What Is a Tax Note?

A Texas county can borrow millions of dollars on one vote of commissioners court, without an election, without publishing anything beforehand, and without giving residents any way to force the question onto a ballot.

The instrument that makes this possible is called a tax note. Most people have never heard of one, which matters, because a tax note is how a county budget can balance on paper while the county spends more than it takes in.

One order, and the county has debt

The legal name is an anticipation note, and the rules live in Chapter 1431 of the Texas Government Code. The authorizing provision is a single sentence:

“The commissioners court of a county by order, on the recommendation of the county auditor or the county budget officer, as applicable… may authorize the issuance of an anticipation note.” — §1431.002(a)

An order of commissioners court, on a recommendation from county staff. Four commissioners and a county judge, one line on an agenda, and the county owes money. Chapter 1431 asks for nothing else — no ballot language, no waiting period, no opportunity for anyone to object before the vote happens.

Two different things wearing the same name

Chapter 1431 authorizes two kinds of borrowing, and the distinction tells you almost everything about what a given note means.

The first is capital borrowing. Under §1431.004(a)(1), a county can spend note proceeds on construction of public works and on “materials, supplies, equipment, machinery, buildings, lands, and rights-of-way,” plus the engineers, attorneys, and financial advisors that come attached. These can run as long as seven years (§1431.009(a)).

The second is borrowing to cover a shortfall, and it has to be repaid within twelve months (§1431.009(c)).

Both come from the same statute and both take the same single vote. What they tell you about the county’s finances could hardly be more different.

The statute names deficit spending outright

There’s a natural assumption that using debt to cover operating costs must be a loophole — somebody’s creative reading of a law written for other purposes.

It isn’t. Here is the list of authorized uses, in the statute’s own words:

An issuer… may use the proceeds of an anticipation note to pay: … (2) operating or current expenses; or (3) the issuer’s cumulative cash flow deficit. — §1431.004(a)

The Legislature went further than merely allowing it. Subsection (c) defines that cumulative cash flow deficit as the amount by which a county’s anticipated spending, plus a reasonable cash reserve, exceeds the money it actually has. Subsection (d) adds that one month of expenditures is presumed reasonable as a reserve. Lawmakers sat down, worked out how large a hole a county ought to be able to borrow against, and wrote the answer into the code.

The budget still balances

Texas counties are required to adopt balanced budgets, and they do. Tax notes are part of how that requirement survives contact with reality.

Suppose a county needs two million dollars of equipment — road machinery, patrol vehicles, a jail HVAC system that has finally given out. Paying for it from revenue means raising the tax rate or cutting something residents will notice. Both options are unpleasant and both are visible.

A note removes the choice. The county issues two million dollars of debt, the vendor gets paid, the equipment shows up, and the adopted budget never contains that two million, because the money didn’t come out of budgeted revenue. Repayment appears later, sliced into annual installments inside a debt line that few people read and fewer question.

The budget balances. The county spent money it did not have. Both of those are true, and nobody had to misstate a single figure to get there.

Run that play for a few cycles and a county can be operating structurally in the red while every budget it publishes is, technically, balanced.

What the law requires when it wants you involved

Tax notes are not secret. The order appears on an agenda posted under the Open Meetings Act, a transcript of the proceedings goes to the Attorney General for approval, and the debt eventually turns up in the county’s annual financial report and in the state’s local government debt database. All of that is genuinely public.

What’s absent is any requirement to tell you before the vote, while there is still something you could do about it. Set the three ways a Texas county can borrow side by side:

The middle row rewards a close look, because it shows what Texas law demands when the Legislature actually wants residents in the room. Under Local Government Code §271.049, a county cannot issue a certificate of obligation until it has published notice once a week for two consecutive weeks, beginning at least 45 days before the vote, and kept that notice on its website for the entire period. The notice has to state the county’s outstanding debt principal, the total principal and interest still owed on it, the maximum amount of the new certificates, the estimated interest rate, and the latest maturity date. And if five percent of registered voters sign a petition inside that window, the county cannot issue at all without holding an election.

Chapter 1431 requires none of it. A county can buy the same equipment, for the same money, over the same seven years, and the only public trace before the funds are committed is one line on an agenda.

The limits that do exist

There are real constraints here, and any honest account has to include them.

Notes issued for operating costs or a cash flow deficit mature within a year, so a county cannot roll a permanent shortfall forward on them indefinitely. They are also capped at fifty percent of the revenue the county expects to collect that year (§1431.006(a)(2)). And §1431.005 prohibits using note proceeds to repay interfund borrowing that occurred more than twenty-four months earlier — a provision that reads like the Legislature had already watched somebody quietly drain one fund and bond it out later.

In 2021, HB 1869 added another. It rewrote the definition of “debt” in Tax Code §26.012(7) to stop local governments from parking non-voter-approved borrowing on the debt service side of the tax rate, where it sits outside the 3.5 percent cap that governs maintenance and operations. (If that cap is unfamiliar, start with How County Taxes, the 3.5% Cap, and the No-New-Revenue Rate Actually Work in Texas.) Because operating and cash flow notes mature inside a year, they fail the new definition outright, land on the M&O side, and count against the cap. That is a real check.

It is also a check with a wide door cut into it. To qualify for debt service treatment, borrowing has to satisfy one of the conditions listed in §26.012(7)(A)(ii), and that list includes debt issued for “vehicles or equipment,” debt issued for “renovating, improving, or equipping existing buildings or facilities,” and debt issued for “designated infrastructure” — which §26.012(9) defines to cover streets, roads, bridges, sidewalks, parks, landfills, water and wastewater systems, drainage, jails, and public safety facilities.

That is very nearly a complete inventory of what a rural county buys. The 2021 reform tightened the deficit route and left the capital route exactly where it found it: seven years, no election, no notice, no petition.

How to find out whether your county is doing this

None of this requires special access. It does require knowing which words to look for, because no document in the chain uses the phrase “we are borrowing money to cover a shortfall.”

On the agenda, before the vote

Commissioners court has to post notice of every meeting at least 72 hours ahead, and that notice must state the subject of each item (Government Code §551.041 and §551.043(a)). Seventy-two hours is the whole of the warning you get, which is why the agenda is worth reading weekly rather than after the fact.

The authorizing item usually reads close to this:

Discuss and consider approving an order authorizing the issuance of ____ County, Texas Tax Notes, Series 2026.

Variations use “anticipation notes” or “tax anticipation notes,” and some counties post nothing more descriptive than “notes.” The dollar amount is often missing, because the amount lives in the order rather than in the notice that has to be posted. Read the consent agenda as well — an item can pass in a block vote with no discussion at all.

The more telling signals show up weeks or months earlier, while the county is assembling the deal:

• Engaging bond counsel or a financial advisor. Counties do not retain bond lawyers speculatively. This is frequently the first public evidence that a financing is planned.
• A reimbursement resolution, sometimes titled a declaration of official intent. It is the county formally stating that it intends to pay itself back out of the proceeds of debt it has not issued yet. The filing is routine and technical, and it means borrowing is coming.
• Paying agent or registrar agreements, which are the administrative plumbing of an issue and rarely appear without one behind them.

At the county clerk’s office

The county clerk is the clerk of commissioners court. Under Local Government Code §81.003, the clerk keeps the court’s books, papers, and records, and must record the proceedings of each term and attest to their accuracy. The signed order authorizing a note is a county clerk record, and you can go read it.

Ask for the minutes of the specific meeting, or for the order by name and date. Inside it, look for:

• the principal amount and the interest rate
• the maturity schedule — one year means the county is covering a shortfall, up to seven means it is buying something
• what secures the note: taxes, revenue, or a combination of both (§1431.007)
• the stated purpose, and in particular whether it cites §1431.004(a)(2) or (a)(3)
• the tax levy itself. Where a county has pledged property taxes from a future fiscal year, §1431.008(b) requires it to impose that tax in the same order that authorizes the notes. The tax increase is not a separate decision made later in front of an audience. It is a paragraph inside the financing document.

If requesting records suits you better than a trip to the courthouse, name the document you want. A request for the order authorizing a specific series of notes, adopted on a specific date, along with the transcript of proceedings submitted to the Attorney General, will produce the file. A request for “any and all records relating to county debt” will produce a conversation about how broad it is.

In the state’s records

Texas maintains a public database of local government debt at data.brb.texas.gov/local/county. Search your county and you can see what it has filed with the state — tax-supported and revenue debt, issuer by issuer.

Separately, Local Government Code §140.008 requires most political subdivisions to publish an annual debt report, and the required contents are unusually specific. For every outstanding obligation it must show the issued and unissued amounts, the spent and unspent amounts, the maturity date, and the stated purpose for which the debt was authorized. That is the one place a county has to put in writing what it borrowed the money to do.

There is a wrinkle for rural counties. Under §140.008(e), a county with fewer than 35,000 residents may satisfy the requirement by filing the information with the Comptroller instead of publishing its own report. If your county’s website carries no debt report, that isn’t necessarily a failure to comply — check the state first.

The limitation on all of the state data is timing. It confirms what a county has already done. It will not tell you that a vote is happening Monday. Only the agenda does that.

Questions to ask when one appears on an agenda

1. What is the principal amount, and when does it mature? A one-year note is cash flow. A seven-year note is capital.
2. What secures it — taxes, revenue, or both? Section 1431.007 permits any combination.
3. Is any part of it issued under §1431.004(a)(2) or (a)(3)? If so, the county is borrowing to cover a shortfall rather than to buy an asset.
4. What is the county’s total outstanding note debt, and what does servicing it cost each year? No one is required to publish that alongside a new note the way they would for a certificate of obligation.
5. Why isn’t this in the budget?

Check this yourself

• Government Code Chapter 1431 — authorized uses at §1431.004, maturity at §1431.009, caps at §1431.006.
• Local Government Code §271.049 — the notice and petition rules for certificates of obligation.
• Tax Code §26.012 — the definition of “debt” as HB 1869 left it.
• Local Government Code §81.003 — the county clerk’s duty to keep and attest the commissioners court record.
• Local Government Code §140.008 — what an annual debt report has to disclose.
• Texas local government debt data — outstanding county debt filed with the state, searchable by issuer.

Bottom line

A tax note is a legal and frequently sensible instrument. Counties use them to replace a fire truck without waiting three years to save up for it, and there is nothing wrong with that.

What’s worth arguing about is how little Texas law asks in exchange. A county can commit itself to seven years of debt with less public notice than the identical purchase would require on a certificate of obligation, and money borrowed and spent this year will never appear in the document that is supposed to tell you what the county spent this year.

If the adopted budget is all you read, you are not seeing the whole ledger.