Preparing for the New Texas Impact Fee Audit* Requirement

Impact fees help municipalities fund or recover the costs of capital improvements or facility expansions needed to serve new development. In Texas, new impact fee requirements have added a step before certain fee changes can proceed.

Effective September 1, 2025, Texas Senate Bill 1883 added Section 395.059 to the Texas Local Government Code. This section requires municipalities and other covered political subdivisions, such as certain water control and improvement districts, to obtain an independent financial audit* before increasing an existing impact fee or adopting a new impact fee for a service area where one was previously adopted. Impact fee revenue may be used to pay for the required audit.

The new requirement applies to qualifying fee adoptions and increases adopted on or after September 1, 2025. It does not establish an annual audit cycle. For municipal finance leaders, the immediate considerations are selecting an eligible auditor, preparing supporting records, and allowing time for public disclosure.

Who Can Perform a Texas Impact Fee Audit?

Under Section 395.059, the audit must be performed by an independent auditor who:

• Is a certified public accountant or public accountant licensed by the Texas State Board of Public Accountancy, and
• Is not currently under contract to provide any other service to the municipality or a related entity and has not been so during the 12 months preceding the audit.

This restriction prevents municipalities from using their current financial statement auditors for an impact fee audit. Before selecting an auditor, review other service contracts and relationships with related entities for any potential eligibility issues.

What Must the Impact Fee Audit Cover?

The audit must provide a detailed accounting for the service area that includes, where applicable:

• Total impact fee collections, each fee collected and its allocation, accumulated interest, and unspent funds
• Proposed capital improvements or facility expansions to be financed with impact fees that were not constructed, including their categories
• Waived impact fees, refund requests, refunds paid, and any errors or omissions of credits in impact fee calculations

Finance teams should be prepared to support this information with underlying records, including individual fee transactions and project status documentation.

When Must the Audit Be Completed and Published?

Completing the audit is only one part of the requirement. Municipalities must also share the results and meet the public disclosure requirements.

Before a qualifying impact fee change proceeds, the audit must be submitted to the municipality and its capital improvements advisory committee, and the municipality must hold a public hearing on the results. It must also make the audit publicly available on its website at least 30 days before the publication of notice required under Section 395.044 and the adoption of the order setting a public hearing required under Section 395.053.

Finance leaders should coordinate with municipal counsel to incorporate these requirements into the broader Chapter 395 approval process.

How Can Municipalities Prepare?

The finance team should start by assembling records by service area, reconciling impact fee activity to the general ledger, and gathering supporting documentation for project status, waivers, credits, and refunds. Coordinate with engineering, planning, and legal teams to identify missing records ahead of the audit.

Build time for auditor selection, fieldwork, report delivery, and public disclosure into the fee-change schedule. Addressing these steps early can help finance teams identify documentation gaps and establish a realistic timeframe for the proposed change.

CRI’s governmental auditing advisors can assist you with the new Texas impact fee audit requirement. Contact us to learn more and get started.