Untitled Texas Attorney General Opinion ( 1992 )

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DAN MORALES
ATTORSEY
GENERAL December 31,1992
Honorable Chet Brooks Opinion No. DM- 194
Chairman
Committee on Health and Human Setvices Re: Whether a home rule city may
Texas State Senate sponsor a non-profit, no-share
P. 0. Box 12068 corporation, and related questions
Ado, Texas 78711 (RQ441)
You have requested an opinion regarding whether a home rule city may sponsor a
non-profit, no-share corporation. You explain that the City of Texas City (the “city”), a
home rule city, would like to sponsor a non-profit, no-share corporatibn incorporated
pursuant to the Texas Non-Profit Corporation Act, V.T.C.S. article 1396-1.01 ef seq.
The city commission would approve the corporation’s articles of incorporation, authorize
the incorporators to tile the articles with the secretary of state, and appoint the
corporation’s board of directors. The corporation would issue bonds’to linance the
acquisition and renovation of a vacant building that would be leased to city, county, state
and private social, educational, and community organizations to provide services to at-risk
children. *
You fust ask whether the city has the authority to sponsor such a corporation.*
The Texas Constitution grants home rule cities all the power of self-government not
eaPressIy denied them by the legislature. Tex. Const. art. XI. 5 5; see Lower Colorado
River Auth. v. Civ of San Marcos, 523 S.W.Zd 641 (Tex. 1975); Forwood v. Ciq of
Tuyfor, 214 S.W.2d 282 (Tex. 1948). The Texas Constitution prohibits a home rule city
from mforcing any legislation inconsistent with state laws or the state constitution. Tex.
Const. art. XI, 9 5. We are not aware of any legislation which prohibits the city from
sponsoring such a corporation. Article LB, section 52 of the Texas Constitution, however,
provides that various governmental entities, including cities, are not authorized “to .
‘This of& cxp- no opinion ss to whcthu bondsissuedby suchs corporationwndd lx tax-
cxunptundcrtheunitcdstateslntcwslltcvwuccode.
2We consideronly whetherthe city is authorizedto sponsorsuch a wrporation under Rate lsw.
You & not ssk, and w do not address, whether the cily’s charterauIhorizesit to do so. See, e.g.,
Anderson Y. City of Son Antonio, 67 S.W.M 1036. 1037 (TX 1934);Levis Y. Ci(v o/Taylor, 67 S.W.Zd
1033,1034 (-Rx. 1934).
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Honorable Chet Brooks - Page 2 (DM-194)
lend . . credit or to grant public money or thing of value in aid of, or to any individual,
association or corporation whatsoever, or to become a stockholder in such corporation,
association or company.” Similar prohibitions are wntained in article XI, section 3 of the
Texas Constitution.s Thus, we must consider whether the city’s proposal is prohibited by
these wnstitutional provisions as a lending of credit or a holding of stock in a corporation.
In Attorney General Opiion M-1023 (1971), this office considered whether a City
of Waco plan to form a non-profit, no-share corporation to issue bonds for the purpose of
acquiring and improving land for an industrial development would violate article 4
section 52 or article XI, section 3 of the Texas Constitution. This office concluded that
there would be no lending of the city’s credit and no granting of public money or thing of
value based on the city’s assurances that it would not be. liable for the bond indebtedness.
Attorney General Opinion M-1023 at 7; see alsO Attorney General Opinion MW-85
(1979) at 3-4 (“it is clearly established that ‘debt’and lending of credit’do not occur when
bonds are issued which are payable solely from revenues”); cJ Attorney General Opinion
JM-1227 (1990). Whh respect to the question of whether the city would engage in the
wnstitutionslly prohibited activity of holding stock, that opinion concluded that “the
wnstitutionsl prohibitions do not apply to the situation outlined in your letter, inasmuch as
the City will merely charter a no-stock non-profit corporation and there shall be no
members of the corporation.” Attorney General Opinion M-1023 at 7-8; see also
Attorney General Opinion MW-85 at 3.
A brief submitted by the city suggests that the city% plan would not run afoul of
article 4 section 52 or article XI, section 3 because
[t]he sole security for the payment of the Bonds will be the revenue
generated Tom the leasing of the Project facilities and a mortgage
(deed of trust) of the Project facilities. No City 8mds or other City
resources will be used to pay the Bonds or maintain the Project, and
the credit of the City will not be pledged, directly or indirectly, to
secure the Bonds.
QrlicLz x& section3 provides:
No cmmty,city, or CUMmunicipal wrparstion shall hereafterbanme a
sub3criir to the capital of any private wrporstioa cr ssscciation or mskc any
sppnpriation or donationto the ssmc,or in anywiseloan its ondin but this shall
not bc consuwd to in any way s&t any ohligation lmetnfo~rr.mdatakcn
pursuantto law or to pmvcat a county,city, or other municipslaupcsation from
inv&agitsrimdsssautherizedbylaw.
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Honorable Chet Brooks - Page 3 (DM-194)
Assmning that these assertions in the city’s brief are true and additionally that no city fimds
or resources will be used to aid the corporation in any other manner,’ we agree that the
city’s plan is constitutionally permissible. See Attorney General Opinion M-1023 at 7.
Relying on Attorney General Opiion M-1023, we also conclude that the city would not
contravene the constitution’s prohibition against holding stock in a corporation by
establishing a no-share corporation.5 Id. at 7-8.
You ask also if “there would be a legal issue of the corporation’s fbmncing a
facility allowing for the w-location of service agencies that provide services to some non-
residents of Texas City?” Article 4 section 52 of the Texas Constitution prohibits
transfers of limds between governmental entities, as well as transfers between
governmental entities and private entities or individuals. See, e.g., Harri> Coun@ Flood
ControI Dist. v. Mann, 140 S.W.Zd 1098 (Tex. 1940); San Antonio In&p. Sch. Dist. v.
Board of Twtees of San Antonio Elec. & Gas Sys., 204 S.W.Zd 22 (Tex. Civ. App.-El
Paso 1947, writ refd n.r.e.). We understand from the city’s brief, however, that no city
tinds will be used to !inance the corporation or its facility. Therefore, we conclude that
the proposed corporation would not result in a transfer of fimds between the city and any
other governmental entity, private entity or individual.
Finally, you also ask whether the common-law doctrines prohibiting the holding of
incompatible 050% or conflicts of interest would preclude a city wmmissioner from
serving as a director of the proposed corporation. The prohibition against holding
incompatible offices applies only to dual public o5ces and is therefore inapplicable here
because a position on the board of the non-profit corporation is not a public office. See
Attorney General Opinion H-1309 (1978) at 1 (concluding that doctrine prohibiting
holding of incompatible offices does not apply where one office is not a public oftice); see
also Attorney General Opinion IM-1065 (1989) at 2-3 (concluding that position on board
of non-profit corporation is not a public office).
The common-law doctrine prohibiting conflicts of interest of local public otticials,
including city commissioners, has been superseded by chapter 171 of the Local
Govemment Code. See Local Gov’t Code 8 171.001(l) (defining “local public official”);
‘We note that tbc brief also states that “Cityofficas and cmplayca will performstaff knctions
fortbecorporationir~to&sobythcCityCo mmisslon.... CitypcrsomAw+Unotpuformstaff
fimctiorisfor tbc Corporationwithout appropriatecompauation to the City.” lk co&ion of
pammel to the uxpotation would constitutea grantof public money. AttorneyGauml Opiion Mw-89
(1979)e.,,..Such
a gant is permissibleonly if it is made for adequatec~nsiduadon, accomplishesa public
pmpusc and is scampmicd by controlsthat enmre that it is used only for a publicpurpose. See generally
Altcmey GmoralOpinionsJM-1229,JM-1146(1990); JM-1030(1989).
%ecaase wc bat-e concluded that this home-ruli:city is not prcch&d by statute or the
constitutionfrom establishingthe corporalion,we need not addressy0ur qUCstion6
mgardingwhctbcrthe
City of Tcxss City Industrisl DevelopmentCorporationor vsri~us 8ovcmmcntalsubdivisionsmay issue
taxxcmpt bonds for this purpose.
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Honorable Chet Brooks - Page 4 (DM-194)
Attorney General Opiion JM-424 (1986) (concluding that predecessor statute modiied
wmmon law regarding wnfkts of interest). That chapter contains a provision which
expmmly permits a local public 05cial “to serve as a member of the board of directors of
private nonprofit corporations when such officials receive no compensation or other
remuneratioo Erom the nonprofit corporation or other nonprofit entity.” Local Goti Code
4 171.009. Thus, chapter 171 of the Local Government Code permits a city commissioner
to serve as a director of the wrporation, provided he or she receives no compensation or
other remuneration for doing so.
SUMMARY
The city’s proposal to establish a non-profit, no-share
corporation does not run afoul of article 4 section 52 or article XT,
section 3 of the Texas Constitution. The wmmoo-law doctrine
prohibiting the holding of incompatible o5ces does not preclude a
city wmmissioner from serving as a director of the proposed
wrporatioo. The wmmon-law doctrine prohibiting wntlicts of
interest does not preclude a city commissioner from serving on the
corporation’s board of directors because chapter 171 of the Local
Government Code expressly permits a city commissioner to do so,
provided he or she receives no compensation or other remuneration.
DAN MORALES
Attorney General of Texas
WJLL PRYOR
Fii Assistant Attorney Oeneral
MARYRELLER
Deputy Assistant Attorney Cieneral
RENEAHlcKs
Special Assistant Attorney General
MADELEINE B. JOHNSON
Chair, Opiion Committee
Prepared by Mary R. Crouter
Assistaot Attorney General
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