Honorable Thomas B. Sehon Opinion No. JM-1227
District Attorney
Falls County Courthouse Re: Questions regarding ar-
P. 0. Box 413 title III, section 52-a, of
Marlin, Texas 76661 the Texas Constitution
(RQ-1779)
Dear Mr. Sehon:
You ask several questions about a program administered by
the Texas Department of Commerce. Specifically, you ask about a
project proposed by the City of Marlin. See aenerkUy 10 T.A.C.
5 178.13. Your questions arise.because of the following aspect
of the proposed transaction:
[I]f Marlin enters into this arrangement it
would be required to contractually agree with
T.D.O.C. that it would take responsibility
for the creation of the jobs by the private
entity. If the private entity fails or
otherwise is unable to provide the jobs as
stated in its application, the contract
between T.D.O.C. and Marlin would provide
that Marlin would be responsible for repaying
a pro rata portion of the loan based upon the
actual number of qualified jobs which were
created. The program is thus structured as
an indirect loan from T.D.O.C. to the private
entity. However, Marlin would be required in
effect to guarantee the performance of the
private entity. . . . The obligation of
Marlin, if it should ever become due and
owing, would be a general obligation of the
city for which it would be required to levy
taxes, as the City has no other funds avail-
able to make the repayment. Marlin would be
unable to pay the debt out of current-year
funds.
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Honorable Thomas B. Sehon - Page 2 (JM-1227)
You ask first whether article III, sections 51 and 52, and
article XI, section 3, prohibit the city from becoming, in
effect, a guarantor for a private entity.
Article III, section 51, prohibits the legislature from
authorizing a city to grant public money to a private
entity. Article III, section 52, of the Texas Constitution
prohibits the legislature from authorizing a city to lend
its credit to a private entity. Article XI, section 3,
provides in part.
No county, city, or other municipal
oration shall hereafter become a subsczyb?r
to the capital of any private corporation or
association, or make any appropriation or
donation to the same, or in anywise loan its
credit.
The proposal you describe would require the City of Marlin
to serve as a guarantor of the obligations of a private
entity. On its face, such an arrangement would violate
the prohibitions against a city's lending its credit to a
private entity.
In 1987, however,.the voters amended the Texas Consti-
tution by adding the following provision:
Notwithstanding any other provision of
this constitution, the legislature may
provide for the creation of programs and the
making of loans and grants of public money,
other than money otherwise dedicated by this
constitution to use for a different purpose,
for the public purposes of development and
diversification of the economy of the state,
the elimination of unemployment or under-
employment in the state, the stimulation of
agricultural innovation, the fostering of the
growth of enterprises based on agriculture,
or the development or expansion of trans-
portation or commerce in the state.
bonds or other obligations of a coung
municipality, or other political subdivisio;l
of the state that are issued for the purpose
of making loans or grants in connection with
a program authorized by the legislature under
this section and that are payable from ad
valorem taxes must be approved by a vote of
the majority of the registered voters of
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Honorable Thomas B. Sehon - Page 3 (JM-1227)
the county, municipality, or political sub-
division voting on the issue. An enabling
law enacted by the legislature in anticipa-
tion of the adoption of this amendment is not
void because of its anticipatory character.
Tex. Const. art. III, 5 52-a. We think it is clear that
section 52-a was intended by the legislature, and by the
voters who adopted it, to create exceptions to the pre-
existing constitutional prohibitions on the lending of
public credit. See House Research Organization's Special
Legislative Report' 1987 Constitutional Amendments and
Referendum Propositions, August 17, 1987 (specifically
mentioning the provisions of article III, sections 51 and
52, and article XI, section 3, as constitutional impediments
that section 52-a was intended to overcome); See also Texas
Legislative Council Information Report No. 87-2, Analyses of
Proposed Constitutional Amendments and Referenda Appearing
on the November-3, 1987 Ballot, September 1987. Article
III, section 52-a, however, does not itself expand the
authority of cities to lend credit: it merely authorizes the
legislature to do so. Consequently, enabling legislation
would be necessary to authorize the transaction in question.
You suggest that section 481.191(a) of the Government
Code authorizes the transaction. That section, which deals
with the authority of the Department of Commerce, provides:
The department shall, under the federal
Omnibus Budget Reconciliation Act of 1981
. . . administer the state's allocation of
federal funds provided under the community
development block grant nonentitlement
program authorized by Title I of the Housing
and Community Development Act of 1974 (42
U.S.C. section 5301 et seq.).
The subject matter of section 481.191(a) of the Government
Code is the Department of Commerce. It mentions neither
cities nor the lending of credit. We think that if the
legislature intended to expand the authority of cities to
lend credit pursuant to article III, section 52-a, it would,
at the very least, specifically mention cities' lending of
credit, or section 52-a. See. e.a, V.T.C.S. arts. 46d-2,
725d, 8358, 1182m, 6674v.2 (all making specific reference to
article III, section 52-a).
Also, the substance of section 481.191(a) significantly
predates article III, section 52-a. Section 481.191 was
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Honorable Thomas B. Sehon - Page 4 (JM-1227)
moved into the Government Code in 1989 as part of a non-
substantive recodification. Acts 1989, 71st Leg., ch. 4,
5 3.01, at 235. It was derived from former article
4413(301), V.T.C.S., which was enacted in 1987. Article
4413(301) was adopted as part of a bill creating the Depart-
ment of Commerce. Acts 1987, 70th Leg., ch. 374, at 1823.
That bill transferred the administration of the community
development block grant program from the Department of
Community Affairs to the newly-created Department of Com-
merce . & g 1 (section 2.003(b) of the new act); ZB.~
Attorney General Opinion H-1276 (1978) (Department of Com-
munity Affairs has authority to administer program esta-
blished by the Federal Housing and Community Development Act
of 1974). Neither the nonsubstantive recodification nor the
transfer of authority from the Department of Community
Affairs to the Department of Commerce suggests an implicit
intent on the part of the legislature to exercise its
authority under article III, section 52-a.
For the reasons set out above, we conclude that section
481.191(a) does not expand the authority of cities to lend
credit to private entities. You have not suggested to us
any other statute that would authorize the city to parti-
cipate in the proposed transaction.
SUMMARY
Section 481.191 of the Government Code is
not enabling legislation for article III,
section 52-a. of the Texas Constitution.
Jxy&
JIM MATTOX
Attorney General of Texas
MARYEELLER
First Assistant Attorney General
Lou MccREARY
Executive Assistant Attorney General
JUDGE ZOLLIE STEAELEY
Special Assistant Attorney General
RENBA HICES
Special Assistant Attorney General
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Honorable Thomas B. Sehon - Page 5 (JM-1227)
.
RICK GILPIN
Chairman, Opinion Committee
Prepared by Sarah Woelk and William Walker
Assistant Attorneys General
p. 6524