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2025-059 ISR 89th First Called Special Session July 18, 2025 Report No. 2025-059 INFORMAL STAFF REPORT TO MAYOR AND CITY COUNCIL SUBJECT: City business included in the Governor's call for the first-called Special Session of the 891h Legislature. BACKGROUND: On July 9, Governor Greg Abbott formally announced the first-called Special Session of the 89th Legislature. The Governor is the only state official with the authority to call a Special Session and has the power to direct the legislature on what actions they should take during the Session. The Special Session is scheduled to begin on Monday, July 21 at 12:00 pm and will last for 30 days. If the Legislature does not act on the items listed on the Governor's call, the Governor has the authority to call additional Special Sessions in increments of 30 days. The Governor's call includes 18 directives to the legislature. The first four charges are related to improving emergency preparedness in flood-prone areas following the recent floods in Central Texas. Other charges include eliminating the STAAR test, providing comprehensive hemp-derived product regulation, and revising the congressional redistricting plan. There are three items directly related to city business, imposing spending limits on entities that impose property taxes, prohibiting taxpayer-funded lobbying, and requiring cities to provide credits against impact fees for builders who prioritize water conservation and efficiency. A summary of each of these items is included in the discussion below. DISCUSSION: "Legislation reducing the property tax burden on Texans and legislation imposing spending limits on entities authorized to impose property taxes." While the Governor has not publicly mentioned his vision for additional property tax relief, it is anticipated that the second half of this charge, "imposing spending limits on entities authorized to impose property taxes,"will likely mirror HB 19, which failed to pass in the 891h Regular Session. HB 19,by Ways and Means Committee Chair Morgan Meyer, failed to pass out of the Committee during the regular session. The bill is 18 pages of various changes to laws surrounding a local government's ability to issue and leverage debt. The most impactful of those changes are summarized below: • The bill proposed prohibiting a city from authorizing additional debt if the resulting annual debt service in any fiscal year on debt payable from property taxes issued on or after September 1, 2025 exceeds 20 percent of the amount equal to the average of the amount of property tax collections for the three preceding fiscal years. The language here is difficult to parse, but it would appear to exclude any property tax supported debt issued July 18, 2025 Report No. 2025-059 before September 1, 2025, from the 20 percent cap. Should similar legislation pass during the Special Session, cities would need to account for debt issued after September 1 separately from the currently outstanding debt for purposes of this section. For reference, 20 percent of Denton's average tax collections is $18.2 million,while the total annual debt service supported by property taxes is approximately $50 million in fiscal year 2024-25. • Additionally, HB 19 codifies the types of projects that a city may issue a Certificate of Obligation (CO) for, which includes (1) transportation infrastructure; (2) landfills; (3) water and wastewater infrastructure; (4) flood control and drainage projects; and (5) certain public safety facilities, including police stations and fire stations. The bill would expressly prohibit the use of a CO for many projects that are currently allowed, including: (1)parking structures;(2)airports; (3)judicial facilities; (4)administrative office buildings for a city; (5) animal shelters; (6)libraries; (7)parks; and(8) stadiums, arenas, convention centers, and civic centers. However, even though COs could technically be used to finance certain infrastructure and public safety facilities under the bill, a separate provision of the bill would prohibit a city from financing those improvements through the debt service component of its property tax rate. Given the statutory limitations placed on cities' maintenance and operations tax rates, this change would effectively prevent a city from issuing COs and tax anticipation notes for most authorized purposes. • H.B. 19 would also require an election to authorize general obligation bonds or approve an increase in the property tax rate to be held on the November uniform election date. For the City of Denton,this would mean the expense and staff time required to coordinate two elections in one year. While the details of the Special Session bill to address the Governor's call are not yet known, any bill similar to HB 19 as filed in the Regular Session would likely be extremely detrimental to the City of Denton, and cities across Texas. "Legislation prohibiting taxpayer-funded lobbying, including the use of tax dollars to hire lobbyists and payment of tax dollars to associations that lobby the legislature." The Governor's charge regarding taxpayer-funded lobbying likely means that a bill similar to SB 19 will be considered during the Special. SB 19 was passed by the Senate during the Regular Session but failed to receive a committee hearing in the House. The bill as filed prohibited the use of public funds on hiring a registered lobbyist for the purpose of lobbying a member of the legislature, as well as prohibiting the payment nonprofit association or organization that hires or contracts with a registered lobbyist. This would have effectively prevented cities from hiring their own legislative consultants or lobbyists, and prohibited cities from working with nonprofit associations, like the Texas Municipal League (TML), who employ or contract lobbyists. SB 19 was amended on the Senate Floor, despite opposition from the bill's author, Senator Mayes Middleton, to exclude the provisions prohibiting the use of nonprofit associations and organizations by cities. July 18, 2025 Report No. 2025-059 If passed, the bill would almost certainly require the City to terminate or significantly modify its existing contract with Hance Scarborough to ensure compliance with the new law. The Governor's call includes prohibiting the use of tax dollars to associations that lobby the legislature, so a restriction on city partnership with associations like TML is likely to pass in some form. TML offers a wide range of services outside of lobbying, but it is unclear whether those other services would be at risk. "Legislation, similar to Senate Bill No. 1253 from the 89t' Legislature, Regular Session, that authorizes political subdivisions to reduce impact fees for builders who include water conservation and efficiency measures." SB 1253 by Senator Perry was passed by the legislature but was subsequently vetoed by the Governor citing concern with a third-reading amendment that amended another bill onto SB 1253 in the House. It is likely that the legislation filed during the Special Session will mirror SB 1253 prior to the adoption of that amendment. SB 1253, as filed, would have provided an option for cities to provide credits against impact fees for developers who use facilities, systems, or products that result in water reuse, conservation, or savings,however;the bill was amended to require cities to provide these credits. The latter is likely the version of the bill that will be considered in the Special Session. If passed, the City would be required to establish procedures for calculating and applying the credits in a fair and consistent manner and for reviewing and approving credits. This bill could require significant implementation efforts and may require credits for water conservation measures already required by the City for new development,rather than for measures that go beyond current requirements. CONCLUSION: Staff and the City's state legislative consultant have already begun engaging with our delegation regarding the city-related Special Session charges and will provide updates to Council via email throughout the Session. The effort to impose spending limits on cities is especially concerning and will require a high level of engagement to ensure Denton's state delegation and other legislators are aware of the impact this could have on the City. Once more information is made available regarding the details of the proposal, staff will likely engage Council to provide written and/or oral testimony on behalf of the City. ATTACHMENTS: 1. Special Session Proclamation STAFF CONTACT: Kristi Fogle Chief of Staff July 18, 2025 Report No. 2025-059 Kristi.Fogle@cityofdenton.com (940) 349-8565 REOUESTOR: Staff Initiated STAFF TIME TO COMPLETE REPORT: 4 hours PARTICIPATING DEPARTMENTS: City Manager's Office, City Attorney's Office