Three Area Cities Receive State Audit Compliance Determinations

Three cities in the Reporter-Statesman and Sherman County Gazette coverage area have received determination letters from the Texas Attorney General’s Office over compliance with state municipal audit requirements, limiting their ability to adopt property tax rates above the no-new-revenue rate.

Spearman, Gruver and Stratford received notices under Senate Bill 1851, which took effect Sept. 1, 2025. The law added new enforcement provisions to existing requirements that municipalities undergo annual audits and file financial statements, including the auditor’s opinion, within 180 days following the end of their fiscal year.

If the Attorney General determines a municipality has failed to meet those requirements, the city cannot adopt a property tax rate above its calculated no-new-revenue rate until it comes into compliance.

In an Aug. 3 letter, Attorney General Ken Paxton determined that Gruver did not comply with Local Government Code Chapter 103 requirements for fiscal year 2025.

Gruver officials said the city has continued to conduct annual audits but its auditor was unable to complete the most recent audit within the required timeframe.

“Our auditors were unable to complete our audit in the time that was required by the state, thus we could only use the no-new-revenue rate on our ad valorem tax rate,” the city said in a statement.

Officials said finding auditors willing to perform municipal audits has become increasingly difficult for small communities.

“We have done an audit every year and not missed an audit,” the city said. “There are fewer and fewer people doing city audits. We feel lucky we have an auditor.”

Gruver officials said hiring a firm from a larger metropolitan area such as Dallas could cost as much as $100,000.

Stratford also received a determination letter.

A Stratford City Council member told the Sherman County Gazette that the issue involves a missing piece of paperwork associated with the city’s audit from last year rather than a failure to conduct an audit.

The council member said city officials are working to correct the issue and expect it to be resolved.

Spearman confirmed Tuesday that it received the Attorney General’s determination letter and forwarded it to the City Council.

The city said it has been working with an outside audit firm to bring its audits current and had already planned the upcoming budget around the no-new-revenue tax rate.

“Council and staff had already built this budget cycle around the no-new-revenue rate while that work was underway, so the determination does not change our budget approach,” the city said in a statement.

Spearman has multiple outstanding fiscal-year audits, an issue city officials have been working to resolve.

The determination comes as Spearman, Gruver and Stratford prepare budgets and property tax rates for the coming fiscal year. Under the state restriction, the cities may adopt their calculated no-new-revenue rate or a lower rate but cannot go above that threshold while the determinations remain in effect.

Annual municipal audits are not a new requirement. They provide taxpayers with an accounting of how public funds are used and serve as an important check and balance on local government finances.

What changed with Senate Bill 1851 is the consequence for failing to complete and file them on time.

The Attorney General’s Office launched a statewide review, requesting records from more than 1,000 Texas municipalities. Paxton, who is currently running for office, has also highlighted the enforcement effort in campaign messaging as a way to prevent cities that fail to meet audit requirements from raising property taxes.

For small communities, however, the enforcement is also highlighting the shrinking availability and increasing cost of municipal auditors.

Whatever the circumstances behind each determination, the immediate consequence is the same for Spearman, Gruver and Stratford: until the applicable audit requirements are satisfied, the cities cannot adopt a property tax rate above their no-new-revenue rate.