Texas Cities Restricted from Raising Tax Rates

Local governments with missing financial audits are now prohibited from exceeding the No-New-Revenue tax rate.

Updated on Sept. 21, 2026 in Taxes

Isometric editorial illustration of a municipal building facade with iron gate, representing government oversight and financial policy. — Texas Attorney General Ken Paxton has restricted hundreds of cities with outstanding financial audits from raising local property tax rates this year. AI Illustration. Upload story photo >

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Should cities face tax-rate caps for failing to complete mandatory financial audits on time?

Following state transparency mandates, Attorney General Ken Paxton issued warnings to hundreds of cities with outstanding financial audits. Cities failing to meet these requirements, such as Spearman, were barred from increasing property tax levies beyond the No-New-Revenue rate as of September 1, 2026.

Why it matters

This enforcement action aims to ensure municipal financial accountability by preventing cities with incomplete audits from collecting additional tax revenue. For property owners, this restriction effectively caps local tax burdens at the rate required to maintain the previous year's tax levy despite potential city budget deficits.

The Attorney General sent 240 notices to cities in May and August 2026 due to audit backlogs. In cities like Quanah, the resulting No-New-Revenue tax rate is set at $0.7692 per $100 of taxable property value.

The players

Ken Paxton

As Attorney General of Texas, he oversees the enforcement of state transparency laws and local government financial compliance.

Spearman

This Texas municipality adopted the No-New-Revenue tax rate in September 2026 after receiving a notice regarding an audit backlog.

Quanah

This Texas city reported its FY27 No-New-Revenue tax rate at $0.7692 per $100 of taxable value.

The details

Under SB 1851, Texas cities must maintain current financial statement audits to exercise their full taxing authority. When a city fails to meet these transparency requirements, state law mandates they adopt a No-New-Revenue tax rate, which keeps property tax collections flat year-over-year. Spearman officials utilized this mechanism to finalize their tax rate on September 1, 2026, after verifying the status of the city's outstanding audit backlog.

May 2026: The Attorney General sent 130 warning letters to non-compliant cities.
July 2026: The Spearman city council decided to maintain its current tax rate.
August 2026: The Attorney General issued an additional 110 warning letters.
September 1, 2026: Spearman formally adopted the No-New-Revenue tax rate.

Money Landscape

The enforcement of SB 1851 marks a significant shift in how Texas manages municipal accountability by linking administrative transparency to property tax caps. This policy creates a new budgetary constraint for local governments that fall behind on mandatory financial reporting.

If you own property in a city currently facing audit delays, your local property tax levy may be capped at the previous year's total revenue level. Consult with a qualified financial or tax professional to understand how local tax rate adjustments specifically affect your upcoming property tax bill.

The takeaway

The enforcement of audit transparency laws can effectively freeze local property tax rates at the prior year's levels. Residents should monitor local city council meeting agendas for updates on audit completion timelines and potential changes to municipal budget transparency.