, .
July 26, 1974
The Honorable James H. Harwell Opinion No. H- 357
Executive Director
Taxaa Industrial Commission Re: May a city purchase
Box 12728, Capitol Station property for industrial
Austin. Texas 78711 development by giving a
note to be repaid out of
the revenues generated
by the property.
Dear Mr. Harwell:
You ask whether a city may purchase property to be used by
private industry by giving a note to be repaid out of the revenues
generated by the property and without any further liability on the city’o
part. Appartntly the United Staten harr discontinued its use of one or
more tract8 of land and har indicated a willingners to sell the properties
to a Texan city. You ask whether the city might effect the purchase
by giving:
c
. . . a promirrory note in an amount equal to the
total conrideration for the sale, payable to the
appropriate agency (or the United Staten) bearing
a negotiated rate of interest payable on negotiated
terms, but expressly providing no liability on the
part of the City be transacted including:
a. Term6 that call for repayment out of rents and
sale of such land and improvements.
b. Appropriate release clausee, and.other mort-
gages, deeds of trust. and customary security devices.
p. 1679
The Honorable James H. Harwell page 2 (H-3571
A home rule city’s power to purchase.land emanatea from Article
XI, 0 5 of the Texas Constitution which provide8 cities of more thani
5.000 inhabitants with authority to adopt or amend their charters in
any manner not inconsistant with the Constitution and subject to s&h
limitations arr may be prescribed by the legirlature. Thus if a city’s
charter provider for general power to purchase land this power can
be exercieed subject only to whatever constraints are imposed by the
Constitution and any relevant legislative enactments. Davis v. City of’
Taylor, 67 S. W. 2d 1033 (Tex. 1934); and Miller v. Uvalde Co., 20
S. W. 2d 403 (Tex. Civ. App., San Antontio, 1929, writ dirm.).
The Legislature has specifically approved of city purchases of
land for certain public purposes. Art. 1175, V. T. C. S. Under this
provision land may be purchased for water work8 (gll), “electric
lighting plant, telephone, street railways, scwcrage planta. fertilizing
planta. abattoir, municipal railway terminals, docks, wharfs, ferries,
ferry landings, loading and unloading devices and shipping facilities,
or any other public service or public utility” ($131. Unquestionably,
then, the purchase of land for these and similar “public purpoae,a” in
within a city’s power under the Conetitution.
But the city with which you are concerned propoeee to purchase
land which will ultimately be used by private industry. Article 3. § 52
and Article 11, 5 3 of the Texan Constitution provide in pertinent part:
Art. 3, 5 52 (a) Except ae othcrwiee provided by
this section, the Legislature shall have no power
to authorize any county. city, town or other political
corporation or subdivision of the State to lend its
credit or to grant public money or thing of value
in aid of, or to any individual, association or
corporation whatsoever, or to become a atock-
holder in such corporation, association or compa-
ny . . . .
Article 11, Sec. 3. No county, city or other
municipal corporation shall hcrcafter become
p. lb80
.
The Honorable James H. Harwell, page 3 (11-357)
a subscriber to the capital of any private corpora-
tion or association. or make any appropriation or
donation to the s&me, or in anywise loan its credit;
but this shall notbe construed to in any way affect
any obligation heretofore undertaken pursuant to law.
These provisions of the Texas Constitution expressly proscribe the
lending of a city’s credit to a private corporation. A statute authoriiing
the purchase of land for industrial development, Art. 5190.1, V. ‘I. C. S.,
has previously been cited to this Office in support of a transaction similar
to the one before us now. But this Office refused to approve bonds issued
pursuant to that statute on the ground that the statute violated both of
the above quoted constitutional provisions insofar as it authorized a city
to purchase land for industrial development. On December 19. 1973, the
Supreme Court overruled the City’s motion for leave to file a petition for
mandamus requested by the City of McAllen to compel approval of the
bonds. City of McAllen v. Hill, NO. B-4315, (17 Tex. Sup. Ct. J. p. 128).
In that case it was the position of this Office that revenue bonds
issued to purchase industrial property were without constitutional sanctton,
even though the City expressly was not and could not be liable on the bonds.
We referred the Supreme Court of Texas to Village of Moyie Springs,
Idaho v. Aurora Manfacturing Company, 353 P. 2d 767 (Idaho 1960). Con-.
struing an I&ho statute similar to Article 5190.1. V. T. C. S., the Idaho
Supreme Court said:
Article 8. §4, of our Constitution, supra,
goes further and is more restrictive in its
scope than either ‘art. 8, 93, or art. 12. 54.
It declares that no municipality ‘shall lend,
or pledge the credit or faith thereof directly
or indirectly, in any manner, to, or in aid
of any individual, association or corporation,
for any amount or for any purpose whatever.’
p. 1681
. .
The Honorable James H. Harwell page 4 (H-357)
It cannot be questioned that the purpose of the
act now before the court and the ordinance enacted by
the plaintiff village pursuant thereto is to lend the
credit and faith of the municipality in aid of the
defendant corporation. In fact, that is the purpose
expressed by the legislature in its declaration of
intent, to-wit: ‘inducing manufacturing, industrial
and commercial enterprises to locate or expand in
this State. ’
We are aware of decisions in other states
upholding similar legislation. We have conridered
the following: Village,of Deming v. Hosdreg Co.,
62 N.M. 18, 303 P. 2d 920; McConnell v. City of
Lebanon, Tenn., 314 S. W. 2d 12;Bennett v. City
of Mayfield, KY., 323 S. W. 2d 573: Holly v. City
of Elisabethton, 193 Tenn. 46, 241 S. W. 2d 1001;
Albritton v. Winona. 181 Miss. 75, 178 So. 799,
115 A. L. R. 1436; In re Opinion of the Justices, 256
Ala. 162. 53 So. 2d 840.
Some of these decisions are distinguishable
from the present case by reason of differences in
the constitutional provisions involved. But we
respectfully disagree with the reasoning by which
the conclusion is reached in others, that projects
such as we have here do not constitute a lending
of the.credit of the municipality. Such decisions
read like apologies to constitutional limitations,
dictat~ed by expediency.
It is obvious that one of the prime purposes of
having the necessary bonds issued by and in the name
of a municipality is to make them more readily salable
on the market. Thus. the credit of the municipality
is extended in aid of the project, regardless of the
limitations placed upon the remedy of the purchaser . . . .
(353 P. 2d at 772)
p. lb82
The Honorable James H. Harwell page 5 (Ii-357)
It is our opinion that the same arguments which condemned the
‘revenue bonds proposed by the City of McAllen equally condemn the pro-
misaory note proposed by the city in question here insofar as such a note
would be used to purchase land for private industrial use. Even though
the city would not be liable on the note given to purchase the land, the
land when so purchased would be the city’s as would be the revenues gene-
rated by it. The note would be the city’s as would be the credit on which
it was issued. In short, we do not see how the property can be acquired
in the manner and for the use proposed without violating the Texas Constitu-
tion.
We do not attempt to imply that all dealings with private corpora-
tions of the general type you envision are invalid per se by force of Article
3 § 52 and Article 11 5 3. The credit clauses do not prohibit dealings
with private corporations and associations so long as a legitimate public
purpose is served, but it is not considered a public purpose within this
legal context, when’municipal’ciedit is used to’obtain for the community and
its citizens the general benefits resulting from the operation of a private
industry. Barrington v. Cokinos, 338 S. W. 2d 133 (Tex. 1960); and
Bland V. City of Taylor, 37 S. W. 2d 291 (Tex. Civ. App., Austin, 1931),
affirmed sub. nom., Davis v. City of Taylor, 67 S. M? 2d 1033 (Tex. 1934).
SUMMARY
It is not constitutionally permissible for a city to
purchase land for future industrial development by
means ofa promissory note to be paid out of revenues
generated by the land without recourse to the city when
the benefit to the public from such a purchase is such
benefit as may be derived from the attraction of new industry.
Very truly yours, ’
p. lb83
The Honorable James H. Harwell page b (H-357)
LARRY v Yk
u‘
DAVID M. KENDALL,
Opinion Committee
Chairman
1g
p. lb84