bonds:

Princeton is the cleaner example of a reimbursement bond. The memorandum says the developers had spent about $8,929,071 on the improvements, funded with cash on hand, and that the improvements were completed and accepted by the city in January 2025. The bonds came after.

What a city will allow

Every PID city sets its own policy, and the numbers in it decide how much a developer can finance:

• Austin requires an appraised value-to-lien ratio of at least 3 to 1, caps bond maturity at 20 years, and limits the installment so that, together with ad valorem taxes, it does not exceed $3.00 per $100 of value.
• Anna requires 3 to 1, caps the assessment term at 30 years, and does not allow annual increases once assessments are levied. A final-plat true-up can force a prepayment from the developer.
• Smithville caps the equivalent tax rate at $3.00 per $100 at build-out and sets a 2.5-to-1 value-to-lien ratio.

Ratios vary in practice. Princeton's 40-foot lots, valued at $80,000 against a $37,627.50 assessment, came in at 2.13 to 1, below the 3-to-1 minimum in the Austin and Anna policies.

What the buyer is told

A PID assessment has to be disclosed. Under §5.014 of the Property Code, the seller must give the buyer a written notice that says, in capitals, that an assessment has been levied, that it may be paid in full at any time, and that the annual installments will vary from year to year.

The rules have tightened three times since 2021:

• HB 1543 (2021) made the city file the service plan with the county clerk and set out what happens when notice is missed.
• HB 2468 (2025) lets a buyer who did not get the notice terminate the contract within seven days of receiving it. A buyer who gets it at closing and closes anyway waives that right.
• SB 1106, effective January 1, 2026, requires the service plan to be posted online within seven days and the assessment roll to go to the appraisal district.

Texas A&M's Real Estate Research Center traced the 2021 law to complaints about a North Texas builder not disclosing PID assessments. Builders selling in a PID should treat the notice as part of the contract package, not an afterthought.

PID or MUD

Both repay a developer for public infrastructure. The differences:

• Who levies it. A PID is levied by the city or county. A MUD is its own district with an elected board.
• What is charged. A PID charges a fixed assessment per parcel on a schedule. A MUD levies an ad valorem tax with no set end date.
• Prepayment. A PID assessment can be paid off. A MUD tax cannot.
• Taxes. IRS Publication 530 says amounts paid for local benefits such as streets and water and sewer systems are not deductible and are added to the basis, which generally catches a PID assessment.

Our guides to Texas MUDs and MUD receivable financing cover the other side.

What it does to lot pricing

The installment lands in the buyer's monthly payment. Fannie Mae counts special assessments in the housing expense it underwrites, so a buyer qualifies for less house. By our arithmetic, Princeton's 40-foot installment is about $247 a month and Celina's 50-foot installment about $278.

That is why the assessment and the lot price have to be set together. A lot that carries $38,000 of PID debt competes with a lot down the road that carries none, and the builder will price the difference into its offer. The lot premium guide and the guide to selling lots to builders cover the rest of that negotiation.

Where PID deals go wrong

• Build-out stalls. Princeton's memorandum warns that missing the absorption estimates could reduce owners' ability or desire to pay, and notes that, for now, the developers are responsible for paying all of the assessments.
• The bonds cannot be accelerated. If an owner defaults, the bondholders wait for foreclosure. If a foreclosure sale falls short, the lien is likely extinguished and the rest becomes an unsecured personal liability.
• Value tests fail. A ratio below the city's minimum means smaller bonds and less reimbursement.
• Proceeds fall short. In Westlake, the mayor wrote in 2022 that the Entrada PID's $26.3 million of bonds had netted only $17.9 million, and pointed to a lack of progress over ten years.

None of these is a reason to avoid a PID. They are reasons to model absorption honestly before the petition is signed.

Where a map fits

A PID is a map problem before it is a finance problem. The assessment roll lists every parcel, its lot type and its installment, and a buyer reading a §5.014 notice has no idea which lots carry which amount.

An interactive plat map can show the district boundary, each improvement area and each lot's assessment class on the lot itself. The land developer view puts every section's status on one page, so builders and their buyers see the same numbers the service plan does.

The Bottom Line

A Texas PID lets a developer charge the cost of public infrastructure to the lots that benefit, and get repaid through installments or bonds. The statute sets the rules: a majority petition, a service plan updated every year, a first lien, and the buyer's right to prepay.

The city's policy sets the limits, and absorption decides whether the deal works. Get the lot sizes, assessments and disclosure right on day one, and a PID can fund roads, parks and pipes that a MUD never could.