According to the Legislative Budget Board (LBB), HB 3900 is not expected to have a fiscal implication to the State. The fiscal note does not identify any state cost, savings, revenue gain, or revenue loss associated with allowing local governments to consider whether banks, credit unions, or investment pools have a physical location and staff in Texas when adopting investment policies.

For local governments, the LBB likewise anticipates no significant fiscal implications. Because the committee substitute is permissive rather than mandatory, local governments would not be required to shift funds, change depositories, or meet a fixed investment threshold. Any administrative effect from updating an investment policy or applying the new optional evaluation factor is expected to be insignificant.

The fiscal note does not describe the impact as indeterminate or assumption-dependent, and it does not identify recurring or one-time cost drivers. In practical terms, the LBB treats the bill as a policy-discretion measure with no material state fiscal exposure and no high expected cost to local governments.

Texas Policy Research recommends that lawmakers vote NO on HB 3900. Although the Committee Substitute is substantially narrower than the introduced version, it still authorizes local governments to consider whether a bank, credit union, or investment pool has a physical location and staff in Texas when evaluating authorized investments. In practical terms, the bill invites local governments to incorporate an in-state preference into public-funds investment decisions.

The strongest concern is free enterprise. Public funds should be invested according to neutral financial criteria: safety, liquidity, diversification, maturity, fees, and return. The bill instead permits local governments to weigh a geographic factor that is not inherently tied to investment quality or taxpayer protection. A financial institution located outside Texas may offer better terms, lower risk, stronger liquidity, or higher returns, yet the bill would allow local governments to give weight to a Texas-presence factor. That creates a government-sanctioned preference for certain market participants based on location rather than performance.

The bill is less problematic than the introduced version, which would have required at least 35 percent of certain local government investable funds to be placed in specified authorized investments in a Texas bank. The Committee Substitute removes that mandate and replaces it with permissive language. However, the policy direction remains the same: it encourages public officials to treat in-state financial presence as a legitimate investment criterion. From a maximal free-enterprise perspective, that is still a market distortion, even if it is discretionary rather than mandatory.

The fiscal note reduces concerns about immediate taxpayer exposure, but it does not eliminate the underlying policy concern. The LBB anticipates no fiscal implications to the state and no significant fiscal implications to local governments. That finding means the bill is unlikely to impose a direct administrative or budgetary burden. It does not answer whether individual local investment decisions could become less competitive if officials choose to favor Texas-based institutions over otherwise superior options.

The bill also raises a limited-government precedent concern. It does not create a new agency, criminal offense, or rulemaking grant, and the bill analysis confirms that it does not expressly grant additional rulemaking authority. Still, it expands the statutory grounds on which local governments may evaluate investments. Once state law endorses geographic preference as a factor in public-funds management, future legislation could more easily move from permission to preference, and from preference to mandate. The introduced version of this same bill demonstrates that risk.

• SB 2329 (Same As)