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Signed Into Law
Signed June 20, 2025Effective 2025-06-20
HB5686

Regular Session

Relating to the creation of the Montgomery County Management District No. 3; providing authority to issue bonds; providing authority to impose assessments, fees, and taxes.

Government Affairs & Regulatory Compliance Analysis

HB5686: Government Affairs Overview

Effective June 20, 2025, HB5686 establishes the Montgomery County Management District No. 3, a special purpose entity with the authority to levy ad valorem taxes, sales taxes, and infrastructure assessments. Commercial property owners, developers, and tenants within the District’s boundaries (Seven Coves Road area) face immediate exposure to new financial liabilities and liens that are superior to commercial mortgages.

Rep. William Metcalf·House Bill·Regular Session

Low
Medium Cost
Effective:2025-06-20
Enforcing Agencies

Montgomery County Management District No. 3 Board of Directors • Texas Commission on Environmental Quality (TCEQ) • Texas Comptroller of Public Accounts

Business Impact

Who HB5686 Affects

This legislation has regulatory implications for the following Texas businesses and organizations:

Regulatory Priority: low

Standard regulatory changes (effective 2025-06-20). Review during normal business planning.

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Water

Affected business types:

  • Water utilities
  • Wastewater treatment facilities
  • Municipal water districts
  • Agricultural water users
View all water legislation

Key Operational Considerations

  • 1Construction Contracts: Vendors contracting with the District must adhere to Texas Government Code Chapter 2253 regarding payment bonds, as the District is a governmental entity.

Estimated Cost Impact

mediumModerate costs expected for implementation.

Enforcing Agencies

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HB5686
Relating to the creation of the Montgomery County Management District No. 3; providing authority to issue bonds; providing authority to impose assessm...
Low Urgency
Heavily Contested
House Vote106 - 36
YEA
NAY
75% in favor142 voting
Senate Vote26 - 5
YEA
NAY
84% in favor31 voting
41
Total Opposition Votes
Cost Impact
Medium
Effective
2025-06-20
Enforcing Agencies
Montgomery County Management Dis...TCEQTexas Comptroller of Public Acco...
Primary Author: Rep. William Metcalf
89th Texas Legislature
jdkey.com
01

Compliance Analysis

Key implementation requirements and action items for compliance with this legislation

Implementation Timeline

  • Effective Date: June 20, 2025 (The District is legally active now).
  • Compliance Deadline: Immediate for portfolio verification. Financial obligations (taxes/assessments) trigger upon Board resolution or voter election, likely commencing Q3/Q4 2025.
  • Agency Rulemaking: The District Board of Directors will define specific assessment rates and tax levies via local orders. There is a "regulatory gray zone" now until the first Board meeting where administrative rules and assessment methodologies are adopted.

Immediate Action Plan

  • 1. GIS Audit: Immediately map the metes and bounds from Section 2 of HB5686 against your real estate assets to confirm inclusion.
  • 2. Lender Notification: If you hold mortgaged land in the District, notify your lender of the new potential for superior assessment liens to preempt compliance issues.
  • 3. Lease Review: Audit all Triple Net leases in the area to determine if the landlord or tenant bears the burden of "special assessments."
  • 4. Engage the Board: Identify the initial five directors named in the Act and request to be added to the notification list for all Board meetings and public hearings.

Operational Changes Required

Contracts

  • Commercial Leases (NNN): Landlords must amend or review lease agreements to ensure "Operating Expenses" or "Taxes" definitions include special district assessments. Tenants should negotiate caps on capital improvement pass-throughs to avoid funding long-term infrastructure.
  • Loan Agreements: Borrowers must review "Permitted Encumbrances" clauses. The District’s assessments create a first-priority lien. Failure to pay or disclose these assessments may trigger a technical default under standard commercial loan covenants.
  • Construction Contracts: Vendors contracting with the District must adhere to Texas Government Code Chapter 2253 regarding payment bonds, as the District is a governmental entity.

Hiring/Training

  • Tax Compliance Teams: Staff must monitor Montgomery County election results. If a sales tax election passes, Point-of-Sale (POS) systems must be updated to collect the additional rate (increments of 0.125%) immediately upon the effective date set by the Comptroller.
  • Facilities/Real Estate Managers: Teams must be trained to identify "Notice to Purchaser" forms required under Texas Water Code Section 49.452 during any real estate transaction within the District.

Reporting & Record-Keeping

  • Lien Monitoring: Accounts Payable must track assessment notices distinct from standard county property tax bills. Non-payment results in foreclosure.
  • Petition Tracking: Retain all correspondence regarding petitions for improvements. The Board requires a petition from owners of a majority of the assessed value to impose assessments. Your signature—or refusal—directly impacts your liability.

Fees & Costs

  • Assessments: Variable. The Board determines the amount based on benefit to the property.
  • Ad Valorem Tax: Uncapped for operations and maintenance *if* approved by voters.
  • Sales Tax: Up to the statutory maximum (2% total local cap) *if* approved by voters.

Strategic Ambiguities & Considerations

  • Assessment Methodology: The law allows the Board to impose assessments for "any purpose authorized" but does not dictate the calculation method (e.g., front-footage vs. square footage vs. valuation). Businesses must monitor Board agendas to contest unfavorable methodologies before they are adopted.
  • Sales Tax "Headroom": The District cannot impose a sales tax that, when combined with existing overlaps (City/County/ESD), exceeds 2%. The Comptroller must determine available capacity. If the cap is reached, the District’s sales tax authority is effectively dormant.
  • District Division: The Board has the power to split the District into multiple new districts. This could result in different tax rates for different parcels within the original tract.

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Information presented is for general knowledge only and is provided without warranty, express or implied. Consult qualified government affairs professionals and legal counsel before making compliance decisions.

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Legislative Timeline

This bill's path through the Texas Legislature

Filed
Apr 23, 2025
Passed House
May 15, 2025
Passed Senate
May 25, 2025
Signed
Jun 20, 2025
Effective
Jun 20, 2025
TopicsMontgomery County Management District No. 3Special Districts & AuthoritiesSpecial Districts & Authorities--miscellaneousMontgomery CountyEnvironmental Quality, Texas Commission On
03

House Authors

Rep. William MetcalfRepublican · Primary Author

Senate Sponsor

Sen. Charles CreightonRepublican · Primary Sponsor

Bill Text(with markup)

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View bill text in multiple formats on Texas Legislature website

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Related Legislation

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More from Rep. William Metcalf

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Related by Topic

View more Montgomery County Management District No. 3 legislation
Quick Reference

Frequently Asked Questions

Common questions about HB5686

Q

What does Texas HB5686 do?

Effective June 20, 2025, HB5686 establishes the Montgomery County Management District No. 3, a special purpose entity with the authority to levy ad valorem taxes, sales taxes, and infrastructure assessments. Commercial property owners, developers, and tenants within the District’s boundaries (Seven Coves Road area) face immediate exposure to new financial liabilities and liens that are superior to commercial mortgages.

Q

Who authored HB5686?

HB5686 was authored by Texas Representative William Metcalf during the Regular Session.

Q

When was HB5686 signed into law?

HB5686 was signed into law by Governor Greg Abbott on June 20, 2025.

Q

Which agencies enforce HB5686?

HB5686 is enforced by Montgomery County Management District No. 3 Board of Directors, Texas Commission on Environmental Quality (TCEQ) and Texas Comptroller of Public Accounts.

Q

How significant are the changes in HB5686?

The regulatory priority for HB5686 is rated as "low". Businesses and organizations should review the legislation to understand potential impacts.

Q

What is the cost impact of HB5686?

The cost impact of HB5686 is estimated as "medium". This may vary based on industry and implementation requirements.

Q

What topics does HB5686 address?

HB5686 addresses topics including montgomery county management district no. 3, special districts & authorities, special districts & authorities--miscellaneous, montgomery county and environmental quality, texas commission on.

Q

What are the key dates for HB5686?

Key dates for HB5686: Effective date is 2025-06-20. Consult with legal counsel regarding applicability.

Q

What are the penalties under HB5686?

HB5686 establishes the following penalties: civil penalty of Variable (Assessment amount + interest + collection expenses + attorney's fees) for Failure to pay district assessments results in a first and prior lien against the property, enforceable via foreclosure.. Consult with legal counsel for specific applicability to your situation.

Need Strategic Guidance on This Legislation?

JD Key Consulting is an Austin, Texas-based government affairs firm led by James Dickey, former Chairman of the Republican Party of Texas. We specialize in Texas regulatory compliance and legislative strategy for data centers, energy, banking, and manufacturing.

Legislative data provided by LegiScanLast updated: January 11, 2026