Texas Attorney General Targets Cities Over Financial Transparency Compliance

In a significant move to enforce state financial reporting standards, Texas Attorney General Ken Paxton has issued formal notifications to more than 130 cities across the state, prohibiting them from raising property taxes above the no-new-revenue threshold. This regulatory action is grounded in Senate Bill 1851, legislation passed during the 2025 session that mandates strict adherence to financial audit and transparency requirements for municipalities seeking to increase tax levies.

Understanding the Compliance Mandate

Senate Bill 1851 serves as a mechanism to ensure that Texas cities maintain fiscal accountability. Under the law, municipalities that fail to meet state-mandated audit and financial reporting standards are barred from adopting property tax rates that exceed the no-new-revenue rate. This rate is defined as the tax rate that would generate the same amount of revenue as the previous year, assuming the same properties are taxed.

The Texas Attorney General’s office initiated a comprehensive review last month, assessing more than 1,000 cities to determine their compliance with these transparency statutes. The recent letters sent to the affected cities represent the culmination of this assessment, signaling a firm stance on municipal financial oversight.

Key Cities Affected

The list of municipalities receiving notification from the Attorney General’s office includes several communities within Galveston County. Among the cities flagged for non-compliance are:

• Texas City
• Kemah
• Tiki Island
• Clear Lake Shores
• Seabrook

A Pattern of Enforcement

This initiative is not the first time the Attorney General’s office has utilized its authority to address municipal financial reporting. Last fall, a similar dispute occurred involving the city of La Marque. In that instance, the state halted a proposed 2-cent property tax increase while investigating whether the city had violated the same transparency laws. The investigation centered on findings that the city had submitted required financial documentation months past the March deadline mandated by Senate Bill 1851.

While some municipal officials have previously challenged the state’s interpretation of these requirements—arguing that the legislation should not apply until the subsequent tax year—the Attorney General’s office continues to move forward with its enforcement actions to ensure standardized reporting across all Texas jurisdictions.

Key Takeaways for Texas Taxpayers

• Regulatory Oversight: The Attorney General’s office is actively auditing city financial statements to ensure compliance with 2025 state legislation.
• Financial Restrictions: Cities that fail to meet the reporting deadlines or audit standards are legally prohibited from raising property taxes above the no-new-revenue rate.
• Transparency Focus: The state’s actions are designed to prioritize public access to accurate financial data, holding local governments accountable for their fiscal reporting practices.

As the state continues its oversight of municipal financial health, residents in the affected jurisdictions can expect ongoing discussions regarding local tax policy and the administrative requirements necessary to maintain compliance. The Attorney General’s office has signaled that these enforcement efforts are part of a broader commitment to ensuring that local governments operate with the transparency required by Texas law.