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Texas Agencies Are Beginning the LAR Process: Regulated Businesses Should Pay Attention Now

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The Texas LAR Process Is the Earliest Warning Sign of Regulatory Change in Texas.

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The 2028-29 Texas Budget Cycle May Force Agencies and Legislators to Make Difficult Budget and Policy Choices.

Effective Regulatory Engagement Starts Now Before Legislative and Agency Priorities are Crystallized.

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For regulated businesses with a Texas footprint, regulatory agency priorities often take shape long before a bill is filed or a rule is proposed. This series will track the full Texas legislative and regulatory life cycle – from agency planning and budget development to legislation, rulemaking, compliance, enforcement, administrative proceedings and judicial review – so clients can spot risk earlier, engage more strategically and position themselves before policy becomes obligation. We begin with the Legislative Appropriations Request (LAR) process.

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The LAR process is where Texas agencies request funding for policy priorities. For the 2028-2029 cycle, those requests will be developed against a 3 percent base-budget reduction, making agency choices about what to protect, cut or expand especially important for regulated industries. LARs can reveal early signals on enforcement capacity, permitting timelines, technology investments and future statutory authority well before those priorities surface in interim reports, legislation, rulemaking, compliance expectations or judicial review under the 2025 Regulatory Reform and Efficiency Act.

Why it matters: Early LAR and interim-committee monitoring can help regulated businesses identify risk and engage before agency and legislative priorities crystallize into compliance expectations or state agency enforcement positions.

What Is an LAR, and Why Is This Biennium Different?

In Texas, an LAR is an agency’s formal budget request for the next biennium and an early public signal of regulatory priorities. For the 2028-2029 cycle, Gov. Greg Abbott, Lt. Gov. Dan Patrick and Speaker Dustin Burrows directed agencies, appellate courts and higher education institutions to prepare LARs using a 3 percent base-budget reduction, with limited exceptions.<a id="_ftnref1" href="#_ftn1">[1]</a> This is the first time in more than two legislative cycles when Texas state government is not entering the legislative session with a surplus.<a id="_ftnref2" href="#_ftn2">[2]</a> Priorities will be honed and impacts will be seen on regulated industries. Agencies will begin presenting LARs to the Governor’s Office and the Legislative Budget Board on Aug. 25, with presentations continuing for several months.<a id="_ftnref3" href="#_ftn3">[3]</a> Through these hearings, agencies will provide clarity to executive and legislative leadership on their priorities for the next two years. Not currently on the schedule are the Texas Commission on Environmental Quality, the Texas Railroad Commission, the Texas Water Development Board, and the judiciary.

The LAR is the opening stage of a broader Texas regulatory life cycle. Regulated businesses should watch both what agencies protect and what they seek to add in a base-budget-reduction cycle. Agency choices about what to cut, protect or reallocate may reveal future enforcement capacity, permitting timelines, oversight burdens, technology investments or requests for flexibility.

What Businesses with a Texas Footprint Should Be Asking Now

Which agencies regulate, permit, inspect, fund or enforce against our operations?

Are those agencies requesting additional personnel, funding, technology or authority?

Do exceptional items or rider revisions suggest new enforcement, reporting or permitting priorities?

Are multiple agencies identifying the same policy theme, operational gap or regulated activity?

Could agency requests become legislation, rulemaking, guidance or future enforcement priorities?

Should we engage now, before agency priorities become embedded in the budget or bill-drafting process?

How are the ongoing interim charge hearings in the House Appropriations Committee and Senate Finance Committee going to impact agency priorities?

What This Series Will Cover: Key Stages To Monitor for Clients with a Texas Footprint

1. Early agency and budget development: Agencies convert priorities into LAR requests; early review can identify funding, staffing and policy issues before they gain traction. Budget hearings will preview how these priorities are received by the Legislature, how they align with existing legislative priorities and whether budget writers have the appetite for agency-deemed needs.

2. Appropriations and rider negotiations: Agency requests may become funding decisions that affect how agencies implement their programs. At the Senate Finance hearing on July 27, Sen. Joan Huffman, Chair of the Texas Senate Finance Committee, signaled one major budgetary priority that may have significant client impact. The Committee will reassess the sales tax exemptions provided to data centers, noting that the exemption’s cost has grown from an estimated $14.6 million for the 2014-2015 biennium to a projected $3.3 billion for the 2028-2029 biennium. In a down-budget year, this is one to watch.

3. Substantive legislation: Budget priorities may move in parallel with bills that impact agency authority, tax exemptions or an agency’s capacity to enforce its programs. We will explore key pieces of legislation and how those can impact regulated industries in Texas.

4. Rulemaking and implementation: Once the legislative session is over, the work turns to agency implementation. Agencies translate appropriations and statutory direction into rules, guidance, permits, reporting obligations and compliance expectations. We will explore how engaging early and often will keep clients in the room and shaping the things that can often be the costliest.

5. Compliance and enforcement posture: New funding, staff, systems or authority can change how aggressively an agency inspects, investigates and prioritizes violations; negotiates settlements; and imposes reporting or remediation obligations. For regulated businesses, these signals matter because budget and staffing decisions often translate into practical enforcement capacity – more inspectors, faster referrals, expanded data collection, new audit tools or a sharper focus on particular industries. Monitoring those signals early can help clients assess where compliance programs may need strengthening before agency priorities become enforcement positions.

6. Administrative disputes and judicial review: When agency engagement, compliance strategy or settlement efforts fall short, clients need counsel who understand both the agency process and the courtroom. Implementation decisions can lead to contested cases, enforcement challenges, administrative appeals or Administrative Procedure Act review, where statutory authority, issue preservation, evidentiary development and the administrative record may control the outcome. Our final installment will address how the 2025 Regulatory Reform and Efficiency Act changes traditional agency deference and how we help clients navigate agency trials, protect the record, preserve issues for appeal and pursue judicial review when administrative remedies do not resolve the dispute.

Clients that wait until bills are filed may miss the earliest signals of regulatory change. The regulatory life cycle offers a multitude of opportunities to identify risk, evaluate potential compliance burdens and engage before the legislative and regulatory process accelerates. This series will follow those issues through the 2029 Texas legislative session by reviewing rulemaking, implementation, enforcement and review.

BakerHostetler helps clients monitor the Texas regulatory life cycle, including the state budget, exceptional items and rider revisions with business consequences; assess budget, legislative and rulemaking priorities; and engage strategically with agencies, industry experts and policymakers. We also counsel clients through implementation, compliance planning, enforcement response, administrative proceedings and judicial review – treating legislative, regulatory and litigation phases as connected parts of a single risk-management strategy.

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<a id="_ftn1" href="#_ftnref1">[1]</a> Joint instructions for Legislative Appropriations Requests, July 14, 2026, <a href="https://gov.texas.gov/uploads/files/press/90R-LAR-Policy-Letter-Final-07.14.2026.pdf" target="_blank" rel="noreferrer noopener">https://gov.texas.gov/uploads/files/press/90R-LAR-Policy-Letter-Final-07.14.2026.pdf</a>.

<a id="_ftn2" href="#_ftnref2">[2]</a> Texas Legislature approves $338 billion two-year spending plan with a focus on property tax relief, Texas Tribune, Jasper Scherer, May 31, 2025 https://www.texastribune.org/2025/05/31/texas-state-budget-legislative-approval/ (noting $24 billion surplus used in 2025 legislative session); Texas’ record-breaking surplus is now nearly $33 billion, KUT News, Jan. 9, 2023, Sergio Martinez-Beltran, <a href="https://www.kut.org/politics/2023-01-09/texas-record-breaking-surplus-is-now-nearly-33-billion" target="_blank" rel="noreferrer noopener">https://www.kut.org/politics/2023-01-09/texas-record-breaking-surplus-is-now-nearly-33-billion</a>.

<a id="_ftn3" href="#_ftnref3">[3]</a> Budget Hearings By Agency, Legislative Budget Board, Aug. 13, 2026, <a href="https://www.lbb.texas.gov/Budget_Hearings.aspx?sort=Agency" target="_blank" rel="noreferrer noopener">https://www.lbb.texas.gov/Budget_Hearings.aspx?sort=Agency</a>.

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