Untitled Texas Attorney General Opinion ( 1999 )

OFFlCE OF THE ATTORNEY GENERAL. STATE OF TEXAS
JOHN CORNYN
December 8, 1999
The Honorable Chris Harris Opinion No. JC-0155
Chair, Committee on Administration
Texas State Senate Re: Whether individual whose property is
P.O. Box 12068 subject of tax abatement agreement may serve as
Austin. Texas 7871 l-2068 member of city council that granted the
abatement, and related questions (RQ-0102-K)
Dear Senator Harris:
The Property Redevelopment and Tax Abatement Act, chapter 3 12 of the Tax Code, allows
the governing body of a municipality to enter into a tax abatement agreement with the owner of
taxable real property located in a reinvestment zone, under certain circumstances, for the purpose
of economic development of the property. See TEX. TAX CODE ANN. 5 3 12.204 (Vernon 1992 &
Supp. 1999). Property that is owned or leased by a member of the municipality’s governing body,
however, is not eligible for a tax abatement agreement. See id. § 312.204(d) (Vernon 1992). You
ask about the application ofthis provision to an individual “who has an ownership in a company that
has received a municipal tax abatement.” Letter from Honorable Chris Harris, Chair, Committee
on Administration, Texas State Senate, to Honorable John Comyn, Texas Attorney General (received
Aug. 20, 1999) (on tile with Opinion Committee) [hereinafter “Request Letter”].
Chapter 3 12 of the Tax Code removes property owned by a member of a governmental body
from eligibility for a tax abatement from that body: “Property that is in a reinvestment zone and that
is owned or leased by a member of the governing body of the municipality or by a member of a
zoning or planning board or commission ofthemunicipality is excluded from property tax abatement
or tax increment financing.” TEX. TAX CODE ANN. 5 312.204(d) (Vernon 1992).
As a preliminary matter, we assume that the individual’s ownership interest is sufficient to
make the individual an “owner” of the property for purposes of the Tax Abatement Act. This oftice
concluded in Attorney General Letter Opinion 98-001 that the terms “owned” and “owner” in
chapter 312 “refer to a property interest that includes at least some degree of control over the
property and do not embrace a mere beneficial or equitable interest in property completely lacking
such control.” Tex. Att’y Gen. LO-98-001, at 3. Thus, the opinion concludes that a person who
owns legal title to property or who is the sole shareholder of a corporation who has the authority to
dispose of corporate assets may be the owner of property for purposes of chapter 312, while the
owner of a very small percentage of shares of a publicly held corporation is not. See id. In this case,
The Honorable Chris Harris - Page 2
we assume that the individual’s level of “ownership in a company,” as you describe it, makes the
individual the owner of the property for purposes of chapter 312. See Request Letter.
You first ask whether it is acceptable for the owner ofproperty that received a municipal tax
abatement to be elected to and serve on the city council where the city council “reaffirms the
abatement each year for the life of the original abatement.” Id. The Tax Abatement Act does not
speak to the eligibility of a property owner to serve as a member of the governing body that grants
a tax abatement. Rather, it removes property from tax-abatement eligibility if the property owner
is a member of the governing body. Thus, although the property owner is not barred by chapter 3 12
from being elected to the city council, the owner’s position on the council makes his property
ineligible for a tax abatement agreement.
You also ask whether property in a reinvestment zone continues to qualify for a municipal
tax abatement once its owner is elected to the city council. We conclude that it does not. Section
312.204(d) states that property owned by a member of the governing body of the municipality “is
excluded from property tax abatement.” TEX. TAX CODE ANN. $3 12.204(d) (Vernon 1992). Read
plainly, the statute provides that property owned by a member of the city council may not receive
a municipal tax abatement. The statute makes no exception for tax abatement agreements already
in effect when the property owner becomes a member of the governing body. Courts and this office
normally construe conflict-of-interest provisions strictly, so as to avoid a conflict. See City of
Edinburg Y. Ellis, 59 S.W.2d 99,99-100 (Tex. Comm’n App. 1933, holding approved); Tex. Att’y
Gen. Op. Nos. E-0018 (1999) at 3; DM-310 (1994) at 3. The Texas Supreme Court has said, in a
case involving a city council member’s pecuniary interest in a contract with the city, that laws
prohibiting public officers from being interested in public contracts should be “scrupulously
enforced.” Ellis, 59 S.W.2d at 100. Accordingly, we conclude that property may not continue to
receive a municipal tax abatement once its owner is elected to the city council.
Finally, you ask about the status of any votes made by the property owner since his election
to the city council. Votes on the tax abatement agreement are a nullity, since the agreement became
ineffective once the property owner became a member of the city council. Votes on matters
unrelated to the tax abatement agreement or to the tax-abated property are not affected by the council
member’s status as the owner of the property. However, votes the council member might have made
on matters related to his property, if any such votes were made aside from votes on the tax abatement
agreement, are governed by the conflict-of-interest provision in chapter 171 of the Local
Government Code.
Chapter 171 of the Local Government Code prohibits a local public official from
participating in a vote on a matter involving a business entity or real property in which the official
has a substantial interest if it is reasonably foreseeable that an action on the matter would confer a
special economic benefit on the business entity or real property that is distinguishable from the effect
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on the public. See TEX. Lot. GOV’T CODE ANN. 5 171.004 (Vernon 1999). Chapter 171 defines
what it means to have a “substantial interest” in a business or property:
(a) For purposes of [chapter 1711, a person has a substantial interest
in a business entity if:
(1) the person owns 10 percent or more of the voting stock or
shares of the business entity or owns either 10 percent or more or
$15,000 or more of the fair market value of the business entity; or
(2) funds received by the person from the business entity exceed
10 percent of the person’s gross income for the previous year.
(b) A person has a substantial interest in real property if the interest
is an equitable or legal ownership with a fair market value of $2,500
or more.
Id. 5 171.002(a)(b). A public official who knowingly violates this prohibition commits a Class A
misdemeanor. See id. 3 171.003(b).
If the city council member about whom you ask has a substantial interest in the real property
that is the subject of the tax abatement agreement, or in the business entity that owns the property,
and it is reasonably foreseeable that an action on the matter would confer a special economic benefit
on the business entity or property that is distinguishable from the effect on the public, then section
17 1.004 of the Local Government Code requires the city council member to tile an affidavit stating
the nature and extent of his interest and to abstain from participation in the matter.
Votes made in violation of section 171.004 of the Local Government Code are voidable only
if the measures on which the council member voted would not have passed without his vote:
The finding by a court of a violation under this chapter does not
render an action of the governing body voidable unless the measure
that was the subject of an action involving a conflict of interest would
not have passed the governing body without the vote of the person
who violated the chapter.
Id. 5 171.006. Thus, any actions taken by the city council that included the vote of the property
owner in violation of section 171.004 are not void; they are voidable, but only under certain
circumstances. Violations of section 171.004 are addressed by punishing the offender, not by
voiding the council’s action.
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The city should also look to its own charter and ordinances to determine whether they place
additional restrictions on a council member’s participation in matters affecting property owned by
the member. Section 17 1.004 of the Local Government Code is cumulative of municipal charter
provisions and municipal ordinances defining and prohibiting conflicts ofinterest. Id. 5 171.007(b).
SUMMARY
The Property Redevelopment and Tax Abatement Act, chapter
3 12 of the Tax Code, does not bar a property owner from serving on
the city council that granted a municipal tax abatement to the property
owner. However, the owner’s position on the council makes his
property ineligible to continue to receive a tax abatement. Section
171.004 of the Local Government Code bars him from participating
in a vote on a matter involving the property if he has a substantial
interest in the property or in the business that owns the property, and
if it is reasonably foreseeable that an action on the matter would
confer a special economic benefit on the property that is
distinguishable from the effect on the public. Votes made in violation
of section 171.004 of the Local Government Code are voidable only
if the measures on which the property owner voted would not have
passed without his vote.
Attorney General of Texas
ANDY TAYLOR
First Assistant Attorney General
CLARK RENT ERVIN
Deputy Attorney General - General Counsel
ELIZABETH ROBINSON
Chair, Opinion Committee
Barbara Griffin
Assistant Attorney General - Opinion Committee