Water Rights Become Battle Lines As North Texas Cities And Developers Duke It Out

After the Texas Legislature stripped away municipal control of extraterritorial jurisdictions during its last session, landowners and developers are champing at the bit to build outside the reach of local governments.

That's made water the latest weapon in the arsenal for municipalities looking to regain control over how development progresses outside their boundaries. The back-and-forth has landed in the state's highest court, the latest battle in a simmering war over who controls the outskirts of Texas towns and cities.

“The cities are losing their authority and their control over [extraterritorial jurisdiction] land,” Huffines Communities co-owner Phillip Huffines said at a Bisnow event last month. “Most of the communities being built in the future will be built in the counties, which don't have zoning control.”

Texas Local Government Code affords municipalities a buffer area just outside of city limits as a way of identifying areas for growth and potential service boundary expansions.

But the passage of Senate Bill 2038 in 2023 allowed landowners to petition for removal from a city’s extraterritorial jurisdiction, or ETJ, and slip from their control.

Developers have taken advantage. Being outside the ETJ allows developers to avoid local zoning restrictions, facilitating huge master-planned communities like those Plano-based Tellus Group is building in Anna, Celina, Forney and Prosper.

Cities and municipalities, however, are less pleased, arguing they should be able to set standards for areas likely to be annexed into the city down the line.

The disagreement has culminated in a lawsuit filed by the Texas Public Policy Foundation that has reached the Supreme Court of Texas, which heard oral arguments earlier this year debating the ability of city governments to regulate people and property in their ETJs.

As a result, water rights have become a line in the sand for cities and developers in the longstanding battle for zoning control over master-planned communities.

Cities with water have power, but the explosive growth coming to the Metroplex could limit how long that power lasts even as developers explore their options and look for alternative ways to get water for their communities.

“You can't stop the growth in DFW, regardless of what some of these city councils desire,” Huffines said.

Sherman is leading the charge for growth in Grayson County, with more than $40B in investments poised to hit the city over the coming years thanks to huge semiconductor plants that will be built by Texas Instruments and GlobalWafers. City officials have added millions of dollars of infrastructure to support those developments, as well as the related population and commercial growth expected as those projects progress. 

Officials in Sherman understand water is likely the No. 1 thing developers have to account for when looking to build any number of homes. Sherman officials are always looking at ways to ensure the quality of new developments lives up to the city’s standards, Community and Support Services Manager Nate Strauch said.

“Sherman is very fortunate in that we have both a lot of water rights at Lake Texoma, which were purchased decades ago with the idea that we did not need them at the time, and we weren't going to need them for some time, but that we would need them someday,” Strauch said. 

While the city has enough water to support those planned developments right now, it has longer-term concerns. Strauch noted Texas Instruments and GlobalWafers are each on the first phase of their developments, with three more slated for the former and two more for the latter. 

“Do we currently have enough water to support all of those developments in all phases, as well as all the other growth that's going to be coming in the next 10 years? Probably not,” Strauch said. “But it all depends on how quickly those things come online.”

City officials see their residents as their first priority and have to be cautious about incurring the costs of servicing areas outside the ETJ, said Ted Benavides, a former city manager for the cities of Dallas and Denton. They also must be careful to abide by their contracts with their water suppliers, he said.

Providing water outside their jurisdictions could jeopardize the ability of cities to meet the standards they have set within their boundaries, said Benavides, who is now a professor of practice of public and nonprofit management at The University of Texas at Dallas. 

“The cities are trying to obey the rules and say, ‘We can't tell you what to do out there, but if you want our services, we have a right to ask for certain things,’” Benavides said. “To me, it's a negotiation, but if you want more free market flexibility, that has issues that come with it, too.”

Working with cities to add water system infrastructure will be a major focus for future development throughout North Texas, Centurion American Vice President Sean Terry said last month.

Developers pay for water and sewer line extensions to connect their communities to the nearest pipes, but Huffines said some cities have taken to using that to wrest back some control over these developments.

“They say ‘We're just not going to serve you unless you agree to be annexed into our city so that we can zone you and control you and charge fees to you and you pay our city taxes,’” Huffines said.

With the lawsuit still pending, Huffines declined to name specific North Texas cities that have practiced this tactic, and officials at Metroplex municipalities like McKinney and Sherman declined to talk about ETJ issues they’re facing. 

All landowners' requests to be removed from Sherman's ETJ are being turned down while the court case plays out, Strauch said.

Having built communities throughout the region, Huffines has wrangled with jurisdictions threatening to withhold water and sewer infrastructure to attempt to have some say in how these communities are developed.

He is adamant that master-planned communities are the future of North Texas because they are coherent, organized developments. He said local leaders are bending too much to residents who want to curtail growth.

“All they can do is drive up the cost of housing — and maybe they want to do that, but they never admit it — so that their own home goes up in value,” Huffines said. “That is just not the Texas way.” 

The tug-of-war could push more developers to go it alone.

One company focused on helping master-planned communities develop sustainable water infrastructure is Maverick Water Group. The company works with developers to reduce the amount of fresh water used by those communities. Maverick Water Group Vice President Wes Whitney said water is “primary and functional to the foundation” of developments. 

“If you can't solve for your water needs, then there’s really no reason to build homes and other real estate developments,” Whitney said.