Key Takeaways:
- Texas Senate Bill 1851 added a significant enforcement mechanism to the state’s existing annual comprehensive financial report filing requirements.
- Missing the 180-day audit filing deadline could limit a Texas municipality’s ability to adopt a property tax rate above the no-new-revenue rate.
- Strong audit planning, communication, and resource management can help municipalities stay compliant and avoid budgetary challenges.
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Texas municipalities have been required to complete an annual audit, prepare audited financial statements or an annual comprehensive financial report (ACFR), and file those reports within 180 days of fiscal year-end.
While many local governments viewed the requirement as an important compliance obligation, the consequences for missing the deadline were often limited. That changed with the passage of Texas Senate Bill 1851 (SB 1851) during the 2025 legislative session.
The law, which became effective on September 1, 2025, introduces a new enforcement mechanism that could directly affect your municipality’s budget and revenue planning. As cities move through audit cycles this year, many are discovering that timely annual financial statement completion is no longer simply a reporting issue — it has become a financial management priority.
Understanding the Change
Prior to SB 1851, municipalities were already required under the Texas Local Government Code to:
- Complete an annual audit
- Prepare annual financial statements
- File audited financial statements within 180 days of fiscal year-end
The requirement itself is not new. What SB 1851 changed is the consequence for noncompliance by adding section 103.005 to the Texas Local Government Code.
Under the new law, if a municipality fails to meet the filing deadline, the Texas Attorney General may determine the city is noncompliant (which has already happened to more than 100 Texas cities). In certain circumstances, that determination can prevent the municipality from adopting a property tax rate above the no-new-revenue tax rate until compliance is restored. As a result, municipalities may lose the ability to generate additional property tax revenue that could otherwise support operations, infrastructure projects, public safety initiatives, or other community priorities.
For many municipalities, this represents a significant shift in risk.
Why This Matters for Your Budget
The no-new-revenue tax rate is designed to generate approximately the same amount of property tax revenue as the prior year. As property values rise, the tax rate is adjusted downward to offset that growth and maintain a similar overall revenue level.
In practical terms, a late filing of financial statements can now have consequences that extend far beyond compliance. What was once viewed by some organizations as an administrative deadline is now tied directly to budgeting flexibility and revenue authority.
Why Smaller Municipalities May Feel the Greatest Impact
The new enforcement provisions have generated significant discussion among Texas local governments, particularly smaller municipalities. Many small cities operate with limited finance staff and lean administrative teams. In some cases, a single individual may oversee accounting, payroll, budgeting, financial reporting, and audit coordination.
Historically, some municipalities completed audits well after the 180-day deadline because there were few practical consequences for delays. While those practices may have been manageable in the past, they create substantially greater risk under the current enforcement environment.
Communities with existing audit backlogs, staffing constraints, or resource limitations may find it particularly challenging to meet the newly enforced requirement.
4 Steps to Improve Audit Readiness
While every municipality faces different challenges, several practices can help improve audit timeliness and reduce compliance risk:
1. Build Your Audit Timeline Early
The most effective audit processes begin long before fieldwork starts.
Collaborate with your auditors to establish a detailed project timeline that includes key milestones, document requests, review periods, and expected completion dates. Establishing deadlines early helps create accountability and gives all parties a clear understanding of expectations.
Working backwards from your reporting date with a high degree of specificity allows you to identify potential bottlenecks before they become critical issues.
2. Create Accountability on Both Sides
Successful audits depend on collaboration between your team and your auditors.
Many municipalities focus primarily on internal deadlines, but accountability should extend to both parties. Define expected response times, establish communication protocols, and clarify escalation procedures if timelines begin to slip.
When everyone understands responsibilities and deadlines, it becomes easier to keep the engagement moving forward and avoid last-minute surprises.
3. Evaluate Your Internal Capacity
One of the most common causes of audit delays is a mismatch between available staff time and audit requirements.
Take time to estimate the hours required to prepare schedules, gather supporting documentation, respond to audit requests, and review draft reports. Then compare those requirements against other responsibilities such as payroll processing, budgeting activities, and month-end close procedures.
Understanding your resource constraints early can help you identify conflicts before they disrupt the audit timeline.
4. Consider the Cost of Delay
Many municipalities focus on the cost of additional resources without fully evaluating the cost of noncompliance.
If your team lacks the capacity to meet filing requirements, supplemental bookkeeping support, consulting assistance, or project management resources may be worth considering. While those services involve an upfront investment, they may be significantly less costly than the financial and operational consequences associated with missing filing deadlines.
Conducting a cost-benefit analysis can help you make informed decisions about staffing, support services, and audit preparation.
Communication Is More Important Than Ever
Effective communication can often prevent small delays from becoming major problems.
Establish regular status meetings with your auditor, monitor progress against milestones, and address issues as soon as they arise. If timelines begin slipping, discuss the situation immediately and determine what actions can be taken to get the engagement back on track.
Open communication helps maintain momentum and gives both parties an opportunity to resolve challenges before deadlines are jeopardized.
Looking Ahead
SB 1851 has changed the conversation around financial statement timeliness in Texas.
Municipalities that once viewed audit deadlines primarily as compliance requirements must now consider the broader financial implications of missing them. As enforcement activity continues and local governments adapt to the new environment, proactive planning will become increasingly important.
By strengthening audit project management, evaluating resource needs, and maintaining clear communication with auditors, you can improve your ability to meet filing deadlines and avoid unnecessary budgetary constraints.
How MGO Can Help
Meeting Texas’ annual financial statement filing deadline requires more than technical accounting knowledge. It requires planning, coordination, and the resources necessary to keep the process moving forward.
MGO provides audit services for local governments and can help you navigate evolving compliance requirements. Through our consulting capabilities, we can also assist with audit project management, process improvement, and coordination efforts designed to support timely completion. For municipalities facing staffing constraints, our outsourced accounting and bookkeeping services can provide additional capacity during critical reporting periods.
Whether you need audit support, supplemental accounting resources, or guidance developing a more efficient audit process, our team can help you build a strategy that aligns with your municipality’s needs. Contact us today to discuss how we can help you stay compliant, meet critical deadlines, and protect your financial flexibility.