HB 12

H.B. No. 12
  AN ACT
  relating to the review and audit of certain state agency
  operations.
         BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:
         SECTION 1.  Section 325.002, Government Code, is amended by
  adding Subdivision (4) to read as follows:
               (4)  "Regulatory agency" means a department,
  commission, board, or other agency that:
                     (A)  is created by the constitution or by statute;
                     (B)  is in the executive branch of state
  government;
                     (C)  has statewide authority; and
                     (D)  has authority to deny, grant, renew, revoke,
  or suspend a license, certification, or other authorization to
  engage in an activity.
         SECTION 2.  Section 325.008, Government Code, is amended by
  adding Subsections (d), (e), and (f) to read as follows:
         (d)  The commission shall provide information on how the
  public may participate in the commission's review of a state agency
  and provide input on a state agency's performance.  The commission
  shall, to the extent practicable, solicit input from parties
  interested in a state agency's operations.
         (e)  Each state agency being reviewed by the commission under
  this chapter shall at the beginning of the review:
               (1)  post a notice on the state agency's Internet
  website informing the public:
                     (A)  that the state agency is being reviewed by
  the commission; and
                     (B)  how the public may participate in the
  commission's review of the state agency and provide input on the
  state agency's performance; and
               (2)  to the extent practicable, if the state agency
  being reviewed is a regulatory agency:
                     (A)  notify each person licensed, certified, or
  otherwise authorized by the regulatory agency to engage in an
  activity regulated by the agency of a public hearing under Section
  325.009 at which the agency will be reviewed; and
                     (B)  solicit input from persons provided notice
  under Paragraph (A) regarding the regulatory agency's performance.
         (f)  Subsection (e)(2) does not apply to a river authority
  subject to review under this chapter.
         SECTION 3.  Section 325.010(b), Government Code, is amended
  to read as follows:
         (b)  In the report the commission shall include:
               (1)  its findings regarding the criteria prescribed by
  Section 325.011, except Section 325.011(14);
               (2)  its recommendations based on the matters
  prescribed by Section 325.012, except recommendations relating to
  criteria prescribed by Section 325.011(14); [and]
               (3)  if the agency being reviewed is a regulatory
  agency, an analysis of the regulatory agency's performance during
  the preceding 10 years or since the last review of the agency under
  this chapter, whichever is longer, based on the agency's
  performance measures and related targets, including those listed in
  the General Appropriations Act;
               (4)  an evaluation of the agency's performance measures
  and related targets, including whether the targets are:
                     (A)  aligned with the mission, goals, and
  objectives of the agency; and
                     (B)  appropriate for assessing the agency's
  achievement of the goals listed; and
               (5)  other information the commission considers
  necessary for a complete review of the agency.
         SECTION 4.  Section 325.012(a), Government Code, is amended
  to read as follows:
         (a)  In its report on a state agency, the commission shall:
               (1)  make recommendations on the abolition,
  continuation, or reorganization of each affected state agency and
  its advisory committees and on the need for the performance of the
  functions of the agency and its advisory committees;
               (2)  make recommendations on the consolidation,
  transfer, or reorganization of programs within state agencies not
  under review when the programs duplicate functions performed in
  agencies under review;
               (3)  make recommendations to improve the operations of
  the agency, its policy body, and its advisory committees, including
  management recommendations that do not require a change in the
  agency's enabling statute; [and]
               (4)  make recommendations on the continuation or
  abolition of each reporting requirement imposed on the agency by
  law; and
               (5)  after consulting the Legislative Budget Board,
  make recommendations to improve the agency's key performance
  measures through the addition, amendment, or removal of the
  performance measures and related targets, including those listed in
  the General Appropriations Act.
         SECTION 5.  Chapter 325, Government Code, is amended by
  adding Section 325.016 to read as follows:
         Sec. 325.016.  LIMITED REVIEW OF CERTAIN REGULATORY
  AGENCIES.  (a)  In the commission's recommendations to the
  legislature under Section 325.012, the commission may recommend
  that a limited review of a regulatory agency be conducted prior to
  the regulatory agency's next sunset review.
         (b)  If the commission's recommendations to the legislature
  under Section 325.012 include any identified deficiencies or
  recommendations for improvement in the regulatory agency's
  rulemaking process, the commission shall recommend that a limited
  review of a regulatory agency be conducted prior to the next sunset
  review.
         (c)  For the commission's recommendation for a limited
  review to take effect, the legislature must include the
  recommendation in its legislation for the regulatory agency under
  Section 325.012(c).  Such review shall be limited to:
               (1)  an assessment of the regulatory agency's
  rulemaking process and the extent to which the regulatory agency
  has encouraged participation by the public in making its rules and
  decisions and the extent to which the public participation has
  resulted in rules that benefit the public;
               (2)  the extent to which the regulatory agency adopts
  and enforces rules relating to potential conflicts of interest of
  its employees;
               (3)  an assessment of the regulatory agency's efforts
  to identify rules that are unnecessary, ineffective, or
  inefficient;
               (4)  any commission recommendations under Section
  325.012(a)(3) that the legislature adopted in the legislation for
  the regulatory agency under Section 325.012(c); and
               (5)  any additional rulemaking-related recommendations
  adopted by the legislature and included in the legislation for the
  regulatory agency under Section 325.012(c).
         (d)  The regulatory agency shall report to the commission its
  progress on addressing the items described in Subsection (c) not
  later than September 1 of the odd-numbered year specified by the
  legislature in its legislation for the regulatory agency under
  Section 325.012(c).
         (e)  Not later than January 1 of the odd-numbered year after
  the date the regulatory agency report is due under Subsection (d),
  the commission shall prepare a written report on the commission's
  review under this section.
         (f)  The report prepared by the commission under this section
  is a public record.
         SECTION 6.  Subtitle C, Title 3, Government Code, is amended
  by adding Chapter 327 to read as follows:
  CHAPTER 327.  EFFICIENCY AUDITS OF STATE AGENCIES
         Sec. 327.001.  DEFINITIONS.  In this chapter:
               (1)  "Audit plan" has the meaning assigned by Section
  321.001.
               (2)  "Commission" means the Sunset Advisory
  Commission.
               (3)  "Efficiency audit" means an evaluation of the
  economy, efficiency, and effectiveness of state agency operations,
  including:
                     (A)  determining whether the state agency is
  managing or using its resources, including state money, personnel,
  property, equipment, and space, in an economical and efficient
  manner;
                     (B)  identifying 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;
                     (C)  determining whether financial, program, and
  statistical reports of the state agency contain useful data and are
  fairly presented;
                     (D)  determining whether the objectives and
  intended benefits of the agency's program are being achieved
  efficiently and effectively, according to:
                           (i)  established or designated:
                                 (a)  program objectives;
                                 (b)  responsibilities or duties;
                                 (c)  program performance criteria; or
                                 (d)  program evaluation standards; or
                           (ii)  statutes and rules; and
                     (E)  determining whether the agency's program
  duplicates, overlaps, or conflicts with another state program.
               (4)  "External auditor" means a private entity selected
  by the state auditor to conduct an efficiency audit of a state
  agency.
               (5)  "Legislative audit committee" means the committee
  described by Section 321.002.
               (6)  "State agency" means an entity expressly made
  subject to Chapter 325 (Texas Sunset Act) other than an entity
  listed in Section 325.025(b).
         Sec. 327.002.  REQUIRED EFFICIENCY AUDIT.  (a)  Each state
  agency shall undergo an efficiency audit in accordance with this
  chapter.
         (b)  The state auditor, subject to the legislative audit
  committee's approval, shall adopt a schedule for conducting the
  efficiency audits required by this chapter and include the annual
  portion of the schedule in the audit plan under Section 321.013.
  The schedule must 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 Chapter 325
  (Texas Sunset Act).
         (c)  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 audited under this chapter.
         (d)  A state agency shall pay the costs incurred by the state
  auditor relating to an efficiency audit required by this chapter.
  The state auditor shall determine the costs of the audit and the
  state agency shall pay the amount of those costs promptly on receipt
  of a statement from the state auditor regarding those costs.
         (e)  The state auditor, subject to the legislative audit
  committee's approval, may determine, in the interests of
  efficiency, whether the audit should be performed by the state
  auditor or an external auditor.
         Sec. 327.003.  SELECTION AND SUPERVISION OF AUDITOR.  (a)
  Not later than March 1 of the year in which an efficiency audit of a
  state agency is scheduled under this chapter, the state auditor may
  contract with an external auditor to conduct the audit.
         (b)  The state auditor, in cooperation with the Legislative
  Budget Board, shall oversee the external auditor and ensure that
  the efficiency audit is conducted in accordance with the
  requirements of this chapter and the scope of the audit established
  under this chapter.
         (c)  The external auditor is not subject to direction from
  the state agency being audited.
         Sec. 327.004.  SCOPE OF AUDIT.  (a)  The state auditor, in
  cooperation with the Legislative Budget Board, shall establish the
  scope of each efficiency audit conducted under this chapter.
         (b)  At a minimum, an efficiency audit must:
               (1)  examine state resources, including financial
  resources, staff, personal property, real property, and
  technology, to determine whether those resources:
                     (A)  are used effectively and efficiently to
  achieve the desired outcome for a state agency's program
  beneficiaries; and
                     (B)  are used for purposes other than the intended
  goals of the audited programs;
               (2)  identify and make recommendations for cost savings
  and reallocation of resources to improve the effectiveness of
  audited programs; and
               (3)  identify opportunities for improving services
  through consolidation of functions, outsourcing, and elimination
  of duplicative efforts.
         Sec. 327.005.  REPORT TO LEGISLATURE.  (a)  Not later than
  November 1 of the year an efficiency audit is conducted under this
  chapter, the state auditor, in cooperation with the Legislative
  Budget Board and in consultation with any external auditor
  contracted to perform the audit, shall:
               (1)  prepare a report of the audit with the
  recommendations; and
               (2)  submit the report, recommendations, and complete
  audit to the 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 state agency.
         (b)  The state auditor and the audited state agency shall
  publish the report, recommendations, and complete efficiency audit
  on the entity's Internet website.
         Sec. 327.006.  REQUIRED IMPLEMENTATION PLAN.  Not later than
  the 90th day after the date of receiving the complete audit and
  recommendations, the administrative head of the audited state
  agency shall deliver a plan for implementing the recommendations to
  the commission, the governor, the lieutenant governor, the speaker
  of the house of representatives, 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 implementation plan must include a reasoned
  justification for any recommendation the audited state agency
  declines to implement.
         SECTION 7.  Not later than January 1, 2026, the state auditor
  shall adopt the schedule required by Section 327.002, Government
  Code, as added by this Act, for conducting efficiency audits of each
  state agency subject to that section.
         SECTION 8.  This Act takes effect September 1, 2025.
  ______________________________
  ______________________________
     President of the Senate
  Speaker of the House     
         I certify that H.B. No. 12 was passed by the House on April 9,
  2025, by the following vote:  Yeas 147, Nays 0, 1 present, not
  voting; and that the House concurred in Senate amendments to H.B.
  No. 12 on May 23, 2025, by the following vote:  Yeas 137, Nays 0, 2
  present, not voting.
  ______________________________
  Chief Clerk of the House   
         I certify that H.B. No. 12 was passed by the Senate, with
  amendments, on May 19, 2025, by the following vote:  Yeas 31, Nays
  0.
  ______________________________
  Secretary of the Senate   
  APPROVED: __________________
                  Date       
           __________________
                Governor