Texas Law Caps How Much Local Governments Can Spend Each Year

House Bill 46 proposes a new rule for how Texas local governments spend money. The law would apply to cities, counties, school districts, hospital districts, and other local agencies that collect taxes or issue bonds. Starting in fiscal year 2026, these groups would face an annual spending cap.

Under the proposed limit, a local government could spend no more than what it spent the previous year, or an amount calculated by taking last year's spending and multiplying it by the sum of the population growth rate and inflation rate. For example, if a city spent $100 million last year and its combined population growth plus inflation equals 3 percent, it could spend up to $103 million this year. Each political subdivision must calculate and publish this rate by January 31 of each year using a form prescribed by the state comptroller.

The bill includes important exceptions. Voters could approve additional spending through a special election where at least two-thirds of voters agree. Grants, donations, and gifts do not count as available revenue for the spending cap. Disaster relief costs are not counted as expenditures, protecting funds for emergencies.

The Texas Attorney General would enforce the law. They could seek court orders to stop violations, require compliance, or ask a court to declare what the law requires. This policy gives local governments flexibility while connecting spending growth to real economic changes in their communities. The law takes effect February 1, 2026, allowing time for preparation before the first fiscal year it applies to.