The Changing Boundaries of Texas ETJ Law: SB 2038, Recent Court Decisions, and The Road to 2027

by Gabrielle C. Smith

When Senate Bill 2038 passed and took effect in 2023, it gave Texas landowners a way to leave a city’s extraterritorial jurisdiction (ETJ) without having to obtain the city’s consent. A petition signed by more than 50 percent of an area’s registered voters, or by a majority in value of its landowners, can start the process. If the city does not act within the statutory period, generally 45 days, the area is released by operation of law. Residents and landowners can also petition for a release election.

Three years later, the statute is still being worked out. The Legislature has narrowed who can use it. The Texas Supreme Court has said a city cannot defeat a compliant petition by denying it. On October 15, 2026, the Fifteenth Court of Appeals affirmed the dismissal of a constitutional challenge to the statutory framework brought by 25 cities and a municipal development district.

For cities, districts, counties, developers, and landowners, the question is no longer whether ETJ release exists. It is how it works, what it leaves untouched, and what may change when the Legislature convenes in January.

SB 2038 changed the rules

Texas cities have regulated land outside their borders for more than a century. Since 1963, shrinking a city’s ETJ has generally required its written consent. SB 2038 removed that veto for residents and landowners who use its petition or election procedures, raising new questions for cities and landowners alike.

The Legislature took a second look in 2025

SB 2038 never applied to everyone. It excluded land near military bases, land that was voluntarily annexed, and land covered by strategic partnership agreements. In 2025, the Legislature broadened those exclusions.

House Bill 2512, effective September 1, 2025, applies only to petitions and election requests filed on or after that date. It amended Section 42.023 to except reductions “necessary to comply with Subchapter D or E,” the release procedures. It also added exclusions based on a city’s size and location, including for some land under Section 212.172 development agreements, and, for release elections, added notice requirements and a landowner opt-out.

The courts weigh in

In Elliott v. City of College Station, 717 S.W.3d 888 (Tex. 2025), property owners challenged a city’s regulation of their land on constitutional grounds, and SB 2038 gave them a way out while the case was pending. The Texas Supreme Court vacated the lower-court judgments and remanded with instructions to abate while the owners pursued release. A city’s purported denial of a compliant petition is “legally ineffective” because release happens automatically: “Release is a matter of paperwork, not permission.” And even while the city challenged SB 2038 elsewhere, the statute “is presumed constitutional and remains the law.”

On October 15, 2026, the Fifteenth Court of Appeals decided City of Aledo v. State, No. 15-25-00086-CV. The cities argued that SB 2038 conflicts with Section 42.023 and violates the Texas Constitution on a range of theories. The trial court granted the State’s plea to the jurisdiction, and the court of appeals affirmed, holding that no plaintiff pleaded a facially valid claim that would waive sovereign immunity. It followed Elliott’s statements about SB 2038 as judicial dicta and rejected each theory. The dismissal was without prejudice, and the opinion may be subject to further challenge.

A federal court has also addressed a city’s attempt to reverse completed releases. In POWER v. City of Austin, No. 1:26-cv-1518-RP (W.D. Tex. Aug. 4, 2026), the court enjoined Austin from enforcing its March 2026 decision to void about 170 releases of land near the Bee Caves Armory under the military-base exception, finding the owners likely to succeed on due process and ultra-vires claims. The court did not decide whether the exception applies.

What happens after ETJ release?

Release changes the reach of a city’s statutory authority. It does not automatically undo what the parties have agreed to. In Aledo, three cities argued that SB 2038 impaired their development agreements with landowners. The court disagreed: SB 2038 releases land from the ETJ, not from a Section 212.172 agreement. Such an agreement can give a city regulatory authority that “equals or even exceeds” what the ETJ statutes allow, binds the parties and their successors for its term, and is enforceable in court. The court did not decide the enforceability of any particular agreement, so the language of each one still matters. Deciding whether land has left a city’s ETJ and deciding what that means for other agreements and governmental arrangements are separate questions.

The court also questioned whether release is permanent, noting that a city may extend its ETJ over contiguous land, or annex land, at the owner’s request.

Special districts raise a related question. A municipal utility district’s boundaries come from its own statutes, so release does not automatically change them. But land that is or may be released can sit inside or near a district being created, served, or financed, and those questions turn on the district’s enabling statute and agreements.

Regulation of released land, meanwhile, returns to the county, which generally
has narrower tools than a city. For some public entites, uncertainty about governmental boundaries can raise
related questions about financing obligations. The practical effect is that released land may be governed by different rules and different agencies than before. Citites, counties, districts, and landowners may each need to revisit what authority they have and which agreements they rely on.

Looking toward the 2027 session

The 90th Texas Legislature convenes in January 2027. Whether lawmakers pursue additional ETJ legislation remains to be seen, but several issues may warrant attention.

• Procedure. Aledo noted that SB 2038 provides no mechanism for resolving disputes between owners over whether a petition is compliant, though none was alleged. HB 2512 added notice and an opt-out for release elections, and SB 2523, as filed in 2025, would have extended them to release petitions. Whether similar ideas return is unknown.
• Completed releases and exceptions. The federal case turned on the exception for land near a military base. Lawmakers could clarify how that exception applies, and whether and how a completed release can be revisited.
• Agreements, districts, and enclaves. The 2025 changes responded to concerns about development agreements and isolated pockets of land. How release interacts with existing contracts, special districts, and infrastructure is a natural next topic.

These are issues to watch, and whether any of these produces legislation in 2027 remains to be seen. If your project, district, or financing depends on ETJ status, remain attentive for further changes and check which version of the statute applies.

Gabrielle Smith is a Principal in the Firm’s Litigation Practice Group. If you would like additional information or have questions related to this article or other matters, please contact Gabrielle at 512.322.5820 or gsmith@lglawfirm.com.