Current City Council members have been substituted for their predecessors. See Tex. R. App. 1

P. 7.2(a) (automatic substitution when public officer is party in official capacity).

 Section 54.016(f) was added in 1979. See Act of May 25, 1979, 66th Leg., R.S., ch. 796, § 1, 2

1979 Tex. Gen. Laws 2026, 2026. The parties do not urge, and we do not find, substantive changes

in the relevant sections of the water code. Accordingly, the current code is cited for convenience.

TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN

NO. 03-04-00240-CV

Northwest Austin Municipal Utility District No. 1, Don Zimmerman,

William C. Ferguson, and Alan R. Weiss, Appellants

v.

City of Austin; Mayor Will Wynn, Brewster McCracken, Lee Leffingwell,

Mike Martinez, Randi Shade, Laura Morrison, and Sheryl Cole,

in their Official Capacities as City Council Members, Appellees1

FROM THE DISTRICT COURT OF TRAVIS COUNTY, 53RD JUDICIAL DISTRICT

NO. GN203378, HONORABLE LORA J. LIVINGSTON, JUDGE PRESIDING 

O P I N I O N

Appellants Northwest Austin Municipal Utility District No. 1, Don Zimmerman,

William C. Ferguson, and Alan R. Weiss appeal from the judgment against them in their suit to

declare that an agreement executed by the District and appellees City of Austin and City Council

members (collectively, “the City”) is an “allocation agreement” under section 54.016(f) of the

Texas Water Code and that the agreement violates section 54.016(f) by allowing both the City and

the District to assess and collect their full rate of property taxes. The trial court granted partial 2
 A municipal utility district, or “MUD,” is a political subdivision of the State with limited 3

governmental powers related to the provision of water, wastewater, and drainage services. See

Tex. Water Code Ann. § 49.211 (West 2008); see also id. § 54.012 (West 2002), § 54.201

(West Supp. 2008).

 The Texas Water Commission became part of the Texas Natural Resource Conservation 4

Commission, now renamed the Texas Commission on Environmental Quality. For simplicity, all

the variations of the entity will be referred to as the Commission.

2

summary judgment in favor of the City, upholding the City’s property tax levy and collection of

taxes. Because we hold that the agreement is an allocation agreement as a matter of law, we reverse

the district court’s order in part and render summary judgment in favor of the District on this issue.

However, because summary judgment is improper as to the parties’ remaining declaratory claims,

we reverse this portion of the judgment and remand for further proceedings.

BACKGROUND

In 1984, real estate developer Nash Phillips/Copus (“NPC”) purchased 2,348 acres

in northwest Travis County, located in the City of Austin’s extraterritorial jurisdiction. NPC

petitioned the City for water and wastewaterservices and sought to create a municipal utility district3

to provide water and wastewater services to the property, known as the Canyon Creek development.

The City opposed the creation oftheNorthwest Austin MUD proposed by NPC, arguing that the City

had recently approved a number of MUDs in its extraterritorial jurisdiction and expressing concerns

that the proliferation of MUDs can have “a substantial impact on the City’s fiscal integrity.”

When a city denies a request to include land within its extraterritorial jurisdiction in

a proposed MUD, the water code provides that authorization may be sought by petitioning the

Texas Water Commission without securing the written consent of the city. See Tex. Water Code 4
3

Ann. § 54.016(b)-(d) (West Supp. 2008). Under these provisions, which apply “only to land within

the extraterritorial jurisdiction of a city,”

the commission shall allow creation or inclusion of the land in a proposed district

upon a finding that the city either does not have the reasonable ability to serve or has

failed to make a legally binding commitment with sufficient funds available to

provide water and wastewater service adequate to serve the proposed development

at a reasonable cost to the landowner.

Id. § 54.016(d). “The provisions of this section shall apply whether the land is proposed to be

included in the district at the time of creation of a district or to be included by annexation to a

district.” Id. Any party may appeal the Commission’s decision in district court. Id.

After the City refused to grant permission for the inclusion of land within its

extraterritorial jurisdiction in the proposed district, NPC petitioned the Commission for

authorization. Following a contested case hearing, the Commission granted permission to create

three MUDs (Northwest Austin MUD Nos. 1, 2, and 3). The City then filed suit in district court

to appeal the Commission’s decision. While the City’s administrative appeal was pending, NPC

and the City resumed negotiations and ultimately reached a settlement regarding the creation of

the Northwest Austin MUDs. The Austin City Council voted for the formation of the District on

January 15, 1987, and confirmed its decision with the passage of Ordinance 870514-X on May 14,

1987. In addition to providing the City’s “written consent to the creation of a district,” see id.

§ 54.016(a) (written consent to be provided by resolution or ordinance), Ordinance 870514-X

authorized the city manager “to execute, on behalf of the City, the Agreement Concerning Creation
 The Agreement was initially entered into by the City and NPC in December 1987. The District, 5

after it was created by order of the Commission the following year, approved and executed the

Agreement.

4

and Operation of the Northwest Austin Municipal Utility District No. 1” (the “Agreement”). The 5

Agreement states that the parties understand and acknowledge that “all the land to be included

within the District is to be annexed for full purposes by the City prior to final action for creation

of the District by the Commission.” Under the Agreement, the City would provide retail water,

wastewater, and drainage services to customers within the District, while the District and NPC would

finance and construct the water, wastewater, and drainage infrastructure and facilities according to

the City’s development regulations; upon completion, the facilities would be owned, maintained, and

operated by the City. The Agreement further provides, in section 7.2:

It is understood and agreed by the parties hereto that the City shall have the authority

to assess and collect ad valorem taxes at the City’s full tax rate within the District as

for any other property within the City of Austin and the District shall have the

authority to assess and collect the ad valorem tax established by the District unless

either the City or the District are prohibited by a court of law from assessing and

collecting all or a portion of the City’s or the District’s ad valorem tax rate.

After the Agreement was executed, the City passed an ordinance to annex the

subject property into the corporate limits of the city. Thereafter, the City filed the Agreement in

district court, which remanded the petitions for creation of the Northwest Austin MUDs to the

Commission for reconsideration. Among the changes agreed upon by the parties were the

dissolution of the three existing MUDs approved by the Commission, the creation of two rather than
5

three districts, and corresponding boundary changes. The district court issued an order approving

the Agreement, settling the City’s suit against the Commission.

The Commission created the District as an in-city MUD on March 16, 1988. A

subsequent election confirmed the District’s creation and authorized $21.1 million in bonds for the

construction of water, wastewater, and drainage facilities. Under the water code, the District is

required to levy and collect ad valorem taxes sufficient to pay for the debt services to these bonds.

Id. § 54.601 (West 2002) (district board shall levy continuing direct annual ad valorem tax each year

while all or part of bonds are outstanding on all taxable property within district in amount sufficient

to pay interest as it becomes due, to create sinking fund for payment of principal or redemption price

at any earlier required redemption date, and to pay expenses of assessing and collecting taxes); see

also id. § 54.602 (non-exhaustive list of factors board shall consider in determining actual rate to be

levied each year). In reviewing the bonds, the Commission found that “the creation of the District

will not unreasonably affect total tax assessments on all land and properties located within

the proposed District.” The Commission further concluded that “all of the requirements of

section 54.016 of the Texas Water Code, as amended, have been fully complied with, met and

accomplished.”

In September 2002, the District and various individual homeowners filed suit

challenging section 7.2 of the Agreement. They sought declarations that (1) section 54.016(f) of the

water code prohibits the City from charging its full tax rate to the residents of the District, and (2) the

residents’ continuing duty to pay taxes to the District to retire the debt incurred by the District

requires the City to reduce its own tax rate imposed on the residents of the District. In the District
6

and taxpayers’ view, the Agreement is an “allocation agreement” within the meaning of

section 54.106(f), requiring the Agreement to ensure that “the total annual ad valorem taxes collected

by the city and the district from taxable property within the district does not exceed an

amount greater than the city’s ad valorem tax upon such property.” See Tex. Water Code Ann.

§ 54.106(f)(2). The District and taxpayers also sought injunctive relief from the “illegal and

excessive” taxes imposed by the City, as well as attorney’s fees and costs.

By counterclaim, the City sought its own declaratory judgment that the Agreement

is not an “allocation agreement” under the water code, that section 54.016(f) is not applicable, and

that the District had breached the Agreement by seeking to declare section 7.2 invalid. Alternatively,

if the court found that the Agreement was subject to the requirements of section 54.106(f), the City

sought a declaration that the water code provision was null and void “to the extent it reduces the

amount of the City’s property taxes owed by the residents of the District or grants them an illegal

tax exemption from the payment of the City’s property taxes.” The City also asserted a number of

affirmative defenses against the District’s claims, including laches and the statute of limitations, and

filed a plea to the jurisdiction on the basis that the plaintiffs lacked standing and the City had not

waived its immunity from suit for what was, in essence, a breach of contract claim.

The parties filed cross-motions for partial summary judgment on the merits. The

trial court denied the District’s motion for partial summary judgment and granted partial summary

judgment in favor of the City, finding that the District’s claims are barred by the statute of limitations

and laches and declaring that the Agreement between the City and the District is not an “allocation

agreement” under section 54.016(f) of the water code. The trial court made further declarations that
 The City does not complain on appeal about the denial of its plea to the jurisdiction as to 6

the District.

7

(1) the City’s property tax levy was valid under the Agreement and property taxes were properly

collected from residents of the District under the Agreement, and (2) section 54.016(f) of the

water code does not create a tax exemption under the Texas Constitution. The trial court also

granted the City’s plea to the jurisdiction with respect to the individual plaintiffs for lack of standing,

denied the City’s plea as to the District, and granted the City’s motion for partial summary judgment 6

on attorney’s fees, creating the final judgment from which the District and taxpayers now appeal.

STANDARD OF REVIEW

 The propriety of a summary judgment is a question of law that we review de novo.

Valence Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005). When reviewing a

summary judgment, we take as true all evidence favorable to the nonmovant and we indulge every

reasonable inference and resolve any doubts in the nonmovant’s favor. Id. When both parties have

filed motions for summary judgment and the district court grants one motion and denies the other,

the reviewing court looks to the summary judgment proof presented by the parties, determines all

questions presented, and if the reviewing court determines that the trial court erred, renders

the judgment that the trial court should have rendered. FM Props. Operating Co. v. City of Austin,

22 S.W.3d 868, 872 (Tex. 2000); Commissioners Court of Titus County v. Agan, 940 S.W.2d 77,

81 (Tex. 1997). We affirm the summary judgment if any of the theories presented to the trial court

and preserved for appellate review are meritorious. Joe v. Two Thirty Nine Joint Venture,

145 S.W.3d 150, 157 (Tex. 2004).
 As do the parties in their briefs, we will refer to the appellants collectively as “the District,” 7

apart from where the applicable law requires us to distinguish between the claims brought by the

MUD and the individual plaintiffs.

8

DISCUSSION

The District brings five issues on appeal. In its first issue, the District argues that 7

the Agreement is an “allocation agreement” subject to the requirements of section 54.016(f) of

the Texas Water Code, mandating that the City reduce the ad valorem tax rate it charges taxpayers

in the District. The District’s second issue asserts that, contrary to the City’s counterclaim,

section 54.016(f) does not create an unconstitutional tax exemption. In the District’s third issue, it

argues that neither the statute of limitations nor laches bars the District from obtaining a declaration

of its rights. The District asserts in its fourth issue that the individual homeowners have standing

to challenge the consent agreement between the City and District to obtain a declaration of their

rights, and therefore the district court erred in granting the City’s plea to the jurisdiction with respect

to the individual plaintiffs. Finally, in its fifth issue, the District argues the award of the City’s

attorney’s fees should be reversed because it is “inequitable and unfair.”

Nature of the Agreement

In its first issue, the District asserts the trial court erred in finding that the Agreement

between the District and the City is not an “allocation agreement” under water code section 54.016(f)

and that section 54.106(f) does not apply to the Agreement.

Whether the Agreement is an “allocation agreement” is a legal question that we

review de novo. See City of Rockwall v. Hughes, 246 S.W.3d 621, 625 (Tex. 2008). In construing
9

statutes, we ascertain and give effect to the legislature’s intent as expressed by the language of

the statute. Id.; State v. Shumake, 199 S.W.3d 279, 284 (Tex. 2006). We use definitions prescribed

by the legislature and consider any technical or particular meaning that the words have acquired.

Tex. Gov’t Code Ann. § 311.011(b) (West 2005). Otherwise, we construe the statute’s words

according to their plain and common meaning, Texas Dep’t of Transp. v. City of Sunset Valley,

146 S.W.3d 637, 642 (Tex. 2004), unless a contrary intention is apparent from the context, Taylor

v. Firemen’s & Policemen’s Civil Serv. Comm’n, 616 S.W.2d 187, 189 (Tex. 1981), or unless such

a construction leads to absurd results, University of Tex. S. W. Med. Ctr. v. Loutzenhiser, 140 S.W.3d

351, 356 (Tex. 2004); see also Texas Dep’t of Protective & Regulatory Servs. v. Mega Child Care,

Inc., 145 S.W.3d 170, 177 (Tex. 2004) (noting that when statutory text is unambiguous, courts must

adopt interpretation supported by statute’s plain language unless that interpretation would lead to

absurd results).

We presume that the legislature intended a just and reasonable result by enacting

the statute. Tex. Gov’t Code Ann. § 311.021(3) (West 2005). When a statute’s language is clear

and unambiguous, it is inappropriate to resort to rules of construction or extrinsic aids to construe

the language. Hughes, 246 S.W.3d at 626 (citing St. Luke’s Episcopal Hosp. v. Agbor, 952 S.W.2d

503, 505 (Tex. 1997); Ex parte Roloff, 510 S.W.2d 913, 915 (Tex. 1974)). We look to the entire act

in determining the legislature’s intent with respect to a specific provision. See Taylor, 616 S.W.2d

at 190; Wilburn v. State, 824 S.W.2d 755, 760 (Tex. App.—Austin 1992, no writ). The legislature

is presumed to enact a statute with complete knowledge of the existing law and with reference to it.
10

See Acker v. Texas Water Comm’n, 790 S.W.2d 299, 301 (Tex. 1990); Southwestern Bell Tel. Co.

v. Public Util. Comm’n, 888 S.W.2d 921, 926 (Tex. App.—Austin 1994, writ denied).

Section 54.016(f) of the water code states:

(f) A city may provide in its written consent for the inclusion of land in a district that

a contract (“allocation agreement”) between the district and the city be entered into

prior to the first issue of bonds, notes, warrants, or other obligations of the district.

The allocation agreement shall contain the following provisions:

(1) a method by which the district shall continue to exist following

the annexation of all territory within the district by the city, if the

district is initially located outside the corporate limits of the city;

(2) an allocation of the taxes or revenues of the district or the city

which will assure that, following the date of the inclusion of all the

district’s territory within the corporate limits of the city, the total

annual ad valorem taxes collected by the city and the district from

taxable propertywithin the district does not exceed an amount greater

than the city’s ad valorem tax upon such property;

(3) an allocation of governmental services to be provided by the city

or the district following the date of the inclusion of all of the district’s

territory within the corporate limits of the city;

(4) such other terms and conditions as may be deemed appropriate by

the city.

Tex. Water Code Ann. § 54.016(f).

According to the District, section 54.016(f) defines an “allocation agreement” as any

contract that is (1) provided for by the city in its written consent to the creation of a district, and

(2) entered into prior to the district’s first issuance of bonds or other obligations. Provided these

two conditions are met, the District asserts, the contract is an “allocation agreement” as a matter of

law and must contain the provisions set forth in the subsections (1) through (4) of section 54.016(f).
 For example, the City argues that section 54.016(a), which requires that a city provide its 8

written consent to the inclusion of land within a district, establishes the authority for a “consent

agreement” to be entered into between a city and a district because the provision refers to the

“restrictions and conditions” that a city can place on its written consent, thus implicating a pre-bond

contract, or “consent agreement,” between the parties.

11

The City challenges this interpretation as being too broad because it mandates that

“if any contract, of any nature” is entered into prior to a district’s first bond issuance, then it is an

allocation agreement. Citing various provisions within section 54.016 that purportedly authorize the

execution of “consent agreements” and other contracts between a city and a district, the City asserts

that the legislature did not intend to make every pre-bond contract between a city and a district an

“allocation agreement.” In addition, the City urges that the parties had “continuously identified” 8

the Agreement as a “consent agreement” since the time that it was executed, characterizing the

District’s acquiescence to the use of this term as an admission against interest. Moreover, the City

argues, the Agreement cannot be declared an allocation agreement by this or any other court because,

in the City’s view, the legislature invested cities with the sole authority to decide whether an

agreement is an allocation agreement. Noting that section 54.016(f) begins, “A city may provide in

its written consent,” id. (emphasis added), the City maintains that there can be no allocation

agreement without the express consent of the City, and that the evidence is undisputed “that the City

made the choice not to enter into an allocation agreement” in this case.

Based on the plain language of subsection (f) of the statute and the overall statutory

scheme created by section 54.016, we conclude that neither party’s interpretation is entirely correct.

It is true that the word “may” creates discretionary authority or grants permission or a power, while

the word “shall” imposes a duty. See Tex. Gov’t Code Ann. § 311.016 (West 2005); see also
12

Southwestern Bell Tel. Co. v. Public Util. Comm’n, 31 S.W.3d 631, 637-38 (Tex. App.—Austin

2000), aff’d, 92 S.W.3d 424 (2002). Therefore, we agree with the City that the statute invests cities

with the power to decide if, when submitting their written consent to the creation of a municipal

utility district, such a contract will be executed. However, in the event that a city’s written consent

does provide for the execution of a contract with a district specifically addressed to the allocation

of taxes, revenues, and government services before the first issuance of bonds, the legislature has

clearly expressed that such a contract is an “allocation agreement” and has declared that certain

mandatory provisions must be included in the agreement. See Tex. Water Code Ann. § 54.016(f)

(“The allocation agreement shall contain the following provisions . . . .”) (emphasis added). While

a city is not required to execute a contract in connection with its consent to the inclusion of land

within a district in every instance, it is required to comply with subsection (f) when it is clear that

the city, in submitting its written consent, will contract with the district to allocate the taxes,

revenues, and governmental services between the two entities. Thus, the City is incorrect that the

question of whether the Agreement is an allocation agreement is not subject to judicial review

because the statute leaves the choice to execute such an agreement to the sole discretion of the City.

It is plain from the statute that a city may only decide whether it will enter into an allocation

agreement. The entirely different matter of whether a contract is an allocation agreement was settled

by the legislature when it declared that a pre-bond contract between a city and a district governing

the allocation of taxes, revenues, and governmental services is an “allocation agreement.” See id.

Nor are we convinced by the City’s contention that it may “enter into a contract with

a district without following any of the requirements of § 54.016(f)” because cities are statutorily
13

invested with the authority to enter into contracts independent of the authority granted by

section 54.016(f). The City’s power to execute contracts—under the water code or otherwise—is

not in dispute. Rather, the issue is whether the specific contract that the City entered into with the

District is what the legislature has termed an “allocation agreement.” Whether the City could have

executed an agreement under a different provision in section 54.016 has no bearing on this analysis.

Likewise, the fact that the parties might have referred to the Agreement as something other than an

allocation agreement does not by itself control whether the agreement is, as a matter of law, an

allocation agreement. Such an interpretation would read subsection (f) out of the statute entirely by

allowing a party to avoid the mandatory provisions that must be included in an allocation agreement,

simply because it calls the agreement something different or asserts that the agreement was entered

into under different authority. Because we must give effect to all the words of a statute and avoid

constructions that treat statutory language as surplusage, see Spradlin v. Jim Walter Homes, Inc.,

34 S.W.3d 578, 580 (Tex. 2000), we must reject the City’s argument.

Instead, we look to the statute to determine whether the Agreement is what

section 54.016(f), by its plain meaning, defines as an “allocation agreement”: a contract between

the District and the City, provided for in the City’s written consent for the inclusion of land in a

district, that was entered into prior to the first issue of bonds, and provides (1) a method by which

the District shall continue to exist following the annexation of its territory by the City, if the District

was initially located outside the corporate limits of the City; (2) an allocation of taxes or revenues

of the City or the District ensuring that the total ad valorem taxes collected by the City and the

District from property in the District does not exceed the City’s ad valorem tax upon the same
 As the City acknowledges, the Agreement “identifies the responsibilities of each party” 9

regarding the provision of water, wastewater, fire, police, EMS, drainage, park and facilities

maintenance, and other municipal functions, and these responsibilities are also set out in other

14

property; and (3) an allocation of governmental services to be provided by the City or the District

following the date of the inclusion of all the District’s territory within the corporate limits of the

City. See id. § 54.016(f)(1)-(3).

Here, Ordinance 870514-X—the City’s written consent for the inclusion of land in

the District—states that “theCity and the Applicant for consent to creation have negotiated a consent

agreement.” Then, in part one, the ordinance provides, “The City Manager is authorized to execute,

on behalf of the City, the Agreement Concerning Creation and Operation of the Northwest Austin

Municipal Utility District No. 1, attached hereto as Exhibit ‘A’.” The Agreement was executed

between the City and the District prior to the first issuance of District bonds. Thus, the District

argues, the Agreement is precisely the sort of contract contemplated by the statute because all of

the “statutory prerequisites” are met. However, this does not end the inquiry; the terms of the

Agreement must also reflect each of the substantive requirements mandated by the statute. The first

requirement, that an allocation agreement include “a method by which the district shall continue to

exist following the annexation of all territory within the district by the city,” applies only if the

district is initially located outside the corporate limits of the city. See id. § 54.016(f)(1). In this case,

the area including the District was annexed into the City’s corporate limits before the District

was created, so section 54.016(f)(1) does not apply. The third requirement, that the agreement

allocate the governmental services to be provided by the city or the district, see id. § 54.016(f)(3),

is clearly met.9
agreements and city ordinances. The City’s point that the Agreement “is not an allocation agreement

merely because it identifies the responsibilities of each party” is well taken; accordingly, it is only

one factor we consider in light of the statute as a whole in determining whether the Agreement is

what the legislature has defined as an allocation agreement.

15

The second requirement—the central dispute in this appeal—requires an allocation

agreement to contain “an allocation of the taxes or revenues of the district or the city which will

assure that . . . the total annual ad valorem taxes collected by the city and the district from taxable

property within the district does not exceed an amount greater than the city’s ad valorem tax

upon such property.” Id. § 54.016(f)(2). The District argues that the Agreement contains such an

allocation provision, but that it allocates taxes in a way that violates the statute and must be simply

amended to set forth a proper allocation. This provision, contained in section 7.2 of the Agreement,

states that “the City shall have the authority to assess and collect ad valorem taxes at the City’s full

tax rate within the District as for any other property within the City of Austin and the District shall

have the authority to assess and collect the ad valorem tax established by the District.” Thus, the

Agreement fails to allocate taxes in the manner required by the statute because it allows both

taxing authorities to tax at their full ad valorem rate, without regard to the other entity’s rate. An

“allocation” is a “designation or apportionment for a specific purpose.” Black’s Law Dictionary 59

(7th ed.). The Agreement contemplates no apportionment oftaxes between theCity and the District,

but it clearly designates the taxing authority of each party.

The question, then, is whether the parties could have executed an allocation

agreement when the Agreement does not precisely track the language of section 54.016(f)(2). The

District urges that we must interpret the Agreement as an allocation agreement in order to prevent
 According to the bill sponsor, 10

What [H.B] 1974 basically does is allow the city and a water district before the first

bonds are issued to enter into an agreement with the approval of the [Commission]

whereby the city, at some point along the way, can annex that water district but does

not have to assume the bonds. The bonds will stay with the water district, and the

people living in the water district will continue to pay their taxes to the water district

and pay all the bonded indebtedness. But there has to be in the agreement that’s

approved by the State that the people will not pay taxes any higher than what already

ad valorem taxes for all the other citizens in that given city.

See Hearings on Tex. H.B. 1974 Before House Comm. on Natural Res., 66th Leg., R.S. (Apr. 18,

1979) (transcript available at Legislative Reference Library).

16

the City from unjustly benefitting from its failure to comply with the statute at the District taxpayers’

expense. As evidence that the legislature did not intend to allow the City to continue taxing District

residents at its full ad valorem rate following annexation, the District cites the legislative history of

section 54.016(f). See Hearings on Tex. H.B. 1974 Before House Comm. on Natural Res., 66th Leg.,

R.S. (Apr. 18, 1979) (transcript available at Legislative Reference Library). House Bill 1974 was

designed to allow a municipal utility district to continue in existence after being annexed by a city

without forcing the city to assume the district’s debt obligations, as was the case under the prior law

when districts automatically dissolved upon annexation. See Act of June 13, 1979, 66th Leg., R.S.,

ch. 796, 1979 Tex. Gen. Laws 2026, 2026. Because the district would survive post-annexation,

however, the taxpayers in the newly annexed district would remain subject to the water district’s

taxes in order to pay off the district’s bonded indebtedness, and be forced to pay the city’s

ad valorem taxes; therefore, according to the testimony before the House committee, the allocationagreement statute would need to ensure that the residents of a district annexed under the new

law would not pay taxes any higher than what other citizens paid in ad valorem taxes to the city.10
17

This concern is clearly reflected in section 54.016(f)(2), which seeks to prevent the total annual

ad valorem taxes collected by a city and a district from exceeding the city’s ad valorem tax upon

such property.

The set of circumstances motivating the passage of House Bill 1974 and the resulting

amendment to the water code is identical in this case, where the City has agreed to the inclusion of

land in the District, annexed that territory, and now has taxing authority over residents who are

also faced with paying the District’s taxes. Just as the statutory scheme contemplates, the District

is to continue in existence after its annexation into the corporate city limits. In conjunction with its

written consent, the City executed a contract that largely complies with the statute, outlining the

post-annexation relationship between the City and the District and spelling out the rights and duties

of each entity, including an allocation of government services that each will provide. Although the

Agreement does not apportion taxes between the City and the District in strict accordance with

section 54.016(f)(2), it clearly addresses the taxing powers of both the City and the District and

acknowledges that their respective tax rates may be limited by statute. An agreement such as this,

which defines the post-annexation relationship between a city and a district and addresses each of

the subject-matter components of section 54.016(f), must be construed as an allocation agreement

in order to effectuate the legislature’s intent. Where the parties enter into a contract that provides

for the post-annexation survival of the District and the subject matter of the contract corresponds to

the elements listed in section 54.016(f), that contract is an allocation agreement as a matter of law.
 The Agreement provides, in relevant part:

11

Section 12.1. Severability. The provisions of this Agreement are severable and, in

the event any word, phrase, clause, sentence, paragraph, section or other provision

18

Therefore, in light of the history and purpose of the statute, and the fact that the

Agreement substantially conforms with section 54.016(f), we hold that the Agreement is an

allocation agreement and must be brought into conformity with section 54.016(f)(2).

Tax Allocation Provisions

The District further asserts that in order for the Agreement to comply with

section 54.016(f)(2), it must be amended to require the City to reduce the ad valorem tax rate it

charges District taxpayers. The Agreement currently provides that “the City shall have the authority

to assess and collect ad valorem taxes at theCity’s full rate” and likewise that “the District shall have

the authority to assess and collect the ad valorem tax established by the District.” The Agreement

permits such rates “unless either the City or the District are prohibited by a court of law from

assessing and collecting all or a portion of the City’s or the District’s ad valorem tax rate.”

Under section 54.016(f)(2), the Agreement must provide for an allocation “of taxes

or revenues of the district or the city which will assure that . . . the total annual ad valorem taxes

collected by the city and the district from taxable property within the district does not exceed

an amount greater than the city’s ad valorem tax upon such property.” Id. § 54.016(f)(2). By the

Agreement’s own terms, the tax allocation provision in section 7.2 must therefore be severed and

the parties must “immediately amend this Agreement” to conform with this Court’s holding that

section 7.2 of the Agreement violates section 54.016(f) of the Texas Water Code.11
of this Agreement, or the application thereof to any person or circumstance, shall

ever be held or determined to be invalid, illegal or unenforceable for any reason, the

remainder of this Agreement shall remain in full force and effect and the application

thereof to any other person or circumstance shall not be affected thereby.

Section 12.2. Enforceability. In the event that the Commission or any court of

competent jurisdiction determines that any provision of this Agreement is beyond the

scope of the Texas Water Code, the City, NPC and the District agree to immediately

amend this Agreement to conform to such ruling or decision.

19

The District asserts that requiring the City to reduce its tax rate is the only possible

way to bring the Agreement into conformity with section 54.016(f)(2) because the District

must maintain a tax rate sufficient to meet its statutory obligations. As discussed previously, the

water code requires a district to collect ad valorem taxes sufficient to service its bond debt. See id.

§ 54.601. The District must have sufficient tax revenues to pay interest on its bonds as it becomes

due, to create a sinking fund for the payment of principal, and to pay the expenses of assessing and

collecting taxes. Id. However, the City points out that it also has bonded debt supported by tax

revenues and other obligations under various statutes that are met with its tax revenues. Adopting

the same rationale as the District, the City argues that its tax rate cannot be reduced because it too

is statutorily required to tax at a rate sufficient to service its bonded debt and meet its own statutory

obligations.

The statute itself does not explain how or at what rate the City’s and District’s taxes

should be set, but provides only that there must be an allocation to ensure a specific result. Nor does

the plain language of the statute signify an intent on the part of the legislature to mandate a reduction

in a city’s tax rate alone. As the City points out, the use of the phrase “taxes or revenues” suggests

that the legislature could have anticipated other ways to comply with its intent to reduce the burden
20

on taxpayers through, for example, a revenue-sharing scheme. Given the statute’s silence on the

issue, we disagree that the water code requires that the City must reduce its tax rate by the amount

the District charges, while the District is permitted to tax at its current rate, or even potentially

increase its tax rate.

By the Agreement’s own terms, the parties must negotiate an allocation of taxes

or revenues between the City and the District and amend the Agreement so that it complies with

section 54.016(f)(2), subject to review by the Commission. Therefore, we sustain the District’s first

issue in part, holding that the Agreement is an allocation agreement and that it must conform with

section 54.016(f)(2) of the water code. However, we overrule the District’s first issue with respect

to its claim that the City is required to reduce its ad valorem tax rate by the amount of the District’s

rate and hold that the district court did not err in failing to declare that the City must reduce its

tax rate.

“Tax Exemption”

In response to the District’s second issue, the parties address whether

section 54.016(f) creates an unconstitutional tax exemption. The district court declared that

section 54.016(f) “does not create a tax exemption authorized by the Texas Constitution so Texas

Water Code § 54.016(f) does not require the City to exempt MUD residents from the City’s ad

valorem property tax.” Essentially, the parties do not disagree with the trial court’s ruling, but they

apply different interpretations to the declaration. The District interprets the ruling to mean that, were

this Court to hold that the Agreement is an allocation agreement, then the City would have to reduce

the ad valorem taxes for District residents, and that reduction would not be unconstitutional.
21

Accordingly, the District agrees with the declaration that section 54.016(f) does not create

an unconstitutional tax exemption. The City responds that the trial court properly declared

that section 54.016(f) does not create a tax exemption authorized by the Texas Constitution,

so section 54.016(f) does not require the City to exempt the District’s residents from the City’s

ad valorem taxes. The City offers the following additional grounds to affirm the district court’s

order: (1) the City’s taxes are legitimate taxes of an overlapping political subdivision; and

(2) the City’s and District’s taxes are not “double taxation.” The City further contends that

if section 54.016(f) applies to the Agreement, then any forced reduction in City taxes would be

unconstitutional.

We have held that the Agreement is an allocation agreement and therefore must

comply with section 54.016(f), but that the statute does not necessarily require the City to lower its

tax rate for property within the District. Therefore, the statute does not create a tax exemption

because no property is made “exempt” from taxation. Our resolution of the District’s first issue

advances an interpretation ofthe statute that avoids any conflict with the constitution, see Tex. Gov’t

Code Ann. § 311.021 (West 2005), and renders it unnecessary to address the City’s alternative

grounds for affirming the district court’s order. Because the district court correctly found that

the statute does not create an unconstitutional tax exemption, we sustain the District’s second issue

and, having held that the statute does not require any reduction in City taxes, further hold that the

water code creates no unconstitutional tax exemption.
22

Standing

Because it is dispositive of the District’s remaining points regarding the individual

plaintiffs, we next address the District’s fourth issue asserting that the City’s plea to the jurisdiction

should not have been granted on the basis that these individuals lacked standing to sue. The District

argues that the individual plaintiffs have a justiciable interest in the interpretation of the Agreement

because the statute requires the Agreement to contain an appropriate allocation “exclusively for

the benefit of those paying ad valorem taxes to both the city and the district,” thereby conferring

standing on the individuals as third-party beneficiaries of the Agreement.

There is a presumption against conferring third-party-beneficiary status on

noncontracting parties. South Tex. Water Auth. v. Lomas, 223 S.W.3d 304, 306 (Tex. 2007);

MCI Telecomms. Corp. v. Texas Utils. Elec. Co., 995 S.W.2d 647, 652 (Tex. 1999). In deciding

whether a third party mayenforce or challenge a contract between others, it is the contracting parties’

intent that controls. Lomas, 223 S.W.3d at 306; see also Corpus Christi Bank & Trust v. Smith,

525 S.W.2d 501, 503-04 (Tex. 1975). The intent to confer a direct benefit upon a third party must

be clearly and fully spelled out or enforcement by the third party must be denied. MCI Telecomms.

Corp., 995 S.W.2d at 651. A third party may only enforce a contract when the contracting parties

themselves intend to secure some benefit for the third party and entered into the contract directly for

the third party’s benefit. Id.; Stine v. Stewart, 80 S.W.3d 586, 589 (Tex. 2002). To qualify as one

for whose benefit a contract was made, the third party must benefit more than incidentally; he must

be either a donee or creditor beneficiary. MCI Telecomms. Corp., 995 S.W.2d at 651.
23

In this case, the Agreement provides for the construction, operation, and maintenance

of water and wastewater facilities in the District funded by the issuance of District bonds that will

be secured by the District’s taxes and net revenues. The Agreement does not mention the District

residents except as they are referred to as “the City’s customers” for retail water delivery and

wastewater services. In fact, the Agreement expressly declares that it is “for the benefit of the City,

the District, and NPC, its successors and assigns, and shall not be construed to confer any benefit

on any other party except as expressly provided herein.” We conclude that there is nothing in the

Agreement that would confer donee- or creditor-beneficiary standing upon the individual plaintiffs

to seek a declaration of their rights under this Agreement. Therefore, the district court correctly

determined that the individual plaintiffs lack standing to assert that section 7.2 of the Agreement

violates the water code. See El Paso Cmty. Partners v. B&G/Sunrise Joint Venture, 24 S.W.3d 620,

626 (Tex. App.—Austin 2000, no pet.) (holding that person who is not party to contract does not

have standing to challenge contract). The District’s fourth issue is overruled.

Statute of Limitations and Laches

In its third issue, the District asserts that neither the District’s nor the individual

plaintiffs’ claims are barred by the statute of limitations or laches. Having determined that the

individual plaintiffs lacked standing, we address these issues only as they relate to the claims brought

by the District.

To be entitled to summary judgment on an affirmative defense such as limitations,

the movant must conclusively prove all of the elements of the defense. See University of Houston

v. Clark, 38 S.W.3d 578, 580 (Tex. 2000). Once the defendant has established a right to summary
24

judgment on an affirmative defense, the burden shifts to the plaintiff to present issues which preclude

summary judgment. Huckabee v. Time Warner Entm’t Co., L.P., 19 S.W.3d 413, 420 (Tex. 2000);

City of Houston v. Clear Creek Basin Auth., 589 S.W.2d 671, 678 (Tex. 1979). The City asserted

in its motion that the District’s claims “are barred by the two-year and/or four-year statute of

limitations under Texas Civil Practice and Remedies Code §§ 16.003, 16.004, 16.051. The two-year

statute applies to issues relating to the payment of taxes and the four-year statute relates to the

actions relating to the Consent Agreement between the District and the City.” See Tex. Civ. Prac.

& Rem. Code Ann. §§ 16.003, .004, .051 (West 2002).

The district court granted the City’s affirmative defense that the District’s claims are

barred by the four-year statute of limitations, but did not specify whether it was granting the defense

asserted under section 16.004 or 16.051. However, the District did not assert any claims governed

by section 16.004, so that section could not have provided a basis for the district court’s ruling. See

id. § 16.004 (four-year limitations period for specific performance of contract for conveyance of real

property; penalty or damages on penal clause of bond to convey real property; debt; fraud; breach

of fiduciary duty; suit on bond of executor, administrator, or guardian; and suit against partner for

settlement of partnership accounts). Therefore, summary judgment could only have been granted

on the basis that the District’s claims are barred by the residual limitations period of section 16.051.

See id. § 16.051 (“Every action for which there is no express limitations period, except an action for

the recovery of real property, must be brought not later than four years after the day the cause of

action accrues.”).
25

As we understand the City’s pleadings, “the District’s actions relating to the Consent

Agreement” refers to the District’s request for a declaration of its rights under section 54.016(f)

of the water code. Because a declaratory judgment action is a procedural device used to vindicate

substantive rights, it is generally governed by the statute of limitations for the legal remedy

underlying the claim; consequently, to determine what statute of limitations should apply to an action

for a declaratory judgment, one must look to the legal remedy underlying the cause of action. See,

e.g., Transportation League, Inc. v. Morgan Express, Inc., 436 S.W.2d 378, 387 (Tex. Civ.

App.—Dallas 1969, writ ref’d n.r.e.) (“the statutes of limitation do not apply to . . . a suit for a

declaratory judgment, at least until the provisions of such are set in action by the actual occurrence

of a controversy”); Outlaw v. Bowen, 285 S.W.2d 280, 284 (Tex. Civ. App—Amarillo 1955,

writ ref’d n.r.e.) (holding same). Given that the only applicable limitations period pleaded by the

City in this case is the residual four-year period under section 16.051, we must determine whether

the City established as a matter of law that the District’s suit was filed more than four years after its

cause of action accrued. A cause of action accrues and the applicable limitations period begins

to run when a wrongful act causes some legal injury. S.V. v. R.V., 933 S.W.2d 1, 3 (Tex. 1996);

Moreno v. Sterling Drug, Inc., 787 S.W.2d 348, 351 (Tex. 1990). Put another way, a cause of action

accrues when facts come into existence by which a party knows, or should know, that it is entitled

to seek a judicial remedy. Murray v. San Jacinto Agency, Inc., 800 S.W.2d 826, 828 (Tex. 1990).

According to the City, the District’s cause of action accrued on June 18, 1989, when

the District board president signed the Agreement containing the non-complying tax allocation

provision. Since that time, the City argues, the District board has known that its residents have had
26

to pay taxes to both the City and the District “at the full amount,” citing evidence that from as early

as 1991, District residents had complained to the board about double taxation and the board had

discussed the problem of overlapping taxes with City representatives. The District counters that the

underlying injury is not the parties’ initial execution of an unlawful contract term, but the continuous

and ongoing violation of a statute. Conceding that the City might be able to assert a limitations

defense against the claims brought by the individual homeowners for taxes improperly collected

more than four years prior to filing suit, the District maintains that it cannot be time-barred in its

request for declaratory judgment to determine whether the Agreement is currently in violation of

section 54.016(f) of the water code. In support, the District cites to cases where courts have held

that the statute of limitations merely limited the number of years for which a plaintiff could recover

damages for the payment of illegal fees and taxes, but did not bar the plaintiff from bringing

suit to challenge the legality of the fee or tax. See Bowles v. Clipp, 920 S.W.2d 752, 759-60

(Tex. App.—Dallas 1996, writ denied) (in suit filed more than ten years after county order was

implemented to allow collection of illegal fee, challenge to legality of order was not barred by

statute of limitations, but recovery was limited to fees paid previous two years); Bowles v. Reed,

913 S.W.2d 652, 657-58 (Tex. App.—Waco 1995, writ denied) (holding same); see also Dallas

County Comm. College Dist. v. Bolton, 89 S.W.3d 707, 721-22 (Tex. App.—Dallas 2002), rev’d on

other grounds, 185 S.W.3d 868 (Tex. 2005) (adopting reasoning in Clipp); City of Austin v. Austin

Prof’l Fire Fighters’ Ass’n, 935 S.W.2d 179, 183-84 (Tex. App.—Austin 1996, writ granted w.r.m.)

(fire fighters’ suit for declaratory judgment that city’s length-of-service policies violated statute, filed
27

19 years after change in policy, was not barred by limitations, but recovery under contract was

limited to four years of longevity backpay).

The District also attempts to distinguish the unpublished decision from this Court

relied upon by the City in its motion for summary judgment for the proposition that “limitations bars

declaratory judgment actions seeking to invalidate ‘illegal’ terms of a contract.” See Beadles v. Lago

Vista Prop. Owners Ass’n, No. 03-02-00228-CV, 2002 Tex. App. LEXIS 7940 (Tex. App.—Austin

Nov. 2, 2002, pet. denied) (mem. op., not designated for publication). In that case, Beadles, a

property owner, filed suit for declaratory judgment against the property owners’ association in 2000,

seeking a declaration that the maintenance-fee assessments levied by the association were invalid.

Id. at *2-3. His challenge to the validity of the fee assessments was based in part on his allegation

that a 1992 amendment to the association’s voting procedures violated the Texas Non-Profit

Corporation Act, thereby rendering all subsequent actions of the association invalid, including the

fee assessments. Id. at *3. The association asserted the affirmative defense of limitations, arguing

that Beadles could not complain about changes made to the voting procedures more than four years

after they were amended. Id. at *3-4. In defense to the statute of limitations, Beadles argued that

the entire corporate structure of the association, after the 1992 amendment, constituted an illegal

contract and, therefore, each vote taken by the association perpetuated the underlying cause of action

and defeated the running of the limitations period. Id. at *8.

This Court rejected Beadles’s argument that the 1992 amendment instituted an

illegal voting mechanism in violation of the Non-Profit Corporations Act. Id. at *9. Therefore, we

held that any complaint regarding the change in voting procedures “arose from the procedure
28

of amending and publishing them, which took place in 1992,” more than four years before

Beadles brought his complaint. Id. After this case was decided, Beadles again brought suit against

the association, challenging the maintenance fees it assessed against him in the years since his first

suit. See Beadles v. Lago Vista Prop. Owners Ass’n, No. 03-05-00194-CV, 2007 Tex. App. LEXIS

3861 (Tex. App.—Austin May 18, 2007, no pet.) (op. on reh’g) (mem. op., not designated for

publication). In the second case, which was also appealed to this Court, we reiterated our previous

holding that the voting structure was not illegal because it did not violate the Non-Profit

Corporations Act and determined Beadles was barred by res judicata from bringing the same claim.

Id. at *9-10. But we went on to state that “[i]f this Court had determined that the voting procedures

were not allowed under the Act, we would have had to address Beadles’s claim of a continuing

breach that would have tolled the statute of limitations.” Id. at *10.

Here, the District asserts essentially the same argument that Beadles had raised:

because the tax-allocation provision of the Agreement violates the water code, there has been a

continuing breach that tolled the statute of limitations, and thus the District’s claim is not barred by

limitations. We disagree with the City, however, that our decision in Beadles stands for a rule that

a declaratory-judgment action will be barred by limitations “even when there [is] a ‘continuing’

violation of a state statute.” On the contrary, we held that because there was never a violation of the

statute in the first place, there was no continuing violation and therefore no basis for concluding that

the statute of limitations had been tolled. In this case, however, we have determined that section 7.2

of the Agreement does violate section 54.016(f) of the water code. Therefore, as we would have in
 Moreover, there is also the line of cases dealing with contracts that contemplate continuing 12

obligations, for which the rule is that limitations does not begin to run until: (1) the parties’

obligations under the contract are complete; (2) the contract is terminated in accordance with its

terms; or (3) the contract is anticipatorily repudiated by one party and this repudiation is adopted by

the other party, whichever event is earlier. See, e.g., City of Corpus Christi v. Taylor, 126 S.W.3d

712, 725 (Tex. App.—Corpus Christi 2004, pet. dism’d); Hubble v. Lone Star Contracting Corp.,

883 S.W.2d 379, 382 (Tex. App.—Fort Worth 1994, writ denied).

29

Beadles if the voting procedures had violated the Non-Profit Corporations Act, we turn to the issue

of whether there was a continuing violation.

In asserting that section 7.2 of the Agreement is in continuous violation of the

water code, the District analogizes to cases involving challenges to the legality of municipal

policies brought many years after those policies were adopted. For example, in Haliburton v. City

of San Antonio, 974 S.W.2d 779 (Tex. App.—San Antonio 1998, no pet.), the court held that

limitations did not bar police officers’ claims against the city for failure to pay them in accordance

with the statute during the period of limitations, even though the underpayment had continued for

at least 25 years, because the continued underpayment represented a continuing violation of the

governing statute. 974 S.W.2d at 783. Likewise, in City of Austin, this Court rejected an argument

that the fire fighters’ declaratory judgment cause of action arose when the city changed its policy and

stopped including time spent in the fire academy as “service time” for purposes of determining

longevity compensation. 935 S.W.2d at 183-84. We held instead that their claims were not barred

by the statute of limitations even though they initially arose outside the applicable period. Id. at

184. Similarly, the District argues that it should not be prevented from bringing its challenge to 12

the legality of section 7.2 of the Agreement more than four years after that contract provision was

adopted. We agree. Because the statute of limitations has not run on the District’s underlying claim
 The City cites as evidence an affidavit from its utilities finance manager stating that the City 13

has in good faith collected its full property taxes from residents of the District and has provided full

municipal services to the area since 1989. Contrary to the City’s assertion, this is not evidence of

its change of position as a result of the District’s delay in seeking a declaration that the ad valorem

property tax allocation in the Agreement violated the water code. The City’s argument presupposes

that the appropriate relief to redress the District’s delaywould be a mandatory reduction in the City’s

tax rate; however, as has been discussed, the statute requires no such rate reduction that would

support the City’s laches theory.

30

that section 7.2 of the Agreement is a continuing violation of the water code, the District’s

declaratory judgment action is not barred by limitations.

Nor did the City establish that the District’s suit is barred by laches. Laches is an

equitable defense akin to estoppel and requires a showing that (1) the suing party unreasonably

delayed asserting his rights, and (2) due to the delay, the opposing party has made a good

faith change of position to its detriment. City of Fort Worth v. Johnson, 388 S.W.2d 400, 403

(Tex. 1964). The record is devoid of evidence that the City has made any change of position due to

the District’s purported delay in seeking a declaration of its rights. See id. at 403-04. Moreover, 13

it is well-established that where a unit of government is exercising its governmental powers, it is not

subject to the defense of laches. City of Hutchins v. Prasifka, 450 S.W.2d 829, 835 (Tex. 1970);

Capitol Rod & Gun Club v. Lower Colorado River Auth., 622 S.W.2d 887, 896 (Tex. App.—Austin

1981, writ ref’d n.r.e.). In Capitol Rod & Gun Club, this Court held that the LCRA, a political

subdivision, could not be estopped from seeking a declaration of its rights under a contract pertaining

to matters within the scope of its governmental functions. 622 S.W.2d at 896. Likewise, the District

in this case seeks a declaration regarding its rights under an agreement that bears directly on the

District’s own governmental functionsin its capacity as a municipal utility district and taxing entity.
31

We sustain the District’s third issue in part, holding that summary judgment

should not have been granted because neither limitations nor laches barred the District’s claims

against the City.

Attorney’s Fees

In its fifth issue, the District claims that the trial court erred by awarding attorney’s

fees to the City. Because we have determined that the trial court erred by declaring that the

Agreement is not an allocation agreement, we reverse the trial court’s award of attorney’s fees to the

City and remand this issue to the trial court to reconsider the parties’ claims for attorney’s fees. See

Tex. Civ. Prac. & Rem. Code Ann. § 37.009 (West 2008).

CONCLUSION

Because we hold that the Agreement between the City and the District is an allocation

agreement under Texas Water Code section 54.016(f) and that section 54.016(f) applies to this

Agreement, we reverse the summary judgment in part and render judgment in favor of the District

on this issue. Furthermore, because the District’s suit for declaratory judgment was not barred by

the statute of limitations or laches, we reverse this portion of the summary judgment and remand the

parties’ remaining declaratory claims for further proceedings consistent with this opinion. We

conclude that the district court properly granted the City’s plea to the jurisdiction as to the individual

plaintiffs for lack of standing and affirm the district court’s order dismissing their suit. In light of

our disposition reversing the summary judgment in part, we reverse the award of attorney’s fees to

the City and remand the issue of attorney’s fees to the trial court for further consideration.
32

 

W. Kenneth Law, Chief Justice

Before Chief Justice Law, Justices Puryear and Onion*

Affirmed in part; Reversed and Rendered in part; Reversed and Remanded in part

Filed: November 14, 2008

* Before John F. Onion, Jr., Presiding Judge (retired), Court of Criminal Appeals, sitting by

assignment. See Tex. Gov’t Code Ann. § 74.003(b) (West 2005).