Explanation of the Issue

An ETJ (Extraterritorial Jurisdiction) is an area surrounding a city where the city has limited authority to regulate certain activities and enforce certain rules, even though the area is outside of the city limits. ETJs exist to allow a city to manage growth, infrastructure, and development in areas that could one day become part of the city through annexation. ETJ is defined in Section 42.021 of the Texas Local Government Code as “the unincorporated area that is contiguous to the corporate boundaries of a city.” The size of a cities ETJ is based on the population of the city. For example, the ETJ of a city with a population of 100,000 or more covers the area within five miles of that city’s boundaries.

Annexation is the process by which a city or municipality expands its boundaries by legally incorporating adjacent or neighboring land into its jurisdiction.  This often involves extending services such as water, sewer, law enforcement, and other services.  Annexation typically requires approval from local government.

Senate Bill 2038 is the latest, and most successful, in a litany of bills put forward in the Texas Legislature to deregulate the ETJ. This bill authorizes a resident of an area in a cities ETJ, and the owner or owners of the majority in value of an area consisting of one or more parcels of land in a municipality’s ETJ, to file a petition or request an election with the municipality for the respective area to be released from the ETJ. These areas then become subject to county and state regulations. This bill originated, in part, from concerns that residents and property owners were subject to city control in the ETJ, despite not having the ability to participate in city elections. In other words, lawmakers didn’t want Texans to be governed by people they didn’t elect and who they don’t have the ability to vote out.  Citizens and cities have various opinions on this bill.  We will take a look at support and limitations around this bill and the impacts on growth management.

Support

The bill’s supporters state that residents and property owners in a municipality’s ETJ are subject to municipal regulatory authority yet have no vote in that municipality; they argue this situation means cities have outsized control over areas in the ETJ, leaving some property owners subject to regulations and restrictions with which they may not agree.

In essence, ETJs provide a balance between city oversight and the autonomy of unincorporated areas, ensuring thoughtful growth and development.  This legislation was designed to streamline the development of land in areas stymied by a cities inability to provide services such as water and sewer.  Freedom from a municipalities ETJ allows the residents and landowners to work directly with county government, existing service providers and special districts without the constraints and time delays of city oversight.

S.B. 2038 seeks to address this issue by providing for the release of an area from a municipality’s extraterritorial jurisdiction by petition or election.

Limitations

The uncertainty caused by this bill on planning and development in the ETJ impacts current residents of the ETJ and potentially creates a dampering effect on future investment in the ETJ.  One of the motivations for a person/company to invest in property outside of the city limits is that it can sometimes be less expensive. Prior to this bill, the property being in the ETJ came with some assurances that there would be some level of control around what occurs around the property. With the passing of this bill, there could possibly be ETJs that look like swiss cheese (on the map) before long.  Furthermore, SB 2038 complicates long-range planning efforts of land buyers.  This law would allow a property owner to potentially alter the rights of neighboring land owner who may not want to be removed from the city’s ETJ.  Once a property is released from the ETJ, all ETJ regulations the city previously adopted that apply to the property are effectively nullified…and future ETJ regulations would have no bearing.  However, for neighboring properties that remain in the ETJ, these regulations would still apply. 

This dynamic could also result in inconsistent development and incompatible land uses, such as an industrial plant next to residential lots or developments that create flooding and other impacts that would otherwise be prohibited. 

Impact on Growth Management and Planning

Senate Bill 2038 impedes the ability of municipal governments to adequately plan for future development and could lead to inappropriate land uses in the ETJ.  Cities devote time, energy, and tax dollars to planning not only for the growth of the city but the development of its ETJ so as to benefit all residents, including property owners in the ETJ. However, Senate Bill 2038 largely strips them of the ability to do so and provides a perverse incentive for cities to stop building infrastructure. Giving property owners the unilateral ability to ‘opt-out’ of the ETJ, without the consent of other property owners nearby, and without care to our master plans and standards that were developed with community input, will only lead to haphazard and inconsistent development. Cities maintain that the ability of parcels to be removed from the ETJ makes planning for future city infrastructure difficult. Because the city’s ETJ can constantly change, city staff face uncertainties in determining which areas of the ETJ may eventually be annexed, making it difficult to then determine where to build infrastructure and at what capacity to build it. For example, city staff may not be reasonably sure when or where to build additional wastewater treatment plants and how large to make them if they cannot be sure of the direction of growth of the city. This difficulty in planning can impact residents within both the city limits and the ETJ. If a city over-sizes infrastructure in anticipation of future growth in an area that later dis-annexes from the ETJ, the burden of this oversizing cost will fall on existing residents by way of increased utility rates to compensate for the loss of impact fees that normally would have been paid by the developer.  On the other hand, if a city chooses not to build infrastructure in the anticipation of limited future growth or annexation, there is a risk that current and future ETJ residents will be forced to deal with substandard and inconsistent development. Senate Bill 2038 may also impede planning efforts by retroactively impacting development agreements with landowners in the ETJ and by dissuading future development agreements. Under Local Government Code Section 212.172, municipalities may make development agreements with landowners in their extraterritorial jurisdiction. Development agreements guarantee the ETJ status of the land in question and prevent it from being annexed for up to 45 years, at which time the land may be annexed by the city. In return for this guarantee, the city may extend its planning authority over the land; authorize enforcement of certain land use and development regulations; provide key infrastructure such as streets, drainage, and utility systems; and authorize enforcement of environmental regulations, among any other agreed upon provisions. Development agreements are common across Texas. It appears that SB 2038 could “be used to allow developers to get the benefit of infrastructure improvements costing the city millions of dollars while denying the city the ability to annex the property in the future.” This could happen when a city enters a development agreement to provide infrastructure and utility extensions for land based upon the promise that the property will be annexed into the city to expand its tax base at a later date, but then the property is pulled out of the ETJ upon provision of those services.

What can be done:

1. Engage with Local Officials: Contact your state legislators to express your concerns about SB 2038
2. Participate in Public Meetings: Attend City Council Meetings to voice your opinions. These meetings are open to the public and provide a platform for residents to share their views.
3. Join Advocacy Groups: Organizations such as the Texas Municipal League have expressed concerns/support about SB 2038. Collaborating with such groups can amplify your efforts.
4. Engage in Community Outreach: Inform your neighbors and community members abou the potential impacts of SB 2038. Organizing informational sessions or discussions can build a collective stance for/against the bill.
5. Monitor Legislative Developments: Stay updated on any amendments or related legislation that may affect SB 2038. This will enable you to respond promptly to new developments. 

Links and References

Texas Municipal League.  How Cities Work, Texas Town & City (January 23)

Texas Local Government Code Title 7, Subtitle A, Chapter 212

The Perryman Group. The impact of overly restrictive annexation policy on economic activity in texas.

Bill Analysis, S.B. 2038. (2023). Texas Legislature Online

Senate Committee on Local Government Texas Senate Interim Report: A Report to the Texas Senate 88^th Legislature.  The Texas Senate.