Basic Legal Requirements for the Budget and Audit

Bill LongleyTML Legal Counsel

Key Budget Questions

• What statute governs budget adoption?– Local Government Code Chapter 102

• Is an annual budget required?– Yes. LGC Sec. 102.002

• When must the budget be adopted?– No date is required, but most cities have fiscal

year beginning October 1st

– Budget tied to tax rate

What must be included in the budget?

• LGC Sec. 102.003 requires:– Itemized comparison between expenditures in the proposed

budget and in the preceding year– Must show the estimated amount of money for each project

or expenditure– A financial statement that shows:

• Outstanding obligations• Cash on hand in each fund• All funds received during preceding year• All funds available for ensuing year• Estimated revenue available to cover proposed budget• Estimated tax rate needed to cover proposed budget

Who is the Budget Officer?

• Sec. 102.001 says budget officer is the mayor, unless city has adopted a city manager form of government (then budget officer is the city manager)

• City council cannot reassign duties to another official

Proposed Budget

• Prepared by budget officer• Must be filed with city secretary at least 30

days before adoption of property tax rate• Posted on city’s website• Cover sheet if proposed budget raises more

from property taxes than in previous year

Budget Hearing

• At least 15 days after proposed budget filed with city secretary, but before tax levy

• Published notice of hearing– Must be published in paper between 10 and 30

days before the hearing– Include statement if budget raises more from

property taxes than the previous year

• Action must be taken at end of hearing

Budget Adoption

• Budget adopted after budget hearing but before adoption of the tax rate– City “may levy taxes only in accordance with the

budget” (LGC Sec. 102.009)• S.B. 656 (2013) (LGC Secs. 102.007 and 102.008)

– Cover sheet for adopted budget– Statement if budget raises more, less, or the same amount of property

taxes as previous budget– Record vote, and various tax rates included on cover sheet– Posted on website

Property Tax Rate Setting Process

• Governed by Chapter 26 of the Tax Code and Local Government Code Sec. 140.01

• Usually coincides with the budget adoption process

Tax Rate Adoption Timeline• July 25th – Chief Appraiser certifies the appraisal roll (Tax Code Sec.

26.01)• September 1st – Last day to provide notice of tax rate by publication

or mail (LGC Sec. 140.010)– H.B. 1953/S.B. 1760 (2015): Can publish later if certified roll received

late. Not effective until 1/1/2016. • Two tax rate hearings must be held starting at least seven days

after notice, if city is a “larger taxing unit” and adopting a rate that exceeds the effective tax rate (Tax Code Sec. 26.06(a))

• September 29th – Last day to adopt tax rate (Tax Code Sec. 26.05)– S.B. 1760 (2015) – 60 percent of governing body must vote in favor of tax rate

that exceeds effective rate. Note effective until 1/1/2016.

Audit Requirement

• Local Government Code Chapter 103

• “A municipality shall have its records and accounts audited annually and shall have an annual financial statement prepared based on the audit.”

Who Can Conduct Audit?

• LGC Sec. 103.002• A city may have an employee conduct the

annual audit• If not, city must hire a certified public

accountant who is licensed in Texas or holds a permit to practice from the State Board of Public Accountancy

Hiring an Auditor

• City generally doesn’t have to go through competitive bidding process for professional services pursuant to LGC Sec. 252.022.

• However, if hiring a CPA, city must comply with the Professional Services Procurement Act in Gov’t Code Ch. 2254 – Request for Qualification process

Audit as a Public Record

• LGC Sec. 103.003 provides that annual financial statement and auditor’s opinion on the statement must be filed with city secretary within 180 days after end of fiscal year

Failure to Comply With State Law

Contacts

• TML Legal Department – (512) 231-7400– legalinfo@tml.org

• Texas Comptroller of Public Accounts, Property Tax Assistance Division– www.window.state.tx.us– 1-800-252-9121