THE ATTORNEY GENERAL
OF TEXiQY3
March 23, 1989
Mr. Dennis R. Jones Opinion No. JM-1030
Commissioner
Texas Department of Mental Re: Authority of the Texas
Health and Mental Retardation Department of Mental Health
P. 0. Box 12668 and Mental Retardation to
Austin, Texas 78711-2668 transfer funds for start-up
costs to a private entity
that contracts to provide
community-based services
to clients of the depart-
ment, and related questions
(RQ-1582)
Dear Mr. Jones:
you ask identical questions regarding the authority of
the Texas Department of Mental Health and Mental Retardation
[the Department] and mental health/mental retardation com-
munity centers. We have combined your four questions into
two for the purposes of this opinion.
Do the Texas Department of Mental Health
and Mental Retardation (TDMHRR) and mental
health/mental retardation community centers
established pursuant to article 5547-203,
V.T.C.S. (community centers), have the
authority to pay 'start up costs1 to a non-
governmental entity which has contracted to
provide community-based services to mentally
disabled clients of the department?
If the answer to the first question is
affirmative, and if the funds were expended
by the non-governmental entity for the
purpose of which they were paid, must the
'start up costs' be repaid to the department
or the community center? In responding to
this question, please consider the
possibility that such funds could be used to
purchase or improve real property, or to
purchase furniture, appliances and other
nonconsumable items.
p. 5322
Mr. Dennis R. Jones - page 2 (JM-1030)
We have combined your questions because the considera-
tions are the same: both the Department and community
centers established pursuant to article 5547-203, V.T.C.S.,
are agencies of the state. See aenerallv V.T.C.S. art.
5547-201: V.T.C.S. art. 5547-203, 5 3.01(c). See also
Attorney General Opinions M-1266 (1972): C-584 (1966).
In your letter you explain that the anticipated start-
up costs may be as follows:
purchase or lease of space in which to
protide services;
b. renovation of such space as necessary;
C. payment of utilities for such space;
d. purchase or lease of personal property
such as furniture, appliances, vehicles,
adaptive equipment, training materials and
sheltered workshop equipment;
salaries fringe benefits, travel and
perediem costs &f employees during the period
of training necessary prior to initial
service contact with the disabled persons;
and
f. other costs associated with the pre-
paration to provide services.
The Mental Health and Retardation Act enables both the
Department and community centers to contract with private
parties. The Department * authorized under article
5547-202, section 2.13, V.T.f:S., to "cooperate, negotiate
and contract with local agencies, hospitals, private orsani-
zations and foundations, community centers, phvsicians and
persons to plan, develop and provide community-based mental
health and mental retardation services." (Emphasis added.)
Community centers are similarly authorized under article
5547-203, section 3.12(a), V.T.C.S., to "make contracts with
local agencies and with aualified versons and orcanizations
to provide portions of these services." (Emphasis added.)
you express concern that advance payment of start-up
costs to a non-governmental entity might contravene sections
50 and 51 of article III of the Texas Constitution. Those
sections prohibit the grant of public credit (section 50)
and public monies (section 51) to private individuals or
entities. The Texas Supreme Court has declared that the
P. 5323
Mr. Dennis R. Jones - Page 3 (JM-1030)
purpose of these and similar constitutional provisions is
to "prevent the application of public funds to private
purposes: in other words, to prevent the gratuitous grant of
such funds to any individual or corporation whatsoever."
See, e.a., State v. Citv of Austin 331 S.W.2d 737, 742
(Tex. 1960). The Supreme Court has'also said "an expendi-
ture for the direct accomplishment of a legitimate public
and municipal purpose is not rendered unlawful by the fact
that a privately owned business may be benefited thereby."
Barrincton v. Cokinos, 338 S.W.2d 133, 140 (Tex. 1960).
This office has issued a number of opinions approving
the advance payment of public funds to private parties for
the achievement of a public purpose. See. e.c. Attorney
General Opinions MW-423 (1982) (grant to privke museum
honoring firefighters): H-1010 (1977) (payment of medical
tuition as partial compensation for promise that student
will practice medicine in county); H-74 (1973) (prepayment
of state employees' authorized travel expenses): V-1067
(1950) (advance payment by the state of annual rent on
business machines).
This office has also issued several opinions granting
limited approval of the expenditure of public funds for the
improvement of realty owned by private parties. Attorney
General Opinions JM-551 (1986) (Southwest Texas State
University may expend state funds on permanent improvements
on property held in trust): MW-514 (1982) (Texas Technical
University may expend public funds for permanent improve-
ments on property owned but subject to reverter); H-403
(1974) (Department of Agriculture may expend public funds to
erect, repair or maintain improvements on leased property):
M-512 (1969) (Department of Public Welfare may expend funds
to refurbish a leased building).
The constitutional provisions were exhaustively examined
in the opinions cited above, and we need not reiterate the
logic that allows payment of public funds to private
entities. It is sufficient here to restate the principle
that the constitutional provisions are not violated when
public funds are expended for the achievement of a public
purpose, when the public receives adequate consideration in
return, and when the governmental body retains control over
the use of the funds to ensure that the public purpose is
achieved. See cenerallv Wilatt, Constitutional Restrictions
on Use of Public Monev and Public Credit, 38 Tex. Bar J. 413
(1975); see also Attorney General Opinions JM-551 (1986);
MW-373 (1981).
p. 5324
Mr. Dennis R. Jones - Page 4 (JM-1030)
Generally, the determination of whether a particular
expenditure of public funds meets those constitutional
requirements is left, at least in the first instance, within
the sound discretion of the governing body that proposes to
pay public funds to a private entity. L&&on
118 S.W.Zd 621 (Tex. App. %&?l938, wr:t
f2zEy-l ; Attorney General Opinions 3X-551 (1986): WW-423
(1982): WW-373 (1981); H-1260 (1978); H-403 (1974).
We believe that the legislature has identified the
community placement and treatment of mentally disabled
individuals as a public purpose through its statement of
public policy in several sections of the Mental Health and
Mental Retardation Act. Section 1.01(c) of article
5547-201, V.T.C.S., states in part '*[iIt is the policy of
this state that when appropriate and feasible, mentally ill
and mentally retarded persons shall be afforded treatment in
their own communities,*Iand subdivision (d) of that section
states "[t]he public policy of this state is that mental
health and mental retardation services be the responsibility
of local agencies and organizations to the greatest extent
possible."
The second question, regarding repayment of advanced
funds, is directly related to the constitutional reguire-
ments of consideration and control. As noted above, the
determination of whether or not a transaction fulfills those
constitutional requirements is, in the first instance, with-
in the discretion of the governing body of the political
subdivision or agency.
While we believe that the constitution does not require
total repayment, it does require a quid pro guo. While that
can be accomplished by total repayment, it can also .be
accomplished by contractually guaranteed service for a
certain period of time coupled with forgiveness of a portion
of the amount advanced. See. e.a., Attorney General
Opinions MW-423 (1982) (Historical Commission could grant
funds to private museums, if museum is contractually
required to serve the public for a certain period of time);
H-1010 (1977) (county could advance medical tuition on
condition that student would act as county health officer,
with forgiveness of part of tuition payment after a certain
period of service). As noted in Attorney General Opinion
MW-423 (1982), the period of service required to assure that
the public receives adequate consideration is within the
discretion of the governing body.
You have not provided us with a proposed contract,
and we decline to speculate about possible contractual
P. 5325
Mr. Dennis R. Jones - Page 5 (JM-1030)
provisions. We must leave it within the discretion of the
Commissioner of Mental Health and Mental Retardation and the
board of trustees of a community center to assure that the
constitutional requirements of consideration and control are
met. Of course, all transactions are subject to applicable
statutes and departmental rules.
SUMMARY
The Texas Department of Mental Health
and Mental Retardation and mental health/
mental retardation community centers may
contract with private parties to plan and to
provide for community-based services to
mentally disabled clients. Both the Depart-
ment and community centers may pay "start-up
costs" to non-governmental parties, provided
that the public receives adequate considera-
tion and the governmental body retains enough
control over the expenditure of the funds to
assure that the public purpose of community-
based mental health/mental retardation
services is actually fulfilled.
JIM MATTOX
Attorney General of Texas
MARY KELLER
First Assistant Attorney General
Lou MCCREARY
Executive Assistant Attorney General
JUDGE ZOLLIE STEAELEY
Special Assistant Attorney General
RICK GILPIN
Chairman, Opinion Committee
Prepared by Karen C. Gladney
Assistant Attorney General
p. 5326