Texas Local Government Code § 271.903, titled “Commitment of Current Revenue,” is not often understood by vendors who insist on multi-year contracts tied to rigid evergreen clauses………..
ATTENTION TEXAS POLITICAL SUBDIVISIONS: Never enter into a multi-year contract without the following provisions……
Texas Local Government Code § 271.903, titled “Commitment of Current Revenue,” addresses how local governments in Texas can structure contracts for acquiring real or personal property without creating long-term debt obligations.
This statute allows local governments to enter into multi-year contracts without incurring debt, provided the contract includes provisions that:
- Allow termination at the end of each fiscal year,
- Condition the contract on the availability of appropriated funds,
- Or both
By including such provisions, these contracts are not considered debt under the Texas Constitution, thereby avoiding requirements like voter approval or debt issuance procedures.
Legal Context
Section 271.903 codifies the principle established in the Texas Supreme Court case McNeill v. City of Waco, which held that obligations payable solely from current revenues are not considered debt.
For the most current and official text of this statute, you can refer to the Texas Legislature’s website: Texas Statutes.
Suggested Sample Contract Language
- Any contract issued between (Tx. Political Subdivision) and the successful respondent will be reviewed annually by (Tx. Political Subdivision).
- If for any fiscal year of this contract, the (Tx. Political Subdivision Board) for any reason fails to appropriate funds for these goods or services, (Tx. Political Subdivision) will notify the vendor immediately and will no longer be obligated under the contract.
- (Tx. Political Subdivision) reserves the right to terminate contract at the expiration of each budget period. Local Government Code Section 271.903.
- Notwithstanding anything herein to the contrary, ABC County may terminate this Agreement for convenience at any time upon three (3) days’ written notice.
- ABC County reserves the right to terminate the contract at the expiration of each budget period. Local Government Code Section 271.903.
“Subject to the terms of this section, this Agreement shall have a term of one (1) year starting as of the date first written above with the option to renew for four additional one-year periods. Client or Consultant may terminate this Agreement at its sole discretion, with or without cause, by sending a written notice of termination to the other party. Such notice shall specify the termination date, which shall be no sooner than thirty (30) days in advance of such termination.” – RiskManagers.us Consulting Agreement
