_ December 29, 1988
Honorable Bruce Gibson Opinion No. JM-1000
Chairman
Committee on Financial Institutions Re: Whether a school
Texas House of Representatives district may rent a
P. 0. Box 2910 school building owned
Austin, Texas ,78769 by a nonprofit founda-
tion under certain
circumstances and
related questions
(RQ-1476)
Dear Representative Gibson:
you request an opinion about certain powers of an
independent school district. YOU report that rapid
fluctuations in the population of the district make it
difficult to plan for adequate classroom facilities. YOU
describe the following proposal which the district is
considering to deal with this problem.
To save money and provide higher quality
facilities, the district is interested in
using removable classroom facilities acquired
through a non-profit corporation that will be
created by citizens of the school district to
provide adjunct services to the school dis-
trict as a tax-qualified public foundation.
The district will not be officially involved
in the creation, organization, or operation
of the foundation.
YOU note that two alternative plans are under consideration
using such a foundation to provide for the contemplated
classroom facilities.
The foundation will issue bonds or notes
to acquire a site and construct or install
removable modular classroom buildings. The
bonds or notes will be secured by a deed of
trust lien on the premises and will be pay-
able solely from rentals paid by the district
or a successor tenant or from proceeds of a
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Honorable Bruce Gibson - Page 2 (JM-1000)
sale of the property. The district will rent
the facilities for a one-year term with the
option to extend the tenancy annually for 25
year.s; the district's obligation will be
subject to the budgeting of the necessary
amounts. The district will pay rent monthly
or semiannually in fixed amounts that equal
the amount due in a fiscal year on the found-
ation's bonds plus any insurance and similar
costs. On the date the district ceases to
pay rent or the expiration of 25 years,
whichever comes first, possession of the
property will return to the foundation. The
district believes interest on these bonds is
subject to federal income taxes.
The second plan is the same as the first
except that, before the bonds are issued, the
foundation and district will agree that on
full payment of the bonds the rental
agreement will terminate and the foundation
will convey title to the property to the
district, which will have agreed in advance
to accept the donation of the property. The
board of the school district will adopt a
resolution approving the foundation's pur-
poses and activities and consenting to the
issuance of the foundation% bonds for the
described purposes. Under this plan, the
district believes the bonds can be issued on
a tax-exempt basis under federal law.
We provide you with our opinion on each of the
questions you ask in relation to the plans under
consideration by the district. We have grouped questions
one and two together, along with our answers. Question
three is addressed separately.
(1) May the district, under the law of
this state (including Section 20.48(c),
Education Code), rent a school building owned
by a nonprofit foundation created by
interested citizens under these circumstanc-
es, assuming: (i) the district is not
obligated to pay rent or occupy the premises
beyond the current fiscal year and does not
create a debt: (ii) funds are budgeted for
the year in which the rent is due: and (iii)
the nonprofit foundation retains title to the
facilities?
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Honorable Bruce Gibson - Page 3 (JM-1000)
(2) May the district, under the law of
this state (including Section 23.26, Educa-
tion Code), accept a donation of the property
from the foundation after the bonds are paid
in full?
The trustees of an independent school district have
exclusive power "to manage and govern the public free
schools of the district." Educ. Code 5 23.26; Trustees of
the Index. School Dist. of Cleburne v. Johnson County
Democratic Executive Comm., 52 S.W.2d 71 (Tex. 1932);
Attorney General Opinion JM-531 (1986); see also Attorney
General Opinion M-1047 (1972). The discretion of the
trustees is limited only to the extent that they may not
enter into agreements outside of the governmental purposes
of the district. In other words, every transaction which
they approve must relate to the operation of the public
schools entrusted to their care. See River Rd. Neighborhood
Ass'n. v. South Texas Svorts, 720 S.W.2d 551 (Tex. App. -
San Antonio 1986, writ dism'd; Rovse Indev. School Dist. v.
Reinhardt, 159 S.W. 1010 (Tex. Civ. App. - Dallas 1913, writ
ref'd); Attorney General Opinion M-1047 (1972).
Additionally, the specifically enumerated powers of the
trustees include the power to spend local tax funds for
"renting school houses," Educ. Code § 20.48(c), and to
accept donations. Educ. Code 5 23.26(a). Thus, the
trustees of the school district may arrange to rent portable
classroom buildings and to accept a donation of the build-
ings from a private foundation, subject to the limitations
discussed below.
As a matter of law, an independent school district may
not expend money except according to a budget item adopted
in due course as prescribed by law. Educ. Code 5 23.47(a);
see also 0 4.03(c). Of course, the question of whether the
trustees have properly exercised these powers in relation to
a particular transaction concerning the lease of classroom
space ("school houses") also is in part a question of fact.
See River Road; Rovse Citv, suvra. Thus, whether or not a
lease transaction results in fair value for the school
district is a question of fact which this office cannot
resolve. See, e.g., Attorney General Opinion JM-486 (1986).
You also ask:
Under Section 272.001(b)(5), Local Govern-
ment Code, may the district, without competi-
tive bidding, sell a site for the school
facilities to the foundation for development
in accordance with the rental agreement if
the foundation's bond issue includes, and the
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Honorable Bruce Gibson - Page 4 (JM-1000)
foundation pays to the district, an amount
equal to the fair market value of the
property that will be paid to the district?
An independent school district may sell its land only
if the proceeds of the transfer are used for "the purchase
of more convenient and more desirable school property" or
for "the construction or repairing of school buildings" or
for deposit "to the credit of the local maintenance fund of
the district." Educ. Code 5 23.30 (emphasis added).
Additionally, the property must no longer be needed for
school purposes. Attorney General Opinion O-1570 (1939).
Because, under the facts you have provided, the land in
question will be conveyed to a private party which will
erect structures on it which will be leased back to the
school district and used as classrooms, the district can
hardly claim that the land is "no longer needed for school
purposes." In fact, under such a plan, the land is
precisely needed for school purposes. The district thus
lacks the authority to convey the land to a private
foundation for such purposes. We, therefore, need not reach
questions concerning the application of section 272.001 of
the Local Government Code.
Additionally, several aspects of the proposed
transactions contained in the second proposal raise
questions about the authority of the school district to
proceed with its participation in such a plan. YOU relate
that, under that arrangement, the district, before bonds are
issued by a private foundation, must agree that:
(1) on full payment of the bonds the
rental agreement will terminate and the
foundation will convey title to the property
to the district, which will have agreed in
advance to accept the donation of the
property:
(2) The board of the school district will
adopt a resolution approving the-foundation's
purposes and activities and consenting to the
issuance of the foundation's bonds for the
described purposes.
You cite no authority for the district to enter into
these arrangements, and we can find none. cf. Educ. Code
5 20.48; see also Attorney General Opinion MW-522 (1982).
The transaction which you have described to us requires
the trustees to take action that is beyond the powers bf an
independent school district. The trustees of an independent
school district have the powers expressly conferred on them
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Honorable Bruce Gibson - Page 5 (JM-1000)
by law or necessarily implied from express powers. Harlinaen
Indev. School Dist. v. C. H. Paae & Bros., 48 S.W.2d 983
(Tex. Comm'n App. 1932, judgment adopted). More
specifically, the board of trustees of the district has no
power to approve the organization, purposes, and activities
of a private foundation and "[to
Sf co sent
the foundation's bonds for the described vurvoses. 'I
(Emphasis added.) Thus, we need not consider whether the
district's "consent" to the issuance of bonds by a private
entity may violate article III, section 52(a) of the Texas
Constitution, which forbids independent school districts
from lending public credit to private individuals, associa-
tions, or corporations. We also note that the arrangements
in the proposed second alternative may violate the doctrine
which prevents a political subdivision from entering into
arrangements that would potentially control or embarrass it
in the exercise of its governmental powers. See Clear Lake
Citv Water Auth. v. Clear Lake Utilities Co., 549 S.W.2d 385
(Tex. 1977).
SUMMARY
The board of trustees of an independent
school district may rent classroom space for
fair value in a transaction with a private
foundation. Educ. Code 5 20.48. The board
may accept the donation of portable classroom
buildings from such a foundation. Educ. Code
§ 23.26. An independent school district may
sell its land only if the proceeds of the
transfer are used for "the purchase of more
convenient and more desirable school
property" or for "the construction or repair-
ing of school buildings" or for deposit "to
the credit of the local maintenance fund of
the district." Educ. Code § 23.30. The
trustees of an independent school district
have no power to l'consent" to the issuance of
bonds by a private foundation.
Very-truly yo~fs~
MATTOX
Attorney General of Texas
WARY KELLER
First Assistant Attorney General
LOU MCCREARY
Executive Assistant Attorney General
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Honorable Bruce Gibson - Page 6 (~~-1000)
JUDGE ZOLLIE STEAKLEY
Special Assistant Attorney General
RICK GILPIN
Chairman, Opinion Committee
Prepared by D. R. Bustion, II
Assistant Attorney General
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