BILL ANALYSIS

C.S.H.B. 12

By: Bell, Keith

Delivery of Government Efficiency

Committee Report (Substituted)

BACKGROUND AND PURPOSE

Texas state agencies are required to undergo periodic review by the Sunset Advisory Commission through which the commission 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 the sunset commission regarding modifications to agencies, including eliminations of programs and licenses. For example, during the 87th Regular Legislative Session, the legislature passed 78 percent of the sunset commission'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. C.S.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.

CRIMINAL JUSTICE IMPACT

It is the committee's opinion that this bill does not expressly create a criminal offense, increase the punishment for an existing criminal offense or category of offenses, or change the eligibility of a person for community supervision, parole, or mandatory supervision.

RULEMAKING AUTHORITY

It is the committee's opinion that this bill does not expressly grant any additional rulemaking authority to a state officer, department, agency, or institution.

ANALYSIS

C.S.H.B. 12 amends the Government Code to set out provisions relating to the review of state agencies by the Sunset Advisory Commission, including a limited review of certain regulatory agencies' rulemaking, and to efficiency audits of state agencies.

Sunset Review

C.S.H.B. 12 requires the sunset commission to provide information on how the public may participate in the sunset commission's review of a state agency and provide input on a state agency's performance and to solicit, to the extent practicable, input from parties interested in a state agency's operations.

C.S.H.B. 12 requires each state agency being reviewed by the sunset commission under the Texas Sunset Act to do the following at the beginning of the review:

·post a notice on the agency's website informing the public that the agency is being reviewed and how the public may participate in the sunset commission's review and provide input on the agency's performance; and

·if the agency being reviewed is a regulatory agency, notify each person licensed, certified, or otherwise authorized by the agency to engage in an activity regulated by the agency of the public hearing at which the agency will be reviewed and solicit input from those persons regarding the agency's performance.

The bill exempts a river authority subject to review under the Texas Sunset Act from this requirement. The bill defines "regulatory agency" as a department, commission, board, or other agency that is created by the constitution or by statute, is in the executive branch of state government, has statewide authority, and has authority to deny, grant, renew, revoke, or suspend a license, certification, or other authorization to engage in an activity.

C.S.H.B. 12 requires the sunset commission to include the following additional components in its report presented to the legislature and the governor on the state agencies and advisory committees the commission reviews:

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

·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

·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.

C.S.H.B. 12 requires the sunset commission, during the two-year period beginning on September 1 of the sixth year after the date a regulatory agency was last continued under the Texas Sunset Act, to conduct a limited review of the agency's rulemaking, including the following:

·an assessment of the agency's rulemaking process and the extent to which the agency has encouraged public participation in making its rules and decisions and the extent to which the 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.

The bill requires a regulatory agency, not later than September 1 of the sixth year after the date the agency was last continued under the act, to report to the sunset commission the information required by the bill related to rulemaking and rule review activities of the agency. The bill requires the sunset commission, not later than September 1 of the year that is two years after the date the rulemaking review begins, to prepare a written report on its review and establishes that such a report is a public record.

Efficiency Audits of State Agencies

C.S.H.B. 12 requires each state agency expressly made subject to the Texas Sunset Act, other than a river authority, to undergo an efficiency audit in accordance with the bill's provisions. The bill requires the state auditor, subject to the legislative audit committee's approval, to adopt a schedule for conducting the efficiency audits not later than January 1, 2026, and to include the annual portion of the schedule in the state auditor's audit plan. The bill requires the schedule to 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 the Texas Sunset Act.

C.S.H.B. 12 establishes 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 subject to an audit under the bill's provisions. The bill requires a state agency to pay the costs incurred by the state auditor relating to an efficiency audit required by the bill, as determined by the state auditor, and to pay the amount of those costs promptly on receipt of a statement from the state auditor regarding those costs. The bill 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 selected by the state auditor.

C.S.H.B. 12 authorizes the state auditor, not later than March 1 of the year in which an efficiency audit of a state agency is scheduled under the bill's provisions, to contract with an external auditor selected by the state auditor to conduct the audit. The bill 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 bill's provisions and the scope of the audit established under those provisions. The bill establishes that the external auditor is not subject to direction from the state agency being audited.

C.S.H.B. 12 requires the state auditor, in cooperation with the LBB, to establish the scope of each efficiency audit conducted under the bill's provisions and requires an efficiency audit, at a minimum, to do the following:

·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 whether they are not used for purposes other than the intended goals of the audited programs;

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

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

The bill requires the state auditor, not later than November 1 of the year an efficiency audit is conducted and in cooperation with the LBB and in consultation with any external auditor contracted to perform the audit, to prepare a report of the audit with the recommendations and to submit the report, recommendations, and complete audit to the sunset commission, 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 agency. The bill requires the state auditor and the audited state agency to publish the report, recommendations, and complete efficiency audit on the entity's website. The bill requires the administrative head of an 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 the sunset commission, the governor, the lieutenant governor, the speaker of the house, 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. The bill requires the implementation plan to include a reasoned justification for any recommendation the audited state agency declines to implement.

C.S.H.B. 12 defines the following terms for purposes of these audit provisions:

·"audit plan" by reference to statutory provisions governing the state auditor;

·"efficiency audit" as an evaluation of the economy, efficiency, and effectiveness of state agency operations, including:

odetermining whether the state agency is managing or using its resources, including state money, personnel, property, equipment, and space, in an economical and efficient manner;

oidentifying causes of inefficiencies or uneconomical practices, including inadequacies in management information systems, internal and administrative procedures, organizational structure, use of resources, allocation of personnel, purchasing, agency policies, and equipment;

odetermining whether financial, program, and statistical reports of the state agency contain useful data and are fairly presented; and

odetermining, according to established or designated program objectives, responsibilities or duties, statutes and rules, program performance criteria, or program evaluation standards, whether the objectives and intended benefits of the agency's program are being achieved efficiently and effectively and whether the agency's program duplicates, overlaps, or conflicts with another state program;

·"external auditor" as a private entity selected by the state auditor to conduct an efficiency audit of a state agency; and

·"state agency" as an entity expressly made subject to the Texas Sunset Act, other than a river authority.

C.S.H.B. 12 repeals Section 322.017, Government Code, which provides for the LBB's authority to periodically review and analyze the effectiveness and efficiency of state agencies and report the findings to the governor, and to the legislature for potential consideration in connection with the legislative appropriations process.

EFFECTIVE DATE

September 1, 2025.

COMPARISON OF INTRODUCED AND SUBSTITUTE

While C.S.H.B. 12 may differ from the introduced in minor or nonsubstantive ways, the following summarizes the substantial differences between the introduced and committee substitute versions of the bill.

While both the introduced and substitute include requirements for each state agency being reviewed by the Texas Sunset Commission under the Texas Sunset Act to provide certain notices at the beginning of the review, the substitute includes a provision absent from the introduced that exempts a river authority subject to review under that act from those requirements. Furthermore, while both the introduced and substitute define "state agency" for purposes of the bill's provisions regarding efficiency audits, the substitute includes a specification absent from the introduced that the term does not include a river authority.