AN ACT
relating to municipalities that adopt budgets that defund municipal
police departments.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
ARTICLE 1. DEFUNDING MUNICIPALITY DETERMINATION
SECTION 1.01. Subtitle A, Title 4, Local Government Code,
is amended by adding Chapter 109 to read as follows:
CHAPTER 109. DETERMINATION OF DEFUNDING MUNICIPALITIES
Sec. 109.001. DEFINITION. In this chapter, “division”
means the criminal justice division of the office of the governor.
Sec. 109.002. APPLICABILITY OF CHAPTER. This chapter
applies only to a municipality with a population of more than
250,000.
Sec. 109.003. DEFUNDING DETERMINATION. Except as provided
by Section 109.004, a defunding municipality is a municipality:
(1) that adopts a budget for a fiscal year that, in
comparison to the municipality’s preceding fiscal year, reduces the
appropriation to the municipality’s police department; and
(2) for which the division issues a written
determination finding that the municipality has made the reduction
described by Subdivision (1).
Sec. 109.0035. INITIAL DETERMINATION. In making a
determination of whether a municipality is a defunding municipality
under Section 109.003 according to the budget adopted for the first
fiscal year beginning on or after September 1, 2021, the division
shall compare the appropriation to the municipality’s police
department in that budget to the appropriation to that department
in the budget of the preceding fiscal year or the second preceding
fiscal year, whichever is greater. This section applies to the
budget adopted for the municipality’s first fiscal year beginning
on or after September 1, 2021, regardless of the date of adoption.
This section expires September 1, 2023.
Sec. 109.004. EXCEPTIONS. (a) A municipality is not
considered to be a defunding municipality under Section 109.003 if:
(1) for a fiscal year in which the municipality adopts
a budget that is less than the budget for the preceding fiscal year,
the percentage reduction to the appropriation to the municipality’s
police department does not exceed the percentage reduction to the
total budget; or
(2) before the adoption of a budget, the municipality
applies for and is granted approval from the division for a
reduction to the appropriation to the municipality’s police
department to account for:
(A) capital expenditures related to law
enforcement during the preceding fiscal year;
(B) the municipality’s response to a state of
disaster declared under Section 418.014, Government Code; or
(C) another reason approved by the division.
(b) For purposes of making a determination of whether a
municipality is a defunding municipality under this chapter, a
municipality’s appropriation to the municipality’s police
department does not include:
(1) any grant money received by the municipality
during any fiscal year; or
(2) any sales and use tax revenue received by the
municipality for the purpose of financing a crime control and
prevention district under Chapter 363.
Sec. 109.005. TERMINATION OF DEFUNDING DETERMINATION. A
municipality’s defunding determination under Section 109.003
continues until the division issues a written determination finding
that the municipality has reversed the reduction, adjusted for
inflation, described by Section 109.003(1).
Sec. 109.006. DIVISION DUTIES. (a) The division shall:
(1) compute the inflation rate used to make
determinations under Section 109.005 each state fiscal year using a
price index that accurately reports changes in the purchasing power
of the dollar for municipalities in this state; and
(2) publish the inflation rate in the Texas Register.
(b) The division shall adopt rules establishing the
criteria the division uses to approve reductions under Section
109.004(2).
ARTICLE 2. ANNEXATION BY AND DISANNEXATION FROM DEFUNDING
MUNICIPALITIES
SECTION 2.01. Subchapter A, Chapter 43, Local Government
Code, is amended by adding Section 43.004 to read as follows:
Sec. 43.004. ANNEXATION BY DEFUNDING MUNICIPALITY
PROHIBITED; EXCEPTION. (a) In this section, “defunding
municipality” means a home-rule municipality that is considered to
be a defunding municipality under Chapter 109.
(b) Except as provided by Subsection (c), a defunding
municipality may not annex an area during the period beginning on
the date that the criminal justice division of the governor’s
office issues the written determination that the municipality is a
defunding municipality and ending on the 10th anniversary of the
date on which the criminal justice division of the governor’s
office issues a written determination in accordance with Section
109.005 finding that the defunding municipality has reversed the
reduction described by Section 109.003(1).
(c) This section does not apply to a defunding municipality
annexing all or part of an area under Section 43.0116 that was
designated an industrial district under Section 42.044(b) or the
subject of an agreement under Section 42.044(c) as of January 1,
2021.
SECTION 2.02. Subchapter G, Chapter 43, Local Government
Code, is amended by adding Section 43.1465 to read as follows:
Sec. 43.1465. DISANNEXATION FROM DEFUNDING MUNICIPALITY.
(a) In this section, “defunding municipality” means a home-rule
municipality that is considered to be a defunding municipality
under Chapter 109.
(b) On the next uniform election date that occurs after the
date on which the criminal justice division of the governor’s
office issues a written determination that a municipality is a
defunding municipality and the time required by Section 3.005,
Election Code, the defunding municipality shall hold a separate
election in each area annexed in the preceding 30 years by the
defunding municipality on the question of disannexing the area.
(c) The defunding municipality shall immediately by
ordinance disannex an area for which a majority of the votes
received in the election held under Subsection (b) favor
disannexation.
(d) If an area is disannexed under Subsection (c), the
defunding municipality may not attempt to annex the area before the
10th anniversary of the date on which the criminal justice division
of the governor’s office issues a written determination in
accordance with Section 109.005 finding that the defunding
municipality has reversed the reduction described by Section
109.003(1).
(e) A defunding municipality holding an election under
Subsection (b) may not use public funds on informational campaigns
relating to the election.
ARTICLE 3. TAX REVENUE AND DEFUNDING MUNICIPALITIES
SECTION 3.01. Chapter 26, Tax Code, is amended by adding
Sections 26.0444 and 26.0501 to read as follows:
Sec. 26.0444. TAX RATE ADJUSTMENT FOR DEFUNDING
MUNICIPALITY. (a) In this section:
(1) “Defunding municipality” means a municipality
that is considered to be a defunding municipality for the current
tax year under Chapter 109, Local Government Code.
(2) “Municipal public safety expenditure adjustment”
means an amount equal to the positive difference, if any, between:
(A) the amount of money appropriated for public
safety in the budget adopted by the municipality for the preceding
fiscal year; and
(B) the amount of money spent by the municipality
for public safety during the period for which the budget described
by Paragraph (A) is in effect.
(b) The no-new-revenue maintenance and operations rate for
a defunding municipality is decreased by the rate computed
according to the following formula:
Municipal Public Safety Expenditure Adjustment / (Current
Total Value – New Property Value)
(c) A defunding municipality shall provide a notice of the
decrease in the no-new-revenue maintenance and operations rate
provided by this section in the information published under Section
26.04(e) and, as applicable, in the notice prescribed by Section
26.06 or 26.061.
(d) For purposes of Subsection (a)(2), the amount of money
appropriated for public safety and the amount of money spent by the
municipality for public safety does not include:
(1) any grant money received by the municipality
during any fiscal year; or
(2) any sales and use tax revenue received by the
municipality for the purpose of financing a crime control and
prevention district under Chapter 363, Local Government Code,
during any fiscal year.
Sec. 26.0501. LIMITATION ON TAX RATE OF DEFUNDING
MUNICIPALITY. (a) In this section, “defunding municipality” means
a municipality that is considered to be a defunding municipality
for the current tax year under Chapter 109, Local Government Code.
(b) Notwithstanding any other provision of this chapter or
other law, the governing body of a defunding municipality may not
adopt a tax rate for the current tax year that exceeds the lesser of
the defunding municipality’s no-new-revenue tax rate or
voter-approval tax rate for that tax year.
(b-1) Notwithstanding Subsection (b), if a municipality is
determined to be a defunding municipality according to the budget
adopted by the municipality for the first fiscal year beginning on
or after September 1, 2021, the governing body of the defunding
municipality may not adopt a tax rate for the current year that
exceeds the least of the defunding municipality’s no-new-revenue
tax rate or voter-approval tax rate for that tax year, the preceding
tax year, or the second preceding tax year. This subsection expires
September 1, 2023.
(c) For purposes of making the calculation required under
Section 26.013, in a tax year in which a municipality is a defunding
municipality, the difference between the municipality’s actual tax
rate and voter-approval tax rate is considered to be zero.
SECTION 3.02. Subchapter F, Chapter 321, Tax Code, is
amended by adding Section 321.5025 to read as follows:
Sec. 321.5025. DISTRIBUTION OF TRUST FUNDS TO DEFUNDING
MUNICIPALITY. (a) In this section, “defunding municipality” means
a municipality that is considered to be a defunding municipality
for the current state fiscal year under Chapter 109, Local
Government Code.
(b) Notwithstanding Section 321.502, the comptroller may
not, before July 1 of each state fiscal year, send to a defunding
municipality its share of the taxes collected by the comptroller
under this chapter during the state fiscal year. Before sending the
defunding municipality its share of the taxes, the comptroller
shall deduct the amount reported to the comptroller for the
defunding municipality under Subsection (c) and credit that
deducted amount to the general revenue fund. Money credited to the
general revenue fund under this subsection may be appropriated only
to the Department of Public Safety.
(c) Not later than August 1 of each state fiscal year, the
criminal justice division of the governor’s office shall report to
the comptroller for each defunding municipality the amount of money
the state spent in that state fiscal year to provide law enforcement
services in that defunding municipality.
ARTICLE 4. RETIREMENT FUNDING REQUIREMENTS FOR DEFUNDING
MUNICIPALITIES
SECTION 4.01. Chapter 810, Government Code, is amended by
adding Section 810.006 to read as follows:
Sec. 810.006. MINIMUM RETIREMENT FUNDING REQUIREMENTS FOR
DEFUNDING MUNICIPALITIES. (a) In this section:
(1) “Defunding municipality” means a municipality
that is considered to be a defunding municipality under Chapter
109, Local Government Code.
(2) “Public retirement system” has the meaning
assigned by Section 802.001.
(b) This section applies only to a municipality that is:
(1) an employer of active members of a public
retirement system administering a defined benefit plan; and
(2) a defunding municipality.
(c) Notwithstanding any other law and as soon as practicable
after the date the criminal justice division of the office of the
governor issues a written determination under Section 109.003(2),
Local Government Code, with respect to a municipality, the
municipality shall for the purpose of funding retirement benefits
increase municipal contributions to a public retirement system in
which its employees participate as members in a manner that ensures
that the total amount the municipality and members contribute to
the system for the fiscal year on which the determination is based
is not less than the total amount the municipality and members of
the system contributed to the system for the fiscal year
immediately preceding the fiscal year on which the determination is
based.
(d) A municipality subject to this section shall increase
contributions in the manner provided by Subsection (c) for each
fiscal year for which the municipality is considered a defunding
municipality.
ARTICLE 5. MUNICIPALLY OWNED UTILITIES IN DEFUNDING MUNICIPALITIES
SECTION 5.01. Subchapter B, Chapter 33, Utilities Code, is
amended by adding Section 33.0211 to read as follows:
Sec. 33.0211. RATES AND FEES CHARGED BY CERTAIN MUNICIPALLY
OWNED UTILITIES. (a) This section applies only to a municipally
owned utility that is located in a municipality that is considered
to be a defunding municipality under Chapter 109, Local Government
Code.
(b) The governing body of a municipally owned utility may
not charge a customer:
(1) at a rate higher than the rate the customer was
charged or would have been charged on January 1 of the year that the
municipality was determined to be a defunding municipality;
(2) any customer fees in amounts higher than the
customer fees the customer was charged or would have been charged on
January 1 of the year that the municipality was determined to be a
defunding municipality; or
(3) any types of customer fees that the customer was
not charged or would not have been charged on January 1 of the year
that the municipality was determined to be a defunding
municipality.
(c) If a municipally owned utility has not transferred funds
to the defunding municipality described by Subsection (a) in the
immediately preceding 12 months, the municipally owned utility may
increase its rates to account for:
(1) pass-through charges imposed by a state regulatory
body or the independent organization certified under Section
39.151;
(2) fuel, hedging, or wholesale power cost increases;
or
(3) to fulfill debt obligations or comply with Chapter
1502, Government Code.
(d) A municipally owned utility that increases rates under
this Subsection (c) may not transfer funds to the defunding
municipality described by Subsection (a) until the date the
criminal justice division of the governor’s office issues a written
determination in accordance with Section 109.005, Local Government
Code, finding that the municipality described by Subsection (a) has
reversed the reduction described by Section 109.003(1), Local
Government Code.
ARTICLE 6. TRANSITION PROVISIONS; EFFECTIVE DATE
SECTION 6.01. Chapter 109, Local Government Code, as added
by this Act, applies only to a budget adopted for a fiscal year that
begins on or after the effective date of this Act, regardless of the
date of adoption.
SECTION 6.02. Sections 26.0444 and 26.0501, Tax Code, as
added by this Act, apply beginning with the 2021 tax year, except
that Section 26.0444(c), Tax Code, as added by this Act, does not
apply for the 2021 tax year.
SECTION 6.03. Section 321.5025, Tax Code, as added by this
Act, applies only to a distribution of municipal sales and use tax
revenue to a municipality in a state fiscal year that begins on or
after the effective date of this Act.
SECTION 6.04. (a) Section 33.0211, Utilities Code, as
added by this Act, applies only to a proceeding for the
establishment of rates for which the governing body of a
municipally owned utility has not issued a final order or decision
before the effective date of this Act.
(b) A proceeding for which the governing body of a
municipally owned utility has issued a final order or decision
before the effective date of this Act is governed by the law in
effect immediately before that date, and that law is continued in
effect for that purpose.
SECTION 6.05. This Act takes effect September 1, 2021.

______________________________ ______________________________
President of the Senate Speaker of the House

I certify that H.B. No. 1900 was passed by the House on May 7,
2021, by the following vote: Yeas 90, Nays 49, 4 present, not
voting; and that the House concurred in Senate amendments to H.B.
No. 1900 on May 28, 2021, by the following vote: Yeas 88, Nays 57,
1 present, not voting.

______________________________
Chief Clerk of the House

I certify that H.B. No. 1900 was passed by the Senate, with
amendments, on May 24, 2021, by the following vote: Yeas 23, Nays
3, 4 present, not voting.

______________________________
Secretary of the Senate
APPROVED: __________________
Date

__________________
Governor