According to the Legislative Budget Board (LBB), the fiscal implications of HB 1035 indicate that there is no significant fiscal impact to the state anticipated from its enactment. The bill's provisions focus primarily on refining administrative procedures and tightening the criteria for receiving an existing property tax exemption, rather than creating new exemptions or expanding eligibility in a way that would significantly affect state revenue.

The bill adds a formal definition for "net lease" and clarifies that this can include both double net and triple net lease structures. It also requires more detailed affidavit disclosures when property owners apply for the child-care facility exemption, including certification that the child-care provider (lessee) either pays the ad valorem taxes directly or benefits from rent reductions that reflect the property tax savings. These procedural enhancements are aimed at ensuring the integrity and appropriate targeting of the exemption rather than expanding its fiscal footprint.

Importantly, the bill does not affect underlying variables such as property tax rates, collection rates, or the total appraised value of taxable properties. Therefore, it is not expected to alter revenue streams for state or local governments. The Legislative Budget Board also determined that there would be no significant fiscal implications for local units of government, reaffirming the administrative and regulatory nature of the bill rather than any material revenue change.

HB 1035, while well-intentioned in its aim to improve the accountability and transparency of an existing local-option tax exemption for child-care facilities, ultimately imposes regulatory and procedural burdens that may outweigh its benefits. The bill modifies requirements for property owners leasing space to qualifying child-care providers by mandating detailed affidavits and imposing standards for how tax benefits must be passed on through lease structures or rent adjustments. Though these measures are designed to prevent abuse, they introduce new layers of complexity for landlords and appraisal districts alike.

One of the most significant concerns is the administrative burden placed on property owners, particularly smaller landlords, who may not have the legal or financial resources to navigate the updated affidavit requirements. The need to document rent reductions or lease terms reflecting tax benefits, along with comparisons to market rates, creates an environment where compliance could be burdensome, subjective, or inconsistent. This may discourage participation in the exemption program altogether, thereby undermining its goal of expanding access to affordable child care.

Furthermore, HB 1035 sets a precedent for state involvement in private leasing contracts. Conditioning tax exemptions on how rent is structured, who pays taxes, and what disclosures are made interferes with the principle of free enterprise and contract autonomy. From a limited government perspective, this kind of economic regulation, however narrow, raises valid concerns about expanding government influence into private arrangements.

Lastly, this bill contributes to the broader trend of special-purpose tax carve-outs in the Texas Tax Code. While supporting child-care access is a worthy objective, targeted exemptions reduce the neutrality and fairness of the property tax system and shift the tax burden onto other property owners. With these concerns, coupled with the regulatory overreach and compliance costs, Texas Policy Research recommends that lawmakers vote NO on HB 1035 for those who prioritize simplicity in tax policy, private property rights, and minimal government intervention in market arrangements.

• Individual Liberty: The bill aims to support child-care access by ensuring that tax exemptions granted to property owners actually benefit the child-care operators, particularly those serving low-income families. In this sense, it promotes individual liberty for working families, especially single parents, by increasing access to affordable, quality child care. However, it also places constraints on landlords, limiting their freedom to negotiate leases on their own terms in exchange for public tax benefits. For some, this encroachment on private leasing discretion may feel like an infringement on economic liberty.
• Personal Responsibility: The bill reinforces the principle of personal responsibility by requiring landlords to certify and document that tax exemptions are passed on to child-care providers, rather than kept as untaxed profits. This ensures that public resources are used as intended and not exploited. Property owners benefiting from government tax relief are held accountable for how that benefit is applied. It’s a principle-based measure aimed at fiscal integrity and ethical use of public funds.
• Free Enterprise: While the bill doesn’t regulate prices directly, it interferes with free-market negotiations between private parties. By setting standards for rent reductions, defining acceptable lease types, and mandating disclosures to tenants, the bill may limit flexibility in commercial leasing. From a free enterprise perspective, even well-meaning regulations can distort market dynamics, especially when government benefits are contingent on specific contract terms.
• Private Property Rights: The bill allows property owners to opt into a tax exemption, but once they do, it imposes restrictions on how they use or lease their property. It tells them how to structure rent, how to report tax savings, and what types of leases are acceptable. While the exemption is voluntary, property rights advocates may argue that even conditional mandates tied to tax policy can erode ownership autonomy.
• Limited Government: Though the bill doesn’t grow the size of government or expand its powers dramatically, it introduces regulatory complexity in an area that was previously more discretionary. The bill’s affidavit and lease structure requirements signal a more active role for the state in monitoring and enforcing the use of tax exemptions. Critics may argue that such measures, while precise, push the state beyond its proper role, especially when existing anti-fraud or appraisal tools could serve the same purpose with less interference.