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.
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. Texas DCAA+9Texas Municipal League+9Justia Law+9
Key Provisions
- Commitment of Current Revenues Only: If a contract for acquiring (including leasing) real or personal property includes either:
- a clause allowing the governing body to terminate the contract at the end of each budget period,
- a clause stating that the contract is conditioned on the governing body’s best efforts to obtain and appropriate funds for payment,
- or both,
- then the contract is considered a commitment of the local government’s current revenues only.
- Definition of Local Government: The term “local government” encompasses municipalities, counties, school districts, special purpose districts or authorities, and other political subdivisions of the state. Texas Municipal League+3Justia Law+3Justia Law+3Lubbock County+4Texas Municipal League+4Justia Law+4Texas Ethics Commission+4Findlaw+4Texas Municipal League+4
Practical Implications
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 .Sugar Land+3Texas Municipal League+3Lubbock County+3
By including such provisions, these contracts are not considered debt under the Texas Constitution, thereby avoiding requirements like voter approval or debt issuance procedures. Sugar Land+5Texas Municipal League+5Texas DCAA+5
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. Texas Municipal League
For the most current and official text of this statute, you can refer to the Texas Legislature’s website: Texas Statutes.
Sample RFP 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.
