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.

LowStandard timeline

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

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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Legislative Timeline

This bill's path through the Texas Legislature

TopicsMontgomery County Management District No. 3 Special Districts & Authorities Special Districts & Authorities--miscellaneous Montgomery County Environmental Quality, Texas Commission On

Official Analysis

View HRO Analysis View All Bill Documents

BILL ANALYSIS

H.B. 5686

By: Metcalf

Intergovernmental Affairs

Committee Report (Unamended)

BACKGROUND AND PURPOSE

The bill author has informed the committee that an area located within Montgomery County would benefit from the creation of a management district. H.B. 5686 seeks to provide for the creation of such a district.

CRIMINAL JUSTICE IMPACT

It is the committee's opinion that this bill does not expressly create a criminal offense, increase the punishment for an existing criminal offense or category of offenses, or change the eligibility of a person for community supervision, parole, or mandatory supervision.

RULEMAKING AUTHORITY

It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency, or institution.

ANALYSIS

H.B. 5686 amends the Special District Local Laws Code to create the Montgomery County Management District No. 3 to provide certain improvements, projects, and services for public use and benefit. The bill provides for, among other provisions, the addition and exclusion of district land, the division and dissolution of the district, and taxes and obligations for certain defined areas and designated property subject to voter approval at an election in the defined area. The district's powers and duties include, subject to certain requirements, the authority to issue obligations and impose assessments as well as sales and use, property, and operation and maintenance taxes. The bill prohibits the district from exercising the power of eminent domain.

H.B. 5686 establishes that all applicable requirements relating to the following have been fulfilled and accomplished with respect to the bill:

·the legal notice of intention to introduce;

·governor action;

·Texas Commission on Environmental Quality recommendations; and

·the state constitution and laws and legislative rules and procedures.

EFFECTIVE DATE

On passage, or, if the bill does not receive the necessary vote, September 1, 2025.

House Authors

Rep. William MetcalfRepublican · Primary Author

Senate Sponsor

Sen. Charles CreightonRepublican · Primary Sponsor

Bill Text(with markup)

H.B. No. 5686

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Fiscal NoteView Original

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.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Subtitle C, Title 4, Special District Local Laws

Code, is amended by adding Chapter 4017 to read as follows:

CHAPTER 4017. MONTGOMERY COUNTY MANAGEMENT DISTRICT NO. 3

SUBCHAPTER A. GENERAL PROVISIONS

Sec. 4017.0101. DEFINITIONS. In this chapter:

(1) "Board" means the district's board of directors.

(2) "Commission" means the Texas Commission on

Environmental Quality.

(3) "County" means Montgomery County.

(4) "Director" means a board member.

(5) "District" means the Montgomery County Management

District No. 3.

Sec. 4017.0102. NATURE OF DISTRICT. The Montgomery County

Management District No. 3 is a special district created under

Section 59, Article XVI, Texas Constitution.

Sec. 4017.0103. PURPOSE; DECLARATION OF INTENT. (a) The

creation of the district is essential to accomplish the purposes of

Sections 52 and 52-a, Article III, and Section 59, Article XVI,

Texas Constitution, and other public purposes stated in this

chapter.

(b) By creating the district and in authorizing the county,

the City of Conroe, the City of Willis, and other political

subdivisions to contract with the district, the legislature has

established a program to accomplish the public purposes set out in

Section 52-a, Article III, Texas Constitution.

develop, encourage, and maintain employment, commerce,

transportation, housing, tourism, recreation, the arts,

entertainment, economic development, safety, and the public

welfare in the district.

(d) This chapter and the creation of the district may not be

interpreted to relieve the county, the City of Conroe, or the City

of Willis from providing the level of services provided as of the

effective date of the Act enacting this chapter to the area in the

district. The district is created to supplement and not to supplant

county or city services provided in the district.

Sec. 4017.0104. FINDINGS OF BENEFIT AND PUBLIC PURPOSE.

(a) All land and other property included in the district will

benefit from the improvements and services to be provided by the

district under powers conferred by Sections 52 and 52-a, Article

III, and Section 59, Article XVI, Texas Constitution, and other

powers granted under this chapter.

(b) The district is created to serve a public use and

benefit.

and is essential to further the public purposes of:

(1) developing and diversifying the economy of the

state;

(2) eliminating unemployment and underemployment; and

(3) developing or expanding transportation and

commerce.

(d) The district will:

(1) promote the health, safety, and general welfare of

residents, employers, potential employees, employees, visitors,

and consumers in the district, and of the public;

(2) provide needed funding for the district to

preserve, maintain, and enhance the economic health and vitality of

the district territory as a community and business center;

(3) promote the health, safety, welfare, and enjoyment

of the public by providing pedestrian ways and by landscaping and

developing certain areas in the district, which are necessary for

the restoration, preservation, and enhancement of scenic beauty;

and

(4) provide for water, wastewater, drainage, road, and

recreational facilities for the district.

(e) Pedestrian ways along or across a street, whether at

grade or above or below the surface, and street lighting, street

landscaping, parking, and street art objects are parts of and

necessary components of a street and are considered to be a street

or road improvement.

(f) The district will not act as the agent or

instrumentality of any private interest even though the district

will benefit many private interests as well as the public.

Sec. 4017.0105. INITIAL DISTRICT TERRITORY. (a) The

district is initially composed of the territory described by

Section 2 of the Act enacting this chapter.

(b) The boundaries and field notes contained in Section 2 of

the Act enacting this chapter form a closure. A mistake in the

field notes or in copying the field notes in the legislative process

does not affect the district's:

(1) organization, existence, or validity;

(2) right to issue any type of bonds for the purposes

for which the district is created or to pay the principal of and

interest on the bonds;

(3) right to impose or collect an assessment or tax; or

(4) legality or operation.

Sec. 4017.0106. ELIGIBILITY FOR INCLUSION IN SPECIAL ZONES.

All or any part of the area of the district is eligible to be

included in:

(1) a tax increment reinvestment zone created under

Chapter 311, Tax Code; or

(2) a tax abatement reinvestment zone created under

Chapter 312, Tax Code.

Sec. 4017.0107. APPLICABILITY OF MUNICIPAL MANAGEMENT

DISTRICTS LAW. Except as otherwise provided by this chapter,

Chapter 375, Local Government Code, applies to the district.

Sec. 4017.0108. CONSTRUCTION OF CHAPTER. This chapter

shall be liberally construed in conformity with the findings and

purposes stated in this chapter.

SUBCHAPTER B. BOARD OF DIRECTORS

Sec. 4017.0201. GOVERNING BODY; TERMS. The district is

governed by a board of five directors who serve staggered terms of

four years, with two or three directors' terms expiring June 1 of

each odd-numbered year.

Sec. 4017.0202. APPOINTMENT OF DIRECTORS. The commission

shall appoint directors from persons recommended by the board.

Sec. 4017.0203. INITIAL DIRECTORS. (a) The initial board

consists of the following directors:

Pos. No.

Name of Director

Michele Burke

Andrew Williams

Benjamin Mellado

Mehmet Okumus

Joey Sergio Soto

(b) Of the initial directors, the terms of directors

appointed for positions one through three expire June 1, 2027, and

the terms of directors appointed for positions four and five expire

June 1, 2029.

SUBCHAPTER C. POWERS AND DUTIES

Sec. 4017.0301. GENERAL POWERS AND DUTIES. The district

has the powers and duties necessary to accomplish the purposes for

which the district is created.

Sec. 4017.0302. IMPROVEMENT PROJECTS AND SERVICES. (a) The

district, using any money available to the district for the

purpose, may provide, design, construct, acquire, improve,

relocate, operate, maintain, or finance an improvement project or

service authorized under this chapter or Chapter 375, Local

Government Code.

(b) The district may contract with a governmental or private

entity to carry out an action under Subsection (a).

governmental function or service for the purposes of Chapter 791,

Government Code.

Sec. 4017.0303. NONPROFIT CORPORATION. (a) The board by

resolution may authorize the creation of a nonprofit corporation to

assist and act for the district in implementing a project or

providing a service authorized by this chapter.

(b) The nonprofit corporation:

(1) has each power of and is considered to be a local

government corporation created under Subchapter D, Chapter 431,

Transportation Code; and

(2) may implement any project and provide any service

authorized by this chapter.

nonprofit corporation. The board of directors of the nonprofit

corporation shall serve in the same manner as the board of directors

of a local government corporation created under Subchapter D,

Chapter 431, Transportation Code, except that a board member is not

required to reside in the district.

Sec. 4017.0304. LAW ENFORCEMENT SERVICES. To protect the

public interest, the district may contract with a qualified party,

including the county, the City of Conroe, or the City of Willis, to

provide law enforcement services in the district for a fee.

Sec. 4017.0305. MEMBERSHIP IN CHARITABLE ORGANIZATIONS.

The district may join and pay dues to a charitable or nonprofit

organization that performs a service or provides an activity

consistent with the furtherance of a district purpose.

Sec. 4017.0306. ECONOMIC DEVELOPMENT PROGRAMS. (a) The

district may engage in activities that accomplish the economic

development purposes of the district.

(b) The district may establish and provide for the

administration of one or more programs to promote state or local

economic development and to stimulate business and commercial

activity in the district, including programs to:

(1) make loans and grants of public money; and

(2) provide district personnel and services.

and exercise the economic development powers provided to

municipalities by:

(1) Chapter 380, Local Government Code; and

(2) Subchapter A, Chapter 1509, Government Code.

Sec. 4017.0307. PARKING FACILITIES. (a) The district may

acquire, lease as lessor or lessee, construct, develop, own,

operate, and maintain parking facilities or a system of parking

facilities, including lots, garages, parking terminals, or other

structures or accommodations for parking motor vehicles off the

streets and related appurtenances.

(b) The district's parking facilities serve the public

purposes of the district and are owned, used, and held for a public

purpose even if leased or operated by a private entity for a term of

years.

necessary components of a street and are considered to be a street

or road improvement.

(d) The development and operation of the district's parking

facilities may be considered an economic development program.

Sec. 4017.0308. DISBURSEMENTS AND TRANSFERS OF MONEY. The

board by resolution shall establish the number of directors'

signatures and the procedure required for a disbursement or

transfer of district money.

Sec. 4017.0309. ADDING OR EXCLUDING LAND. The district may

add or exclude land in the manner provided by Subchapter J, Chapter

49, Water Code, or by Subchapter H, Chapter 54, Water Code.

Sec. 4017.0310. NO EMINENT DOMAIN POWER. The district may

not exercise the power of eminent domain.

SUBCHAPTER D. ASSESSMENTS

Sec. 4017.0401. PETITION REQUIRED FOR FINANCING SERVICES

AND IMPROVEMENTS WITH ASSESSMENTS. (a) The board may not finance a

service or improvement project with assessments under this chapter

unless a written petition requesting that service or improvement

has been filed with the board.

(b) A petition filed under Subsection (a) must be signed by

the owners of a majority of the assessed value of real property in

the district subject to assessment according to the most recent

certified tax appraisal roll for the county.

Sec. 4017.0402. ASSESSMENTS; LIENS FOR ASSESSMENTS. (a)

The board by resolution may impose and collect an assessment for any

purpose authorized by this chapter in all or any part of the

district.

(b) An assessment, a reassessment, or an assessment

resulting from an addition to or correction of the assessment roll

by the district, penalties and interest on an assessment or

reassessment, an expense of collection, and reasonable attorney's

fees incurred by the district:

(1) are a first and prior lien against the property

assessed;

(2) are superior to any other lien or claim other than

a lien or claim for county, school district, or municipal ad valorem

taxes; and

(3) are the personal liability of and a charge against

the owners of the property even if the owners are not named in the

assessment proceedings.

resolution imposing the assessment until the date the assessment is

paid. The board may enforce the lien in the same manner that the

board may enforce an ad valorem tax lien against real property.

(d) The board may make a correction to or deletion from the

assessment roll that does not increase the amount of assessment of

any parcel of land without providing notice and holding a hearing in

the manner required for additional assessments.

SUBCHAPTER E. TAXES AND BONDS

Sec. 4017.0501. TAX ELECTION REQUIRED. (a) The district

must hold an election in the manner provided by Chapter 49, Water

Code, or, if applicable, Chapter 375, Local Government Code, to

obtain voter approval before the district may impose an ad valorem

tax.

(b) Section 375.243, Local Government Code, does not apply

to the district.

Sec. 4017.0502. OPERATION AND MAINTENANCE TAX. (a) If

authorized by a majority of the district voters voting at an

election under Section 4017.0501, the district may impose an

operation and maintenance tax on taxable property in the district

in the manner provided by Section 49.107, Water Code, for any

district purpose, including to:

(1) maintain and operate the district;

(2) construct or acquire improvements; or

(3) provide a service.

(b) The board shall determine the operation and maintenance

tax rate. The rate may not exceed the rate approved at the

election.

Sec. 4017.0503. AUTHORITY TO BORROW MONEY AND TO ISSUE

BONDS AND OTHER OBLIGATIONS. (a) The district may borrow money on

terms determined by the board.

(b) The district may issue bonds, notes, or other

obligations payable wholly or partly from ad valorem taxes,

assessments, impact fees, revenue, contract payments, grants, or

other district money, or any combination of those sources of money,

to pay for any authorized district purpose.

bonds, notes, or other obligations provided by Section 49.4645,

Water Code, does not apply to the district.

Sec. 4017.0504. BONDS SECURED BY REVENUE OR CONTRACT

PAYMENTS. The district may issue, without an election, bonds

secured by:

(1) revenue other than ad valorem taxes, including

contract revenues; or

(2) contract payments, provided that the requirements

of Section 49.108, Water Code, have been met.

Sec. 4017.0505. BONDS SECURED BY AD VALOREM TAXES;

ELECTIONS. (a) If authorized at an election under Section

4017.0501, the district may issue bonds payable from ad valorem

taxes.

(b) At the time the district issues bonds payable wholly or

partly from ad valorem taxes, the board shall provide for the annual

imposition of a continuing direct annual ad valorem tax, without

limit as to rate or amount, for each year that all or part of the

bonds are outstanding as required and in the manner provided by

Sections 54.601 and 54.602, Water Code.

may be acquired by a district by the issuance of its bonds may be

submitted as a single proposition or as several propositions to be

voted on at the election.

Sec. 4017.0506. CONSENT OF MUNICIPALITY REQUIRED. (a) The

board may not issue bonds until each municipality in whose

corporate limits or extraterritorial jurisdiction the district is

located has consented by ordinance or resolution to the creation of

the district and to the inclusion of land in the district as

required by applicable law.

(b) This section applies only to the district's first

issuance of bonds payable from ad valorem taxes.

SUBCHAPTER F. SALES AND USE TAX

Sec. 4017.0601. APPLICABILITY OF CERTAIN TAX CODE

PROVISIONS. (a) Chapter 321, Tax Code, governs the imposition,

computation, administration, enforcement, and collection of the

sales and use tax authorized by this subchapter except to the extent

Chapter 321, Tax Code, is inconsistent with this chapter.

LEGISLATIVE BUDGET BOARD
Austin, Texas

FISCAL NOTE, 89TH LEGISLATIVE REGULAR SESSION


April 25, 2025

TO:	Honorable Cecil Bell, Chair, House Committee on Intergovernmental Affairs

FROM:	Jerry McGinty, Director, Legislative Budget Board

IN RE:	HB5686 by Metcalf (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.), As Introduced

No significant fiscal implication to the State is anticipated.

It is assumed that any costs associated with the bill could be absorbed using existing resources.

Local Government Impact

The fiscal implications of the bill to the district cannot be determined due to the circumstances relating to the district's exercise of eminent domain power, issuance of bonds, or imposition of assessments, fees, and taxes being unknown. No fiscal implication to other units of local government is anticipated.

Source Agencies:

LBB Staff:

JMc, SZ, BC, CWi

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Frequently Asked Questions

Common questions about HB5686

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.

Who authored HB5686?

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

When was HB5686 signed into law?

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

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.

How urgent is compliance with HB5686?

The compliance urgency for HB5686 is rated as "low". Businesses and organizations should review the requirements and timeline to ensure timely compliance.

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.

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.

Legislative data provided by LegiScanLast updated: November 25, 2025

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