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If Arcola Mayor Fred Burton could go back in time, he'd structure a land deal between a Katy developer and the city differently.
While most cities use annexation to expand their tax base, Arcola, a small town 25 miles south of Houston, is looking to do just the opposite, much to the consternation of county officials, a municipal utility district and a developer.
Two years ago, the city of Arcola entered into an annexation agreement with Fort Bend County and the Arcola Municipal Management District No. 1 as an effort to spur development through a tax increment reinvestment zone. Now, Arcola wants out as officials say the initial deal was misleading.
The county says backing out of this agreement could put plans for future development of nearly 350 homes and the subsequent property tax revenue at risk.
The legal dispute has risen to the Texas Supreme Court. On Tuesday, the court granted a temporary stay which prevented the city of Arcola from voting to disannex 83 acres of land at its city council meeting.
Burton said he never expected a battle over a piece of land to go this far. If the county’s siding with the developer wasn’t enough, he said taking the case to the Supreme Court may have caused real damage to the city and county’s relationship.
“As long as I’m in here, the city’s relationship with the county won’t be the best,” Burton said. “They made their stand. They are standing with the developer. They made their stand with generating as much as they can to help this developer accomplish what he wants to accomplish, regardless of what the citizens of Arcola would like and what the leaders that are in here were put in here to do.”
Fort Bend County officials referred all questions to their lawyers, who declined to comment.
Burton says he’s not against growth, but he wants it done right.
“We are just trying to undo something that was done wrong,” Burton said of the annexation.
The 83 acres in question, located on the western half of the city off Fenn Road, was annexed into Arcola city limits in December 2021 at the request of Fennwood LLC, a firm tied to the developer.
The developer, Compass Land Development, planned to build about 350 homes on the 83 acres. In a statement, Compass President Nino Corbett says there is a lot at stake by removing land from the city.
“There is a lot on the line right now in Arcola — critical infrastructure, loss of meaningful net profit to the city, and an end to development of new communities like Post Oak Pointe within the city of Arcola,” Corbett said.
Compass Land Development recently broke ground on the nearby master planned community Post Oak Pointe, which will include 460 homes.
Fort Bend County became a co-plaintiff in a lawsuit against the city of Arcola last month. The county says the land in dispute is crucial to a tax investment zone agreement it and the city came into in 2021. While Arcola wants to see more investment into the small city, city leaders want the land to be handled properly and in accordance with the law.
Steven Craig, professor of economics at the University of Houston, said that on average, cities do not usually disannex land. Typically before reaching an agreement to annex land, cities go through a cost-benefit analysis to ensure taking on the land is worthwhile.
Cities also usually wait to annex land that has already been developed rather than assisting in building out land, Craig said. In this case, work to build infrastructure on the Fenn Road property has not yet begun.
As the tug of war between Fort Bend County and Arcola continues, the legality behind the annexation deal looms.
Road to the lawsuit
When the 83 acres were annexed by the city in 2021, the land was also included in an existing TIRZ that same day.
TIRZs are a popular development tool in Texas that have been used in Houston dozens of times. Under state law, any increase in property tax revenue in a TIRZ goes to a management district to fund infrastructure projects within the zone.
Joining the TIRZ was a way for Arcola to tap into Fort Bend’s expansive growth – a goal for Burton since he took office in 2018.
“We want to be like everyone else,” Burton said of Arcola in an interview earlier this year.
But it wasn’t until this fall that Burton said the city took a harder look at the 2021 agreement.
In the city’s legal filings, city officials allege the December 2021 petition filed by a firm that’s partially owned by Compass Land Development to annex the 83 acres was misleading and did not state whether the land was contiguous with, or touching, city limits.
The city’s defense argues that because the land does not touch city limits, any attempt to annex the land would be void. Burton said the city feared that keeping the annexation as-is would prevent the city from legally accepting property taxes on any future development.
Burton said to correct their mistake, Arcola City Council put a motion to disannex the acres onto its Sept. 26 agenda. During public comment, a lawyer for the Arcola Municipal Management District, the organization that oversees development projects in the TIRZ, presented a restraining order to the city.
This order would prevent Arcola from voting to disannex the 83 acres pending a judge's ruling. A vote to disannex would be permanent and irreversible, the district’s complaint said.
Fort Bend County’s chief of litigation, Ken Cannata, said the county had no comment after the initial appeal was filed.
Disannexing the land would result in the loss of potential economic benefits associated with a TIRZ, such as commercial development, employment and tax revenue, the county alleges.
The TIRZ agreement states that both Arcola and Fort Bend County would reimburse the district for the design and construction of infrastructure on the 83 acres. If the city were to remove the property from its tax roll, the district argued that a disannexation would prevent Arcola from sufficiently reimbursing them for their share of the costs to design and construct infrastructure.
The TIRZ agreement also states that Arcola may not modify the agreement without the consent of the district or the county. An attempt to disannex the land would be an amendment to that agreement, the plaintiffs allege.
Arcola’s reach for growth
Arcola’s massive water plant, which became operational earlier this year, is hard to miss by those passing by on Highway 6. Across the front in big blue block letters is the city’s name – solidifying its place in the midst of the county’s sprawling expansion.
The water plant, one of the initial plans in the TIRZ agreement, was one of the first efforts to promote growth in the small city. When it was first built, Burton was optimistic that it would not just provide water to residents, but also attract businesses to Arcola. However, the cost to connect, which averages $2,000 per household, proved to be too expensive for many residents.
While the plant didn’t turn out exactly like he’d hoped, his desire for future development hasn’t been deterred.
Burton says he’s completely supportive of Post Oak Pointe and has every intention to stay in the TIRZ created by the county. However, when it comes to the city’s growth plans he wants to play by the rules.
While he was disappointed to see the county oppose Arcola in the lawsuit, Burton said he wasn’t totally surprised.
“Those county commissioners and those elected officials expect these people to go into the booth and vote for them. And you turn around, and you want to come after this city with a lawsuit because one developer is not happy. That's wrong,” Burton said.
Corbett said he and his company will keep pushing to make their new development a reality.
“We will fight hard to continue delivering on the commitments we agreed to in the Development Agreement,” Corbett said. “Our work is making an impact. Post Oak Pointe is a shining star for the city of Arcola. The ‘Fenn Road’ development is a critical pillar for the TIRZ and the city. It is well worth fighting for.”
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