Untitled Texas Attorney General Opinion ( 1978 )

The Attorney General of Texas
December 20, 1978
JOHN L. HILL
Attorney General
Honorable George W. McNiel Opinion No. H- 130 9
State Auditor
Sam Houston State Office Building Re: Transaction between
P. 0. Box 12067 public entities and private
Austin, Texas 787ll nonprofit foundation created
for the public entity’s benefit
Mr. Burt L. Risley or for the provision of similar
Executive Director services.
State Commission for the Blind
P. 0. Box 12866
Austin, Texas 787ll
Gentlemen:
Mr. McNiel asks several questions about the authority of officers and
employees of a public entity to hold management positions with an affiliated
nonprofit foundation. Mr. Risley inquires whether employees of the
Commission for the Blind may serve in an advisory or management capacity
with a private nonprofit organization serving blind individuals, and in
addition inquires about the loan of surplus property to such organizations.
Mr. McNielk first question is as follows:
May members of the governing board or other
officers or employees of a public entity, such as a
state agency, institution or school district, serve in
similar management or decision making positions
with a private nonprofit foundation or organization
that is affiliated with the public agency or institu-
tion?
We find no constitutional provision or statute which absolutely bars
such employment. Prohibitions against dual office holding or incompatible
employments apply only to dual public employments. & Tex. Const. art.
16, §40; Letter Advisory No. 87 (1974). Of course, the statutes of each
agency or institution must be consulted for any prohibitions specific to that
agency. See e.g., V.T.C.S. art. 3207b (paid employees of agencies serving
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the blind not eligible to serve on Board of State Commission for Blind). However, as our
discussion of the remaining questions will show, public policy severely limits the ability of
a public entity to contract with a private entity when the same persons serve in
management positions on both. Thus, while one person technically may serve in both
capacities, the conflicts of interest thereby raised will often prevent him from acting in
both capacities as a practical matter. We also draw your attention to section 8(b) of
article 6252-9b, V.T.C.S. which provides that a state officer or employee should not
accept other employment for compensation which might impair his independence of
judgment In the performance of his official duties. Whether a particular employment
violates this provision is a fact question, to be decided by his superior in the first instance.
Attorney General Opinions H-1223 (1978); H-614 (1975).
Mr. McNiel then asks a series of specific questions about transa&ions between a
public entity and private organizations in cases where one person serves both in a
management position. He asks:
May the public entity contract with the private foundation or
organization? Does it matter whether the public entity
receives a quid pro quo under the contract?
Public officers may not have a direct or indirect pecuniary interest in a contract
entered into by the agency or political subdivision they serve. Meyers v. Walker, 276 S.W.
305 (Tex. Civ. App. - Eastland 1925, no writ); see City of Edinburg v. Ellis, 59 S.W.2d 99
(Tex. Corn. App. 1933, holding approved).
This policy applies to contracts between a public entity and an affiliated private
entity established to benefit it. See Attorney General Opinion M-714 (1970) (City
councilman is “interested fin” contract with non-profit community action agency
established to assist city). In Meyers the court stated:
If a public official directly or indirectly has a pecuniary
interest in a contract, no matter how honest he may be, and
although he may not be influenced by the interest, such a
contract so made is violative of the spirit and letter of our
law, and is against public policy.
276 S.W. at 307. This policy is founded on the principle “that a man cannot serve two
masters . . . . ‘I Dillon on Municipal Corporations, 5th Edition, Vol. 2 at ll40 (cited in
Attorney General Opinion M-340 (1969) ). Public contracts in which an officer is
interested violate the common law even where no statute prohibits them. Attorney
General Opinion M-1236 (1972). Prior opinions of this office have held that public policy
prohibits contracts between a school district and an individual trustee, Attorney General
Opinion H-734 (1975), between a community center and a corporation in which a school
trustee holds stock, Attorney General Opinion M-1236 (1972), and between a county and a
farmer% cooperative in which a county commissioner owns shares, Attorney General
Opinion H-624 (1975). Attorney General Opinion H-916 (1976) held that a school district
could not contract with a company that employed a school trustee In a managerial
capacity, even though he received no direct financial benefit from the transaction. It
quoted a California court which dealt with similar facts:
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. . . upon the success of [the] business financially primarily
depends the continued tenure of his position and the compensa-
tion which he receives for performing the service required of
him. Stockton Plumbing & Supply Co. v. Wheeler, 229 P. 1020,
1024 (Cal. Dist. Ct. App. 1924).
See m 82 P.2d 519 (Dist. Ct. App. Cal. 1938); cf. Cr stal Cit v.
-463 F.2d 978 (5th Cir.), cert den., 409 U.S. ‘i62d-?&k19
officer’s employment with contractor does not invalidate contract as a matter of law).
Closely related to the policy against public contracts in which one of the
contracting officials hss a pecuniary interest is the policy against dual agency. An agent
may not represent the opposing party in a transaction without the full knowledge and
consent of his principle. Anderson v. Griffith, 501 S.W.2d 695, 700 (Tex. Civ. App. - Fort
Worth, writ ref’d n.r.e.); Bute v. Sticknev, 160 S.W.2d 302 (Tex. Civ. App. - San Antonio
1942, writ ref’d w.0.m.). Although this rule has developed in the context of private
transactions, we believe it is relevant to the conduct of persons acting as agents of the
state. Like the policy against conflict of interest in public contracts, it guards against
competing interests of a public official which would “prevent him from exercising absolute
loyalty and undivided allegiance to the best interest” of the governmental entity he
serves. Miller v. City of Martinez, supra. Public officials are “agents whose duty and
authority are defined and limited by law.” Kopecky 52 S.W.2d 240
(Tex. Corn. App. 1932, jdgmt adopted). In view of the courts’ concern about the
disinterestedness of public officials as expressed in cases like Meyers v. Walker, SUPPB,we
believe they would be reluctant to fiid the state’s consent to its agent’s representation of
the opposite party in a transaction. See McLain v. Miller County, 23 S.W.2d 264 (Ark.
1930) (county judge could not contract ah himself as representative of both county and
owners of land rented by county).
In our opinion, these principles prevent public officials from contracting on behalf
of the state or a political subdivision with a private entity which provides them a salary
or other benefit. Even though officers and employees of a nonprofit corporation cannot
receive income distributions from it, see V.T.C.S. art. 1396-2.24A, their compensation
gives them a pecuniary interest in thecorporation and in contracts benefitting it. See
Attorney General Opinion H-916 (1976) (contract between school district and come=
which employs trustee invalid). See also Bexar County v. Wentworth, 378 S.W.2d 126
(Tex. Civ. App. San Antonio 1964, writ ref’d n.r.e.1 (although commissioner who
represented voting machine company received no money from sales to his county, he had
indirect interest in such sales). Moreover, the public entity must receive adequate
consideration under the contract in order to avoid making a gift or grant of public funds to
a private association in violation of article 3, section 51 of the Texas Constitution.
Dodson v. m ll8 S.W.2d 621 (Tex. Civ. App. - Waco 1938, writ dism’d); Attorney
General Opinions H-1260 (1978); H-520 (1975); H-430 (1974). An officer representing both
the state and the private agency in contract formation probably could not disinterestedly
judge the adequacy of consideration flowing to the state.
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Mr. McNiel also asks:
May private gifts and grants made to the public entity be
remitted to the affiliated foundation or organization?
The agency must first have authority to accept the gift. Attorney General Opinion
H-R80 (1976). If it does, the current appropriations act provides that monetary gifts to
state agencies shall be appropriated to the agency for the purposes specified by the
grantor. Acts 1977, 65th Leg., ch. 872. art. V, S19 at 3155. Such gifts, except for gifts to
the Mental Health-Mental Retardation Department, institutions under its jurisdiction, or
Article IV institutions, are to be deposited into the State Treasury and expended in
accordance with the Act. Article 3, section 51 of the Texas Constitution prohibits the
grant of public monies to any association or corporation unless the transfer serves a public
purpose and adequate contractual or other controls ensure its realization. Attorney
General Opinions H-912 (1976); H-445 (1974); H-143 (1973); see Texas Pharmaceutical
Association v. Dooley, 90 S.W.2d 328 (Tex. Civ. App. - Aus- 1936, no writ) (holding
unconstitutional statute authorizing transfer of public funds from Pharmacy Board to
private pharmaceutical association). See also Tex. Const. art. 3, S52(a). In order to
make a constitutional transfer, the pubhc entity would have to contract with the private
foundation or otherwise attach conditions to the gift. Thus, some exercise of contractual
authority would usually be necessary to transfer a gift. The fact that the same persons
represent both the public and private agencies would prevent the transfer in most
instances. However, where the agency has authority to accept a gift earmarked for
distribution to a private agency, the public officials could probably carry out the transfer
in a purely ministerial capacity. See Allen v. Roach, 292 S.W. 195 (Tex. Corn. App. 1927,
holding approved). See also AttorneyGeneral Opinion M-782 (1971)(distribution of federal
grant funds to nonpmporations); M-91 (1987).
Mr. McNiel asks:
May the public entity make grants or gifts to the private
foundation or organization? May the officers, or employees
of the public entity accept grants or gifts from the private
foundation or organization?
A state agency or institution must have express or implied statutory authority to
make a gift or grant. _See, Attorney General Opinion C-673 (1966). The
requirements of article 3, section 51 must also be satisfied. See also Tax. Const. art. 3,
S52(a). We believe the circumstances preventing the public agencyfrom remitting gifts
it receives to the private agency would also prevent it from making such gifts.
Article 6252-9b, V.T.C.S., bars state officers and employees from accepting gifts,
faVOrS or services that might influence them in the discharge of official duties. Sec.
8(a). The acceptance of personal gifts by state officers and employees raises the
possibility of a violation of this provision; however, whether a violation has occurred is a
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fact question for the agency to resolve in the first instance. If the public entity has
authority to accept gifts or grants, see Attorney General Opinions H-120 (1973); M-1212
(19721, we believe an officer or emplo= may accept them as a ministerial act on behalf
of the entity. We do not believe the officer’s relationship to the grantor would prevent
him from accepting such gifts unless conditions attached to the gift require the state to
enter into a contract or provide some benefit in return.
Mr. McNiel also asks:
May the officers or employees of the public entity, as a part of
their regular duties, maintain records and solicit funds for the
private foundation or organization? If not, may they do so if
the foundation or organization reimburses the pubIic entity for
such service?
In our opinion, the activities you describe would constitute a gift of services to a
private association subject to the requirements of article 3, section 51. Adequate
consideration for services provided is in some cases necessary to avoid violation of this
constitutional provision. & Attorney General Opinions H-912 (1976); H-416 (1974).
However, we do not see how these services could be provided without the negotiation of a
contract between the two entities. Consequently, we do not believe these services may
be provided in cases where the same persons pur ort to represent both sides of the
transaction. See also Texas Penal Code 531.04(a)P2) (theft of services by diversion to
person not entitled to them).
Mr. McNiel asks:
May the public entity loan or advance funds or any other thing
of value to the private foundation or organization? May the
public entity borrow funds or any other thing of value from the
private foundation or organization?
Specific provisions relating to the agency or institution must of course be
consulted. See, General Appropriations Act, Acts 1977, 65th Leg., ch. 872, art. IV, S
lla.i. (colleges shall not borrow money to be repaid out of local funds without specific
legislative authorization); Attorney General Opinion H-340 (1974) (authority of State Bar
to borrow money to finance bar building); V-678 (1948) (school district may not lend funds
to another school district). See also Tex. Const. art. 3, SS 49, 50. However, we do not
see how either entity may loan or borrow from the other without entering into a contract.
Thus, the prohibitions against contracts on the facts posited would also bar loans.
Mr. McNiel asks two more specific questions concerning complex contractual
relationships between various parties including the public agency, the private entity, the
individual officers, and the federal government. The public policies we have discussed
apply to these transactions, which also must be assessed in light of the relevant Texas and
federal laws. See e.g., Attorney General Opinions H-1272 (1978); H-440 (1974); M-782
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(197l). However, since these two questions are contingent upon a finding that the public
entity may contract with or make grants to the private entity, we need not further
address them.
Mr. McNiel also asks:
Would the answer to any of the above questions be different if
the affiliated nonprofit foundation or organization did not have
members of the governing board or officers or employees of
the public entity in similar or decision making positions?
This change in facts would remove limitations imposed by the policies against
pecuniary conflicts of interest and dual agency. Any prohibitions flowing from the
agency’s own statutes would remain, gee, e. Attorney General Opinions H-1272 (1978); H-
943 (19771, and compliance with article $II, section 51 of the constitution would still be
necessary.
Mr. McNiel’s final question is:
Would the answer to any of the above questions be different if
the officers or employees of the public entity received only
per diem or actual expenses from the foundation or organiza-
tion for serving in management or decision making positions
with the private foundation or organization?
We cannot say that such persons would have no pecuniary interest in the private
foundation. See Attorney General Opinion H-624 (1975) (comm,issioner’s share in farmers’
cooperative constitutes pecuniary interest). In addition, such persons would still be
placed in the position of representing both the state end the other party to a transaction.
Consequently, we do not believe this change in facts would change our answers.
Mr. Risley asks:
Hoes Article 6252-9b, V.T.C.S., or any other provision of law
prohibit an employee of the Commission for the Blind from
serving on an advisory committee to or on the board of
directors of a private nonprofit organization chartered and
operated for the purpose of providing services to blind
individuals, if such employee of the Commission for the Blind
receives no direct or indirect pecuniary compensation for his
services to the private nonprofit organization?
Section 8(b) of article 6252-9b, V.T.C.S., prohibits a state officer or employee from
accepting other employment which might impair his independence of judgment in the
performance of his official duties. Whether this provision bars a particular employment
is a fact question to be decided by the Commission for the Blind. Attorney General
Opinions H-1223 (1978); H-614 (19752
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Article 3207b, V.T.C.S., provides in part:
No paid employee of any agency carrying on work for
the blind shall be eligible for appointment, nor shall any person
be eligible to be appointed to serve on the Board of the State
Commission for the Blind who is engaged in, associated with,
or otherwise representing a business, discipline, profession or
trade conducted for the primary purpose of selling or
furnishing goods or services of the type provided by the State
Commission for the Blind as a significant part of the
assistance which the State Commission for the Blind is
authorized to extend to eligible individuals. . . .
This would bar board members from being associated with a business or profession
furnishing services of the type provided by the commission. A particular nonprofit
organization might fit this definition. Article 3207b does not, however, apply to
employees of the commission as distinguished from board members.
Finally, the common law policies discussed in answer to Mr. McNiel’s question
might be relevant to particular transactions between the Commission for the Blind and a
nonprofit organization with which a commission employee serves. If there are
contractual or other transactions between the commission and the nonprofit foundation,
the employee may be placed in the position of representing both parties to a transaction.
Mr. Risley also asks:
Does Article 8252-6, V.T.C.S., or any other provision of law
prohibit the Commission for the Blind from loaning surplus
equipment to a closely cooperating, private nonprofit organi-
zation that provides services to blind individuals in a manner
that complements and supports the Commission for the Blind’s
service effort in behalf of eligible individuals?
Article 6252-6, V.T.C.S., establishes a system of accounting for state property, to
be administered by the Board of Control and the Auditor. Sec. 3(a). The statute does
not apply to nonconsumable personal property having a value of $250 or less per unit. It
establishes record keeping requirements and provides that state property shall not be
entrusted to anyone to be used for other than state purposes. Sec. 5(c). Attorney
General Opinion M-823 (19701 construed a prior version of this statute which made the
Comptroller and Auditor responsible for administering the property accounting system.
The opinion determined that the Comptroller could promulgate regulations whereby
certain artifacts owned by Texas Tech University could be loaned or exchanged
temporarily with other universities and museums. The opinion stated that the exchange
could be accomplished in such a way as to constitute a state purpose.
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In our opinion, article 6252-8, V.T.C.S., does not prohibit the Bliid Commission
from entering into a contract to loan surplus property to private agencies which assist the
blind so long as the loan is made for a state purpose and in compliance with regulations
issued under the statute. Article 3207c, section 4(a) authorizes the commission to
cooperate with private agencies in providing for the vocational rehabilitation of the blind
and establishing necessary programs, facilities and services. The commission also has
authority under section 2(b) of article 3207a to furnish materials, tools, books, and other
necessary apparatus to use in rehabilitating the blind. As a general matter, we believe a
loan of surplus property to carry out these provisions would be for a state purpose.
Article 16, section 6(b) of the Texas Constitution authorizes state agencies serving the
blind to use money from federal and private sources for projects conducted by private,
nonprofit organizations and for facilities for the blind. Where a loan of property does not
fall within the provisions of article 16, section 6(b), it must comply with the requirements
of article 3, section 51 of the Constitution to avoid an unconstitutional gift or grant to any
person. We do not comment on a particular proposed transaction, since none has been
presented to us. Nor do we consider the impact of any person’s conflict of interest or
assumption of a dual agency role in such a transaction, except to refer you to our
discussion of Mr. McNiePs questions. See also Texas Penal Code S39.01(a)(5)
(misapplication of government property).
SUMMARY
Officers and employees of a public entity are not absolutely
barred from serving as directors of an affiliated private
nonprofit foundation. However, where the same persons serve
in similar capacities with both agencies, the ability of the
state agency to contract or otherwise transact business with
the private entity is severely limited by common law principles
guarding against conflicts of interest. Whether article 6252-
9b, V.T.C.S., prohibits a state employee from working for a
private nonprofit organization must be determined on a case
by case basis. Article 6252-6, V.T.C.S., does not prohibit the
loan of state property to private individuals for a state purpose
and pursuant to regulations promulgated under the statute.
Attorney General of Texas
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Honorable George W. McNiel and Mr. Burt L. Rieley - Page 9 (R-1309)
APPROVED:
Opinion Committee
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