According to the Legislative Budget Board (LBB), HB 4412 is not anticipated to have any fiscal implications for the State of Texas. The bill’s effects are confined entirely to local government operations, specifically impacting the financial discretion of a limited number of municipalities that meet the defined geographic and contextual criteria.

At the local level, the bill authorizes qualifying municipalities to use municipal hotel occupancy tax revenue to fund certain public improvement projects that directly benefit tourism and the hotel industry. While this represents a reallocation of existing revenue rather than the introduction of new revenue or spending obligations, it could impact how municipalities prioritize and budget for tourism-related infrastructure. For example, municipalities may need to balance their investment in new improvement projects with the statutory requirement to maintain historical average funding levels for existing tourism promotion efforts.

There may be long-term implications for municipal hotel tax collections due to the provision requiring a reduction of the municipal hotel occupancy tax rate to no more than 2% after eight years of usage under this authority. This could potentially reduce revenue available for future tourism development and public improvements, depending on the current tax rate and the scale of the local hotel economy. However, this future impact is expected to be limited and will only apply to a small subset of municipalities meeting the narrow eligibility criteria defined in the bill. Overall, the fiscal impact is localized, bounded, and does not create any direct cost to the state budget.

While HB 4412 is narrowly constructed and aims to solve a real administrative issue facing a qualifying municipality—namely, the City of Kermit—the broader implications of the policy raise serious concerns grounded in principles of limited government, fiscal restraint, and market integrity.

Fundamentally, the bill represents an expansion of government spending authority by allowing hotel occupancy tax (HOT) revenue to be used for broadly defined “public improvement projects.” Although the bill includes caps on usage (not to exceed 25% of project costs) and a sunset clause, these safeguards do not mitigate the structural shift the legislation enables. The purpose of the HOT is to fund tourism promotion, not general infrastructure, and this bill risks undermining the legislative clarity of that boundary. Even if justified for one municipality, the precedent could encourage other cities to seek similar exceptions, leading to a proliferation of bracketed bills and further dilution of fiscal discipline.

Second, the bill lacks essential accountability mechanisms. There are no provisions for project selection criteria, public notice, cost-benefit analysis, or reporting requirements. This absence of oversight opens the door to opaque or inefficient use of public funds. Moreover, the bill does not ensure that projects funded under this authority are truly necessary, effective, or aligned with the original intent of the tax.

Third, allowing tax-funded infrastructure improvements under the umbrella of tourism promotion distorts the local marketplace by conferring indirect subsidies to specific sectors, primarily hospitality and related construction services. This kind of policy favoritism disrupts market neutrality and places the government in the role of economic arbiter, contrary to the principles of free enterprise. In addition, the tax falls on hotel guests, many of whom are nonresidents and have no political recourse in how the funds are spent.

Finally, and most importantly, the bill entrenches the use of the hotel occupancy tax, a tax that many view as fundamentally problematic. The HOT is often used as a tool to grow local government spending beyond core responsibilities, and in this case, it enables the accumulation of unused funds simply because statutory constraints prevent their immediate deployment. Rather than expanding the eligible uses of these funds, a more principled approach would involve reducing the tax rate, rebating surplus revenue, or narrowing the tax’s application altogether.

While the bill’s intent is practical and narrowly tailored, the policy it enacts introduces risk, inefficiency, and philosophical inconsistency with core liberty principles. Therefore, Texas Policy Research recommends that lawmakers vote NO on HB 4412.

• Individual Liberty: Although the bill does not directly infringe on individual rights, it enables municipal governments to expand their reach into areas of spending not previously authorized, funding “public improvement projects” using taxes originally imposed for tourism promotion. When the government reallocates tax revenue without direct voter approval or meaningful oversight, it risks eroding public trust and undermining the consent-based foundation of taxation. In this case, the individuals most affected—hotel guests, many of whom are nonresidents—bear the burden of this spending without a say in how the funds are used.
• Personal Responsibility: By allowing municipalities to tap into accumulated hotel occupancy tax revenue for broader infrastructure projects, the bill reduces incentives for local leaders to exercise fiscal restraint or reprioritize spending within existing constraints. Instead of making difficult decisions about cutting costs, lowering tax rates, or returning surplus revenue to taxpayers, municipalities are granted a new outlet to spend funds with limited strings attached. This undermines a culture of stewardship and encourages public officials to rely on tax expansion or redefinition rather than exercising discipline.
• Free Enterprise: The bill risks distorting local markets by subsidizing particular public improvement projects that “benefit” the hotel and tourism sectors. When public funds are used to improve infrastructure tied to one industry, it creates unfair advantages that do not reflect organic market demand. For instance, infrastructure improvements near hotels or event venues could channel benefits to selected businesses at taxpayer expense, picking winners and losers in the local economy. This contravenes the principle that economic development should occur through voluntary exchange, not government-facilitated redistribution.
• Private Property Rights: The bill does not directly impact private property rights, such as through eminent domain or zoning. However, the use of public funds for projects that are not subject to voter approval or strong transparency requirements may contribute to the development of public works that affect nearby landowners (e.g., through construction, increased traffic, or changes in land use patterns) without adequate public input or recourse. These indirect effects can weaken the relationship between the taxpayer and the rights they hold in their own community.
• Limited Government: This is where the bill most clearly conflicts with a liberty-oriented framework. The bill expands the permissible use of hotel tax revenue beyond its original statutory intent, empowering local governments to engage in infrastructure projects outside the traditional purview of HOT spending. It introduces broader authority without introducing equivalent safeguards, such as project vetting, cost oversight, or voter approval. Even with a sunset clause and a 25% funding cap, this sets a precedent for the incremental expansion of local government authority through bracketed exceptions, weakening the fiscal boundaries that support constitutionally limited government.