Untitled Texas Attorney General Opinion

ATTORNEY GENERAL OF TEXAS
GREG ABBOTT

August 3 1,2006

TheHonorable
TroyFraser Opinion No. GA-045 1
Chair, Committee on Business and Commerce
Texas State Senate Re: Whether the Lake LBJ Municipal Utility
Post Office Box 12068 District No. 2 is eligible for dissolution under
Austin, Texas 78711 Water Code section 49.321, which permits the
Texas Commission on Environmental Quality
to dissolve inactive municipal utility districts
(RQ-0441 -GA)

Dear Senator Fraser:

You ask on behalf of the Lake LBJ Municipal Utility District No. 2 (the “District”) whether
the District is eligible for dissolution under Water Code section 49.321, which permits the Texas
Commission on Environmental Quality (the “TCEQ”) to dissolve an “inactive” municipal utility
district.’ You also ask two contingent questions that are dependent on a conclusion that the District
is not eligible for dissolution under section 49.321. See Request Letter, supra note 1, at 1.

You have attached a letter from the District, which outlines the specific questions. See id.
In that letter, the District informs us that it is a conservation and reclamation district formed under
the authority of Water Code chapters 49 and 54 and created for the purposes of financing, owning,
and operating a centralized wastewater collection system for the District’s residents and property
owners.* Relevant to the question, the District also informs us that even though it has acquired land
for the project, levied a maintenance tax, and secured bond approval from district voters to pay for
some of the project’s costs, the wastewater collection system “is impracticable and cannot be
successfully and beneficially accomplished[.]” Id. at 2. And since its first elections in January of
2001, the District has not provided any wastewater services. See id. Therefore, the District’s board
of directors intends for the District to be dissolved. See id. at l-2.

‘See Letter from Troy Fraser, Chair, Committee on Business and Commerce, Texas Senate, to Honorable Greg
Abbott, Attorney General of Texas (Feb. 6, 2006) (on file with the Opinion Committee, also mailable at
http://www.oag.state.tx.us) [hereinafter Request Letter].

*See Letter from Charles Danner, President, Lake LBJ Municipal Utility District No. 2, to Honorable Troy
Fraser (Jan. 17, 2006) (submitted as part of Request Letter, on file with the Opinion Committee, also mailnble af
http://www.oag.state.tx.us) (hereinafter District Letter).
The Honorable Troy Fraser - Page 2 (GA-045 1)

Water Code section 49.321 permits the TCEQ, after notice and hearing, to “dissolve any
district that is inactive for a period of five consecutive years and has no outstanding bonded
indebtedness.” TEX. WATER CODE ANN. 5 49.321 (Vernon 2000) (emphasis added). The District
questions whether, despite the actions it has taken, it has been “inactive” as this term is used in
section 49.321 such that it would be eligible for dissolution under that provision. See District Letter,
supra note 2, at 2-3.

The TCEQ has an established procedure for an “inactive” water district to seek dissolution
under Water Code section 49.321. See 30 TEX. ADMIN. CODE 5 293.131 (2006) (Tex. Connn’n on
Envtl. Quality, Authorization for Dissolution of Water District by the Commission). Pertinent here,
the rules that govern the procedure require a district seeking dissolution under section 49.321 to file
“a statement that the district has been ‘financially dormant’ for the preceding five-year period .”
Id. 3 293.13 l(B). Under Water Code section 49.197, “[a] financially dormant district is a district
that had . . . $500 or less of receipts from operations, tax assessments, loans, contributions, or any
other sources during the calendar year. or no cash or investments that exceeded $5,000 at any time
during the calendar year .” TEX. WATER CODEANN. 5 49.197 (Vernon 2000). Thus, the TCEQ
has, in effect, defined “inactive” to require a district’s financial dormancy. Here, the District tells
us that it will have between $100,000 and $300,000 in its operating fund that represents excess
maintenance and operation taxes that it has been collecting since 2001. See District Letter, supra
note 2, at 4; see also TEX. WATER CODE ANN. § 49.107 (Vernon Supp. 2005) (authorizing water
districts to levy an operation and maintenance tax). This means that the District is not financially
dormant. Consequently, the District is precluded by TCEQ rule from seeking dissolution under
Water Code section 49.321.

We therefore answer your contingent question. If the District cannot proceed under section
49.321, it informs us that it will dissolve itself according to Water Code section 54.734. See District
Letter, supra note 2, at 3. Section 54.734 permits a municipal utility district that has not issued
“bonds, notes, or other indebtedness” to “dissolve the district and liquidate the affairs of the district
as provided by Sections 54.734-54.738 of [the Water Code].” TEX. WATERCODEANN. 5 54.734(a)
(Vernon 2002). The District would like to refund to its taxpayers the excess tax monies the District
has collected, and it suggests that the liquidation authority provided for in section 54.734 implicitly
authorizes it to do so. See District Letter, sup-a note 2, at 3. The District asks us, in essence, if
section 54.734 does indeed authorize the District to refund its excess taxes on its initiative. See id.

Various types of water districts have in their specific statutes authority to voluntarily order
dissolution. See, e.g., TEX. WATERCODEANN. 5 51.781 (Vernon 2002) (providing for water control
and improvement district’s dissolution), 5 5 57.321 (providing for levee utility district’s dissolution),
58.781 (Vernon 2004) (providing for irrigation district’s dissolution). In certain instances, where
dissolution authority has been granted to other types of water districts, the legislature has provided
specific procedures that such a water district must follow to distribute excess taxes upon dissolution.
For example, if a water control and improvement district has collected taxes in excess of the amount
required to liquidate its obligations, the district is specifically required to pay the excess “ratably to
the county treasurer or treasurers ofthe county or counties in which [it] was located.” Id. 5 51.791
(Vernon 2002). And in another instance, a commissioners court is required-upon the voluntary
The Honorable Troy Fraser - Page 3 (GA-045 1)

dissolution of a levee improvement district-to “order returned to the taxpayers ratably any unspent
taxes that have been levied and collected in the name of the district in anticipation of an issue of
bonds.” Id § 57.323 (Vernon 2004).

In the case of a municipal utility district, the legislature has expressly conferred on it the
power to voluntarily dissolve itself and the duty to liquidate its affairs if the District does dissolve
itself. Id. 5 54.734 (Vernon 2002). And the legislative requirement to liquidate its affairs creates
for the District a plain duty to, among other things, dispose of its assets. See Farmers State Bank
and Trust Co. v. Brady, 152 S.W.2d 729,732 (Tex. 1941) (bank commissioners’ duty to “liquidate
the affairs” of an insolvent bank was not fulfilled until the bank’s assets had been disposed of and
the proceeds delivered to those legally entitled to them). But there is no specific procedure in Water
Code chapter 54 for a municipal utility district to, upon dissolution, dispose of assets like excess
taxes. See TEX. WATERCODEANN. @ 54.001-,813 (Vernon 2002 & Supp. 2005).

You ask specifically about the District’s authority upon dissolution to refund excess taxes
to its taxpayers. See District Letter, supra note 2, at 1-3. In one instance, the legislature has
considered refunding to taxpayers excess taxes upon a levee improvement district’s dissolution to
be an appropriate method of liquidating that type of water district’s affairs. See TEX. WATERCODE
ANN. 5 57.323 (Vernon 2004). We can find nothing that would bar the District from choosing this
particular method of liquidating its affairs upon dissolution. And in refunding the excess taxes, the
District will be conforming to a policy of the Water Code as evidenced by section 57.323. Thus, in
answer to your second question, we conclude that upon dissolution the District, at its discretion,
might choose to refund excess taxes to its taxpayers in order to accomplish an express duty conferred
on it by the legislature.

Because we have determined that the District has the authority to return excess taxes to the
district’s taxpayers, we address its last question, which was contingent on this result. The district
asks last about the proper method for refunding taxes upon dissolution. See District Letter, supra
note 2, at 4. As we have said, the legislature has left it to the District to decide the proper method
of liquidating its affairs upon dissolution. To the extent the District wishes to accomplish that by
refunding excess taxes, then it is for the District to determine the proper method, considering
relevant facts and consistent with the constitution and other statutory law, and subject to judicial
review. It is not within the purview of an attorney general opinion to make such determinations for
a governmental body with this type of discretionary authority. See Tex. Att’y Gen. Op. No. GA-
0353 (2005) at 5 (concluding that where a commissioners court had discretionary authority to
apportion certain funds to a hospital district, it was for the commissioners court and not an attorney
general opinion to determine the appropriate method for apportioning those funds).
The Honorable Troy Fraser - .Page 4 (GA-045 1)

SUMMARY

The Lake LBJ Municipal Utility District No. 2 is ineligible
by operation of Texas Commission on Environmental Quality rule
for dissolution under Water Code section 49.321. If the District
dissolves itselfunder Water Code section 54.734, which provides for
voluntary dissolution, then it may refund excess taxes to its taxpayers
in order to accomplish the District’s duty to liquidate its affairs upon
dissolution. If the District chooses upon dissolution to distribute
excess taxes to its taxpayers, then the District is responsible for
creating a method by which the taxes are returned to its taxpayers.

Attomaeral of Texas

KENT C. SULLIVAN
First Assistant Attorney General

ELLEN L. WITT
Deputy Attorney General for Legal Counsel

NANCY S FULLER
Chair, Opinion Committee

Daniel C. Bradford
Assistant Attorney General, Opinion Committee