Untitled Texas Attorney General Opinion

THE ATFORNEY GENERAL OF??EXAS AU~-MN.TEXA~ 78711. Cxa*WPoRD c. MARTlN June 29, 1970 Hon. George Ii. McNlel Opinion No. M- 656 State Auditor Sam Houston State Office Re: Several questions relating Building to Special 0ptioW:Purchase Austin, Texas Agreement covering certain data processing equipment between the Texas State Department of Agriculture and International Business Dear Mr. McNlel: Machines Corporation. You have requested our opinion as to the legality of certain terms of a proposed agreement between the Texas State Department of Agriculture and International Business Machines Corporation. Your specific questions are as follows: "1. Paragraph 4, Page 4. Under the Con- stitution and Statutes of the State of Texas, may an Installment plan extend from the fiscal year of 1969-1970 through land Including the 1974-1975 fiscal year? "2. Paragraph 2, Page 4. May the State, In addition to the Total Sales Price, pay a Special Option Purchase Fee for the privilege of making periodic payments that are less the normal rental charges for such equipment? "3. Paragraph 5> Page 4. In the light of Paragraph 3, Qeneral Section, Page 5, re- lating to ad valorem taxes, does title to the equipment pass to the State prior to completion of all periodic payments? "4. Paragraph 5, Page 4. Is the clause 'In the event that partial or total loss of the machines is incurred, the net total of periodic payments will be Immediately due and payable', in conflict with any creation of debt provisions of the State of Texas?" -3141- Hon. Qeorge W. McNlel, Page 2 (M-656) Section 49 of Article III of the Constitution of Texas provides: “No debt shall be created by or on be- half of the State, except D . .’ (Exception not applicable.) In view of the provisions of Section 49 of Article III, DrODOSed contracts Dayable out of future revenues are Invalid. ?haEles Scrlbner’s sons v. Marrs, 114 Tex. 11, 262 S.W. ?22 (1924); port Worth Cavalry Club V. Sheppard, 125 Tex. 339, 83 S.W.2d 660 935 I Ii bll tl th rare current with revenues are not debts wio%~~~h~ rne%nplf S&tlon 49 of Article III. Charles Scrlbner’s Sons v. Marrs, su ra; City of Big Spring v, Board of Control, 404 S W 2d m (T&p >gbb) Therefore a contract that -not obligit; the State beyo;d the ~vallablllty of the funds appropriated by the Legislature will not create a debt In vlolatlon of Section 49 of Article III of the Constitution of Texas. Charles Scrlbner’s Sons v. Marrs, supra; City of Big . Board of Control, supra; Att General ‘8 Opinions M > W-424 DYM J, and V -1363 ‘T:;:l) . The proposed contract submitted with your request contains provisions stating that: “Notwithstanding the foregoing, if the legislative body appropriating funds for the Purchaser does not allocate funds for such Periodic Payment for any future Fiscal Period, the.Purchaser will not be obligated to pay the Net Total of Periodic Payments remaining un- paid ;eyond the then current, Fiscal Period. e s D In view of the above quoted provisions the State Is not obligated by the contract to expend any moneys beyond current revenues, and therefore such contract does not create a debt In violation of Section 49 of Article III of the Constitution of Texas. In Clty of Big Spring v. Board of Control, 404 S.W.2d 810 : (_Tex.Sup. 196b), an attack was made on the valldlty of a contract for a supply of water to the State because the term of the contract was beyond current appropriations. In regectlng this contention the Supreme Court stated: “The contention that the purchase contract was Invalid because there then existed no legls- latlve appropriation to pay for the water to be -3142- : . Hon. George W. McNfel, page 3 (M-656) furnished In the future fs answered by thfs Court's opfnfon fn Charles Scrfbner's Sons v. Marrs, 114 Tex. 11, 262 S,W. 722 (1924). In that case an attack was made on an order of the State Textbook Commission purchasing certain textbooks for the public schools of Texas from Scribner's Sons, Among other objections ft was urged that the contract to buy textbooks for a five-year period was.invalid because It was for longer than the two-year perfod of legislative approprlations'and created a debt which could not be paid for out of reserves for the biennium in whfch created. This Court safd: "'This contract obligates the state to ln- trod&e Into and u8e relator's books In the public free schools for a period of five years. It ob- ligates relator to furnish, offer, and sell these books to the state each year for ffve years> upon the requisition of the school authorftles each year for such books as may be needed. Payment for them 1s to be made out of the current fund each year as they are purchased, The obligation ~of the contract 1s not to buy a fixed number or amount of books9 but only so many as are needed by the schools of the state, Llabflity Is fixed' " * only for such amounts as are requisitioned by the trustees of the schools. The number of books pur- chased for any year and the amount of money ap- plied thereto is wholly withfn the control of the school authorftfes. "sThe contract 9s for uniform text-books for a period of five years, No quantity 1s stipulated and no promfse to pays only an agreement to use ths books fn the schools., The statute and the contract provfde that no debt is created, The obligation to pay arises only upon the purchase and delivery of books for the year ,when heeded, and according to the purchase. The books so furnished and so purchased during any year do not make a charge on the ,future resources of the state, but are paid for each year as the pur- chases are made.' "This court quoted from the case, of City of Tyler v, L, L, Jester & Co., 97 Tex. 344, 78 S.W. 1058 (1904), fn which a long-term water -3143- . . Hon. Qeorge W. McNlel, page 4 (M-656) purchase contract was attacked: ‘The making of a contract for water for a number of yearg,to be delivered In the future did not create a debt against the city, but the liability of the city arose,;pon the use by It of the water during each year. The Court then concluded: “The contract of the Board of Control with the City of Big Spring 1s a valid contrazt and Is not subject to the attack made on It. Under the contract Involved In City of Big Spring v. Board of Control, supra, the city agreed ito furnish water at a fithe xe State of Texas shall in ood faith maintain and operate said hospital on said site.” Referring to Big Spring State Hospital.) In view of the foregoing your questions are answered as follows: An installment plan may ,extend from the f,iscal year 1969-&o through and Including 1974-1975, provided no obllgatfon exists to expend moneys beyond current revenues. 2. The State may, in addition to the’Tota1 Sales Price, pay a Special Option Purchase Fee for the privilege of making periodic payments that are less the normal rental charges for such equipment. 3. The contract specifically provides: “Title to the machines and any replacements and additions shall remain In IBM and assigns untll,,the Total Option Sale Price 1s fully paid. . . . Therefore, title to the equipment does not pass to the State until the Total Option Sale Price Is fully paid. 4. Since all moneys that become due and payable will be payable from current revenues available at the time such ob- ligation is due, no debt Is created. Charles Scrlbner’s Sons v. Marrs, supra; City of Big Spring v. Board of Control, supra. -3144- Hon. George W. McNiel, page 5 (M-656) SUMMARY A proposed Specfal Option Purchase Agree- ment between the Texas State Department of Ag- riculture and International Business Machines Corporation does not create a debt in violation of Section 49 of Article III of the Constitution of Texas for the reason that there is no obliga- tion to expend moneys beyond revenues available at the tfme the oblfgatlon 1s due and payable. General of Texas Prepared by John Reeves Assistant Attorney General APPROVED: OPINION COMMITPEE Kerns Taylor, Chairman W. E. Allen, Co-Chairman Milton Richardson Jack 5oodman Ivan Williams Gordon Cass MEADEF. GRIFFIN Staff Legal Assistant ALFREDWALEER Executive, Assistant NOLAWHITE First Assistant -3145-