SB 1851 Municipal Audit Compliance and Property Tax Limits in Texas

Texas municipalities that fail to comply with annual audit and financial reporting requirements may be legally barred from adopting a property tax rate above the no-new-revenue rate under SB 1851. Audit compliance is now a prerequisite for lawful tax increases.

Texas Audit Requirements for Municipalities

Texas Local Government Code §103.001 requires municipalities to:

• Conduct an annual audit, and

• Prepare an annual financial statement based on that audit.

Texas Local Government Code §103.003 requires municipalities to:

• File the financial statement, including the auditor’s opinion,

• With the municipal secretary or clerk,

• Within 180 days after the end of the fiscal year.

Failure to meet either requirement places the municipality out of compliance.

Effect on Property Tax Adoption

A municipality determined by the Attorney General to be noncompliant:

• May not adopt an ad valorem tax rate above the no-new-revenue rate,

• Beginning with the applicable tax year and continuing until:

  • The audit is completed, and

  • The financial statement and auditor’s opinion are properly filed.

Audit noncompliance can therefore cap or invalidate a proposed tax increase.

Why Pre-Adoption Review Matters

Many cities identify audit or filing issues after tax rates are proposed, when options are limited. Common risks include late audits, missing auditor opinions, or failure to meet filing deadlines.

A compliance review before adopting a tax rate reduces legal exposure and preserves flexibility.

How CLF Assists

CLF provides municipal compliance review services to Texas cities, including:

• Reviewing audit and filing status under SB 1851

• Identifying risks affecting taxing authority

• Assessing compliance related to proposed tax actions

• Supporting readiness for Attorney General inquiries

CLF does not perform audits or set tax rates. We help municipalities understand compliance risk before decisions are finalized.