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Texas lawmakers are facing a choice: approve $3.3 million in state funds to end a lawsuit accusing Attorney General Ken Paxton of improperly firing four whistleblowers or reject an out-of-court settlement — potentially adding millions of dollars in costs while leaving the outcome of the lawsuit to fate in a long-shot attempt to make Paxton pay.

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The multimillion-dollar settlement announced in February would resolve a 2-year-old lawsuit that alleges Paxton fired former high-ranking deputies in retaliation for accusing him of using his office to benefit a friend and political donor. The settlement would give the former employees back pay and several other concessions while ridding Paxton of one of several ongoing legal problems.

But in a blow to the former agency executives, lawmakers have shown little appetite to use state funds to help Paxton settle the case.

Plano Rep. Jeff Leach, a Republican who heads the House Judiciary and Civil Jurisprudence Committee, has said he was “troubled” that taxpayers would be on the hook for the settlement. House Speaker Dade Phelan, a Beaumont Republican, said he does not support the use of taxpayer money to settle the lawsuit.

Neither legislative chamber included money for the settlement in the first drafts of the “miscellaneous...

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