HB685

Regular Session

Relating to rates established by municipalities for water or sewer service for certain entities.

ModeratePlan for compliance

Low Cost

Effective:2025-06-20

Enforcing Agencies

Municipal Utility Departments • Civil Courts (via litigation for non-compliance)

Compliance Analysis

Key implementation requirements and action items for compliance with this legislation

Implementation Timeline

Effective Date: June 20, 2025 (Triggered immediately by legislative supermajority vote).
Compliance Deadline: Immediate. You must scrutinize the first invoice received after June 20, 2025 (likely the July or August statement).
Agency Rulemaking: None. This is a self-executing statute limiting municipal authority. Disputes will be resolved through direct negotiation with municipal utility departments or civil litigation.

Immediate Action Plan

Download the Ordinance: Obtain the current municipal water/sewer rate ordinance immediately to identify the standard commercial rates for your meter size.
Audit Invoices: Review the last 12 months of invoices to confirm your current rate classification and cost per gallon/unit.
Suspend Auto-Pay: Turn off automatic payments for the July 2025 billing cycle to ensure you do not inadvertently accept a non-compliant rate.
Issue Demand: If your rate exceeds the standard commercial rate, issue a formal written request for reclassification to the Municipal Utility Director citing Texas Local Government Code Sec. 552.916.

Operational Changes Required

Contracts

Utility Agreements: Review existing municipal utility service agreements. Provisions mandating a specific "PILOT" (Payment in Lieu of Taxes) rate or a "Tax-Exempt" rate tier are legally void and unenforceable as of June 20.
Lease Agreements: Landlords operating under Triple Net (NNN) leases must adjust Common Area Maintenance (CAM) reconciliations. If your utility costs decrease due to this law, you must pass those savings to tenants to avoid breach of contract.

Hiring/Training

Accounts Payable: Staff must be trained to flag municipal utility invoices that classify the organization specifically as "Tax Exempt," "Institutional," or "Non-Profit" rather than "Commercial."
Facilities Management: Staff must understand the facility's water meter size and average monthly volume to support arguments regarding "comparable service."

Reporting & Record-Keeping

Proof of Status: Maintain current Texas Sales and Use Tax Exemption Certification or documentation of ad valorem tax exemption status ready for submission to the city.
Usage Data: Retain 12 months of water usage data. You must be able to demonstrate that your consumption volume is statistically comparable to non-exempt businesses paying the lower rate.

Fees & Costs

Operational Savings: Anticipate a reduction in utility operating expenses if you are currently in a discriminatory rate tier.
Legal Costs: Budget for potential legal counsel fees to draft demand letters if the municipality refuses to voluntarily reclassify your account.

Strategic Ambiguities & Considerations

"Comparable Utility Service": The statute does not strictly define "comparable." Municipalities may attempt to justify higher rates by claiming tax-exempt entities (e.g., hospitals, schools) have unique "peak demand" or "load factors" distinct from standard commercial businesses. You must be prepared to prove your usage profile matches the lower-rate class.
De Facto Classification: Cities may attempt to circumvent the ban by renaming the "Tax-Exempt" class to a generic title (e.g., "Large Institutional") that captures the same entities without explicitly referencing tax status. This will require a legal challenge to prove the classification is a proxy for tax status.

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Legislative Timeline

This bill's path through the Texas Legislature

TopicsUtilities Utilities--water & Sewer City Government City Government--utilities Water & Sewer Service Taxation Taxation--property-exemptions

Official Analysis

View HRO Analysis View All Bill Documents

BILL ANALYSIS

H.B. 685

By: Bell, Cecil

Natural Resources

Committee Report (Unamended)

BACKGROUND AND PURPOSE

In 2023, First Liberty Institute, a legal organization that advocates for religious freedom and is known for providing counsel in the case Kennedy v. Bremerton School District, filed a lawsuit in Montgomery County asserting that their client, Grace Community Church, had been unfairly charged an elevated fee for the installation of a water tap by a municipally owned utility. The author of the bill has informed the committee that this lawsuit has raised the concern that some utilities are imposing a "fee-in-lieu-of-taxes" model on tax-exempt organizations. H.B. 685 seeks to alleviate this issue by prohibiting such a practice.

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

H.B. 685 amends the Local Government Code to prohibit a municipality from establishing a rate for water or sewer utility service applicable only to entities that qualify for a sales tax or property tax exemption that is higher than a rate established for entities that receive comparable utility service.

EFFECTIVE DATE

September 1, 2025.

House Authors

Rep. Cecil BellRepublican · Primary Author

Senate Sponsors

Sen. Charles CreightonRepublican · Primary Sponsor

Cosponsors (1)

Lois Kolkhorst (R)

Bill Text(with markup)

H.B. No. 685

View bill text in multiple formats on Texas Legislature website

Fiscal NoteView Original

	AN ACT
	relating to rates established by municipalities for water or sewer
	service for certain entities.
	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
	SECTION 1. Subchapter Z, Chapter 552, Local Government
	Code, is amended by adding Section 552.916 to read as follows:
	Sec. 552.916. PROHIBITION ON RATE DISCRIMINATION. A
	municipality may not establish a rate for water or sewer utility
	service applicable only to entities that qualify for a sales tax or
	ad valorem tax exemption that is higher than a rate established for
	entities that receive comparable utility service.
	SECTION 2. This Act takes effect September 1, 2025.

LEGISLATIVE BUDGET BOARD
Austin, Texas

FISCAL NOTE, 89TH LEGISLATIVE REGULAR SESSION


March 21, 2025

TO:	Honorable Cody Harris, Chair, House Committee on Natural Resources

FROM:	Jerry McGinty, Director, Legislative Budget Board

IN RE:	HB685 by Bell, Cecil (Relating to rates established by municipalities for water or sewer service for certain entities.), As Introduced

No fiscal implication to the State is anticipated.

Local Government Impact

There could be an impact to municipalities that have established a rate for water or sewer utility service applicable only to entities that qualify for a sales tax or ad valorem tax exemption that is higher than a rate established for entities that receive comparable utility service.

Source Agencies:

LBB Staff:

JMc, TUf, BC,

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Frequently Asked Questions

Common questions about HB685

What does Texas HB685 do?

Texas municipalities are now prohibited from charging higher water or sewer rates to entities based solely on their sales or ad valorem tax-exempt status. Effective June 20, 2025, affected organizations—including non-profits, religious institutions, and manufacturers with specific exemptions—must audit utility bills to ensure rates are capped at the standard rate charged to commercial entities receiving comparable service. Implementation Timeline Effective Date: June 20, 2025 (Triggered immediately by legislative supermajority vote).

Who authored HB685?

HB685 was authored by Texas Representative Cecil Bell during the Regular Session.

When was HB685 signed into law?

HB685 was signed into law by Governor Greg Abbott on June 20, 2025.

Which agencies enforce HB685?

HB685 is enforced by Municipal Utility Departments and Civil Courts (via litigation for non-compliance).

How urgent is compliance with HB685?

The compliance urgency for HB685 is rated as "moderate". Businesses and organizations should review the requirements and timeline to ensure timely compliance.

What is the cost impact of HB685?

The cost impact of HB685 is estimated as "low". This may vary based on industry and implementation requirements.

What topics does HB685 address?

HB685 addresses topics including utilities, utilities--water & sewer, city government, city government--utilities and water & sewer service.

Legislative data provided by LegiScanLast updated: November 25, 2025

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