According to the Legislative Budget Board (LBB), HB 685 is not expected to have any fiscal impact on the state government. The legislation would not create new administrative responsibilities or financial burdens at the state level, nor would it require the appropriation of state funds or generate new revenue streams.

However, there may be localized fiscal implications for municipalities. Specifically, cities that currently charge higher water or sewer utility rates to tax-exempt entities than to similarly situated customers could see a reduction in revenue if they are compelled to lower those rates to achieve parity. The magnitude of this impact would vary depending on how many such pricing structures are in place, the number of affected exempt entities, and the size of the utility systems involved. Municipalities using rate differentials as a means of compensating for lost tax revenue could experience budgetary adjustments if they are required to level rates across customer classes.

While the fiscal impact on local governments is not quantified, the acknowledgment of a potential effect underscores the importance of fiscal planning at the municipal level should this bill become law. Cities may need to reevaluate their utility pricing models and budgeting strategies to remain compliant without compromising service delivery or infrastructure maintenance.

HB 685 presents a targeted and principled approach to ensuring fairness in municipal utility rate-setting. Sparked by a high-profile legal case involving Grace Community Church and claims of discriminatory water tap fees, the bill addresses concerns that municipalities have been informally implementing "fee-in-lieu-of-taxes" models. These models attempt to recoup forgone revenue from tax-exempt organizations, such as religious, charitable, or educational institutions, by charging them higher rates for essential services like water and sewer access.

The bill aligns strongly with several core liberty principles. It promotes individual liberty and equal treatment by ensuring that entities granted tax-exempt status by state or federal law are not indirectly penalized through elevated utility rates. It reinforces limited government by constraining municipal overreach and ensures fair access to basic infrastructure without financial discrimination. In terms of free enterprise and private property rights, it protects the operational viability of non-profit and faith-based entities that often provide critical community services and maintain property essential to their missions.

While the bill may modestly impact municipalities that rely on such rate differentials for supplemental revenue, the state anticipates no fiscal impact, and the local impact is manageable through budgeting adjustments. The measure does not create or alter any criminal penalties, nor does it delegate new rulemaking authority, preserving legal clarity and limiting regulatory expansion.

Taken together, HB 685 is a narrowly tailored legislative correction to a documented problem. It promotes fairness and transparency in municipal practices without expanding state power, and as such, Texas Policy Research recommends that lawmakers vote YES on HB 685.

• Individual Liberty: The bill protects freedom from discrimination in municipal rate-setting practices by ensuring that tax-exempt entities (such as religious, charitable, and educational organizations) are not financially penalized simply because they do not pay property or sales taxes. This guards against government favoritism or retaliation and ensures equal treatment under the law—an essential tenet of individual liberty.
• Personal Responsibility: The bill does not directly impact personal responsibility, as it governs municipal behavior, not individual conduct. It neither creates new incentives nor disincentives for personal accountability but operates within a structural policy space concerning utility pricing.
• Free Enterprise: By preventing municipalities from artificially inflating costs for tax-exempt entities, the bill preserves a fairer competitive environment for all entities, including nonprofits operating in commercial-like sectors such as education, health, and social services. It removes distortive pricing mechanisms that could otherwise disadvantage mission-driven organizations in favor of tax-revenue-generating businesses.
• Private Property Rights: Tax-exempt property owners, such as churches or private schools, are entitled to the same utility access as others. By ensuring equal utility service pricing, the bill affirms that such property owners cannot be indirectly taxed through discriminatory rates, reinforcing their right to maintain and use their property without undue financial burden.
• Limited Government: The bill places a clear limit on municipal overreach, prohibiting local governments from leveraging their utility monopolies to bypass legislative taxation authority. This curtailment of fiscal manipulation through fees aligns with the principle of limited government, ensuring local entities operate transparently and within fair policy boundaries.

• SB 2701 (Same As)