Untitled Texas Attorney General Opinion

OFFICEOF THE ATTORNEYGENERAL ST.4TE
OF TEXAS
JOHN CORNYN
September 28,1999
The Honorable Ren& 0. Oliveira Opinion No. K-01 18
Chair, House Committee on Ways & Means
Texas House of Representatives Re: Whether it is permissible to use sales and
P.O. Box 2910 use taxes levied under section 4B of the
Austin, Texas 78768-2910 Development Corporation Act of 1979, TEX.
REV. CIV. STAT. ANN. art. 5190.6 (Vernon
1987 & Supp. 1999), for other than project
costs (RQ-1047)
Dear Representative Oliveira:
On behalf of the cities of McAllen and San Benito, you request an opinion from this office
regarding the expenditure of sales and use taxes levied under section 4B of the Development
Corporation Act of 1979, TEX. REV. Crv. STAT. ANN. art. 5190.6 (Vernon 1987 & Supp. 1999) (the
“Act”).
You inform us that for several years a development corporation has provided section 4B tax
proceeds to private community organizations. These tax proceeds, you state, are generally not
expended for “projects.” Your request suggests that the expenditures are characterized as
expenditures for “promotional purposes” simply because they do not relate to projects. Accordingly,
we understand you to first ask whether section 4B tax proceeds may be expended for items other
than project costs. Because section 4B tax proceeds may only be used to pay or finance project
costs, we conclude that they may not be expended for “promotional purposes” unrelated to projects.
The Act authorizes cities, counties, or conservation and reclamation districts to create
industrial development corporations to finance projects that further the economic development
purposes ofthe Act. Id. $5 2(12) (Vernon 1987); 3,4A, 4B, 21 (Vernon Supp. 1999). The declared
purpose of the Act is to authorize measures, especially with respect to financing, that promote the
public’s economic welfare by the “securing and retaining of business enterprises and the resulting
maintenance of a higher level of employment, economic activity, and stability.” Id. 3 3(3) (Vernon
Supp. 1999). Originally, the Act limited payment of obligations incurred by a development
corporation to revenues derived from the proceeds of bonds or revenues derived from the sale or
lease of a project or repayment of a loan made by the development corporation to finance the project.
Id. 55 22 (Vernon 1987); 25(e) (Vernon 1987 & Supp. 1999).’ Thus, no “public moneys” were
involved in development corporation transactions under these original provisions. Tex. Att’y Gen.
‘See also Act of May 19,1979,67th Leg., RX, ch. 700, $5 21,22,23, 1979 Tex. Gem Laws 1675, 1683-84.
The Honorable Rene 0. Oliviera - Page 2 (X-0118)
Op. No. MW-85 (1979). But sections 4A and 4B, more recently enacted provisions of the Act,
authorize an eligible city to collect a sales and use tax, subject to voter approval, for the use of a
development corporation created by the city under these sections. TEX. REV. Crv. STAT. ANN. art.
5190.6, $5 4A(a), (b), (d), 4B(a), (d), (g) (Vernon Supp. 1999). Accordingly, a city may establish
a development corporation under the Act’s general provisions or under section 4A or section 4B.
For the purposes of this opinion, we focus on sections 4A and 4B development corporations because
your questions concern the use of sales and use taxes.
Although both sections 4A and 4B authorize a city to establish a development corporation
and levy a sales and use tax, they differ in some important respects. Section 4A applies to a city
located in a county with a population of 500,000 or fewer, or that has a population of fewer than
50,000. Id. 5 4A(a). It authorizes a section 4A development corporation to undertake and use the
sales tax proceeds for most of the facilities constituting projects under the Act’s general provisions,
namely, section 2( 10). Section 2( 10) projects generally comprise the following: (1) manufacturing,
industrial, transportation, sewage or solid waste disposal, recycling, air or water pollution control,
water, distribution centers, small warehouse, or commercial facilities or (2) those facilities related
to the development or redevelopment of a closed or realigned military base. Id. $5 2(10), 4A(f).
Additionally, the Seventy-sixth Legislature enacted several measures amending the section 2(10)
definition of a project to include higher education facilities;’ “job training required or suitable for
the promotion of development and expansion of business enterprises and other enteiprises”;3
educational facilities, job creation, retention, and job training facilities, and targeted infrastructure.4
A section 4A development corporation, however, may not generally undertake a project whose
primary purpose is to provide transportation, solid waste disposal, or air or water pollution control
facilities. Id. 3 4A(i). Additionally, section 4A now allows a development corporation to expend
tax proceeds for any project authorized under section 4B, provided the city that created the
development corporation obtains prior voter approval for any such expenditure. Id. 5 4A(s)(i)?
Section 4B applies to a city that is located in a county with a population of 750,000 or more,
or that has a population of 400,000 or more. Id. 5 4B(a)(l)(A)-(C). It also applies to a city “to
which Section 4A . applies,” which we understand to mean that any city authorized to create a
development corporation under section 4A may create a development corporation under section 4B.
Id. $4B(a)(l)(D). Unlike section 4A, section 4B authorizes a development corporation to use sales
tax proceeds for all the section 2(10) projects. Id. 5 4B(a)(2)(A). It also authorizes use of the tax
‘See Act ofMay 14,1999,76thLeg., R.S., S.B. 1289, g 2 (to becodifiedas anamendment to TEX.REV.CIV.STAT.
ANN.art. 5190.6).
‘See Act of May 26, 1999, 76th Leg., R.S., H.B. 1916, 5 1 (to be codified as an amendment to TEX.REV.Cm.
STAT.
ANN.art. 5190.6).
‘See Act of May 31, 1999,76th Leg., R.S., H.B. 3029, 5 1 (to be codified as an amendment to TEX.REV.CIV.
STAT.
ANN art. 5 190.6). We note that House Bill 3029 also authorizes creation of a new section 4E development
corporation to undertake spaceport facilities. Id.
5SeeActofMay22,1997,75thLeg.,R.S.,ch.551,§2, 1997Tex.Gen.Laws 1929,195l;ActofJune 1,1997,
75th Leg., R.S., ch. 958, 5 1, 1997 Tex. Gen. Laws 2995.
The Honorable Rent? 0. Oliviera - Page 3 (X-0118)
proceeds for sports, entertainment, tourist, convention center, public park, housing, or other similar
public works type facilities. Id. 44 2(10), 4B(a)(2)(A), (B), (C). But also unlike section 4A, only
tax proceed expenditures for sports venue projects and related infrastructures require specific prior
voter approval. Id. 5 4B(a-3)(l)-(3). A ccordingly, a section 4B corporation has a greater number
of project types it may finance with fewer restrictions insofar as voter approval is concerned.
You ask about a development corporation established, and sales and use taxes levied, under
section 4B. A development corporation is governed by the section under which it is created, and use
of the sales and use tax is governed by the section under which it is levied. Section 4A provides that
a “city may create a corporation under this Act governed by this section,” which “has the powers and
is subject to the limitations of a corporation created under other provisions of [the] Act” but “[t]o
the extent of a conflict between this section and another provision of [the] act, this section prevails.”
Id. 9 4A(h)(l). Section 4B provides similarly with respect to a development corporation created
under its provisions. Id. $4B@). As discussed in greater detail below, section 4B specifically limits
the types of expenses for which sales and use tax revenues may be expended.
Subsection (g) of section 4B specifies the purposes for which section 4B tax proceeds may
be used, namely, to:
(1) pay the costs ofprojects of the types added to the definition
of that term by Subsection (a) of this section; or
(2) pay the principal of, interest on, and other costs relating to
bonds or other obligations issued by the corporation to pay the costs
of the projects or to refund bonds or other obligations issued to pay
the costs of projects.
Id. $4B(g) (emphasis added). “Cost,” as applied to a project, is broadly and generally defined to
mean all direct or incidental costs associated with the acquisition, construction, improvement, or
equipping of a project, including financing charges and administrative expenses. See id. 5 2(4).
None of these expressly authorized costs include “promotional” costs unrelated to projects.
Under the express provisions of section 4B, we conclude that section 4B tax proceeds may
only be used to pay or finance project costs. Section 4B(g) expressly provides that the sales and use
tax proceeds may be used to pay directly the costs of the authorized projects or pay debt service on
bonds or other obligations issued to finance the costs of projects. As section 4B(g) specifically
names those purposes for which the section 4B tax proceeds may be used, any purpose not named
is expressly excluded. See State v. Mauri&Wells Co., 175 S.W.2d 238, 241 (Tex. 1943) (express
mention or enumeration of particular person, thing, consequence, or class is equivalent to express
exclusion of all others). The Act, and in particular section 4B, is a detailed and comprehensive
scheme for providing measures to finance projects that promote the Act’s purposes, including
economic development. See TEX. REV. Qv. STAT. ANN. art. 5190.6, $5 2(4), (lo), 4A, 4B, 21-31
(Vernon 1987 & Supp. 1999). If the legislature intended development corporations to use the
section 4B tax proceeds for other purposes, it would have expressly so provided as it did in section
The Honorable Rene 0. Oliviera - Page 4 (X-0118)
4A. See Laidlaw Waste Sys., Inc. v. City of Wilmer, 904 S.W.2d 656,659 (Tex. 1995) (“‘It is arule
of statutory construction that every word of a statute must be presumed to have been used for a
purpose. Likewise, we believe every word excluded from a statute must also be presumed to have
been excluded for a purpose.“‘); see also State v. Kaiser, 822 S.W.2d 697, 700 (Tex. App.-Fort
Worth 1991, pet. ref d) (legislative intent may be inferred from the fact that a statute does not
contain a certain provision).
Subsection (b)(l) of section 4A specifically provides that “[a] corporation created under
this section may spend no more than 10 percent of the corporate revenues for promotional purposes
” This provision permits
a development corporation such as [the Development Corporation of
Abilene], operating under section 4A of the act, to spend sales and
use tax proceeds for ‘promotional purposes,’ subject to the proviso of
subsection (b)( 1) that no more than 10 percent ofcotporation revenue
may be spent for such purposes, and so long as the expenditures are
otherwise consistent with the provisions of the act and applicable
state law generally.
Tex. Att’y Gen. LO-94-037, at 2. Section 4B does not contain a provision similar to section
4A(h)(l) authorizing the use of tax proceeds for promotional purposes. An interpretation of section
4B that tax proceeds may be used for purposes not set out in subsection (g) would write into the
statute language that is not there and render superfluous the words of limitation expressed in the
statute.
Our construction of section 4B(g) that section 4B tax proceeds may only be used for project
costs is supported by other provisions of section 4B that tie collection and use of the tax to payment
of project costs. Subsections 4B(a-1), 4B(a-2) and 4B(n) require a development corporation to give
public notice, call an election upon receipt of a petition signed by the requisite number of voters
requesting such election, and hold a public hearing before undertaking or expending funds for any
project costs. See TEX. REV. Qv. STAT. ANN. art. 5190.6, $4B(a-1), (a-2), (n) (Vernon Supp. 1999).
These public accountability provisions would be rendered nugatory if the section 4B tax proceeds
may be spent for promotional or other costs that are not project costs. Additionally, subsection (h)
of section 4B provides that the principal amount of bonds and other obligations payable from the
sales and use tax together with other costs of projects, excepting interest on bonds and other
obligations, paid directly with sales and use tax proceeds, may not exceed $135 million. Id. 5 4B(h).
Again, this limit on the aggregate expenditures of section 4B sales tax proceeds would be
meaningless if the tax proceeds may be expended for purposes other than project costs. Finally,
subsection (i) of section 4B prohibits the collection of the sales and use tax after all bonds or other
obligations issued to finance project costs have been fully paid or the amount necessary to fully pay
them has been set aside in a dedicated trust. Clearly, collection of the sales and use tax is only
authorized to the extent necessary to pay project costs.
The Honorable Rene 0. Oliviera - Page 5 (X-0118)
We do not believe the authority of a section 4B corporation to use sales tax proceeds for
purposes other than project costs (or rather the lack of statutory authority) is affected by the court’s
determination in Gaut v. Amarillo Economic Development Corporation, 921 S.W.2d 884 (Tex.
App.-Austin 1996, no writ). In Gaut, the City of Amarillo had established the Amarillo Economic
Development Corporation (“AEDC”) and levied a sales and use tax under section 4A of the Act.
Gaut, 921 S.W.2d at 885-86. At issue in Gaut was the validity of a contract executed by the AEDC
and American Airlines whereby the AEDC made payments to the airline company to provide jet
service to the City of Amarillo. Id. Gaut contended that the AEDC’s payments to the airline
company were illegal because the contract was not a project under the Act. Id. at 887. The court
agreed that the “contract is not the type of project that involves the construction, acquisition, sale,
lease, or purchase of a building” but disagreed that the AEDC “is limited to considering only
projects as defined by” the Act. Id. The court noted that the AEDC had the power to contract and
incur liabilities. Id. Given that authority and the “summary judgment evidence reflecting the
probable enhancement to the Amarillo economy as well as the economic benefits to the residents of
the Texas panhandle’* resulting from the jet service contract, the Gaut court concluded that the
contract was within the stated purposes of the Act. Id. at 887-88.
Gaut does not influence our construction of section 4B for a number of reasons. First, Gaut
considered only section 4A tax proceeds. The provisions regarding use of section 4A taxes differ
from the parallel provisions regarding use of section 4B tax proceeds. Section 4A (t) provides that:
On receipt of the proceeds of the sales and use tax imposed
under this section from the comptroller, the city shall deliver the
proceeds to the corporation to use in carrying out itsfunctions. Tax
proceeds may be used to pay the principal of, interest on, and other
costs relating to the corporation’s bonds
TEX.REV.CIV.STAT.ANN.``~. 5190.6, $4A(f)(VemonSupp. 1999)(emphasisadded).7 Additional-
ly, and most critically for the purposes of your question, subsection 4A(b)( 1) specifically authorizes
the use of tax proceeds for promotional purposes. See id. $4A(b)(l); Tex. Att’y Gen. LO-94-037.
Accordingly, by its terms, section 4A’s authorization to use tax proceeds for any function of a
development corporation-including payment of debt service and other costs relating to bonds
issued to finance project costs and of promotional expenditures-is comparatively broad. See id.
$5 4A(h)(i) (section 4A corporation has powers and is subject to limitation under other provisions
of Act except to extent of conflict), (i) (projects section 4A corporation may undertake), 23(4)
@Ihe AEDC and American Airlines presented evidence showing that many Amarillo business people relied on
jet service for their business operations. Gaut, 921 S.W.Zd at 887. Several business people stated by affidavits that if
jet service to Amarillo were to be discontinued, their businesses would relocate to other cities served by jet service. Id.
Additionally, the evidence reflected that a scheduled American Quarter Horse Association convention with an
attendance of 1400 persons would relocate if the jet service were no longer available. Id.
‘House Bill 1916 amends this section to specifically authorize the use of the sales tax proceeds for expenses
related to job training programs authorized under section 38 of the Bill. See Act of May 14, 1999,76th Leg., R.S., S.B.
1289, g 3 (to be codified as an amendment to TEX.REV.cw. STAT.ANN.art. 5190.6).
The Honorable Renk 0. Oliviera - Page 6 (X-0118)
(development corporation may finance projects costs), (5) (development corporation may issue
bonds for project costs). Given the express authorization of section 4A that is not included in section
4B, we cannot infer that what may be a permissible expenditure under section 4A is also permissible
under section 4B.
Second, in light of the 1997 amendments to section 4A, there is some question whether Gaut
remains authoritative with respect to the use of section 4A tax proceeds. In 1997, the legislature
enacted two bills, House Bill Nos. 92 and 1525, that substantially expanded the authority of a section
4A development corporation.* Section 4A(s) of the Act now authorizes a city with a section 4A
development corporation to hold an election to authorize that development corporation to use the
sales and use tax “for a specific project or for a specific category of projects, including a sports
venue and related infrastructure, that does not qualify under this section but qualifies under Section
4B of this Act.” TEX. REV. Qv. STAT. ANN. art. 5190.6, 3 4A(s)(i) (Vernon Supp. 1999). An
analysis of House Bill 1525 notes that many communities adopted section 4A sales taxes before
section 4B was available to them: “Because spending restrictions under Section 4A are more
restrictive than under 4B, many of these communities feel they are at a competitive disadvantage
with 4B cities.” HOUSE COMM. ON ECONOMICDEV., BILL ANALYSIS, Tex. H.B. 1525, 75th Leg.
R.S. (1997) (emphasis added). The bill analysis continues: “The House Economic Development
Committee studied the issue during the Seventy-fourth legislative interim and recommended that
legislation be passed that would [allow] section 4A cities to undertake projects currently exclusive
to 4B cities, if [the] voters approved the project. The committee felt that because voters approved
the sales tax for limited spendingpurposes under [the] 4A provision, that the voters must approve
spending for new purposes.” Id. (emphasis added).
If Guut is correct that a section 4A development corporation is not limited to funding
projects, then it is difficult to imagine the purpose of the 1997 legislation expanding the authority
of a section 4A development corporation to expend funds on section 4B projects. Applying the
maxim that “[tlhe legislature is never presumed to do a useless act,” Hunter Y. Fort Worth Capital
Corp., 620 S.W.2d 547, 551 (Tex. 1981), the 1997 amendments shed light on the Act’s proper
construction. See Stanford v. Butler, 181 S.W.2d 269, 274 (Tex. 1944) (“There is a very
well-established rule that where a later act implies a particular construction of an existing law, and
particularly where the existing law is ambiguous or its meaning uncertain, interpretation of the prior
act by the Legislature as contained in the later act is persuasive when a court is called upon to
interpret the prior law.“); see also Texas Water Comm ‘n Y. Brushy Creek Man. Util. Dist., 917
S.W.2d 19, 21 (Tex. 1996) (“When the meaning of an existing law is uncertain, the Legislature’s
later interpretation of it is highly persuasive.“) (citing Stanford, 18 1 S.W.2d 274). The amendments
thus suggest that Gaut is an overbroad and incorrect reading of the authority to expend funds for
purposes other than those recognized expressly in the statute?
8SeeActofMay22,1997,75thLeg.,R.S.,ch.551,~2,1997Tex.Gen.Laws 1929,195l;ActofJune 1,1997,
75th Leg., RX, ch. 958, 5 1, 1997 Tex. Gen. Laws 2995.
‘The 1999 amendments to the Act expanding the definition of projects to include educational,job creation,
retention, and training facilities, targeted infrastructure,andjob trainingprogramrelatedexpenses support the view that
(continued...)
The Honorable Ren& 0. Oliviera - Page 7 (JC-0118)
Gaut’s reading renders meaningless not only the 1997 amendments to section 4A, but also
a substantial portion of the Act. See TEX. REV. Crv. STAT. ANN. art. 5190.6, $5 2(4), (lo), 3(3),
4A(f), (i), (s)(l), 4B(a)(2), (a-l), (a-3), (a-4), 21 (Vernon Supp. 1999). Gaut focuses on the general
objective of the Act-promotion of economic development-and disregards the expressly authorized
method-funding authorized project costs-to attain that purpose, contrary to well-established
principles of statutory construction that require a court to look to a statute as a whole and give effect
to each part. See Barr v. Bernhard, 562 S.W.2d 844,849 (Tex. 1978) (court must look to entire act,
not just one provision, to determine legislative intent); Eddins- Walcher Butane Co. v. Calvert, 298
S.W.2d 93,96 (Tex. 1957) (court must give effect to each word and phrase in statute).
The Act’s stated purpose is to authorize “means and measures especially with respect to
financing,” that promote economic development. TEX. REV. CIV. STAT. ANN. art. 5190.6, 5 3(3)
(Vernon Supp. 1999).” Thus it authorizes an eligible city to establish development corporations “to
issue bonds on its behalf to finance the cost of projects to promote and develop new and
expanded business enterprises to promote and encourage employment and the public welfare.” Id.
5 2 1 (emphasis added) (footnote omitted). It then sets out at length and in detail those projects and
costs that such development corporations may pay for or finance. See $5 2(4) (definition of “cost”)
(10) (definition of “projects” applicable to 4A and 4B development corporations), 4A(f), (i), (s)(l)
(section 4A projects ), 4B(a)(2), (a-l), (a-3), (a-4) (section 4B projects).
Looking at the Act as a whole and giving effect to all its parts, the above project funding
provisions can have no purpose other than to limit a development corporation to that expressly
authorized method for promoting economic development. See Cole v. Texas Army Nat ‘IGuard, 909
S.W.2d 535, 539 (Tex. App.-Austin 1995, writ denied) (“‘[Wlhere a [statutory] power is granted,
and the method of its exercise prescribed, the prescribed method excludes all others, and must be
followed.“‘(quoting Fosterv. City of Waco, 255 S.W. 1104,1105 (Tex. 1923)). For ifthe legislature
intended that promotion of economic development be the only limitation on a development
corporation’s spending authority, as Guut essentially concludes, the legislature clearly did not need
to provide the elaborate project funding provisions to attain that result. See Hunter, 620 S.W.2d at
551 (legislature is never presumed to do useless act).
In sum, section 4B contains a number of express limitations on expenditures not found in
section 4A. Section 4B’s authorization to use section 4B tax proceeds is limited to enumerated
purposes, namely specified project costs: direct project costs or costs relating to bonds or other
obligations issued to finance project costs; sports venue projects if approved by the voters; and
maintenance and operation costs ofpublicly owned and operated projects acquired under section 4B.
TEX. REV. Crv. STAT. ANN. art. 5190.6, 5 4B(a-2), (a-3), (g) (V emon Supp. 1999). Additionally,
9(...continued)
Gaut is an incorrect reading of the statute. See supro notes 2-4. Again, if a development corporation is not limited to
undertaking projects, it is diffblt to imagine the purpose of these legislative amendments.
‘f%e also House COMM.ONWAYS & MEANS,BILL ANALVSIS,Tex. S.B. 376,72d Leg., R.S. (1991) (“The intent
of the Development Corporation Act of 1979 (V.T.C.S. art. 5190.6) was to authorize communities to issue industrial
revenue bondsfir the purpose ofeconomic development.“) (Emphasis added) (Background).
The Honorable Ren& 0. Oliviera - Page 8 (X-0118)
unlike section 4A, the public accountability provisions in section 4B (public notice, election in
certain circumstances, and a public hearing before funds are expended for any project costs) tie
collection and use of the tax proceeds to payment of project costs. Id. 5 4B(a-l), (a-2), (n). Section
4B(h) limits the aggregate expenditures of the sales and use taxes for project costs to $135 million,
which limitation would be meaningless if tax proceeds could be spent for other than project costs.
Most significantly, section 4B(i) prohibits the collection of the sales and use taxes once all
obligations incurred for project costs have been paid or arrangements have been made to fully pay
them. Thus section 4B contemplates that section 4B tax proceeds will be used only to pay project
costs. Accordingly, we conclude that section 4B tax proceeds may not be used for “promotional”
costs that are not project costs.
Although unrelated to projects, your request suggests that providing section 4B tax proceeds
to the local chamber of commerce to “maintain aproperly-staffed business service office,” “organize
a Christmas parade that features the City’s business district,” and operate a“Texanvisitor’s bureau,”
may, nonetheless, be characterized as maintenance and operation costs of a public facility and, thus,
authorized project costs. We disagree.
Project costs for which tax proceeds may be used do include maintenance and operation costs
of certain projects. Specifically, subsection (a-2) of section 4B provides as follows:
The costs of a publicly owned and operated project that is
purchased or constructed under this section include the maintenance
and operating costs of a project .
Id. 9 4(B)(a-2) (emphasis added). By its terms, subsection (a-2) authorizes use of section 4B tax
proceeds only for maintenance and operation costs of projects purchased or constructed under
section 4B. Section 4B(a-3)(2) provides similarly with respect to maintenance and operation costs
for publicly owned and operated sports venue projects. Id. § 4B(a-3)(2). The expenditures in
question, even if they could be characterized as maintenance and operation costs, do not relate to a
publicly owned and operated project purchased or constructed under section 4B. If there is no
publicly owned and operated project, clearly there is no statutory basis to use section 4B tax
proceeds for maintenance and operation costs.
Lastly, you ask whether the “grants of sales tax revenues to private organizations [for
promotional purposes] constitute prohibited ‘gifts’ pursuant to article III, 5 52 of the Texas
Constitution.” Given our conclusion that section 4B tax proceeds may not be used for purposes
other than project costs, we do not address this question in great depth. We do note, however, that
your request states that the development corporation in question “grants” section 4B tax proceeds
to private community organizations without any contractual restrictions as to the purposes for which
the funds may be expended. This is unauthorized. First, in accordance with our conclusion above,
section 4B tax proceeds may be expended only for project costs. Second, neither section 4B nor any
other provision of the Act authorizes a development corporation to make a gift or donation of section
4B tax proceeds. See Tex. Att’y Gen. LO-97-061, at 4-5 (Act does not permit section 4A
development corporation to make gifts of public funds); LO-94-037, at 3 (Act does not authorize
The Honorable Rene 0. Oliviera - Page 9 (X-0118)
section 4A development corporations to make gifts). Expenditures for even project costs must be
pursuant to a contractual or other arrangement sufficient to ensure that the funds are used for the
purposes authorized. See Tex. Att’y Gen. LO-94-037, at 3 (no provision in section 4A or the Act
specifically authorizes development corporation to make grants; “the act requires that any ‘grant’
by [the section 4A development corporation] be made under contractual or other arrangement
sufficient to ensure that the funds granted are actually used in furtherance of the purposes of the
act.“). Even Gaut does not provide otherwise. Gaut involved a contract by which the development
corporation received a valuable consideration in return for the payments made under the contract.
Tex. Att’y Gen. LO-97-061, at 4. Presumably, the contract included terms to ensure that the
development corporation received the bargained-for-quid pro quo, jet service. Id. Accordingly, any
expenditure of section 4B tax proceeds must be made pursuant to a contractual or other arrangement
that ensures that the funds will be used for the purposes authorized.
In 1979, this office opined that the Act did not implicate article III, section 52(a) constraints
because no public moneys were involved in the expenditures authorized under the Act at that time.
See Tex. Att’y Gen. Op. No. MW-85 (1979) at 3 (no “public money”involved in issuance ofrevenue
bonds and Act provides that development corporation is not a political subdivision or political
corporation; therefore, “there could be no ‘grant’ or ‘donation’ of ‘public money” in any economic
or constitutional sense”). As discussed earlier, the Act changed, however, by the addition ofsections
4A and 4B authorizing the collection and expenditure ofthe sales and use tax. TEX. REV. CIV. STAT.
ANN. art. 5190.6, $5 4A(a),(h), (d), 4B(a), (d), (g) (Vernon Supp. 1999). Expenditure of sales and
use tax proceeds is unquestionably the expenditure of public moneys within the meaning of article
III, section 52(a). The constitutional requirement that any expenditure be made pursuant to a
contractual or similar arrangement is not nullified by section 22 of the Act providing that a
development corporation “is not intended to be and shall not be a political subdivision or a political
corporation within the meaning of the constitution and the laws of the state, including without
limitation Article III, Section 52 . . .” (Vernon 1987). While the legislature may exempt a
development corporation from the application ofother legislative enactments, it has no authority to
exempt a development corporation t?om the application of a constitutional provision. Accordingly,
although a section 4B development corporation is not generally a political subdivision for the
purposes of the statutes and regulations governing “political subdivisions,” see Tex. Att’y Gen. Op.
No. X-109 (1999), section 22 cannot exempt the corporation from the article III, section 52
constraints on expenditure of public moneys.
The Honorable Rene 0. Oliviera - Page 10 (JC-0118)
SUMMARY
Sales and use taxes levied under section 4B of the Develop-
ment Corporation Act of 1979, TEX. REV. Cw. STAT. ANN. art.
5190.6 (Vernon 1987 & Supp. 1999) may only be used for project
costs; they may not be used for “promotional” costs unrelated to
projects.
Attorney General of Texas
ANDY TAYLOR
First Assistant Attorney General
CLARK RENT ERVIN
Deputy Attorney General - General Counsel
ELIZABETH ROBINSON
Chair, Opinion Committee
Sheela Rai
Assistant Attorney General - Opinion Committee