According to the Legislative Budget Board (LBB), SB 2565 will have no impact on General Revenue-related funds for the current biennium ending August 31, 2027. However, beginning in fiscal year 2028, the bill is projected to generate a negative fiscal impact on the state budget, totaling approximately $2.425 million over the 2028–2029 biennium. The negative impact is anticipated to continue over a 10-year period, corresponding to the duration of tax entitlements provided to eligible municipalities under the bill.

The fiscal effects stem primarily from the bill’s inclusion of a new municipality—identified in the fiscal note as the city of Garland—into the list of cities authorized to retain state hotel occupancy and sales tax revenues generated by specific hotel and convention center projects. Under the bill’s provisions, Garland would be eligible to retain state tax revenues from hotels and associated businesses (such as restaurants and retail outlets) connected to a qualified convention center development. These funds, which would otherwise flow into the state treasury, would instead be redirected to the municipality for up to 10 years from the opening date of the qualified hotel facility.

Although the bill imposes a cost on the state’s General Revenue Fund, it also provides a potential economic stimulus at the local level by helping fund large-scale development projects. The expectation is that these projects will attract tourism, stimulate local spending, and potentially lead to long-term increases in local tax collections and job creation. Still, from the state’s perspective, this reallocation of tax revenue represents a net loss over the projected period unless offset by broader indirect economic gains. The fiscal note bases its estimates on the projected opening of a hotel in Garland by September 1, 2027, and on comparable revenue trends from similar, already operational projects elsewhere in the state.

SB 2565 proposes to expand eligibility under the Qualified Hotel Project (QHP) program by tailoring a population and geographic bracket to allow the City of Garland to receive rebates of state hotel occupancy and sales tax revenues generated by a new hotel and convention center project. While the bill’s intent is to stimulate local economic development using revenues generated by tourists, its structure and broader implications raise significant policy and fiscal concerns.

First and foremost, SB 2565 perpetuates a policy framework that relies on the use of public tax revenues to subsidize private development. By diverting state hotel occupancy and sales tax collections to individual cities for use on specific projects, the bill continues a trend of using taxpayer funds to underwrite ventures that could and should be financed by the private sector. While proponents argue that such investments spur job creation and tourism, the economic returns on these developments are often overstated and rarely guaranteed. Public financing of commercial hotel projects distorts the market, reduces accountability, and risks wasting public resources.

Second, the bill expands the QHP program through narrowly tailored “bracketed” criteria—language that is written to apply to one municipality, in this case, Garland, without naming it. This practice undermines the principles of general lawmaking and legislative equity. Each expansion of the program is done not through a fair or competitive statewide standard, but by adding additional cities one by one through statutory population and geographic conditions. This growing list of exceptions clutters the Tax Code, increases administrative complexity, and invites future political favoritism.

Third, the long-term fiscal implications of the bill are unfavorable. The Legislative Budget Board projects a negative impact on the General Revenue Fund beginning in fiscal year 2028, totaling $2.425 million through the 2028–2029 biennium and continuing for up to 10 years. Although the bill includes a 20-year clawback provision and claims to protect the state from underperformance, there is still no guarantee that projected revenues will materialize or that clawbacks will be politically or administratively enforced. The state is essentially forgoing revenue for a decade in hopes of uncertain local gains.

Finally, this legislation further entrenches the use of the hotel occupancy tax (HOT)—a tax that is inherently regressive, non-transparent, and often unpopular. While billed as a tax on tourists, its use to fund localized infrastructure shifts decision-making and spending power from the taxpayer to government officials and politically connected developers. The HOT’s continual repurposing for convention centers, sports venues, and related facilities extends the government’s footprint into areas that traditionally and appropriately belong to private enterprise.

In light of these concerns—fiscal, structural, and philosophical—Texas Policy Research recommends that lawmakers vote NO on SB 2565, consistent with a commitment to limited government, sound tax policy, and market-driven economic development. Expanding this program further would signal a willingness to compromise these principles in favor of narrowly tailored benefits that do not reflect statewide interest or fiscal prudence.

• Individual Liberty: While the bill does not directly restrict individual freedoms, it indirectly affects liberty by expanding the use of a tax (the hotel occupancy tax) that is levied on individuals, primarily visitors, without their direct representation or clear benefit. These revenues are often used to fund large-scale government-led developments, raising concerns about transparency and individual consent in taxation and spending decisions. It further entrenches a system where consumers are taxed to finance public-private projects that may not serve the broader public.
• Personal Responsibility: The bill weakens the principle of personal and governmental responsibility by allowing a municipality to rely on state-subsidized tax diversions rather than demonstrating fiscal discipline or seeking private investment. Rather than encouraging cities like Garland to pursue development through prudent budgeting or partnerships that bear market risk, it shifts the burden of risk to the state and taxpayers. This undermines a culture of accountability in both governance and finance.
• Free Enterprise: The bill creates a targeted tax subsidy for a narrow class of developments—namely, those tied to a convention center hotel project—which advantages specific developers over competitors not eligible for similar public support. This selective application of state tax rebates distorts competition, favoring subsidized projects over unsubsidized ones. Such interventions interfere with the natural functioning of a free market and create a precedent for further government-backed favoritism.
• Private Property Rights: The bill does not directly infringe on private property rights. However, projects funded through QHP subsidies can have indirect effects, such as increased zoning regulations, eminent domain pressures, or artificially inflated land values that benefit certain stakeholders over others. While not explicit in this bill, such consequences are common in publicly subsidized development schemes and warrant caution.
• Limited Government: This is where the bill most clearly violates a core liberty principle. The bill continues a trend of legislative carve-outs that expand the government’s role in economic development. Rather than setting a uniform policy or scaling back the QHP program, SB 2565 adds yet another city to an increasingly complex patchwork of tax diversions. It grows government reach into the marketplace and perpetuates a tax-and-subsidize cycle that empowers local bureaucracies at the expense of statewide fiscal restraint.

• HB 5562 (Same As)