Skip to content


Note: To navigate this guide on a mobile device you must use the Table of Contents.

Fiscal Matters

Money kept in the state’s treasury

Generally, the State Funds Reform Act requires a state agency to deposit all money it receives in the state‚Äôs treasury. The Comptroller’s office is the trustee of the money in the state’s treasury and has important investment responsibilities for that money.

The Texas Constitution prohibits a state agency from expending money in the state’s treasury unless the constitution itself or the Legislature has appropriated the money.

Constitutional appropriations are relatively uncommon. An example is the constitutional appropriation of bond proceeds for the Veterans Land Program.

The most common method for the Legislature to appropriate money is through the biennial General Appropriations Act (GAA). A less common method is for the Legislature to appropriate money through other legislation.

Money kept outside the state’s treasury

Not all state moneys are kept in the state’s treasury. Some state agencies have specific authority, either constitutional or statutory, to keep state moneys outside the state’s treasury.

Although the Legislature frequently exercises its right to appropriate money kept outside the state’s treasury, a state agency may expend that money without an appropriation.

If money kept outside the state’s treasury is appropriated, it may be expended only in compliance with the limits and restrictions imposed by that appropriation.


  1. Enactment of appropriations

    The GAA contains appropriations, and limits and restrictions on those appropriations. The GAA covers virtually all state agencies and is the primary method for funding their operations. The Legislature enacts a GAA once each biennium.

    Besides the GAA, the Legislature occasionally enacts appropriations in other bills. Sometimes those bills are passed to amend the GAA. At other times, the appropriations in those bills stand on their own.

  2. Life of an appropriation

    The Texas Constitution limits an appropriation’s life to a maximum of two years from its effective date. If the Legislature does not specify an expiration date for an appropriation, the expiration date is two years after the appropriation’s effective date.


    Assume the governor signs an appropriation into law on July 1, 2019. The appropriation takes effect on Oct. 1, 2019, and does not have a specific expiration date. Because of the appropriation limits of the Texas Constitution, the appropriation will expire on Sept. 30, 2021.

    The appropriations by the GAA are usually effective for only one fiscal year. This represents the Legislature’s long-standing policy and is not a constitutional requirement. The life of appropriations in bills other than the GAA varies from bill to bill, but may never exceed two years.

  3. Encumbrances of appropriations

    An encumbrance is an amount an agency is obligated to pay through a binding agreement, including payments for goods and services. Unlike payables, encumbrances are commitments for goods made before the reporting period ends, though the actual receipt of the good or service does not occur until after the end of the reporting period. Generally, payments for such obligations must be made within two years following the last day of the appropriation year.


    A state agency could enter into a contract during appropriation year (AY) 2019 to purchase computers that will be delivered in AY 2020, and pay for those computers out of AY 2019 appropriations.

    An encumbrance can only be made for actual contracts awarded, not anticipated contracts or contracts under negotiation. The mere earmarking or budgeting of an appropriation for a specified purpose is not an encumbrance of the appropriation.

    An appropriation may only be encumbered during its life. If an appropriation is not fully encumbered during its life, the unencumbered balance of the appropriation lapses.

    State agencies and institutions of higher education must report binding encumbrances and payables for the current appropriation year within 30 days following each of the first three quarters of the fiscal year.

    See Encumbrance Report and Lapsing of Appropriations for more information regarding encumbrance reporting requirements.

    See also: Appropriation Year Determination.

  4. Payments out of appropriations

    No payment may be made out of an appropriation unless the appropriation was encumbered for the payment during the life of the appropriation.

    If an appropriation expires in a particular fiscal year, the Comptroller's office may make a payment out of that appropriation until Aug. 31 of the second fiscal year after the fiscal year during which the appropriation expires.

    If an appropriation relates to new construction contracts, grants awarded under Health and Safety Code, Chapter 391, or repair and remodeling projects over $20,000, the payment deadline is Aug. 31 of the fourth fiscal year after the fiscal year during which the appropriation expires. In determining if a repair and remodeling project exceeds $20,000, furniture, equipment, architects’ and engineering fees, and other costs related to the project must be included.

    If an appropriation relates to grants awarded under Health and Safety Code, Chapter 102, the payment deadline is Aug. 31 of the seventh fiscal year after the fiscal year during which the appropriation expires.

    The preceding principles apply regardless of whether the appropriation expires by its own terms or due to the Texas Constitution’s two-year limit on the life of appropriations.

  5. Last quarter expenditures

    During the last quarter of a fiscal year, a state agency using funds appropriated by the GAA may not expend more than one-third of the funds appropriated by the GAA for that fiscal year.

    Specifically exempted from this prohibition:

    • Expenditures contracted for in previous quarters
    • Funds required by statute, rule or regulation to be expended on a different time frame
    • Seasonal employment of personnel
    • Construction contracts
    • Contracts dealing with purchases of food, medicines or drugs
    • Expenditures related to the Children with Special Health Care Needs Program operated by the Department of State Health Services
    • Expenditures occasioned by disaster or other act of God

The funds exempted above may not be considered in the computation of the total funds appropriated in a fiscal year for the purpose of determining last quarter expenditures.

See also: Statutes of Limitation, Appropriation Year Determination.


Appropriation Year
Budget period the expenditure/revenue should be counted in.
Fiscal Year
Financial reporting period the transaction should be reported in. The state fiscal year-end is Aug. 31 of each year. State government appropriations conform to this fiscal year.
Appropriations expire when they are not:
  • Obligated by Aug. 31 of the appropriation year in which they were made.
  • Expended within two years following the last day of the appropriation year.
  • Re-appropriated in subsequent legislation.
Because the unobligated appropriation balance cannot be encumbered after the end of the appropriation term, the balance lapses unless it is specifically re-appropriated for a new term.
Amounts obligated for goods or services actually rendered or provided to the agency by the end of the reporting period, but for which the agency has not yet made payment.

Sources for this section [+]

Texas Constitution, Article VIII, Section 6.
County of Dallas v. McCombs, 135 Tex. 272 (1940).
Pickle v. Finley, 91 Tex. 484 (1898).
Texas Government Code, Sections 403.071(b), 404.032 and 404.041.
Texas Government Code, State Funds Reform Act, Sections 404.091-404.097.
General Appropriations Act, Article IX, Section 6.06.
Texas Attorney General Opinions LA-104 (1975), M-31 (1967), WW-1518 (1962), WW-978 (1961), WW-312 (1957), WW-40 (1957), MS-10 (1953), V-1139 (1950), V-316 (1947), O-5266 (1943), O-3651 (1941), O-3639 (1941), O-3621 (1941), O-2941 (1940), O-2815 (1940), O-2704 (1940), O-1068 (1939) and unnumbered opinion to the Railroad Commission of Texas dated Feb. 3, 1932.