BILL ANALYSIS

Senate Research Center	H.B. 12
	By: Bell, Keith et al. (Parker)
	Business & Commerce
	4/29/2025
	Engrossed

AUTHOR'S / SPONSOR'S STATEMENT OF INTENT

Texas state agencies are required to undergo periodic review by the Sunset Advisory Commission (Sunset) through which Sunset makes recommendations about the continuation or modification of an agency and its programs. Although abolishing an agency is uncommon, the legislature frequently adopts recommendations from Sunset regarding modifications to agencies, including eliminations of programs and licenses. For example, the 87th Legislature passed 78 percent of Sunset's 115 statutory recommendations. Despite this, according to a 2024 report from the Mercatus Center at George Mason University, Texas remains the fifth most regulated state in the nation. H.B. 12 seeks to improve the regulatory process in Texas and provide greater transparency by creating a limited sunset review for regulatory agencies that focuses on identifying inefficient rules, by establishing efficiency audits overseen by the state auditor and the Legislative Budget Board, and by increasing reporting on an agency's performance measures and requiring agencies to give public notice and solicit input during the sunset review process.

H.B. 12 amends current law relating to the review and audit of certain state agency operations.

RULEMAKING AUTHORITY

This bill does not expressly grant any additional rulemaking authority to a state officer, institution, or agency.

SECTION BY SECTION ANALYSIS

SECTION 1. Amends Section 325.002, Government Code, by adding Subdivision (4) to define "regulatory agency."

SECTION 2. Amends Section 325.009, Government Code, by adding Subsections (b-1), (b-2), and (b-3), as follows:

(b-1) Requires the Sunset Advisory Commission (Sunset) to provide information on how the public may participate in Sunset's review of a state agency and provide input on a state agency's performance. Requires Sunset, to the extent practicable, to solicit input from parties interested in a state agency's operations.

(b-2) Requires each state agency being reviewed by Sunset under Chapter 325 (Texas Sunset Law) to at the beginning of the review:

(1) post a notice on the state agency's Internet website informing the public that the state agency is being reviewed by Sunset and how the public is authorized to �participate in Sunset's review of the state agency and provide input on the state agency's performance; and

(2) if the state agency being reviewed is a regulatory agency:

(A) notify each person licensed, certified, or otherwise authorized by the regulatory agency to engage in an activity regulated by the agency of the public hearing under Section 325.009 (Public Hearings) at which the agency will be reviewed; and

(B) solicit input from persons provided notice under Paragraph (A) regarding the regulatory agency's performance.

(b-3) Provides that Subsection (b-2) does not apply to a river authority subject to review under this chapter.

SECTION 3. Amends Section 325.010(b), Government Code, as follows:

(b) Requires Sunset, in its report to the legislature and the governor, to include:

(1) makes no changes to this subdivision;

(2) makes nonsubstantive changes to this subdivision;

(3) if the agency being reviewed is a regulatory agency, an analysis of the regulatory agency's performance during the preceding 10 years or since the last review of the agency under this chapter, whichever is longer, based on the agency's performance measure targets as listed in the General Appropriations Act;

(4) an evaluation of the agency's performance measure targets listed in the General Appropriations Act, including whether the targets are aligned with the mission, goals, and objectives of the agency and appropriate for assessing the agency's achievement of the goals listed; and

(5) other information Sunset considers necessary for a complete review of the agency to reduce fraud, waste, and abuse and to increase efficiencies.

Makes nonsubstantive changes to this subsection.

SECTION 4. Amends Section 325.012(a), Government Code, to require Sunset, in its report on a state agency, to make certain recommendations, including recommendations to improve the agency's key performance measures through the addition, amendment, or removal of the performance measure targets listed in the General Appropriations Act, and to make nonsubstantive changes.

SECTION 5. Amends Chapter 325, Government Code, by adding Section 325.016, as follows:

Sec. 325.016. LIMITED REVIEW OF CERTAIN REGULATORY AGENCIES. (a) Requires Sunset, during the two-year period beginning on September 1 of the sixth year after the date a regulatory agency was last continued under Section 325.015 (Continuation By Law), to conduct a limited review of the agency's rulemaking, including an assessment of the agency's rulemaking process and the extent to which the agency has encouraged participation by the public in making its rules and decisions and the extent to which the public participation has resulted in rules that benefit the public, the extent to which the agency adopts and enforces rules relating to potential conflicts of interest of its employees, and the necessity and effectiveness of rules adopted by the agency.

(b) Requires the regulatory agency, not later than September 1 of the sixth year after the date the agency was last continued under Section 325.015, to report to Sunset the information in Subsection (a) related to rulemaking and rule review activities of the agency.

(c) Requires Sunset, not later than September 1 of the year that is two years after the date the review under this section begins, to prepare a written report on Sunset's review under this section.

(d) Provides that the report prepared by Sunset under this section is a public record.

SECTION 6. Amends Subtitle C, Title 3, Government Code, by adding Chapter 327, as follows:

CHAPTER 327. EFFICIENCY AUDITS OF STATE AGENCIES

Sec. 327.001. DEFINITIONS. Defines "audit plan," "commission," "efficiency audit," "external auditor," "legislative audit committee," and "state agency."

Sec. 327.002. REQUIRED EFFICIENCY AUDIT. (a) Requires each state agency to undergo an efficiency audit in accordance with this chapter.

(b) Requires the state auditor, subject to the legislative audit committee's approval, to adopt a schedule for conducting the efficiency audits required by this chapter and include the annual portion of the schedule in the audit plan under Section 321.013 (Powers and Duties of State Auditor). Requires that the schedule provide for each state agency to be audited during the two-year period beginning on September 1 four years before the date the state agency is scheduled to be abolished under Chapter 325.

(c) Provides that a state agency required by law to perform an internal efficiency audit is not required to perform the audit in any year the state agency is audited under this chapter.

(d) Requires a state agency to pay the costs incurred by the state auditor relating to an efficiency audit required by this chapter. Requires the state auditor to determine the costs of the audit and the state agency is required to pay the amount of those costs promptly on receipt of a statement from the state auditor regarding those costs.

(e) Authorizes the state auditor, subject to the legislative audit committee's approval, to determine, in the interests of efficiency, whether the audit should be performed by the state auditor or an external auditor.

Sec. 327.003. SELECTION AND SUPERVISION OF AUDITOR. (a) Authorizes the state auditor, not later than March 1 of the year in which an efficiency audit of a state agency is scheduled under this chapter, to contract with an external auditor to conduct the audit.

(b) Requires the state auditor, in cooperation with the Legislative Budget Board (LBB), to oversee the external auditor and ensure that the efficiency audit is conducted in accordance with the requirements of this chapter and the scope of the audit established under this chapter.

Sec. 327.004. SCOPE OF AUDIT. (a) Requires the state auditor, in cooperation with LBB, to establish the scope of each efficiency audit conducted under this chapter.

(b) Requires an efficiency audit, at a minimum, to:

(1) examine state resources, including financial resources, staff, personal property, real property, and technology, to determine whether those resources are used effectively and efficiently to achieve the desired outcome for a state agency's program beneficiaries and are not used for purposes other than the intended goals of the audited programs;

(2) identify and make recommendations for cost savings and reallocation of resources to improve the effectiveness of audited programs; and

(3) identify opportunities for improving services through consolidation of functions, outsourcing, and elimination of duplicative efforts.

Sec. 327.005. REPORT TO LEGISLATURE. (a) Requires the state auditor, in cooperation with the LBB and in consultation with any external auditor contracted to perform the audit, not later than November 1 of the year an efficiency audit is conducted under this chapter, to prepare a report of the audit with the recommendations and submit the report, recommendations, and complete audit to Sunset, the governor, the lieutenant governor, the speaker of the house of representatives, the legislative audit committee, the chairs of the standing committees of each house of the legislature with primary jurisdiction over the audited state agency, and the audited state agency.

(b) Requires the state auditor and the audited state agency to publish the report, recommendations, and complete efficiency audit on the entity's Internet website.

Sec. 327.006. REQUIRED IMPLEMENTATION PLAN. Requires the administrative head of the audited state agency, not later than the 90th day after the date of receiving the complete audit and recommendations, to deliver a plan for implementing the recommendations to Sunset, the governor, the lieutenant governor, the speaker of the house of representatives, the legislative audit committee, and the chairs of the standing committees of each house of the legislature with primary jurisdiction over the audited state agency. Requires that the implementation plan include a reasoned justification for any recommendation the audited state agency declines to implement.

SECTION 7. Repealer: Section 322.017 (Efficiency Review of State Agencies), Government Code.

SECTION 8. Requires the state auditor, not later than January 1, 2026, to adopt the schedule required by Section 327.002, Government Code, as added by this Act, for conducting efficiency audits of each state agency subject to that section.

SECTION 9. Effective date: September 1, 2025.