Untitled Texas Attorney General Opinion ( 1988 )

THE ATTORNEY GENERAL
0F TEXAS
October 25, 1988
Honorable Mike Millsap Opinion No. SM-970
House Administration
Texas House of Representatives Re: Constitutionality of a
P. 0. BOX 2910 plan to finance renovation
Austin, Texas 78769 of the Capitol (RQ-1468)
Dear Representative Millsap:
you ask about the authority of the Texas Public Finance
Authority to issue bonds under article 601d-2, V.T.C.S.
Specifically, you ask whether the authority may, without
executing a lease with the State Preservation Board, issue
bonds for the renovation of the State Capitol and provide
that the payment of principal and interest on the bonds will
be paid from appropriations made directly to the Texas
Public Finance Authority.
The Texas Public Finance Authority (the authority) was
created by the 68th Legislature and was originally called
the Texas Public Building Authority. Acts 1984, 68th Leg.,
2d C.S., ch. 5, at 15 (repealing original version of Public
Building Authority Act, Acts 1983, 68th Leg., ch. 700, at
4360). A 1987 enactment changed the name of the authority
from the Texas Public Building Authority to the Texas Public
Finance Authority. Acts 1987, 70th Leg., 2nd C.S., ch. 75,
p. 234. The general provisions governing the authority are
set out in article 601d, V.T.C.S.
Under article 601d the authority may issue and sell
bonds for the financing, acquisition, construction, repair,
and renovation of buildings used by state agencies.
V.T.C.S. art. 601d, § 9. Section 13 states that the bonds
are payable mNsolely from revenue as provided by this Act";
and section 12(a) states that the authority may provide for
the payment of the principal and interest on the bonds by
(1) pledging all or part of the designated rents, issues and
profits from leasing a building to the state or (2) from any
other source lawfully available to the authority. Section
13 provides that bonds issued under article 601d are not a
,- debt of the state or any state agency and that the bonds
must contain on their face a statement to that effect. Id.
p. 4933
 I
Honorable Mike Millsap - Page 2 (JM-970)
5 13. The legislature must specifically authorize any
project for which bonds are sold under article 601d, and the
bonds must be approved by the attorney general. z!L §§ 10,
16.
Soon after the enactment of article 601d, the authority
proposed a bond issuance to finance the construction of a
state office building for the Texas Youth Commission and the
Texas Rehabilitation Commission. The attorney general,
arguing that the bond issuance would violate several consti-
tutional provisions, refused to approve the proposed bond
issuance. Therefore, the authority applied to the Texas
Supreme Court for a writ of mandamus directing the attorney
general to approve the bond issuance. Texas Public Buildinq
Authoritv v. Mattox, 686 S.W.2d 924 (Tex. 1985). The
attorney general argued that the bond issuance would be in
violation of article 'III, section 49, which prohibits the
creation of debt why or on behalf of the state." The court
rejected that argument by pointing out that article 601d
expressly provides that the bonds are not debts of the state
and not a pledge of the state's full faith and credit. The
court also rejected the attorney general's argument that the
proposed bond issuance would violate article III, section
44, which prohibits the appropriation of money to any indi-
vidual on a claim that is not provided for by pre-existing
law.1 We will return to the court's discussion of article
III, section 44, after we examine the provisions of the
statute you ask about, article 601d-2, V.T.C.S.
After the Supreme Court upheld the provisions of
article 601d, the legislature enacted article 601d-2 to
provide a means to finance renovation of the State Capitol.
Acts 1987, 70th Leg., ch. 626, p. 2407. Article 601d-2
authorizes the board of directors of the authority to issue
and sell bonds for that purpose. V.T.C.S. art. 601d-2, .$2.
Proceeds from such bonds are to be deposited in the state
treasury to the account of the State Preservation Board.
48, 5 3(a). Article 601d-2 appropriates those funds to the
State Preservation Board for projects for the repair and
renovation of the State Capitol. Id. 5 3(b). Section 4 of
article 601d-2 provides:
1. The attorney general also argued that the proposed
bond issuance would be in violation of Article I, section
17; Article III, section 49a; and Article VIII, section 6,
of the Texas Constitution. The court rejected all of those
arguments.
p. 4934
Honorable Mike Millsap - Page 3 (JM-970)
(a) The board [of the Public Finance
Authority] may provide for the repayment of
the principal and interest on the bonds
issued under this Act from any source of
funds lawfully available to the board.
(b) From funds appropriated for the
purpose, the State Preservation Board shall
pay to the board under a lease agreement an
amount determined by the board to be
sufficient to:
(1) pay the principal and interest on the
bonds:
(2) maintain any reserve fund necessary to
service the debt: and
(3) reimburse the authority for other
costs and expenses incurred by the authority
relating to a project under this Act or to
outstanding bonds.
(c) Bonds payable from money appropriated
by the legislature shall not mature or be
subject to redemption before September 1,
1989, and the date of the first interest
payment to be made from appropriated money
shall not be scheduled to occur before
-September 1, 1989.
Section 6 provides that the State Preservation Board may
enter into lease agreements under article 601d-2 and may
spend appropriated funds or other funds for the purpose of
making lease payments. Section 5 provides that bonds issued
under article 601d-2 are subject to a number of provisions
of the Public Finance Authority Act, including section 13,
which provides that bonds issued under article 601d are not
a debt of the state or any state agency and that the bonds
must contain on their face a statement to that effect. Your
question is whether the authority may, without executing a
lease with the State Preservation Board, issue bonds for the
renovation of the State Capitol and "repay the principal of
and interest on the bonds from direct legislative appropria-
tions for that purpose."
Although the authority's power to issue bonds for the
repair and renovation of the State Capitol is not explicitly
made dependent on the existence of a lease with the State
Preservation Board, article 601d-2 clearly contemplates that
P. 4935
Honorable Mike Millsap - Page 4 (JM-970)
bonds issued pursuant to that article will be paid from
revenues from a lease with the State Preservation Board.
Also, the incorporation of section 13 of the Texas Public
Finance Authority Act, which provides that the bonds are to
be revenue bonds,2 indicates that the legislature intended
2. Article 601d gives the authority power to lease a
building financed with bonds issued under that article to
any person or entity if the state fails or refuses to pay
rental on the building. V.T.C.S. art. 601d, 5 12(d). Thus,
there would be a potential source of revenue from which to
pay principal and interest on the bonds even if the
legislature failed to appropriate money for the lease of a
building financed under article 601d. However, even if
there were a lease between the authority and the State
Preservation Board, bonds issued under article 601d-2 would
look less like revenue bonds than bonds issued under article
601d since the legislature did not even attempt to give the
authority power to lease the State Capitol to a person or
entity other than the state.
On the subject of a lease of the State Capitol &o the
State Preservation Board from the authority, it is
interesting to note section 11(a) of article 601d, which
provides:
Property financed by the authority under
this Act does not become part of other property
to which it may be attached or affixed or into
which it may be incorporated, regardless of
whether the other property is real or personal.
The rights of the State Preservation Board in
property financed by the authority under this
Act are those of a lessee, and a person claiming
under or through the State Preservation Board
does not acquire any greater rights with respect
to that property.
That section tracks section 7 of article 601d-2, V.T.C.S.
Both provisions overrule the common law rule that fixtures
become part of the real property to which they are attached.
The provisions are important to the schemes provided for in
articles 601d and 601d-2 in instances in which the bond
money is used for repair or renovation of existing state
buildings because they allow the state to assume the role of
lessee of improvements to state buildings. It is hard to
(Footnote Continued)
p. 4936
Honorable Mike Millsap - Page 5 (JM-970)
that the bonds would be payable from revenue from the lease
of the State Capitol to the State Preservation Board.
However, we need not determine whether the legislature
intended article 601d-2 to give the authority power to issue
bonds without executing a lease with the State Preservation
Board because we conclude that the proposal you ask about
would not be permissible under article III, ,section 44, of
the Texas Constitution.
Article III, section 44, of the Texas Constitution
provides:
The Legislature shall provide by law for
the compensation of all officers, servants,
agents and public contractors, not provided
for in this Constitution, but shall not grant
extra compensation to any officer, agent,
servant, or public contractors, after such
public service shall have been performed or
contract entered into, for the performance of
the same: nor grant, by appropriation or
otherwise, any amount of money out of the
Treasury of the State, to any individual, on
a claim, real or pretended, when the same
shall not have been provided for by
pre-existing law; nor employ any one in the
name of the State, unless authorized by
pre-existing law.
This means that no money may be appropriated unless, at the
time the appropriation is made, there is already in force
some valid law constituting the claim to be paid a legal and
valid obligation of the state. Austin National Bank v.
Shevnard 71 S.W.2d 242 (Tex. 1934); State v. Per1 tein 79
S.W.2d 1;3 (Tex. Civ. App. - Austin 1934, writ disi#d).'
In Texas Public Huildina Authoritv v. Mattox, 686
S.W.2d 924, the court responded to the attorney general's
argument that appropriations for the purpose of making lease
payments to the authority would violate article III, section
44, as follows:
(Footnote Continued)
imagine what the substance of the state's leasehold would
be, however, if bonds issued under article 601d or 601d-2
were used, for example, for sand-blasting.
p. 4937
Honorable Mike Millsap - Page 6 (JM-970)
The Attorney General argues that any
appropriation by the Legislature to make
rental payments to the Authority pursuant to
the lease agreement must necessarily violate
the article III, section 44 prohibition
against the making of grants of money out of
the State Treasury to an individual on a
claim when the same shall not have been pro-
vided for by pre-existing law. The execution
of the Lease Agreement between the Authority
and the Commission under the precise terms
contained therein is expressly authorized by
Section 12 of the Act. The manner of
repayment of the bonds and the manner in
which the rents and fees to be paid by the
Commission are to be calculated are likewise
express;l.euthorized by the Act. We believe
that expressly authorized by a
pre-existing statute, an appropriation of
funds in furtherance of an authorized project
does not violate article III, section 44.
The purpose of the article III, section 44
proscription is the prevention of 'raids'
upon the State Treasury by private individ-
uals or entities. We consider inapposite
authorities such as A stun Ntional Bank v.
Shevnard 123 Tex. 272: 71 S.W.2d 242 (1934)
because 'here, the Legislature itself ha;
created the Authority and authorized the
execution of contracts between it and state
agencies, which contracts do not otherwise
violate the state constitution. Appropria-
tions made in furtherance of those contracts
are fully 'provided for by pre-existing law.'
Thus, appropriations made in the future by
the Legislature in fulfillment of the Commis-
sion's obligations under the Lease Agreement
with the Authority are not proscribed by
article III, section 44.
686 S.W.2d at 929. In short, the Supreme Court found that
appropriations to the authority for the purpose of making
lease payments were proper because the state agencies
involved had pre-existing authority to enter into leases for
building space. The proposal you ask about, however, would
involve leg~islative appropriations made directly to the
authority for the purpose of paying principal and interest
on the bonds. Article 601d-2 expressly provides that the
bonds are not legal obligations of the state and that they 4.
p. 4938
,
Honorable Mike Millsap - Page 7 (JM-970)
are revenue bonds. Thus, not only would an appropriation
for the purpose of paying principal and interest on bonds
issued under article 601d-2 be unauthorized by pre-existing
law, it would be an appropriation to pay for something that
the legislature had expressly proclaimed itself unobligated
to pay. &= Attorney General Letter Advisory No. 107
(1975).
It has been suggested that the proposal you ask about
would not violate article III, section 44, because an
appropriation to the authority would not be an appropriation
"on a claim."3 m Jones, me Future of Moral Obliaation
Bonds as a Method of Government Finance in Texas, 54 Tex. L.
Rev. 314, 328-30 (1976). The suggestion is that
appropriation to the authority would avert default on tz:
bonds and would necessarily avert the assertion of any
wclaims," i.e., lawsuits. L We disagree with that
suggestion. If bondholders did sue the state for payment,
an appropriation to pay those claims would clearly violate
article III, section 44. Certainly it follows that the
legislature cannot circumvent article III, section 44, by
appropriating money for payments it is not obligated to make
in order to prevent the assertion of Vlaims" not provided
for by pre-existing law. Therefore, we conclude that the
proposal you ask about would be impermissible under article
III, section 44, of the Texas Constitution.
A proposal whereby the Texas Public
Finance Authority would issue llrevenuellbonds
and provide that principal and interest on
3. It has also been suggested that an appropriation to
the authority would not be an appropriation to an
individual. We think, however, that an appropriation to the
authority for the purpose of paying bondholders is, in
effect, an appropriation to individuals. See aenerallv
Austin National Hank v. Shenvard, 71 S.W.2d 242 (Tex. 1934).
P. 4939
Honorable Mike Millsap - Page 8 (JM-970)
the bonds would be paid from direct legisla-
tive appropriations would be impermissible
under article III, section 44, of the Texas
Constitution.~
J-h
Very truly yo ,
.
JIM MATTOX
Attorney General of Texas
MARYXELLXR
First Assistant Attorney General
LOU MCCREARY
Executive Assistant Attorney General
JUDGE ZOLLIE STEAXLXY
Special Assistant Attorney General
RICK GILPIN
Chairman, Opinion Committee
Prepared by Sarah Woelk
Assistant Attorney General
-.
p. 4940