SB2137

Regular Session

Relating to the allocation of low income housing tax credits.

CriticalImmediate action required

High Cost

Effective:2025-09-01

Enforcing Agencies

Texas Department of Housing and Community Affairs (TDHCA)

Compliance Analysis

Key implementation requirements and action items for compliance with this legislation

Implementation Timeline

Effective Date: September 1, 2025
Compliance Deadline: Immediate. You must adjust site selection criteria now for projects targeting the 2026 Application Cycle (Pre-applications typically due January 2026).
Agency Rulemaking: TDHCA is required to draft and adopt a 2026 QAP that reflects this statutory ban. Expect the draft QAP to be released for public comment in September/October 2025. This is the critical "gray zone" where the agency will define new tie-breakers to replace the removed school points.

Immediate Action Plan

Revise Site Algorithms: Update your site selection models today to exclude school ratings as a primary filter for 2026/2027 projects.
Identify "Previously Unfeasible" Sites: Review land opportunities in areas with lower-rated schools that were previously rejected solely due to QAP scoring penalties. These sites are now viable for the next 24 months.
Monitor Draft QAP: Assign counsel to review the Draft 2026 QAP in Fall 2025 specifically for new tie-breaker language.
Prepare for Sunset: Recognize this is a two-year window. Unless extended in 2027, school ratings will likely return in 2028.

Operational Changes Required

Contracts

Purchase and Sale Agreements (PSAs): Audit all active land contracts and options. If you have contingencies specifically tied to "Educational Quality Points" or "School Rating Thresholds," execute amendments immediately. These contingencies are now legally obsolete and unenforceable as QAP requirements.
Consultant Scopes: Renegotiate agreements with QAP consultants. Remove billable hours allocated to analyzing TEA school ratings or securing school attendance zone verification letters for the 2026/2027 cycles.

Hiring/Training

Acquisition Teams: Retrain land acquisition staff immediately. They must stop prioritizing sites solely based on "A" or "B" rated schools, as these sites often command a premium that no longer yields a competitive scoring advantage.
Underwriting: Shift focus to sites that maximize points in remaining categories (e.g., disaster mitigation, proximity to jobs/transit), as scoring compression will increase significantly.

Reporting & Record-Keeping

Application Omissions: Do not include TEA accountability rating reports in your 2026 or 2027 LIHTC applications.
Investor Data: Continue to collect school quality data for private equity investors and lenders, as their internal underwriting standards likely remain unchanged despite the state's shift. Keep this data separate from the TDHCA application.

Fees & Costs

Land Cost Reallocation: Stop paying "school district premiums." Reallocate capital toward sites that may have lower school ratings but higher scores in other amenity categories.
No New State Fees: There are no new statutory fees associated with this bill.

Strategic Ambiguities & Considerations

Tie-Breaker Volatility: With school points removed, the number of applications achieving a "perfect score" will skyrocket. The QAP will rely heavily on tie-breakers to award credits. It is currently unknown what new tie-breakers TDHCA will introduce in the 2026 QAP to manage this compression.
"Educational Quality" Proxies: The law bans "educational quality" metrics. Watch the rulemaking process closely to ensure TDHCA does not introduce proxy metrics—such as "proximity to a school" or "school bond investment levels"—that effectively reintroduce the ban via a loophole.

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Legislative Timeline

This bill's path through the Texas Legislature

TopicsHousing Housing--general Taxation Taxation--property-miscellaneous Housing & Community Affairs, Texas Department of Education Education--primary & Secondary Education--primary & Secondary--accountability

Official Analysis

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BILL ANALYSIS

Senate Research Center	S.B. 2137
89R4117 JG-F	By: Men�ndez
	Local Government
	4/25/2025
	As Filed

AUTHOR'S / SPONSOR'S STATEMENT OF INTENT

Building more affordable housing in the locations of high demand is one of the keys to driving down the skyrocketing cost of living in Texas cities. Every year, the Texas Department of Housing and Community Affairs (TDHCA) releases its Qualified Allocation Plan (QAP) as required under the Low-Income Housing Tax Credit (LIHTC) program, a nationwide affordable housing program administered by the states. This QAP determines the eligibility priorities and criteria for developments seeking to receive LIHTC funds, thereby determining where new affordable units are and are not placed. Currently, TDHCA uses school quality ratings for nearby general enrollment public schools as a metric for determining development selection.

The school rating system in Texas is flawed, as new school ratings have not been released since 2022 and are strongly correlated with a school's surrounding property tax base; units in predominantly low-income areas remain market rate while new government-supported developments continue to go up far from the areas that need them most.

S.B. 2137 prohibits TDHCA from considering school ratings in its 2027 QAP and requires the agency to conduct a study of how this prohibition impacts affordable housing development and the allocation of LIHTC credits in the state. This will allow new affordable housing development in all areas of our cities and help residents find affordable housing options in their communities.

As proposed, S.B. 2137 amends current law relating to the allocation of low income housing tax credits.

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 2306.67022, Government Code, by adding Subsections (d) and (e), as follows:

(d) Prohibits the Texas Department of Housing and Community Affairs (TDHCA) from requiring as part of the threshold criteria under a qualified allocation plan that a public school campus with an attendance zone that contains the proposed development site satisfy certain criteria relating to educational quality, as specified by TDHCA in that plan, or adopting a qualified allocation plan that uses a scoring system that awards points to an application based on criteria relating to the educational quality of a public school campus with an attendance zone that contains the proposed development site.

(e) Provides that this subsection and Subsection (d) expire September 1, 2027.

SECTION 2. (a) Requires TDHCA to conduct a study of the effects that the implementation of Section 2306.67022(d), Government Code, as added by this Act, has on the allocation of low income housing tax credits in this state.

(b) Requires TDHCA, not later than November 1, 2027, to submit to each standing committee of the legislature with jurisdiction over affordable housing a report regarding the study required by Subsection (a) of this section.

SECTION 3. Provides that the change in law made by this Act applies only to an application for low income housing tax credits that is submitted to TDHCA during an application cycle that is based on the 2026 or 2027 qualified allocation plan adopted by the governing board of TDHCA.

SECTION 4. Effective date: September 1, 2025.

Senate Authors

Sen. Jose MenendezDemocrat · Primary Author

Coauthors (2)

House Sponsors

Rep. Charles CunninghamRepublican · Primary Sponsor

Joint Sponsors

Bill Text(with markup)

S.B. No. 2137

View bill text in multiple formats on Texas Legislature website

Fiscal NoteView Original

	AN ACT
	relating to the allocation of low income housing tax credits.
	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
	SECTION 1. Section 2306.67022, Government Code, is amended
	by adding Subsections (d) and (e) to read as follows:
	(d) The department may not:
	(1) require as part of the threshold criteria under a
	qualified allocation plan that a public school campus with an
	attendance zone that contains the proposed development site satisfy
	certain criteria relating to educational quality, as specified by
	the department in that plan; or
	(2) adopt a qualified allocation plan that uses a
	scoring system that awards points to an application based on
	criteria relating to the educational quality of a public school
	campus with an attendance zone that contains the proposed
	development site.
	(e) This subsection and Subsection (d) expire September 1,
	2027.
	SECTION 2. (a) The Texas Department of Housing and
	Community Affairs shall conduct a study of the effects that the
	implementation of Section 2306.67022(d), Government Code, as added
	by this Act, has on the allocation of low income housing tax credits
	in this state.
	(b) Not later than November 1, 2027, the Texas Department of
	Housing and Community Affairs shall submit to each standing
	committee of the legislature with jurisdiction over affordable
	housing a report regarding the study required by Subsection (a) of
	this section.
	SECTION 3. The change in law made by this Act applies only
	to an application for low income housing tax credits that is
	submitted to the Texas Department of Housing and Community Affairs
	during an application cycle that is based on the 2026 or 2027
	qualified allocation plan adopted by the governing board of the
	department.
	SECTION 4. This Act takes effect September 1, 2025.

LEGISLATIVE BUDGET BOARD
Austin, Texas

FISCAL NOTE, 89TH LEGISLATIVE REGULAR SESSION


April 25, 2025

TO:	Honorable Paul Bettencourt, Chair, Senate Committee on Local Government

FROM:	Jerry McGinty, Director, Legislative Budget Board

IN RE:	SB2137 by Menéndez (Relating to the allocation of low income housing tax credits.), As Introduced

No significant fiscal implication to the State is anticipated.

It is assumed that any costs associated with the bill could be absorbed using existing resources.

Local Government Impact

No significant fiscal implication to units of local government is anticipated.

Source Agencies:

332 Department of Housing and Community Affairs

LBB Staff:

JMc, SZ, DPE

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Frequently Asked Questions

Common questions about SB2137

What does Texas SB2137 do?

SB2137 prohibits the Texas Department of Housing and Community Affairs (TDHCA) from using public school accountability ratings as a scoring metric or threshold requirement for Low Income Housing Tax Credits (LIHTC). This mandate is a temporary pilot program applicable strictly to the 2026 and 2027 Qualified Allocation Plans (QAP), requiring developers to immediately decouple land acquisition strategies from school district performance grades. Implementation Timeline Effective Date: September 1, 2025 Compliance Deadline: Immediate.

Who authored SB2137?

SB2137 was authored by Texas Senator Jose Menendez during the Regular Session.

When was SB2137 signed into law?

SB2137 was signed into law by Governor Greg Abbott on June 20, 2025.

Which agencies enforce SB2137?

SB2137 is enforced by Texas Department of Housing and Community Affairs (TDHCA).

How urgent is compliance with SB2137?

The compliance urgency for SB2137 is rated as "critical". Businesses and organizations should review the requirements and timeline to ensure timely compliance.

What is the cost impact of SB2137?

The cost impact of SB2137 is estimated as "high". This may vary based on industry and implementation requirements.

What topics does SB2137 address?

SB2137 addresses topics including housing, housing--general, taxation, taxation--property-miscellaneous and housing & community affairs, texas department of.

Legislative data provided by LegiScanLast updated: November 25, 2025

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