House Bill No. 3537 introduces a new section, 140.014, to the Local Government Code, which establishes a limit on annual expenditures for local governments, including municipalities, counties, and special purpose districts. Under this new provision, a political subdivision's total expenditures from all available revenue sources in a fiscal year cannot exceed the greater of its total expenditures from the previous fiscal year or an amount calculated by multiplying the previous year's expenditures by a rate published annually by the Legislative Budget Board. This rate is determined by adding the population growth rate and the inflation rate, which the Board must publish by January 31 each year.

Additionally, the bill allows for exceptions to this expenditure limit if the voters of the political subdivision approve additional spending at an election held on a uniform election date. It also specifies that certain revenues, such as those from bond issuances approved by voters or grants, donations, or gifts, are not considered available sources of revenue for the purpose of this limit. The provisions of this bill will apply to fiscal years beginning on or after December 1, 2025, and it will take effect immediately if it receives a two-thirds vote from both houses of the legislature; otherwise, it will take effect on September 1, 2025.

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