More conservative Texas Legislature tees up bills for 2025 session

Texas is gearing up for its 2025 legislative session with a deluge of pre-filed bills, including a measure that could impact designations for minority- and woman-owned firms in awarding state and local government contracts. 

The already conservative Republican-controlled Texas Legislature, which holds sessions every other year, is moving further to the right, with some moderate incumbents especially in the House defeated in primary elections, according to Randall Erben, an adjunct professor at the University of Texas at Austin School of Law.  

“You’re going to see a lot of what I call more movement conservative legislation that’s going to get filed and going to get considered,” he said, adding that could include anti-environmental, social, and governance, as well as anti-diversity, equity, and inclusion bills. 

House Bill 167 would prohibit DEI initiatives by the state and its local governments and school districts. It also replaces references to minority- and woman-owned businesses with “economically disadvantaged businesses” particularly owned by veterans or historically underutilized businesses (HUB) for preferential treatment or for programs to increase participation in government contracts.

The legislation’s potential impact on contracts for municipal bond sales by local governments that have set participation goals for minority- and woman-owned underwriting, bond counsel, and financial advisor firms is uncertain.

Issuance guidelines for state bond sales call for good faith efforts to achieve 33% participation by HUBs and indicate that underwriters “should be able to show minority and women participation within their firms.” The state defines HUBs as having at least 51% ownership by a woman, minority, and/or a service-disabled veteran who must be Texas residents.

Justin Marlowe, director of the Center for Municipal Finance at the University of Chicago’s Harris School of Public Policy, said the bill is too vague to draw any conclusions. 

“If big states like Texas replace the traditional MWBE designation with something like ‘economically disadvantaged,’ and if that change is applied to municipal bond underwriting/advising/etc. services, it would make a big difference in the municipal market,” he said in an email.

Bill sponsor Republican State Rep. Carl Tepper declined to respond to emailed questions about the potential impact on contracts for debt sales. 

Erben said while major legislation typically is introduced after the legislative session begins Jan. 14, many pre-filed bills are “aspirational.” 

“Some may pass, but a lot of them never get a hearing because they’re not filed by leadership in either chamber,” he said, noting Tepper does not currently chair a House committee.

Texas bills enacted in 2021 prohibit contracts with financial firms, including bond underwriters, that “boycott” or “discriminate” against the fossil fuel and firearm industries. A business group is challenging the constitutionality of one of the laws in federal court.

During the 2023 session, Texas lawmakers filed a flurry of anti-DEI bills, passing a ban on DEI offices at public universities, which face a state funding freeze for noncompliance.

Other bills for the 2025 session include a proposed certificate of obligation reform act specifying allowable projects and circumstances for issuing this type of debt.  Another measure would create a state debt retirement account in the general revenue fund.

Top state officials are eying more big-ticket initiatives that could tap into surplus funds.

Texas ended fiscal 2024 on Aug. 31 with a consolidated general fund cash balance of $37.3 billion, a 22.8% decrease from fiscal 2023’s $48.4 billion balance, according to a Nov. 4 report from the state comptroller.

“The change in the balance is largely due to constitutional amendments that authorized expenditures for infrastructure improvements, cost-of living adjustments for Teacher Retirement System annuitants and provided property tax relief through the public school finance system,” the report said.

How much money would be available for additional spending in the fiscal 2026-27 biennium is unclear.

After funding $18 billion in school operating property tax cuts for the fiscal 2024-25 biennium, legislative leaders are considering further reductions. Republican Lt. Gov. Dan Patrick, who heads the Senate, instructed the chamber to examine options, including the possibility of eliminating all property taxes — a move that would cost an estimated $81.5 billion, according to the Legislative Budget Board.

Republican House Speaker Dade Phelan, who faces increased competition for the leadership role, instructed chamber committees to “actively study additional property tax solutions.”  

In November, Patrick announced a plan to create a Dementia Prevention Research Institute of Texas structured like the state’s cancer research initiative, which has up to $6 billion of voter-approved bonding authority.  

Other priorities could include increasing the supply of power for the growing state. With Donald Trump back in the White House, Texas spending on border initiatives may decrease, Erben said. 

A top priority for Republican Gov. Greg Abbott is a universal school voucher program that floundered in 2023 after passing the Senate and being blocked in the House by a coalition of Republicans and Democrats.

At a press conference a day after the Nov. 5 general election, Abbott said there was “a tidal wave of support” for the pro-school choice House candidates he supported. 

“We have more than enough members of the Texas House of Representatives elected last night to make sure that school choice is going to pass,” he said. 

The voucher impasse also held up $6 billion in additional state funding for public schools, leaving some districts with shaky budgets and depleted reserves amid a state per-pupil allotment that has remained stagnant since 2019.

Abbott said Texas can accommodate school choice and public schools. 

“We will fully fund public schools in the state of Texas,” he told reporters. “We will provide teacher pay raises as well as teacher incentive pay to make sure we have some of the best paid teachers in the United States of America.”

Arizona’s enactment of a universal voucher program in 2022 has proven to be costlier than anticipated. The Empowerment Scholarship Account program’s fiscal 2024 fourth quarter report showed 74,578 students enrolled, with nearly 75% participating under universal eligibility. Annual scholarship awards totaled $738 million. 

A bill introduced in Congress last year would allow tax-exempt bond issuance only by states and local governments that have school choice laws.