Changes to a massive development covering almost two square miles on the southeast side of town were unanimously approved during a special meeting of the Midlothian City Council last Wednesday as they rushed to tie up loose ends before the holidays.

The Diamond J Ranch property straddles U.S. Highway 287 west of Walnut Grove Road and consists of about 1,167 acres, of which 201 acres lie south of the highway. The council reached an amended development agreement and finance plan with a group that includes Midlothian Municipal Management District No. 2, ECOM Real Estate Management, Inc. and Knox Street Partners No. 28, Ltd.

City manager Chris Dick told the council the latest agreement would require the dismissal of the so-called Rule 11 Agreement and the litigation associated with it.

In 2005, ECOM sued Midlothian over a requirement to purchase water from the city in exchange for sewer service, a departure from an original agreement whereby ECOM would have been allowed to supply its own water. ECOM won in district court in Ellis County, but that ruling was overturned in appellate court in early 2010.

The dispute was eventually settled in what is known as the Rule 11 Agreement, with one of the stipulations of the settlement being:

"The city will adopt a planned development zoning district or otherwise which, with respect to the portion of the Master Tract (as defined in the lawsuit petition) to be developed for single-family detached residential use, permits an overall development density of not less than 3.5 residential dwelling units per residential acre."

The latest agreement provides for 500 residential lots on the portion of the property south of U.S. 287, which is being retained by ECOM.

“Keep in mind, the current planned development ordinance already allows up to 500 residential lots on that parcel,” Dick said. “So really, ECOM is just retaining that right upon separation by this agreement.”

The agreement separates the tract north of U.S. 287 from the tract south of the highway for the following purposes: participation in the yet-to-be-approved tax increment reinvestment zone, or TIRZ; and also participation in the municipal management district, or MMD, which was created in 2015.

“So basically if this agreement gets approved, Knox Street Partners will be the only piece of property that has rights in the TIRZ and MMD,” Dick said. “The two entities will no longer be available to ECOM.”

City attorney Joe Gorfida clarified for the council just what a TIRZ is and how they work.

“It’s not something that affects a tax rate that a city sets,” Gorfida said. “It doesn’t change that at all … All we’re talking about is taking the difference in the tax revenues based on values as of Jan. 1 on the year in which the TIRZ would be created, which would probably be next year; and then whatever that collection differential between that base year and future base years. So you’re just talking about taking money out of new taxes, not anything out of the past coming out. Sometimes we kind of lose sight and forget that, that we’re talking about a new tax increment … It’s the city portion of the new stuff, the new revenues that we’re generating.

“As houses come on and other developments and other amenities get built and the values go up, that tax increment amount increases and whatever that percentage is … that’s the math that goes in.”

Dick clarified further, reiterating that the overall 68.5-cent tax rate for the city will not change. “You’re just going to use some of what otherwise would’ve come into the general fund and use that directly into that zone,” he said.

The agreement also approves the initial five-year capital improvement budget, and establishes a 19.5-cent reimbursement through the TIRZ that could be used to reimburse the MMD bonds or could go toward improving portions of Walnut Grove Road. Other mitigations in the traffic impact analysis, performed by both sides, are addressed in the agreement.

“Those improvements would be funded by the 19.5-cent TIRZ participation,” Dick said. “And that would only be on properties that are located within the tax increment zone and/or the municipal management district, which is the Hanover (referring to Knox Street Partners) property to the north. It would not extend to properties outside of those boundaries.”

Dick added that the agreement also allows for an increase in the TIRZ rate above the 19.5-cent rate at the city’s discretion that could allow for the use of additional improvements, such as frontage roads along 287. Dick said the developer could keep the original 19.5 cents for its own improvements.

“We will have to come back and define what that TIRZ agreement is and put those in there,” Dick said. “ But we wanted to give the city that right to use TIRZ funds to build an improvement in that area, but yet let the developer still be whole with what the original agreement was.”

Dick said that his staff and developers need to continue to communicate with the Texas Department of Transportation over the design of any future frontage roads leading to the Diamond J development, including future crossovers and interchanges.

Answering a question by councilman Art Pierard, Dick said the current zoning for the entire tract was for 2,701 residential lots, which includes up to 500 lots south of 287 and the balance to the north. Dick said Hanover is close to, but slightly below the allowed 2,201 number with a number of single-family homes and townhouses.

In other action, the council agreed to roll over about $679,000 in unspent general funds from the 2018-2019 budget to the 2019-2020 budget. The item is a continuation of moves taken at the last regular meeting in city budgets.