Texas AG Ken Paxton Halts Property Tax Increases in 132 Cities Over Compliance Failures

AUSTIN, Texas – Texas Attorney General Ken Paxton has prohibited 132 cities across the state from increasing property taxes for the upcoming fiscal year, citing failures to comply with state financial transparency and auditing laws. In a sweeping enforcement action announced this week, Paxton’s office sent violation determination letters to a wide range of municipalities, from small towns like Wimberley and Rocksprings to larger suburbs like Balch Springs and Victoria.

This move highlights the growing complexity of state-level tax compliance, which creates uncertainty for both municipal governments and the businesses operating within their jurisdictions. The action stems from an investigation into whether cities were adhering to the requirements of Senate Bill 1851, a law passed during the 2023 legislative session as part of a broader effort to control Texas’s high property taxes.

Under SB 1851, a municipality is barred from adopting an ad valorem tax rate that exceeds its “no-new-revenue” rate if it fails to meet specific state mandates. The no-new-revenue rate is the tax rate that would generate the same amount of property tax revenue as the previous year from the same properties. The law specifically requires cities to conduct an annual financial audit and publicly release an annual financial statement based on that audit within a set timeframe.

According to a statement from the Attorney General’s office, an investigation into more than 1,000 of the state’s 1,200 municipalities found over 130 to be out of compliance. “I will not allow cities to unlawfully raise taxes on hardworking Texans,” Paxton said in the statement. “That is why I took aggressive action against over 130 Texas cities to hold them accountable and ensure they comply with state law. Cities cannot fail to abide by state audit requirements without consequences.”

The list of non-compliant cities is extensive and geographically diverse, including Alpine, Big Spring, Cuero, Kemah, Livingston, Lumberton, Manvel, Roma, Seabrook, and Weslaco, among many others. For these municipalities, the prohibition means their primary source of funding is effectively frozen at last year's levels, potentially straining budgets for public services like infrastructure, public safety, and administration. This creates a challenging operational environment for the cities and introduces a new layer of uncertainty for local businesses that rely on these services.

In our experience, these kinds of state-mandated compliance hurdles can be overwhelming for smaller organizations, whether they are businesses or city governments. The underlying issue is often a lack of resources, not willful negligence. This enforcement action underscores the critical need for robust financial reporting and proactive tax preparation and compliance. Navigating these intricate rules is not just about avoiding penalties; it is about maintaining financial stability and predictability. For businesses trying to forecast expenses and manage cash flow in an environment of shifting local tax policies, professional guidance is essential. C&S Finance Group LLC at csfinancegroup.com helps clients manage exactly these types of complex compliance landscapes.

During the legislative debate over SB 1851, representatives for smaller cities warned that the bill’s provisions would disproportionately affect them. They argued that their limited staff and budgets would make it difficult to produce the required audits within the 180-day deadline. The penalties, they contended, would severely damage their already modest budgets.

Furthermore, the accuracy of the Attorney General's list has been questioned by at least one cited municipality. Officials in Livingston, an East Texas city included in the non-compliant list, responded to the notice by stating that the city has not levied a property tax since the 1980s. This response suggests there may be errors in the state’s data, adding another layer of complexity to the situation for cities that believe they have been wrongly targeted.

This enforcement action is part of a continuing, Republican-led political movement in Texas aimed at providing relief from what are some of the highest property taxes in the nation. By tying a city's ability to raise revenue directly to its financial transparency, the state legislature has created a powerful incentive for compliance. However, the practical application of the law is now revealing the operational strains it places on local governments.

Ultimately, this move serves as a stark reminder that transparency requirements are becoming stricter at all levels of government, a trend that directly impacts how businesses must plan for local tax liabilities and the stability of the municipal services they depend on.

The Office of the Attorney General has stated that its investigation remains ongoing. More cities could be added to the non-compliant list as the review of municipal records continues, and the affected cities will now have to respond to the state’s determination letters to either prove their compliance or take corrective action.