THE ATIYBRNEY GENERAL
OF mXAs
Honorable Harry P. Burleigh Opinion No. M-1157
Executive Director
Texas Water Development Board Re: If the Texas Water Quality
P. o. Box 13087 Board and the Texas Water
Austin, Texas 78711 Development Board jointly
agree to amend Section
300.1 to authorize the
purchase of Certificates
of Obligation, may such
securities be delivered by
an applicant to the Texas
Water Development Board for
cash, which transaction will
secure the maximum Federal
Dear Mr. Burleigh: grant?
In your opinion request you state that a city has made
application to the Board for financial assistance under the
provisions of subchapter I, Chapter 21, Texas Water Code, by
requesting the Board to purchase its Certificates of Obligation.
It is the Board's position that since the Certificates are
securities other than Bonds, it is prohibited from purchasing
them by Section 300.1 of the Joint Rules, Regulations, &
Policies of the Texas Water Quality Board and Texas Water
DeveloDment Board exceot under conditions that are not met by
the applicant.
You have requested our opinion on whether your rules could
be amended to authorize this purchase.
The Certificate of Obligation Act of 1971, Article 2368a.1,
Vernon's Civil Statutes, was enacted to provide a simplified
version of the Bond and Warrant Law of 1931, (Article 2368a,
V.C.S.). The basic authorization of the Act, like that of the
Bond and Warrant Law, is an exchange of certificates for claims
of contrac,torsincurred in the construction or acquisition of
public projects.
Section 5 of Article 2368a.l requires the claimant to
elect whether to receive the Certificates themselves or under
Section 5 (ii) to sell and assign them to someone else and
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Honorable Harry P. Burleigh, page 2,(M- 1157)
receive cash. The only times the issuer may sell the certificates
for cash are those limited instances forth in Section 7 of
the Act.
A sale of the City's Certificates of Obligation to the
Board for cash is therefore prohibited by Article 2368a.1,
unless the proceeds are to be used for the purposes enumerated
in Section 7 thereof.
If the claimant elects to assign his certificates under
Section 5 (ii), can the Board purchase the assigned certificates?
In our opinion, it cannot.
Section 5 (ii) states:
"or (ii) that the governing body of any issuer
has made provision for the contractor to sell and
assign such certificates to another... (Emphasis
Zi3TT)
Article III, Section gd-l(a) of the Texas Constitution is
the authority for the Board to make loans of state funds for
water quality enhancement and it authorizes only, "loans to
political subdivisions". This limitation is carried forward
into Section 21.603 of the Water Code. See also our opinion
number M-1070 (1972) holding that financial assistance can
only be given to political subdivisions.
Further evidence of the intention of the Legislature on
this point is the language of Sections 21.609(h) and 21.612
of the Water Code. These sections read as follows:
Section 21.609(h)
"The Texas Water Development Board shall
establish within funds previously created appropriate
accounts for separate handling of money derived from
payment of interest of and principal on bonds and
other obligations purchased from political sub-
divisions and repayment of direct loans made to
politica subdivisions." (Emphasis added.)
Section 21.612
"When bonds or other obligations are purchased...
...water quality enhancement funds shall be delivered
to the political subdivisions entitled to receive
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Honorable Harry P. Burleigh, page 3,(M-,1157)
them and shall be used only to pay for construction
costs of treatment works approved as provided in
this subchapter..." (Emphasis added.)
In this instance the issuer is simply accomodating the
contractor in securing a market for his certificates. The
certificates are delivered to the contractor and title passes
to him. If he elects to "sell and assign" them to another,
this is a transaction by the contractor in the secondary
market and any money received must be delivered to the con-
tractor. In this case, the Board would not be purchasing
the certificates from the issuer because title to the
certificates would be in the contractor or claimant.
SUMMARY
The Texas Water Development Board and the Texas
Water Quality Board cannot amend their joint rules
and regulations to authorize the purchase of Certificates
of Obligation except in those instances where the
proceeds are to be used for the purpose enumerated
in Section 7 of Article 2368a.1, V.C.S.
Prepared by Marvin F. Sentell
Assistant Attorney General
APPROVED:
OPINION COMMITTEE
Kerns Taylor, Chairman
W. E. Allen, Co-Chairman
Robert B. Davis
John Reeves
Roger Tyler
Roland Allen
SAMUEL D. MCDANIEL
Staff Legal Assistant
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Honorable Harry P. Burleigh, page 4,(M- 1157)
ALFRED WALKER
Executive Assistant
NOM WHITE
First Assistant
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